HYATT HOTELS CORP, 10-Q filed on 5/3/2012
Quarterly Report
Document And Entity Information
3 Months Ended
Mar. 31, 2012
Apr. 30, 2012
Common Class A
Apr. 30, 2012
Common Class B
Entity Registrant Name
Hyatt Hotels Corp 
 
 
Entity Central Index Key
0001468174 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Document Type
10-Q 
 
 
Document Period End Date
Mar. 31, 2012 
 
 
Document Fiscal Year Focus
2012 
 
 
Document Fiscal Period Focus
Q1 
 
 
Amendment Flag
false 
 
 
Trading Symbol
 
 
Entity Common Stock, Shares Outstanding
 
45,905,217 
119,614,584 
Condensed Consolidated Statements Of Income (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
REVENUES:
 
 
Owned and leased hotels
$ 473 
$ 432 
Management and franchise fees
79 
70 
Other revenues
17 
14 
Other revenues from managed properties
389 
359 
Total revenues
958 
875 
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
 
 
Owned and leased hotels
377 
354 
Depreciation and amortization
86 
71 
Other direct costs
Selling, general, and administrative
93 
70 
Other costs from managed properties
389 
359 
Direct and selling, general, and administrative expenses
951 
858 
Net gains and interest income from marketable securities held to fund operating programs
14 
Equity earnings (losses) from unconsolidated hospitality ventures
(1)
Interest expense
(18)
(13)
Other income, net
12 
INCOME BEFORE INCOME TAXES
14 
16 
PROVISION FOR INCOME TAXES
(4)
(6)
NET INCOME
10 
10 
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
NET INCOME ATTRIBUTABLE TO HYATT HOTELS CORPORATION
$ 10 
$ 10 
EARNINGS PER SHARE - Basic
 
 
Net income - Basic
$ 0.06 
$ 0.06 
Net income attributable to Hyatt Hotels Corporation - Basic
$ 0.06 
$ 0.06 
EARNINGS PER SHARE - Diluted
 
 
Net income - Diluted
$ 0.06 
$ 0.06 
Net income attributable to Hyatt Hotels Corporation - Diluted
$ 0.06 
$ 0.06 
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
NET INCOME
$ 10 
$ 10 
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax
18 
23 
Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, Net of Tax
Other Comprehensive Income (Loss), Net of Tax
20 
23 
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest
30 
33 
Comprehensive Income (Loss), Net of Tax, Attributable to Noncontrolling Interest
Comprehensive Income (Loss), Net of Tax, Attributable to Parent
$ 30 
$ 33 
Condensed Consolidated Statements of Comprehensive Income (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment, Tax
$ 0 
$ 2 
Other Comprehensive Income (Loss), Available-for-sale Securities, Tax
$ 1 
$ 0 
Condensed Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
ASSETS
 
 
Cash and cash equivalents
$ 542 
$ 534 
Restricted cash
38 
27 
Short-term investments
509 
588 
Receivables, net of allowances of $9 and $10 at March 31, 2012 and December 31, 2011, respectively
267 
225 
Inventories
86 
87 
Prepaids and other assets
82 
78 
Prepaid income taxes
34 
29 
Deferred tax assets
23 
23 
Total current assets
1,581 
1,591 
Investments
300 
280 
Property and equipment, net
4,040 
4,043 
Financing receivables, net of allowances
361 
360 
Goodwill
102 
102 
Intangibles, net
364 
359 
Deferred tax assets
240 
197 
Other assets
574 
575 
TOTAL ASSETS
7,562 
7,507 
LIABILITIES AND EQUITY
 
 
Current maturities of long-term debt
Accounts payable
130 
144 
Accrued expenses and other current liabilities
315 
306 
Accrued compensation and benefits
99 
114 
Total current liabilities
548 
568 
Long-term debt
1,220 
1,221 
Other long-term liabilities
930 
890 
Total liabilities
2,698 
2,679 
Commitments and contingencies (see Note 11)
   
   
EQUITY:
 
 
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding as of March 31, 2012 and December 31, 2011
Common stock
Additional paid-in capital
3,386 
3,380 
Retained earnings
1,527 
1,517 
Treasury stock at cost, 36,273 shares at March 31, 2012 and December 31, 2011
(1)
(1)
Accumulated other comprehensive income (loss)
(60)
(80)
Total stockholders' equity
4,854 
4,818 
Noncontrolling interests in consolidated subsidiaries
10 
10 
Total equity
4,864 
4,828 
TOTAL LIABILITIES AND EQUITY
$ 7,562 
$ 7,507 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Allowance for receivables
$ 9 
$ 10 
Preferred stock, par value
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
10,000,000 
10,000,000 
Common Class A
 
 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
1,000,000,000 
1,000,000,000 
Common stock, outstanding
45,873,635 
44,683,934 
Common stock, issued
45,909,908 
44,720,207 
Treasury stock, shares
36,273 
36,273 
Common Class B
 
 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
452,472,717 
452,472,717 
Common stock, outstanding
119,614,584 
120,478,305 
Common stock, issued
119,614,584 
120,478,305 
Condensed Consolidated Statements Of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
NET INCOME
$ 10 
$ 10 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
86 
71 
Deferred income taxes
(5)
Equity losses from unconsolidated hospitality ventures, including distributions received
Foreign currency losses
Net unrealized (gains) losses from other marketable securities
(8)
Working capital changes and other
(36)
(40)
Net cash provided by operating activities of continuing operations
61 
41 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
Purchases of marketable securities and short-term investments
(19)
(89)
Proceeds from marketable securities and short-term investments
110 
82 
Contributions to investments
(22)
(9)
Capital expenditures
(95)
(46)
Proceeds from sale of assets held for sale
18 
Real estate sale proceeds transferred from escrow to cash and cash equivalents
15 
Increase in restricted cash - investing
(10)
(3)
Other investing activities
(13)
(7)
Net cash used in investing activities of continuing operations
(49)
(39)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
Proceeds from issuance of debt, net of issuance costs
25 
Repayments of long-term debt
(1)
Net cash provided by (used in) financing activities of continuing operations
24 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(4)
NET DECREASE IN CASH AND CASH EQUIVALENTS
26 
CASH AND CASH EQUIVALENTS-BEGINNING OF YEAR
534 
1,110 
CASH AND CASH EQUIVALENTS CONTINUING OPERATIONS-END OF PERIOD
542 
1,136 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
Cash paid during the period for interest
30 
19 
Cash paid during the period for income taxes
17 
Non-cash investing activities are as follows:
 
 
Equity contribution of property and equipment, net (see Note 6)
10 
Equity contribution of long-term debt (see Note 6)
25 
Change in accrued capital expenditures
$ (34)
$ 11 
Organization
Organization
ORGANIZATION
Hyatt Hotels Corporation, a Delaware corporation, and its consolidated subsidiaries (“Hyatt Hotels Corporation”) provide hospitality services on a worldwide basis through the management, franchising and ownership of hospitality related businesses. As of March 31, 2012, we operate or franchise 247 full service hotels consisting of 102,932 rooms, in 45 countries throughout the world. We hold ownership interests in certain of these hotels. As of March 31, 2012, we operate or franchise 218 select service hotels with 28,564 rooms in the United States. We hold ownership interests in certain of these hotels. We develop, operate, manage, license or provide services to Hyatt-branded timeshare, fractional and other forms of residential or vacation properties.
As used in these Notes and throughout this Quarterly Report on Form 10-Q, the terms “Company,” “HHC,” “we,” “us,” or “our” mean Hyatt Hotels Corporation and its consolidated subsidiaries.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information or footnotes required by GAAP for complete annual financial statements. As a result, this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (the “2011 Form 10-K”).
We have eliminated all intercompany transactions in our condensed consolidated financial statements. We consolidate entities for which we either have a controlling financial interest or are considered to be the primary beneficiary.
Management believes that the accompanying condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods.
Recently Issued Accounting Standards
Recently Issued Accounting Standards
RECENTLY ISSUED ACCOUNTING STANDARDS
Adopted Accounting Standards
Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards. The amendments in ASU 2011-04 clarify the intent of the Financial Accounting Standards Board ("FASB") with regard to the application of existing fair value measurement requirements and change some requirements for measuring or disclosing information about fair value measurements. The provisions of ASU 2011-04 became effective for public companies in the first reporting period beginning after December 15, 2011. The adoption of ASU 2011-04 enhanced the disclosure of the fair value of certain financial assets and liabilities that are not required to be recorded at fair value within our financial statements. See Note 4 for discussion of fair value.
In June 2011, the FASB released Accounting Standards Update No. 2011-05 (“ASU 2011-05”), Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU 2011-05 requires companies to present total comprehensive income, the components of net income, and the components of other comprehensive income in either a continuous statement or in two separate but consecutive statements. The amendments of ASU 2011-05 eliminate the option for companies to present the components of other comprehensive income within the statement of changes of stockholders' equity. The provisions of ASU 2011-05 became effective for public companies in fiscal years beginning after December 15, 2011. The adoption of ASU 2011-05 changed our presentation of comprehensive income within our condensed consolidated financial statements.
In September 2011, the FASB released Accounting Standards Update No. 2011-08 (“ASU 2011-08”), Intangibles-Goodwill and Other (Topic 350): Testing for Goodwill Impairment. ASU 2011-08 gives companies the option to perform a qualitative assessment before calculating the fair value of the reporting unit. Under the guidance in ASU 2011-08, if this option is selected, a company is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The provisions of ASU 2011-08 became effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, but early adoption was permitted. We adopted ASU 2011-08 during the quarter ended March 31, 2012, but since our annual goodwill impairment test is not performed until the fourth quarter we did not apply its provisions during the quarter ended March 31, 2012. We do not expect ASU 2011-08 to materially impact our condensed consolidated financial statements.
In December 2011, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update No. 2011-12 (“ASU 2011-12”), Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The provisions of ASU 2011-12 became effective for public companies in fiscal years beginning after December 15, 2011. The adoption of ASU 2011-12 did not materially impact our condensed consolidated financial statements.
Future Adoption of Accounting Standards
In December 2011, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update No. 2011-10 (“ASU 2011-10”), Property, Plant and Equipment (Topic 360): Derecognition of in Substance Real Estate-a Scope Clarification (a consensus of the FASB Emerging Issues Task Force). ASU 2011-10 clarifies when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary's nonrecourse debt, the reporting entity should apply the guidance for Real Estate Sale (Subtopic 360-20). The provisions of ASU 2011-10 are effective for public companies for fiscal years and interim periods within those years, beginning on or after June 15, 2012. When adopted, ASU 2011-10 is not expected to materially impact our condensed consolidated financial statements.
In December 2011, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update No. 2011-11 (“ASU 2011-11”), Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires companies to provide new disclosures about offsetting and related arrangements for financial instruments and derivatives. The provisions of ASU 2011-11 are effective for annual reporting periods beginning on or after January 1, 2013, and are required to be applied retrospectively. When adopted, ASU 2011-11 is not expected to materially impact our condensed consolidated financial statements.
Equity And Cost Method Investments
Equity And Cost Method Investments
    EQUITY AND COST METHOD INVESTMENTS
We have investments that are recorded under both the equity and cost methods. These investments are considered to be an integral part of our business and are strategically and operationally important to our overall results. Our equity and cost method investment balances recorded at March 31, 2012 and December 31, 2011 are as follows:
 
 
March 31, 2012
 
December 31, 2011
Equity method investments
$
227

 
$
207

Cost method investments
73

 
73

Total investments
$
300

 
$
280


Income from cost method investments included in our condensed consolidated statements of income for the three months ended March 31, 2012 and 2011 was insignificant.
The following table presents summarized financial information for all unconsolidated ventures in which we hold an investment that is accounted for under the equity method.
 
 
Three Months Ended March 31,
 
2012
 
2011
Total revenues
$
243

 
$
239

Gross operating profit
71

 
76

Income (loss) from continuing operations
(2
)
 
11

Net income (loss)
(2
)
 
11

Fair Value Measurement
Fair Value Measurement
FAIR VALUE MEASUREMENT
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). GAAP establishes a valuation hierarchy for prioritizing the inputs and the hierarchy places greater emphasis on the use of observable market inputs and less emphasis on unobservable inputs. When determining fair value, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of the hierarchy are as follows:
Level One—Fair values based on unadjusted quoted prices in active markets for identical assets and liabilities;
Level Two—Fair values based on quoted market prices for similar assets and liabilities in active markets, quoted prices in inactive markets for identical assets and liabilities, and inputs other than quoted market prices that are observable for the asset or liability;
Level Three—Fair values based on inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. Valuation techniques could include the use of discounted cash flow models and similar techniques.
We have various financial instruments that are measured at fair value including certain marketable securities and derivatives instruments. We currently do not have non-financial assets or non-financial liabilities that are required to be measured at fair value on a recurring basis.
We utilize the market approach and income approach for valuing our financial instruments. The market approach utilizes prices and information generated by market transactions involving identical or similar assets and liabilities and the income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). For instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of fair value assets and liabilities within the fair value hierarchy.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of March 31, 2012 and December 31, 2011, we had the following financial assets and liabilities measured at fair value on a recurring basis:
 
 
March 31, 2012
 
Quoted Prices in
Active Markets for
Identical Assets
(Level One)
 
Significant Other
Observable Inputs
(Level Two)
 
Significant
Unobservable Inputs
(Level Three)
Marketable securities included in
short-term investments, prepaids and
other assets and other assets
 
 
 
 
 
 
 
Mutual funds
$
270

 
$
270

 
$

 
$

Equity securities
43

 
43

 

 

U.S. government obligations
97

 

 
97

 

U.S. government agencies
105

 

 
105

 

Corporate debt securities
430

 

 
430

 

Mortgage-backed securities
21

 

 
21

 

Asset-backed securities
8

 

 
8

 

Municipal and provincial notes and bonds
14

 

 
14

 

Marketable securities recorded in
cash and cash equivalents
 
 
 
 
 
 
 
Interest bearing money market funds
161

 
161

 

 

Derivative instruments
 
 
 
 
 
 
 
Interest rate swaps
7

 

 
7

 

Foreign currency forward contracts
(2
)
 

 
(2
)
 


 
December 31, 2011
 
Quoted Prices in
Active Markets for
Identical Assets
(Level One)
 
Significant Other
Observable Inputs
(Level Two)
 
Significant
Unobservable Inputs
(Level Three)
Marketable securities included in short-term investments, prepaids and other assets and other assets
 
 
 
 
 
 
 
Mutual funds
$
242

 
$
242

 
$

 
$

Equity securities
35

 
35

 

 

U.S. government obligations
102

 

 
102

 

U.S. government agencies
132

 

 
132

 

Corporate debt securities
487

 

 
487

 

Mortgage-backed securities
23

 

 
21

 
2

Asset-backed securities
7

 

 
7

 

Municipal and provincial notes and bonds
14

 

 
14

 

Marketable securities recorded in cash and cash equivalents
 
 
 
 
 
 
 
Interest bearing money market funds
60

 
60

 

 

Derivative instruments
 
 
 
 
 
 
 
Interest rate swaps
7

 

 
7

 

Foreign currency forward contracts
(1
)
 

 
(1
)
 


During the three months ended March 31, 2012 and 2011, there were no transfers between levels of the fair value hierarchy. Our policy is to recognize transfers in and transfers out as of the end of each quarterly reporting period.
Marketable Securities
Our portfolio of marketable securities consists of various types of U.S. Treasury securities, mutual funds, common stock, and fixed income securities, including government agencies, municipal, provincial and corporate bonds. The fair value of our mutual funds and certain equity securities were classified as Level One as they trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The remaining securities, except for certain mortgage-backed securities at December 31, 2011, were classified as Level Two due to the use and weighting of multiple market inputs being considered in the final price of the security. Market inputs include quoted market prices from active markets for identical securities, quoted market prices for identical securities in inactive markets, and quoted market prices in active and inactive markets for similar securities.
Included in our portfolio of marketable securities are investments in debt and equity securities classified as available for sale. At March 31, 2012 and December 31, 2011 these were as follows:
 
 
March 31, 2012
 
Cost or Amortized
Cost
 
Gross Unrealized
Gain
 
Gross Unrealized
Loss
 
Fair Value
Corporate debt securities
$
343

 
$
6

 
$
(6
)
 
$
343

U.S. government agencies and municipalities
67

 

 

 
67

Equity securities
9

 

 

 
9

Total
$
419

 
$
6

 
$
(6
)
 
$
419

 
 
December 31, 2011
 
Cost or Amortized
Cost
 
Gross Unrealized
Gain
 
Gross Unrealized
Loss
 
Fair Value
Corporate debt securities
$
406

 
$
5

 
$
(5
)
 
$
406

U.S. government agencies and municipalities
93

 

 

 
93

Equity securities
9

 

 
(2
)
 
7

Total
$
508

 
$
5

 
$
(7
)
 
$
506



Gross realized gains and losses on available for sale securities were insignificant for the three months ended March 31, 2012 and 2011.
The table below summarizes available for sale fixed maturity securities by contractual maturity at March 31, 2012. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid with or without call or prepayment penalties. Securities not due at a single date are allocated based on weighted average life. Although a portion of our available for sale fixed maturity securities mature after one year, we have chosen to classify the entire portfolio as current. The portfolio’s objectives are to preserve capital, provide liquidity to satisfy operating requirements, working capital purposes and strategic initiatives and capture a market rate of return. Therefore, since these securities represent funds available for current operations, the entire investment portfolio is classified as current assets.
 
 
March 31, 2012
Contractual Maturity
Cost or Amortized
Cost
 
Fair Value
Due in one year or less
$
233

 
$
233

Due in one to two years
177

 
177

Total
$
410

 
$
410


We invest a portion of our cash balance into short-term interest bearing money market funds that have a maturity of less than ninety days. Consequently, the balances are recorded in cash and cash equivalents. The funds are held with open-ended registered investment companies and the fair value of the funds is classified as Level One as we are able to obtain market available pricing information on an ongoing basis.
The amount of total gains or losses included in net gains and interest income from marketable securities held to fund operating programs due to the change in unrealized gains or losses relating to assets still held at the reporting date for the three months ended March 31, 2012 and 2011 were insignificant.
Derivative Instruments
Our derivative instruments are foreign currency exchange rate instruments and interest rate swaps. The instruments are valued using an income approach with factors such as interest rates and yield curves, which represent market observable inputs and are generally classified as Level Two. Credit valuation adjustments may be made to ensure that derivatives are recorded at fair value. These adjustments include amounts to reflect counterparty credit quality and our nonperformance risk. As of March 31, 2012 and December 31, 2011, the credit valuation adjustments were insignificant. See Note 8 for further details on our derivative instruments.
Mortgage Backed Securities
During the three months ended March 31, 2012, we sold mortgage backed securities that had been classified as Level 3 at December 31, 2011. The following table provides a reconciliation of the beginning and ending balances for the mortgage backed securities measured at fair value using significant unobservable inputs (Level 3):
 
Fair Value Measurements at Reporting Date Using Significant Unobservable Inputs (Level 3) - Mortgage Backed Securities
 
2012
 
2011
Balance at January 1,
$
2

 
$
2

Transfers into (out of) Level Three

 

Settlements
(2
)
 

Total gains (losses) (realized or unrealized)

 

Balance at March 31,
$

 
$
2



Other Financial Instruments
We estimated the fair value of financing receivables using discounted cash flow analysis based on current market assumptions for similar types of arrangements. Based upon the availability of market data, we have classified our financing receivables as Level Three. The primary sensitivity in these calculations is based on the selection of appropriate interest and discount rates. Fluctuations in these assumptions will result in different estimates of fair value. For further information on financing receivables see Note 5.
We estimated the fair value of debt, excluding capital leases, which consists of our Senior Notes. Our Senior notes are classified as Level Two due to the use and weighting of multiple market inputs in the final price of the security. Market inputs include quoted market prices from active markets for identical securities, quoted market prices for identical securities in inactive markets, and quoted market prices in active and inactive markets for similar securities.
The carrying amounts and fair values of our other financial instruments are as follows:

 
Asset (Liability)
 
March 31, 2012
 
Carrying Value
 
Fair Value
 
Quoted Prices in
Active Markets for
Identical Assets
(Level One)
 
Significant Other
Observable Inputs
(Level Two)
 
Significant
Unobservable Inputs
(Level Three)
Financing receivables
 
 
 
 
 
 
 
 
 
Secured financing to hotel owners
$
312

 
$
315

 
$

 
$

 
$
315

Vacation ownership mortgage receivable
41

 
42

 

 

 
42

Unsecured financing to hotel owners
18

 
18

 

 

 
18

Debt, excluding capital lease obligations
(1,008
)
 
(1,117
)
 

 
(1,117
)
 


 
Asset (Liability)
 
December 31, 2011
 
Carrying Value
 
Fair Value
 
Quoted Prices in
Active Markets for
Identical Assets
(Level One)
 
Significant Other
Observable Inputs
(Level Two)
 
Significant
Unobservable Inputs
(Level Three)
Financing receivables
 
 
 
 
 
 
 
 
 
Secured financing to hotel owners
$
312

 
$
311

 
$

 
$

 
$
311

Vacation ownership mortgage receivable
42

 
42

 

 

 
42

Unsecured financing to hotel owners
16

 
15

 

 

 
15

Debt, excluding capital lease obligations
(1,008
)
 
(1,059
)
 

 
(1,059
)
 

Financing Receivables
Financing Receivables
    FINANCING RECEIVABLES
We define financing receivables as financing arrangements that represent a contractual right to receive money either on demand or on fixed or determinable dates and that are recognized as an asset on our condensed consolidated balance sheets. We record all financing receivables at amortized cost in current and long-term receivables. We recognize interest income as earned and provide an allowance for cancellations and defaults. We have divided our financing receivables into three portfolio segments based on the level at which we develop and document a systematic methodology to determine the allowance for credit losses. Based on their initial measurement, risk characteristics and our method for monitoring and assessing credit risk, we have determined the class of financing receivables to correspond to our identified portfolio segments. The three portfolio segments of financing receivables and their balances at March 31, 2012 and December 31, 2011 are as follows:
 
 
March 31, 2012
 
December 31, 2011
Secured financing to hotel owners
$
319

 
$
319

Vacation ownership mortgage receivables at various interest rates with varying payments through 2022
49

 
50

Unsecured financing to hotel owners
93

 
91

 
461

 
460

Less allowance for losses
(90
)
 
(90
)
Less current portion included in receivables, net
(10
)
 
(10
)
Total long-term financing receivables
$
361

 
$
360


Secured Financing to Hotel Owners—These financing receivables are senior, secured mortgage loans and are collateralized by underlying hotel properties currently in operation. These loans consist primarily of a $278 million mortgage loan receivable to an unconsolidated hospitality venture which was formed to acquire ownership of a hotel property in Waikiki, Hawaii, and which is accounted for under the equity method. This mortgage receivable has interest set at 30-day LIBOR+3.75% due monthly and a stated maturity date of July 2012 with a one-year option to extend through 2013. We currently expect that the loan will be extended beyond 2012 and have classified it as long-term. Secured financing to hotel owners also includes financing provided to certain franchisees for the renovations and conversion of certain franchised hotels. These franchisee loans accrue interest at fixed rates ranging between 5.5% and 6.0%. Secured financing to hotel owners held by us as of March 31, 2012 is scheduled to mature as follows:
 
Year Ending December 31,
Amount
2012
$
1

2013
289

2014

2015
29

2016

2017

Thereafter

Total secured financing to hotel owners
319

Less allowance
(7
)
Net secured financing to hotel owners
$
312

 
 

Vacation Ownership Mortgage Receivables—These financing receivables are comprised of various mortgage loans related to our financing of vacation ownership interval sales. As of March 31, 2012, the weighted-average interest rate on vacation ownership mortgage receivables was 14.0%. Vacation ownership mortgage receivables held by us as of March 31, 2012 are scheduled to mature as follows:
 
Year Ending December 31,
Amount
2012
$
5

2013
7

2014
8

2015
8

2016
7

2017
5

Thereafter
9

Total vacation ownership mortgage receivables
49

Less allowance
(8
)
Net vacation ownership mortgage receivables
$
41

 
 

Unsecured Financing to Hotel Owners—These financing receivables are primarily made up of individual unsecured loans and other types of financing arrangements provided to hotel owners. These financing receivables have stated maturities and interest rates. The repayment terms vary and may be dependent on the future cash flows of the hotel.
Analysis of Financing Receivables—The following table includes our aged analysis of past due financing receivables by portfolio segment, the gross balance of financing receivables on non-accrual status and the allowance for credit losses and the related investment balance as of March 31, 2012 and December 31, 2011, based on impairment method:
 
Analysis of Financing Receivables
March 31, 2012
 
Total
Past Due
 
Current
 
Total
Financing
Receivable
 
Receivables on
Non-Accrual
Status
 
Related
Allowance
for Credit
Losses
 
Recorded
Investment >90
Days and
Accruing
Secured financing to hotel owners
$

 
$
319

 
$
319

 
$
41

 
$
(7
)
 
$

Vacation ownership mortgage receivables
3

 
46

 
49

 

 
(8
)
 

Unsecured financing to hotel owners
3

 
90

 
93

 
76

 
(75
)
 

Total
$
6

 
$
455

 
$
461

 
$
117

 
$
(90
)
 
$

Analysis of Financing Receivables
December 31, 2011
 
Total
Past Due
 
Current
 
Total
Financing
Receivable
 
Receivables on
Non-Accrual
Status
 
Related
Allowance
for Credit
Losses
 
Recorded
Investment >90
Days and
Accruing
Secured financing to hotel owners
$

 
$
319

 
$
319

 
$
41

 
$
(7
)
 
$

Vacation ownership mortgage receivables
3

 
47

 
50

 

 
(8
)
 

Unsecured financing to hotel owners
6

 
85

 
91

 
76

 
(75
)
 

Total
$
9

 
$
451

 
$
460

 
$
117

 
$
(90
)
 
$


Credit Monitoring—On an ongoing basis, we monitor the credit quality of our financing receivables based on payment activity. We determine financing receivables to be past-due based on the contractual terms of each individual financing receivable agreement. We consider receivables non-performing if interest or principal is greater than 90 days past due for secured financing to hotel owners and unsecured financing to hotel owners or 120 days past due for vacation ownership mortgage receivables. Receivables not meeting these criteria are considered to be performing. If we consider a financing receivable to be non-performing or impaired, we will place the financing receivable on non-accrual status. We will recognize interest income when received for non-accruing financing receivables. Accrual of interest income is resumed when the receivable becomes contractually current and collection doubts are removed. The following table summarizes the financing receivables considered to be non-performing as of March 31, 2012 and December 31, 2011:
Non-Performing Financing Receivables
 
March 31, 2012
 
December 31, 2011
Secured financing to hotel owners
$

 
$

Vacation ownership mortgage receivables

 

Unsecured financing to hotel owners
3

 
6


Allowance for Credit Losses—We individually assess all loans and other financing arrangements in the secured financing to hotel owners portfolio and in the unsecured financing to hotel owners portfolio for impairment. We assess the vacation ownership mortgage receivables portfolio for impairment on a collective basis.
The following tables summarize the activity in our financing receivables reserve for the three months ended March 31, 2012 and 2011:
 
Allowance for Credit Losses
For the Three Months Ended March 31, 2012
 
Beginning Balance January 1, 2012
 
Provisions
 
Other Adjustments
 
Write-offs
 
Recoveries
 
Ending Balance March 31, 2012
Secured financing to hotel owners
$
7

 
$

 
$

 
$

 
$

 
$
7

Vacation ownership mortgage receivables
8

 
1

 

 
(1
)
 

 
8

Unsecured financing to hotel owners
75

 
3

 

 
(3
)
 

 
75

Total
$
90

 
$
4

 
$

 
$
(4
)
 
$

 
$
90


Allowance for Credit Losses
For the Three Months Ended March 31, 2011
 
Beginning Balance January 1, 2011
 
Provisions
 
Other Adjustments
 
Write-offs
 
Recoveries
 
Ending Balance March 31, 2011
Secured financing to hotel owners
$
4

 
$

 
$

 
$
(1
)
 
$

 
$
3

Vacation ownership mortgage receivables
10

 
1

 

 
(1
)
 

 
10

Unsecured financing to hotel owners
68

 
1

 
1

 

 

 
70

Total
$
82

 
$
2

 
$
1

 
$
(2
)
 
$

 
$
83



Amounts included in other adjustments represent currency translation on foreign currency denominated financing receivables.    
Our unsecured financing to hotel owners consists primarily of receivables due on future contractual maturity dates. The payments under these contractual agreements are contingent upon future cash flows of the underlying hospitality properties. Although the majority of these payments are not past due, these receivables have been placed on non-accrual status and we have provided allowances for these owner receivables based on estimates of the future cash flows available for payment of these receivables. We consider the provisions on all of our portfolio segments to be adequate based on the economic environment and our assessment of the future collectability of the outstanding loans.
Impaired Loans—To determine whether an impairment has occurred, we evaluate the collectability of both interest and principal. A financing receivable is considered to be impaired when the Company determines that it is probable that we will not be able to collect all amounts due under the contractual terms. We do not record interest income for impaired receivables unless cash is received, in which case the payment is recorded to other income, net in the accompanying condensed consolidated statements of income. During the three months ended March 31, 2012 and 2011, we did not record any impairment charges for loans to hotel owners.
An analysis of impaired loans at March 31, 2012 and December 31, 2011, all of which had a related allowance recorded against them, was as follows:
 
Impaired Loans
March 31, 2012
 
Gross
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
Secured financing to hotel owners
$
40

 
$
40

 
$
(7
)
 
$
40

Unsecured financing to hotel owners
50

 
45

 
(46
)
 
49


Impaired Loans
December 31, 2011
 
Gross
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
Secured financing to hotel owners
$
41

 
$
40

 
$
(7
)
 
$
40

Unsecured financing to hotel owners
51

 
46

 
(46
)
 
51


Interest income recognized within other income (loss), net on our condensed consolidated statements of income on the related impaired loans for the three months ended March 31, 2012 and 2011 was as follows:
Interest Income
 
Three Months Ended March 31,
 
2012
 
2011
Secured financing to hotel owners
$
1

 
$
1

Unsecured financing to hotel owners

 

Acquisitions, Dispositions, and Discontinued Operations
Acquisitions Dispositions And Discontinued Operations
ACQUISITIONS, DISPOSITIONS, AND DISCONTINUED OPERATIONS
We continually assess strategic acquisitions and dispositions to complement our current business.
Acquisitions
Mexico Hotel—During the first quarter of 2012, a subsidiary of HHC entered into a Stock Purchase Agreement (the "Purchase Agreement") to acquire all of the outstanding shares of capital stock of a company that owns a full service hotel in Mexico City, Mexico. The initial purchase price for the shares is approximately $190 million. The contemplated transaction will be pursuant to the terms and subject to the conditions set forth in the Purchase Agreement. We expect the transaction to close during the second quarter of 2012. The consummation of the transaction contemplated by the Purchase Agreement is subject to the satisfaction of certain customary closing conditions.
Dispositions
Hyatt Regency Minneapolis—During the first quarter of 2011, we entered into an agreement with third parties to form a new joint venture, the purpose of which was to own and operate the Hyatt Regency Minneapolis. We contributed a fee simple interest in the Hyatt Regency Minneapolis to the joint venture as part of our equity interest subject to a $25 million loan to the newly formed joint venture. HHC has guaranteed the repayment of the loan (see Note 11). In conjunction with our contribution, we entered into a long-term management contract with the joint venture. The terms of the joint venture provide for capital contributions by the non-HHC partners that will be used to complete a full renovation of the Hyatt Regency Minneapolis.
Like-Kind Exchange Agreements
During the three months ended March 31, 2011, we released $15 million of restricted cash related to the sale of the Hyatt Regency Greenville in 2010. In conjunction with the sale we had entered into a like-kind-exchange agreement, but we were not able to consummate a transaction within applicable time periods.
Assets Held for Sale
During the first quarter of 2011, we closed on the sale of a Company owned airplane to a third party for net proceeds of $18 million. The value of the airplane had been classified as assets held for sale as of December 31, 2010. The transaction resulted in a small pre-tax gain upon sale.
Goodwill And Intangible Assets
Goodwill And Intangible Assets
GOODWILL AND INTANGIBLE ASSETS
We review the carrying value of all our goodwill by comparing the carrying value of our reporting units to their fair values in a two-step process. We define a reporting unit at the individual property or business level. We are required to perform this comparison at least annually or more frequently if circumstances indicate that a possible impairment exists. When determining fair value in step one, we utilize internally developed discounted future cash flow models, third party appraisals and, if appropriate, current estimated net sales proceeds from pending offers. We then compare the estimated fair value to our carrying value. If the carrying value is in excess of the fair value, we must determine our implied fair value of goodwill to measure if any impairment charge is necessary.
Goodwill was $102 million at March 31, 2012 and December 31, 2011. During the three months ended March 31, 2012 and 2011, no impairment charges were recorded related to goodwill.

Definite lived intangible assets primarily include contract acquisition costs, acquired lease rights, and acquired franchise and management intangibles. Contract acquisition costs and franchise and management intangibles are generally amortized on a straight-line basis over their contract terms, which range from approximately 5 to 40 years and 10 to 30 years, respectively. Acquired lease rights are amortized on a straight-line basis over the lease term. Definite lived intangibles are tested for impairment whenever events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. There were no impairment charges related to intangible assets with definite lives during the three months ended March 31, 2012 and 2011.
The following is a summary of intangible assets at March 31, 2012 and December 31, 2011:
 
 
March 31, 2012
 
Weighted
Average Useful
Lives
 
December 31, 2011
Contract acquisition costs
$
172

 
23
 
$
167

Acquired lease rights
138

 
112
 
133

Franchise and management intangibles
115

 
25
 
115

Other
7

 
13
 
7

 
432

 
 
 
422

Accumulated amortization
(68
)
 
 
 
(63
)
Intangibles, net
$
364

 
 
 
$
359


Amortization expense relating to intangible assets was as follows:
 
 
Three Months Ended March 31,
 
2012
 
2011
Amortization expense
$
5

 
$
3

Derivative Instruments
Derivative Instruments
DERIVATIVE INSTRUMENTS
It is our policy that derivative transactions are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. As a result of the use of derivative instruments, we are exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate the counterparty credit risk, we have a policy of only entering into contracts with carefully selected major financial institutions based upon their credit rating and other factors. Our derivative instruments do not contain credit-risk related contingent features.
All derivatives are recognized on the balance sheet at fair value. Changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge are recorded in accumulated other comprehensive loss on the balance sheet until they are reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Changes in the fair value of a derivative that is qualified, designated and highly effective as a fair value hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk are recorded in current earnings. Changes in the fair value of undesignated derivative instruments and the ineffective portion of designated derivative instruments are reported in current period earnings. Cash flows from designated derivative financial instruments are classified within the same category as the item being hedged on the statement of cash flows. Cash flows from undesignated derivative financial instruments are included in the investing category on the statement of cash flows.
Interest Rate Swap Agreements—In the normal course of business, we are exposed to the impact of interest rate changes due to our borrowing activities. Our objective is to manage the risk of interest rate changes on the results of operations, cash flows, and the market value of our debt by creating an appropriate balance between our fixed and floating-rate debt. Interest rate derivative transactions, including interest rate swaps, are entered to maintain a level of exposure to interest rates which the Company deems acceptable.
As of March 31, 2012 and December 31, 2011, we held a total of eight $25 million interest rate swap contracts, each of which expires on August 15, 2015. Taken together these swap contracts effectively convert a total of $200 million of the $250 million of senior notes issued in August 2009 with a maturity date of August 15, 2015 (the “2015 Notes”) to floating rate debt based on three-month LIBOR plus a fixed rate component. The fixed rate component of each swap varies by contract, ranging from 2.68% to 4.77%. The interest rate swaps were designated as a fair value hedge as their objective is to protect the 2015 Notes against changes in fair value due to changes in the three-month LIBOR interest rate. The swaps were designated as fair value hedges at inception and at March 31, 2012 and December 31, 2011 were highly effective in offsetting fluctuations in the fair value of the 2015 Notes. At March 31, 2012 and December 31, 2011, the fixed to floating interest rate swaps were recorded within other assets at a value of $7 million, offset by a fair value adjustment to long-term debt of $8 million. The $1 million difference between the other asset value and fair market value adjustment to long-term debt consists of the ineffective portion of the swap life-to-date.
Interest Rate Lock—During 2011, we entered into treasury-lock derivative instruments with $250 million of notional value to hedge a portion of the risk of changes in the benchmark interest rate associated with the senior notes issued in August 2011 with a maturity date of August 15, 2021 (the “2021 Notes”). We settled the treasury-lock derivative instruments at the inception of the loan agreement for the 2021 Notes in August 2011. The $14 million loss on the settlement was recorded to accumulated other comprehensive loss and will be amortized over the remaining life of the 2021 Notes. For the three months ended March 31, 2012, the amount of incremental interest expense was insignificant.
Foreign Currency Exchange Rate Instruments—We transact business in various foreign currencies and utilize foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency exposures. Our strategy is to have increases or decreases in our foreign currency exposures offset by gains or losses on the foreign currency forward contracts to mitigate the risks and volatility associated with foreign currency transaction gains or losses. These foreign currency exposures typically arise from intercompany loans and other intercompany transactions. Our foreign currency forward contracts generally settle within 12 months. We do not use these forward contracts for trading purposes. We do not designate these forward contracts as hedging instruments. Accordingly, we record the fair value of these contracts as of the end of our reporting period to our condensed consolidated balance sheets with changes in fair value recorded in our condensed consolidated statements of income within other income, net for both realized and unrealized gains and losses. The balance sheet classification for the fair values of these forward contracts is to prepaids and other assets for unrealized gains and to accrued expenses and other current liabilities for unrealized losses.
The U.S. dollar equivalent of the notional amount of the outstanding forward contracts, the majority of which relate to intercompany loans, with terms of less than one year, is as follows (in U.S. dollars):
 
March 31, 2012
 
December 31, 2011
Pound Sterling
$
152

 
$
126

Swiss Franc
50

 
59

Korean Won
33

 
33

Canadian Dollar
26

 
27

Australian Dollar
4

 

Total notional amount of forward contracts
$
265

 
$
245


Certain energy contracts at our hotel properties include derivatives. However, we qualify for and have elected the normal purchases or sales exemption for these derivatives.
The effects of derivative instruments on our condensed consolidated financial statements were as follows as of March 31, 2012December 31, 2011 and for the three month periods ended March 31, 2012 and 2011:
Fair Values of Derivative Instruments
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet
Location
 
March 31,
2012
 
December 31,
2011
 
Balance Sheet Location
 
March 31,
2012
 
December 31,
2011
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
Other assets
 
$
7

 
$
7

 
Other long-term
liabilities
 
$

 
$

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
Prepaids and
other assets
 

 

 
Accrued expenses and
other current liabilities
 
2

 
1

Total derivatives
 
 
$
7

 
$
7

 
 
 
$
2

 
$
1


Effect of Derivative Instruments on Income
 
 
 
Three Months Ended March 31,
 
Location of
Gain (Loss)
 
2012
 
2011
Fair value hedges:
 
 
 
 
 
Interest rate swaps
 
 
 
 
 
Gains (losses) on derivatives
Other income, net*
 
$

 
$
(1
)
Gains (losses) on borrowings
Other income, net*
 

 
1

 
 
 
Three Months Ended March 31,
 
Location of
Gain (Loss)
2012
 
2011
Derivatives not designated as hedges:
 
 
 
 
 
Foreign currency forward contracts
Other income, net
 
$
(6
)
 
$
(2
)
 
*
For the three months ended March 31, 2012, there was an insignificant loss recognized in income related to the ineffective portion of these hedges. For the three months ended March 31, 2011, there was an insignificant gain recognized in income related to the ineffective portion of these hedges. No incremental amounts were excluded from the assessment of hedge effectiveness for the three months ended March 31, 2012 and 2011.
Employee Benefit Plans
Employee Benefit Plans
    EMPLOYEE BENEFIT PLANS
Defined Benefit Plans—We sponsor a frozen unfunded supplemental defined benefit executive retirement plan for certain former executives. There were insignificant costs incurred for this plan for the three months ended March 31, 2012 and 2011.
Defined Contribution Plans—We provide retirement benefits to certain qualified employees under the Retirement Savings Plan (a qualified plan under Internal Revenue Code Section 401(k)), the Field Retirement Plan (a nonqualified plan), and other similar plans. We record expenses related to the Retirement Savings Plan based on a percentage of qualified employee contributions on stipulated amounts; a substantial portion of these contributions are included in the other revenues from managed properties and other costs from managed properties lines in the condensed consolidated statements of income as the costs of these programs are largely related to employees located at lodging properties managed by us and are therefore paid for by the property owners. Refer to the table below for costs related to these plans.
Deferred Compensation Plans—Historically, we have provided nonqualified deferred compensation for certain employees through several different plans. In 2010, these plans were consolidated into a single Amended and Restated Hyatt Corporation Deferred Compensation Plan ("DCP"). Contributions and investment elections are determined by the employees. The Company also provides contributions according to preapproved formulas. A portion of these contributions relate to hotel property level employees, which are reimbursable to us and are included in the other revenues from managed properties and other costs from managed properties lines in the condensed consolidated statements of income. As of March 31, 2012 and December 31, 2011, the DCP is fully funded in a rabbi trust. The assets of the DCP are primarily invested in mutual funds, which are recorded in other assets in the condensed consolidated balance sheets. The related deferred compensation liability is recorded in other long-term liabilities. Refer to the table below for costs related to the DCP.
The costs incurred for our employee benefit plans for the three months ended March 31, 2012 and 2011 were as follows:
 
Three Months Ended March 31,
 
2012
 
2011
Defined contribution plans
$
9

 
$
9

Deferred compensation plans
4

 
3

Income Taxes
Income Tax Disclosure
INCOME TAXES

The effective income tax rates for the three months ended March 31, 2012 and 2011 were 32.8% and 37.8%, respectively. For the three months ended March 31, 2012, the effective tax rate is lower than the U.S. statutory federal income tax rate of 35% primarily due to the release of $5 million in reserves for interest related to our treatment for expensing certain renovation costs in prior years. The rate was further reduced by foreign earnings subject to tax at rates below the U.S. rate. These benefits are partially offset by an increase of approximately $4 million (including $2 million of interest and penalties) for uncertain tax positions in foreign jurisdictions. For the three months ended March 31, 2011, the effective tax rate exceeded the U.S. statutory federal income tax rate of 35% due primarily to tax contingencies of $2 million (including $1 million of interest and penalties), partially offset by foreign earnings subject to tax at rates below the U.S. statutory rate.

Total unrecognized tax benefits at March 31, 2012 and December 31, 2011 were $175 million and $175 million, respectively, of which $51 million and $49 million, respectively, would impact the effective tax rate if recognized.
Commitments And Contingencies
Commitments And Contingencies
COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, we enter into various commitments, guarantees, surety bonds, and letter of credit agreements, which are discussed below:
Guarantees and Commitments—As of March 31, 2012, we are committed, under certain conditions, to lend or invest up to $759 million, net of any related letters of credit, in various business ventures.
Included in the $759 million in commitments are the following:

Our share of a hospitality venture’s commitment to purchase a hotel within a to-be constructed building in New York City for a total purchase price of $375 million. The hospitality venture will be funded upon the purchase of the hotel, and our share of the purchase price commitment is 66.67% (or approximately $250 million). In accordance with the purchase agreement, we have agreed to fund a $50 million letter of credit as security towards this future purchase obligation. The agreement stipulates that the purchase of the completed property is contingent upon the completion of certain contractual milestones. The $50 million funded letter of credit is included as part of our total letters of credit outstanding at March 31, 2012, and therefore netted against our future commitments amount disclosed above. For further discussion see the “Letters of Credit” section of this footnote below.

Our commitment to acquire all of the outstanding shares of capital stock of a company that owns a full service hotel in Mexico City, Mexico, for approximately $190 million (see Note 6).

Our commitment to develop, own and operate a hotel property in the State of Hawaii through a joint venture formed in 2010. The maximum remaining commitment under the joint venture agreement at March 31, 2012, is $97 million.
Certain of our hotel lease or management agreements contain performance tests that stipulate certain minimum levels of operating performance. These performance test clauses give us the option to fund any shortfall in profit performance. If we choose not to fund the shortfall, the hotel owner has the option to terminate the lease or management contract. As of March 31, 2012, there were no amounts recorded in accrued expenses and other current liabilities related to these performance test clauses.
Additionally, from time to time we may guarantee certain of our hotel owners certain levels of hotel profitability based on various metrics. We have management agreements where we are required to make payments based on specified thresholds and we have recorded a $2 million charge under one of these agreements in the three months ended March 31, 2012. Under a separate agreement, we had $2 million accrued as of March 31, 2012. The remaining maximum potential payments related to these agreements are $28 million.
We have entered into various loan, lease completion and repayment guarantees related to investments held in hotel operations. The maximum exposure under these agreements as of March 31, 2012, is $61 million. With respect to a repayment guarantee related to one joint venture property, the Company has an agreement with its partners that require each partner to pay a pro-rata portion of the guarantee based on each partner’s ownership percentage. Assuming successful enforcement of this agreement with respect to this joint venture, our maximum exposure under all of the various agreements described above as of March 31, 2012, would be $57 million. As of March 31, 2012, the maximum exposure includes $25 million of a loan repayment agreement guarantee related to our contribution of our interest in Hyatt Regency Minneapolis to a newly formed joint venture (see Note 6).
Surety Bonds—Surety bonds issued on our behalf totaled $25 million at March 31, 2012, and primarily relate to workers’ compensation, taxes, licenses, and utilities related to our lodging operations.
Letters of Credit—Letters of credit outstanding on our behalf as of March 31, 2012, totaled $120 million, the majority of which relate to our ongoing operations. Of the $120 million letters of credit outstanding, $99 million reduces the available capacity under the revolving credit facility.
Capital Expenditures—As part of our ongoing business operations, significant expenditures are required to complete renovation projects that have been approved.
Other —We act as general partner of various partnerships owning hotel properties that are subject to mortgage indebtedness. These mortgage agreements generally limit the lender’s recourse to security interests in assets financed and/or other assets of the partnership and/or the general partner(s) thereof.
In conjunction with financing obtained for our unconsolidated hospitality ventures, we may provide standard indemnifications to the lender for loss, liability or damage occurring as a result of our actions or actions of the other joint venture owners.
We are subject from time to time to various claims and contingencies related to lawsuits, taxes, and environmental matters, as well as commitments under contractual obligations. Many of these claims are covered under current insurance programs, subject to deductibles. For those matters not covered by insurance, we reasonably recognize a liability associated with such commitments and contingencies when a loss is probable and reasonably estimable. Although the liability for these matters cannot be determined at this point, based on information currently available, we do not expect that the ultimate resolution of such claims and litigation will have a material effect on our condensed consolidated financial statements.
Equity
Equity
EQUITY
Stockholders’ Equity and Noncontrolling InterestThe following table details the equity activity for the three months ended March 31, 2012 and 2011, respectively.
 
 
Stockholders’
equity
 
Noncontrolling interests
in consolidated
subsidiaries
 
Total equity
Balance at January 1, 2012
$
4,818

 
$
10

 
$
4,828

Net income
10

 

 
10

Other comprehensive income
20

 

 
20

Share based payment activity
6

 

 
6

Balance at March 31, 2012
$
4,854

 
$
10

 
$
4,864

 
 
 
 
 
 
Balance at January 1, 2011
$
5,118

 
$
13

 
$
5,131

Net income
10

 

 
10

Other comprehensive income
23

 

 
23

Share based payment activity
5

 

 
5

Balance at March 31, 2011
$
5,156

 
$
13

 
$
5,169


 
Accumulated Other Comprehensive IncomeThe following table details the accumulated other comprehensive income activity for the three months ended March 31, 2012 and 2011, respectively.

 
Balance at
January 1, 2012
 
Current period other comprehensive income
 
Balance at
March 31, 2012
Foreign currency translation adjustments
$
(64
)
 
$
18

 
$
(46
)
Unrealized gain (loss) on AFS securities
(2
)
 
2

 

Unrecognized pension cost
(6
)
 

 
(6
)
Unrealized loss on derivative instruments
(8
)
 

 
(8
)
Accumulated Other Comprehensive Loss
$
(80
)
 
$
20

 
$
(60
)
 
 
 
 
 
 
 
Balance at
January 1, 2011
 
Current period other comprehensive income
 
Balance at
March 31, 2011
Foreign currency translation adjustments
$
(33
)
 
$
23

 
$
(10
)
Unrealized loss on AFS securities

 

 

Unrecognized pension cost
(5
)
 

 
(5
)
Unrealized loss on derivative instruments

 

 

Accumulated Other Comprehensive Loss
$
(38
)
 
$
23

 
$
(15
)
Stock-Based Compensation
Stock-Based Compensation
STOCK-BASED COMPENSATION
As part of our long-term incentive plan, we award Stock Appreciation Rights (“SARs”), Restricted Stock Units (“RSUs”), Performance Share Units (“PSUs”), and Performance Vested Restricted Stock ("PSSs") to certain employees. Compensation expense and unearned compensation figures within this note exclude amounts related to employees of our managed hotels as this expense has been and will continue to be reimbursed by our third party hotel owners and is recorded on the lines other revenues from managed properties and other costs from managed properties. Compensation expense related to these awards for the three months ended March 31, 2012 and 2011 was as follows:
 
Three Months Ended March 31,
 
2012
 
2011
Stock appreciation rights
$
2

 
$
2

Restricted stock units
3

 
2

Performance share units and Performance vested restricted stock
1

 


Stock Appreciation Rights—Each vested SAR gives the holder the right to the difference between the value of one share of our Class A common stock at the exercise date and the value of one share of our Class A common stock at the grant date. Vested SARs can be exercised over their life as determined by the plan. All SARs have a 10-year contractual term and are settled in shares of our Class A common stock. The Company is accounting for these SARs as equity instruments.
During the three months ended March 31, 2012, the Company granted 405,877 SARs to employees with a weighted average grant date fair value of $17.29. The fair value of each SAR was estimated on the date of grant using the Black-Scholes-Merton option-valuation model.
Restricted Stock Units—The Company grants both RSUs that may be settled in stock and RSUs that may be settled in cash. Each vested stock-settled RSU will be settled with a single share of our Class A common stock. The value of the stock-settled RSUs was based on the closing stock price of our Class A common stock as of the grant date. We record compensation expense earned for RSUs on a straight-line basis from the date of grant. In certain situations we also grant cash-settled RSUs which are recorded as a liability instrument. The liability and related expense for cash-settled RSUs are insignificant as of, and for the three months ended, March 31, 2012. During the three months ended March 31, 2012, the Company granted a total of 444,059 RSUs (an insignificant portion of which are cash-settled RSUs) to employees which, with respect to stock-settled RSUs, had a weighted average grant date fair value of $41.29.
Performance Share Units and Performance Vested Restricted Stock—The Company has granted to certain executive officers both PSUs, which are restricted stock units, and PSSs, which are performance vested restricted stock. The number of PSUs that will ultimately vest and be paid out in Class A common stock and the number of PSSs that will ultimately vest with no further restrictions on transfer depends upon the performance of the Company at the end of the applicable three year performance period relative to the applicable performance target. During the three months ended March 31, 2012, the Company granted to its executive officers a total of 209,569 PSSs, which vest in full if the maximum performance metric is achieved. At the end of the performance period, the PSSs that did not vest will be forfeited. The PSSs had a weighted average grant date fair value of $41.29. The performance period is a three year period beginning January 1, 2012 and ending December 31, 2014. The PSSs will vest at the end of the performance period only if the performance threshold is met; there is no interim performance metric.
Our total unearned compensation for our stock-based compensation programs as of March 31, 2012 was $21 million for SARs, $42 million for RSUs and $4 million for PSUs and PSSs, which will be recorded to compensation expense primarily over the next four years with respect to SARs and RSUs and over the next three years with respect to PSUs and PSSs. The amortization for certain RSU awards extends to nine years.
Related-Party Transactions
Related-Party Transactions
    RELATED-PARTY TRANSACTIONS
In addition to those included elsewhere in the notes to the condensed consolidated financial statements, related-party transactions entered into by us are summarized as follows:
Leases—Our corporate headquarters has been located at the Hyatt Center in Chicago, Illinois, since 2005. A subsidiary of the Company holds a master lease for a portion of the Hyatt Center and has entered into sublease agreements with certain related parties. During the first quarter of 2012, one of these sublease agreements was amended to reduce the related party's occupied space. As a result, we received a payment of $4 million, representing the discounted future sublease payments, less furniture and fixtures acquired as part of the amendment. Future sublease income from sublease agreements with related parties under our master lease is $11 million.
Legal Services—A partner in a law firm that provided services to us throughout the three months ended March 31, 2012 and 2011 is the brother-in-law of our Executive Chairman. We incurred legal fees with this firm of $1 million for the three months ended March 31, 2012 and 2011, respectively. Legal fees, when expensed, are included in selling, general and administrative expenses. As of March 31, 2012, and December 31, 2011, we had insignificant amounts, respectively, due to the law firm.
Other Services—A member of our board of directors who was appointed in 2009 is a partner in a firm whose affiliates own hotels from which we recorded management and franchise fees of $2 million and $1 million during the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012, and December 31, 2011, we had $1 million, due from these properties.
Equity Method Investments—We have equity method investments in entities that own properties for which we provide management and/or franchise services and receive fees. We recorded fees of $10 million and $8 million for the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012, and December 31, 2011, we had receivables due from these properties of $11 million and $7 million, respectively. In addition, in some cases we provide loans or guarantees (see Note 11) to these entities. Our ownership interest in these equity method investments generally varies from 8 to 50 percent.
Segment Information
Segment Information
SEGMENT INFORMATION
Our operating segments are components of the business which are managed discretely and for which discrete financial information is reviewed regularly by the chief operating decision maker to assess performance and make decisions regarding the allocation of resources. Our chief operating decision maker is the Chief Executive Officer. We define our reportable segments as follows:
Owned and Leased Hotels—This segment derives its earnings from owned and leased hotel properties located predominantly in North America but also from certain international locations and, for purposes of segment Adjusted EBITDA, includes our pro rata share of the Adjusted EBITDA of our unconsolidated hospitality ventures, based on our ownership percentage of each venture.
North American Management and Franchising—This segment derives its earnings from services provided, including hotel management and licensing of our family of brands to franchisees located in the U.S., Canada and the Caribbean. This segment’s revenues also include the reimbursement of costs incurred on behalf of managed hotel property owners and franchisees with no added margin, and include in costs and expenses these reimbursed costs. These costs relate primarily to payroll costs at managed properties where the Company is the employer. These revenues and costs are recorded on the lines other revenues from managed properties and other costs from managed properties, respectively. The intersegment revenues relate to management fees that are collected from the Company’s owned hotels, which are eliminated in consolidation.
International Management and Franchising—This segment derives its earnings from services provided, including hotel management and licensing of our family of brands to franchisees located in countries outside of the U.S., Canada and the Caribbean. This segment’s revenues also include the reimbursement of costs incurred on behalf of managed hotel property owners and franchisees with no added margin, and include in costs and expenses these reimbursed costs. These costs relate primarily to reservations, marketing and IT costs. These revenues and costs are recorded on the lines other revenues from managed properties and other costs from managed properties, respectively. The intersegment revenues relate to management fees that are collected from the Company’s owned hotels, which are eliminated in consolidation.
Our chief operating decision maker evaluates performance based on each segment’s Adjusted EBITDA. We define Adjusted EBITDA as net income attributable to Hyatt Hotels Corporation plus our pro-rata share of unconsolidated hospitality ventures' Adjusted EBITDA before equity earnings (losses) from unconsolidated hospitality ventures; other income, net; depreciation and amortization; interest expense; and provision for income taxes.
The table below shows summarized consolidated financial information by segment. Included within Corporate and other are unallocated corporate expenses, revenues and expenses on our vacation ownership properties, and the results of our co-branded credit card.
 
(in millions)
Three Months Ended March 31,
 
2012
 
2011
North American Management and Franchising
 
 
 
Revenues
$
431

 
$
392

Intersegment Revenues (a)
18

 
14

Adjusted EBITDA
46

 
40

Depreciation and Amortization
4

 
3

International Management and Franchising
 
 
 
Revenues
55

 
51

Intersegment Revenues (a)
4

 
4

Adjusted EBITDA
20

 
20

Depreciation and Amortization

 

Owned and Leased Hotels
 
 
 
Revenues
473

 
432

Adjusted EBITDA
93

 
75

Depreciation and Amortization
80

 
66

Corporate and other
 
 
 
Revenues
21

 
18

Adjusted EBITDA
(34
)
 
(26
)
Depreciation and Amortization
2

 
2

Eliminations (a)
 
 
 
Revenues
(22
)
 
(18
)
Adjusted EBITDA

 

Depreciation and Amortization

 

TOTAL
 
 
 
Revenues
$
958

 
$
875

Adjusted EBITDA
125

 
109

Depreciation and Amortization
86

 
71

 
(a)
Intersegment revenues are included in the segment revenue totals and eliminated in Eliminations.
The table below provides a reconciliation of our consolidated Adjusted EBITDA to EBITDA and a reconciliation of EBITDA to net income attributable to Hyatt Hotels Corporation for the three months ended March 31, 2012 and 2011.
 
 
Three Months Ended March 31,
 
2012
 
2011
Adjusted EBITDA
$
125

 
$
109

Equity earnings (losses) from unconsolidated hospitality ventures
(1
)
 
3

Other income, net
12

 
3

Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA
(18
)
 
(15
)
EBITDA
118

 
100

Depreciation and amortization
(86
)
 
(71
)
Interest expense
(18
)
 
(13
)
Provision for income taxes
(4
)
 
(6
)
Net income attributable to Hyatt Hotels Corporation
$
10

 
$
10

Earnings Per Share
Earnings Per Share
EARNINGS PER SHARE
The calculation of basic and diluted earnings per share, including a reconciliation of the numerator and denominator, are as follows:
 
 
Three Months Ended March 31,
 
2012
 
2011
Numerator:
 
 
 
Net income
$
10

 
$
10

Net loss attributable to noncontrolling interests

 

Net income attributable to Hyatt Hotels Corporation
$
10

 
$
10

Denominator:
 
 
 
Basic weighted average shares outstanding:
165,525,076

 
174,228,122

Share-based compensation
491,375

 
274,957

Diluted weighted average shares outstanding
166,016,451

 
174,503,079

Basic Earnings Per Share:
 
 
 
Net income
$
0.06

 
$
0.06

Net loss attributable to noncontrolling interests

 

Net income attributable to Hyatt Hotels Corporation
$
0.06

 
$
0.06

Diluted Earnings Per Share:
 
 
 
Net income
$
0.06

 
$
0.06

Net loss attributable to noncontrolling interests

 

Net income attributable to Hyatt Hotels Corporation
$
0.06

 
$
0.06


The computations of diluted net income per share for the three months ended March 31, 2012 and 2011 do not include the following shares of Class A common stock assumed to be issued as stock-settled SARs, RSUs, PSUs and PSSs because they are anti-dilutive.
 
 
Three Months Ended March 31,
 
2012
 
2011
Stock-settled SARs
195,000

 
103,000

RSUs
143,000

 
92,000

PSUs and PSSs

 
15,000

Other Income, Net
Other Income, Net
OTHER INCOME, NET
Other income, net includes interest income, gains (losses) on other marketable securities and foreign currency losses, including gains (losses) on foreign currency exchange rate instruments (see Note 8). The table below provides a reconciliation of the components in other income, net for the three months ended March 31, 2012 and 2011, respectively:
 
 
Three Months Ended March 31,
 
2012
 
2011
Interest income
$
5

 
$
5

Gains (losses) on other marketable securities
8

 
(1
)
Foreign currency losses

 
(1
)
Other
(1
)
 

Other income, net
$
12

 
$
3

Subsequent Events
Subsequent Events [Text Block]
SUBSEQUENT EVENT

The Company recently announced that it will realign its corporate and regional operations to enhance organizational effectiveness and adaptability.  The organizational changes are expected to be completed by the end of September 2012.  Further detail on the reorganization can be found in our Current Report on Form 8-K filed with the SEC on May 3, 2012.
Significant Accounting Policies (Policies)
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). GAAP establishes a valuation hierarchy for prioritizing the inputs and the hierarchy places greater emphasis on the use of observable market inputs and less emphasis on unobservable inputs. When determining fair value, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of the hierarchy are as follows:
Level One—Fair values based on unadjusted quoted prices in active markets for identical assets and liabilities;
Level Two—Fair values based on quoted market prices for similar assets and liabilities in active markets, quoted prices in inactive markets for identical assets and liabilities, and inputs other than quoted market prices that are observable for the asset or liability;
Level Three—Fair values based on inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. Valuation techniques could include the use of discounted cash flow models and similar techniques.
We have various financial instruments that are measured at fair value including certain marketable securities and derivatives instruments. We currently do not have non-financial assets or non-financial liabilities that are required to be measured at fair value on a recurring basis.
We utilize the market approach and income approach for valuing our financial instruments. The market approach utilizes prices and information generated by market transactions involving identical or similar assets and liabilities and the income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). For instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of fair value assets and liabilities within the fair value hierarchy.
We estimated the fair value of financing receivables using discounted cash flow analysis based on current market assumptions for similar types of arrangements. Based upon the availability of market data, we have classified our financing receivables as Level Three. The primary sensitivity in these calculations is based on the selection of appropriate interest and discount rates. Fluctuations in these assumptions will result in different estimates of fair value. For further information on financing receivables see Note 5.
We estimated the fair value of debt, excluding capital leases, which consists of our Senior Notes. Our Senior notes are classified as Level Two due to the use and weighting of multiple market inputs in the final price of the security. Market inputs include quoted market prices from active markets for identical securities, quoted market prices for identical securities in inactive markets, and quoted market prices in active and inactive markets for similar securities.
We define financing receivables as financing arrangements that represent a contractual right to receive money either on demand or on fixed or determinable dates and that are recognized as an asset on our condensed consolidated balance sheets. We record all financing receivables at amortized cost in current and long-term receivables. We recognize interest income as earned and provide an allowance for cancellations and defaults. We have divided our financing receivables into three portfolio segments based on the level at which we develop and document a systematic methodology to determine the allowance for credit losses. Based on their initial measurement, risk characteristics and our method for monitoring and assessing credit risk, we have determined the class of financing receivables to correspond to our identified portfolio segments.
It is our policy that derivative transactions are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. As a result of the use of derivative instruments, we are exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate the counterparty credit risk, we have a policy of only entering into contracts with carefully selected major financial institutions based upon their credit rating and other factors. Our derivative instruments do not contain credit-risk related contingent features.
All derivatives are recognized on the balance sheet at fair value. Changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge are recorded in accumulated other comprehensive loss on the balance sheet until they are reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Changes in the fair value of a derivative that is qualified, designated and highly effective as a fair value hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk are recorded in current earnings. Changes in the fair value of undesignated derivative instruments and the ineffective portion of designated derivative instruments are reported in current period earnings. Cash flows from designated derivative financial instruments are classified within the same category as the item being hedged on the statement of cash flows. Cash flows from undesignated derivative financial instruments are included in the investing category on the statement of cash flows.
We review the carrying value of all our goodwill by comparing the carrying value of our reporting units to their fair values in a two-step process. We define a reporting unit at the individual property or business level. We are required to perform this comparison at least annually or more frequently if circumstances indicate that a possible impairment exists. When determining fair value in step one, we utilize internally developed discounted future cash flow models, third party appraisals and, if appropriate, current estimated net sales proceeds from pending offers. We then compare the estimated fair value to our carrying value. If the carrying value is in excess of the fair value, we must determine our implied fair value of goodwill to measure if any impairment charge is necessary.
Defined Benefit Plans—We sponsor a frozen unfunded supplemental defined benefit executive retirement plan for certain former executives. There were insignificant costs incurred for this plan for the three months ended March 31, 2012 and 2011.
Defined Contribution Plans—We provide retirement benefits to certain qualified employees under the Retirement Savings Plan (a qualified plan under Internal Revenue Code Section 401(k)), the Field Retirement Plan (a nonqualified plan), and other similar plans. We record expenses related to the Retirement Savings Plan based on a percentage of qualified employee contributions on stipulated amounts; a substantial portion of these contributions are included in the other revenues from managed properties and other costs from managed properties lines in the condensed consolidated statements of income as the costs of these programs are largely related to employees located at lodging properties managed by us and are therefore paid for by the property owners. Refer to the table below for costs related to these plans.
Deferred Compensation Plans—Historically, we have provided nonqualified deferred compensation for certain employees through several different plans. In 2010, these plans were consolidated into a single Amended and Restated Hyatt Corporation Deferred Compensation Plan ("DCP"). Contributions and investment elections are determined by the employees. The Company also provides contributions according to preapproved formulas. A portion of these contributions relate to hotel property level employees, which are reimbursable to us and are included in the other revenues from managed properties and other costs from managed properties lines in the condensed consolidated statements of income. As of March 31, 2012 and December 31, 2011, the DCP is fully funded in a rabbi trust. The assets of the DCP are primarily invested in mutual funds, which are recorded in other assets in the condensed consolidated balance sheets. The related deferred compensation liability is recorded in other long-term liabilities. Refer to the table below for costs related to the DCP.
We act as general partner of various partnerships owning hotel properties that are subject to mortgage indebtedness. These mortgage agreements generally limit the lender’s recourse to security interests in assets financed and/or other assets of the partnership and/or the general partner(s) thereof.
In conjunction with financing obtained for our unconsolidated hospitality ventures, we may provide standard indemnifications to the lender for loss, liability or damage occurring as a result of our actions or actions of the other joint venture owners.
We are subject from time to time to various claims and contingencies related to lawsuits, taxes, and environmental matters, as well as commitments under contractual obligations. Many of these claims are covered under current insurance programs, subject to deductibles. For those matters not covered by insurance, we reasonably recognize a liability associated with such commitments and contingencies when a loss is probable and reasonably estimable. Although the liability for these matters cannot be determined at this point, based on information currently available, we do not expect that the ultimate resolution of such claims and litigation will have a material effect on our condensed consolidated financial statements.
Our operating segments are components of the business which are managed discretely and for which discrete financial information is reviewed regularly by the chief operating decision maker to assess performance and make decisions regarding the allocation of resources. Our chief operating decision maker is the Chief Executive Officer. We define our reportable segments as follows:
Owned and Leased Hotels—This segment derives its earnings from owned and leased hotel properties located predominantly in North America but also from certain international locations and, for purposes of segment Adjusted EBITDA, includes our pro rata share of the Adjusted EBITDA of our unconsolidated hospitality ventures, based on our ownership percentage of each venture.
North American Management and Franchising—This segment derives its earnings from services provided, including hotel management and licensing of our family of brands to franchisees located in the U.S., Canada and the Caribbean. This segment’s revenues also include the reimbursement of costs incurred on behalf of managed hotel property owners and franchisees with no added margin, and include in costs and expenses these reimbursed costs. These costs relate primarily to payroll costs at managed properties where the Company is the employer. These revenues and costs are recorded on the lines other revenues from managed properties and other costs from managed properties, respectively. The intersegment revenues relate to management fees that are collected from the Company’s owned hotels, which are eliminated in consolidation.
International Management and Franchising—This segment derives its earnings from services provided, including hotel management and licensing of our family of brands to franchisees located in countries outside of the U.S., Canada and the Caribbean. This segment’s revenues also include the reimbursement of costs incurred on behalf of managed hotel property owners and franchisees with no added margin, and include in costs and expenses these reimbursed costs. These costs relate primarily to reservations, marketing and IT costs. These revenues and costs are recorded on the lines other revenues from managed properties and other costs from managed properties, respectively. The intersegment revenues relate to management fees that are collected from the Company’s owned hotels, which are eliminated in consolidation.
Our chief operating decision maker evaluates performance based on each segment’s Adjusted EBITDA. We define Adjusted EBITDA as net income attributable to Hyatt Hotels Corporation plus our pro-rata share of unconsolidated hospitality ventures' Adjusted EBITDA before equity earnings (losses) from unconsolidated hospitality ventures; other income, net; depreciation and amortization; interest expense; and provision for income taxes.
Equity And Cost Method Investments (Tables)
Our equity and cost method investment balances recorded at March 31, 2012 and December 31, 2011 are as follows:
 
 
March 31, 2012
 
December 31, 2011
Equity method investments
$
227

 
$
207

Cost method investments
73

 
73

Total investments
$
300

 
$
280

The following table presents summarized financial information for all unconsolidated ventures in which we hold an investment that is accounted for under the equity method.
 
 
Three Months Ended March 31,
 
2012
 
2011
Total revenues
$
243

 
$
239

Gross operating profit
71

 
76

Income (loss) from continuing operations
(2
)
 
11

Net income (loss)
(2
)
 
11

Fair Value Measurement (Tables)
As of March 31, 2012 and December 31, 2011, we had the following financial assets and liabilities measured at fair value on a recurring basis:
 
 
March 31, 2012
 
Quoted Prices in
Active Markets for
Identical Assets
(Level One)
 
Significant Other
Observable Inputs
(Level Two)
 
Significant
Unobservable Inputs
(Level Three)
Marketable securities included in
short-term investments, prepaids and
other assets and other assets
 
 
 
 
 
 
 
Mutual funds
$
270

 
$
270

 
$

 
$

Equity securities
43

 
43

 

 

U.S. government obligations
97

 

 
97

 

U.S. government agencies
105

 

 
105

 

Corporate debt securities
430

 

 
430

 

Mortgage-backed securities
21

 

 
21