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
    June 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 of
    Incorporation)

(IRS Employer Identification
    No.)4501 North Fairfax Drive, Ste 500

22203Arlington, VA

(Zip Code)(Address of Principal Executive
    Offices)    www.ihrco.com This
    Form 10-Q
    can be accessed at no charge through 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




---



##### 



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


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


2Consolidated Statements of Operations and Comprehensive
    Income  Three and six months ended June 30, 2008
    and 2007


3Consolidated Statements of Cash Flows  Six months
    ended June 30, 2008 and 2007


4Notes to Consolidated Financial Statements


5Item 2:


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


23Item 3:


Quantitative and Qualitative Disclosures About Market Risk


35Item 4:


Controls and Procedures


36PART II. OTHER INFORMATIONItem 1:


Legal Proceedings


37Item 4:


Submission of Matters to a Vote of Security Holders


37Item 6:


Exhibits


38  1




---



##### 



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


December 31,2008


2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
8,316


$
9,775Restricted cash


8,573



7,090Accounts receivable, net of allowance for doubtful accounts of
    $1,136 and $516, respectively


22,072



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


2,891



1,822Prepaid expenses and other current assets


4,162



5,101Deferred income taxes


5,236



3,796Total current assets


51,250



55,573Marketable securities


2,266



1,905Property and equipment, net


286,219



278,098Investments in unconsolidated entities


46,482



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


5,690



4,976Deferred income taxes


18,097



18,247Goodwill


66,599



66,599Intangible assets, net


18,697



17,849Total assets

$
495,300


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

$
5,012


$
2,597Accrued expenses


67,820



64,952Current portion of long-term debt


863



863Total current liabilities


73,695



68,412Deferred compensation


2,240



1,831Long-term debt


228,925



210,800Total liabilities


304,860



281,043Minority interest (redemption value of $139 at June 30,
    2008)


321



329Commitments and contingencies






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; 31,849,062 and 31,832,262 shares issued and
    outstanding, respectively, at June 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


196,368



195,729Accumulated other comprehensive income (loss)


37



(87
)Accumulated deficit


(6,536
)


(6,384
)Total stockholders equity


190,119



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

$
495,300


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




---



##### 



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


Six Months EndedJune 30,


June 30,2008


2007


2008


2007(As restated)





(As restated)Revenue:Lodging

$
25,796


$
18,621


$
49,714


$
31,697Management fees


9,021



10,728



17,544



21,350Management fees-related parties


1,799



852



3,185



1,699Termination fees


1,194



2,418



4,204



3,993Other


2,693



2,763



4,792



5,03240,503



35,382



79,439



63,771Other revenue from managed properties


157,333



164,793



308,347



341,163Total revenue


197,836



200,175



387,786



404,934Expenses:Lodging


17,510



12,607



34,452



21,930Administrative and general


15,331



14,635



31,243



27,999Depreciation and amortization


4,901



3,423



9,175



6,648Asset impairments and write-offs


29



5,513



1,141



7,91237,771



36,178



76,011



64,489Other expenses from managed properties


157,333



164,793



308,347



341,163Total operating expenses


195,104



200,971



384,358



405,652OPERATING INCOME (LOSS)


2,732



(796
)


3,428



(718
)Interest income


280



721



599



1,157Interest expense


(3,333
)


(3,276
)


(7,148
)


(6,009
)Equity in earnings of unconsolidated entities


535



854



2,896



1,255INCOME (LOSS) BEFORE MINORITY INTEREST AND INCOME TAXES


214



(2,497
)


(225
)


(4,315
)Income tax (expense) benefit


(79
)


1,275



72



2,056Minority interest (expense) benefit


(1
)


4



1



(42
)INCOME (LOSS) FROM CONTINUING OPERATIONS


134



(1,218
)


(152
)


(2,301
)Income from discontinued operations, net of tax






607







17,608NET INCOME (LOSS)

$
134


$
(611
)

$
(152
)

$
15,307Other comprehensive income, net of tax:Foreign currency translation loss


(28
)


(18
)


(17
)


(23
)Unrealized gain on cash flow hedge instrument


552







101



Unrealized gain on investments


39



1



40



18COMPREHENSIVE INCOME (LOSS)

$
697


$
(628
)

$
(28
)

$
15,302BASIC (LOSS) EARNINGS PER SHARE:Continuing operations

$



$
(0.04
)

$



$
(0.08
)Discontinued operations






0.02







0.56Basic (loss) earnings per share

$



$
(0.02
)

$



$
0.48DILUTIVE (LOSS) EARNINGS PER SHARE:Continuing operations

$



$
(0.04
)

$



$
(0.08
)Discontinued operations






0.02







0.56Dilutive (loss) earnings per share

$



$
(0.02
)

$



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




---



##### 



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


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

$
(152
)

$
15,307Adjustments to reconcile net (loss) income to net cash provided
    by operating activities:Depreciation and amortization


9,175



6,648Amortization of deferred financing fees


633



1,113Amortization of key money management contracts


406



321Stock compensation expense


890



553Discount on notes receivable


(152
)


Bad debt expense


1,062



46Asset impairments and write-offs


1,141



7,912Equity in earnings from unconsolidated entities


(2,896
)


(1,255
)Operating distributions from unconsolidated entities


767



221Minority interest


(1
)


42Deferred income taxes


(1,290
)


(3,253
)Excess tax benefits from share-based payment arrangements


80



(87
)Discontinued operations:Gain on sale






(18,131
)Changes in assets and liabilities:Accounts receivable


4,506



4,640Due from related parties, net


(1,070
)


525Prepaid expenses and other current assets


939



(1,088
)Accounts payable and accrued expenses


6,269



1,953Changes in assets and liabilities held for sale






93Other changes in asset and liability accounts


(15
)


(141
)Cash provided by operating activities


20,292



15,419INVESTING ACTIVITIES:Proceeds from the sale of discontinued operations


959



34,966Change in restricted cash


(1,483
)


(1,601
)Acquisition of hotels






(127,958
)Purchases related to discontinued operations






(68
)Purchases of property and equipment


(16,225
)


(4,027
)Additions to intangible assets


(3,419
)


(1,740
)Contributions to unconsolidated entities


(19,008
)


(1,377
)Distributions from unconsolidated entities


1,830



2,759Changes in notes receivable


(1,668
)


746Cash used in investing activities


(39,014
)


(98,300
)FINANCING ACTIVITIES:Proceeds from borrowings


47,000



147,825Repayment of borrowings


(28,875
)


(59,814
)Excess tax benefits from share-based payments


(80
)


87Proceeds from issuance of common stock


1



190Financing fees paid


(810
)


(3,317
)Cash provided by financing activities


17,236



84,971Effect of exchange rate on cash


27



(18
)Net (decrease) increase in cash and cash equivalents


(1,459
)


2,072CASH AND CASH EQUIVALENTS, beginning of period


9,775



25,308CASH AND CASH EQUIVALENTS, end of period

$
8,316


$
27,380SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest and income taxes:Interest

$
6,588


$
4,577Income taxes


402



1,894   The accompanying notes are an integral part of the
    consolidated financial statements.
 4




---



##### 



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




---



##### 



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


Adjustments


(Restated)ASSETSCurrent assets:Cash and equivalents

$
27,380






$
27,380Escrow and restricted funds


8,086







8,086Accounts receivable, net


27,398







27,398Due to related party, net


944







944Prepaid expenses and other current assets


4,056







4,056Total current assets


67,864







67,864Marketable securities


1,919







1,919Property and equipment, net


230,522







230,522Investments in unconsolidated entities


11,220







11,220Notes receivable, net


4,289







4,289Deferred income taxes


12,067



3,637



15,704Goodwill


73,672







73,672Intangible assets, net


29,886



(6,428
)


23,458Total assets

$
431,439



(2,791
)

$
428,648LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS
    EQUITYCurrent liabilities:Accounts payable

$
1,958






$
1,958Accrued expenses


70,506



726



71,232Current portion of long-term debt


862







862Total current liabilities


73,326



726



74,052Deferred compensation


1,914







1,914Long-term debt


171,375







171,375Total liabilities


246,615



726



247,341Minority interests


519



(20
)


499Commitments and contingencies










Stockholders equity:Preferred stock, $.01 par value










Common stock, $.01 par value


317







317Treasury stock


(69
)






(69
)Paid in capital


194,929







194,929Accumulated other comprehensive (loss) income


(464
)






(464
)Accumulated deficit


(10,408
)


(3,497
)


(13,905
)Total stockholders equity


184,305



(3,497
)


180,808Total liabilities, minority interests and stockholders
    equity

$
431,439



(2,791
)

$
428,648  6




---



##### 



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


Adjustments


(Restated)Total revenue

$
200,175






$
200,175Expenses:Lodging


12,607







12,607Administrative and general


14,635







14,635Depreciation and amortization


3,684



(261
)


3,423Asset impairments and write-offs


1,047



4,466



5,51331,973



4,205



36,178Other expenses from managed properties


164,793







164,793Total operating expenses


196,766



4,205



200,971OPERATING INCOME (LOSS)


3,409



(4,205
)


(796
)INCOME (LOSS) BEFORE MINORITY INTERESTS AND INCOME TAXES


1,708



(4,205
)


(2,497
)Income tax (expense) benefit


(708
)


1,983



1,275Minority interests (expense) benefit


(9
)


13



4INCOME (LOSS) FROM CONTINUING OPERATIONS


991



(2,209
)


(1,218
)Income from discontinued operations, net of tax


607







607NET INCOME (LOSS)

$
1,598



(2,209
)

$
(611
)BASIC EARNINGS (LOSS) PER SHARE:Continuing Operations

$
0.03



(0.07
)

$
(0.04
)Discontinued Operations

$
0.02






$
0.02Basic earnings (loss) per share

$
0.05



(0.07
)

$
(0.02
)DILUTED EARNINGS (LOSS) PER SHARE:Continuing operations

$
0.03



(0.07
)

$
(0.04
)Discontinued operations

$
0.02






$
0.02Diluted earnings per share

$
0.05



(0.07
)

$
(0.02
)  7




---



##### 



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


Adjustments


(Restated)Total revenue

$
404,934






$
404,934Expenses:Lodging


21,930







21,930Administrative and general


27,999







27,999Depreciation and amortization


6,977



(329
)


6,648Asset impairments and write-offs


1,155



6,757



7,91258,061



6,428



64,489Other expenses from managed properties


341,163







341,163Total operating expenses


399,224



6,428



405,652OPERATING INCOME (LOSS)


5,710



(6,428
)


(718
)INCOME (LOSS) BEFORE MINORITY INTERESTS AND INCOME TAXES


2,113



(6,428
)


(4,315
)Income tax (expense) benefit


(855
)


2,911



2,056Minority interests (expense) benefit


(62
)


20



(42
)INCOME (LOSS) FROM CONTINUING OPERATIONS


1,196



(3,497
)


(2,301
)Income from discontinued operations, net of tax


17,608







17,608NET INCOME (LOSS)

$
18,804



(3,497
)

$
15,307BASIC EARNINGS (LOSS) PER SHARE:Continuing Operations

$
0.04



(0.12
)

$
(0.08
)Discontinued Operations

$
0.56






$
0.56Basic earnings per share

$
0.60



(0.12
)

$
0.48DILUTED EARNINGS (LOSS) PER SHARE:Continuing operations

$
0.04



(0.12
)

$
(0.08
)Discontinued operations

$
0.56






$
0.56Diluted earnings per share

$
0.60



(0.12
)

$
0.48     Revenue
    Recognition Related to Termination Fees
    Related
    Parties
   8




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair
    Value Accounting
  No. 157-2 SFAS 157-2). SFAS 157-2 SFAS 157-2
            Fair Value at June 30, 2008Total


Level 1


Level 2


Level 3Assets:Derivative instruments

$
416


$



$
416


$
Marketable securities

$
2,266


$
2,266


$



$
Total:

$
2,682


$
2,266


$
416


$
  9




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      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
  No. FAS 142-3, Determination of the Useful Life of Intangible
    Assets (FSP 142-3). FSP 142-3 Goodwill and Other Intangible
    Assets FSP 142-3
  The
    Hierarchy of Generally Accepted Accounting Principles
  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 EndedJune 30, 2007June 30, 2008


(As restated)Per Share








Per ShareIncome


Shares


Amount


Loss


Shares


AmountIncome (loss) from continuing operations

$
134



31,764


$



$
(1,218
)


31,642


$
(0.04
)Income from discontinued operations, net of tax














607







0.02Basic net income (loss)

$
134



31,764


$



$
(611
)


31,642


$
(0.02
)Assuming exercise of outstanding employee stock options less
    shares repurchased at average market price






13















Assuming vesting of outstanding restricted stock






1,087















Diluted net income (loss)

$
134



32,864


$



$
(611
)


31,642


$
(0.02
)   Six Months EndedJune 30, 2007June 30, 2008


(As restated)Income/





Per Share


Income/





Per Share(Loss)


Shares


Amount


(Loss)


Shares


AmountLoss from continuing operations

$
(152
)


31,765


$



$
(2,301
)


31,602


$
(0.08
)Income from discontinued operations, net of tax














17,608







0.56Basic net (loss) income

$
(152
)


31,765


$



$
15,307



31,602


$
0.48Assuming exercise of outstanding employee stock options less
    shares repurchased at average market price


















65



Assuming vesting of outstanding restricted stock


















227



Diluted net (loss) income

$
(152
)


31,765


$



$
15,307



31,894


$
0.48  11




---



##### 



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


June 30,


December 31,Joint Venture

Number of Hotels


Participation


2008


2007Amitel Holdings, LLC


6



15.0
%

$
4,496


$
4,065Budget Portfolio Properties, LLC


22



10.0
%


1,480



250CNL/IHC Partners, L.P.


3



15.0
%


3,016



2,825Cameron S-Sixteen Broadway, LLC


1



15.7
%


918



1,002Cameron S-Sixteen Hospitality, LLC


1



10.9
%


249



399Harte IHR Joint Venture


4



20.0
%


11,353



2,356IHR Greenbuck Hotel Venture,
    LLC(1)


1



15.0
%


2,562



2,038IHR Invest Hospitality Holdings, LLC


2



15.0
%


4,035



4,372IHR/Steadfast Hospitality Management,
    LLC(2)






50.0
%


716



649Interstate Cross Keys, LLC


1



15.0
%


527



557RQB Resort/Development Investors, LLC


1



10.0
%


1,949



1,378Steadfast Mexico, LLC


3



15.0
%


6,201



6,133India Management
    Co.(2)






50.0
%


500



Duet
    Fund(3)










6,250



Other


3



various



2,230



1,607Total


48






$
46,482


$
27,631     (1)
    
    This joint venture opened a new
    hotel in June 2008 and is in process of developing one other
    hotel.(2)
    
    Hotel number is not listed as this
    joint venture owns a management company.(3)
    
    This fund has not purchased or
    invested in real estate properties as of June 30, 2008.      .
 12




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  and/or
      5.
    PROPERTY
    AND EQUIPMENT    June 30,


December 31,2008


2007Land

$
29,712


$
26,912Furniture and fixtures


34,033



28,841Building and improvements


237,260



230,058Leasehold improvements


5,826



5,695Computer equipment


6,753



6,686Software


12,515



12,336Total


326,099



310,528Less accumulated depreciation


(39,880
)


(32,430
)Property and equipment, net

$
286,219


$
278,098      13




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  6.
    INTANGIBLE
    ASSETS    June 30,


December 31,2008


2007Management contracts

$
22,629


$
21,338Franchise fees


1,925



1,925Deferred financing fees


4,492



3,619Total cost


29,046



26,882Less accumulated amortization


(10,349
)


(9,033
)Intangible assets, net

$
18,697


$
17,849            14




---



##### 



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


December 31,2008


2007Salaries and employee related benefits

$
25,225


$
27,837Deferred revenues


6,254



1,125Other


36,341



35,990Total

$
67,820


$
64,952       8.
    LONG-TERM
    DEBT    June 30,


December 31,2008


2007Senior credit facility  term loan

$
113,563


$
114,138Senior credit facility  revolver loan


33,700



40,000Mortgage debt


82,525



57,525Total long-term debt


229,788



211,663Less current portion


(863
)


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

$
228,925


$
210,800   Senior
    Credit Facility
  and/or
    30-day
 15




---



##### 



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


Maturity


Spread Over


Interest Rate as ofAmount


Date


LIBOR(1)


June 30, 2008Hilton Arlington

$
24.7 million



November 2009



135 bps



3.84
%Hilton Houston Westchase

$
32.8 million



February 2010



135 bps



3.84
%Sheraton Columbia

$
25.0 million



April 2013



200 bps



4.78
%     (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.        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
%    16




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Interest
    Rate Collar
  30-day 30-day 30-day
  9.
    SEGMENT
    INFORMATION            17




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Hotel


HotelOwnership


Management


Corporate


ConsolidatedThree months ended June 30, 2008Revenue

$
25,796


$
14,707


$



$
40,503Depreciation and amortization


3,784



1,001



116



4,901Operating expense


18,471



13,177



1,222



32,870Operating income (loss)


3,541



529



(1,338
)


2,732Interest expense, net


(3,053
)










(3,053
)Equity in earnings of unconsolidated entities


535











535Income (loss) before minority interests and income taxes

$
1,023


$
529


$
(1,338
)

$
214Capital expenditures

$
8,547


$
501


$
75


$
9,123Three months ended June 30, 2007Revenue

$
18,621


$
16,761


$



$
35,382Depreciation and amortization


1,790



1,521



112



3,423Operating expense


13,069



17,605



2,081



32,755Operating income (loss)


3,762



(2,365
)


(2,193
)


(796
)Interest expense, net


(2,915
)






360



(2,555
)Equity in earnings of unconsolidated entities


854











854Income (loss) before minority interests and income taxes

$
1,701


$
(2,365
)

$
(1,833
)

$
(2,497
)Capital expenditures

$
78,256


$
46


$
11


$
78,313   18




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Hotel


HotelOwnership


Management


Corporate


ConsolidatedSix months ended June 30, 2008Revenue

$
49,714


$
29,725


$



$
79,439Depreciation and amortization


6,968



1,976



231



9,175Operating expense


35,829



28,493



2,514



66,836Operating income (loss)


6,917



(744
)


(2,745
)


3,428Interest expense, net


(6,549
)










(6,549
)Equity in earnings of unconsolidated entities


2,896











2,896Income (loss) before minority interests and income taxes

$
3,264


$
(744
)

$
(2,745
)

$
(225
)Total assets

$
336,825


$
121,979


$
36,496


$
495,300Capital expenditures

$
15,307


$
799


$
119


$
16,225Six months ended June 30, 2007Revenue

$
31,697


$
32,074


$



$
63,771Depreciation and amortization


3,216



3,216



216



6,648Operating expense


22,756



32,055



3,030



57,841Operating income (loss)


5,725



(3,197
)


(3,246
)


(718
)Interest expense, net


(4,871
)






19



(4,852
)Equity in earnings of unconsolidated entities


1,255











1,255Income (loss) before minority interests and income taxes

$
2,109


$
(3,197
)

$
(3,227
)

$
(4,315
)Total assets

$
246,914


$
136,160


$
45,574


$
428,648Capital expenditures

$
131,194


$
633


$
158


$
131,985   (1),(2)
  Three Months

Six MonthsEnded June 30,

Ended June 30,2008

2007

2008

2007Russia(3)

$
180


$
180


$
358


$
360Other

$
123


$
157


$
207


$
218     (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 six months ended
    June 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 six months ended June 30,
    2008, respectively.(3)
    
    Deferred revenues related to
    incentive fees paid, but not yet earned, of $5.4 million
    and $4.1 million have not been included for the six month
    periods ended June 30, 2008 and 2007, respectively.   19




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  10.
    COMMITMENTS
    AND CONTINGENCIES  Insurance
    Matters
      Insurance
    Receivables and Reserves
   20




---



##### 



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

$
4,125June 30,
    2009-2010


4,206June 30,
    2010-2011


4,200June 30,
    2011-2012


3,658June 30,
    2012-2013


3,746Thereafter


1,266Total

$
21,201     June 30,
    2008-2009

$
1,156June 30,
    2009-2010


1,202June 30,
    2010-2011


1,250June 30,
    2011-2012


1,300June 30,
    2012-2013


1,352Thereafter


228Total

$
6,488   Commitments
    Related to Management Agreements and Hotel
    Ownership
        Guarantees
   21




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Letters
    of Credit
    Contingent
    Liabilities Related to Partnership Interests
      11.
    STOCK-BASED
    COMPENSATION  Share Based Payment
      12.
    SUBSEQUENT
    EVENT   22




---



##### 



Item 2:
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Forward-Looking
    Statements
  Form 10-Q Form 10-K
  Form 10-Q, Form 10-K,
  Overview
    and Outlook
  Our Business 
      Industry Overview 
 23




---



##### 



Financial Highlights 
  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     and/or
 24




---



##### 



.
    Turnover of Management Contracts 
      Number of


Number ofProperties


RoomsAs of December 31, 2007


191



42,620New contracts


43



5,989Lost contracts


(13
)


(2,649
)As of June 30, 2008


221



45,960     Critical
    Accounting Policies and Estimates
    Form 10-K,
 25




---



##### 



Results
    of Operations
  Operating
    Statistics
    As of June 30,


Percent Change2008


2007


08 vs.07Hotel OwnershipNumber of properties


7



6



16.7
%Number of rooms


2,045



1,757



16.4
%Hotel
    Management(1)Properties managed


221



187



18.2
%Number of rooms


45,960



42,760



7.5
%     (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 10 additional management contracts from Inland
    Lodging Corporation.
    We obtained 18 new management contracts with various owners.
    23 properties owned by various owners were transitioned out of
    our system.  (2)
  Three MonthsEnded June 30,


Percent Change2008


2007


08 vs. 07Hotel ManagementRevPAR

$
108.65


$
104.44



4.0
%ADR

$
143.13


$
135.49



5.6
%Occupancy


75.9
%


77.1
%


(1.6
)%   Six MonthsEnded June 30,


Percent Change2008


2007


08 vs. 07Hotel ManagementRevPAR

$
102.84


$
99.10



3.8
%ADR

$
141.20


$
132.98



6.2
%Occupancy


72.8
%


74.5
%


(2.3
)%     (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 June 30, 2008 are not included in
    same-store hotel results for the periods presented herein. Of
    the 221 properties that we managed as of June 30, 2008, 173
    properties have been classified as same-store hotels. 26




---



##### 



Three
    months ended June 30, 2008 compared to three months ended
    June 30, 2007
  Revenue
    Three MonthsEnded June 30,


Percent Change2008


2007


08 vs. 07Lodging

$
25,796


$
18,621



38.5
%Management fees


10,820



11,580



(6.6
)%Termination fees


1,194



2,418



(50.6
)%Other


2,693



2,763



(2.5
)%Other revenue from managed properties


157,333



164,793



(4.5
)%Total revenue

$
197,836


$
200,175



(1.2
)%   Lodging
   Management
    fees and termination fees
     Other
    revenue from managed properties
  27




---



##### 



Operating
    Expenses
    Three MonthsEnded June 30,


Percent Change2008


2007


08 vs. 07Lodging

$
17,510


$
12,607



38.9
%Administrative and general


15,331



14,635



4.8
%Depreciation and amortization


4,901



3,423



43.2
%Asset impairments and write-offs


29



5,513



(99.5
)%Other expenses from managed properties


157,333



164,793



(4.5
)%Total operating expenses

$
195,104


$
200,971



(2.9
)%   Lodging
   Administrative
    and general
   Depreciation
    and amortization
   Asset
    impairments and write-offs
   Other
    expenses from managed properties
  28




---



##### 



Other
    Income and Expense
    Three MonthsEnded June 30,


Percent Change2008


2007


08 vs. 07Interest expense, net

$
3,053


$
2,555



19.5
%Equity in earnings of unconsolidated entities


535



854



(37.4
)%Income tax expense (benefit)


79



(1,275
)


>(100
)%Minority interest expense (benefit)


1



(4
)


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






607



(100
)%   Interest
    expense, net
   Equity in
    earnings of unconsolidated entities
 true-ups
  Income
    tax expense
   Income
    from discontinued operations, net of tax
  29




---



##### 



Six
    months ended June 30, 2008 compared to six months ended
    June 30, 2007
  Revenue
    Six MonthsEnded June 30,


Percent Change2008


2007


08 vs. 07Lodging

$
49,714


$
31,697



56.8
%Management fees


20,729



23,049



(10.1
)%Termination fees


4,204



3,993



5.3
%Other


4,792



5,032



(4.8
)%Other revenue from managed properties


308,347



341,163



(9.6
)%Total revenue

$
387,786


$
404,934



(4.2
)%   Lodging
   Management
    fees and termination fees
     Other
   Other
    revenue from managed properties
  30




---



##### 



Operating
    Expenses
    Six MonthsEnded June 30,


Percent Change2008


2007


08 vs. 07Lodging

$
34,452


$
21,930



57.1
%Administrative and general


31,243



27,999



11.6
%Depreciation and amortization


9,175



6,648



38.0
%Asset impairments and write-offs


1,141



7,912



(85.6
)%Other expenses from managed properties


308,347



341,163



(9.6
)%Total operating expenses

$
384,358


$
405,652



(5.2
)%   Lodging
   Administrative
    and general
   Depreciation
    and amortization
   Asset
    impairments and write-offs
   Other
    expenses from managed properties
  31




---



##### 



Other
    Income and Expense
    Six MonthsEnded June 30,


Percent Change2008


2007


08 vs. 07Interest expense, net

$
6,549


$
4,852



35.0
%Equity in earnings of unconsolidated entities


2,896



1,255



>100
%Income tax (benefit) expense


(72
)


(2,056
)


96.5
%Minority interest (benefit) expense


(1
)


42



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






17,608



(100
)%   Interest
    expense, net
   Equity in
    earnings of unconsolidated entities
   Income
    tax expense
   Income
    from discontinued operations, net of tax
 true-ups
  Liquidity,
    Capital Resources and Financial Position
    Six MonthsEnded June 30,


Percent Change2008


2007


08 vs. 07Cash provided by operating activities

$
20,292


$
15,419



31.6
%Cash used in investing activities


(39,014
)


(98,300
)


60.3
%Cash provided by financing activities


17,236



84,971



(79.7
)%Working capital


(22,445
)


(5,462
)


>(100
)%Cash interest expense


6,588



4,577



43.9
%Debt balance


229,788



172,237



33.4
%  32




---



##### 



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 2008, we invested a total of $19.0 million in joint
    ventures, of which $17.3 million was in four new joint
    ventures, while receiving distributions totaling
    $1.8 million from one joint venture. In 2007, we invested a
    total of $1.2 million in two new joint ventures while
    receiving distributions totaling $2.8 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 six month period ended June 30, 2008, we spent
    $16.2 million on property improvements compared with
    $4.0 million in the prior year period. Of the
    $16.2 million spent, approximately $15.3 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 
   33




---



##### 



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


Maturity


Spread Over


June 30,Amount


Date


LIBOR(1)


2008Hilton Arlington

$
24.7 million



November 2009



135 bps



3.84
%Hilton Houston Westchase

$
32.8 million



February 2010



135 bps



3.84
%Sheraton Columbia

$
25.0 million



April 2013



200 bps



4.78
%     (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.       34




---



##### 



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
  30-day 30-day
  Form 10-K
 35




---



##### 



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
       36




---



##### 



PART II.
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders          For


25,594,288Against


333,189Abstain


1,350,704       For


Against


AbstainClass II: (term to expire at the Annual Meeting in 2009)
    Eric H. Bolton


25,473,972



1,778,923



25,286Class I: (term to expire at the Annual Meeting in 2011)
    James F. Dannhauser


25,475,240



1,775,234



27,708Thomas F. Hewitt


25,472,963



1,778,164



27,054Paul W. Whetsell


22,343,430



4,907,729



27,022  37




---



##### 



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

Description of Document10
.5.2

Second Amendment to the Senior Secured Credit Facility, dated
    July 2, 2008, among Interstate Operating Company, LP,
    Lehman Brothers Inc. and various other lenders.10
.17

Loan Agreement dated May 1, 2008 between Interstate
    Columbia SPE, LLC and Calyon New York Branch and various other
    lenders.10
.18

Amended and Restated Employment Agreement and Consulting
    Agreement, dated as of July 1, 2008, by and between Henry
    L. Ciaffone 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.  38




---



##### 



SIGNATURE
    Interstate
    Hotels & Resorts, Inc.
  By:
    /s/  Denis
    S. McCarthy      39