Summary of HYATT HOTELS CORP

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This quarterly report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include statements about the Company's plans, strategies, financial performance, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, our actual results, performance or achievements may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "predict," "potential," "continue," "likely," "will," "would" and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by us and our management, are inherently uncertain. Factors that may cause actual results to differ materially from current expectations include, but are not limited to: the factors discussed in our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K; general economic uncertainty in key global markets; the rate and the pace of economic recovery following economic downturns; levels of spending in business and leisure segments as well as consumer confidence; declines in occupancy and average daily rate; limited visibility with respect to short and medium-term group bookings; the impact of hotel renovations; our ability to successfully execute and implement our organizational realignment and the costs associated with such organizational realignment; our ability to successfully execute and implement our common stock repurchase program; loss of key personnel, including as a result of our organizational realignment; hostilities, including future terrorist attacks, or fear of hostilities that affect travel; travel-related accidents; natural or man-made disasters such as earthquakes, tsunamis, tornados, hurricanes, floods, oil spills and nuclear incidents; the seasonal and cyclical nature of the real estate and hospitality businesses; changes in distribution arrangements, such as through internet travel intermediaries; changes in the tastes and preferences of our customers; relationships with associates and labor unions and changes in labor laws; financial condition of, and our relationships with, third-party property owners, franchisees and hospitality venture partners; risks associated with potential acquisitions and dispositions; changes in federal, state, local or foreign tax law; increases in interest rates and operating costs; foreign exchange rate fluctuations or currency restructurings; lack of acceptance of new brands or innovation; general volatility of the capital markets and our ability to access the capital markets; changes in the competitive environment in our industry and the markets where we operate; outcomes of legal proceedings; and violation of regulations or laws related to our franchising business. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and we do not undertake or assume any obligation to update publicly any of these forward-looking statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
The following discussion should be read in conjunction with the Company's Condensed Consolidated Financial Statements and accompanying notes, which appear elsewhere in this Quarterly Report on Form 10-Q. Executive Overview
We are a global hospitality company engaged in the management, franchising, ownership and development of Hyatt-branded hotels, resorts and residential and vacation ownership properties around the world. As of September 30, 2012, our worldwide property portfolio consisted of 496 properties (135,992 rooms and units), including:

• 187 managed properties (69,841 rooms), all of which we operate under management agreements with third-party property owners;

• 145 franchised properties (23,728 rooms), all of which are owned by third parties that have franchise agreements with us and are operated by third parties;

• 105 owned properties (including 2 consolidated hospitality ventures) (26,236 rooms) and 4 leased properties (1,718 rooms), all of which we manage and account for as operating leases;

• 24 managed properties and 8 franchised properties owned or leased by unconsolidated hospitality ventures (12,276 rooms);

• 15 vacation ownership properties (963 units), all of which we manage; and

• 8 residential properties (1,230 units), all of which we manage and some of which we own.

During the quarter ended September 30, 2012 we announced transactions that highlight two of our key areas of focus, namely, expanding our presence and recycling our capital. We continued to expand our international footprint by announcing the opening of the Grand Hyatt Kuala Lumpur and the Hyatt Regency Chongqing in southwest China. During the third quarter, we also announced plans for three hotels in India and two hotels in the Caribbean. Additionally, we entered into two sale transactions in the third quarter. The first was the sale of our interests in two joint ventures, each of which owns a full-service hotel in the U.S. The second was the sale of eight select service properties to a third party. These select service properties were classified as held-for-sale at September 30, 2012 and were sold in October 2012. As part of these transactions, we retained long-term management agreements to continue operating each of these hotels.
Our financial performance for the third quarter of 2012 included an increase in our consolidated revenues of $80 million, or 8.9% (10.1% excluding the effects of currency), compared to the quarter ended September 30, 2011. Owned and leased hotels revenue for the quarter ended September 30, 2012, increased by $33 million compared to the quarter ended September 30, 2011, which includes a net unfavorable currency impact of $10 million. The increase in revenue was primarily due to the completion of renovations at certain wholly-owned full service hotels and the acquisition of 23 hotels purchased primarily during the second and third quarters of 2011 and one hotel purchased in the second quarter of 2012, partially offset by a decrease in revenues from hotels removed from our owned and leased portfolio during 2011. Our management and franchise fees for the quarter ended September 30, 2012, increased $2 million, and include a net unfavorable foreign currency impact of $2 million, as compared to the quarter ended September 30, 2011. Fee increases were driven by improved base management and franchise fees. We also experienced a $4 million increase in other revenues for the quarter ended September 30, 2012, compared to the quarter ended September 30, 2011, related to the operating results of our vacation ownership business and our co-branded credit card. Additionally, we had a $41 million increase in other revenues from managed properties for the quarter ended September 30, 2012, compared to the quarter ended September 30, 2011. Our consolidated Adjusted EBITDA for the third quarter of 2012, compared to the third quarter of 2011, increased by $19 million, including $3 million of net unfavorable foreign currency impacts. The Adjusted EBITDA improvement was driven largely by a $9 million increase for our owned and leased hotels, which includes net unfavorable currency impacts of $2 million, and improved performance within our North America management and franchising business of $8 million. Growth within our North America management and franchising business was driven by transient business, and increased rates in our full service and select service portfolios. Growth within our owned and leased segment was driven by hotels acquired in 2011 and 2012 and results from key owned hotels that were renovated in 2011. Increased average daily rates primarily from transient business drove RevPAR growth of 6.3% within our owned and leased portfolio on a constant dollar basis. Growth within both our North America management and franchising business as well as our owned and leased segment was offset by declines in group demand during the quarter due to unfavorable timing of certain holidays compared to the timing of such holidays during the prior year. Our international management and franchise business had Adjusted EBITDA growth of $2 million, which included $1 million of net unfavorable foreign currency impacts. Our international business had RevPAR growth of 0.8% (5.2% excluding the effects of currency). On a constant dollar basis, international RevPAR growth was driven by increased average daily rates across the regions. Asia Pacific and Latin America continue to be our strongest performing regions. Asia Pacific has benefited from a rebound in Japan as well as continued strength in Hong Kong, Macau and Australia, partially offset by certain cities in China. Europe, Africa, and Middle East also had a significant increase in RevPAR on a constant currency basis in the three months ended September 30, 2012 compared to the same period in 2011, driven by the Olympic Games in the United Kingdom. Selling, General and Administrative expenses, excluding the impact of the rabbi trust, for the quarter ended September 30, 2012 were relatively flat compared to the prior year quarter. See "-Non-GAAP Measure Reconciliation," below, for an explanation of how we use Adjusted EBITDA, why we present it and material limitations on its usefulness.
In our North American business, we are beginning to see some positive trends in long-term group business. Short-term bookings, however, showed some weakness in the third quarter of 2012 and we continue to have a limited degree of short and medium-term visibility that we expect may continue into the fourth quarter of 2012 and beyond. We expect our international results will continue to show variability by market, based primarily on the Eurozone crisis, the decline in the rate of growth of China and economic concerns in India. Additionally, several of our larger managed hotels in Asia Pacific will be under renovation in 2013.
As of September 30, 2012, we had approximately $988 million in cash and cash equivalents, investments in highly-rated money market funds and short-term investments. At September 30, 2012, we had available credit facilities with banks for various corporate purposes. The amount of undrawn borrowing availability as of September 30, 2012 was approximately $1.4 billion.

The Company announced on May 2, 2012, its intent to realign its corporate and regional operations to enhance organizational effectiveness and adaptability. During the third quarter, the Company recognized $12 million in costs associated with our realignment. The organizational changes are expected to be completed in the fourth quarter of 2012. For the period through September 30, 2012, the Company's chief operating decision maker continued to assess performance and make decisions regarding the allocation of resources on the basis of our historical operating segments.
We report our consolidated operations in U.S. dollars and manage our business within three reportable segments as described below:

• Owned and leased hotels, which consists of our owned and leased full service and select service hotels and, for purposes of segment Adjusted EBITDA, 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, which consists of our management and franchising of properties located in the United States, Canada and the Caribbean.

• International management and franchising, which consists of our management and franchising of properties located outside of the United States, Canada and the Caribbean.

In addition to our three reportable segments, Corporate and other includes the results of our vacation ownership business, the results of our co-branded credit card and unallocated corporate expenses.

Results of Operations
Three and Nine Months Ended September 30, 2012 Compared with Three and Nine Months Ended September 30, 2011

Consolidated Results

Three Months Ended September 30,
(In millions, except percentages) 2012 2011 Better / (Worse)
REVENUES:
Total revenues $ 977 $ 897 $ 80 9 %

DIRECT AND SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES:
Owned and leased hotels                          382              360             (22 )           (6 )%
Depreciation and amortization                     88               75             (13 )          (17 )%
Other direct costs                                 8                8               -              -  %
Selling, general, and administrative              75               58             (17 )          (29 )%
Other costs from managed properties              384              343             (41 )          (12 )%
Direct and selling, general, and
administrative expenses                          937              844             (93 )          (11 )%
Net gains (losses) and interest income
from marketable securities held to fund
operating programs                                 8              (15 )            23            153  %
Equity earnings (losses) from
unconsolidated hospitality ventures               (5 )              1              (6 )         (600 )%
Interest expense                                 (18 )            (15 )            (3 )          (20 )%
Asset impairments                                  -               (1 )             1            100  %
Other income (loss), net                          (5 )            (15 )            10             67  %
INCOME BEFORE INCOME TAXES                        20                8              12            150  %
BENEFIT FOR INCOME TAXES                           3                5              (2 )          (40 )%
NET INCOME                                        23               13              10             77  %
NET LOSS ATTRIBUTABLE TO NONCONTROLLING
INTERESTS                                          -                1              (1 )         (100 )%
NET INCOME ATTRIBUTABLE TO HYATT HOTELS
CORPORATION                               $       23       $       14      $        9             64  %

Nine Months Ended September 30,
(In millions, except percentages) 2012 2011 Better / (Worse)
REVENUES:
Total revenues $ 2,949 $ 2,708 $ 241 9 %

DIRECT AND SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES:
Owned and leased hotels                        1,148          1,086            (62 )           (6 )%
Depreciation and amortization                    263            218            (45 )          (21 )%
Other direct costs                                21             18             (3 )          (17 )%
Selling, general, and administrative             238            199            (39 )          (20 )%
Other costs from managed properties            1,159          1,062            (97 )           (9 )%
Direct and selling, general, and
administrative expenses                        2,829          2,583           (246 )          (10 )%
Net gains (losses) and interest income
from marketable securities held to fund
operating programs                                18             (7 )           25            357  %
Equity earnings (losses) from
unconsolidated hospitality ventures               (6 )            6            (12 )         (200 )%
Interest expense                                 (53 )          (42 )          (11 )          (26 )%
Asset impairments                                  -             (2 )            2            100  %
Other income (loss), net                          12            (21 )           33            157  %
INCOME BEFORE INCOME TAXES                        91             59             32             54  %
PROVISION FOR INCOME TAXES                       (19 )            -            (19 )         (100 )%
NET INCOME                                        72             59             13             22  %
NET LOSS ATTRIBUTABLE TO NONCONTROLLING
INTERESTS                                          -              2             (2 )         (100 )%
NET INCOME ATTRIBUTABLE TO HYATT HOTELS
CORPORATION                               $       72      $      61     $       11             18  %

Revenues. Consolidated revenues for the three months ended September 30, 2012, increased $80 million, or 9%, compared to the three months ended September 30, 2011, including net unfavorable foreign currency impacts of $12 million, and a $41 million increase in other revenues from managed properties. Consolidated revenues for the nine months ended September 30, 2012 increased $241 million, or 9%, compared to the nine months ended September 30, 2011, including net unfavorable foreign currency impacts of $22 million, and a $97 million increase in other revenues from managed properties.
Other revenues from managed properties includes an increase of $21 million and $22 million resulting from changes in the underlying assets for our benefit programs funded through rabbi trusts for the three and nine months ended September 30, 2012, respectively, compared to the three and nine months ended September 30, 2011. These gains are offset in other costs from managed properties, thus having no net impact to our earnings. Excluding these amounts, other revenues from managed properties increased $20 million, or 6%, in the three months ended September 30, 2012, compared to the three months ended September 30, 2011 and $75 million, or 7%, in the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011. This increase in other revenues from managed properties was due to a higher volume of reimbursements paid to us by our managed properties, which were driven primarily by new managed hotel openings in 2011 in our North American management and franchising segment and an owned hotel that was converted to a management agreement in 2011.
Comparable owned and leased hotel revenue increased $8 million and $60 million for the three and nine month periods, respectively, which includes net unfavorable foreign currency impacts of $10 million and $18 million, respectively. The increase was primarily driven by increased revenues from the North American hotels that were under significant renovation in the prior year. Noncomparable owned and leased hotel revenue increased $25 million and $58 million in the three and nine months ended September 30, 2012, respectively, compared to the three and nine months ended September 30, 2011. These increases were due primarily to the acquisition of 23 properties in the second and third quarters of 2011 and one property in 2012, partially offset by hotels that were sold or otherwise left the chain throughout 2011.

We also experienced a $2 million and $16 million increase in management and franchise fee revenues for the three and nine month periods ending September 30, 2012, which includes net unfavorable currency impacts of $2 million and $4 million, respectively, when compared to the three and nine months ended September 30, 2011. Included in consolidated management fees for the three months and nine months ended September 30, 2012 were base management fees of $37 million and $115 million, respectively, and a 3% and 8% increase from the three and nine months ended September 30, 2011, respectively. Incentive management fees were $18 million and $70 million for the three months and nine months ended September 30, 2012, respectively, which were flat compared to the three month period ended September 30, 2011, and 1% greater compared to the nine months ended September 30, 2011. The increase in hotel revenue and fees was primarily driven by increases in average daily rate, as North America transient rates continue to increase compared to prior year with occupancy near historically high levels.
Corporate and other revenues, which includes the revenues of our vacation ownership business and our co-branded credit card, increased $3 million and $9 million during the three and nine months ended September 30, 2012, respectively, compared to the same periods ended September 30, 2011. The tables below provide a breakdown of revenues by segment for the three and nine months ended September 30, 2012 and 2011.
For further discussion of segment revenues for the periods presented, please refer to "-Segment Results" below.

                                                  Three Months Ended September 30,
(in millions, except percentages)            2012          2011         Better / (Worse)
Owned and leased hotels                   $   503       $   470       $   33         7.0  %
North American management and franchising     422           375           47        12.5  %
International management and franchising       51            50            1         2.0  %
Corporate and other                            25            22            3        13.6  %
Eliminations                                  (24 )         (20 )         (4 )     (20.0 )%
Consolidated revenues                     $   977       $   897       $   80         8.9  %


                                                  Nine Months Ended September 30,
(in millions, except percentages)            2012         2011        Better / (Worse)
Owned and leased hotels                   $   1,504     $ 1,386     $   118        8.5  %
North American management and franchising     1,286       1,164         122       10.5  %
International management and franchising        161         155           6        3.9  %
Corporate and other                              70          61           9       14.8  %
Eliminations                                    (72 )       (58 )       (14 )    (24.1 )%
Consolidated revenues                     $   2,949     $ 2,708     $   241        8.9  %

Owned and leased hotels expense. Expenses for owned and leased hotels increased by $22 million and $62 million in the three and nine months ended September 30, 2012, respectively, compared to the three and nine months ended September 30, 2011. The increase was driven by a $5 million and $35 million increase in comparable owned and leased hotels expense for the three and nine months ended September 30, 2012, respectively, compared to the three and nine months ended September 30, 2011, largely attributable to higher compensation and related costs. Additionally, expenses recognized with respect to our employee benefit programs funded through rabbi trusts increased $7 million and $8 million in the three and nine months ended September 30, 2012, compared to the respective periods in 2011. In each reporting period, changes in these expenses are fully offset to the account net gains (losses) and interest income from marketable securities held to fund operating programs, thus having no net impact to our earnings. Noncomparable owned and leased hotels expense increased $10 million and $19 million in the three and nine months ended September 30, 2012, respectively, compared to the same periods in 2011, as increases in expenses attributable to the 23 hotels purchased in 2011 and the one hotel purchased in 2012 were partially offset by reduced expenses attributable to the 11 properties which were sold or otherwise left the chain in 2011.
Depreciation and amortization expense. Depreciation and amortization expense increased by $13 million and $45 million in the three and nine months ended September 30, 2012, respectively, compared to the three and nine months ended September 30, 2011. The increase was driven by noncomparable hotel depreciation and amortization expense which increased $12 million and $38 million in the three and nine months ended

September 30, 2012, respectively, compared to the same periods in 2011, primarily due to the purchase of 23 properties previously described. Comparable hotels depreciation and amortization expense increased $1 million and $7 million in the three and nine months ended September 30, 2012, respectively, compared to the same periods in 2011, due primarily to accelerated amortization of an intangible asset.
Other direct costs. Other direct costs, which represent costs associated with our vacation ownership operations and our co-branded credit card, were approximately flat in the three months ended September 30, 2012 compared to the three months ended September 30, 2011. Other direct costs increased $3 million in the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011, primarily due to vacation ownership cost of sales. Selling, general and administrative expenses. Selling, general and administrative expenses increased by $17 million, or 29%, and $39 million, or 20%, in the three and nine months ended September 30, 2012, respectively, compared to the three and nine months ended September 30, 2011, respectively. Included in selling, general and administrative expenses is the financial performance of the investment securities held in rabbi trusts to fund certain benefit programs. The financial performance of these investments resulted in an increase in costs of $17 million and $18 million for the three and nine months ended September 30, 2012, respectively, compared to the three and nine months ended September 30, 2011, respectively. These expenses are offset in net gains (losses) and interest income from marketable securities held to fund operating programs, thus having no net impact to our earnings.
Excluding the rabbi trust amounts, selling, general and administrative costs were approximately flat and increased $21 million, or 10%, in the three and nine months ended September 30, 2012, respectively, compared to the three and nine months ended September 30, 2011, respectively. During the three months ended September 30, 2012 compared to the three months ended September 30, 2011, increases in legal fees and corporate rent expense were offset by decreases in sales and marketing expenses and reduced travel and entertainment expenses. The most significant driver of the increase for the nine month comparative period was compensation and related expenses of $7 million, which was due in part to additional development resources and related staff added over the course of 2011 to support the ongoing growth of our business. Sales and marketing expenses increased $4 million due primarily to our vacation ownership business and professional fees increased $2 million primarily due to legal fees. Compared to the nine months ended September 30, 2011, our bad debt expense was $2 million greater this year as the expense was $1 million in the current year and a $1 million benefit in the comparative prior year period. Other miscellaneous expenses increased $4 million primarily due to franchise taxes and corporate rent expense.
Net gains (losses) and interest income from marketable securities held to fund operating programs. Marketable securities held to fund our benefit programs . . .