NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Reporting Entity

HCA Holdings, Inc. is a holding company whose affiliates own and operate hospitals and related health care entities. The term “affiliates” includes direct and indirect subsidiaries of HCA Holdings, Inc. and partnerships and joint ventures in which such subsidiaries are partners. At June 30, 2014, these affiliates owned and operated 165 hospitals, 115 freestanding surgery centers and provided extensive outpatient and ancillary services. HCA Holdings, Inc.’s facilities are located in 20 states and England. The terms “Company,” “HCA,” “we,” “our” or “us,” as used herein and unless otherwise stated or indicated by context, refer to HCA Holdings, Inc. and its affiliates. The terms “facilities” or “hospitals” refer to entities owned and operated by affiliates of HCA and the term “employees” refers to employees of affiliates of HCA.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring nature.

The majority of our expenses are “costs of revenues” items. Costs that could be classified as general and administrative would include our corporate office costs, which were $67 million and $65 million for the quarters ended June 30, 2014 and 2013, respectively, and $135 million and $131 million for the six months ended June 30, 2014 and 2013, respectively. Operating results for the quarter and the six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. For further information, refer to the consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended December 31, 2013.

Revenues are recorded during the period the health care services are provided, based upon the estimated amounts due from the patients and third-party payers. Third-party payers include federal and state agencies (under Medicare, Medicaid and other programs), managed care health plans (includes the health insurance exchanges, beginning with the first quarter of 2014), commercial insurance companies and employers. Estimates of contractual allowances under managed care health plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record a provision for doubtful accounts related to uninsured accounts to record the net self pay revenues at the estimated amounts we expect to collect. Our revenues from third-party payers and the uninsured for the quarters and six months ended June 30, 2014 and 2013 are summarized in the following table (dollars in millions):


	Quarter
	2014			Ratio			2013			Ratio
Medicare	$	2,040			22.1	%	$	1,976			23.4	%
Managed Medicare		906			9.8			804			9.5
Medicaid		588			6.4			365			4.3
Managed Medicaid		452			4.9			378			4.5
Managed care and other insurers		4,959			53.8			4,655			55.1
International (managed care and other insurers)		334			3.6			291			3.4

		9,279			100.6			8,469			100.2
Uninsured		318			3.4			693			8.2
Other		361			3.9			311			3.7

Revenues before provision for doubtful accounts		9,958			107.9			9,473			112.1
Provision for doubtful accounts		(728	)		(7.9	)		(1,023	)		(12.1	)

Revenues	$	9,230			100.0	%	$	8,450			100.0	%


	Six Months
	2014			Ratio			2013			Ratio
Medicare	$	4,165			23.1	%	$	4,114			24.4	%
Managed Medicare		1,805			10.0			1,647			9.8
Medicaid		1,032			5.7			697			4.1
Managed Medicaid		873			4.8			779			4.6
Managed care and other insurers		9,669			53.5			9,141			54.1
International (managed care and other insurers)		660			3.7			581			3.4

		18,204			100.8			16,959			100.4
Uninsured		706			3.9			1,092			6.5
Other		731			4.0			616			3.6

Revenues before provision for doubtful accounts		19,641			108.7			18,667			110.5
Provision for doubtful accounts		(1,579	)		(8.7	)		(1,777	)		(10.5	)

Revenues	$	18,062			100.0	%	$	16,890			100.0	%

The increase in Medicaid revenues for the quarter and the six months ended June 30, 2014 compared to the quarter and six months ended June 30, 2013 was primarily due to our recording of $142 million, or $0.20 per diluted share, of Medicaid revenues related to the receipt of reimbursements in excess of our estimates for the indigent care component of the Texas Medicaid Waiver Program for the program year ended September 30, 2013.

Certain prior year amounts have been reclassified to conform to the current year presentation.

Recent Pronouncements

In May 2014, the Financial Accounting Standards Board and the International Accounting Standards Board issued a final, converged, principles-based standard on revenue recognition. Companies across all industries will use a new five-step model to recognize revenue from customer contracts. The new standard, which replaces nearly all existing United States Generally Accepted Accounting Principles (“US GAAP”) and International Financial Reporting Standards revenue recognition guidance, will require significant management judgment in addition to changing the way many companies recognize revenue in their financial statements. The standard is effective for public entities for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted under US GAAP. We are evaluating the effects the adoption of this standard will have on our financial statements and financial disclosures.