##### 



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, 2007oro

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(State of
    Incorporation)

52-2101815(IRS 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 above website.
   (703) 387-3100 (Registrants
    Telephone Number, Including Area Code)
  þ o
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ




---



##### 



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


Financial
    Statements (Unaudited):


2Consolidated
    Balance Sheets  June 30, 2007 and
    December 31, 2006


2Consolidated
    Statements of Operations and Comprehensive Income 
    Three and six months ended June 30, 2007 and 2006


3Consolidated
    Statements of Cash Flows  Six months ended
    June 30, 2007 and 2006


4Notes to
    Consolidated Financial Statements


5Item 2:


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


21Item 3:


Quantitative and
    Qualitative Disclosures About Market Risk


35Item 4:


Controls and
    Procedures


35PART 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 31,2007


2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
27,380


$
25,308Restricted cash


8,086



6,485Accounts receivable, net of
    allowance for doubtful accounts of $373 and $253, respectively


27,398



31,511Due from related parties, net of
    allowance for doubtful accounts of $1,110 and $1,110,
    respectively


944



1,469Prepaid expenses and other current
    assets


4,056



2,592Assets held for sale






28,383Total current assets


67,864



95,748Marketable securities


1,919



1,610Property and equipment, net


230,522



103,895Investments in affiliates


11,220



11,144Notes receivable


4,289



4,962Deferred income taxes


12,067



12,451Goodwill


73,672



73,672Intangible assets, net


29,886



30,208Total assets

$
431,439


$
333,690LIABILITIES, MINORITY INTEREST
    AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
1,958


$
2,053Accrued expenses


70,506



68,395Liabilities related to assets held
    for sale






10,263Current portion of long-term debt


862



3,750Total current liabilities


73,326



84,461Deferred compensation


1,914



1,541Long-term debt


171,375



80,476Total liabilities


246,615



166,478Minority interest


519



516Commitments and contingenciesStockholders equity:Preferred stock, $.01 par
    value; 5,000,000 shares authorized, no shares issued






Common stock, $.01 par value;
    250,000,000 shares authorized; 31,678,569, and
    31,540,926 shares issued and outstanding at June 30,
    2007 and December 31, 2006, respectively


317



316Treasury stock


(69
)


(69
)Paid-in capital


194,929



194,460Accumulated other comprehensive
    (loss) income


(464
)


1,201Accumulated deficit


(10,408
)


(29,212
)Total stockholders equity


184,305



166,696Total liabilities, minority
    interest and stockholders equity

$
431,439


$
333,690   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 30,2007


2006


2007


2006Revenue:Lodging

$
18,621


$
6,418


$
31,697


$
11,455Management fees


10,728



12,422



21,350



21,625Management fees-related parties


852



2,765



1,699



10,725Termination fees


2,418



1,494



3,993



1,779Termination fees-related parties






702







6,117Other


2,763



2,718



5,032



6,42935,382



26,519



63,771



58,130Other revenue from managed
    properties


164,793



217,824



341,163



442,773Total revenue


200,175



244,343



404,934



500,903Expenses:Lodging


12,667



4,572



22,039



8,460Administrative and general


14,575



15,385



27,890



29,030Depreciation and amortization


3,684



1,546



6,977



3,089Asset impairments and write-offs


1,047



92



1,155



8,64231,973



21,595



58,061



49,221Other expenses from managed
    properties


164,793



217,824



341,163



442,773Total operating expenses


196,766



239,419



399,224



491,994OPERATING INCOME


3,409



4,924



5,710



8,909Interest income


721



545



1,157



931Interest expense


(3,276
)


(1,970
)


(6,009
)


(4,025
)Equity in earnings (losses) of
    affiliates


854



123



1,255



(434
)INCOME BEFORE MINORITY INTEREST
    AND INCOME TAXES


1,708



3,622



2,113



5,381Income tax expense


(708
)


(1,611
)


(855
)


(2,280
)Minority interest expense


(9
)


(31
)


(62
)


(49
)INCOME FROM CONTINUING OPERATIONS


991



1,980



1,196



3,052Income from discontinued
    operations, net of tax


607



1,029



17,608



703NET INCOME

$
1,598


$
3,009


$
18,804


$
3,755Other comprehensive income, net of
    tax:Foreign currency translation
    (loss) gain


(18
)


418



(23
)


671Unrealized gain on investments


1



24



18



12COMPREHENSIVE INCOME

$
1,581


$
3,451


$
18,799


$
4,438BASIC EARNINGS PER SHARE:Continuing operations

$
0.03


$
0.07


$
0.04


$
0.10Discontinued operations


0.02



0.03



0.56



0.02Basic earnings per share

$
0.05


$
0.10


$
0.60


$
0.12DILUTIVE EARNINGS PER SHARE:Continuing operations

$
0.03


$
0.07


$
0.04


$
0.10Discontinued operations


0.02



0.03



0.55



0.02Dilutive earnings per share

$
0.05


$
0.10


$
0.59


$
0.12   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 30,2007


2006OPERATING ACTIVITIES:Net income

$
18,804


$
3,755Adjustments to reconcile net income
    to net cash provided by operating activities:Depreciation and amortization


6,977



3,089Amortization of deferred financing
    fees


1,113



387Stock compensation expense


553



598Bad debt expense


46



759Asset impairments and write-offs


1,155



8,642Equity in (earnings) losses of
    affiliates


(1,255
)


434Operating distributions from
    unconsolidated affiliates


221



186Minority interest


62



49Deferred income taxes


384



1,033Excess tax benefits from
    share-based payment arrangements


(87
)


(558
)Discontinued operations:Depreciation and amortization






897Gain on sale


(18,131
)


Changes in assets and liabilities:Accounts receivable


4,640



(1,453
)Due from related parties


525



4,563Prepaid expenses and other current
    assets


(1,088
)


(3,024
)Accounts payable and accrued
    expenses


1,227



(2,787
)Changes in asset and liability
    accounts held for sale


93



Other changes in asset and
    liability accounts


180



357Cash provided by operations


15,419



16,927INVESTING ACTIVITIES:Proceeds from the sale of
    discontinued operations


34,966



Change in restricted cash


(1,601
)


4Acquisition of hotels


(127,958
)


(14,528
)Purchases related to discontinued
    operations


(68
)


(1,516
)Purchases of property and equipment


(4,027
)


(2,947
)Additions to intangible assets


(1,740
)


(804
)Contributions to unconsolidated
    affiliates


(1,377
)


(6,248
)Distributions from unconsolidated
    affiliates


2,759



Changes in notes receivable


746



60Cash used in investing activities


(98,300
)


(25,979
)FINANCING ACTIVITIES:Proceeds from borrowings


147,825



9,000Repayment of borrowings


(59,814
)


(12,500
)Excess tax benefits from
    share-based payments


87



558Proceeds from issuance of common
    stock


190



2,201Financing fees paid


(3,317
)


Cash provided by (used in)
    financing activities


84,971



(741
)Effect of exchange rate on cash


(18
)


187Net increase (decrease) in cash and
    cash equivalents


2,072



(9,606
)CASH AND CASH EQUIVALENTS,
    beginning of period


25,308



12,929CASH AND CASH EQUIVALENTS, end of
    period

$
27,380


$
3,323SUPPLEMENTAL CASH FLOW
    INFORMATIONCash paid for interest and income
    taxes:Interest

$
4,577


$
3,676Income taxes


1,894



1,364   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)
    Revenue
    Recognition Related to Termination Fees
  No. 04-1, Accounting for Preexisting Relationships between the
    Parties to a Business Combination (EITF 04-1)
  Related
    Parties
        Stock-Based
    Compensation
  Share Based Payment
  Accounting
    for Uncertainty in Income Taxes
   6




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Recently
    Issued Accounting Pronouncements
  No. 06-3, (EITF 06-3) EITF 06-3,
  Fair
    Value Measurements
  Fair
    Value Option for Financial Assets and Financial Liabilities (as
    amended)
  3.
    EARNINGS
    PER SHARE      Three Months EndedJune 30, 2007


June 30, 2006Income/





Per Share


Income/





Per Share(Loss)


Shares


Amount


(Loss)


Shares


AmountIncome from continuing operations

$
991



31,642


$
0.03


$
1,980



30,890


$
0.07Income from discontinued
    operations, net of tax


607







0.02



1,029







0.03Basic net income

$
1,598



31,642


$
0.05


$
3,009



30,890


$
0.10Assuming exercise of outstanding
    employee stock options less shares repurchased at average market
    price






41











212



Assuming vesting of outstanding
    restricted stock






306











174



Diluted net income

$
1,598



31,989


$
0.05


$
3,009



31,276


$
0.10   7




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Six Months EndedJune 30, 2007


June 30, 2006Income/





Per Share


Income/





Per Share(Loss)


Shares


Amount


(Loss)


Shares


AmountIncome from continuing operations

$
1,196



31,602


$
0.04


$
3,052



30,788


$
0.10Income from discontinued
    operations, net of tax


17,608







0.56



703







0.02Basic net income

$
18,804



31,602


$
0.60


$
3,755



30,788


$
0.12Assuming exercise of outstanding
    employee stock options less shares repurchased at average market
    price






65











157



Assuming vesting of outstanding
    restricted stock






227



(0.01
)






144



Diluted net income

$
18,804



31,894


$
0.59


$
3,755



31,089


$
0.12   4.
    INVESTMENTS
    IN AFFILIATES    Our Equity

June 30,


December 31,Joint Venture

Number of Hotels


Participation

2007


2006CNL/IHC Partners, L.P.


3


15.0%

$
2,698


$
2,625RQB Resort/Development Investors,
    LLC


1


10.0%


913



447True North Tesoro Property
    Partners, L.P.


1


15.9%


29



1,381Amitel Holdings, LLC


6


15.0%


3,909



3,903Cameron S-Sixteen Hospitality, LLC


1


10.9%


451



487Cameron S-Sixteen Broadway, LLC


1


15.7%


1,085



1,136IHR Greenbuck Hotel Venture, LLC(1)





15.0%


1,074



362Interstate Cross Keys, LLC


1


15.0%


572



Other


3


12.5%-50.0%


489



803Total


17




$
11,220


$
11,144     (1)
    
    Hotel number is not listed since this joint venture is in the
    process of developing hotels.     8




---



##### 



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


December 31,2007


2006Land

$
19,547


$
10,269Furniture and fixtures


25,964



17,437Building and improvements


187,234



75,566Leasehold improvements


5,695



5,889Computer equipment


6,414



4,978Software


11,883



12,244Total


256,737



126,383Less accumulated depreciation


(26,215
)


(22,488
)Property and equipment, net

$
230,522


$
103,895   6.
    INTANGIBLE
    ASSETS    June 30,


December 31,2007


2006Management contracts

$
35,382


$
35,940Franchise fees


1,814



1,620Deferred financing fees


3,635



2,538Total cost


40,831



40,098Less accumulated amortization


(10,945
)


(9,890
)Intangible assets, net

$
29,886


$
30,208    9




---



##### 



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


December 31,2007


2006Salaries and employee related
    benefits

$
22,831


$
24,895Deferred revenue


4,862



561Other


42,813



42,939Total

$
70,506


$
68,395    10




---



##### 



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


December 31,2007


2006Senior credit facility 
    term loan

$
114,712


$
40,526Mortgage debt


57,525



43,700Total long-term debt


172,237



84,226Less current portion


(862
)


(3,750
)Long-term debt, net of current
    portion

$
171,375


$
80,476   Senior
    Credit Facility
  and/or
  30-day
    Mortgage
    Debt
    Principal

Maturity

Spread Over

Interest Rate as ofAmount

Date(1)

30-Day LIBOR

June 30, 2007Hilton Arlington

$
24.7 million



November 2009



135 bps



6.7
%Hilton Houston Westchase

$
32.8 million



February 2010



135 bps



6.7
%     (1)
    
    We are required to make interest-only payments until these loans
    mature, with two optional one-year extensions.     11




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Interest
    Rate Caps
    Maturity


30-Day LIBORAmount


Date


Cap RateMarch 2005 (Credit Facility)

$
55.0 million



January 2008



5.75
%October 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
%     9.
    SEGMENT
    INFORMATION           12




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Hotel


HotelManagement


Ownership


Corporate


ConsolidatedThree months ended
    June 30, 2007Revenue

$
16,761


$
18,621


$



$
35,382Depreciation and amortization


1,782



1,790



112



3,684Operating expense


13,079



13,129



2,081



28,289Operating income (loss)


1,900



3,702



(2,193
)


3,409Interest expense, net






(2,915
)


360



(2,555
)Equity in earnings of affiliates






854







854Income (loss) before minority
    interests and income taxes

$
1,900


$
1,641


$
(1,833
)

$
1,708Capital expenditures

$
46


$
78,256


$
11


$
78,313Three months ended
    June 30, 2006Revenue

$
20,101


$
6,418


$



$
26,519Depreciation and amortization


973



457



116



1,546Operating expense


13,926



4,783



1,340



20,049Operating income (loss)


5,202



1,178



(1,456
)


4,924Interest expense, net






(514
)


(911
)


(1,425
)Equity in earnings of affiliates






123







123Income (loss) before minority
    interests and income taxes

$
5,202


$
787


$
(2,367
)

$
3,622Capital expenditures

$
792


$
15,387


$
247


$
16,426   13




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Hotel


HotelManagement


Ownership


Corporate


ConsolidatedSix months ended June 30,
    2007Revenue

$
32,074


$
31,697


$



$
63,771Depreciation and amortization


3,545



3,216



216



6,977Operating expense


25,189



22,865



3,030



51,084Operating income (loss)


3,340



5,616



(3,246
)


5,710Interest expense, net






(4,871
)


19



(4,852
)Equity in earnings of affiliates






1,255







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

$
3,340


$
2,000


$
(3,227
)

$
2,113Total assets

$
138,951


$
246,914


$
45,574


$
431,439Capital expenditures

$
633


$
131,194


$
158


$
131,985Six months ended June 30,
    2006Revenue

$
46,675


$
11,455


$



$
58,130Depreciation and amortization


1,967



899



223



3,089Operating expense


34,560



8,816



2,756



46,132Operating income (loss)


10,148



1,740



(2,979
)


8,909Interest expense, net






(1,002
)


(2,092
)


(3,094
)Equity in earnings of affiliates






(434
)






(434
)Income (loss) before minority
    interests and income taxes

$
10,148


$
304


$
(5,071
)

$
5,381Total assets

$
156,255


$
76,229


$
64,370


$
296,824Capital expenditures

$
1,394


$
15,684


$
397


$
17,475     Three Months


Six MonthsEnded June 30,


Ended June 30,2007


2006


2007


2006Canada

$
69


$
124


$
130


$
197Russia

$
180


$
375


$
360


$
750Belgium

$
28


$



$
28


$
Ireland

$
60


$



$
60


$
     (1)
    
    BridgeStreet revenues from the United Kingdom and France were
    $2.8 million and $0.2 million, respectively, for the
    six month period ended June 30, 2007. Revenues from the
    United Kingdom and France were $8.5 million and
    $0.7 million for the three months ended June 30, 2006,
    respectively, and $15.5 million and $1.1 million for
    the six month period ended June 30, 2006, respectively.
    These revenues have been classified as discontinued operations
    on the consolidated statement of operations for the related
    periods.   14




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    10.
    OTHER
    TRANSACTIONS    11.
    COMMITMENTS
    AND CONTINGENCIES  Insurance
    Matters
      Leases
    June 30,
    2007-2008

$
3,563June 30,
    2008-2009


2,928June 30,
    2009-2010


3,262June 30,
    2010-2011


2,841June 30,
    2011-2012


3,179Thereafter


3,817Total

$
19,590  15




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    June 30,
    2007-2008

$
1,112June 30,
    2008-2009


1,156June 30,
    2009-2010


1,202June 30,
    2010-2011


1,250June 30,
    2011-2012


1,300Thereafter


1,581Total

$
7,601   Commitments
    Related to Management Agreements and Hotel
    Ownership
      Letters
    of Credit
    Contingent
    Liabilities Related to Partnership Interests
   16




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  12.
    ACQUISITIONS
    AND DISPOSITIONS  Acquisitions
    Land

$
4,419Buildings and improvements


66,243Furniture and fixtures


4,945Working capital


474Total

$
76,081     Six MonthsEnded June 30,2007


2006Pro forma lodging revenues

$
42,016


$
24,264Pro forma net income

$
20,354


$
5,690Pro forma diluted earnings per
    share

$
0.64


$
0.18     Land

$
4,860Buildings and improvements


43,422Furniture and fixtures


3,411Working capital


184Total

$
51,877  17




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Land

$
1,375Buildings and improvements


12,087Furniture and fixtures


1,022Working Capital


44Total

$
14,528   Dispositions
  December 31,2006Accounts receivable, net

$
8,064Prepaid expenses and other current
    assets


8,247Property and equipment, net


2,214Goodwill


9,858Total assets held for sale

$
28,383Accounts payable

$
2,498Accrued expenses


7,765Total liabilities held for sale

$
10,263     Six MonthsEnded June 30,2007


2006Revenue

$
8,500


$
61,052Depreciation and amortization






897Operating expense


8,969



59,112Operating (loss) income

$
(469
)

$
1,043Gain on sale


18,131



Interest expense






16Income before minority interest
    and taxes

$
17,662


$
1,027Income tax expense


(175
)


(324
)Income from discontinued
    operations, net of taxes

$
17,487


$
703  18




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      13.
    STOCK-BASED
    COMPENSATION  Share Based Payment
    AggregateNumber of


Weighted Average


IntrinsicShares


Exercise Price/Share


ValueOptions outstanding at
    December 31, 2006


495,413


$
6.81Granted


40,000


$
5.99Exercised


(48,141
)

$
3.94Forfeited


(33,700
)

$
10.92Options outstanding at
    June 30, 2007


453,572


$
6.47


$
240,462Options exercisable at
    June 30, 2007


340,246


$
6.59


$
224,514     WeightedAverageNumber of


Grant-Restricted


Date FairShares


ValueUnvested at December 31, 2006


326,577


$
5.40Granted


279,200


$
6.04Vested


(134,579
)

$
5.31Forfeited






Unvested at June 30, 2007


471,198


$
5.78        19




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    14.
    FIN 48 
    RECOGNITION AND MEASUREMENT OF TAX POSITIONS AND
    BENEFITS          15.
    SUBSEQUENT
    EVENT    Hotel

Rooms

LocationTesoro Los Cabos


286


Cabo San Lucas, MexicoTesoro Manzanillo


331


Manzanillo, MexicoTesoro Ixtapa


203


Ixtapa, MexicoTotal rooms:


820    20




---



##### 



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
    Financial Highlights 
 21




---



##### 



Investments in, and Acquisitions of Real Estate 
    ® ® ®
     22




---



##### 



Increase in our Borrowing Capacity  and/or
  Turnover of Management Contracts 
      Number of


Number of


Six Months


Six MonthsOwner Group

Properties


Rooms


Ended 6/30/2007


Ended 6/30/2006Blackstone


15
(1)


4,314


$
1.6 million


$
2.5 millionSunstone REIT


7



1,492



0.4 million



0.5 millionCNL


17



2,999



0.6 million



1.5 millionOthers


12



2,322



0.5 million



0.9 millionTotal


51



11,127


$
3.1 million


$
5.4 million     (1)
    
    As we will no longer be recording management fees for the
    297-room Hilton Houston Westchase and the
    495-room Westin Atlanta Airport, we have included them in
    this analysis. In 2007, there were 13 Blackstone properties sold
    which we no longer manage.      Industry Overview 
 23




---



##### 



Critical
    Accounting Policies and Estimates
    Form 10-K,
  Accounting
    for Uncertainty in Income Taxes
    Revenue
    Recognition Related to Termination Fees
  No. 04-1, Accounting for Preexisting Relationships between the
    Parties to a Business Combination (EITF 04-1)
 24




---



##### 



Results
    of Operations
  Operating
    Statistics
    As of June 30,


Percent Change2007


2006


07 vs.06Hotel ManagementProperties managed


187



262



(28.6
)%Number of rooms


42,760



59,020



(27.5
)%Hotel OwnershipNumber of properties


6



3



100.0
%Number of rooms


1,755



655



167.9
%     
    We acquired 16 additional management contracts from various
    owners.
    28 properties owned by Meristar/Blackstone were transitioned out
    of our system.
    Sunstone REIT sold 22 properties which we no longer manage.
    CNL sold 17 properties which we no longer manage.
    24 properties owned by other owners were transitioned out of our
    system.    Three MonthsEnded June 30,


Percent Change2007


2006


07 vs. 06Hotel ManagementRevPAR

$
104.61


$
96.85



8.0
%ADR

$
135.43


$
126.00



7.5
%Occupancy


77.2
%


76.9
%


0.4
%   Six MonthsEnded June 30,


Percent Change2007


2006


07 vs. 06Hotel ManagementRevPAR

$
98.75


$
90.98



8.5
%ADR

$
132.80


$
123.46



7.6
%Occupancy


74.4
%


73.7
%


0.9
%     (1)
    
    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, 2007 are not included in same-store hotel results
    for the periods presented herein. Of the 187 properties that we
    managed as of June 30, 2007, 165 properties have been
    classified as same-store hotels. 25




---



##### 



Three
    months ended June 30, 2007 compared to three months ended
    June 30, 2006
  Revenue
    Three MonthsEnded June 30,


Percent Change2007


2006


07 vs. 06Lodging

$
18,621


$
6,418



>100
%Management fees


11,580



15,187



(23.8
)%Termination fees


2,418



2,196



10.1
%Other


2,763



2,718



1.7
%Other revenue from managed
    properties


164,793



217,824



(24.3
)%Total revenue

$
200,175


$
244,343



(18.1
)%   Lodging
   Management
    fees and termination fees
    26




---



##### 



Number ofProperties @


Three Months


Three MonthsOwner Group

6/30/2007


Ended 6/30/2007


Ended 6/30/2006MANAGEMENT FEES:Blackstone


19


$
1.9 million


$
1.9 millionSunstone REIT


30



2.2 million



2.1 millionEquity Inns REIT


39



0.7 million



0.5 millionCNL/Ashford


5



0.2 million



0.1 millionInternational(1)


8



0.3 million



0.4 millionOther


86



5.3 million



4.8 millionHotels terminated during 2007






1.0 million



2.9 millionHotels terminated during 2006










2.5 millionTotal management fees


187


$
11.6 million


$
15.2 millionTERMINATION FEES:Blackstone





$
1.9 million


$
1.9 millionSunstone REIT






0.2 million



Other






0.3 million



0.3 millionTotal termination fees





$
2.4 million


$
2.2 million     (1)
    
    We also expect to earn incentive fees related to the
    international properties. We record incentive management fees in
    the period that it is certain these fees will be earned, which
    for annual incentive fee measurements is typically in the last
    month of the annual contract period. At June 30, 2007, we
    recorded deferred revenue of $4.1 related to the international
    properties. We expect to recognize this deferred revenue in the
    fourth quarter.  Other
   Other
    revenue from managed properties
  27




---



##### 



Operating
    Expenses
    Three MonthsEnded June 30,


Percent Change2007


2006


07 vs. 06Lodging

$
12,667


$
4,572



>100
%Administrative and general


14,575



15,385



(5.3
)%Depreciation and amortization


3,684



1,546



>100
%Asset impairments and write-offs


1,047



92



>100
%Other expenses from managed
    properties


164,793



217,824



(24.3
)%Total operating expenses

$
196,766


$
239,419



(17.8
)%   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 Change2007


2006


07 vs. 06Interest expense, net

$
2,555


$
1,425



79.3
%Equity in earnings of affiliates


854



123



>100
%Income tax expense


708



1,611



(56.1
)%Minority interest expense


9



31



(71.0
)%Income from discontinued
    operations, net of tax


607



1,029



(41.0
)%   Interest
    expense
   Equity in
    earnings of affiliates
   Income
    tax expense
   Income
    from discontinued operations, net of tax
 true-ups
  Six
    months ended June 30, 2007 compared to six months ended
    June 30, 2006
  Revenue
    Six MonthsEnded June 30,


Percent Change2007


2006


07 vs. 06Lodging

$
31,697


$
11,455



>100
%Management fees


23,049



32,350



(28.8
)%Termination fees


3,993



7,896



(49.4
)%Other


5,032



6,429



(21.7
)%Other revenue from managed
    properties


341,163



442,773



(22.9
)%Total revenue

$
404,934


$
500,903



(19.2
)%  29




---



##### 



Lodging
   Management
    fees and termination fees
       Number ofProperties @


Six Months


Six MonthsOwner Group

6/30/2007


Ended 6/30/2007


Ended 6/30/2006MANAGEMENT FEES:Blackstone


19


$
3.7 million


$
3.6 millionSunstone REIT


30



4.3 million



3.8 millionEquity Inns


39



1.3 million



0.9 millionCNL/Ashford


5



0.3 million



0.3 millionInternational(1)


8



0.6 million



0.9 millionOther


86



9.7 million



9.0 millionHotels terminated during 2007






3.1 million



5.4 millionHotels terminated during 2006










5.3 millionBusiness interruption proceeds










3.2 millionTotal management fees


187


$
23.0 million


$
32.4 millionTERMINATION FEES:Blackstone





$
3.0 million


$
7.3 millionSunstone REIT






0.2 million



Other






0.8 million



0.6 millionTotal termination fees





$
4.0 million


$
7.9 million     (1)
    
    We also expect to earn incentive fees related to the
    international properties. We record incentive management fees in
    the period that it is certain these fees will be earned, which
    for annual incentive fee measurements is typically in the last
    month of the annual contract period. At June 30, 2007, we
    recorded deferred revenue of $4.1 related to the international
    properties. We expect to recognize this deferred revenue in the
    fourth quarter. 30




---



##### 



Other
   Other
    revenue from managed properties
   Operating
    expenses
   Six MonthsEnded June 30,


Percent Change2007


2006


07 vs. 06Lodging

$
22,039


$
8,460



>100
%Administrative and general


27,890



29,030



(3.9
)%Depreciation and amortization


6,977



3,089



>100
%Asset impairments and write-offs


1,155



8,642



(86.6
)%Other expenses from managed
    properties


341,163



442,773



(22.9
)%Total operating expenses

$
399,224


$
491,994



(18.9
)%   Lodging
   Administrative
    and general
   Depreciation
    and amortization
   Asset
    impairments and write-offs
  31




---



##### 



Other
    expenses from managed properties
   Other
    income and expense
   Six MonthsEnded June 30,


Percent Change2007


2006


07 vs. 06Interest expense, net

$
4,852


$
3,094



56.8
%Equity in earnings (losses) of
    affiliates


1,255



(434
)


>100
%Income tax expense


855



2,280



(62.5
)%Minority interest expense


62



49



26.5
%Income from discontinued
    operations, net of tax


17,608



703



>100
%   Interest
    expense
   Equity in
    earnings of affiliates
   Income
    tax expense
   Income
    from discontinued operations, net of tax
   true-ups
 32




---



##### 



Liquidity,
    Capital Resources and Financial Position
    Six MonthsEnded June 30,


Percent Change2007


2006


07 vs. 06Cash provided by operating
    activities

$
15,419


$
16,927



(8.9
)%Cash used in investing activities


(98,300
)


(25,979
)


>100
%Cash provided by (used in)
    financing activities


84,971



(741
)


>100
%Working capital


(5,462
)


(14,324
)


61.9
%Cash interest expense


4,577



3,676



24.5
%Debt balance


172,237



81,552



>100
%   Operating
    Activities
    Investing
    Activities
    
    The purchase of two wholly-owned properties in 2007 compared to
    one in 2006. In February 2007, we purchased the Hilton Houston
    Westchase for $51.9 million followed by the purchase of the
    Westin Atlanta Airport in May 2007 for $76.1 million. In
    2006 we purchased the Hilton Garden Inn Baton Rouge for
    $14.5 million.
    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. In 2006, we invested
    $6.0 million in three new joint ventures and made an
    additional contribution to an existing joint ventures of
    $0.2 million. 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 an additional $1.1 million on property and
    equipment during the six month period ended June 30, 2007,
    which is primarily related to improvements at our owned hotels
    and general corporate additions.
    The cash expenditures above were offset by proceeds of
    $35.0 million from the sale of our corporate housing
    subsidiary.  Financing
    Activities
     33




---



##### 



Liquidity
  Liquidity Requirements
      Long-Term
    Debt
  Senior Credit Facility and/or
  30-day
   34




---



##### 



Mortgage Debt
  Principal


Maturity


Spread Over


Interest Rate as ofAmount


Date(1)


30-Day LIBOR


June 30, 2007Hilton Arlington

$
24.7 million



November 2009



135 bps



6.7
%Hilton Houston Westchase

$
32.8 million



February 2010



135 bps



6.7
%     (1)
    
    We are required to make interest-only payments until these loans
    mature, with two optional one-year extensions.      Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Interest
    Rate Risk
  30-day 30-day
  30-day
  Form 10-K
  Item 4.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
  Rules 13a-15(e) 15-d 
   35




---



##### 



Changes
    in Internal Controls
     36




---



##### 



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


18,059,727Against


5,752,421Abstain


40,924       For


28,422,120Against


185,602Abstain


19,331       For


Against


WithheldClass III: (term to expire at
    the Annual Meeting in 2008)James F. Dannhauser


25,899,597



2,689,668



37,787Class II: (term to expire at
    the Annual Meeting in 2009)Ronald W. Allen


26,389,881



2,217,416



19,755Class I: (term to expire at
    the Annual Meeting in 2010)Leslie R. Doggett(1)


423,968







James B. McCurry


25,891,641



2,694,207



41,204John J. Russell, Jr.


26,368,342



2,217,486



41,224     (1)
    
    Due to ministerial proxy card error, the shares voted
    For Ms. Doggett are only those shares voted in
    person at the Annual Meeting. 37




---



##### 



Item 6.  Exhibits  Exhibits
  Exhibit No.

Description of Document3
.1

Amended and Restated Certificate
    of Incorporation of the Company, formerly MeriStar
    Hotels & Resorts, Inc. (incorporated by reference to
    Exhibit 3.1 to the Companys
    Form S-1/A
    filed with the Securities and Exchange Commission on
    July 23, 1998 (Registration
    No. 333-49881)).3
.1.1

Certificate of Amendment of the
    Restated Certificate of Incorporation of the Company dated
    June 30, 2001 (incorporated by reference to
    Exhibit 3.1.1 to the Companys
    Form 10-K
    filed with the Securities and Exchange Commission on
    April 15, 2002).3
.1.2

Certificate of Merger of
    Interstate Hotels Corporation into MeriStar Hotels &
    Resorts, Inc. (incorporated by reference to Exhibit 3.1.2
    to the Companys
    Form 8-A/A
    filed with the Securities and Exchange Commission on
    August 2, 2002).3
.1.3

Certificate of Amendment of the
    Restated Certificate of Incorporation of the Company dated
    July 31, 2002 (incorporated by reference to
    Exhibit 3.1.3 to the Companys
    Form 8-A/A
    filed with the Securities and Exchange Commission on
    August 2, 2002).3
.2

By-laws of the Company, formerly
    MeriStar Hotels & Resorts, Inc. (incorporated by
    reference to Exhibit 3.2 to the Companys
    Form S-1/A
    filed with the Securities and Exchange Commission on
    July 23, 1998 (Registration
    No. 333-49881)).3
.2.1

Amendment to the By-laws of the
    Company (incorporated by reference to Exhibit 3.3 to the
    Companys
    Form 8-A/A
    filed with the Securities and Exchange Commission on
    August 2, 2002).4
.1

Form of Common Stock Certificate
    of the Company (incorporated by reference to Exhibit 4.1 to
    the Companys
    Form 8-A/A
    filed with the Securities and Exchange Commission on
    August 2, 2002).4
.2

Preferred Share Purchase Rights
    Agreement, dated July 23, 1998, between the Company,
    formerly MeriStar Hotels & Resorts, Inc., and the
    Rights Agent (incorporated by reference to Exhibit 4.4 to
    the Companys
    Form S-1/A
    filed with the Securities and Exchange Commission on
    July 23, 1998(Registration
    No. 333-49881)).4
.2.1

Amendment to Rights Agreement,
    dated December 8, 2000, between the Company, formerly
    MeriStar Hotels & Resorts, Inc., and the Rights Agent
    (incorporated by reference to Exhibit 4.1 to the
    Companys
    Form 8-K
    filed with the Securities and Exchange Commission on
    December 12, 2000).4
.2.2

Second Amendment to Rights
    Agreement, dated May 1, 2002, between the Company, formerly
    MeriStar Hotels & Resorts, Inc., and the Rights Agent
    (incorporated by reference to Exhibit 4.1 to the
    Companys
    Form 8-K
    filed with the Securities and Exchange Commission on May 3,
    2002).4
.3

Form of Rights Certificate
    (incorporated by reference to Exhibit 4.3 to the
    Companys
    Form S-1/A
    filed with the Securities and Exchange Commission on
    July 23, 1998 (Registration
    No. 333-49881)).4
.4

Registration Rights Agreement,
    dated June 30, 1999, between the Company (formerly MeriStar
    Hotels & Resorts, Inc.), Oak Hill Capital Partners,
    L.P. and Oak Hill Capital Management Partners, L.P.
    (incorporated by reference to Exhibit 4.7 to the
    Companys
    Form 10-Q
    filed with the Securities and Exchange Commission for the three
    months ended June 30, 1999).10
.5.1*

First Amendment to the Senior
    Secured Credit Facility, dated May 24, 2007, among
    Interstate Operating Company, LP, Lehman Brothers Inc. and
    various other lenders.10
.6

Agreement of Purchase and Sale
    between Lepercq Atlanta Renaissance Partners, L.P., and
    affiliate of the Blackstone Group, and Interstate Atlanta
    Airport, LLC, dated May 4, 2007, for the purchase of the
    Westin Atlanta Airport (incorporated by reference to
    Exhibit 10.6 to the Companys
    Form 10-Q
    filed with the Securities and Exchange Commission on
    May 10, 2007).10
.7

Interstate Hotels &
    Resorts, Inc., 2007 Equity Award Plan (incorporated by reference
    to Annex A to the Companys Form Def 14A
    filed with the Securities and Exchange Commission on
    April 24, 2007).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 Officer32
*

Sarbanes-Oxley Act
    Section 906 Certifications of Chief Executive Officer and
    Chief Financial Officer     *
    
    Filed herewith 38




---



##### 



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