GE HealthCare Technologies (GEHC) - 2024 Q4 - Annual Report

Part I Business GE HealthCare is a leading global provider of medical technology and diagnostics, operating in four key segments - GE HealthCare is a leading global healthcare solutions provider with approximately 53,000 employees, operating in over 160 countries[17][19] - The company is organized into four business segments: Imaging, Advanced Visualization Solutions (AVS), Patient Care Solutions (PCS), and Pharmaceutical Diagnostics (PDx)[19] - Effective July 1, 2024, the Image Guided Therapies (IGT) unit was realigned from the Imaging segment to the newly renamed Advanced Visualization Solutions segment[22] - Primary global competitors include Siemens Healthineers, Philips Healthcare, Canon, Mindray, and United Imaging, with Bayer, Bracco, Guerbet, and Curium as key competitors in the PDx segment[45] Our Segments The company's operations are structured into four key segments, offering diverse medical devices, solutions, and diagnostics - Imaging: Provides scanning devices and solutions across five product lines: Molecular Imaging (MI), Computed Tomography (CT), Magnetic Resonance (MR), Women's Health, and X-ray[23][24] - Advanced Visualization Solutions (AVS): Focuses on ultrasound, image-guided therapies, and interventional solutions, serving areas like Specialized Ultrasound and Procedural Guidance[27][28] - Patient Care Solutions (PCS): Offers a broad portfolio for patient monitoring, diagnostic cardiology, maternal infant care, and anesthesia, complemented by consumables and digital solutions[32][33] - Pharmaceutical Diagnostics (PDx): A leading supplier of contrast media and radiopharmaceuticals used in conjunction with imaging modalities like CT, MR, and PET scans[35][37] Human Capital GE HealthCare employs approximately 53,000 people globally, prioritizing workforce health, culture, talent attraction, and retention - The company has a global workforce of approximately 53,000 colleagues, with the largest concentrations in the United States (17,000) and China (7,000)[46][48] - Key human capital priorities include protecting workforce health and safety, evolving company culture, attracting and developing talent, and retaining employees with competitive rewards[47][52] Regulation The company's operations are subject to stringent global regulations, including medical device, data privacy, and anti-corruption laws - The development, manufacturing, and sale of products are subject to stringent government regulation, with the most significant regions being the U.S. (FDA), European Union (EMA), and China (NMPA)[55][56] - The company is subject to a wide range of data privacy laws, including HIPAA in the U.S., GDPR in the EU, and China's PIPL & DSL, governing personal and patient health data[59][60] - Compliance with global healthcare laws is critical, including U.S. federal laws against kickbacks (AKS) and false claims (FCA), as well as anti-corruption laws like the FCPA and U.K. Bribery Act[64][65] Risk Factors The company faces significant risks from intense competition, global instability, supply chain complexities, and regulatory compliance - Industry and Economic Risks: The company operates in highly competitive markets and is sensitive to global geopolitical instability, public health crises, and efforts by payers to control healthcare costs[89][97][104] - Business and Operational Risks: Challenges include managing the supply chain for key materials, integrating strategic acquisitions, mitigating cybersecurity threats, and protecting intellectual property[119][132][145] - Legal and Regulatory Risks: The business is tightly regulated by the FDA and global equivalents, facing risks from non-compliance with anti-corruption, anti-kickback, and data privacy laws, and potential product liability claims[164][171][194] - Financing and General Risks: Risks include managing significant debt obligations, postretirement benefit liabilities, potential conflicts of interest, and the tax-free status of the Spin-Off from GE[159][206][209] Cybersecurity GE HealthCare manages cybersecurity risks through an enterprise risk management program overseen by the Audit Committee - Cybersecurity risk is managed through an enterprise risk management (ERM) program that includes risk identification, mitigation strategies, and incident response plans[222][225] - The Audit Committee of the Board of Directors oversees cybersecurity-related risks and receives regular reports from management, including the Chief Information Officer (CIO) and Chief Information Security Officer (CISO)[228] - The company's cybersecurity program is measured against the National Institute of Standards and Technology (NIST) Cyber Security Framework, and controls and incident response plans are regularly tested[224] - To date, the company is not aware of any cybersecurity incident that has had or is reasonably likely to have a material impact on its business, operations, or financial condition[227] Properties GE HealthCare operates globally with headquarters in Chicago and over 300 facilities, including 43 manufacturing sites across 17 countries - The company has 43 manufacturing, assembly, and pharmaceutical production facilities in 17 countries, with 15 located in the U.S. and 28 located internationally[230] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities GE HealthCare's common stock trades on Nasdaq under "GEHC," with 189,289 stockholders and consistent quarterly dividends - The company's common stock is traded on Nasdaq under the symbol "GEHC"[233] - As of February 6, 2025, there were 189,289 stockholders of record[235] - Quarterly dividends of $0.03 per share were paid for Q1, Q2, and Q3 2024, with $0.035 per share declared for Q4 2024[237] Management's Discussion and Analysis of Financial Condition and Results of Operations For FY2024, total revenues grew 1% to $19.7 billion, net income increased 27% to $2.0 billion, and free cash flow was $1.6 billion - Key trends impacting performance include the Russia-Ukraine conflict, market developments in China (delayed 2024 stimulus and anti-corruption campaign), and tariffs[245][247][248] - As a stand-alone company, GE HealthCare has incurred additional costs for external reporting, internal audit, and other corporate functions, and has instituted new competitive compensation programs[252][253] Key Performance Measures (FY 2024 vs. FY 2023) | Metric | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $19,672M | $19,552M | 1% | | Operating Income | $2,625M | $2,435M | 8% | | Net Income Attributable to GE HealthCare | $1,993M | $1,568M | 27% | | Adjusted EBIT* | $3,211M | $2,956M | 9% | | Adjusted Net Income* | $2,060M | $1,797M | 15% | | Free Cash Flow* | $1,554M | $1,715M | (9)% | Results of Operations In 2024, total revenues increased 1% to $19.7 billion, operating income rose 8% to $2.6 billion, and net income grew 27% to $2.0 billion Revenues by Segment (2024 vs. 2023) | Segment | 2024 Revenues | 2023 Revenues | % Change | | :--- | :--- | :--- | :--- | | Imaging | $8,855M | $8,944M | (1)% | | AVS | $5,131M | $5,094M | 1% | | PCS | $3,125M | $3,142M | (1)% | | PDx | $2,508M | $2,306M | 9% | | Total | $19,672M | $19,552M | 1% | Revenues by Region (2024 vs. 2023) | Region | 2024 Revenues | 2023 Revenues | % Change | | :--- | :--- | :--- | :--- | | USCAN | $8,981M | $8,551M | 5% | | EMEA | $5,051M | $5,058M | 0% | | China region | $2,360M | $2,785M | (15)% | | Rest of World | $3,280M | $3,158M | 4% | | Total | $19,672M | $19,552M | 1% | - Operating income for 2024 increased by $190 million, driven by a $283 million increase in gross profit from cost productivity and pricing, partially offset by a $106 million increase in R&D investments[264][267] - Net income attributable to GE HealthCare for 2024 increased by $425 million, benefiting from higher operating income, lower interest charges, and a $212 million decrease in the provision for income taxes[265] Results of Operations – Segments In 2024, Imaging EBIT grew 17% and PDx EBIT grew 27%, while AVS and PCS EBIT declined due to inflation and investments Segment EBIT (2024 vs. 2023) | Segment | 2024 EBIT | 2023 EBIT | % Change | | :--- | :--- | :--- | :--- | | Imaging | $962M | $821M | 17% | | AVS | $1,118M | $1,124M | (1)% | | PCS | $347M | $383M | (9)% | | PDx | $783M | $617M | 27% | Liquidity and Capital Resources As of December 31, 2024, the company held $2.9 billion in cash, $3.5 billion in credit facilities, and reduced total debt to $9.0 billion Cash Flow Summary (in millions) | Cash Flow Activity | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Operating Activities | $1,955 | $2,101 | $2,134 | | Investing Activities | $(914) | $(558) | $(398) | | Financing Activities | $(573) | $(478) | $(822) | | Free Cash Flow* | $1,554 | $1,715 | $1,828 | - Total debt decreased from $9.44 billion in 2023 to $8.95 billion in 2024, primarily due to repayments on the Term Loan Facility[316] - The company maintains investment-grade credit ratings: Baa2 (Stable) from Moody's, BBB (Stable) from S&P, and BBB (Stable) from Fitch[324] Critical Accounting Estimates Management identifies critical accounting estimates including revenue recognition, business combinations, postretirement benefits, and income taxes - Key critical accounting estimates include Revenue Recognition, Business Combination Related Measurements, Pension and Other Postretirement Benefits, and Income Taxes[326] - For pension benefits, a 50 basis point change in the discount rate would impact the 2024 PBO/APBO by approximately -$1.0 billion (increase) or +$1.1 billion (decrease)[336] - The company's determination of valuation allowances for deferred tax assets involves significant judgment regarding future taxable income[344] Quantitative and Qualitative Disclosures about Market Risk The company manages market risks from foreign currency, interest rates, commodity prices, and equity prices using derivative contracts - Primary market risks include foreign currency exchange rates (principally Euro, Chinese Renminbi, Japanese Yen), interest rates, commodity prices, and equity prices[347][348] - A hypothetical 100 basis point change in interest rates would change annual interest expense by approximately $35 million[354] - The company has executed interest rate swaps to synthetically convert $2,700 million of its fixed-rate senior unsecured notes to variable rates[355] - Commodity risk exists for raw materials such as helium, iodine, and rare earth minerals, with worldwide demand and pricing being volatile[356] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2022-2024, along with the independent auditor's report - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting[364][374] - The critical audit matter identified by the auditor was related to the valuation allowance on deferred tax assets, which required subjective judgment regarding the projection of future taxable income[368][369][370] Note 1. Organization and Basis of Presentation GE HealthCare became an independent public company on January 3, 2023, following its spin-off from General Electric - The spin-off from GE was completed on January 3, 2023, making GE HealthCare an independent public company[392] - Financial statements for the year ended December 31, 2022, were prepared on a combined, carve-out basis from GE's accounting records[396] Note 4. Segment and Geographical Information The company reports revenues across four segments, with Imaging as the largest, and geographically, the United States is the primary market Total Revenues by Segment (in millions) | Segment | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Imaging | $8,855 | $8,944 | $8,395 | | AVS | $5,131 | $5,094 | $5,012 | | PCS | $3,125 | $3,142 | $2,916 | | PDx | $2,508 | $2,306 | $1,958 | | Total | $19,672 | $19,552 | $18,341 | Total Revenues by Country (in millions) | Country | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | United States | $8,617 | $8,228 | $7,819 | | China | $2,135 | $2,560 | $2,325 | | All other countries | $8,919 | $8,764 | $8,197 | | Total | $19,672 | $19,552 | $18,341 | Note 8. Acquisitions, Goodwill, and Other Intangible Assets In 2024, the company acquired MIM Software for $283 million, resulting in $194 million of goodwill, with total goodwill at $13.1 billion - On April 1, 2024, the company acquired MIM Software for a total preliminary purchase price of $283 million, resulting in $194 million of goodwill[522] - As of December 31, 2024, the company had goodwill of $13.1 billion and other net intangible assets of $1.1 billion[527][529] Note 9. Borrowings As of December 31, 2024, total borrowings decreased to $9.0 billion, comprising senior unsecured notes and a term loan facility Borrowings Composition (as of Dec 31, 2024) | Instrument | Principal Amount | | :--- | :--- | | 5.600% senior notes due 2025 | $1,500M | | 5.650% senior notes due 2027 | $1,750M | | 4.800% senior notes due 2029 | $1,000M | | 5.857% senior notes due 2030 | $1,250M | | 5.905% senior notes due 2032 | $1,750M | | 6.377% senior notes due 2052 | $1,000M | | Floating rate Term Loan Facility due 2026 | $750M | | Total Principal Debt | $9,036M | - The company has access to a $2.5 billion five-year revolving credit facility and a $1.0 billion 364-day revolving credit facility, with no outstanding borrowings on either as of year-end 2024[537][538] Note 10. Postretirement Benefit Plans GE HealthCare assumed significant pension and postretirement obligations from GE, with a total plan deficit of $4.6 billion as of year-end 2024 Total Postretirement Plan Funded Status (as of Dec 31, 2024) | Plan Type | Projected Benefit Obligations | Fair Value of Plan Assets | Funded Status (Deficit) | | :--- | :--- | :--- | :--- | | U.S. Plans | $18,241M | $14,378M | $(3,863)M | | International Plans | $2,957M | $3,276M | $319M | | OPEB Plans | $1,016M | $— | $(1,016)M | | Total | $22,214M | $17,654M | $(4,561)M | - The company assumed pension and other postretirement obligations from GE on January 1, 2023, as part of the Spin-Off[547] - The company expects to make total cash contributions of approximately $327 million to its postretirement plans in 2025[556] Note 11. Income Taxes For 2024, the effective tax rate decreased to 20.6% due to a valuation allowance release, with $551 million in unrecognized tax benefits Income Tax Reconciliation | Item | 2024 | 2023 | | :--- | :--- | :--- | | Income before taxes | $2,581M | $2,361M | | Provision for income taxes | $531M | $743M | | Effective tax rate | 20.6% | 31.5% | - The valuation allowance on deferred tax assets decreased by $310 million in 2024, primarily due to a $295 million release of the valuation allowance in France[596] - The balance of unrecognized tax benefits was $551 million as of December 31, 2024, an increase from $409 million in 2023, largely due to reserves established for ongoing audits[589] Note 14. Commitments, Guarantees, Product Warranties, and Other Loss Contingencies The company is involved in legal proceedings, including potential FCPA violations, and manages product warranty and asset retirement obligations - The company made voluntary self-disclosures to the SEC and DOJ regarding potential FCPA violations in China and is engaged in ongoing discussions with the agencies[646] - The product warranty liability balance was $168 million as of December 31, 2024, down from $192 million at the end of 2023[643] - Asset retirement obligations, primarily for nuclear decommissioning, totaled $292 million as of December 31, 2024[648] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2024 - Management concluded that disclosure controls and procedures were effective as of December 31, 2024[701] - Management's assessment concluded that internal control over financial reporting was effective as of December 31, 2024, which was also audited by Deloitte & Touche LLP[702][703] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the definitive proxy statement - Required information is incorporated by reference to the company's definitive proxy statement[708] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement - Required information is incorporated by reference to the company's definitive proxy statement[709] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the company's definitive proxy statement - Required information is incorporated by reference to the company's definitive proxy statement[710] Certain Relationships and Related Transactions, and Director Independence Information regarding related transactions and director independence is incorporated by reference from the company's definitive proxy statement - Required information is incorporated by reference to the company's definitive proxy statement[711] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's definitive proxy statement - Required information is incorporated by reference to the company's definitive proxy statement[712] Part IV Exhibits and Financial Statement Schedules This section lists financial statements and exhibits, noting the omission of certain schedules as information is already provided - Financial statement schedules required by Regulation S-X are omitted because they are not applicable or the information is included in the financial statements or notes[714] - A comprehensive list of exhibits is provided, including the Separation and Distribution Agreement with GE, the company's Certificate of Incorporation and Bylaws, various debt indentures, and numerous management compensation plans and agreements[715][717][720] Form 10-K Summary The company has elected not to voluntarily include a summary of the information required by Form 10-K under this item - The Company has elected not to include a summary of the Form 10-K[719]