##### 



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 1934For the quarterly period ended
    June 30, 2006oro

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):Consolidated
    Balance Sheets  June 30, 2006 and
    December 31, 2005


2Consolidated
    Statements of Operations and Comprehensive Income
    (Loss)  Three and six months ended June 30,
    2006 and 2005


3Consolidated
    Statements of Cash Flows  Six months ended
    June 30, 2006 and 2005


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


31Item 4:


Controls and
    Procedures


32PART II.
    OTHER INFORMATIONItem 1:


Legal
    Proceedings


33Item 4:


Submission of
    Matters to a Vote of Security Holders


33Item 6:


Exhibits


33   1




---



##### 



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


December 31,2006


2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
3,323


$
12,929Restricted cash


3,205



3,209Accounts receivable, net of
    allowance for doubtful accounts of $2,508 and $1,873,
    respectively


42,796



41,594Due from related parties, net of
    allowance for doubtful accounts of $785 and $1,800, respectively


1,438



6,001Prepaid expenses and other current
    assets


13,962



8,594Total current assets


64,724



72,327Marketable securities


1,336



1,503Property and equipment, net


68,611



52,070Investments in and advances to
    affiliates


13,662



7,686Notes receivable


5,498



6,052Deferred income taxes, net


21,516



11,925Goodwill


86,185



96,809Intangible assets, net


35,292



44,708Total assets

$
296,824


$
293,080LIABILITIES, MINORITY INTEREST
    AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
5,200


$
4,508Accrued expenses


70,098



70,347Current portion of long-term debt


3,750



3,750Total current liabilities


79,048



78,605Deferred compensation


1,417



1,474Long-term debt


77,802



81,302Total liabilities


158,267



161,381Minority interest


1,065



1,059Commitments 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; 31,222,565, and
    30,609,935 shares issued and outstanding at June 30,
    2006 and December 31, 2005, respectively


312



306Treasury stock


(69
)


(69
)Paid-in capital


191,738



189,330Accumulated other comprehensive
    income


747



64Accumulated deficit


(55,236
)


(58,991
)Total stockholders equity


137,492



130,640Total liabilities, minority
    interest and stockholders equity

$
296,824


$
293,080   The accompanying notes are an integral part of the
    consolidated financial statements.
 2




---



##### 



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


Six months endedJune 30,


June 30,2006


2005


2006


2005Revenue:Lodging

$
6,418


$
3,348


$
11,455


$
5,106Management fees


13,916



9,610



23,404



17,185Management fees-related parties


3,467



7,140



16,842



13,759Corporate housing


33,287



31,126



61,052



58,525Other


2,718



2,978



6,429



5,73559,806



54,202



119,182



100,310Other revenue from managed
    properties


217,824



231,853



442,773



423,740Total revenue


277,630



286,055



561,955



524,050Operating expense by department:Lodging


4,572



2,486



8,460



4,006Corporate housing


26,193



24,620



49,183



48,029Undistributed operating expenses:Administrative and general


20,588



19,644



38,959



37,645Depreciation and amortization


1,926



2,196



3,986



4,355Restructuring and severance






96







2,043Asset impairments and write-offs


92



849



8,642



1,91153,371



49,891



109,230



97,989Other expenses from managed
    properties


217,824



231,853



442,773



423,740Total operating expenses


271,195



281,744



552,003



521,729OPERATING INCOME


6,435



4,311



9,952



2,321Interest income


545



362



931



503Interest expense


(1,978
)


(2,321
)


(4,041
)


(6,253
)Equity in earnings (losses) of
    affiliates


123



350



(434
)


3,192Gain on sale of investment














385INCOME BEFORE MINORITY INTEREST
    AND INCOME TAXES


5,125



2,702



6,408



148Income tax expense


(2,085
)


(1,062
)


(2,604
)


(61
)Minority interest expense


(31
)


(29
)


(49
)


(11
)INCOME FROM CONTINUING OPERATIONS


3,009



1,611



3,755



76Income from discontinued
    operations, net of tax






132







243NET INCOME

$
3,009


$
1,743


$
3,755


$
319Other comprehensive loss, net of
    tax:Foreign currency translation gain
    (loss)


418



64



671



(33
)Unrealized gain (loss) on
    investments


24



25



12



(458
)COMPREHENSIVE INCOME (LOSS)

$
3,451


$
1,832


$
4,438


$
(172
)BASIC AND DILUTIVE EARNINGS PER
    SHARE:Continuing operations

$
0.10


$
0.06


$
0.12


$
Discontinued operations














0.01Basic and dilutive earnings per
    share

$
0.10


$
0.06


$
0.12


$
0.01   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 30,2006


2005OPERATING ACTIVITIES:Net income

$
3,755


$
319Adjustments to reconcile net income
    to net cash provided by operating activities:Depreciation and amortization


3,986



4,355Amortization of deferred financing
    fees


387



2,339Stock compensation expense


598



782Bad debt expense


759



454Asset impairments and write-offs


8,642



1,911Equity in losses (earnings) of
    affiliates


434



(3,192
)Operating distributions from
    unconsolidated affiliates


186



219Minority interest


49



11Deferred income taxes


1,033



(704
)Gain on sale of investments






(385
)Discontinued operations:Depreciation and amortization






156Changes in assets and liabilities:Accounts receivable, net


(1,453
)


(822
)Due from related parties, net


4,563



5,755Prepaid expenses and other current
    assets


(3,024
)


(3,104
)Accounts payable and accrued
    expenses


(2,787
)


10,677Other changes in asset and
    liability accounts


357



24Cash provided by operations


17,485



18,795INVESTING ACTIVITIES:Proceeds from the sale of
    investments






483Change in restricted cash


4



(1,882
)Acquisition of subsidiary


(497
)


Acquisition of hotels


(14,528
)


(31,779
)Purchases of property and equipment


(3,966
)


(1,350
)Additions to intangible assets


(804
)


(583
)Investments in joint ventures


(6,039
)


Contributions to unconsolidated
    affiliates


(209
)


(289
)Distributions from unconsolidated
    affiliates






4,909Changes in notes receivable


60



374Cash used in investing activities


(25,979
)


(30,117
)FINANCING ACTIVITIES:Proceeds from borrowings


9,000



110,200Repayment of borrowings


(12,500
)


(99,174
)Proceeds from issuance of common
    stock


2,201



22Financing fees paid






(3,585
)Cash (used in) provided by
    financing activities


(1,299
)


7,463Effect of exchange rate on cash


187



(23
)Net decrease in cash and cash
    equivalents


(9,606
)


(3,882
)CASH AND CASH EQUIVALENTS,
    beginning of period


12,929



16,481CASH AND CASH EQUIVALENTS, end of
    period

$
3,323


$
12,599SUPPLEMENTAL CASH FLOW
    INFORMATIONCash paid for interest and income
    taxes:Interest

$
3,676


$
3,591Income taxes


1,364



476   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,
      Related Parties
 5




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Stock-Based Compensation Accounting for Stock Based Compensation 
    Transition and Disclosure. Share Based
    Payment
  Accounting for Income Taxes Accounting for Uncertainty in Income Taxes 
    An Interpretation of FASB Statement No. 109, Accounting for Income
    Taxes.
    Control of a Limited Partnership Determining Whether a General
    Partner, or the General Partners as a Group, Controls a Limited
    Partnership or Similar Entity When the Limited Partners Have
    Certain Rights,
 6




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   3.
    EARNINGS
    PER SHARE    Three months endedJune 30, 2006


June 30, 2005Income/





Per Share


Income/





Per Share(Loss)


Shares


Amount


(Loss)


Shares


AmountIncome from continuing operations

$
3,009



30,890


$
0.10


$
1,611



30,515


$
0.06Income from discontinued
    operations, net of tax














132







Basic net income

$
3,009



30,890


$
0.10


$
1,743



30,515


$
0.06Assuming exercise of outstanding
    employee stock options less shares repurchased at average market
    price






212











111



Assuming vesting of outstanding
    restricted stock






174











165



Diluted net income

$
3,009



31,276


$
0.10


$
1,743



30,791


$
0.06   Six months endedJune 30, 2006


June 30, 2005Income/





Per Share


Income/





Per Share(Loss)


Shares


Amount


(Loss)


Shares


AmountIncome from continuing operations

$
3,755



30,788


$
0.12


$
76



30,485


$
0.00Income from discontinued
    operations, net of tax














243







0.01Basic net income

$
3,755



30,788


$
0.12


$
319



30,485


$
0.01Assuming exercise of outstanding
    employee stock options less shares repurchased at average market
    price






157











129



Assuming vesting of outstanding
    restricted stock






144











165



Diluted net income

$
3,755



31,089


$
0.12


$
319



30,779


$
0.01  7




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   4.
    INVESTMENTS
    AND ADVANCES TO AFFILIATES    Our Equity

June 30,


December 31,Joint Venture

Number of Hotels


Participation

2006


2005MIP Lessee, L.P.


8


10.0%

$
1,563


$
2,022CNL/IHC Partners, L.P.


3


15.0%


2,635



2,566Interconn Ponte Vedra Company,
    L.P.


1


10.0%


2,679



2,670True North Tesoro Property
    Partners, LP.


1


21.0%


2,032



Amitel Holdings, LLC


6


15.0%


3,887



Cameron S-Sixteen Hospitality, LLC


1


10.9%


502



Other


4


5.0%-50.0%


364



428Total


24




$
13,662


$
7,686     Number of


OwnershipJoint Venture & Hotels

Location

Rooms


%


InvestmentTrue North Tesoro Property
    Partners, LPDoral Tesoro Hotel & Golf
    Club

Dallas/Ft. Worth, TX


286



21.0
%

$2.0 millionCameron S-Sixteen Hospitality,
    LLCStatehouse Inn(1)

Boise, ID


112



10.9
%

$0.5 millionAmitel Holdings, LLC

Cleveland, OH






15.0
%

$3.9 millionResidence Inn by Marriott,
    Cleveland Downtown




175






Residence Inn by Marriott,
    Cleveland Airport




158






Residence Inn by Marriott,
    Cleveland Independence




118






Residence Inn by Marriott Beachwood




174






Residence Inn by Marriott Westlake




104






Residence Inn by Marriott Mentor




96






Total Rooms in Portfolio




825






Total Rooms Acquired Through
    Investments




1,223






    (1)
    
    To date we have funded $0.2 million of our investment.     8




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Regulation S-X
  Three months ended


Six months endedJune 30,


June 30,2006


2005


2006


2005Revenue

$
26,225


$
25,169


$
47,483


$
45,571Operating expenses


22,094



25,360



42,712



49,046Net loss


(675
)


(4,873
)


(4,594
)


(13,242
)Our share of the above losses


(67
)


(489
)


(459
)


(1,294
)   5.
    PROPERTY
    AND EQUIPMENT    June 30,


December 31,2006


2005Land

$
6,984


$
5,610Furniture and fixtures


11,180



7,866Building and improvements


44,909



32,297Leasehold improvements


6,071



5,198Computer equipment


9,568



9,038Software


12,531



12,298Other


1,099



865Total

$
92,342


$
73,172Less accumulated depreciation


(23,731
)


(21,102
)Property and equipment, net

$
68,611


$
52,070     6.
    INTANGIBLE
    ASSETS    June 30,


December 31,2006


2005Management contracts

$
40,809


$
49,902Franchise fees


1,286



1,226Deferred financing fees


2,223



2,339Total cost


44,318



53,467Less accumulated amortization


(9,026
)


(8,759
)Intangible assets, net

$
35,292


$
44,708    9




---



##### 



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


December 31,2006


2005Salaries and employee related
    benefits

$
39,936


$
34,234Other


30,162



36,113Total

$
70,098


$
70,347    10




---



##### 



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


December 31,2006


2005Senior credit facility 
    revolving loan

$
19,526


$
20,526Senior credit facility 
    term loan


43,026



45,526Mortgage debt


19,000



19,000Total long-term debt


81,552



85,052Less current portion


(3,750
)


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

$
77,802


$
81,302   Senior Credit Facility
  30-day 30-day
    Mortgage Debt 30-day
  Interest Rate Caps 30-day 30-day
 11




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   9.
    SEGMENT
    INFORMATION          Hotel


Corporate


HotelManagement


Housing


Ownership


Corporate


ConsolidatedThree months ended June 30,
    2006Revenue

$
20,101


$
33,287


$
6,418


$



$
59,806Depreciation and amortization


973



380



457



116



1,926Operating expense


13,830



31,703



4,572



1,340



51,445Operating income (loss)


5,298



1,204



1,389



(1,456
)


6,435Interest expense, net






(8
)


(347
)


(1,078
)


(1,433
)Equity in earnings of affiliates










123







123Income (loss) before minority
    interests and income taxes

$
5,298


$
1,196


$
1,165


$
(2,534
)

$
5,125Capital expenditures

$
814


$
619


$
15,387


$
204


$
17,024Three months ended June 30,
    2005Revenue

$
19,740


$
31,126


$
3,336


$



$
54,202Depreciation and amortization


1,491



282



242



181



2,196Operating expense


13,802



29,792



2,486



1,615



47,695Operating income (loss)


4,447



1,052



608



(1,796
)


4,311Interest expense, net










(364
)


(1,595
)


(1,959
)Equity in earnings of affiliates










350







350Other gains


















Income (loss) before minority
    interests and income taxes

$
4,447


$
1,052


$
594


$
(3,391
)

$
2,702Capital expenditures

$
102


$
55


$
493


$
25


$
675   12




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Hotel


Corporate


HotelManagement


Housing


Ownership


Corporate


ConsolidatedSix months ended June 30,
    2006Revenue

$
46,675


$
61,052


$
11,455


$



$
119,182Depreciation and amortization


1,967



897



899



223



3,986Operating expense


34,365



59,663



8,460



2,756



105,244Operating income (loss)


10,343



492



2,096



(2,979
)


9,952Interest expense, net






(16
)


(670
)


(2,424
)


(3,110
)Equity in earnings of affiliates










(434
)






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

$
10,343


$
476


$
992


$
(5,403
)

$
6,408Total assets

$
156,225


$
35,302


$
76,229


$
29,068


$
296,824Capital expenditures

$
1,394


$
1,564


$
15,684


$
349


$
18,991Six months ended June 30,
    2005Revenue

$
36,691


$
58,525


$
5,094


$



$
100,310Depreciation and amortization


3,025



579



388



363



4,355Operating expense


25,512



58,233



4,006



5,883



93,634Operating income (loss)


8,154



(287
)


700



(6,246
)


2,321Interest expense, net










(602
)


(5,148
)


(5,750
)Equity in earnings of affiliates










3,192







3,192Other gains














385



385Income (loss) before minority
    interests and income taxes

$
8,154


$
(287
)

$
3,290


$
(11,009
)

$
148Total assets

$
181,339


$
29,136


$
50,878


$
36,640


$
297,993Capital expenditures

$
586


$
151


$
32,245


$
147


$
33,129     Three months


Six monthsended June 30,


ended June 30,2006


2005


2006


2005Canada

$
124


$
126


$
201


$
334United Kingdom

$
8,522


$
7,581


$
15,501


$
14,578France

$
658


$
565


$
1,146


$
1,055Russia

$
375


$
375


$
750


$
750   10.
    RESTRUCTURING
    AND SEVERANCE EXPENSES   13




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   11.
    ASSET
    IMPAIRMENTS AND OTHER WRITE-OFFS    Three months


Six monthsended June 30,


ended June 30,2006


2005


2006


2005Management contract costs

$
92


$
809


$
8,642


$
1,048Hotel real estate investment fund
    costs






40







863Total

$
92


$
849


$
8,642


$
1,911     12.
    OTHER
    TRANSACTIONS      13.
    COMMITMENTS
    AND CONTINGENCIES  Insurance Matters
   14




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Leases
  2006

$
33,1252007


29,0872008


20,2822009


16,7152010


11,759Thereafter


21,406Total

$
132,374     2006

$
6322007


1,1122008


1,1562009


1,2022010


1,250Thereafter


2,880Total

$
8,232   Management Agreement Commitments
  Guarantees 15-year
  Letters of Credit
 15




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Contingent Liabilities Related to
    Partnership Interests
    14.
    ACQUISITIONS    Accounts receivable and other
    assets


44Land


1,375Buildings and improvements


12,087Furniture and fixtures


1,022Total

$
14,528     Cash and restricted cash

$
1,739Accounts receivable and other
    assets


105Land


4,700Buildings and improvements


23,235Furniture and fixtures


2,000Total

$
31,779     16




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Actual


Pro FormaThree months ended


Three months endedJune 30, 2006


June 30, 2005Lodging revenues

$
6,418


$
3,348Net income

$
3,009


$
1,743Diluted earnings per share

$
0.10


$
0.06   Actual


Pro FormaSix months ended


Six months endedJune 30, 2006


June 30, 2005Lodging revenues

$
11,455


$
6,254Net income

$
3,755


$
209Diluted earnings per share

$
0.12


$
0.01   15.
    STOCK-BASED
    COMPENSATION     17




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Three months ended


Six months endedJune 30,


June 30,2006


2005


2006


2005Net income, as reported

$
3,009


$
1,743


$
3,755


$
319Add: Stock-based employee
    compensation expense included in net loss, net of tax


181



52



359



105Deduct: Total stock-based employee
    compensation expense determined under the fair value based
    method for all awards, net of tax


(181
)


(58
)


(359
)


(121
)Net income, pro forma

$
3,009


$
1,737


$
3,755


$
303Earnings per share:Basic and diluted, as reported

$
0.10


$
0.06


$
0.12


$
0.01Basic and diluted, pro forma

$
0.10


$
0.06


$
0.12


$
0.01     Six months endedJune 30, 2006Expected volatility


31.1
%Risk-free interest rate


5.1
%Expected life of options


6.0 yearsExpected dividend yield


0
%Forfeiture rate


2
%   Expected Volatility
  Risk-Free Interest Rate
  Expected Life of Options
  Expected Dividend Yield
  Forfeiture Rate
 18




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         AggregateNumber of


Weighted Average


IntrinsicShares


Exercise Price/Share


ValueOptions outstanding at
    December 31, 2005


1,614,421


$
6.75Granted


62,500


$
6.22Exercised


(542,494
)

$
4.06Forfeited


(357,305
)

$
8.41Options outstanding at
    June 30, 2006


777,122


$
7.80


$
2,689,000Options exercisable at
    June 30, 2006


591,631


$
8.58


$
1,936,000       WeightedNumber of


Average Grant-Restricted


Date FairShares


ValueUnvested at December 31, 2005


228,657


$
4.65Granted


273,000


$
5.60Vested


(150,189
)

$
4.79Forfeited


(18,224
)

$
4.37Unvested at June 30, 2006


333,244


$
5.38     16.
    INCOME
    TAXES   19




---



##### 



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     17.
    SUBSEQUENT
    EVENT     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 and Significant Events
  Financial Highlights
 21




---



##### 



Significant Events
           22




---



##### 



Industry
    Overview
    Critical
    Accounting Policies and Estimates
    Form 10-K,
 23




---



##### 



Results
    of Operations
  Operating
    Statistics
  1
  As of June 30,


Percent Change2006


2005


06 vs. 05Hotel ManagementProperties managed


262



302



(13.2
)%Number of rooms


59,020



68,930



(14.4
)%Hotel OwnershipNumber of properties


3



1



200.0
%Number of rooms


655



329



99.1
%Corporate HousingNumber of markets


17



17



0.0
%Average number of units for the
    six months ended


3,037



3,151



(3.6
)%     
    We acquired 22 additional management contracts from various
    owners.
    MeriStar sold 17 properties, 14 of which we no longer manage.
    We transitioned 29 properties out of our system, including four
    properties that we owned as part of the joint venture with
    FelCor Lodging Trust Incorporated.
    19 of the hotels we managed for Goldman Sachs and Highgate
    Holdings have been sold, or transitioned to Highgate Holdings,
    for management.  2
  Three MonthsEnded June 30,


Percent Change2006


2005


06 vs. 05Hotel ManagementRevPar

$
92.77


$
83.40



11.2
%ADR

$
121.43


$
112.34



8.1
%Occupancy


76.4
%


74.2
%


3.0
%Corporate HousingADR

$
118.64


$
108.05



9.8
%Occupancy


92.7
%


92.9
%


(0.2
%)     1
 2
 24




---



##### 



Six MonthsEnded June 30,


Percent Change2006


2005


06 vs. 05Hotel
    ManagementRevPar

$
87.36


$
77.83



12.2
%ADR

$
119.67


$
110.42



8.4
%Occupancy


73.0
%


70.5
%


3.5
%Corporate
    HousingADR

$
116.34


$
107.94



7.8
%Occupancy


92.0
%


91.6
%


0.4
%   Three
    months ended June 30, 2006 compared to three months ended
    June 30, 2005
  Revenue
    Three MonthsEnded June 30,


Percent Change2006


2005


06 vs. 05Lodging

$
6,418


$
3,348



91.7
%Management fees


17,383



16,750



3.8
%Corporate housing


33,287



31,126



6.9
%Other


2,718



2,978



(8.7
)%Other revenue from managed
    properties


217,824



231,853



6.1
%Total revenue

$
277,630


$
286,055



(2.9
)%   Lodging
  Management fees
  Corporate housing
  Other
 25




---



##### 



Other revenue from managed properties
  Operating
    Expenses by Department
      Undistributed
    Operating Expenses
    Three MonthsEnded June 30,


Percent Change2006


2005


06 vs. 05Administrative and general

$
20,588


$
19,644



4.8
%Depreciation and amortization


1,926



2,196



(12.3
)%Restructuring and severance






96



(100.0
)%Asset impairments and write-offs


92



849



89.2
%Total undistributed operating
    expenses

$
22,606


$
22,785



(0.8
)%   Administrative and general
  Depreciation and amortization
  Restructuring and severance
  Asset impairments and write-offs
 26




---



##### 



Other
    Income and Expenses
    Three MonthsEnded June 30,


Percent Change2006


2005


05 vs. 04Interest expense

$
1,978


$
2,321



(14.8
)%Equity in earnings of affiliates


123



350



(64.9
)%Income tax expense


2,085



1,062



96.3
%Minority interest expense


31



29



6.9
%Income from discontinued
    operations, net of tax






132



(100
)%   Interest expense
  Equity in earnings of affiliates
  Income tax expense
  Income from discontinued operations, net of
    tax
  Six
    months ended June 30, 2006 compared to six months ended
    June 30, 2005
  Revenue
    Six MonthsEnded June 30,


Percent Change2006


2005


06 vs. 05Lodging

$
11,455


$
5,106



124.3
%Management fees


40,246



30,944



30.1
%Corporate housing


61,052



58,525



4.3
%Other


6,429



5,735



12.1
%Other revenue from managed
    properties


442,773



423,740



4.5
%Total revenue

$
561,955


$
524,050



7.2
%   Lodging
  Management fees
 27




---



##### 



Corporate housing
  Other
  Other revenue from managed properties year-to-date
  Operating
    Expenses by Department
      Undistributed
    Operating Expenses
    Six MonthsEnded June 30,


Percent Change2006


2005


06 vs. 05Administrative and general

$
38,959


$
37,645



3.5
%Depreciation and amortization


3,986



4,355



(8.5
)%Restructuring and severance






2,043



(100.0
)%Asset impairments and write-offs


8,642



1,911



352.2
%Total undistributed operating
    expenses

$
51,587


$
45,954



12.3
%   Administrative and general
 28




---



##### 



Depreciation and amortization
  Restructuring and severance
  Asset impairments and write-offs
  Other
    Income and Expenses
    Six MonthsEnded June 30,


Percent Change2006


2005


05 vs. 04Interest expense

$
4,041


$
6,253



(35.4
)%Equity in earnings (losses) of
    affiliates


(434
)


3,192



(113.6
)%Gain on sale of investments and
    extinguishment of debt






385



(100.0
)%Income tax expense


2,604



61



> 100.0
%Minority interest expense


49



11



> 100.0
%Income from discontinued
    operations, net of tax






243



(100.0
)%   Interest expense
  Equity in earnings (losses) of affiliates
  Gain on sale of investments and extinguishment of
    debt
  Income tax expense
 29




---



##### 



Income from discontinued operations, net of
    tax
  Liquidity,
    Capital Resources and Financial Position
    Six MonthsEnded June 30,


Percent Change2006


2005


05 vs. 04Cash provided by operating
    activities

$
17,485


$
18,795



(7.0
)%Cash used in investing activities


(25,979
)


(30,117
)


13.7
%Cash provided by (used in)
    financing activities


(1,299
)


7,463



(117.4
)%Working capital


(14,324
)


(6,278
)


(128.2
)%Cash interest expense


3,676



3,591



2.4
%Debt balance


81,552



85,052



(4.1
)%   Operating Activities
  Investing Activities
  
    The purchase of the Hilton Concord hotel in February 2005 for
    $31.8 million compared to the purchase of the Hilton Garden
    Inn Baton Rouge Airport in June 2006 for $14.5 million.
    The change in cash contributed to and distributed from our joint
    venture equity investments. In 2005, we received distributions
    from our equity investments of $2.9 million from the sale
    of the San Diego Gaslamp hotel, $1.1 million from the
    sale of the Sheraton Smithtown hotel and $1.0 million from
    the return of our preferred equity interest in MIP Lessee, L.P.
    In 2006, we contributed a total of $6.0 million for
    investments in three joint ventures.
    A decrease in the restricted cash balance of $1.8 million
    in 2005 compared to no change in 2006. Our insurance subsidiary
    has restricted cash, which is determined based on statutory
    requirements and is directly related to premiums written during
    the year. We also have restricted cash at our purchasing
    subsidiary, which represents cash that our clients have advanced
    to us for capital projects. These balances will fluctuate due to
    the timing and status of various projects at the end of the
    period.
    We spent an additional $2.6 million on property and
    equipment in 2006, which includes $0.8 million for
    improvements at our owned hotels and general corporate
    additions. We also spent $0.5 million in 2006 for the
    Twelve Oaks acquisition.  Financing Activities
 30




---



##### 



Liquidity
    Senior Credit Facility
  30-day 30-day
    Mortgage Debt 30-day
  Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Form 10-K 30-day
 31




---



##### 



30-day
  Item 4.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
  Rules 13a-15(e) 15-d 
    Changes
    in Internal Controls
     32




---



##### 



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


WithheldKarim J. Alibhai


25,408,311



353,291Joseph J. Flannery


15,560,095



10,201,507       For


25,687,612Against


70,985Abstain


3,003   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). 33




---



##### 



Exhibit No.

Description of Document4
.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
.1*

Employment Agreement, dated as of
    April 17, 2006, by and between Bruce A. Riggins and the
    Company.10
.2*

Agreement of Sale and Purchase
    between Howell Place Hotel, LLC and Interstate Operating
    Company, L.P., dated March 10, 2006, as amended
    April 21, 2006 and May 10, 2006, for the purchase of
    the Hilton Garden Inn Baton Rouge Airport.10
.3*

Purchase and Sale Agreement
    between MeriStar Hospitality Operating Partnership, L.P. and
    Interstate Durham, LLC, dated October 31, 2005, as amended
    November 10, 2005, for the purchase of the Hilton Durham.10
.4*

Purchase Contract between
    Interstate Hotel Holdings, LLC and Apple Six Hospitality
    Ownership, Inc. dated June 15, 2005, as amended
    July 29, 2005, for the sale of the Pittsburgh Residence Inn
    by Marriott.10
.5*

Agreement of Sale and Purchase
    between Hanford Hotels, LLC and Interstate Concord, LLC, dated
    November 12, 2004, as amended December 27, 2004 and
    January 21, 2005, for the purchase of the Hilton Concord.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 34




---



##### 



SIGNATURE
    Interstate
    Hotels & Resorts, Inc.
  By:
    /s/  Bruce
    A. Riggins   Chief Financial Officer
   35