# GE HealthCare Technologies Inc. (GEHC) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from GE HealthCare Technologies Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1932393/000193239324000013/gehc-20231231.htm
Accession: 0001932393-24-000013
Filing date: 2024-02-06
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/GEHC/
All MD&A years: /company/GEHC/mda/
Previous year: /company/GEHC/mda/fy2022/ (FY 2022)
Next year: /company/GEHC/mda/fy2024/ (FY 2024)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[[GREPCENT_TABLE]]
[["Part II. Financial Information"],["Index"],["Item 7. Management\u2019s Discussion and Analysis of Financial Condition and Results of Operations (\u201cMD&A\u201d)","Page"],["Trends and Factors Impacting Our Performance","48"],["Summary of Key Performance Measures","49"],["Results of Operations","50"],["Results of Operations \u2013 Segments","53"],["Non-GAAP Financial Measures","54"],["Liquidity and Capital Resources","58"],["Recently Issued Accounting Pronouncements","59"],["Critical Accounting Estimates","59"]]
[[/GREPCENT_TABLE]]

47

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated and combined financial statements and corresponding notes included elsewhere in this Annual Report on Form 10-K. The following discussion and analysis provide information management believes to be relevant to understanding the financial condition and results of operations of GE HealthCare Technologies Inc. (“GE HealthCare,” the “Company,” “our,” or “we”) for the years ended December 31, 2023 and 2022. For additional information on the year ended December 31, 2021 and year-over-year comparisons to December 31, 2022, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. This discussion contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed below and elsewhere in this Annual Report on Form 10-K, and particularly in Item 1A. “Risk Factors”. Actual results may differ materially from these expectations; see “Forward-Looking Statements.”

The following tables are presented in millions of United States (“U.S.”) dollars unless otherwise stated, except for per-share amounts which are presented in U.S. dollars.

Unless the context otherwise requires, references to “GE HealthCare,” “we,” “us,” “our,” and the “Company” refer to (1) General Electric Company’s (“GE’s”) healthcare business prior to the previously announced spin-off of the Company on January 3, 2023 (the “Spin-Off”) as a carve-out business of GE with related combined financial statements and (2) GE HealthCare Technologies Inc. and its subsidiaries following the Spin-Off with related consolidated financial statements.

GE HealthCare’s operations are organized and managed through four reportable segments: Imaging, Ultrasound, Patient Care Solutions (“PCS”), and Pharmaceutical Diagnostics (“PDx”) and we evaluate their operating performance using revenue and Segment EBIT. For additional information on the nature of our business see Item 1. “Business.”

TRENDS AND FACTORS IMPACTING OUR PERFORMANCE

We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and particularly in Item 1A. “Risk Factors.”

KEY TRENDS AFFECTING RESULTS OF OPERATIONS.

Manufacturing, Sourcing, and Supply Chain Management

Our suppliers must provide us with quality products in substantial quantities, in compliance with regulatory requirements, at acceptable costs and on a timely basis. Trends affecting the supply chain for the previous two years include the impact of increasing prices of labor and raw materials, limitations on capacity, and increased cost of shipping. While we have seen some easing of these pressures in 2023, continued cost inflation or the return of material scarcity in our supply chain could have adverse impacts on our future results.

Russia and Ukraine Conflict

We had $153 million and $143 million of assets in, or directly related to, Russia and Ukraine as of December 31, 2023 and December 31, 2022, respectively, none of which are subject to sanctions that impact the carrying value of the assets. We generated revenues of $340 million and $395 million from customers in these two countries for the years ended December 31, 2023 and December 31, 2022, respectively. The potential inability to repatriate earnings from these two countries will not have a material impact on our ability to operate.

We continue to monitor the effects of Russia’s invasion of Ukraine, including the consideration of financial impact, cybersecurity risks, the applicability and effect of sanctions, and the employee base in Ukraine and Russia. In May 2023, the U.S. Department of Commerce implemented expanded measures that require us to obtain a license for the export, re-export, or transfer of specified medical equipment and spare parts to customers in Russia. The European Union and other countries have also expanded licensing requirements for certain spare parts and other items. We have successfully applied and continue to apply for the licenses required to supply to these customers. The implementation of these measures affected our ability to supply customers in Russia during the last three quarters of 2023 and will continue to do so as we continue to obtain licenses. There is no guarantee we will obtain all of the licenses for which we applied, that any approvals we obtain will be on a timely basis, or that our business in Russia will not be further disrupted due to evolving legal or operational considerations. The Board, together with management, will continue to assess whether developments related to the conflict have had, or are reasonably likely to have, a material impact on the Company.

Seasonality

Our revenues and operating profits vary from quarter to quarter. Revenues in the fourth quarter have historically been higher than in other quarters due to the spending patterns of our customers. In addition, cash from operating activities is typically higher in the fourth quarter sequentially as inventories are lower as a result of higher revenues.

48

OPERATION AS A STAND-ALONE COMPANY.

Financial Presentation Under GE Ownership

GE HealthCare utilized allocations and carve-out methodologies through the date of the Spin-Off to prepare historical combined financial statements. The combined financial statements herein for periods prior to the Spin-Off may not be indicative of our future performance, do not necessarily include the actual expenses that would have been incurred by us, and may not reflect our results of operations, financial position, and cash flows had we been a separate, stand-alone company during the historical periods presented. For additional information, see Note 1, “Organization and Basis of Presentation” to the consolidated and combined financial statements.

Stand-Alone Company Expenses

As a result of the Spin-Off, we are subject to the requirements of the federal and state securities laws and stock exchange requirements. We have established additional procedures and practices as a stand-alone public company. As a result, we have and will continue to incur additional costs related to external reporting, internal audit, treasury, investor relations, Board of Directors and officers, and stock administration.

Pension and Other Benefit-Related Liabilities

In connection with the Spin-Off, on January 1, 2023, GE HealthCare assumed a net postretirement benefit obligation of $4,045 million, in addition to the existing GE HealthCare net postretirement benefit obligation of $278 million, for a total net obligation of $4,323 million.

The value of the assets and liabilities as of December 31, 2023, including the plans sponsored by GE HealthCare prior to the Spin-Off, are shown in the table below. As a result of the liabilities and assets transferred to GE HealthCare on January 1, 2023, we disclose in the following table postretirement plans with assets or obligations that exceed $50 million as of December 31, 2023. Refer to Note 10, “Postretirement Benefit Plans” to the consolidated and combined financial statements for further details related to these plans.

[[GREPCENT_TABLE]]
[["","Projected benefit obligations","Fair value of plan assets","Funded status - surplus (deficit)"],["GE HealthCare Pension Plan","$","16,138","","$","14,700","","$","(1,438)"],["GE HealthCare Supplementary Pension Plan","2,022","","\u2014","","(2,022)"],["Total Principal Pension Plans","18,160","","14,700","","(3,460)"],["Other Pension Plans(1)","4,588","","4,518","","(70)"],["OPEB Plans(1)","1,133","","\u2014","","(1,133)"],["Total","$","23,881","","$","19,218","","$","(4,663)"],["(1) As defined in Note 10, \u201cPostretirement Benefit Plans\u201d to our consolidated and combined financial statements."]]
[[/GREPCENT_TABLE]]

Compensation

We have and expect to continue to institute competitive compensation policies and programs as an independent public company. The expense for these policies and programs will increase from the compensation expense allocated by GE in years prior to the Spin-Off, driven primarily by higher cash and stock compensation to retain employees and align more closely with industry peers.

SUMMARY OF KEY PERFORMANCE MEASURES

Management reviews and analyzes several key performance measures including Total revenues, Remaining Performance Obligations (“RPO”), Operating income, Net income attributable to GE HealthCare, Earnings per share – continuing operations, and Cash from (used for) operating activities – continuing operations. Management also reviews and analyzes Organic revenue*, Adjusted Earnings Before Interest and Taxes* (“Adjusted EBIT*”), Adjusted net income*, Adjusted tax expense*, Adjusted effective tax rate* (“Adjusted ETR*”), Adjusted earnings per share*, and Free cash flow*, which are non-GAAP financial measures. These measures are reviewed and analyzed in order to evaluate our business performance, identify trends affecting our business, allocate capital, and make strategic decisions, including those discussed below. See “Results of Operations” and “Liquidity and Capital Resources” below for further discussion on our key performance measures.

The non-GAAP financial measures should be considered along with the most directly comparable U.S. GAAP financial measures. Definitions of these non-GAAP financial measures, a discussion of why we believe they are useful to management and investors as well as certain of their limitations, and reconciliations to their most directly comparable U.S. GAAP financial measures are provided below under “Non-GAAP Financial Measures.”

____________________

*Non-GAAP Financial Measure

49

RESULTS OF OPERATIONS

The following tables set forth our results of operations for each of the periods presented.

[[GREPCENT_TABLE]]
[["Consolidated and Combined Statements of Income"],["","","","For the years ended December 31"],["","","","","2023","2022"],["Sales of products","","","","$","13,127","$","12,044"],["Sales of services","","","","6,425","6,297"],["Total revenues","","","","19,552","18,341"],["Cost of products","","","","8,465","7,975"],["Cost of services","","","","3,165","3,187"],["Gross profit","","","","7,922","7,179"],["Selling, general, and administrative","","","","4,282","3,631"],["Research and development","","","","1,205","1,026"],["Total operating expenses","","","","5,487","4,657"],["Operating income","","","","2,435","2,522"],["Interest and other financial charges \u2013 net","","","","542","77"],["Non-operating benefit (income) costs","","","","(382)","(5)"],["Other (income) expense \u2013 net","","","","(86)","(62)"],["Income from continuing operations before income taxes","","","","2,361","2,512"],["Benefit (provision) for income taxes","","","","(743)","(563)"],["Net income from continuing operations","","","","1,618","1,949"],["Income (loss) from discontinued operations, net of taxes","","","","(4)","18"],["Net income","","","","1,614","1,967"],["Net (income) loss attributable to noncontrolling interests","","","","(46)","(51)"],["Net income attributable to GE HealthCare","","","","$","1,568","$","1,916"]]
[[/GREPCENT_TABLE]]

TOTAL REVENUES AND RPO.

[[GREPCENT_TABLE]]
[["Revenues by Segment"],["","","","For the years ended December 31"],["","","","","","","2023","2022","% change","% organic* change"],["Segment revenues"],["Imaging","","","","","","$","10,581","$","9,985","6%","7%"],["Ultrasound","","","","","","3,457","3,422","1%","2%"],["PCS","","","","","","3,142","2,916","8%","8%"],["PDx","","","","","","2,306","1,958","18%","18%"],["Other(1)","","","","","","66","60"],["Total revenues","","","","","","$","19,552","$","18,341","7%","8%"]]
[[/GREPCENT_TABLE]]

(1) Financial information not presented within the reportable segments, shown within the Other category, represents the HealthCare Financial Services (“HFS”) business which does not meet the definition of an operating segment.

[[GREPCENT_TABLE]]
[["Revenues by Region"],["","","","For the years ended December 31"],["","","","","","2023","2022","% change"],["United States and Canada (\u201cUSCAN\u201d)","","","","","$","8,551","$","8,130","5%"],["Europe, the Middle East, and Africa (\u201cEMEA\u201d)","","","","","5,058","4,684","8%"],["China region","","","","","2,785","2,531","10%"],["Rest of World","","","","","3,158","2,996","5%"],["Total revenues","","","","","$","19,552","$","18,341","7%"]]
[[/GREPCENT_TABLE]]

____________________

*Non-GAAP Financial Measure

50

For the year ended December 31, 2023

Total revenues were $19,552 million, growing 7% or $1,211 million as reported and 8% organically*. The reported growth was primarily due to Sales of products growing 9% or $1,083 million as reported, with growth across all segments.

The segment revenues were as follows:

•Imaging segment revenues were $10,581 million, growing 6% or $596 million as reported due to an increase in Organic revenue*, partially offset by unfavorable foreign currency impacts. Organic revenue* grew 7% primarily due to growth in Magnetic Resonance and MI/CT product lines, due to supply chain fulfillment improvements, new product introductions, and an increase in price;

•Ultrasound segment revenues were $3,457 million, growing 1% or $35 million as reported due to an increase in Organic revenue*, partially offset by unfavorable foreign currency impacts. Organic revenue* grew 2% primarily due to growth in Cardiovascular and Point of Care and Handheld product lines due to new product introductions, an increase in price, and supply chain fulfillment improvements;

•PCS segment revenues were $3,142 million, growing 8% or $226 million due to growth in Monitoring Solutions and Consumables and Services product lines driven by an increase in price and operational improvements; and

•PDx segment revenues were $2,306 million, growing 18% or $348 million with growth across all regions due to an increase in price and improved demand.

The regional revenues were as follows:

•USCAN revenues were $8,551 million, growing 5% or $421 million due to growth across all segments;

•EMEA revenues were $5,058 million, growing 8% or $374 million due to growth in Imaging and PDx;

•China region revenues were $2,785 million, growing 10% or $254 million due to growth across all segments, partially offset by unfavorable foreign currency impacts; and

•Rest of World revenues were $3,158 million, growing 5% or $162 million due to growth in Imaging and PDx, partially offset by unfavorable foreign currency impacts.

[[GREPCENT_TABLE]]
[["Remaining Performance Obligations"],["","As of"],["","December 31, 2023","December 31, 2022","","% change"],["Products","$","4,930","$","4,992","","(1)%"],["Services","9,725","9,351","","4%"],["Total RPO","$","14,655","$","14,343","","2%"]]
[[/GREPCENT_TABLE]]

RPO represents the estimated revenue expected from customer contracts that are partially or fully unperformed inclusive of amounts deferred in contract liabilities, excluding contracts, or portions thereof, that provide the customer with the ability to cancel or terminate without incurring a substantive penalty. RPO as of December 31, 2023 increased 2% from December 31, 2022, primarily due to new and renewals of multi-year service contracts in USCAN and EMEA.

____________________

*Non-GAAP Financial Measure

51

OPERATING INCOME, NET INCOME ATTRIBUTABLE TO GE HEALTHCARE, ADJUSTED EBIT*, AND ADJUSTED NET INCOME*.

[[GREPCENT_TABLE]]
[["","","","For the years ended December 31"],["","","","","","","","2023","% of Total revenues","2022","% of Total revenues","% change"],["Operating income","","","","","","","$","2,435","12.5%","$","2,522","13.8%","(3)%"],["Net income attributable to GE HealthCare","","","","","","","1,568","8.0%","1,916","10.4%","(18)%"],["Adjusted EBIT*","","","","","","","2,956","15.1%","2,861","15.6%","3%"],["Adjusted net income*","","","","","","","1,797","9.2%","2,103","11.5%","(15)%"]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2023

Operating income was $2,435 million, a decrease of $87 million and 130 basis points as a percent of Total revenues. The decrease as a percent of Total revenues was due to the following factors:

•Cost of products sold increased $490 million but decreased 170 basis points as a percent of Sales of products. The decrease as a percent of sales was driven by cost productivity and an increase in pricing of our products, partially offset by cost inflation. Cost of services sold decreased $22 million or 130 basis points as a percent of Sales of services. The decrease as a percent of sales was driven by cost productivity and an increase in pricing of our service offerings, partially offset by cost inflation. Included in our total cost of revenue as part of our product investment was $438 million in engineering costs for design follow-through on new product introductions and product lifecycle maintenance subsequent to the initial product launch, compared to $429 million for the prior year comparable period; and

•Total operating expenses increased $830 million due to an increase in Selling, general, and administrative (“SG&A”) expense of $651 million driven by increased costs associated with both the one-time stand-up and recurring operations of a standalone company and commercial and marketing investments and an increase in R&D investments of $179 million. As a result, SG&A as a percentage of Total revenues increased by 210 basis points and R&D as a percentage of Total revenues increased by 60 basis points.

Net income attributable to GE HealthCare and Net income margin were $1,568 million and 8.0%, a decrease of $348 million and 240 basis points, respectively, primarily due to the following factors:

•Operating income decreased $87 million, as discussed above;

•Interest and other financial charges – net increased $465 million primarily due to interest expense related to the debt securities issued by GE HealthCare in November of 2022 and the Term Loan Facility drawn upon in January of 2023;

•Non-operating benefit income increased $377 million primarily related to the pension plans transferred to GE HealthCare as part of the Spin-Off; and

•Provision for income taxes increased $180 million primarily due to the tax effect of foreign currency movement, the impact of the Tax Matters Agreement, including the effect of completing the 2022 U.S. federal tax return, taxes accrued for the future repatriation of current earnings with a one-time charge for prior period earnings of certain of our foreign subsidiaries, and the impact of adjusting deferred tax assets and liabilities to standalone GE HealthCare tax rates. For additional detail regarding our income taxes, see Note 11, “Income Taxes” to the consolidated and combined financial statements.

Adjusted EBIT* and Adjusted EBIT margin* were $2,956 million and 15.1%, an increase of $95 million but a decrease of 50 basis points, respectively, primarily due to an increase in Total revenues, offset by an increase in Total operating expenses, excluding the impact of one-time Spin-Off and separation costs, as discussed above.

Adjusted net income* was $1,797 million, a decrease of $306 million primarily due to higher Interest and other financial charges – net, partially offset by an increase in Operating Income, excluding the impact of one-time Spin-Off and separation costs, as discussed above.

____________________

*Non-GAAP Financial Measure

52

RESULTS OF OPERATIONS – SEGMENTS

We exclude from Segment EBIT certain corporate-related expenses and certain transactions or adjustments that our Chief Operating Decision Maker (which is our Chief Executive Officer) considers to be non-operational, such as Interest and other financial charges – net, Benefit (provision) for income taxes, Restructuring costs, Acquisition and disposition-related benefits (charges), Spin-Off and separation costs, Non-operating benefit (income) costs, Gain (loss) on business and asset dispositions, Amortization of acquisition-related intangible assets, Net (income) loss attributable to noncontrolling interests, Income (loss) from discontinued operations, net of taxes, and Investment revaluation gain (loss). See “Results of Operations” section above for discussion on the performance of segments on revenue.

[[GREPCENT_TABLE]]
[["Segment EBIT"],["","","","For the years ended December 31"],["","","","","","","","2023","% of segment revenues","2022","% of segment revenues","% change"],["Segment EBIT"],["Imaging","","","","","","","$","1,124","10.6","%","$","1,100","11.0","%","2","%"],["Ultrasound","","","","","","","821","23.7","%","908","26.5","%","(10)","%"],["PCS","","","","","","","383","12.2","%","341","11.7","%","12","%"],["PDx","","","","","","","617","26.8","%","520","26.6","%","19","%"],["Other(1)","","","","","","","11","","(8)"],["","","","","","","","$","2,956","","$","2,861","","3","%"]]
[[/GREPCENT_TABLE]]

(1)Financial information not presented within the reportable segments, shown within the Other category, represents the HFS business and certain other business activities which do not meet the definition of an operating segment.

For the year ended December 31, 2023

•Imaging Segment EBIT was $1,124 million, an increase of $24 million due to cost productivity, an increase in price, and growth in sales volume, largely offset by investments, liquidation of higher-cost inventory, and mix between our product and service offerings;

•Ultrasound Segment EBIT was $821 million, a decrease of $87 million due to cost inflation and investments, partially offset by cost productivity and an increase in price;

•PCS Segment EBIT was $383 million, an increase of $42 million due to cost productivity, an increase in price, and growth in sales volume, partially offset by investments and cost inflation; and

•PDx Segment EBIT was $617 million, an increase of $97 million due to an increase in price, growth in sales volume, and cost productivity, partially offset by cost inflation and investments.

____________________

*Non-GAAP Financial Measure

53

NON-GAAP FINANCIAL MEASURES

The non-GAAP financial measures presented in this Annual Report on Form 10-K are supplemental measures of our performance and our liquidity that we believe help investors understand our financial condition, cash flows, and operating results, and assess our future prospects. We believe that presenting these non-GAAP financial measures, in addition to the corresponding U.S. GAAP financial measures, are important supplemental measures that exclude non-cash or other items that may not be indicative of or related to our core operating results and the overall health of our company. We believe that these non-GAAP financial measures provide investors greater transparency to the information used by management for its operational decision-making and allow investors to see our results “through the eyes of management.” We further believe that providing this information assists our investors in understanding our operating performance and the methodology used by management to evaluate and measure such performance. When read in conjunction with our U.S. GAAP results, these non-GAAP financial measures provide a baseline for analyzing trends in our underlying businesses and can be used by management as one basis for making financial, operational, and planning decisions. Finally, these measures are often used by analysts and other interested parties to evaluate companies in our industry.

The non-GAAP financial measures we report include:

Organic revenue and Organic revenue growth rate

We believe that Organic revenue and Organic revenue growth rate, by excluding the effect of acquisitions, dispositions, and foreign currency rate fluctuations, provide management and investors with additional understanding and visibility into the underlying revenue trends of our established, ongoing operations. Organic revenue and Organic revenue growth rate also provide greater insight regarding the overall demand for our products and services.

Adjusted EBIT and Adjusted EBIT margin

We believe Adjusted EBIT and Adjusted EBIT margin provide management and investors with additional understanding of our business by highlighting the results from ongoing operations and the underlying profitability factors. These metrics exclude interest expense, interest income, non-operating benefit (income) costs, and tax expense, as well as non-recurring and/or non-cash items, which may have a material impact on our results. In addition, we may from time to time consider excluding other nonrecurring items to enhance comparability between periods. We believe this provides additional insight into how our businesses are performing, on a normalized basis. However, Adjusted EBIT and Adjusted EBIT margin should not be construed as inferring that our future results will be unaffected by the items for which the measure adjusts.

Adjusted net income

We believe Adjusted net income provides investors with improved comparability of underlying operating results and a further understanding and additional transparency regarding how we evaluate our business. Adjusted net income also provides management and investors with additional perspective regarding the impact of certain significant items on our earnings. Adjusted net income excludes non-operating benefit (income) costs, certain tax expense adjustments, and non-recurring and/or non-cash items, which may have a material impact on our results. In addition, we may from time to time consider excluding other nonrecurring items to enhance comparability between periods. However, Adjusted net income should not be construed as inferring that our future results will be unaffected by the items for which the measure adjusts.

Adjusted earnings per share

We believe Adjusted earnings per share provides investors with improved comparability of underlying operating results and a further understanding and additional transparency regarding how we evaluate our business. Adjusted earnings per share also provides management and investors with additional perspective regarding the impact of certain significant items on our per share earnings. Adjusted earnings per share excludes non-operating benefit (income) costs, certain tax expense adjustments, and non-recurring and/or non-cash items, which may have a material impact on our results. In addition, we may from time to time consider excluding other nonrecurring items to enhance comparability between periods. However, Adjusted earnings per share should not be construed as inferring that our future results will be unaffected by the items for which the measure adjusts.

Adjusted tax expense and Adjusted effective tax rate

We believe that Adjusted tax expense and Adjusted effective tax rate provide investors with a better understanding of the normalized tax rate applicable to our business and provide more consistent comparability across periods. Adjusted tax expense excludes the income tax related to the pre-tax income adjustments included as part of Adjusted net income and certain income tax adjustments, such as adjustments to deferred tax assets or liabilities. In addition, we may from time to time consider excluding other nonrecurring tax items to enhance comparability between periods. Adjusted effective tax rate is Adjusted tax expense divided by Income before income taxes less pre-tax income adjustments detailed above in Adjusted net income. However, Adjusted tax expense and Adjusted effective tax rate should not be construed as inferring that our future results will be unaffected by the items for which the measure adjusts.

54

Free cash flow

We believe that Free cash flow provides management and investors with an important measure of our ability to generate cash on a normalized basis. Free cash flow also provides insight into our flexibility to allocate capital, including reinvesting in the Company for future growth, paying down debt, paying dividends, and pursuing other opportunities that may enhance stockholder value. Free cash flow is Cash from (used for) operating activities – continuing operations including cash flows related to the additions and dispositions of PP&E and internal-use software as well as the impact of discontinued factoring programs. Interest expense associated with external debt that was historically held by GE is not recognized in the combined financial statements and related notes. Additionally, Free cash flow does not represent residual cash flows available for discretionary expenditures, due to the fact that the measures do not deduct the payments required for debt repayments.

Non-GAAP Reconciliations

Management recognizes that these non-GAAP financial measures have limitations, including that they may be calculated differently by other companies or may be used under different circumstances or for different purposes, thereby affecting their comparability from company to company. In order to compensate for these and the other limitations discussed below, management does not consider these measures in isolation from or as alternatives to the comparable financial measures determined in accordance with U.S. GAAP. Readers should review the reconciliations below and should not rely on any single financial measure to evaluate our business. The reconciliations of each non-GAAP financial measure to the most directly comparable U.S. GAAP financial measure are provided below.

[[GREPCENT_TABLE]]
[["Organic Revenue*","","","For the years ended December 31"],["","","","","","2023","2022","% change"],["Imaging revenues","","","","","$","10,581","$","9,985","6%"],["Less: Acquisitions(1)","","","","","1","\u2014"],["Less: Dispositions(2)","","","","","\u2014","\u2014"],["Less: Foreign currency exchange","","","","","(144)","\u2014"],["Imaging Organic revenue*","","","","","$","10,724","$","9,985","7%"],["Ultrasound revenues","","","","","$","3,457","$","3,422","1%"],["Less: Acquisitions(1)","","","","","\u2014","\u2014"],["Less: Dispositions(2)","","","","","\u2014","\u2014"],["Less: Foreign currency exchange","","","","","(43)","\u2014"],["Ultrasound Organic revenue*","","","","","$","3,500","$","3,422","2%"],["PCS revenues","","","","","$","3,142","$","2,916","8%"],["Less: Acquisitions(1)","","","","","\u2014","\u2014"],["Less: Dispositions(2)","","","","","\u2014","\u2014"],["Less: Foreign currency exchange","","","","","(16)","\u2014"],["PCS Organic revenue*","","","","","$","3,158","$","2,916","8%"],["PDx revenues","","","","","$","2,306","$","1,958","18%"],["Less: Acquisitions(1)","","","","","\u2014","\u2014"],["Less: Dispositions(2)","","","","","\u2014","\u2014"],["Less: Foreign currency exchange","","","","","(14)","\u2014"],["PDx Organic revenue*","","","","","$","2,320","$","1,958","18%"],["Other revenues","","","","","$","66","$","60","10%"],["Less: Acquisitions(1)","","","","","\u2014","\u2014"],["Less: Dispositions(2)","","","","","\u2014","\u2014"],["Less: Foreign currency exchange","","","","","1","\u2014"],["Other Organic revenue*","","","","","$","65","$","60","8%"],["Total revenues","","","","","$","19,552","$","18,341","7%"],["Less: Acquisitions(1)","","","","","1","\u2014"],["Less: Dispositions(2)","","","","","\u2014","\u2014"],["Less: Foreign currency exchange","","","","","(216)","\u2014"],["Organic revenue*","","","","","$","19,767","$","18,341","8%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Represents revenues attributable to acquisitions from the date the Company completed the transaction through the end of four quarters following the transaction."],["(2)","Represents revenues attributable to dispositions for the four quarters preceding the disposition date."]]
[[/GREPCENT_TABLE]]

____________________

*Non-GAAP Financial Measure

55

[[GREPCENT_TABLE]]
[["Adjusted EBIT*","","","For the years ended December 31"],["","","","","","2023","2022","% change"],["Net income attributable to GE HealthCare","","","","","$","1,568","$","1,916","(18)%"],["Add: Interest and other financial charges \u2013 net","","","","","542","77"],["Add: Non-operating benefit (income) costs","","","","","(382)","(5)"],["Less: Benefit (provision) for income taxes","","","","","(743)","(563)"],["Less: Income (loss) from discontinued operations, net of taxes","","","","","(4)","18"],["Less: Net (income) loss attributable to noncontrolling interests","","","","","(46)","(51)"],["EBIT*","","","","","$","2,521","$","2,584","(2)%"],["Add: Restructuring costs(1)","","","","","54","146"],["Add: Acquisition and disposition-related charges (benefits)(2)","","","","","(15)","(34)"],["Add: Spin-Off and separation costs(3)","","","","","270","14"],["Add: (Gain) loss on business and asset dispositions(4)","","","","","\u2014","(1)"],["Add: Amortization of acquisition-related intangible assets","","","","","127","121"],["Add: Investment revaluation (gain) loss(5)","","","","","(1)","31"],["Adjusted EBIT*","","","","","$","2,956","$","2,861","3%"],["Net income margin","","","","","8.0%","10.4%","(240) bps"],["Adjusted EBIT margin*","","","","","15.1%","15.6%","(50) bps"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Consists of severance, facility closures, and other charges associated with restructuring programs."],["(2)","Consists of legal, consulting, and other transaction and integration fees, and adjustments to contingent consideration, as well as other purchase accounting related charges and other costs directly related to the transactions."],["(3)","Costs incurred in the Spin-Off and separation from GE, including system implementations, audit and advisory fees, legal entity separation, Founders Grant equity awards, separation agreements with GE, and other one-time costs."],["(4)","Consists of gains and losses resulting from the sale of assets and investments."],["(5)","Primarily relates to valuation adjustments for equity investments."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Adjusted Net Income*","","","For the years ended December 31"],["","","","","","2023","2022","% change"],["Net income attributable to GE HealthCare","","","","","$","1,568","$","1,916","(18)%"],["Add: Non-operating benefit (income) costs","","","","","(382)","(5)"],["Add: Restructuring costs(1)","","","","","54","146"],["Add: Acquisition and disposition-related charges (benefits)(2)","","","","","(15)","(34)"],["Add: Spin-Off and separation costs(3)","","","","","270","14"],["Add: (Gain) loss on business and asset dispositions(4)","","","","","\u2014","(1)"],["Add: Amortization of acquisition-related intangible assets","","","","","127","121"],["Add: Investment revaluation (gain) loss(5)","","","","","(1)","31"],["Add: Tax effect of reconciling items","","","","","92","(67)"],["Add: Certain tax adjustments(6)","","","","","80","\u2014"],["Less: Income (loss) from discontinued operations, net of taxes","","","","","(4)","18"],["Adjusted net income*","","","","","$","1,797","$","2,103","(15)%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Consists of severance, facility closures, and other charges associated with restructuring programs."],["(2)","Consists of legal, consulting, and other transaction and integration fees, and adjustments to contingent consideration, as well as other purchase accounting related charges and other costs directly related to the transactions."],["(3)","Costs incurred in the Spin-Off and separation from GE, including system implementations, audit and advisory fees, legal entity separation, Founders Grant equity awards, separation agreements with GE, and other one-time costs."],["(4)","Consists of gains and losses resulting from the sale of assets and investments."],["(5)","Primarily relates to valuation adjustments for equity investments."],["(6)","Consists of certain income tax adjustments, including the accrual of a deferred tax liability on the prior period earnings of certain of the Company\u2019s foreign subsidiaries for which the Company is no longer permanently reinvested and the impact of adjusting deferred tax assets and liabilities to standalone GE HealthCare tax rates."]]
[[/GREPCENT_TABLE]]

____________________

*Non-GAAP Financial Measure

56

[[GREPCENT_TABLE]]
[["Adjusted Earnings Per Share*","","","For the years ended December 31"],["(In dollars, except shares outstanding presented in millions)","","","","","2023","2022","$ change"],["Diluted earnings per share \u2013 continuing operations","","","","","$","3.04","$","4.18","$","(1.14)"],["Add: Deemed preferred stock dividend of redeemable noncontrolling interest","","","","","0.40","","\u2014"],["Add: Non-operating benefit (income) costs","","","","","(0.83)","","(0.01)"],["Add: Restructuring costs(1)","","","","","0.12","","0.32"],["Add: Acquisition and disposition-related charges (benefits)(2)","","","","","(0.03)","","(0.07)"],["Add: Spin-Off and separation costs(3)","","","","","0.59","","0.03"],["Add: (Gain) loss on business and asset dispositions(4)","","","","","\u2014","","(0.00)"],["Add: Amortization of acquisition-related intangible assets","","","","","0.28","","0.27"],["Add: Investment revaluation (gain) loss(5)","","","","","(0.00)","0.07"],["Add: Tax effect of reconciling items","","","","","0.20","","(0.15)"],["Add: Certain tax adjustments(6)","","","","","0.17","","\u2014"],["Adjusted earnings per share*(7)","","","","","$","3.93","$","4.63","$","(0.70)"],["Diluted weighted-average shares outstanding","","","","","458","454"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Consists of severance, facility closures, and other charges associated with restructuring programs."],["(2)","Consists of legal, consulting, and other transaction and integration fees, and adjustments to contingent consideration, as well as other purchase accounting related charges and other costs directly related to the transactions."],["(3)","Costs incurred in the Spin-Off and separation from GE, including system implementations, audit and advisory fees, legal entity separation, Founders Grant equity awards, separation agreements with GE, and other one-time costs."],["(4)","Consists of gains and losses resulting from the sale of assets and investments."],["(5)","Primarily relates to valuation adjustments for equity investments."],["(6)","Consists of certain income tax adjustments, including the accrual of a deferred tax liability on the prior period earnings of certain of the Company\u2019s foreign subsidiaries for which the Company is no longer permanently reinvested and the impact of adjusting deferred tax assets and liabilities to standalone GE HealthCare tax rates."],["(7)","Adjusted earnings per share* amounts are computed independently, thus, the sum of per-share amounts may not equal the total."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Adjusted Tax Expense* and Adjusted ETR*","For the years ended December 31"],["","2023","2022"],["Benefit (provision) for income taxes","$","(743)","$","(563)"],["Add: Tax effect of reconciling items","92","","(67)"],["Add: Certain tax adjustments(1)","80","\u2014"],["Adjusted tax expense*","$","(571)","$","(630)"],["Effective tax rate","31.5%","22.4%"],["Adjusted effective tax rate*","23.7%","22.6%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Consists of certain income tax adjustments, including the accrual of a deferred tax liability on the prior period earnings of certain of the Company\u2019s foreign subsidiaries for which the Company is no longer permanently reinvested and the impact of adjusting deferred tax assets and liabilities to standalone GE HealthCare tax rates."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Free Cash Flow*","For the years ended December 31"],["","2023","2022","","% change"],["Cash from (used for) operating activities \u2013 continuing operations","$","2,101","$","2,134","","(2)%"],["Add: Additions to PP&E and internal-use software","(387)","","(310)"],["Add: Dispositions of PP&E","1","4"],["Free cash flow*","$","1,715","$","1,828","","(6)%"]]
[[/GREPCENT_TABLE]]

____________________

*Non-GAAP Financial Measure

57

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2023, our Cash, cash equivalents, and restricted cash balance was $2,504 million. We have historically generated positive cash flows from operating activities from continuing operations. Additionally, we have access to revolving credit facilities of $3,500 million in aggregate, described in detail in Note 9, “Borrowings” to the consolidated and combined financial statements. Historically, we relied on cash pooling arrangements with GE to manage liquidity and fund our operations. Upon completion of the Spin-Off, we ceased participation in GE cash pooling arrangements and our Cash, cash equivalents, and restricted cash are held and used solely for our own ongoing operations and commitments.

We believe that our existing balance of Cash, cash equivalents, and restricted cash, future cash generated from operating activities, access to capital markets, and existing credit facilities will be sufficient to meet the needs of our current and ongoing operations, pay taxes due, service our existing debt, and fund investments in our business for at least the next 12 months.

The following table summarizes our cash flows for the periods presented:

[[GREPCENT_TABLE]]
[["Cash Flow","For the years ended December 31"],["","2023","2022"],["Cash from (used for) operating activities \u2013 continuing operations","$","2,101","$","2,134"],["Cash from (used for) investing activities \u2013 continuing operations","(558)","(398)"],["Cash from (used for) financing activities \u2013 continuing operations","(478)","(822)"],["Free cash flow*","1,715","1,828"]]
[[/GREPCENT_TABLE]]

Operating Activities

Cash generated from operating activities in the year ended December 31, 2023 was $2,101 million and included Net income from continuing operations of $1,618 million, non-cash charges for depreciation and amortization of $610 million, and a $127 million outflow from changes in assets and liabilities, primarily driven by company-funded benefit payments for postretirement benefit plans and an increase in receivables, partially offset by lower cash taxes paid and a decrease in inventories.

Cash generated from operating activities in the year ended December 31, 2022 was $2,134 million and included Net income from continuing operations of $1,949 million, non-cash charges for depreciation and amortization of $633 million, and a $448 million outflow from changes in assets and liabilities, primarily driven by an increase in inventory, higher cash taxes paid, and an increase in receivables, partially offset by an increase in accounts payable.

Investing Activities

Cash used for investing activities in the year ended December 31, 2023 was $558 million and primarily included additions to PP&E of $387 million related primarily to manufacturing capacity expansion, new product introductions, and purchases of businesses, net of cash acquired, of $147 million primarily related to Caption Health, Inc. (“Caption Health”). On February 17, 2023, we acquired Caption Health, an AI company whose technology expands access to AI-guided ultrasound screening for novice users.

Cash used for investing activities in the year ended December 31, 2022 was $398 million and primarily included additions to PP&E of $310 million related primarily to manufacturing capacity expansion, and new product introductions.

Financing Activities

Cash used for financing activities in the year ended December 31, 2023 was $478 million and primarily included $1,317 million of transfers to GE, $850 million partial repayment of our outstanding Term Loan Facility, and $211 million of redemption of noncontrolling interests, partially offset by $2,000 million drawdown of the Term Loan Facility.

Cash used for financing activities in the year ended December 31, 2022 was $822 million and primarily included $8,934 million of transfers to GE, partially offset by $8,198 million of newly issued debt.

Free cash flow*

Free cash flow* was $1,715 million for the year ended December 31, 2023 and primarily included $2,101 million of cash generated from operating activities, partially offset by $387 million of cash used for additions to PP&E.

Free cash flow* was $1,828 million for the year ended December 31, 2022 and primarily included $2,134 million of cash generated from operating activities, partially offset by $310 million of cash used for additions to PP&E.

____________________

*Non-GAAP Financial Measure

58

Capital Expenditures

Cash used for capital expenditures was $387 million and $310 million for the years ended December 31, 2023 and 2022, respectively. Capital expenditures were primarily for manufacturing capacity expansion, and equipment and tooling for new and existing products including new product introductions.

Material Cash Requirements

In the normal course of business, we enter into contracts and commitments that obligate us to make payments in the future. Information regarding our obligations under lease, debt, and purchase arrangements are provided in Note 7, “Leases,” Note 9, “Borrowings,” and Note 14, “Commitments, Guarantees, Product Warranties, and Other Loss Contingencies,” to the consolidated and combined financial statements contained elsewhere in this Annual Report on Form 10-K. Additionally, we have material cash requirements related to our pension obligations as described in Note 10, “Postretirement Benefit Plans,” to the consolidated and combined financial statements included elsewhere in this Annual Report on Form 10-K.

Debt and Credit Facilities

As part of our capital structure, we have incurred debt. The servicing of this debt will be supported by cash flows from our operations. As of December 31, 2023, we had $9,442 million of total debt compared to $8,249 million as of December 31, 2022. The increase in debt was mainly driven by drawdown of the Term Loan Facility by $2,000 million in connection with our Spin-Off in January 2023, partially offset by $850 million repayment of the outstanding Term Loan Facility in December 2023.

The weighted average interest rate for the Notes and our Credit Facilities for the year ended December 31, 2023 was 6.03%. We had no principal debt repayments on the Notes for the year ended December 31, 2023.

In addition to the Term Loan Facility, our credit facilities include a five-year senior unsecured revolving facility that provides borrowings of up to $2,500 million expiring in January 2028, and a 364-day senior unsecured revolving facility that provides borrowings of up to $1,000 million expiring in December 2024. As of December 31, 2023, there were no outstanding borrowings on either of the two revolving facilities.

The Credit Facilities include various customary covenants that limit, among other things, the incurrence of liens securing debt, the entry into certain fundamental change transactions by GE HealthCare, and the maximum permitted leverage ratio. As of December 31, 2023, we were in compliance with the covenant requirements, including the maximum consolidated net leverage ratio.

For additional details on debt and credit facilities, see Note 9, “Borrowings” to the consolidated and combined financial statements.

Access to Capital and Credit Ratings

We have historically relied, via GE, on the debt capital markets to fund a significant portion of our operations. Concurrent with our Spin-Off, we accessed the capital markets and raised $10,250 million of debt by issuing $8,250 million of senior unsecured notes in November 2022, and completed a drawdown of the Term Loan Facility of $2,000 million in January 2023. In addition, we were able to arrange revolving credit facilities of $3,500 million to further support our liquidity needs. We plan to continue to rely on capital markets, and we expect to have access to credit facilities to fund our operations. The cost and availability of debt financing will be influenced by our credit ratings and market conditions. Moody’s Investors Service (“Moody’s”), Standard and Poor’s Global Ratings (“S&P”), and Fitch Ratings (“Fitch”) currently issue ratings on our long-term debt. Our credit ratings as of January 30, 2024 are set forth in the table below. In the fourth quarter of 2023, Fitch affirmed our long term rating, and Moody’s issued their credit opinion consistent with our ratings listed below.

[[GREPCENT_TABLE]]
[["","Moody\u2019s","S&P","Fitch"],["Long-term rating","Baa2","BBB","BBB"],["Outlook","Stable","Stable","Stable"]]
[[/GREPCENT_TABLE]]

We are disclosing our credit ratings to enhance the understanding of our sources of liquidity and the effects of our ratings on our costs of funds and access to liquidity. Our ratings may be subject to a revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

For a discussion of recently issued accounting standards, see Note 2, “Summary of Significant Accounting Policies” to the consolidated and combined financial statements appearing elsewhere in this Annual Report on Form 10-K.

CRITICAL ACCOUNTING ESTIMATES

Our financial results are affected by the selection and application of accounting policies and methods. We have adopted accounting policies to prepare our consolidated and combined financial statements in conformity with U.S. GAAP.

59

To prepare our consolidated and combined financial statements in accordance with U.S. GAAP, management makes estimates and assumptions that may affect the reported amounts of our assets and liabilities, including our contingent liabilities, as of the date of our consolidated and combined financial statements, and the reported amounts of our revenues and expenses during the reporting periods. Our actual results may differ from these estimates. We consider estimates to be critical (i) if we are required to make assumptions about material matters that are uncertain at the time of estimation or (ii) if materially different estimates could have been made or it is reasonably likely that the accounting estimate will change from period to period. The following are areas considered to be critical and require management’s judgment: Revenue Recognition, Business Combination Related Measurements, Pensions, and Income Taxes.

See Note 2, “Summary of Significant Accounting Policies” to the consolidated and combined financial statements included elsewhere in this Annual Report on Form 10-K for further information on our significant accounting policies.

REVENUE RECOGNITION.

Our revenues are recorded based on the consideration specified in customer contracts net of any sales incentives, discounts, returns, chargebacks, group purchasing organization fees, rebates, or credits, which are accounted for as estimated variable consideration. Our estimates for these deductions are based upon historical experience and consider current and forecasted market trends. We record the estimated amounts as a reduction to revenue when we recognize the related product or service sale.

Chargebacks are a form of variable consideration that occur when a contracted customer purchases through an intermediary wholesaler. The contracted customer generally purchases product from the wholesaler at its contracted price plus a mark-up. The wholesaler, in turn, charges us back for the difference between the price initially paid by the wholesaler and the contract price paid to the wholesaler by the contracted customer. A provision for outstanding chargebacks is recorded at the time we recognize revenue from the sale to the wholesaler and requires certain estimates such as the wholesaler chargeback rates, the expected sell-through levels by our wholesale customers to contracted customers, as well as estimated wholesaler inventory levels.

The amounts of variable consideration included in the net transaction price for revenue recognition are limited to the amounts that are estimated to be probable of occurrence to avoid a material revenue reversal in a future period.

See Note 3, “Revenue Recognition” to the consolidated and combined financial statements included elsewhere in this Annual Report on Form 10-K for further information on revenue recognition.

BUSINESS COMBINATION RELATED MEASUREMENTS.

Our consolidated and combined financial statements include the operations of an acquired business starting from the completion of the combination. The assets acquired and liabilities assumed, including any contingent consideration we may be liable to pay in the future, are recorded on the date of the business combination at their respective estimated fair values, with any excess of the purchase price over the estimated fair values of the net assets acquired recorded as goodwill. Our business combinations typically result in the recognition of goodwill, developed technology, and other intangible assets, which affect the amount of future period amortization expense. The fair values of acquired intangible assets and liabilities are determined using information available at the business combination date based on estimates and assumptions that are deemed reasonable. Significant assumptions vary by the class of asset or liability and the valuation technique used and can include the discount rates, timing, and probability of achieving regulatory and commercialization milestones and certain assumptions that form the basis of the forecasted results of the acquired business including revenue; earnings before interest, taxes, depreciation and amortization; growth rates; royalty rates; and technology obsolescence rates. These assumptions are forward-looking and could be affected by future economic and market conditions. We engage third-party valuation specialists who review our critical assumptions and prepare the calculations of the fair value of acquired intangible assets in connection with significant business combinations.

See Note 8, “Acquisitions, Goodwill, and Other Intangible Assets” to the consolidated and combined financial statements included elsewhere in this Annual Report on Form 10-K for further information on our business combinations.

PENSIONS.

Pension benefits are calculated using significant inputs to the actuarial models that measure pension benefit obligations and related effects on operations. Two assumptions, discount rate and expected return on assets, are important elements of plan expense and related asset and liability measurement. The Company evaluates these critical assumptions at least annually on a plan and country-specific basis. The Company periodically evaluates other assumptions involving demographic factors such as retirement age, mortality, and turnover, and updates them to reflect our experience and expectations for the future. Actual results in any given year often will differ from actuarial assumptions because of economic and other factors.

Projected benefit obligations (“PBO”) are measured as the present value of expected payments. We discount those cash payments using the weighted average of market-observed yields for high-quality fixed-income securities with maturities that correspond to the expected timing of benefit payment. Generally, lower discount rates increase present values and increase subsequent-year pension expense; higher discount rates decrease present values and decrease subsequent-year pension expense.

60

A 50 basis point change in the assumed discount rate would have the following effects on the calculation of net periodic benefit costs in 2024 and PBO and accumulated postretirement benefit obligation (“APBO”) as of December 31, 2023:

[[GREPCENT_TABLE]]
[["Discount Rate Sensitivity"],["","Principal Pension Plans","Other Pension Plans","Other Postretirement Plans"],["50 bps increase in discount rate"],["Impact on PBO/APBO at December 31, 2023","$","(859)","","$","(296)","","$","(37)"],["Impact on service cost and interest cost in 2024","37","","6","","3"],["50 bps decrease in discount rate"],["Impact on PBO/APBO at December 31, 2023","$","940","","$","318","","$","40"],["Impact on service cost and interest cost in 2024","(42)","","(7)","","(3)"]]
[[/GREPCENT_TABLE]]

The deficit sensitivity to the discount rate would be lower than the projected benefit obligation sensitivity as a result of the liability hedging program incorporated in the plan’s asset allocation.

To determine the expected long-term rate of return on pension plan assets, we consider current and target asset allocations, as well as historical and expected returns on various categories of plan assets. In developing future long-term return expectations for our principal benefit plans’ assets, we formulate views on the future economic environment, both in the U.S. and abroad. We evaluate general market trends and historical relationships among a number of key variables that impact asset class returns such as expected earnings growth, inflation, valuations, yields, and spreads, using both internal and external sources. We also consider expected volatility by asset class and diversification across classes to determine expected overall portfolio results given current and target allocations. A 1% change in the assumed expected long-term rate of return on plan assets would increase or decrease the 2024 net periodic benefit costs of these plans by $207 million.

Our pension plan assets contain financial instruments that are measured at fair value. While the majority of these assets are valued based on quoted prices for identical or similar instruments in active markets, the fair value of certain assets is estimated using significant unobservable inputs (Level 3). These assets primarily relate to real estate and private equity investments.

For pension benefits and retiree health and life benefits transferred from GE on January 1, 2023, third-party actuaries were engaged to assist in the valuation of transferred pension assets and liabilities using assumptions provided by GE which the Company reviewed prior to recording amounts in our combined financial statements.

See Note 10, “Postretirement Benefit Plans” to the consolidated and combined financial statements included elsewhere in this Annual Report on Form 10-K for further information on our postretirement benefit plans.

INCOME TAXES.

For periods prior to the Spin-Off, GE HealthCare is included in the combined U.S. federal, state, and foreign income tax returns of GE, where eligible. However, we have adopted the separate return approach for purposes of our combined financial statements. The income tax provisions and related deferred tax assets and liabilities reflected in our combined financial statements for the periods ended December 31, 2022 and 2021 have been estimated as if we were a separate taxpayer.

Our annual tax expense is based on our income, statutory tax rates, and tax incentives available to us in the various jurisdictions in which we operate. Changes in existing tax laws or rates could significantly impact the estimate of our tax liabilities. Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies. These sources of income rely heavily on estimates; we use our historical experience as well as our short- and long-range business forecasts to provide insight.

Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the relevant taxing authorities based on the technical merits of the position. Our policy is to adjust these reserves when facts and circumstances change, such as the settlement or effective settlement of positions with the relevant taxing authorities. We have provided for the amounts we believe will ultimately result from these changes; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. Such differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.

61

See Note 11, “Income Taxes” to the consolidated and combined financial statements included elsewhere in this Annual Report on Form 10-K for further information on income taxes.