GE HealthCare Technologies Inc.: Form 10-Q for the period ended Jun 30, 2023

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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 condensed consolidated and combined financial statements and corresponding notes included elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis provides 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 three and six months ended June 30, 2023 and 2022. For a full understanding of our financial condition and results of operations, the below discussion should be read alongside the 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 Quarterly Report on Form 10-Q, and particularly in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. 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 (i) 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 condensed combined financial statements and (ii) GE HealthCare Technologies Inc. and its subsidiaries following the Spin-Off with related condensed 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.

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” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

KEY TRENDS AFFECTING RESULTS OF OPERATIONS.

Russia and Ukraine Conflict

We had $141 million and $143 million of assets in, or directly related to, these two countries as of June 30, 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 $155 million and $148 million from customers in these two countries for the six months ended June 30, 2023 and June 30, 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, reexport to, 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 are applying for the licenses needed to continue supplying these customers. The implementation of these new measures affected our ability to supply customers in Russia in the second quarter of 2023 and will continue to do so until we are able to obtain licenses, and there is no guarantee we will obtain all of the licenses for which we applied or that our business in Russia will not be further disrupted due to evolving legal or operational considerations. Our board of directors (the "Board"), 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.

TRANSITION TO 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 condensed combined financial statements. The condensed 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 condensed consolidated and combined financial statements.

Pension and Other Benefit-Related Liabilities

In connection with the Spin-Off, on January 1, 2023, GE transferred certain plan liabilities and assets to GE HealthCare. The amounts related to the plans assumed by GE HealthCare on January 1, 2023, in addition to the existing GE HealthCare plans, are shown in the table below.

See Note 9, “Postretirement Benefit Plans” to the condensed consolidated and combined financial statements for further information.

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 flow from operations. Management also reviews and analyzes Organic revenue*, Adjusted Earnings Before Interest and Taxes* (“Adjusted EBIT*”), Adjusted net income*, 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. generally accepted accounting principles (“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.”

RESULTS OF OPERATIONS

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

TOTAL REVENUES AND RPO.

(a) 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.

For the three months ended June 30, 2023

Total revenues were $4,817 million for the three months ended June 30, 2023, growing 7% or $333 million as reported and 9% organically*. The reported growth was primarily due to Sales of products growing 11% or $310 million as reported, driven primarily by growth in Imaging, PDx, and PCS revenues.

The segment revenues were as follows:

• Imaging segment revenues were $2,620 million for the three months ended June 30, 2023, growing 7% or $171 million as reported due to an increase in Organic revenue*, partially offset by unfavorable foreign currency impacts. Organic revenue* grew 9% primarily due to growth in Molecular Imaging and Computed Tomography (“MI/CT”) and Magnetic Resonance (“MR”) product lines, due to supply chain fulfillment improvements, stable demand in the past few quarters, new product introductions, and an increase in price;
• Ultrasound segment revenues were $839 million for the three months ended June 30, 2023, growing 1% or $11 million as reported due to an increase in Organic revenue*, partially offset by unfavorable foreign currency impacts. Organic revenue* grew 3% primarily due to revenue growth in Cardiovascular and Women's Health product lines due to new product introductions;
• PCS segment revenues were $770 million for the three months ended June 30, 2023, growing 8% or $57 million as reported due to an increase in Organic revenue*, partially offset by unfavorable foreign currency impacts. Organic revenue* grew 9% primarily due to growth in Monitoring Solutions and Anesthesia and Respiratory Care product lines due to an increase in price and supply chain fulfillment improvements; and
• PDx segment revenues were $568 million for the three months ended June 30, 2023, growing 19% or $90 million as reported due to an increase in Organic revenue*, partially offset by unfavorable foreign currency impacts. Organic revenue* grew 20%, with growth across all regions due to an increase in price and improving demand.

The regional revenues were as follows:

• USCAN revenues were $2,139 million for the three months ended June 30, 2023, growing 6% or $112 million as reported due to growth across all segment revenues;
• EMEA revenues were $1,216 million for the three months ended June 30, 2023, growing 9% or $98 million as reported due to growth in Imaging and PDx revenues;
• China region revenues were $714 million for the three months ended June 30, 2023, growing 12% or $78 million as reported due to growth across all segment revenues, partially offset by unfavorable foreign currency impacts; and
• Rest of World revenues were $748 million for the three months ended June 30, 2023, growing 6% or $45 million as reported due to growth in PDx and Imaging revenues, partially offset by unfavorable foreign currency impacts.

For the six months ended June 30, 2023

Total revenues were $9,524 for the six months ended June 30, 2023, growing 8% or $697 million as reported and 11% organically*. The reported growth was primarily due to Sales of products growing 11% or $654 million as reported with growth across all segment revenues.

The segment revenues were as follows:

• Imaging segment revenues were $5,116 million for the six months ended June 30, 2023, growing 7% or $356 million as reported due to an increase in Organic revenue*, partially offset by unfavorable foreign currency impacts. Organic revenue* grew 11% primarily due to growth in MI/CT and MR product lines, due to supply chain fulfillment improvements, stable demand in the past few quarters, new product introductions, and an increase in price;
• Ultrasound segment revenues were $1,698 million for the six months ended June 30, 2023, growing 3% or $55 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 Cardiovascular and Women's Health product lines due to new product introductions and supply chain fulfillment improvements;
• PCS segment revenues were $1,551 million for the six months ended June 30, 2023, growing 9% or $122 million as reported due to an increase in Organic revenue*, partially offset by unfavorable foreign currency impacts. Organic revenue* grew 10% with growth across all product lines driven by an increase in price and supply chain fulfillment improvements; and
• PDx segment revenues were $1,126 million for the six months ended June 30, 2023, growing 17% or $164 million as reported due to an increase in Organic revenue*, partially offset by unfavorable foreign currency impacts. Organic revenue* grew 20%, with growth across all regions due to improving demand and an increase in price.

The regional revenues were as follows:

• USCAN revenues were $4,222 million for the six months ended June 30, 2023, growing 6% or $252 million as reported due to growth across all segment revenues;
• EMEA revenues were $2,384 million for the six months ended June 30, 2023, growing 8% or $174 million as reported due to growth in Imaging and PDx revenues, partially offset by unfavorable foreign currency impacts;
• China region revenues were $1,386 million for the six months ended June 30, 2023, growing 15% or $181 million as reported due to growth across all segment revenues, partially offset by unfavorable foreign currency impacts; and
• Rest of World revenues were $1,532 million for the six months ended June 30, 2023, growing 6% or $90 million as reported due to growth in Imaging and PDx revenues, partially offset by unfavorable foreign currency impacts.

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 June 30, 2023 was flat to December 31, 2022.

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

For the three months ended June 30, 2023

Operating income was $570 million for the three months ended June 30, 2023, a decrease of $61 million or 230 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 $169 million but decreased 110 basis points as a percent of Sales of products. The decrease as a percent of sales was driven by an increase in pricing of our products and cost productivity, partially offset by continued cost inflation. Cost of services sold increased $20 million or 50 basis points as a percent of Sales of services. The increase as a percent of sales was driven by cost inflation, partially offset by cost productivity and an increase in pricing of our service offerings. Included in our total cost of revenue for the three months ended June 30, 2023, as part of our product investment, was $110 million in engineering costs for design follow-through on new product introductions and product lifecycle maintenance subsequent to the initial product launch, compared to $109 million for the three months ended June 30, 2022; and
• Total operating expenses increased $205 million due to an increase in Selling, general, and administrative (“SG&A”) expense of $164 million driven by increased costs associated with both the stand-up and operation as a standalone company and commercial and marketing investments and a planned increase in Research and Development (“R&D”) investments of $41 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 50 basis points.

Net income attributable to GE HealthCare and Net income margin were $418 million and 8.7%, for the three months ended June 30, 2023, a decrease of $67 million and 210 basis points, respectively, primarily due to the following factors:

• Operating income decreased $61 million, as discussed above;
• Interest and other financial charges – net increased $125 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, net, increased $122 million primarily related to the pension plans transferred to GE HealthCare as part of the Spin-Off; and
• Provision for income taxes decreased $16 million primarily due to the impact of lower income before taxes. For additional detail regarding our income taxes, see Note 10, “Income Taxes” to the condensed consolidated and combined financial statements.

Adjusted EBIT* and Adjusted EBIT margin* were $711 million and 14.8% for the three months ended June 30, 2023, a decrease of $8 million and 120 basis points, respectively, primarily due to the increase in Total operating expenses as discussed above, excluding one-time spin-off and separation costs, partially offset by an increase in Total revenues.

Adjusted net income* was $419 million for the three months ended June 30, 2023, a decrease of $105 million primarily due to higher Interest and other financial charges – net.

For the six months ended June 30, 2023

Operating income was $1,129 million for the six months ended June 30, 2023, a decrease of $11 million or 100 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 $292 million but decreased 230 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 continued cost inflation. Cost of services sold increased $48 million or 80 basis points as a percent of Sales of services. The increase as a percent of sales was driven by cost inflation, partially offset by cost productivity and an increase in pricing of our service offerings. Included in our total cost of revenue for the six months ended June 30, 2023, as part of our product investment, was $220 million in engineering costs for design follow-through on new product introductions and product lifecycle maintenance subsequent to the initial product launch, compared to $214 million for the six months ended June 30, 2022; and
• Total operating expenses increased $368 million due to an increase in SG&A expense of $295 million driven by increased costs associated with both the stand-up and operation as a standalone company and commercial and marketing investments and a planned increase in R&D investments of $73 million. As a result, SG&A as a percentage of Total revenues increased by 160 basis points and R&D as a percentage of Total revenues increased by 40 basis points.

Net income attributable to GE HealthCare and Net income margin were $790 million and 8.3% for the six months ended June 30, 2023, a decrease of $84 million and 160 basis points, respectively, primarily due to the following factors:

• Operating income decreased $11 million, as discussed above;
• Interest and other financial charges – net increased $257 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, net, increased $235 million primarily related to the pension plans transferred to GE HealthCare as part of the Spin-Off; and
• Provision for income taxes increased $16 million primarily due to taxes accrued for the future repatriation of current earnings as well as a one-time charge for prior period earnings of certain of our foreign subsidiaries, partially offset by the impact of lower income before taxes. For additional detail regarding our income taxes, see Note 10, “Income Taxes” to the condensed consolidated and combined financial statements.

Adjusted EBIT* and Adjusted EBIT margin* were $1,375 million and 14.4% for the six months ended June 30, 2023, an increase of $57 million but a decrease of 50 basis points, respectively, primarily due to an increase in Operating income excluding the impact of one-time spin-off and separation costs.

Adjusted net income* was $807 million for the six months ended June 30, 2023, a decrease of $154 million primarily due to higher Interest and other financial charges – net, partially offset by an increase in Operating Income as discussed above, excluding the impact of one-time spin-off and separation costs.

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 expenses, income tax expenses, restructuring costs, acquisition and disposition related charges (benefits), Spin-Off and separation costs, Non-operating benefit (income) costs, gain/loss of 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.

(a) 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 three months ended June 30, 2023

• Imaging Segment EBIT was $278 million for the three months ended June 30, 2023, a decrease of $28 million due to delivery of high-cost inventory from prior year purchases and planned investments, partially offset by cost productivity, growth in sales volume, and an increase in price;
• Ultrasound Segment EBIT was $191 million for the three months ended June 30, 2023, a decrease of $29 million due to cost inflation and planned investments, partially offset by cost productivity and an increase in price;
• PCS Segment EBIT was $84 million for the three months ended June 30, 2023, an increase of $3 million due to an increase in price, cost productivity, and growth in sales volume, largely offset by cost inflation and planned investments; and
• PDx Segment EBIT was $152 million for the three months ended June 30, 2023, an increase of $37 million due to an increase in price, growth in sales volume, and cost productivity, partially offset by cost inflation and planned investments.

For the six months ended June 30, 2023

• Imaging Segment EBIT was $469 million for the six months ended June 30, 2023, a decrease of $43 million due to delivery of high-cost inventory from prior year purchases, planned investments, and mix between our product and service offerings, partially offset by cost productivity, growth in sales volume, and an increase in price;
• Ultrasound Segment EBIT was $398 million for the six months ended June 30, 2023, a decrease of $14 million due to cost inflation and planned investments, partially offset by cost productivity and an increase in price;
• PCS Segment EBIT was $193 million for the six months ended June 30, 2023, an increase of $47 million due to cost productivity, an increase in price, and growth in sales volume, partially offset by cost inflation and planned investments; and
• PDx Segment EBIT was $307 million for the six months ended June 30, 2023, an increase of $54 million due to an increase in price, growth in sales volume, and cost productivity, partially offset by cost inflation and planned investments.

NON-GAAP FINANCIAL MEASURES

The non-GAAP financial measures presented in this Quarterly Report on Form 10-Q 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 of our core, top-line operating results and greater visibility into 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, that can 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, that can 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, that can 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.

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 condensed combined financial statements and related notes. Additionally, Free cash flow does not represent residual cash flows available for discretionary expenditures, due to the fact 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.

(a) Represents revenues attributable to acquisitions from the date we completed the transaction through the end of four quarters following the transaction.

(b) Represents revenues attributable to dispositions for the four quarters preceding the disposition date.

(a) Consists of severance, facility closures, and other charges associated with restructuring programs.

(b) 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.

(c) Costs incurred in the Spin-Off and separation from GE, including system implementations, audit and advisory fees, legal entity separation, Founders Grant equity awards, and other one-time costs.

(d) Consists of gains and losses resulting from the sale of assets and investments.

(e) Primarily relates to valuation adjustments for equity investments.

(a) Consists of severance, facility closures, and other charges associated with restructuring programs.

(b) 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.

(c) Costs incurred in the Spin-Off and separation from GE, including system implementations, audit and advisory fees, legal entity separation, Founders Grant equity awards, and other one-time costs.

(d) Consists of gains and losses resulting from the sale of assets and investments.

(e) Primarily relates to valuation adjustments for equity investments.

(f) Consists of certain income tax adjustments, including the accrual of a deferred tax liability on the prior period earnings of certain of our foreign subsidiaries for which we are no longer permanently reinvested.

(In dollars, except shares outstanding presented in millions)

(a) Consists of severance, facility closures, and other charges associated with restructuring programs.

(b) 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.

(c) Costs incurred in the Spin-Off and separation from GE, including system implementations, audit and advisory fees, legal entity separation, Founders Grant equity awards, and other one-time costs.

(d) Consists of gains and losses resulting from the sale of assets and investments.

(e) Primarily relates to valuation adjustments for equity investments.

(f) Consists of certain income tax adjustments, including the accrual of a deferred tax liability on the prior period earnings of certain of our foreign subsidiaries for which we are no longer permanently reinvested.

(g) Adjusted earnings per share* amounts are computed independently, thus, the sum of per-share amounts may not equal the total.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2023, our Cash, cash equivalents, and restricted cash balance was $1,939 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 8, "Borrowings" to the condensed 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:

Operating Activities

Cash generated from operating activities from continuing operations was $401 million for the six months ended June 30, 2023 and $449 million for the six months ended June 30, 2022.

Cash generated from operating activities in the six months ended June 30, 2023 included Net income of $816 million, non-cash charges for depreciation and amortization of $313 million, and $728 million outflow from changes in assets and liabilities, primarily driven by bi-annual cash paid for interest for senior unsecured notes, an increase in inventory and an increase in company funded benefit payments for postretirement benefit plans.

Cash generated from operating activities in the six months ended June 30, 2022 included Net income of $888 million, non-cash charges for depreciation and amortization of $316 million, and $755 million outflow from changes in assets and liabilities, primarily driven by an increase in inventory and higher cash taxes paid, partially offset by an increase in accounts payable.

Investing Activities

Cash used for investing activities from continuing operations was $350 million for the six months ended June 30, 2023 and $185 million for the six months ended June 30, 2022.

Cash used for investing activities in the six months ended June 30, 2023 primarily included additions to PP&E of $213 million related primarily to new product introductions, manufacturing capacity expansion, 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 artificial intelligence ("AI") company whose technology expands access to AI-guided ultrasound screening for novice users.

Cash used for investing activities from continuing operations was $185 million in the six months ended June 30, 2022, and included additions to PP&E of $159 million related primarily to new product introductions and manufacturing capacity expansion.

Financing Activities

Cash generated from financing activities from continuing operations was $446 million for the six months ended June 30, 2023 and cash used for financing activities from continuing operations was $280 million for the six months ended June 30, 2022.

Cash used for financing activities primarily included $1,317 million and $225 million of transfers to GE in the six months ended June 30, 2023 and 2022, respectively, and $211 million of Redemption of noncontrolling interests in the six months ended June 30, 2023, offset by newly issued debt of $2,000 million in the six months ended June 30, 2023.

Free cash flow*

Free cash flow* was $189 million for the six months ended June 30, 2023 and primarily included $401 million of cash generated from operating activities in the six months ended June 30, 2023, partially offset by $213 million of cash used for capital expenditures in the six months ended June 30, 2023.

Free cash flow* was $293 million for the six months ended June 30, 2022 and primarily included $449 million of cash generated from operating activities in the six months ended June 30, 2022, partially offset by $159 million of cash used for capital expenditures in the six months ended June 30, 2022.

Capital Expenditures

Cash used for capital expenditures was $213 million and $159 million for the six months ended June 30, 2023 and 2022, respectively. Capital expenditures were primarily for manufacturing capacity expansion, equipment and tooling for new and existing products.

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 8, “Borrowings,” and Note 13, “Commitments, Guarantees, Product Warranties, and Other Loss Contingencies,” to the condensed consolidated and combined financial statements contained elsewhere in this Quarterly Report on Form 10-Q, as well as Note 7, “Leases,” disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Additionally, we have material cash requirements related to our pension obligations as described in Note 9, “Postretirement Benefit Plans,” to the condensed consolidated and combined financial statements in this Quarterly Report on Form 10-Q.

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 June 30, 2023, we had $10,238 million of total debt compared to $8,250 million as of December 31, 2022.

The weighted average interest rates for the Notes and our Credit Facilities for the six months ended June 30, 2023 was 5.98%. We had no principal debt repayments on the Notes or the Term Loan Facility for the six months ended June 30, 2023.

Our credit facilities include a five-year senior unsecured revolving facility that provides borrowings of up to $2,500 million expiring in November 2028, and a 364-day senior unsecured revolving facility that provides borrowings of up to $1,000 million expiring in November 2023.

The Credit Facilities include various customary covenants that limit, among other things, the incurrence of liens, the entry into certain fundamental change transactions by GE HealthCare, and the maximum permitted leverage ratio. As of June 30, 2023, we were in compliance with the covenant requirements, including the maximum permitted leverage ratio.

For additional details on debt and credit facilities, see Note 8, “Borrowings” to the condensed 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 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 the date of this filing are set forth in the table below.

We are disclosing our credit ratings to enhance 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 1, “Organization and Basis of Presentation” to the condensed consolidated and combined financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

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 condensed consolidated and combined financial statements in conformity with U.S. GAAP.

To prepare our condensed 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 condensed 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.

Management believes that there have been no significant changes during the six months ended June 30, 2023 to the items that we disclosed as our critical accounting estimates in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

We are exposed to market risk primarily from changes in interest rates and foreign currency exchange rates, which may impact future income, cash flows, and fair value of our business. In certain situations, we may seek to reduce cash flow volatility associated with changes in interest rates and foreign currency exchange rates by entering into financial arrangements intended to provide a hedge against a portion of the risks associated with such volatility. We continue to have exposure to such risks to the extent they are not hedged. We enter into derivative financial arrangements to the extent they meet the objective described above, and we do not use derivatives for trading or speculative purposes.

See Note 12, “Financial Instruments and Fair Value Measurements” for further information about our risk exposures, our use of derivatives, and the effects of this activity on our financial statements.

Under the direction of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), we have evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2023 (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on their evaluation, our CEO and CFO concluded that, as of June 30, 2023, our disclosure controls and procedures were effective.

We relied on certain material processes and internal controls over financial reporting performed by GE prior to the Spin-Off. Following the Spin-Off, new corporate and governance functions were implemented in order to meet the regulatory requirements of a standalone public company, such as external reporting, treasury, and stock administration. There were no changes in our internal control over financial reporting during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.