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 September 30, 2015, these affiliates owned and operated 168 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 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 $79 million and $71 million for the quarters ended September 30, 2015 and 2014, respectively, and $237 million and $206 million for the nine months ended September 30, 2015 and 2014, respectively. Operating results for the quarter and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. 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, 2014.

Revenues

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), 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, the uninsured and other payers for the quarters and nine months ended September 30, 2015 and 2014 are summarized in the following table (dollars in millions):


	Quarter
	2015			Ratio			2014			Ratio
Medicare	$	2,122			21.5	%	$	2,120			23.0	%
Managed Medicare		1,031			10.5			901			9.8
Medicaid		402			4.1			372			4.0
Managed Medicaid		553			5.6			510			5.5
Managed care and other insurers		5,457			55.4			5,073			55.0
International (managed care and other insurers)		316			3.2			323			3.5

		9,881			100.3			9,299			100.8
Uninsured		695			7.0			313			3.4
Other		438			4.4			366			4.0

Revenues before provision for doubtful accounts		11,014			111.7			9,978			108.2
Provision for doubtful accounts		(1,158	)		(11.7	)		(758	)		(8.2	)

Revenues	$	9,856			100.0	%	$	9,220			100.0	%


	Nine Months
	2015			Ratio			2014			Ratio
Medicare	$	6,500			22.1	%	$	6,285			23.0	%
Managed Medicare		3,099			10.5			2,706			9.9
Medicaid		1,262			4.3			1,404			5.1
Managed Medicaid		1,673			5.7			1,383			5.1
Managed care and other insurers		16,134			54.8			14,742			54.0
International (managed care and other insurers)		964			3.3			983			3.6

		29,632			100.7			27,503			100.7
Uninsured		1,321			4.5			1,019			3.7
Other		1,315			4.5			1,097			4.0

Revenues before provision for doubtful accounts		32,268			109.7			29,619			108.4
Provision for doubtful accounts		(2,839	)		(9.7	)		(2,337	)		(8.4	)

Revenues	$	29,429			100.0	%	$	27,282			100.0	%

The decline in Medicaid revenues for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 was primarily due to our recording of an adjustment to increase Medicaid revenues during the quarter ended June 30, 2014 by $142 million, or $0.20 per diluted share, 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.

Recent Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board issued a final, converged, principles-based standard on revenue recognition. Companies across all industries will use a 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 was originally scheduled to become effective for public entities for annual and interim periods beginning after December 15, 2016. Early adoption was originally not to be permitted under US GAAP. In July 2015, the FASB decided to defer the effective date of the new revenue standard by one year, but will permit entities to adopt one year earlier if they choose (i.e., the original effective date). The FASB decided, based on its outreach to various stakeholders and forthcoming exposure drafts, which amend the new revenue standard, that a deferral was necessary to provide adequate time to effectively implement the new standard. We are continuing to evaluate the effects the adoption of this standard will have on our financial statements and financial disclosures.

In April 2015, the FASB issued Accounting Standards Update 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), which requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The guidance in the new standard is limited to the presentation of debt issuance costs. The recognition and measurement guidance for debt issuance costs are not affected by ASU 2015-03. We elected to adopt the new presentation in the first quarter of 2015, and the applicable prior year amounts have been reclassified in accordance with ASU 2015-03.

Reclassifications

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