NOTE 1 — INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reporting Entity

On November 17, 2006, HCA Inc. was acquired by a private investor group, including affiliates of or funds sponsored by Bain Capital Partners, LLC, Kohlberg Kravis Roberts & Co., BAML Capital Partners and HCA founder, Dr. Thomas F. Frist Jr. and by members of management and certain other investors. The transaction was accounted for as a recapitalization in our financial statements, with no adjustments to the historical basis of our assets and liabilities.

On November 22, 2010, HCA Inc. reorganized by creating a new holding company structure (the “Corporate Reorganization”). HCA Holdings, Inc. became the new parent company, and HCA Inc. became HCA Holdings, Inc.’s 100% owned direct subsidiary. As part of the Corporate Reorganization, HCA Inc.’s outstanding shares of common stock were automatically converted, on a share for share basis, into identical shares of HCA Holdings, Inc.’s common stock. As a result of the Corporate Reorganization, HCA Holdings, Inc. was deemed the successor registrant to HCA Inc. under the Securities Exchange Act of 1934.

During March 2011, we completed the initial public offering of 87,719,300 shares of our common stock. Upon the completion of a secondary offering in February 2013, we no longer qualify as a “controlled company” under the applicable New York Stock Exchange (“NYSE”) listing standards and will be required to appoint a board of directors comprised of a majority of independent members within one year of such date. Our common stock is traded on the NYSE (symbol “HCA”).

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 September 30, 2013, these affiliates owned and operated 162 hospitals, 114 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 Inc. and its affiliates prior to the Corporate Reorganization and to HCA Holdings, Inc. and its affiliates after the Corporate Reorganization. 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 $76 million and $62 million for the quarters ended September 30, 2013 and 2012, respectively, and $207 million and $174 million for the nine months ended September 30, 2013 and 2012, respectively. Operating results for the quarter and the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. 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, 2012.

Basis of Presentation (continued)

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, 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 nine months ended September 30, 2013 and 2012 are summarized in the following table (dollars in millions):


	Quarter
	2013			Ratio			2012			Ratio
Medicare	$	1,847			21.8	%	$	1,949			24.2	%
Managed Medicare		794			9.4			720			8.9
Medicaid		401			4.7			378			4.7
Managed Medicaid		386			4.6			380			4.7
Managed care and other insurers		4,636			54.8			4,422			54.8
International (managed care and other insurers)		287			3.4			253			3.1

		8,351			98.7			8,102			100.4
Uninsured		717			8.5			576			7.1
Other		343			4.1			215			2.7

Revenues before provision for doubtful accounts		9,411			111.3			8,893			110.2
Provision for doubtful accounts		(955	)		(11.3	)		(831	)		(10.2	)

Revenues	$	8,456			100.0	%	$	8,062			100.0	%


	Nine Months
	2013			Ratio			2012			Ratio
Medicare	$	5,961			23.5	%	$	6,251			25.4	%
Managed Medicare		2,441			9.6			2,199			8.9
Medicaid		1,098			4.3			1,188			4.8
Managed Medicaid		1,165			4.6			1,080			4.4
Managed care and other insurers		13,777			54.4			13,340			54.3
International (managed care and other insurers)		868			3.4			779			3.2

		25,310			99.8			24,837			101.0
Uninsured		1,809			7.1			1,757			7.1
Other		959			3.8			651			2.7

Revenues before provision for doubtful accounts		28,078			110.7			27,245			110.8
Provision for doubtful accounts		(2,732	)		(10.7	)		(2,666	)		(10.8	)

Revenues	$	25,346			100.0	%	$	24,579			100.0	%

Medicare revenues for the nine months ended September 30, 2012 were impacted by two adjustments to Medicare revenues (the Rural Floor Provision Settlement which increased revenues by approximately $271 million and the implementation of revised Supplemental Security Income ratios which reduced revenues by approximately $83 million). The net effect of these Medicare adjustments was an increase of $188 million to revenues. The net effect of these adjustments (and related expenses) added $170 million to income before income taxes, or $0.22 per diluted share, for the nine months ended September 30, 2012.

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