UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-Q
   þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    September 30, 2008oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to    Commission File Number 1-14331
   Interstate Hotels &
    Resorts, Inc.
   Delaware

52-2101815(State or other jurisdiction of
    incorporation or organization)

(I.R.S. Employer Identification
    No.)4501 North Fairfax Drive, Ste 500
    Arlington, VA(Address of Principal
    Executive Offices)

22203(Zip
    Code)    www.ihrco.com This
    Form 10-Q
    can be accessed at no charge through the above website.
   (703) 387-3100
 (Registrants telephone
    number, including area code)
  þ o
  Rule 12b-2
  Large accelerated filer
    o

Accelerated filer
    þ

Non-accelerated
    filer o
    
    (Do not check if a smaller reporting company)

Smaller reporting company o   Rule 12b-2 o þ




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##### 



INTERSTATE
    HOTELS & RESORTS, INC.
  INDEX
   
 PagePART I. FINANCIAL INFORMATIONItem 1:


Financial Statements (Unaudited):Consolidated Balance Sheets 
    September 30, 2008 and December 31, 2007


2Consolidated Statements of Operations and
    Comprehensive Income (Loss)  Three and nine months
    ended September 30, 2008 and 2007


3Consolidated Statements of Cash Flows 
    Nine months ended September 30, 2008 and 2007


4Notes to Consolidated Financial Statements


5Item 2:


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


25Item 3:


Quantitative and Qualitative Disclosures About
    Market Risk


37Item 4:


Controls and Procedures


38PART II. OTHER INFORMATIONItem 1:


Legal Proceedings


39Item 1A:


Risk Factors


39Item 6:


Exhibits


40   1




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##### 



PART I.
    FINANCIAL INFORMATION  Item 1:
    Financial
    Statements INTERSTATE
    HOTELS & RESORTS, INC.
    CONSOLIDATED BALANCE SHEETS
    (In thousands, except share amounts)  September 30,


December 31,2008


2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
16,426


$
9,775Restricted cash


8,062



7,090Accounts receivable, net of allowance for doubtful accounts of
    $1,199 and $516, respectively


20,831



27,989Due from related parties, net of allowance for doubtful accounts
    of $1,464 and $1,465, respectively


2,373



1,822Deferred income taxes


5,178



3,796Prepaid expenses and other current assets


4,821



5,101Total current assets


57,691



55,573Marketable securities


2,204



1,905Property and equipment, net


290,979



278,098Investments in unconsolidated entities


47,143



27,631Notes receivable, net of allowance of $2,551 and $2,551,
    respectively


5,529



4,976Deferred income taxes


19,131



18,247Goodwill


66,599



66,599Intangible assets, net


17,752



17,849Total assets

$
507,028


$
470,878LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS
    EQUITYCurrent liabilities:Accounts payable

$
3,421


$
2,597Accrued expenses


70,924



64,952Current portion of long-term debt


863



863Total current liabilities


75,208



68,412Deferred compensation


2,165



1,831Long-term debt


240,172



210,800Total liabilities


317,545



281,043Minority interest (redemption value of $127 at
    September 30, 2008)


320



329Commitments and contingencies (see Note 10)Stockholders equity:Preferred stock, $.01 par value; 5,000,000 shares
    authorized, no shares issued






Common stock, $.01 par value; 250,000,000 shares
    authorized; 31,858,116 and 31,841,316 shares issued and
    outstanding, respectively, at September 30, 2008;
    31,718,817 and 31,702,017 shares issued and outstanding,
    respectively, at December 31, 2007


319



317Treasury stock


(69
)


(69
)Paid-in capital


196,809



195,729Accumulated other comprehensive income (loss)


43



(87
)Accumulated deficit


(7,939
)


(6,384
)Total stockholders equity


189,163



189,506Total liabilities, minority interest and stockholders
    equity

$
507,028


$
470,878   The accompanying notes are an integral part of the
    consolidated financial statements.
 2




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##### 



INTERSTATE
    HOTELS & RESORTS, INC.
    CONSOLIDATED STATEMENTS OF OPERATIONS
    AND COMPREHENSIVE INCOME (LOSS)
    (Unaudited, in thousands, except per share amounts)  Three Months Ended


Nine Months EndedSeptember 30,


September 30,2008


2007


2008


2007(As restated)





(As restated)Revenue:Lodging

$
22,456


$
20,628


$
72,170


$
52,325Management fees


8,697



8,487



26,241



29,837Management fees-related parties


1,754



1,147



4,939



2,846Termination fees


1,446



935



5,650



4,928Other


2,447



2,506



7,239



7,53836,800



33,703



116,239



97,474Other revenue from managed properties


155,448



147,562



463,795



488,725Total revenue


192,248



181,265



580,034



586,199Expenses:Lodging


16,803



14,604



51,255



36,535Administrative and general


13,550



13,669



44,793



41,667Depreciation and amortization


4,886



3,665



14,061



10,313Asset impairments and write-offs


282



801



1,423



8,71335,521



32,739



111,532



97,228Other expenses from managed properties


155,448



147,562



463,795



488,725Total operating expenses


190,969



180,301



575,327



585,953OPERATING INCOME


1,279



964



4,707



246Interest income


223



515



822



1,672Interest expense


(3,433
)


(3,825
)


(10,581
)


(9,834
)Equity in (losses) earnings of unconsolidated entities


(29
)


563



2,867



1,818LOSS BEFORE MINORITY INTEREST AND INCOME TAXES


(1,960
)


(1,783
)


(2,185
)


(6,098
)Income tax benefit (expense)


554



(252
)


626



1,804Minority interest benefit (expense)


3



(1
)


4



(43
)LOSS FROM CONTINUING OPERATIONS


(1,403
)


(2,036
)


(1,555
)


(4,337
)Income from discontinued operations, net of tax






2,836







20,444NET (LOSS) INCOME

$
(1,403
)

$
800


$
(1,555
)

$
16,107Other comprehensive income, net of tax:Foreign currency translation gain (loss)


110



(219
)


92



(242
)Unrealized (loss) gain on cash flow hedge instrument


(100
)






1



Unrealized (loss) gain on investments


(3
)


21



37



39COMPREHENSIVE (LOSS) INCOME

$
(1,396
)

$
602


$
(1,425
)

$
15,904BASIC (LOSS) EARNINGS PER SHARE:Continuing operations

$
(0.05
)

$
(0.06
)

$
(0.05
)

$
(0.14
)Discontinued operations






0.09







0.65Basic (loss) earnings per share

$
(0.05
)

$
0.03


$
(0.05
)

$
0.51DILUTIVE (LOSS) EARNINGS PER SHARE:Continuing operations

$
(0.05
)

$
(0.06
)

$
(0.05
)

$
(0.14
)Discontinued operations






0.09







0.65Dilutive (loss) earnings per share

$
(0.05
)

$
0.03


$
(0.05
)

$
0.51   The accompanying notes are an integral part of the
    consolidated financial statements.
 3




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##### 



INTERSTATE
    HOTELS & RESORTS, INC.
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Unaudited, in thousands)  Nine Months EndedSeptember 30,2008


2007(As restated)OPERATING ACTIVITIES:Net (loss) income

$
(1,555
)

$
16,107Adjustments to reconcile net (loss) income to net cash provided
    by operating activities:Depreciation and amortization


14,061



10,313Amortization of deferred financing fees


971



1,419Amortization of key money management contracts


765



492Stock compensation expense


1,332



863Discount on notes receivable


(232
)


Bad debt expense


1,194



80Asset impairments and write-offs


1,423



8,713Equity in earnings from unconsolidated entities


(2,867
)


(1,818
)Operating distributions from unconsolidated entities


1,302



258Minority interest


(4
)


43Deferred income taxes


(2,266
)


(3,929
)Excess tax benefits from share-based payment arrangements


89



(87
)Discontinued operations:Gain on sale






(20,549
)Changes in assets and liabilities:Accounts receivable


4,868



9,527Due from related parties, net


(550
)


471Prepaid expenses and other current assets


280



(1,137
)Notes receivable related to termination fees


(789
)


Accounts payable and accrued expenses


8,355



2,522Changes in assets and liabilities held for sale






93Other changes in asset and liability accounts


(129
)


(74
)Cash provided by operating activities


26,248



23,307INVESTING ACTIVITIES:Acquisition of hotels






(129,958
)Purchases of property and equipment


(25,395
)


(6,083
)Additions to intangible assets


(3,971
)


(3,163
)Contributions to unconsolidated entities


(20,243
)


(8,721
)Distributions from unconsolidated entities


1,830



3,187Purchases related to discontinued operations






(68
)Proceeds from the sale of discontinued operations


959



35,958Change in restricted cash


(972
)


(847
)Changes in notes receivable


(491
)


(473
)Cash used in investing activities


(48,283
)


(110,168
)FINANCING ACTIVITIES:Proceeds from borrowings


58,535



147,825Repayment of borrowings


(29,163
)


(60,101
)Excess tax benefits from share-based payments


(89
)


87Proceeds from issuance of common stock


2



190Financing fees paid


(810
)


(3,317
)Cash provided by financing activities


28,475



84,684Effect of exchange rate on cash


211



(236
)Net increase (decrease) in cash and cash equivalents


6,651



(2,413
)CASH AND CASH EQUIVALENTS, beginning of period


9,775



23,989CASH AND CASH EQUIVALENTS, end of period

$
16,426


$
21,576SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest and income taxes:Interest

$
9,550


$
8,185Income taxes


1,542



3,458   The accompanying notes are an integral part of the
    consolidated financial statements.
 4




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##### 



INTERSTATE
    HOTELS & RESORTS, INC.NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS
  1.
    BUSINESS
    SUMMARY          2.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  General
  Form 10-K,
   5




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##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Form 10-Q. Form 10-K,
    As of September 30, 2007(As Reported)


Adjustments


(Restated)ASSETSCurrent assets:Cash and equivalents

$
21,576






$
21,576Escrow and restricted funds


7,332







7,332Accounts receivable, net


22,039







22,039Due to related party, net


998







998Prepaid expenses and other current assets


7,423







7,423Total current assets


59,368







59,368Marketable securities


1,772







1,772Property and equipment, net


229,693







229,693Investments in unconsolidated entities


18,662







18,662Notes receivable, net


6,935







6,935Deferred income taxes


13,467



3,349



16,816Goodwill


73,672







73,672Intangible assets, net


29,474



(6,751
)


22,723Total assets

$
433,043



(3,402
)

$
429,641LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS
    EQUITYCurrent liabilities:Accounts payable

$
2,202






$
2,202Accrued expenses


69,776



1,344



71,120Current portion of long-term debt


862







862Total current liabilities


72,840



1,344



74,184Deferred compensation


1,712







1,712Long-term debt


171,088







171,088Total liabilities


245,640



1,344



246,984Minority interests


324



(20
)


304Commitments and contingencies (see Note 10)Stockholders equity:Preferred stock, $.01 par value










Common stock, $.01 par value


317







317Treasury stock


(69
)






(69
)Paid in capital


195,436







195,436Accumulated other comprehensive loss


(226
)






(226
)Accumulated deficit


(8,379
)


(4,726
)


(13,105
)Total stockholders equity


187,079



(4,726
)


182,353Total liabilities, minority interests and stockholders
    equity

$
433,043



(3,402
)

$
429,641  6




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Three Months Ended September 30, 2007(As Reported)


Adjustments


(Restated)Total revenue

$
181,265






$
181,265Expenses:Lodging


14,604







14,604Administrative and general


13,669







13,669Depreciation and amortization


4,137



(472
)


3,665Asset impairments and write-offs


6



795



80132,416



323



32,739Other expenses from managed properties


147,562







147,562Total operating expenses


179,978



323



180,301OPERATING INCOME (LOSS)


1,287



(323
)


964LOSS BEFORE MINORITY INTERESTS AND INCOME TAXES


(1,460
)


(323
)


(1,783
)Income tax benefit (expense)


654



(906
)


(252
)Minority interest expense


(1
)






(1
)LOSS FROM CONTINUING OPERATIONS


(807
)


(1,229
)


(2,036
)Income from discontinued operations, net of tax


2,836







2,836NET INCOME (LOSS)

$
2,029



(1,229
)


800BASIC EARNINGS (LOSS) PER SHARE:Continuing Operations

$
(0.03
)


(0.03
)

$
(0.06
)Discontinued Operations

$
0.09






$
0.09Basic earnings (loss) per share

$
0.06



(0.03
)

$
0.03DILUTED EARNINGS (LOSS) PER SHARE:Continuing operations

$
(0.03
)


(0.03
)

$
(0.06
)Discontinued operations

$
0.09






$
0.09Diluted earnings per share

$
0.06



(0.03
)

$
0.03   7




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Nine Months Ended September 30, 2007(As Reported)


Adjustments


(Restated)Total revenue

$
586,199






$
586,199Expenses:Lodging


36,535







36,535Administrative and general


41,667







41,667Depreciation and amortization


11,114



(801
)


10,313Asset impairments and write-offs


1,161



7,552



8,71390,477



6,751



97,228Other expenses from managed properties


488,725







488,725Total operating expenses


579,202



6,751



585,953OPERATING INCOME (LOSS)


6,997



(6,751
)


246INCOME (LOSS) BEFORE MINORITY INTERESTS AND INCOME TAXES


653



(6,751
)


(6,098
)Income tax (expense) benefit


(201
)


2,005



1,804Minority interest (expense) benefit


(63
)


20



(43
)INCOME (LOSS) FROM CONTINUING OPERATIONS


389



(4,726
)


(4,337
)Income from discontinued operations, net of tax


20,444







20,444NET INCOME (LOSS)

$
20,833



(4,726
)

$
16,107BASIC EARNINGS (LOSS) PER SHARE:Continuing Operations

$
0.01



(0.15
)

$
(0.14
)Discontinued Operations

$
0.65






$
0.65Basic earnings per share

$
0.66



(0.15
)

$
0.51DILUTED EARNINGS (LOSS) PER SHARE:Continuing operations

$
0.01



(0.15
)

$
(0.14
)Discontinued operations

$
0.64



0.01


$
0.65Diluted earnings per share

$
0.65



(0.14
)

$
0.51     Revenue
    Recognition Related to Termination Fees
   8




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Related
    Parties
      Fair
    Value Accounting
  Fair Value Measurements No. 157-2 Effective Date of FASB Statement No. 157 SFAS 157-2). SFAS 157-2 SFAS 157-2
         9




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair Value at September 30, 2008Total


Level 1


Level 2


Level 3Assets:Derivative instruments

$
214


$



$
214


$
Marketable securities

$
2,204


$
2,204


$



$
Total:

$
2,418


$
2,204


$
214


$
       Recently
    Issued Accounting Pronouncements
  Non-controlling Interests in Consolidated Financial
    Statements
  Business Combinations Business Combinations
  Disclosures
    about Derivative Instruments and Hedging Activities Accounting for Derivative
    Instruments and Hedging Activities
  Accounting for Financial Guarantee Insurance
    Contracts  an interpretation of FASB Statement
    No. 60
 10




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    3.
    EARNINGS
    PER SHARE      Three Months EndedSeptember 30, 2007September 30, 2008


(As restated)Per Share








Per ShareLoss


Shares


Amount


Income


Shares


AmountLoss from continuing operations

$
(1,403
)


31,833


$
(0.05
)

$
(2,036
)


31,701


$
(0.06
)Income from discontinued operations, net of tax














2,836







0.09Basic net (loss) income

$
(1,403
)


31,833


$
(0.05
)

$
800



31,701


$
0.03Assuming exercise of outstanding employee stock options less
    shares repurchased at average market price


















13



Assuming vesting of outstanding restricted stock


















282



Diluted net (loss) income

$
(1,403
)


31,833


$
(0.05
)

$
800



31,996


$
0.03   Nine Months EndedSeptember 30, 2007September 30, 2008


(As restated)Per Share








Per ShareLoss


Shares


Amount


Income


Shares


AmountLoss from continuing operations

$
(1,555
)


31,788


$
(0.05
)

$
(4,337
)


31,636


$
(0.14
)Income from discontinued operations, net of tax














20,444







0.65Basic net (loss) income

$
(1,555
)


31,788


$
(0.05
)

$
16,107



31,636


$
0.51Assuming exercise of outstanding employee stock options less
    shares repurchased at average market price


















43



Assuming vesting of outstanding restricted stock


















248



Diluted net (loss) income

$
(1,555
)


31,788


$
(0.05
)

$
16,107



31,927


$
0.51  11




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  4.
    INVESTMENTS
    IN UNCONSOLIDATED ENTITIES    Our Equity


September 30,


December 31,Joint Venture

Number of Hotels


Participation


2008


2007Amitel Holdings, LLC


6



15.0
%

$
4,322


$
4,065Budget Portfolio Properties, LLC


22



10.0
%


1,485



250Cameron S-Sixteen Broadway, LLC


1



15.7
%


896



1,002Cameron S-Sixteen Hospitality, LLC


1



10.9
%


222



399CNL/IHC Partners, L.P.


3



15.0
%


3,014



2,825Duet
    Fund(1)










6,251



Harte IHR Joint Venture


4



20.0
%


11,138



2,356IHR Greenbuck Hotel Venture,
    LLC(2)


2



15.0
%


2,440



2,038IHR Invest Hospitality Holdings, LLC


2



15.0
%


4,022



4,372IHR/Steadfast Hospitality Management,
    LLC(3)






50.0
%


742



649Interstate Cross Keys, LLC


1



15.0
%


494



557JHM Interstate Hotels India
    Ltd(3)






50.0
%


500



MPVF IHR Lexington, LLC


1



5.0
%


987



RQB Resort/Development Investors, LLC


1



10.0
%


2,230



1,378Steadfast Mexico, LLC


3



15.0
%


5,976



6,133Other


3



various



2,424



1,607Total


50






$
47,143


$
27,631     (1)
    
    This fund has not purchased or
    invested in real estate properties as of September 30, 2008.(2)
    
    This joint venture opened two new
    hotels in June and September 2008.(3)
    
    Hotel number is not listed as this
    joint venture owns a management company.  142-room Latham
    .
 12




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  and/or
         13




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  5.
    PROPERTY
    AND EQUIPMENT    September 30,


December 31,2008


2007Land

$
29,712


$
26,912Furniture and fixtures


38,043



28,841Building and improvements


241,983



230,058Leasehold improvements


5,986



5,695Computer equipment


7,002



6,686Software


12,519



12,336Total


335,245


$
310,528Less accumulated depreciation


(44,266
)


(32,430
)Property and equipment, net

$
290,979


$
278,098       6.
    INTANGIBLE
    ASSETS AND GOODWILL    September 30,


December 31,2008


2007Management contracts

$
22,356


$
21,338Franchise fees


1,925



1,925Deferred financing fees


4,457



3,619Total cost


28,738



26,882Less accumulated amortization


(10,986
)


(9,033
)Intangible assets, net

$
17,752


$
17,849      14




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            7.
    ACCRUED
    EXPENSES    September 30,


December 31,2008


2007Salaries and employee related benefits

$
24,152


$
27,837Deferred revenues


9,312



1,125Other


37,460



35,990Total

$
70,924


$
64,952    15




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      8.
    LONG-TERM
    DEBT    September 30,


December 31,2008


2007Senior credit facility  term loan

$
113,275


$
114,138Senior credit facility  revolver loan


45,235



40,000Mortgage debt


82,525



57,525Total long-term debt


241,035



211,663Less current portion


(863
)


(863
)Long-term debt, net of current portion

$
240,172


$
210,800   Senior
    Credit Facility
  and/or
    30-day
     16




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Mortgage
    Debt
    Principal


Maturity


Spread Over


Interest Rate as ofAmount


Date


LIBOR(1)


September 30, 2008Hilton Arlington

$
24.7 million



November 2009



135 bps



3.85
%Hilton Houston Westchase

$
32.8 million



February 2010



135 bps



3.85
%Sheraton Columbia

$
25.0 million



April 2013



200 bps



4.80
%     (1)
    
    The interest rate for the Hilton
    Arlington and Hilton Houston Westchase mortgage debt is based on
    a 30-day
    LIBOR, whereas, the interest rate for the Sheraton Columbia
    mortgage is based on a
    90-day LIBOR.    25-year
    Interest
    Rate Caps
    Maturity


30-day LIBORAmount


Date


Cap RateOctober 2006 (Hilton Arlington mortgage loan)

$
24.7 million



November 2009



7.25
%February 2007 (Hilton Westchase mortgage loan)

$
32.8 million



February 2010



7.25
%April 2008 (Sheraton Columbia mortgage loan)

$
25.0 million



May 2013



6.00
%    17




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Interest
    Rate Collar
  30-day 30-day 30-day
    9.
    SEGMENT
    INFORMATION            18




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Hotel


HotelOwnership


Management


Corporate


ConsolidatedThree months ended September 30, 2008Revenue

$
22,456


$
14,344


$



$
36,800Depreciation and amortization


3,887



898



101



4,886Operating expense


17,427



12,346



862



30,635Operating income (loss)


1,142



1,100



(963
)


1,279Interest income


99



124







223Interest expense


(3,433
)










(3,433
)Equity in earnings of unconsolidated entities


(29
)










(29
)Income (loss) before minority interests and income taxes

$
(2,221
)

$
1,224


$
(963
)

$
(1,960
)Capital expenditures

$
8,810


$
315


$
45


$
9,170Three months ended September 30, 2007 (Restated)Revenue

$
20,628


$
13,075


$



$
33,703Depreciation and amortization


2,243



1,407



15



3,665Operating expense


15,325



13,102



647



29,074Operating income (loss)


3,060



(1,434
)


(662
)


964Interest income


451



64







515Interest expense


(3,737
)






(88
)


(3,825
)Equity in earnings of unconsolidated entities


563











563Income (loss) before minority interests and income taxes

$
337


$
(1,370
)

$
(750
)

$
(1,783
)Capital expenditures

$
3,183


$
390


$



$
3,573   19




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Hotel


HotelOwnership


Management


Corporate


ConsolidatedNine months ended September 30, 2008Revenue

$
72,170


$
44,069


$



$
116,239Depreciation and amortization


10,855



2,874



332



14,061Operating expense


53,256



40,839



3,376



97,471Operating income (loss)


8,059



356



(3,708
)


4,707Interest income


461



361







822Interest expense


(10,581
)










(10,581
)Equity in earnings of unconsolidated entities


2,867











2,867Income (loss) before minority interests and income taxes

$
806


$
717


$
(3,708
)

$
(2,185
)Total assets

$
343,208


$
118,377


$
45,443


$
507,028Capital expenditures

$
24,117


$
1,114


$
164


$
25,395Nine months ended September 30, 2007 (Restated)Revenue

$
52,325


$
45,149


$



$
97,474Depreciation and amortization


5,459



4,623



231



10,313Operating expense


38,190



45,048



3,677



86,915Operating income (loss)


8,676



(4,522
)


(3,908
)


246Interest income


1,538



134







1,672Interest expense


(9,832
)






(2
)


(9,834
)Equity in earnings of unconsolidated entities


1,818











1,818Income (loss) before minority interests and income taxes

$
2,200


$
(4,388
)

$
(3,910
)

$
(6,098
)Total assets

$
253,020


$
136,321


$
40,300


$
429,641Capital expenditures

$
134,860


$
1,023


$
158


$
136,041   (1),(2)
  Three Months

Nine MonthsEnded September 30,

Ended September 30,2008

2007

2008

2007Russia(3)

$
223


$
179


$
581


$
539Other

$
113


$
192


$
321


$
430     (1)
    
    Revenues for the United Kingdom and
    France related solely to BridgeStreet operations have been
    reclassified as discontinued operations on the consolidated
    statement of operations for the related periods due to the sale
    of BridgeStreet during the first quarter of 2007 and therefore
    have not been included in the above table. BridgeStreet revenues
    from the United Kingdom and France were $2.8 million and
    $0.2 million, respectively, for the nine months ended
    September 30, 2007.(2)
    
    Management fee revenues from our
    managed properties in Mexico are recorded through our joint
    venture, IHR/Steadfast Hospitality Management, LLC, and as such,
    are included in equity in earnings in our consolidated statement
    of operations for the three and nine months ended
    September 30, 2008, respectively.(3)
    
    Deferred revenues related to
    incentive fees paid, but not yet earned, of $7.9 million
    and $7.3 million have not been included for the nine month
    periods ended September 30, 2008 and 2007, respectively. 20




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     10.
    COMMITMENTS
    AND CONTINGENCIES  Insurance
    Matters
      Insurance
    Receivables and Reserves
   21




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Leases
    September 30,
    2008-2009

$
4,145September 30,
    2009-2010


4,227September 30,
    2010-2011


4,042September 30,
    2011-2012


3,680September 30,
    2012-2013


3,494Thereafter


598Total

$
20,186     September 30,
    2008-2009

$
1,167September 30,
    2009-2010


1,214September 30,
    2010-2011


1,263September 30,
    2011-2012


1,313September 30,
    2012-2013


1,251Thereafter


Total

$
6,208   Commitments
    Related to Management Agreements and Hotel
    Ownership
      Guarantees
   22




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Letters
    of Credit
    Contingent
    Liabilities Related to Partnership Interests
      Litigation
   23




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    11.
    STOCK-BASED
    COMPENSATION  Share Based Payment
     24




---



##### 



Item 2:
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-K
  Forward-Looking
    Statements
  Form 10-Q Form 10-K Form 10-Q.
  Form 10-Q, Form 10-K,
  Overview
    and Outlook
  Our Business 
      Industry Overview 
 25




---



##### 



Investments in and Acquisitions of Real Estate  ,
  Property

Location

Guest RoomsSheraton Frazer Great Valley

Frazer, PA


198Sheraton Mahwah

Mahwah, NJ


225Latham Hotel Georgetown

Washington, DC


142Hilton Lafayette

Lafayette, LA


327      26




---



##### 



and/or
  .
      Turnover of Management Contracts 
      Number of


Number ofProperties


RoomsAs of December 31, 2007


191



42,620New contracts


51



7,205Lost contracts


(16
)


(3,631
)As of September 30, 2008


226



46,194    27




---



##### 



Critical
    Accounting Policies and Estimates
    Form 10-K,
  Results
    of Operations
  Operating
    Statistics
    As of September 30,


Percent Change2008


2007


08 vs.07Hotel OwnershipNumber of properties


7



6



16.7
%Number of rooms


2,050



1,757



16.7
%Hotel
    Management(1)Properties managed


226



184



22.8
%Number of rooms


46,194



42,435



8.9
%     (1)
    
    Statistics related to hotels in
    which we hold a partial ownership interest through a joint
    venture or wholly-owned have been included in hotel management.    
    We acquired 22 management contracts through our investment in
    the Budget Portfolio Properties, LLC joint venture.
    We signed 7 new management contracts with Equity Inns, Inc.
    We secured 11 additional management contracts from Inland
    Lodging Corporation.
    We obtained 21 new management contracts with various other
    owners.
    19 properties owned by various owners were transitioned out of
    our system.  (2)
  Three MonthsEnded September 30,


Percent Change2008


2007


08 vs. 07Hotel ManagementRevPAR

$
103.93


$
102.32



1.6
%ADR

$
139.84


$
132.99



5.2
%Occupancy


74.3
%


76.9
%


(3.4
)%  28




---



##### 



Nine MonthsEnded September 30,


Percent Change2008


2007


08 vs. 07Hotel ManagementRevPAR

$
103.30


$
100.21



3.1
%ADR

$
140.72


$
133.03



5.8
%Occupancy


73.4
%


75.3
%


(2.5
)%     (2)
    
    We present these operating
    statistics for the periods included in this report on a
    same-store basis. We define our same-store hotels as those which
    (i) are managed or owned by us for the entirety of the
    reporting periods being compared or have been managed by us for
    part of the reporting periods compared and we have been able to
    obtain operating statistics for the period of time in which we
    did not manage the hotel and (ii) have not sustained
    substantial property damage, business interruption or undergone
    large-scale capital projects during the periods being reported.
    In addition, the operating results of hotels for which we no
    longer manage as of September 30, 2008 are not included in
    same-store hotel results for the periods presented herein. Of
    the 226 properties that we managed as of September 30,
    2008, 174 properties have been classified as same-store hotels.  Three
    months ended September 30, 2008 compared to three months
    ended September 30, 2007
  Revenue
    Three MonthsEnded September 30,


Percent Change2008


2007


08 vs. 07Lodging

$
22,456


$
20,628



8.9
%Management fees


10,451



9,634



8.5
%Termination fees


1,446



935



54.7
%Other


2,447



2,506



(2.4
)%Other revenue from managed properties


155,448



147,562



5.3
%Total revenue

$
192,248


$
181,265



6.1
%   Lodging
   Management
    fees and termination fees
     Other
    revenue from managed properties
  29




---



##### 



Operating
    Expenses
    Three MonthsEnded September 30,


Percent Change2008


2007


08 vs. 07Lodging

$
16,803


$
14,604



15.1
%Administrative and general


13,550



13,669



(0.9
)%Depreciation and amortization


4,886



3,665



33.3
%Asset impairments and write-offs


282



801



(64.8
)%Other expenses from managed properties


155,448



147,562



5.3
%Total operating expenses

$
190,969


$
180,301



5.9
%   Lodging
   Administrative
    and general
   Depreciation
    and amortization
   Asset
    impairments and write-offs
   Other
    expenses from managed properties
  30




---



##### 



Other
    Income and Expense
    Three MonthsEnded September 30,


Percent Change2008


2007


08 vs. 07Interest expense, net

$
3,210


$
3,310



(3.0
)%Equity in (losses) earnings of unconsolidated entities


(29
)


563



> (100
)%Income tax (benefit) expense


(554
)


252



> (100
)%Minority interest (benefit) expense


(3
)


1



> (100
)%Income from discontinued operations, net of tax






2,836



(100
)%   Interest
    expense, net
   Equity in
    earnings of unconsolidated entities
   Income
    tax expense
   Income
    from discontinued operations, net of tax
  31




---



##### 



Nine
    months ended September 30, 2008 compared to nine months
    ended September 30, 2007
  Revenue
    Nine MonthsEnded September 30,


Percent Change2008


2007


08 vs. 07Lodging

$
72,170


$
52,325



37.9
%Management fees


31,180



32,683



(4.6
)%Termination fees


5,650



4,928



14.7
%Other


7,239



7,538



(4.0
)%Other revenue from managed properties


463,795



488,725



(5.1
)%Total revenue

$
580,034


$
586,199



(1.1
)%   Lodging
   Management
    fees and termination fees
     Other
   Other
    revenue from managed properties
  32




---



##### 



Operating
    Expenses
    Nine MonthsEnded September 30,


Percent Change2008


2007


08 vs. 07Lodging

$
51,255


$
36,535



40.3
%Administrative and general


44,793



41,667



7.5
%Depreciation and amortization


14,061



10,313



36.3
%Asset impairments and write-offs


1,423



8,713



(83.7
)%Other expenses from managed properties


463,795



488,725



(5.1
)%Total operating expenses

$
575,327


$
585,953



(1.8
)%   Lodging
   Administrative
    and general
   Depreciation
    and amortization
   Asset
    impairments and write-offs
   Other
    expenses from managed properties
  33




---



##### 



Other
    Income and Expense
    Nine MonthsEnded September 30,


Percent Change2008


2007


08 vs. 07Interest expense, net

$
9,759


$
8,162



19.6
%Equity in earnings of unconsolidated entities


2,867



1,818



57.7
%Income tax (benefit) expense


(626
)


(1,804
)


65.3
%Minority interest (benefit) expense


(4
)


43



> (100
)%Income from discontinued operations, net of tax






20,444



(100
)%   Interest
    expense, net
   Equity in
    earnings of unconsolidated entities
   Income
    tax expense
   Income
    from discontinued operations, net of tax
   Liquidity,
    Capital Resources and Financial Position
    Nine MonthsEnded September 30,


Percent Change2008


2007


08 vs. 07Cash provided by operating activities

$
26,248


$
23,307



12.6
%Cash used in investing activities


48,283



110,168



(56.2
)%Cash provided by financing activities


28,475



84,684



(66.4
)%Working capital


(17,517
)


(14,816
)


(18.2
)%Cash interest expense


9,550



8,185



16.7
%Debt balance


241,035



171,950



40.2
%  34




---



##### 



Operating
    Activities
    Investing
    Activities
    
    The purchase of two wholly-owned properties in 2007 compared to
    none in 2008. In February 2007, we purchased the Hilton Houston
    Westchase for $51.9 million, and in May 2007 we purchased
    the Westin Atlanta Airport for $76.1 million. In addition,
    a $2.0 million deposit associated with the subsequent
    purchase of the Sheraton Columbia was made during the first nine
    months of 2007.
    In 2008, we invested a total of $20.2 million in joint
    ventures, of which $18.3 million was in five new joint
    ventures, while receiving distributions totaling
    $1.8 million from one joint venture. In 2007, we invested a
    total of $8.7 million in joint ventures, of which
    $7.4 million was in four new joint ventures, while
    receiving distributions totaling $3.2 million from four
    joint ventures. Distributions which are a return of our
    investment in the joint venture are recorded as investing cash
    flows, while distributions which are a return on our investment
    are recorded as operating cash flows.
    For the nine month period ended September 30, 2008, we
    spent $25.4 million on property improvements compared with
    $6.0 million in the same period in 2007. Of the
    $25.4 million spent, approximately $24.1 million was
    used on renovations on our wholly-owned properties.
    The cash expenditures above were offset by proceeds of
    $35.0 million from the sale of BridgeStreet which occurred
    in January 2007.  Financing
    Activities
      Liquidity
  Liquidity Requirements 
   35




---



##### 



Senior Credit Facility  and/or
    30-day
    Mortgage Debt
  Interest Rate as ofPrincipal


Maturity


Spread Over


September 30,Amount


Date


LIBOR(1)


2008Hilton Arlington

$
24.7 million



November 2009



135 bps



3.85
%Hilton Houston Westchase

$
32.8 million



February 2010



135 bps



3.85
%Sheraton Columbia

$
25.0 million



April 2013



200 bps



4.80
%     (1)
    
    The interest rate for the Hilton
    Arlington and Hilton Houston Westchase mortgage debt is based on
    a 30-day
    LIBOR, whereas, the interest rate for the Sheraton Columbia
    mortgage is based on a
    90-day LIBOR. 36




---



##### 



25-year
    Contractual
    Obligations and Off-Balance Sheet Arrangements
  Form 10-K.
  Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Interest
    Rate Risk
    30-day 30-day
  30-day 30-day 30-day
   37




---



##### 



30-day 30-day
  Form 10-K
  Item 4.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
  Rules 13a-15(e) 15-d-15(e)).
    Form 10-K
  Form 10-K
  Changes
    in Internal Control over Financial Reporting
       38




---



##### 



PART II.
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings    Item 1A.
    Risk
    Factors  Form 10-K form 10-Q.
  Our
    lenders may have suffered losses related to the weakening
    economy and may not be able to fund our
    borrowings.
    Our
    business may be harmed if we cannot maintain our listing on the
    New York Stock Exchange (NYSE).
  trading-day
  Our
    joint venture partners may not fund their portion of the calls
    for additional capital contribution.
   39




---



##### 



Item 6.
    Exhibits  Exhibits (Filed herewith)
  Exhibit No.

Description of Document10
.5.2

Amended Employment Agreement, dated as of October 30, 2008,
    by and between Thomas F. Hewitt and the Company.10
.19

Amended Employment Agreement, dated September 26, 2008, by
    and between Leslie Ng and the Company.31
.1

Sarbanes-Oxley Act Section 302 Certifications of the Chief
    Executive Officer.31
.2

Sarbanes-Oxley Act Section 302 Certifications of the Chief
    Financial Officer.32


Sarbanes-Oxley Act Section 906 Certifications of Chief
    Executive Officer and Chief Financial Officer.  40




---



##### 



SIGNATURE
    Interstate
    Hotels & Resorts, Inc.
  By:
    /s/  Denis
    S. McCarthy   Chief Accounting Officer
   41