UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For 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 500Arlington, VA
    
    22203(Address of Principal Executive Offices)
    
    (Zip Code)
 www.ihrco.com
 (703) 387-3100  (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



INTERSTATE HOTELS & RESORTS, INC.INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1: Financial Statements (Unaudited):Consolidated Balance Sheets  September 30, 2009 and December 31, 2008
    
    
    2Consolidated Statements of Operations  Three and nine months ended September 30, 2009 and 2008
    
    
    3Consolidated Statements of Cash Flows  Nine months ended September 30, 2009 and 2008
    
    
    4Notes to Consolidated Financial Statements
    
    
    5Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3: Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4T: Controls and Procedures
    
    
    28PART II. OTHER INFORMATIONItem 1: Legal Proceedings
    
    
    29Item 6: Exhibits
    
    
    29
 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 31,2009
    
    
    2008(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,939
    
    
    $
    22,924Restricted cash
    
    
    6,615
    
    
    
    7,174Accounts
receivable, net of allowance for doubtful accounts of $2,380 and
$1,432, respectively
    
    
    18,707
    
    
    
    27,775Due from related parties, net of allowance for doubtful accounts of $182 and
$1,465, respectively
    
    
    1,915
    
    
    
    3,688Deferred income taxes
    
    
    660
    
    
    
    2,990Prepaid expenses and other current assets
    
    
    4,472
    
    
    
    3,514Assets held for sale
    
    
    10,687
    
    
    
    Total current assets
    
    
    63,995
    
    
    
    68,065Marketable securities
    
    
    1,995
    
    
    
    1,676Property and equipment, net
    
    
    265,459
    
    
    
    282,050Investments in unconsolidated entities
    
    
    36,732
    
    
    
    41,625Notes receivable, net of allowance of $1,605 and $2,856, respectively
    
    
    3,918
    
    
    
    4,254Deferred income taxes
    
    
    
    
    
    
    9,750Goodwill
    
    
    66,046
    
    
    
    66,046Intangible assets, net
    
    
    18,109
    
    
    
    16,353Total assets
    
    $
    456,254
    
    
    $
    489,819LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    2,819
    
    
    $
    2,491Salaries and employee related benefits
    
    
    22,275
    
    
    
    28,326Other accrued expenses
    
    
    40,011
    
    
    
    41,166Liabilities related to assets held for sale
    
    
    327
    
    
    
    Current portion of long-term debt
    
    
    20,000
    
    
    
    161,758Total current liabilities
    
    
    85,432
    
    
    
    233,741Deferred compensation
    
    
    1,999
    
    
    
    1,649Long-term debt
    
    
    224,406
    
    
    
    82,525Total liabilities
    
    
    311,837
    
    
    
    317,915Commitments and contingencies (see Note 10)Equity:Interstate
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; 32,172,231 and
32,155,431 shares issued and outstanding, respectively, at September 30,
2009; 31,859,986 and 31,843,186 shares issued and outstanding, respectively,
at December 31, 2008
    
    
    322
    
    
    
    319Treasury stock
    
    
    (69
    )
    
    
    (69
    )Paid-in capital
    
    
    198,516
    
    
    
    197,300Accumulated other comprehensive loss
    
    
    (743
    )
    
    
    (1,521
    )Accumulated deficit
    
    
    (53,842
    )
    
    
    (24,407
    )Total Interstate stockholders equity
    
    
    144,184
    
    
    
    171,622Noncontrolling interest (redemption value of $80 and $36 at September 30, 2009
and December 31, 2008, respectively)
    
    
    233
    
    
    
    282Total equity
    
    
    144,417
    
    
    
    171,904Total liabilities and equity
    
    $
    456,254
    
    
    $
    489,819
 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
(Unaudited, in thousands, except per share amounts)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue:Lodging
    
    $
    19,243
    
    
    $
    22,456
    
    
    $
    59,504
    
    
    $
    72,170Management fees
    
    
    7,004
    
    
    
    8,697
    
    
    
    21,259
    
    
    
    26,241Management fees-related parties
    
    
    1,244
    
    
    
    1,754
    
    
    
    4,098
    
    
    
    4,939Termination fees
    
    
    1,247
    
    
    
    1,446
    
    
    
    4,488
    
    
    
    5,650Other
    
    
    1,576
    
    
    
    1,614
    
    
    
    4,598
    
    
    
    5,048Other-related parties
    
    
    473
    
    
    
    833
    
    
    
    1,374
    
    
    
    2,19130,787
    
    
    
    36,800
    
    
    
    95,321
    
    
    
    116,239Other revenue from managed properties
    
    
    132,137
    
    
    
    155,448
    
    
    
    397,883
    
    
    
    463,795Total revenue
    
    
    162,924
    
    
    
    192,248
    
    
    
    493,204
    
    
    
    580,034Expenses:Lodging
    
    
    15,012
    
    
    
    16,803
    
    
    
    44,818
    
    
    
    51,255Administrative and general
    
    
    11,374
    
    
    
    13,550
    
    
    
    33,395
    
    
    
    44,793Depreciation and amortization
    
    
    3,940
    
    
    
    4,886
    
    
    
    11,630
    
    
    
    14,061Restructuring costs
    
    
    27
    
    
    
    
    
    
    
    948
    
    
    
    Asset impairments and write-offs
    
    
    3,453
    
    
    
    282
    
    
    
    3,689
    
    
    
    1,42333,806
    
    
    
    35,521
    
    
    
    94,480
    
    
    
    111,532Other expenses from managed properties
    
    
    132,137
    
    
    
    155,448
    
    
    
    397,883
    
    
    
    463,795Total operating expenses
    
    
    165,943
    
    
    
    190,969
    
    
    
    492,363
    
    
    
    575,327OPERATING (LOSS) INCOME
    
    
    (3,019
    )
    
    
    1,279
    
    
    
    841
    
    
    
    4,707Interest expense, net
    
    
    (5,856
    )
    
    
    (3,210
    )
    
    
    (11,764
    )
    
    
    (9,759
    )Equity in (losses) earnings of unconsolidated entities
    
    
    (1,555
    )
    
    
    (29
    )
    
    
    (6,066
    )
    
    
    2,867Gain on sale of investments
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    Other expense
    
    
    (157
    )
    
    
    
    
    
    
    (157
    )
    
    
    LOSS BEFORE INCOME TAXES
    
    
    (10,587
    )
    
    
    (1,960
    )
    
    
    (17,133
    )
    
    
    (2,185
    )Income tax benefit (expense)
    
    
    299
    
    
    
    554
    
    
    
    (12,350
    )
    
    
    626NET LOSS
    
    
    (10,288
    )
    
    
    (1,406
    )
    
    
    (29,483
    )
    
    
    (1,559
    )Add: Net loss attributable to noncontrolling interest
    
    
    37
    
    
    
    3
    
    
    
    48
    
    
    
    4NET LOSS ATTRIBUTABLE TO INTERSTATE STOCKHOLDERS
    
    $
    (10,251
    )
    
    $
    (1,403
    )
    
    $
    (29,435
    )
    
    $
    (1,555
    )BASIC AND DILUTED LOSS PER SHARE:Basic and diluted loss per share attributable to Interstate stockholders
    
    $
    (0.32
    )
    
    $
    (0.05
    )
    
    $
    (0.92
    )
    
    $
    (0.05
    )Weighted-average shares outstanding, basic and diluted
    
    
    32,154
    
    
    
    31,833
    
    
    
    32,072
    
    
    
    31,788
 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 30,2009
    
    
    2008OPERATING ACTIVITIES:Net loss
    
    $
    (29,483
    )
    
    $
    (1,559
    )Adjustments
to reconcile net loss to cash provided by operating activities:Depreciation and amortization
    
    
    11,630
    
    
    
    14,061Amortization of deferred financing fees
    
    
    1,988
    
    
    
    971Amortization of key money management contracts
    
    
    1,282
    
    
    
    765Stock compensation expense
    
    
    1,245
    
    
    
    1,332Discount on notes receivable
    
    
    (323
    )
    
    
    (232
    )Bad debt expense
    
    
    2,000
    
    
    
    1,194Asset impairments and write-offs
    
    
    3,689
    
    
    
    1,423Equity in losses (earnings) from unconsolidated entities
    
    
    6,066
    
    
    
    (2,867
    )Operating distributions from unconsolidated entities
    
    
    154
    
    
    
    1,302Gain on sale of investments
    
    
    (13
    )
    
    
    Deferred income taxes
    
    
    11,561
    
    
    
    (2,266
    )Changes in assets and liabilities:Accounts receivable and due from related parties
    
    
    8,002
    
    
    
    4,318Prepaid expenses and other current assets
    
    
    (995
    )
    
    
    280Notes receivable related to termination fees
    
    
    906
    
    
    
    (789
    )Accounts payable and accrued expenses
    
    
    (4,438
    )
    
    
    8,355Changes in assets and liabilities held for sale
    
    
    101
    
    
    
    Other changes in asset and liability accounts
    
    
    768
    
    
    
    (129
    )Cash provided by operating activities
    
    
    14,140
    
    
    
    26,159INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (7,414
    )
    
    
    (25,395
    )Additions to intangible assets
    
    
    (1,389
    )
    
    
    (3,971
    )Contributions to unconsolidated entities
    
    
    (1,437
    )
    
    
    (20,243
    )Distributions from unconsolidated entities
    
    
    110
    
    
    
    1,830Proceeds from sale of discontinued operations
    
    
    
    
    
    
    959Proceeds from sale of investments
    
    
    13
    
    
    
    Change in restricted cash
    
    
    559
    
    
    
    (972
    )Change in notes receivable
    
    
    (550
    )
    
    
    (491
    )Cash used in investing activities
    
    
    (10,108
    )
    
    
    (48,283
    )FINANCING ACTIVITIES:Proceeds from borrowings
    
    
    
    
    
    
    58,535Repayment of borrowings
    
    
    (575
    )
    
    
    (29,163
    )Proceeds from issuance of common stock
    
    
    
    
    
    
    2Financing fees paid
    
    
    (5,419
    )
    
    
    (810
    )Cash (used in) provided by financing activities
    
    
    (5,994
    )
    
    
    28,564Effect of exchange rate on cash
    
    
    (23
    )
    
    
    211Net decrease in cash and cash equivalents
    
    
    (1,985
    )
    
    
    6,651CASH AND CASH EQUIVALENTS, beginning of period
    
    
    22,924
    
    
    
    9,775CASH AND CASH EQUIVALENTS, end of period
    
    $
    20,939
    
    
    $
    16,426SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest and income taxes:Interest
    
    $
    8,865
    
    
    $
    9,550Income taxes
    
    
    1,093
    
    
    
    1,542
 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
    5




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##### 



Related Parties
  Recently Adopted Accounting Pronouncements
 FASB Accounting Standards Codification
 Recently Issued Accounting Pronouncements Not Yet Adopted
 Consolidation of Variable Interest Entities
  Fair Value Measurements and Disclosures  Investments in
Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent). Financial Services-Investment Companies Fair Value Measurements and Disclosures
 6




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##### 



3. STOCKHOLDERS EQUITY
 Comprehensive Loss
  Three Months EndedSeptember 30,2009
    
    
    2008Net loss
    
    $
    (10,288
    )
    
    $
    (1,406
    )Other comprehensive loss, net of tax:Foreign currency translation (loss) gain
    
    
    (55
    )
    
    
    110Unrealized loss on cash flow hedge instrument
    
    
    
    
    
    
    (100
    )Unrealized gain (loss) on investments
    
    
    71
    
    
    
    (3
    )Comprehensive loss
    
    
    (10,272
    )
    
    
    (1,399
    )Less: Comprehensive loss income attributable to noncontrolling interest
    
    
    37
    
    
    
    3Comprehensive loss attributable to stockholders
    
    $
    (10,235
    )
    
    $
    (1,396
    )
 Nine Months EndedSeptember 30,2009
    
    
    2008Net loss
    
    $
    (29,483
    )
    
    $
    (1,559
    )Other comprehensive loss, net of tax:Foreign currency translation (loss) gain
    
    
    (78
    )
    
    
    92Unrealized (loss) gain on cash flow hedge instrument
    
    
    (279
    )
    
    
    1Unrealized gain on investments
    
    
    90
    
    
    
    37Comprehensive loss
    
    
    (29,750
    )
    
    
    (1,429
    )Less: Comprehensive loss attributable to noncontrolling interest
    
    
    49
    
    
    
    4Comprehensive loss attributable to stockholders
    
    $
    (29,701
    )
    
    $
    (1,425
    )
 Shareholder Rights Plan
   7




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##### 



4. INVESTMENTS IN UNCONSOLIDATED ENTITIES
  Number
    
    
    Our Equity
    
    September 30,
    
    
    December 31,of Hotels
    
    
    Participation
    
    2009
    
    
    2008Equity method investmentsAmitel Holdings joint venture
    
    
    6
    
    
    
    15.0
    %
    
    $
    4,389
    
    
    $
    4,291Budget Portfolio Properties, LLC
    
    
    22
    
    
    
    10.0
    %
    
    
    283
    
    
    
    1,370Cameron S-Sixteen Broadway, LLC
    
    
    1
    
    
    
    15.7
    %
    
    
    832
    
    
    
    844Cameron S-Sixteen Hospitality, LLC
    
    
    1
    
    
    
    10.9
    %
    
    
    141
    
    
    
    188CNL/IHC Partners, L.P.
    
    
    3
    
    
    
    15.0
    %
    
    
    3,317
    
    
    
    3,047Harte IHR joint venture
    
    
    4
    
    
    
    20.0
    %
    
    
    9,794
    
    
    
    10,933IHR Greenbuck joint venture
    
    
    2
    
    
    
    15.0
    %
    
    
    1,886
    
    
    
    2,170IHR Invest Hospitality Holdings, LLC
    
    
    2
    
    
    
    15.0
    %
    
    
    3,364
    
    
    
    3,647IHR/Steadfast Hospitality Management, LLC(1)
    
    
    
    
    
    
    50.0
    %
    
    
    813
    
    
    
    719JHM Interstate Hotels India Ltd(1)
    
    
    
    
    
    
    50.0
    %
    
    
    530
    
    
    
    500MPVF IHR Lexington, LLC
    
    
    1
    
    
    
    5.0
    %
    
    
    928
    
    
    
    992Steadfast Mexico, LLC
    
    
    3
    
    
    
    10.3
    %
    
    
    1,597
    
    
    
    1,676Other equity method investments
    
    
    3
    
    
    various
    
    
    
    43
    
    
    
    59Total equity method investments
    
    
    48
    
    
    
    
    
    
    
    27,917
    
    
    
    30,436Cost method investmentsDuet Fund(2)
    
    
    
    
    
    
    
    
    
    
    6,251
    
    
    
    6,251RQB Resort/Development Investors, LLC (3)
    
    
    1
    
    
    
    10.0
    %
    
    
    
    
    
    
    2,512Other cost method investments
    
    
    
    
    
    
    
    
    
    
    2,564
    
    
    
    2,426Total cost method investments
    
    
    
    
    
    
    
    
    
    
    8,815
    
    
    
    11,189Total investments in unconsolidated entities
    
    
    49
    
    
    
    
    
    
    $
    36,732
    
    
    $
    41,625
 
 (1)
    
    Hotel number is not listed as this joint venture owns a management company.(2)
    
    Hotel number is not listed as this fund is in the process of developing hotels.(3)
    
    We hold Limited Partnership Units in this joint venture which entitles us to a preferred return on our investment.   8




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##### 



Three Months EndedSeptember 30,2009
    
    2008Revenue
    
    $
    42,705
    
    
    $
    58,165Operating expenses
    
    
    31,760
    
    
    
    39,766Net loss
    
    
    (9,447
    )
    
    
    (1,222
    )
 Nine Months EndedSeptember 30,2009
    
    2008Revenue
    
    $
    132,892
    
    
    $
    155,860Operating expenses
    
    
    98,576
    
    
    
    107,860Net loss
    
    
    (21,136
    )
    
    
    (1,997
    )
 5. PROPERTY AND EQUIPMENT
  September 30,
    
    
    December 31,2009
    
    
    2008Land
    
    $
    28,337
    
    
    $
    29,712Furniture and fixtures
    
    
    32,075
    
    
    
    32,919Building and improvements
    
    
    228,663
    
    
    
    235,543Leasehold improvements
    
    
    6,118
    
    
    
    6,109Computer equipment
    
    
    3,337
    
    
    
    3,228Software
    
    
    2,400
    
    
    
    2,475Total
    
    
    300,930
    
    
    
    309,986Less accumulated depreciation
    
    
    (35,471
    )
    
    
    (27,936
    )Property and equipment, net
    
    $
    265,459
    
    
    $
    282,050
 6. INTANGIBLE ASSETS AND GOODWILL
  September 30,
    
    
    December 31,2009
    
    
    2008Management contracts
    
    $
    22,795
    
    
    $
    21,955Franchise fees
    
    
    1,865
    
    
    
    1,925Deferred financing fees
    
    
    6,738
    
    
    
    4,295Total cost
    
    
    31,398
    
    
    
    28,175Less accumulated amortization
    
    
    (13,289
    )
    
    
    (11,822
    )Intangible assets, net
    
    $
    18,109
    
    
    $
    16,353
    9




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##### 



7. FAIR VALUE OF FINANCIAL AND DERIVATIVE INSTRUMENTS
  Fair Value at September 30, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Interest rate caps (included within intangible assets, net)
    
    $
    144
    
    
    $
    
    
    
    $
    144
    
    
    $
    Marketable securities
    
    
    1,995
    
    
    
    1,995
    
    
    
    
    
    
    
    Total:
    
    $
    2,139
    
    
    $
    1,995
    
    
    $
    144
    
    
    $
    Liabilities:Interest rate collar (included within other accrued expenses)
    
    $
    814
    
    
    $
    
    
    
    $
    814
    
    
    $
    Deferred compensation
    
    
    1,999
    
    
    
    1,999
    
    
    
    
    
    
    
    Total:
    
    $
    2,813
    
    
    $
    1,999
    
    
    $
    814
    
    
    $
    
  8. LONG-TERM DEBT
  September 30,
    
    
    December 31,2009
    
    
    2008Senior credit facility  term loan
    
    $
    161,183
    
    
    $
    112,988Senior credit facility  revolver loan
    
    
    
    
    
    
    48,770Senior credit facility  PIK
    
    
    698
    
    
    
    Mortgage debt
    
    
    82,525
    
    
    
    82,525Total long-term debt
    
    
    244,406
    
    
    
    244,283Less current portion
    
    
    (20,000
    )
    
    
    (161,758
    )Long-term debt, net of current portion
    
    $
    224,406
    
    
    $
    82,525
 10




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##### 



Credit Facility
      Mortgage Debt
  Principal
    
    
    Maturity
    
    
    Optional
    
    
    Spread over
    
    
    Interest Rate as ofAmount
    
    
    Date
    
    
    Maturity Date(1)
    
    
    LIBOR(2)
    
    
    September 30, 2009Hilton Houston Westchase
    
    $32.8 million
    
    February 2010
    
    February 2012
    
    135 bps
    
    1.60%Hilton Arlington
    
    $24.7 million
    
    November 2010
    
    November 2011
    
    135 bps
    
    1.60%Sheraton Columbia
    
    $25.0 million
    
    April 2013
    
    April 2013
    
    200 bps
    
    2.48%
 11




---



##### 



(1)
    
    For the Hilton Arlington and the Hilton Houston Westchase mortgage
loans, we hold two optional one-year extensions at our discretion to
extend the maturity date. We have exercised the first option on the
Hilton Arlington mortgage debt and we intend to exercise our options
related to the Hilton Houston Westchase mortgage loan. The optional
maturity dates indicated in this table represent the maturity date of
each mortgage debt if all options at our discretion were to be
exercised.(2)
    
    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.   Interest Rate Caps and Collar
  Maturity
    
    30-Day LIBORAmount
    
    Date
    
    Cap RateFebruary 2007 (Hilton Westchase mortgage loan)
    
    $32.8 million
    
    February 2010
    
    
    7.25
    %October 2006 (Hilton Arlington mortgage loan)
    
    $24.7 million
    
    November 2010
    
    
    7.25
    %April 2008 (Sheraton Columbia mortgage loan)
    
    $25.0 million
    
    May 2013
    
    
    6.00
    %
   12




---



##### 



9. SEGMENT INFORMATION
      Hotel
    
    
    HotelOwnership
    
    
    Management
    
    
    Corporate
    
    
    ConsolidatedThree months ended September 30, 2009Revenue
    
    $
    19,243
    
    
    $
    11,544
    
    
    $
    
    
    
    $
    30,787Depreciation and amortization
    
    
    2,935
    
    
    
    916
    
    
    
    89
    
    
    
    3,940Operating expense
    
    
    19,009
    
    
    
    9,970
    
    
    
    887
    
    
    
    29,866Operating (loss) income
    
    
    (2,701
    )
    
    
    658
    
    
    
    (976
    )
    
    
    (3,019
    )Interest expense, net
    
    
    (5,806
    )
    
    
    (50
    )
    
    
    
    
    
    
    (5,856
    )Equity in losses of unconsolidated entities
    
    
    (1,555
    )
    
    
    
    
    
    
    
    
    
    
    (1,555
    )Other expense
    
    
    
    
    
    
    
    
    
    
    (157
    )
    
    
    (157
    )(Loss) income before income taxes
    
    $
    (10,062
    )
    
    $
    608
    
    
    $
    (1,133
    )
    
    $
    (10,587
    )Capital expenditures
    
    $
    998
    
    
    $
    39
    
    
    $
    10
    
    
    $
    1,047Three 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 expense, net
    
    
    (3,334
    )
    
    
    124
    
    
    
    
    
    
    
    (3,210
    )Equity in losses of unconsolidated entities
    
    
    (29
    )
    
    
    
    
    
    
    
    
    
    
    (29
    )(Loss) income before income taxes
    
    $
    (2,221
    )
    
    $
    1,224
    
    
    $
    (963
    )
    
    $
    (1,960
    )Capital expenditures
    
    $
    8,810
    
    
    $
    315
    
    
    $
    45
    
    
    $
    9,170
 13




---



##### 



Hotel
    
    
    HotelOwnership
    
    
    Management
    
    
    Corporate
    
    
    ConsolidatedNine months ended September 30, 2009Revenue
    
    $
    59,504
    
    
    $
    35,817
    
    
    $
    
    
    
    $
    95,321Depreciation and amortization
    
    
    8,743
    
    
    
    2,607
    
    
    
    280
    
    
    
    11,630Operating expense
    
    
    49,974
    
    
    
    29,361
    
    
    
    3,515
    
    
    
    82,850Operating income (loss)
    
    
    787
    
    
    
    3,849
    
    
    
    (3,795
    )
    
    
    841Interest expense, net
    
    
    (11,824
    )
    
    
    60
    
    
    
    
    
    
    
    (11,764
    )Equity in losses of unconsolidated entities
    
    
    (6,066
    )
    
    
    
    
    
    
    
    
    
    
    (6,066
    )Gain on sale of investments
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    13Other expense
    
    
    
    
    
    
    
    
    
    
    (157
    )
    
    
    (157
    )(Loss) income before income taxes
    
    $
    (17,103
    )
    
    $
    3,909
    
    
    $
    (3,939
    )
    
    $
    (17,133
    )Total assets
    
    $
    320,898
    
    
    $
    110,706
    
    
    $
    24,650
    
    
    $
    456,254Capital expenditures
    
    $
    6,571
    
    
    $
    674
    
    
    $
    169
    
    
    $
    7,414Nine 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 expense, net
    
    
    (10,120
    )
    
    
    361
    
    
    
    
    
    
    
    (9,759
    )Equity in earnings of unconsolidated entities
    
    
    2,867
    
    
    
    
    
    
    
    
    
    
    
    2,867Income (loss) before income taxes
    
    $
    806
    
    
    $
    717
    
    
    $
    (3,708
    )
    
    $
    (2,185
    )Total assets
    
    $
    343,208
    
    
    $
    118,377
    
    
    $
    45,443
    
    
    $
    507,028Capital expenditures
    
    $
    24,117
    
    
    $
    1,114
    
    
    $
    164
    
    
    $
    25,395
 (1)
 Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2009
    
    2008
    
    2009
    
    2008Russia
    
    $
    231
    
    
    $
    223
    
    
    $
    806
    
    
    $
    581Other
    
    $
    118
    
    
    $
    113
    
    
    $
    351
    
    
    $
    321
 
 (1)
    
    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 of unconsolidated entities
in our consolidated statement of operations for all periods
presented.  10. COMMITMENTS AND CONTINGENCIES
 Insurance Matters
  14




---



##### 



Insurance Receivables and Reserves
  Commitments Related to Management Agreements and Hotel Ownership
    Guarantees
  Letters of Credit
  Contingent Liabilities Related to Partnership Interests
  15




---



##### 



Litigation
   11. STOCK-BASED COMPENSATION
   12. INCOME TAXES
  16




---



##### 



13. DISPOSITIONS
  September 30,2009Accounts receivable, net
    
    $
    175Prepaid expenses and other current assets
    
    
    37Property and equipment, net
    
    
    10,425Intangible assets, net
    
    
    50Total assets held for sale
    
    $
    10,687Accounts payable
    
    
    44Accrued expenses
    
    
    283Total liabilities held for sale
    
    $
    327
   17




---



##### 



Item 2:
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-Looking Statements
   Overview and Outlook
 Our Business 
   18




---



##### 



Industry Overview 
  Cost-Savings Program 
  Turnover of Management Contracts 
  Number of
    
    
    Number ofProperties
    
    
    RoomsAs of December 31, 2008
    
    
    226
    
    
    
    46,448New contracts
    
    
    10
    
    
    
    1,446Lost contracts
    
    
    (12
    )
    
    
    (2,260
    )As of September 30, 2009
    
    
    224
    
    
    
    45,634
  19




---



##### 



Critical Accounting Policies and Estimates
   Recently Issued Accounting Pronouncements
  Results of Operations
 Operating Statistics
  As of September 30,
    
    Percent Change2009
    
    2008
    
    09 vs.08Hotel OwnershipNumber of properties
    
    
    7
    
    
    
    7
    
    
    
    Number of rooms
    
    
    2,052
    
    
    
    2,050
    
    
    
    Hotel Management(1)Properties managed
    
    
    224
    
    
    
    226
    
    
    
    (0.9
    )%Number of rooms
    
    
    45,634
    
    
    
    46,194
    
    
    
    (1.2
    )%
 
 (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. (2)
 Three MonthsEnded September 30,
    
    Percent Change2009
    
    2008
    
    09 vs. 08Hotel OwnershipRevPAR
    
    $
    68.25
    
    
    $
    80.03
    
    
    
    (14.7
    )%ADR
    
    $
    103.55
    
    
    $
    119.07
    
    
    
    (13.0
    )%Occupancy
    
    
    65.9
    %
    
    
    67.2
    %
    
    
    (1.9
    )%
 Nine MonthsEnded September 30,
    
    Percent Change2009
    
    2008
    
    09 vs. 08Hotel OwnershipRevPAR
    
    $
    69.31
    
    
    $
    82.23
    
    
    
    (15.7
    )%ADR
    
    $
    107.41
    
    
    $
    121.26
    
    
    
    (11.4
    )%Occupancy
    
    
    64.5
    %
    
    
    67.8
    %
    
    
    (4.9
    )%
 
 (2)
    
    Operating statistics for our wholly-owned hotels includes
our entire portfolio of 7 hotels, including the Sheraton
Columbia and the Westin Atlanta Airport, both of which
underwent comprehensive renovation programs throughout
2008. 20




---



##### 



(3)
 Three MonthsEnded September 30,
    
    Percent Change2009
    
    2008
    
    09 vs. 08Hotel ManagementRevPAR
    
    $
    78.97
    
    
    $
    99.67
    
    
    
    (20.8
    )%ADR
    
    $
    115.29
    
    
    $
    135.77
    
    
    
    (15.1
    )%Occupancy
    
    
    68.5
    %
    
    
    73.4
    %
    
    
    (6.7
    )%
 Nine MonthsEnded September 30,
    
    Percent Change2009
    
    2008
    
    09 vs. 08Hotel ManagementRevPAR
    
    $
    78.28
    
    
    $
    98.63
    
    
    
    (20.6
    )%ADR
    
    $
    119.84
    
    
    $
    137.43
    
    
    
    (12.8
    )%Occupancy
    
    
    65.3
    %
    
    
    71.8
    %
    
    
    (9.1
    )%
 
 (3)
    
    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 current
period being reported. In addition, the operating results
of hotels for which we no longer managed as of September
30, 2009 are not included in same-store hotel results for
the periods presented herein. Of the 224 properties that we
managed as of September 30, 2009, 191 properties have been
classified as same-store hotels. Three months ended September 30, 2009 compared to three months ended September 30, 2008
 Revenue
  Three MonthsEnded September 30,
    
    
    Percent Change2009
    
    
    2008
    
    
    09 vs. 08Lodging
    
    $
    19,243
    
    
    $
    22,456
    
    
    
    (14.3
    )%Management fees
    
    
    8,248
    
    
    
    10,451
    
    
    
    (21.1
    )%Termination fees
    
    
    1,247
    
    
    
    1,446
    
    
    
    (13.8
    )%Other
    
    
    2,049
    
    
    
    2,447
    
    
    
    (16.3
    )%Other revenue from managed properties
    
    
    132,137
    
    
    
    155,448
    
    
    
    (15.0
    )%Total revenue
    
    $
    162,924
    
    
    $
    192,248
    
    
    
    (15.3
    )%
 Lodging
  Management fees and termination fees
  21




---



##### 



Other
  Other revenue from managed properties
  Operating Expenses
  Three MonthsEnded September 30,
    
    
    Percent Change2009
    
    
    2008
    
    
    09 vs. 08Lodging
    
    $
    15,012
    
    
    $
    16,803
    
    
    
    (10.7
    )%Administrative and general
    
    
    11,374
    
    
    
    13,550
    
    
    
    (16.1
    )%Depreciation and amortization
    
    
    3,940
    
    
    
    4,886
    
    
    
    (19.4
    )%Restructuring costs
    
    
    27
    
    
    
    
    
    
    
    100
    %Asset impairments and write-offs
    
    
    3,453
    
    
    
    282
    
    
    
    >100
    %Other expenses from managed properties
    
    
    132,137
    
    
    
    155,448
    
    
    
    (15.0
    )%Total operating expenses
    
    $
    165,943
    
    
    $
    190,969
    
    
    
    (13.1
    )%
 Lodging
  Administrative and general
  Depreciation and amortization
  22




---



##### 



Asset impairments and write-offs
  Other Income and Expense
  Three MonthsEnded September 30,
    
    Percent Change2009
    
    2008
    
    09 vs. 08Interest expense, net
    
    $
    (5,856
    )
    
    $
    (3,210
    )
    
    
    82.4
    %Equity in losses of unconsolidated entities
    
    
    (1,555
    )
    
    
    (29
    )
    
    
    >100
    %Other expense
    
    
    (157
    )
    
    
    
    
    
    
    100
    %Income tax benefit
    
    
    299
    
    
    
    554
    
    
    
    (46.0
    )%
 Interest expense, net
  Equity in losses of unconsolidated entities
  23




---



##### 



Nine months ended September 30, 2009 compared to nine months ended September 30, 2008
 Revenue
  Nine MonthsEnded September 30,
    
    
    Percent Change2009
    
    
    2008
    
    
    09 vs. 08Lodging
    
    $
    59,504
    
    
    $
    72,170
    
    
    
    (17.6
    )%Management fees
    
    
    25,357
    
    
    
    31,180
    
    
    
    (18.7
    )%Termination fees
    
    
    4,488
    
    
    
    5,650
    
    
    
    (20.6
    )%Other
    
    
    5,972
    
    
    
    7,239
    
    
    
    (17.5
    )%Other revenue from managed properties
    
    
    397,883
    
    
    
    463,795
    
    
    
    (14.2
    )%Total revenue
    
    $
    493,204
    
    
    $
    580,034
    
    
    
    (15.0
    )%
 Lodging
  Management fees and termination fees
   Other
  Other revenue from managed properties
  24




---



##### 



Operating Expenses
  Nine MonthsEnded September 30,
    
    
    Percent Change2009
    
    
    2008
    
    
    09 vs. 08Lodging
    
    $
    44,818
    
    
    $
    51,255
    
    
    
    (12.6
    )%Administrative and general
    
    
    33,395
    
    
    
    44,793
    
    
    
    (25.4
    )%Depreciation and amortization
    
    
    11,630
    
    
    
    14,061
    
    
    
    (17.3
    )%Restructuring costs
    
    
    948
    
    
    
    
    
    
    
    100
    %Asset impairments and write-offs
    
    
    3,689
    
    
    
    1,423
    
    
    
    >100
    %Other expenses from managed properties
    
    
    397,883
    
    
    
    463,795
    
    
    
    (14.2
    )%Total operating expenses
    
    $
    492,363
    
    
    $
    575,327
    
    
    
    (14.4
    )%
 Lodging
  Administrative and general
  Depreciation and amortization
  Restructuring costs
  Asset impairments and write-offs
  25




---



##### 



Other Income and Expense
  Nine MonthsEnded September 30,
    
    Percent Change2009
    
    2008
    
    09 vs. 08Interest expense, net
    
    $
    (11,764
    )
    
    $
    (9,759
    )
    
    
    20.5
    %Equity in (losses) earnings of unconsolidated entities
    
    
    (6,066
    )
    
    
    2,867
    
    
    
    >(100
    )%Gain on sale of investments
    
    
    13
    
    
    
    
    
    
    
    100
    %Other expense
    
    
    (157
    )
    
    
    
    
    
    
    (100
    )%Income tax (expense) benefit
    
    
    (12,350
    )
    
    
    626
    
    
    
    >(100
    )%
 Interest expense, net
  Equity in (losses) earnings of unconsolidated entities
  Income tax (expense) benefit
  Liquidity, Capital Resources and Financial Position
  Nine MonthsEnded September 30,
    
    Percent Change2009
    
    2008
    
    09 vs. 08Cash provided by operating activities
    
    $
    14,140
    
    
    $
    26,159
    
    
    
    (45.9
    )%Cash used in investing activities
    
    
    (10,108
    )
    
    
    (48,283
    )
    
    
    (79.1
    )%Cash (used in) provided by financing activities
    
    
    (5,994
    )
    
    
    28,564
    
    
    
    >(100
    )%Working capital deficit
    
    
    (21,437
    )
    
    
    (17,517
    )
    
    
    (22.4
    )%Cash interest expense
    
    
    (8,865
    )
    
    
    (9,550
    )
    
    
    (7.2
    )%Debt balance
    
    
    244,406
    
    
    
    241,035
    
    
    
    1.4
    %
 Operating Activities
  26




---



##### 



Investing Activities
  
    
    In the first nine months of 2009, we invested a total of $1.4 million in various existing
joint ventures while receiving distributions totaling $0.1 million from two joint ventures.
In the first nine months of 2008, we made contributions of $20.2 million in joint venture
investments, of which $12.0 million was for investments in four new joint ventures and $6.3
million for investment in the Duet Fund. In 2008, we also received a distribution of $1.8
million related to the sale of the Doral Tesoro Hotel & Golf Club by one of our 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.
 
    
    We spent $18.0 million less on property and equipment in the first nine months of 2009
compared to the same period in 2008 as the comprehensive renovation program at the Westin
Atlanta was completed in 2008 and we curtailed capital expenditures
at our wholly-owned hotels in response to economic conditions.
 
    
    In the first nine months of 2008, we received additional proceeds of $1.0 million from
the sale of BridgeStreet Corporate Housing Worldwide, Inc. and its affiliated subsidiaries
in January 2007.
 Financing Activities
   Liquidity
 Liquidity Requirements 
  27




---



##### 



Contractual Obligations and Off-Balance Sheet Arrangements
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4T.
    
    Controls and Procedures
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  28




---



##### 



PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 6.
    
    Exhibits
 Exhibit No.
    
    Description of Document4.1
    
    Tax Benefit Preservation Plan, dated as of September 24, 2009, between Interstate Hotels & Resorts, Inc.
and Computershare Trust Company, N.A., as Rights Agent (incorporated by reference to Exhibit 4.1 to the
Companys Form 8-K filed with the Securities and Exchange Commission on September 24, 2009).10.1*
    
    Loan agreement dated October 28, 2009 between Interstate Atlanta Airport, LLC and PB Capital Corporation.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.
 
 *
    
    Filed herewith 29




---



##### 



SIGNATURE
  Interstate Hotels & Resorts, Inc.By:
    /s/  Bruce A. RigginsBruce A. RigginsChief Financial Officer  30