<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                  ------------


                                    Form 10-Q/A
             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 1996
                           Commission File No. 1-11402

                                  ------------


                                HFS Incorporated
             (Exact name of Registrant as specified in its charter)


                 Delaware                                      22-3059335
      (State or other jurisdiction                          (I.R.S. Employer
    of incorporation or organization)                    Identification Number)
              6 Sylvan Way
       Parsippany, New Jersey                                    07054
   (Address of principal executive office)                    (Zip Code)

                                 (201) 428-9700
              (Registrant's telephone number, including area code)



                                  ------------


     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ]


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

     The number of shares outstanding of each of the Registrant's classes of
common stock was 128,676,074 shares of Common Stock outstanding as at November
11, 1996.


<PAGE>
                                             PART I

ITEM 1. FINANCIAL STATEMENTS

                                 HFS Incorporated and Subsidiaries
                                    CONSOLIDATED BALANCE SHEETS

                                          (In thousands)

<TABLE>
<CAPTION>


                                                                  September 30,     December 31,
ASSETS                                                                1996           1995
------------------------------------------------------------------------------------------------

<S>                                                                    <C>               <C>

CURRENT ASSETS
Cash and cash equivalents                                        $   471,194        $    16,109
Royalty accounts and notes receivable, net of
    allowance for doubtful accounts                                   76,975             37,326
Marketing and reservation receivables, net of
    allowance for doubtful accounts                                   36,200             22,297
Relocation receivables                                               136,052             51,180
Other current assets                                                  22,625             21,304
Deferred income taxes                                                 36,456             20,200
                                                                 -----------        -----------
    Total current assets                                             779,502            168,416

Property and equipment, net                                          106,233             67,892
Franchise agreements, net                                            594,415            517,218
Excess of cost over fair value of net assets
    acquired, net                                                  1,339,836            356,754
Other assets                                                          80,064             55,528
                                                                 -----------        -----------
    TOTAL ASSETS                                                 $ 2,900,050        $ 1,165,808
                                                                 ===========        ===========


LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------------------------------

CURRENT LIABILITIES
Accounts payable and other                                       $   185,012        $    73,724
Income taxes payable                                                  81,633             38,640
Accrued acquisition obligations                                       40,287             10,276
Current portion of long-term debt                                     29,907              2,249
                                                                 -----------        -----------
    Total current liabilities                                        336,839            124,889

Long-term debt                                                       541,563            300,778
Other liabilities                                                     31,259             17,150
Deferred income taxes                                                 85,400             82,800
Commitments and contingencies

Series A Adjustable Rate Preferred Stock of Century 21                    --             80,000

STOCKHOLDERS' EQUITY
Preferred stock                                                           --                 --
Common stock                                                           1,237              1,025
Additional paid-in capital                                         1,705,541            475,562
Retained earnings                                                    206,236             83,604
Treasury stock, at cost                                               (8,025)                --
                                                                 ------------       -----------
    Total stockholders' equity                                     1,904,989            560,191
                                                                 -----------        -----------
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $ 2,900,050        $ 1,165,808
                                                                 ===========        ===========

     -See notes to consolidated financial statements-
</TABLE>


<PAGE>



                                 HFS Incorporated and Subsidiaries
                                 CONSOLIDATED STATEMENTS OF INCOME

                             (In thousands, except per share amounts)



<TABLE>
<CAPTION>


                                                Three Months Ended         Nine Months Ended
                                                   September 30,              September 30,
                                                 1996        1995           1996       1995
                                                --------------------------------------------
<S>                                                <C>       <C>            <C>        <C>

REVENUE:
    Franchise                                  $ 184,027  $ 113,340     $ 424,162  $ 265,129
    Other                                         61,773     15,909       125,848     34,602
                                               ---------  ---------     ---------  ---------
        Total revenue                            245,800    129,249       550,010    299,731
                                               ---------  ---------     ---------  ---------

EXPENSES:
    Marketing and reservation                     55,237     44,160       130,728    110,842
    Selling, general and administrative           40,232     21,867       110,588     46,117
    Depreciation and amortization                 17,724      8,389        41,129     21,721
    Interest                                       7,620      6,017        22,194     16,272
    Other                                         23,033      2,376        40,109      3,595
                                               ---------  ---------     ---------  ---------
        Total expenses                           143,846     82,809       344,748    198,547
                                               ---------  ---------     ---------  ---------

Income before income taxes                       101,954     46,440       205,262    101,184
Provision for income taxes                        40,884     19,321        82,630     41,820
                                               ---------  ---------     ---------  ---------
Net income                                     $  61,070  $  27,119     $ 122,632  $  59,364
                                               =========  =========     =========  =========

SHARE INFORMATION (fully diluted):

Net income per share                           $    0.44  $    0.24     $    0.96  $    0.56
                                               =========  =========     =========  =========

Weighted average common and common
    equivalent shares outstanding                142,942    115,758       131,684    112,056
                                               =========  =========     =========  =========
</TABLE>



     -See notes to consolidated financial statements-




<PAGE>




                                 HFS Incorporated and Subsidiaries
                          CONSOLIDATED STATEMENT  OF STOCKHOLDERS' EQUITY
                                          (In thousands)


<TABLE>
<CAPTION>



                                                    Additional
                                 Common Stock         Paid In      Retained       Treasury
                              Shares     Amount       Capital      Earnings         Stock        Total
                             -------------------------------------------------------------------------
<S>                             <C>        <C>          <C>           <C>          <C>           <C>


Balance, January 1, 1996     102,539    $ 1,025    $   475,562   $  83,604    $       --    $  560,191

Issuance of common stock      20,278        203      1,205,768          --            --     1,205,971

Purchase of common stock          --         --             --          --        (8,025)       (8,025)

Exercise of stock options        898          9          7,973          --            --         7,982

Tax benefit from exercise
   of stock options               --         --         16,145          --            --        16,145

Conversion of 41/2% Notes          5         --             93          --            --            93

Net income                        --         --             --     122,632            --       122,632
                             -------    -------    -----------   ---------    ----------    ----------

Balance, September 30, 1996  123,720    $ 1,237    $ 1,705,541   $ 206,236    $   (8,025)   $1,904,989
                             =======    =======    ===========   =========    ===========   ==========

</TABLE>





     -See notes to consolidated financial statements-

<PAGE>



                                  HFS Incorporated and Subsidiaries
                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           (In thousands)

<TABLE>
<CAPTION>

                                                                      Nine Months Ended
                                                                        September 30,
                                                                    1996             1995
                                                                 ----------      -----------
<S>                                                                 <C>               <C>


Operating Activities:
    Net income                                                   $  122,632      $    59,364
    Adjustments to reconcile net income to net
        cash provided by operating activities:
        Depreciation and amortization, including
           amortization of deferred financing costs                  42,524           22,680
        Changes in operating assets and liabilities
           and other                                                (25,777)           2,200
                                                                 -----------     -----------
           Net cash provided by operating activities                139,379           84,244
                                                                 ----------      -----------

Investing Activities:
    Property and equipment additions                                (23,578)          (5,780)
    Loans and investments                                           (10,000)         (13,000)
    Acquisition of businesses, net of cash acquired                (970,885)         (70,977)
                                                                 -----------     ------------
           Net cash used in investing activities                 (1,004,463)         (89,757)
                                                                 -----------     ------------


Financing Activities:
    Issuance of common stock, net                                 1,167,953           57,053
    Proceeds from borrowings, net                                   242,025                -
    Purchases of treasury stock                                      (8,025)               -
    Redemption of Series A Preferred Stock                          (80,000)               -
    Principal payments - long-term debt                              (1,784)         (16,252)
                                                                 -----------     ------------
           Net cash provided by financing activities              1,320,169           40,801
                                                                 ----------      -----------

Net increase in cash and cash equivalents                           455,085           35,288
Cash and cash equivalents, beginning of period                       16,109            5,956
                                                                 ----------      -----------
Cash and cash equivalents, end of period                          $ 471,194      $    41,244
                                                                  =========      ===========

</TABLE>

     -See notes to consolidated financial statements-

<PAGE>



                               HFS Incorporated and Subsidiaries
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




1.  Basis of Presentation

     The consolidated balance sheet of HFS Incorporated (the "Company") as of
September 30, 1996, the consolidated statements of income for the three and
nine months ended September 30, 1996 and 1995, the consolidated statements of
cash flows for the nine months ended September 30, 1996 and 1995 and the
consolidated statement of stockholders' equity for the nine months ended
September 30, 1996 are unaudited and reflect all adjustments of a normal
recurring nature which are, in the opinion of management, necessary for a fair
presentation. There were no adjustments of an unusual nature recorded during
the three and nine months ended September 30, 1996 and 1995 except that in June
1996, the Company recorded a $7.0 million pre-tax restructuring charge, related
primarily to the contribution of owned Coldwell Banker brokerage offices to a
newly created independent entity, National Realty Trust (the "Trust") (See Note
2). Through September 30, 1996, the Company has engaged principally in the
business of franchising guest lodging facilities (lodging segment) and real
estate brokerage offices (real estate segment). The principal sources of
lodging segment revenue are based upon the annual gross room revenue of
franchised properties. The principal sources of real estate segment revenue are
based upon franchisee gross commission revenue from real estate sales and may
include monthly franchisee membership fees. As a result, the Company
experiences seasonal revenue patterns similar to those of the hotel and real
estate industries wherein the summer months produce higher revenue than other
periods of the year. Accordingly, the first and fourth quarters are
traditionally weaker than the second and third quarters and interim results are
not necessarily indicative of results for a full year.

     The consolidated financial statements include the accounts and
transactions of all wholly-owned and majority owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.
The consolidated financial statements of the Company include the assets and
liabilities of Ramada Franchise Systems, Inc., an entity controlled by the
Company by virtue of its ownership of 100% of the common stock of such entity.
The assets of Ramada Franchise Systems, Inc. are not available to satisfy the
claims of any creditors of the Company or any of its other affiliates, except
as otherwise specifically agreed by Ramada Franchise Systems, Inc.

     The consolidated financial statements and notes are presented as required
by Form 10-Q and do not contain certain information included in the Company's
annual consolidated financial statements. The December 31, 1995 consolidated
balance sheet was derived from the Company's audited financial statements. This
Form 10-Q should be read in conjunction with the Company's consolidated
financial statements and notes thereto, incorporated by reference in the 1995
Annual Report on Form 10-K.

     Certain reclassifications have been made to the 1995 consolidated
financial statements to conform with classifications used in 1996.

2.  Acquisitions

     The following acquisitions were accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed were recorded
at their estimated fair values. The results of operations of acquisitions
completed during the nine months ended September 30, 1996 have been included in
the Company's consolidated results since the respective dates of acquisition.


<PAGE>



     A. ACQUISITION OF RESORT CONDOMINIUMS INTERNATIONAL, INC. - On November
12, 1996, the Company completed the acquisition of all the outstanding capital
stock of Resort Condominiums International, Inc., and its affiliates ("RCI")
for approximately $625 million comprised of $550 million in cash and $75
million of Company common stock. The purchase agreement provides for contingent
payments of up to $200 million over the next five years.

     RCI, based in Indianapolis, Indiana, is the world's largest provider of
timeshare exchange programs, providing services for approximately two million
timeshare owners and approximately 3,000 resorts around the world. RCI is also
engaged in publishing related to the timeshare industry and provides other
travel-related services, integrated software systems and resort management and
consulting services.

     B. ACQUISITION OF AVIS, INC. - On October 17, 1996, the Company completed
the acquisition of all of the outstanding capital stock of Avis, Inc. ("Avis"),
including payments under certain employee stock plans of Avis and the
redemption of certain series of preferred stock of Avis for an aggregate $806.5
million. The purchase price was comprised of approximately $367.2 million in
cash, $100.9 million in indebtedness and $338.4 million (approximately 4.6
million shares) in Company common stock.

     Avis, together with its subsidiaries, licensees and affiliates, operates
the Avis rental car business, which the Company believes is the second largest
car rental system in the world.

     Prior to the consummation of the acquisition, the Company announced its
intention to dispose of a majority interest in the corporation which owns all
company-owned Avis car rental locations (the "Operating Company") through or an
initial public offering of the common stock of the Operating Company during
1997. The Operating Company will license the Avis trademark from the Company in
return for a license fee based on a percentage of Operating Company revenue.

     C. COLDWELL BANKER - On May 31, 1996, the Company acquired by merger
Coldwell Banker Corporation ("Coldwell Banker"), at the time the largest gross
revenue producing residential real estate company in North America and a
leading provider of corporate relocation services. The Company paid $640
million in cash for all of the outstanding capital stock of Coldwell Banker and
repaid approximately $105 million of Coldwell Banker indebtedness. The
aggregate purchase price for the transaction was financed through the sale of
Company common stock (see Note 5).

     Immediately following the closing of the Coldwell Banker acquisition, the
Company conveyed Coldwell Banker's 318 owned real estate brokerage offices to
the Trust. The Company recorded a pre-tax restructuring charge of $7 million
(approximately $4.3 million, net of tax or $0.03 per share), in the second
quarter, related primarily to the contribution of net assets to the Trust.

     D. CENTURY 21 NON-OWNED REGIONS - During the second quarter of 1996, the
Company purchased from four independent master licensees, the six U.S.
previously non-owned Century 21 regions ("Century 21 NORS") consisting of more
than 1,000 franchised real estate offices. The $147 million aggregate purchase
price consisted of approximately $96 million in cash, $5 million in notes and
$46 million (approximately 0.9 million shares) in Company common stock.

     E. ERA - In February 1996, the Company purchased substantially all of the
assets comprising the Electronic Realty Associates ("ERA") residential real
estate brokerage franchise system for approximately $40.5 million in cash.


<PAGE>



     F. TRAVELODGE - In January 1996, the Company purchased the assets
comprising the Travelodge hotel franchise system ("Travelodge") in North
America including the Travelodge(R) and Thriftlodge(R) service marks and the
franchise agreements from Forte Hotels, Inc. ("FHI") for $39.3 million.

     Concurrent with the Company's acquisition of the Travelodge franchise
system, Motels of America, Inc., through a wholly owned subsidiary
(collectively "MOA"), purchased 19 Travelodge motels from FHI for $32.3
million. MOA, a significant Company franchisee, entered into twenty year
Travelodge franchise agreements. The Company financed $10 million of MOA's
purchase price under a $10 million revolving credit facility, bearing interest
at 14% per annum. The loan is guaranteed by a parent company of MOA and secured
by approximately 80% of MOA's outstanding common stock.

     In addition, Chartwell Leisure Inc. ("CHRT") formerly National Lodging
Corp., a former wholly owned Company subsidiary which was distributed to the
Company shareholders on November 22, 1994 (the "Distribution Date"), purchased
all of the common stock of FHI for $98.4 million. FHI owned or had an interest
in 112 hotel and motel properties at the acquisition date. In connection with
CHRT's acquisition, the Company guaranteed $75 million of CHRT borrowings under
a $125 million revolving credit facility entered into by CHRT with certain
banks. The Company is paid a guarantee fee of 2% per annum of the outstanding
guarantee commitment by the Company pursuant to a financing agreement entered
into between CHRT and the Company at the Distribution Date (the "Financing
Agreement"). The Financing Agreement was modified to provide expressly for the
guaranty of such CHRT borrowings. The Company and CHRT terminated or modified
other agreements entered into with CHRT at the Distribution Date, including a
gaming related marketing services agreement and an advisory agreement. CHRT
paid the Company an advisory fee approximating $2 million in January 1996 in
connection with CHRT's acquisition of FHI.


     Pro Forma Information: The following information reflects the comparative
pro forma statements of operations of the Company for the nine months ended
September 30, 1996 and 1995 assuming the following transactions occurred on
January 1, 1995: (i) the August 1, 1995 acquisition of Century 21 Real Estate
Corporation ("Century 21"); (ii) the acquisition by merger in May 1995 of,
Central Credit Inc.; (iii) the acquisition of Avis and the issuance of the
Company common stock as partial consideration for Avis; (iv) the acquisition of
RCI and the issuance of the Company common stock as partial consideration for
RCI; (v) the acquisition of Coldwell Banker and the related contribution of
Coldwell Banker's owned real estate brokerage offices to the Trust; (vi)
proceeds from an offering of the Company's common stock (See Note 5) to the
extent necessary to fund the acquisition of Coldwell Banker and the related
repayment of indebtedness and acquisition expenses; (vii) the 1996 acquisitions
of Travelodge, ERA and the Century 21 NORS; and (viii) the February 22, 1996
issuance of $240 million of 4 3/4% convertible senior notes due 2003 (the 
"4 3/4% Notes", see Note 6) to the extent such proceeds were used to finance
acquisitions. The acquisitions have been or will be accounted for using the
purchase method of accounting. Accordingly, assets acquired and liabilities
assumed have been or will be recorded at their estimated fair values, which are
subject to further refinement, based upon appraisals and other analyses with
appropriate recognition given to the effect of current interest rates and
income taxes. The pro forma results are not necessarily indicative of the
results of operations that would have occurred had the transactions been
consummated as indicated nor are they intended to indicate results that may
occur in the future. The underlying pro forma information includes the
amortization expense associated with the assets acquired, the reflection of the
Company's financing arrangements, the elimination of redundant costs and the
related income tax effects. Certain other Company acquisitions were not
material and therefore were not reflected in the pro forma statements of
operations.


<PAGE>

                                                            Nine Months Ended
                                                              September 30,
(000's, except net income per share)                       1996          1995
                                                       -----------   ----------

Revenue ..............................................  $  973,383   $  843,846
Income before income taxes ...........................     291,551      191,253
Net income per share (primary) .......................  $     1.18   $      .83
Weighted average common equivalent shares (primary)...     147,470      139,315
Net income per share (fully diluted) .................  $     1.18   $      .82
Weighted average common and  common equivalent shares
         outstanding  (fully diluted) ................     148,194      141,807


3.  Income Taxes

     The effective income tax rate is based on estimated annual taxable income
and other factors.


4.  Earnings per Share

     Earnings per share for the three and nine months ended September 30, 1996
and 1995 are based upon the weighted average number of common and common
equivalent shares outstanding during the respective periods. The 4 3/4% Notes,
issued February 22, 1996, are antidilutive for the three and nine months ended
September 30, 1996 and, accordingly, are not included in the computation of
earnings per share for 1996. For purposes of calculating earnings per share,
the $150 million 4 1/2% convertible senior notes are assumed to be converted
and, accordingly, interest expense, including amortization of deferred
financing costs (net of taxes) has been added back to net income.


5.  Stockholders' Equity

     A. Authorized Shares - On January 22, 1996, the Company's shareholders
approved an amendment to the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of common stock to 300 million.

     B. Public Offering - On May 9, 1996, the Company sold an aggregate 19.4
million shares of Company common stock pursuant to a public offering (the
"Offering"). A majority of the net proceeds from the Offering of $1.2 billion
financed the acquisition of Coldwell Banker and the balance was principally
used as partial consideration in the subsequent acquisition of Avis.


6. Debt

     On February 22, 1996, the Company completed the public offering of the 
4 3/4% Notes, which are convertible at the option of the holder at any time
prior to maturity into 14.993 shares of the Company's common stock per $1,000
principal amount of the 4 3/4% Notes, representing a conversion price of $66.70
per share. The 4 3/4% Notes are redeemable at the option of the Company, in
whole or in part, at any time on or after March 3, 1998 at redemption prices
decreasing from 103.393% of principal at March 3, 1998 to 100% of principal at


<PAGE>



     March 3, 2003. However, on or after March 3, 1998 and prior to March 3,
2000, the 4 3/4% Notes will not be redeemable at the option of the Company
unless the closing price of the Company's common stock shall have exceeded
$93.38 per share (subject to adjustment upon the occurrence of certain events)
for 20 trading days within a period of 30 consecutive trading days ending
within five days prior to redemption. Interest on the 4 3/4% Notes is payable
semi-annually commencing September 1, 1996.

     On October 2, 1996, the Company replaced an existing $300 million
revolving credit facility with $1 billion in revolving credit facilities
consisting of (i) a $500 million, five year revolving credit facility (the
"Five Year Credit Facility") and (ii) a $500 million, 364 day revolving credit
facility (the "364 Day Revolving Credit Facility" (collectively the "Revolving
Credit Facilities"). The Company may renew the 364 Day Revolving Credit
Facility on an annual basis for an additional 364 days up to a maximum
aggregate term of five years upon receiving lender approval. The Revolving
Credit Facilities, at the option of the Company, bear interest based on
competitive bids of lenders participating in the facilities, at the prime rate
or at LIBOR plus a margin approximating 25 basis points.

7. Recent Events

     A. PENDING ACQUISITION OF PHH CORPORATION ("PHH") - On November 10, 1996,
the Company entered into a definitive merger agreement (the "Merger Agreement")
pursuant to which the Company will issue approximately $1.7 billion of Company
common stock in exchange for all of the outstanding common stock of PHH.
Pursuant to the terms of the Merger Agreement, the number of Company shares to
be issued may range from 21.3 to 28.7 million, based upon the average share
price of the Company's common stock over a period of 20 trading days ending
five days prior to the date of the vote by PHH shareholders on approval of the
transaction. PHH is the world's largest provider of corporate relocation
services and also provides mortgage banking and vehicle management services.
Consummation of the transaction is subject to customary regulatory approvals
and the approval of the shareholders of each company. The transaction, which is
expected to close in early 1997, will be accounted for as a pooling of
interests.

     B. PURCHASE OF MINORITY INTEREST- Effective October 29, 1996 (the
"Effective Date"), the Company amended the Subscription and Stockholders
Agreement dated as of August 1, 1995 among C21 Holding Corp., the Company and a
group of former executives of Century 21 Real Estate Corporation (the "Former
Management") pursuant to which the Company owns 87.5% of C21 Holding Corp. and
the Former Management owns 12.5% of C21 Holding Corp. Such amendment provides
for the acceleration of the Company's option to purchase the 12.5% ownership
from the Former Management approximately 90 days from the Effective Date at
fair market value as of the Effective Date. The Company is in the process of
determining the fair market value of C21 Holding Corp. and expects to complete
such purchase in the first quarter of 1997.


<PAGE>



ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              AND RESULTS OF OPERATIONS


GENERAL OVERVIEW

     HFS Incorporated (the "Company") provides services to various businesses
in consumer industries businesses. The Company began 1996 as the world's
largest franchisor of lodging facilities and real estate brokerage offices. In
1996, the Company continued to pursue its strategy of adding franchise brands
to its existing franchise infrastructure with several acquisitions, including
the acquisition of Coldwell Banker Corporation ("Coldwell Banker"), at the time
the largest gross revenue producing residential real estate company in North
America and a leading provider of relocation services. The Company expanded its
consumer services business to include the car rental industry with its October
17, 1996 acquisition of Avis, Inc. ("Avis"), which the Company believes is the
second largest car rental system in the world. On November 12, 1996, the
Company continued its expansion by acquiring Resort Condominiums International,
Inc. ("RCI") which is the world's largest provider of timeshare exchange
programs. See "Liquidity and Capital Resources - Acquisitions". On November 11,
1996, the Company entered into a definitive merger agreement with PHH
Corporation ("PHH"), pursuant to which PHH will become a subsidiary of the
Company. PHH is the world's largest provider of corporate relocation services
and also provides mortgage banking and vehicle management services. See
"Liquidity and Capital Resources - Pending Acquisition". The Company continues
to pursue acquisitions and other strategic transactions within its existing
industry segments as well as other franchise or franchisable businesses and
other consumer services businesses.

RESULTS OF OPERATIONS -- REVENUE OVERVIEW

     Company revenue increased 90% ($116.6 million) to $245.8 million in the
third quarter of 1996 compared to $129.2 million in the third quarter of 1995.
Approximately $78.9 million of the increase represented incremental revenue
from the Company's real estate segment including revenue generated from the
CENTURY 21(R), Electronic Realty Associates (ERA(R)) and Coldwell Banker(R)
franchise systems which were acquired in August 1995, February 1996 and May
1996, respectively. Preferred vendor revenue also increased $10.4 million
representing a 241% increase over such revenue in the third quarter of 1995.

     Company revenue increased 84% ($250.3 million) to $550.0 million during
the nine months ended September 30, 1996 compared to the same period in 1995.
The lodging and real estate segments each contributed to the revenue increase.
The real estate segment, which was not established until the third quarter of
1995, generated $187.4 million of revenue for the nine months ended September
30, 1996 compared to $22.8 million for the same period in the prior year.

3Q96 vs.  3Q95

Lodging Franchise Fees

     The royalty portion of lodging franchise fees increased $5.4 million
(11%), in the third quarter of 1996 compared to the same period in 1995. Room
growth through the sale of franchise agreements and the acquisitions of the
Knights Inn(R) and Travelodge(R) franchise systems in August 1995 and January
1996, respectively, contributed to the increase. Excluding these acquisitions,
the Company added 24,859 rooms, net of terminations, during the twelve months
ended September 30, 1996.


<PAGE>



Real Estate Franchise Fees

     The real estate segment contributed $74.4 million of franchise fees for
the third quarter of 1996 including $36.6 million from the CENTURY 21 franchise
system, acquired in August 1995, $5.6 million from the ERA franchise system,
acquired on February 12, 1996 and $32.2 million from the Coldwell Banker
franchise system, acquired on May 31, 1996. Franchise fees of acquired real
estate segment franchise systems increased $54.9 million for the quarter ended
September 30, 1996 compared to the same period in 1995, due to such real estate
segment acquisitions.

Other

     Other revenue is primarily comprised of revenue from preferred vendor
arrangements and relocation service revenue. Preferred vendor fees consist of
revenue generated from vendors seeking access to the Company's franchisees and
franchisees' customers. Preferred vendor revenue increased $10.4 million (241%)
from the third quarter of 1995 to the third quarter of 1996. The Company
acquired relocation service businesses in connection with the acquisitions of
the CENTURY 21, ERA and Coldwell Banker franchise systems. Relocation service
fees approximated $28.9 million in the third quarter of 1996, compared to $3.7
million in the third quarter of 1995, including $25.0 million from Coldwell
Banker Relocation Services, Inc., ("CBRS") acquired by the Company on May 31,
1996.

Year-to-date 1996 vs.  1995

Lodging Franchise Fees

     Lodging segment franchise fees and the royalty portion of franchise fees
increased $30.1 million (12%) and $17.4 million (15%), respectively, in the
nine months ended September 30, 1996 compared to the same period in 1995. The
increase in lodging segment franchise fees is primarily attributable to room
growth through the sale of franchise agreements and the acquisition of the
Knights Inn and Travelodge franchise systems.

Real Estate Franchise Fees

     The real estate segment contributed $148.4 million of franchise fees for
the nine months ended September 30, 1996 including approximately $91.3 million,
$13.4 million and $43.7 million from the Century 21, ERA and Coldwell Banker
franchise systems, respectively. Franchise fees of the aforementioned acquired
real estate segment franchise systems increased $128.9 million for the nine
months ended September 30, 1996 compared to the same period in 1995 due to such
real estate segment acquisitions.

Other

     Other revenue is substantially comprised of fees from preferred vendor
arrangements, which increased $26.6 million (200%) from the first nine months
of 1995 to the same period in 1996 and relocation services fees of $44.1
million from businesses acquired in connection with the Company's real estate
segment acquisitions, including $32.7 million from CBRS.


<PAGE>



RESULTS OF OPERATIONS - EXPENSES AND INCOME

3Q96 VS 3Q95

     Income before income taxes increased $55.5 million (120%) resulting from a
     $116.6 (90%) increase in revenue as discussed above in "Results of
     Operations - Revenue Overview", net of a $61.0 million (74%) of increased
     expenses. Operating profits (pre-tax income plus interest expense) for all
     segments increased $57.1 million or 109% during the same comparable
     period. Interest expense for the third quarter of 1996 increased $1.6
     million as a result of the issuance of $240 million 4 3/4% Convertible
     Senior Notes ("4 3/4% Notes") in February 1996. The increase in interest
     expense was offset in part by the decrease in the Company's weighted
     average effective interest rate from 6.7% in the third quarter 1995 to
     5.6% in the third quarter of 1996 as a result of the issuance of the 
     4-3/4% Notes.

LODGING SEGMENT

     Operating profits increased 15% to $43.1 million from 1995 to 1996. A
     $16.8 million (17%) increase in revenue was offset by an $11.2 million
     (18.0%) increase in expenses. The increase in expenses primarily consisted
     of a $9.2 million increase in marketing expenditures corresponding with
     marketing fees collected from lodging franchisees and a $1.2 million
     increase in depreciation and amortization expenses related to goodwill
     associated with the January 1996 and August 1995 acquisitions of the
     Travelodge and the Knights Inn franchise systems, respectively. Selling,
     general and administrative ("SG&A") expenses increased only $0.7 million
     as a result of economies achieved as the Company's corporate
     infrastructure benefited both its lodging and recently acquired real
     estate segment businesses.

REAL ESTATE SEGMENT

     Third quarter 1996 operating profits of $46.7 million included the results
     of operations of the Company's three real estate brands compared to third
     quarter 1995 operating profits of $9.6 million, when only Century 21
     contributed to operations. Revenue improved $65.7 million to $86.7 million
     and expenses increased $28.5 million to $40.0 million. Expenses consisted
     primarily of $24.5 million of SG&A and $9.3 million of depreciation and
     amortization primarily related to goodwill and franchise agreements
     associated with recently acquired franchise systems.

OTHER SEGMENT

     Other segment operating profits increased $14.2 million (261%) to $19.7
     million from 1995 to 1996. The increase in other segment operating profits
     was substantially generated from the corporate relocation service
     businesses acquired as part of the August 1995 and May 1996 acquisitions
     of Century 21 and Coldwell Banker, respectively.


YEAR-TO-DATE 1996 VS.  1995

     Income before income taxes increased $104.1 million (103%) for the nine
     months ended September 30, 1996 versus the comparable period in 1995. This
     increase resulted from the $36.7 increase in revenue discussed above in
     "Results of Operations -Revenue Overview" net of a $146.2 million (74%)
     increase in expenses. Operating profits increased $110.0 million (94%)
     during the same comparable period. Interest expense for the nine months
     ended September 30, 1996 increased $5.9 million due to the issuance of the
     4 3/4% Notes in February 1996. Interest expense was offset in part by the
     decrease in the Company's 
                                                                           

<PAGE>

     weighted average effective interest rate from 6.0% in the first nine 
     months of 1995 to 5.7% in the nine months ended September 30, 1996 as a 
     result of the issuance of the 4 3/4% Notes.
     

LODGING SEGMENT

     Operating profits increased 15% to $111.0 million from 1995 to 1996. A
     $36.7 million (14%) increase in revenue was offset by a $22.3 million
     (14%) increase in expenses. The increase in expenses primarily consisted
     of a $13.1 million increase in marketing expenditures corresponding with
     increased marketing fees collected from lodging franchisees and $3.1
     million of depreciation and amortization primarily corresponding with
     goodwill and franchise agreements associated with the January 1996
     Travelodge franchise system acquisition. The $5.8 million increase in SG&A
     expenses consisted of $3.9 million of franchise sales related expenses
     associated with system growth.

REAL ESTATE SEGMENT

     Operating profits of $81.4 million included the results of operations for
     Century 21 for the full period and ERA and Coldwell Banker from their
     respective February and May 1996 acquisition dates. Operating profits for
     the comparable 1995 period included $9.6 million of operating profits
     generated from Century 21 since the Company's August 1, 1995 acquisition
     date of the franchise system. The 1996 operating profits resulted from
     $178.3 million of revenue and $96.9 million of expenses. Included in
     expenses were $61.4 million of SG&A primarily associated with Century 21
     operations since the Coldwell Banker franchise system was acquired in May
     1995 and a $5 million restructuring charge associated with the
     contribution of Coldwell Banker's former owned brokerage business assets
     to National Realty Trust (the "Trust") an independent entity governed by
     an independent Board of Trustees. Expenses also included $6.5 million of
     depreciation and amortization primarily related to goodwill and franchise
     agreements associated with the Century 21, ERA and Coldwell Banker
     franchise system acquisitions.

OTHER SEGMENT

     Other segment operating profits increased $23.8 million (211%) to $35.0
     million from 1995 to 1996. The increase in other segment operating profits
     was substantially generated from the corporate relocation service business
     acquired as part of the August 1995 and May 1996 acquisitions of Century
     21 and Coldwell Banker, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Pending Acquisition

     On November 10 1996, the Company entered into a definitive merger
agreement (the "Merger Agreement") pursuant to which the Company will issue
$1.7 billion of Company common stock in exchange for all of the outstanding
common stock of PHH. Pursuant to the terms of the Merger Agreement, the number
of Company shares to be issued may range from 21.3 million to 28.7 million,
based upon the average share price of the Company's common stock over a period
of 20 trading days ending five days prior to the date of the vote by PHH
shareholders on approval of the transaction. PHH is the world's largest
provider of corporate relocation services and also provides mortgage banking
and vehicle management services. Consummation of the transaction is subject to
customary regulatory approvals and the approval of the shareholders of each
company. The transaction is expected to close in early 1997.


<PAGE>



Acquisitions

     RCI - On November 12, 1996, the Company completed the acquisition of all
the outstanding capital stock of Resort Condominiums International, Inc. and
its affiliates ("RCI") for approximately $625 million comprised of $550 million
in cash and $75 million of Company common stock plus future contingent payments
of up to $200 million over the next five years.

     RCI, based in Indianapolis Indiana, is the world's largest provider of
timeshare exchange programs, providing services for approximately two million
timeshare owners and approximately 3,000 resorts around the world. RCI is also
engaged in publishing related to the timeshare industry and provides other
travel-related services, integrated software systems and resort management and
consulting services.

     AVIS - On October 17, 1996, the Company completed the acquisition of all
of the outstanding capital stock of Avis Inc. ("Avis"), including payments
under certain employee stock plans of Avis and the redemption of certain series
of preferred stock of Avis for $806.5 million. The purchase price was comprised
of approximately $367.2 million in cash, $100.9 million in indebtedness and
$338.4 million (approximately 4.6 million shares) in Company common stock.

     Avis, together with its subsidiaries, licensees and affiliates, operates
the Avis System, which the Company believes to be the second largest car rental
system in the world.

     Prior to the consummation of the acquisition, the Company announced that
it would dispose of a majority interest in the corporation which owns all
company-owned Avis car rental locations (the "Operating Company") through or an
initial public offering of the common stock of the Operating Company during
1997. The Operating Company will license the Avis trademark from the Company in
return for a license fee based on a percentage of the Operating Company
revenue.

     COLDWELL BANKER - On May 31, 1996, the Company acquired by merger Coldwell
Banker (the "Merger") for $640 million of cash plus repayment of approximately
$105 million of indebtedness. At the effective date of the Merger, Coldwell
Banker had 2,164 franchised brokerage offices and owned 318 residential real
estate brokerage offices ("Owned Brokerage Business") in the United States,
Canada and Puerto Rico, representing the third largest real estate brokerage
system in the United States.

     The Company financed the Coldwell Banker transaction with approximately
$1.2 billion of proceeds from a public offering of approximately 19.4 million
common shares (the "Offering") in the second quarter of 1996. Immediately
following the closing of the Merger, the Company conveyed the Owned Brokerage
Business to a newly created independent trust (the "Trust"). The Company
recorded a $7 million pre-tax restructuring charge related primarily to the
contribution of the Owned Brokerage Business to the Trust.

     CENTURY 21 NON-OWNED REGIONS - During the second quarter of 1996, the
Company completed the acquisition of the six U.S. Century 21 regions which were
licensed to four independent master licensees. The aggregate purchase price
consisted of approximately $96 million of cash, $5 million of notes and $46
million (approximately 0.9 million shares) of the Company's common stock. These
regions represent more than 1,000 CENTURY 21 franchised real estate offices in
the United States and the acquisitions result in the Company receiving royalty
fees of up to 6% of franchisee gross commissions generated by such offices
compared to less than 1% previously received under the master licensing
agreements. The cash portion of the aggregate purchase price was financed with
proceeds from the issuance of the 4 3/4% Notes.


<PAGE>



     ERA - On February 12, 1996, the Company purchased substantially all of the
assets comprising the ERA residential real estate brokerage franchise system
for approximately $40.5 million which was financed by borrowings under the
Company's revolving credit facility.

     CENTURY 21 - On August 1, 1995, a majority-owned Company subsidiary, C21
Holding Corp. ("Holding"), acquired Century 21 from Metropolitan Life Insurance
Company ("MetLife") for an aggregate purchase price of $245 million plus
expenses. In February 1996, the Company paid the $30 million contingent portion
of the purchase price of Century 21 and redeemed $80 million of Century 21
redeemable preferred stock issued to MetLife prior to the acquisition. The
Company financed these payments with proceeds from the 4 3/4% Notes.

     Effective October 29, 1996 (the "Effective Date"), the Company amended the
Subscription and Stockholders Agreement dated as of August 1, 1995 among C21
Holding Corp., the Company and a group of former executives of Century 21 Real
Estate Corporation (the "Former Management") pursuant to which the Company owns
87.5% of C21 Holding Corp. and the Former Management owns 12.5% of C21 Holding
Corp. Such amendment provides for the acceleration of the Company's option to
purchase the 12.5% ownership from the Former Management approximately 90 days
from the Effective Date at fair market value as of the Effective Date. The
Company is in the process of determining the fair market value of C21 Holding
Corp. and expects to complete such purchase in the first quarter of 1997.

     TRAVELODGE - On January 23, 1996, the Company purchased the assets
comprising the Travelodge hotel franchise system in North America, including
the Travelodge and Thriftlodge(R) service marks and franchise agreements, from
Forte Hotels, Inc. ("FHI") for $39.3 million. The Company financed the
acquisition with borrowings under its revolving credit facility and repaid the
borrowings with proceeds from the 4 3/4% Notes.

     Concurrent with the Company's acquisition of the Travelodge franchise
system, Motels of America, Inc., through a wholly owned subsidiary
(collectively "MOA"), purchased 20 Travelodge motels from FHI for $32.3
million. MOA, a significant Company franchisee, entered into twenty year
Travelodge franchise agreements. The Company financed $10 million of MOA's
purchase price under a $10 million revolving credit facility, bearing interest
at 14% per annum. The loan is guaranteed by the parent company of MOA and
secured by approximately 80% of MOA's outstanding common stock.

     In addition, Chartwell Leisure, Inc. ("CHRT") formerly National Lodging
Corp. a former wholly owned Company subsidiary which was distributed to the
Company sharesholders in November 1994, purchased all of the common stock of
FHI for $98.4 million. FHI owned or had an interest in 112 hotel and motel
properties at the acquisition date. In connection with CHRT's acquisition, the
Company guaranteed $75 million of CHRT borrowings under a $125 million
revolving credit facility entered into by CHRT with certain banks. The Company
is paid a guarantee fee of 2% per annum of outstanding guarantee commitment by
the Company pursuant to a Financing Agreement.

     Concurrent with the acquisition of the Travelodge franchise system and
CHRT's acquisition of FHI, the marketing and advisory agreements between the
Company and CHRT were terminated. The corporate services agreement was modified
to provide that the Company is to provide financial and other corporate
administrative support and advisory services through September 1996 and
thereafter advisory services through January 2019 for a fee of $1.5 million per
year. CHRT paid a $2.0 million advisory fee to the Company in connection with
CHRT's acquisition of FHI.



<PAGE>



Financing

     The Company believes that it has excellent liquidity and access to
liquidity through various sources. The Company has generated significant
positive cash flow from operations in every quarter since its public offering
in December 1992. The Company has also demonstrated its ability to access
equity and public debt markets and financial institutions to generate capital
for strategic acquisitions. Indicative of the Company's creditworthiness,
Standard & Poors Corporation and Duff and Phelps assigned an "A" credit rating
to the Company's $540 million of publicly issued debt. The Company generated
$139.4 million of cash flow from operations during the nine months ended
September 30, 1996, representing a $55.2 million (65%) increase from the nine
months ended September 30, 1995.


     On October 2, 1996, the Company replaced an existing $300 million
revolving credit facility with a $1 billion of revolving credit facilities
consisting of (i) a $500 million, five year revolving credit facility (the
"Five Year Credit Facility") and (ii) a $500 million, 364 day revolving credit
facility (the "364 Day Revolving Credit Facility" (collectively the "Revolving
Credit Facilities"). The Company may renew the 364 Day Revolving Credit
Facility on an annual basis for an additional 364 days up to a maximum
aggregate term of five years upon receiving lender approval. The Revolving
Credit Facilities, at the option of the Company, bear interest based on
competitive bids of lenders participating in the facilities, at the prime rate
or at LIBOR plus a margin approximating 25 basis points.

     The Company completed an offering of 19.4 million shares of common stock
in the second quarter of 1996 which yielded net proceeds to the Company after
expenses of approximately $1.2 billion. Approximately $ 755 million of the
proceeds were used to finance the acquisition of Coldwell Banker and repay $75
million of outstanding borrowings under the Company's existing credit facility.
The remaining $331 million of proceeds were used as partial consideration for
the October 17, 1996 acquisition of Avis.

     The Company filed a shelf registration statement with the Securities and
Exchange Commission effective August 29, 1996, for the aggregate issuance of up
to $1 billion of debt and equity securities. These securities may be offered
from time to time, together or separately, based on terms to be determined at
the time of sale. The proceeds may be used for general corporate purposes,
which may include future acquisitions.

     Working capital at September 30, 1996 approximated $438 million including
the remaining $331 million of excess proceeds from the Offering. Excluding the
excess proceeds of the Offering, working capital increased $63 million at
September 30, 1996 from December 31, 1995. The increase in working capital is
attributable to cash generated from operations and the seasonal increase in
lodging segment royalty receivables. Additionally, included in working capital
at September 30, 1996 is $136 million in relocation receivables relating to the
Company's relocation services business acquired as part of the acquisitions of
Century 21 and Coldwell Banker. Outstanding relocation receivables are
guaranteed by client corporations and accordingly are, in the opinion of the
Company, subject to minimal risk.

     Long-term debt consists of $540 million of publicly issued debt including
the 4 3/4% Notes, $150 million of 4 1/2% convertible senior notes due 1999 and
$150 million of 5 7/8% senior notes due December 1998. Interest on the publicly
issued debt is paid semi-annually. Long-term debt increased from $300.8 million
at December 31, 1995 to $539.8 million at September 30, 1996, due to the
issuance of the 4 3/4% Notes. The weighted average stated interest rate on
long-term debt at September 30, 1996 was 5.0% compared to the weighted average
stated interest rate of 5.2% at December 31, 1995.


<PAGE>



     On October 17, 1996, the acquisition date, Avis had $2.5 billion of
outstanding borrowings associated with Avis fleet and other financing
arrangements with banks, vehicle manufacturer finance companies and other
financial institutions with a weighted average interest rate of approximately
6.3%. Avis may borrow up to $4 billion on such facilities. Approximately $2.2
billion of available borrowings are secured by Avis' fleet of vehicles and are
non-recourse to the Company. The remaining available borrowings are unsecured.
The most significant Avis financing arrangement is a $2.5 billion, 364-day
revolving credit facility which bears interest at LIBOR plus 0.63%.

     Capital expenditures approximating $23.6 million during the nine months
ended September 30, 1996 consisted of approximately $14.7 million of software
development and the acquisition of computer equipment primarily associated with
a new transactional data base and reporting system for the real estate segment
and $3.2 million of additions and modifications to the hotel brands' central
reservation systems, which will be reimbursed by collections of reservation
fees from the Company's lodging franchisees. Also included in capital
expenditures is $5.7 million of improvements principally associated with the
purchase of a building in 1995, whiich is now the Company's new headquarters.

     The Company believes that based upon its analysis of its financial
position, its cash flow during the past twelve months and the expected results
of operations in the future, operating cash flow, available funding under the
revolving credit facility and issuances of securities in the capital markets,
if appropriate, will be adequate to fund operations, investments and
acquisitions for the next twelve months.

Impact of New Accounting Pronouncement

     In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which is
effective for the Company in financial statements issued after January 1, 1997.
The Company does not expect the adoption of SFAS 125 to have a material impact
on the financial condition or results of operations.

<PAGE>

Part II - OTHER INFORMATION

Item 5.   OTHER INFORMATION

                      HFS INCORPORATED AND SUBSIDIARIES 
             PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF HFS 

   The pro forma consolidated balance sheet as of September 30, 1996 is 
presented as if the following had occurred on September 30, 1996: (i) the 
acquisition of Avis, Inc. ("Avis") and the November 1996 issuance of HFS 
common stock (the "Avis Offering") as partial consideration for Avis and; 
(ii) the acquisition of Resort Condominiums International, Inc. and its 
affiliates ("RCI") and the issuance of HFS common stock as partial 
consideration for RCI. HFS currently intends to undertake an initial public 
offering of a majority interest in the corporation which owns all 
company-owned Avis car rental locations (the "Car Rental Operating Company") 
in 1997, the proceeds of which will be used to pay down indebtedness of the 
Car Rental Operating Company and to enter into franchise, information 
technology and other agreements to provide services to the Car Rental 
Operating Company based on terms to be determined. Accordingly, the pro forma 
financial statements reflect the acquired net assets and results of 
operations of the Avis rental car operating subsidiary intended to be sold as 
"Investment in car rental operating company -net" and "Equity in earnings 
in car rental operating company", respectively. 

   The pro forma consolidated statements of operations for the year ended 
December 31, 1995 and the nine months ended September 30, 1995 and 1996 are 
presented as if the acquisitions of Avis and RCI and the following 
transactions had occurred on January 1, 1995: (i) the May 31, 1996 
acquisition of the common stock of Coldwell Banker Corporation ("Coldwell 
Banker") and the related contribution of Coldwell Banker's owned real estate 
brokerage offices (the "Owned Brokerage Business") to a newly created 
independent trust (the "Trust") (the "Coldwell Banker Transaction"); (ii) the 
receipt of proceeds from an offering of HFS' common stock (the "Second 
Quarter 1996 Offering") to the extent necessary to fund (a) the acquisition 
of Coldwell Banker and the related repayment of indebtedness and acquisition 
expenses and (b) the cash consideration portion in the Avis acquisition; 
(iii) the acquisitions of: the six non-owned Century 21 regions ("Century 21 
NORS") during the second quarter of 1996, the Travelodge franchise system 
("Travelodge") on January 23, 1996 and the Electronic Realty Associates 
franchise system ("ERA") on February 12, 1996 (collectively, the "Other 1996 
Acquisitions"); and (iv) the February 22, 1996 issuance of $240 million of 4 
3/4% convertible senior notes due 2003 to the extent such proceeds were used 
to finance the Other 1996 Acquisitions. The pro forma consolidated statements 
of operations for the year ended December 31, 1995 and the nine months ended 
September 30, 1995 are also presented as if the August 1, 1995 acquisition of 
Century 21 and the acquisition by merger (the "CCI Merger") in May 1995 of 
Central Credit Inc. ("CCI") had occurred on January 1, 1995. 

   All of the aforementioned acquisitions have been accounted for using the 
purchase method of accounting. Accordingly, assets acquired and liabilities 
assumed have been recorded at their estimated fair values which are subject 
to further refinement, including appraisals and other analyses, with 
appropriate recognition given to the effect of current interest rates and 
income taxes. Management does not expect that the final allocation of the 
purchase price for the above acquisitions will differ materially from the 
preliminary allocations. HFS has entered into certain immaterial transactions 
which are not reflected in the pro forma consolidated statements of 
operations. 

   The pro forma consolidated financial statements do not purport to present 
the financial position or results of operations of HFS had the transactions 
and events assumed therein occurred on the dates specified, nor are they 
necessarily indicative of the results of operations that may be achieved in 
the future. The pro forma consolidated statements of operations do not 
reflect cost savings and revenue enhancements that management believes may be 
realized following the acquisitions. These cost savings are expected to be 
realized primarily through the restructuring of operations as well as revenue 
enhancements expected to be realized through leveraging of HFS's preferred 
alliance programs. No assurances can be made as to the amount of cost savings 
or revenue enhancements, if any, that actually will be realized. 

   The pro forma consolidated financial statements are based on certain 
assumptions and adjustments described in the Notes to Pro Forma Consolidated 
Balance Sheet and Statements of Operations and 

                                      
<PAGE>

should be read in conjunction therewith and with (i) the consolidated 
financial statements and related notes of the Company included in its 1995 
Annual Report on Form 10-K (ii) the Company's Quarterly Report on Form 10-Q 
for the quarter ended September 30, 1996; and (iii) the financial statements 
and related notes of certain of the acquired companies previously filed in 
Current Reports on Form 8-K pursuant to Regulation S-X Rule 3.05, "Financial 
Statements of Businesses Acquired or to be Acquired". 

                                      
<PAGE>

                       HFS INCORPORATED AND SUBSIDIARIES           PAGE 1 OF 2 
                     PRO FORMA CONSOLIDATED BALANCE SHEET 
                           AS OF SEPTEMBER 30, 1996 
                                (IN THOUSANDS) 

<TABLE>
<CAPTION>
                          
                                         HISTORICAL                 
                          -----------------------------------------    PRO FORMA ADJUSTMENTS   
                                             AVIS,                   -------------------------
                              HFS       AS ADJUSTED (1)     RCI        AVIS (A)      RCI (B)     PRO FORMA 
                          ------------  ---------------  ----------  ------------  -----------  ------------ 
<S>                       <C>           <C>              <C>         <C>           <C>          <C>
ASSETS 
 Current assets 
  Cash and cash 
   equivalents...........   $  471,194      $     --       $ 89,070    $(410,742)    $ (48,771)   $  100,751 
  Marketable securities .           --            --        184,599           --      (184,599)           -- 
  Relocation 
   receivables...........      136,052            --             --           --            --       136,052 
  Other accounts and 
   notes receivable, 
   net...................      113,175         1,800         33,107           --            --       148,082 
  Other current assets ..       59,081         1,881         22,836           --        29,000       112,798 
                          ------------  ---------------  ----------  ------------  -----------  ------------ 
TOTAL CURRENT ASSETS ....      779,502         3,681        329,612     (410,742)     (204,370)      497,683 
                          ------------  ---------------  ----------  ------------  -----------  ------------ 
 Property and 
  equipment--net.........      106,233        33,828         87,785       58,172       (32,125)      253,893 
 Franchise 
  agreements--net........    1,027,711            --             --           --            --     1,027,711 
 Excess of cost over 
  fair value of net 
  assets acquired-net ...      906,540            --             --           --       443,845     1,350,385 
 Intangible assets.......           --       499,143             --      327,426       100,000       926,569 
 Investment in car 
  rental operating 
  company--net...........           --        72,616             --        2,384            --        75,000 
 Deferred income 
  taxes--net.............           --            --             --        5,200            --         5,200 
 Other assets............       80,064        59,633         40,936       (9,614)      (31,630)      139,389 
                          ------------  ---------------  ----------  ------------  -----------  ------------ 
TOTAL ASSETS.............   $2,900,050      $668,901       $458,333    $ (27,174)    $ 275,720    $4,275,830 
                          ============  ===============  ==========  ============  ===========  ============ 

</TABLE>

------------ 
(1)      The consolidated historical balance sheet of Avis Inc., as adjusted 
         is as of August 31, 1996. See Consolidated Historical Balance Sheet 
         of Avis, Inc., as adjusted, as of August 31, 1996. 

Note:    Certain reclassifications have been made to the historical HFS, Avis 
         and RCI consolidated balance sheets to conform to HFS's pro forma 
         classification. 

See notes to pro forma consolidated balance sheet and statements of operations.

                                      
<PAGE>

                       HFS INCORPORATED AND SUBSIDIARIES           PAGE 2 OF 2 
                     PRO FORMA CONSOLIDATED BALANCE SHEET 
                           AS OF SEPTEMBER 30, 1996 
                                (IN THOUSANDS) 

<TABLE>
<CAPTION>
                                                      HISTORICAL                 
                                       ----------------------------------------   PRO FORMA ADJUSTMENTS   
                                                         AVIS,                   -----------------------
                                           HFS       AS ADJUSTED (1)     RCI        AVIS (A)    RCI (B)    PRO FORMA 
                                      ------------  ---------------  ----------  -----------  ----------  ----------- 
<S>                                   <C>           <C>              <C>         <C>          <C>         <C>
LIABILITIES AND STOCKHOLDERS' EQUITY 
 Current liabilities 
  Accounts payable and other accrued 
   liabilities.......................   $  160,357      $ 201,954      $ 76,328    $      --    $     --   $  438,639 
  Deferred revenue...................       24,655             --       119,218           --          --      143,873 
  Income taxes payable...............       81,633            182            --         (182)         --       81,633 
  Accrued acquisition obligations ...       40,287             --            --       18,000      10,557       68,844 
  Current portion of long-term debt .       29,907             --            --      100,930          --      130,837 
                                      ------------  ---------------  ----------  -----------  ----------  ----------- 
TOTAL CURRENT LIABILITIES............      336,839        202,136       195,546      118,748      10,557      863,826 
                                      ------------  ---------------  ----------  -----------  ----------  ----------- 
 Long-term debt......................      541,563             --         3,536           --     285,000      830,099 
 Deferred revenue....................        7,299             --       185,703           --          --      193,002 
 Other non-current liabilities ......       23,960             --         1,711           --      20,000       45,671 
 Deferred income taxes...............       85,400             --            --           --     (43,000)      42,400 
 Preferred stock--Avis, Inc..........           --         72,416            --      (72,416)         --           -- 
 Redeemable portion of common 
  stock--ESOP........................           --        295,465            --     (295,465)         --           -- 
 Unearned compensation--ESOP.........           --       (257,751)           --      257,751          --           -- 
STOCKHOLDERS' EQUITY 
 Participating convertible preferred 
  stock..............................           --        132,000            --     (132,000)         --          --- 
 Common stock--issued and 
  outstanding; HFS Historical, 
  123,720 and Pro Forma, 129,289 ....        1,237            290            --         (244)         10        1,293 
 Additional paid-in capital .........    1,705,541        220,401         6,392      100,396      60,573    2,093,303 
 Retained earnings ..................      206,236        103,339        34,864     (103,339)    (34,864)     206,236 
 Treasury stock......................       (8,025)      (102,269)           --      102,269       8,025           -- 
 Net unrealized gain on available 
  for sale securities................           --             --        20,784           --     (20,784)          -- 
 Foreign currency equity adjustment             --          2,874         9,797       (2,874)     (9,797)          -- 
                                      ------------  ---------------  ----------  -----------  ----------  ----------- 
TOTAL STOCKHOLDERS' EQUITY...........    1,904,989        356,635        71,837      (35,792)      3,163    2,300,832 
                                      ------------  ---------------  ----------  -----------  ----------  ----------- 
TOTAL LIABILITIES 
 AND STOCKHOLDERS' EQUITY............   $2,900,050      $ 668,901      $458,333    $ (27,174)   $275,720   $4,275,830 
                                      ============  ===============  ==========  ===========  ==========  =========== 
</TABLE>

------------ 
(1)      The consolidated historical balance sheet of Avis, Inc., as adjusted 
         is as of August 31, 1996. See Consolidated Historical Balance Sheet 
         of Avis, Inc., as adjusted, as of August 31, 1996. 

Note:    Certain reclassifications have been made to the historical HFS Avis 
         and RCI consolidated balance sheets to conform to HFS's pro forma 
         classification. 

See notes to pro forma consolidated balance sheet and statements of operations.

                                      
<PAGE>

                    CONSOLIDATED HISTORICAL BALANCE SHEET 
                          OF AVIS, INC., AS ADJUSTED 
                            AS OF AUGUST 31, 1996 
                                (IN THOUSANDS) 

<TABLE>
<CAPTION>
                                                   HISTORICAL    RECLASSIFICATION      AVIS, 
                                                      AVIS          ADJUSTMENT      AS ADJUSTED 
                                                  -------------  ----------------  ------------- 
<S>                                               <C>            <C>               <C>
ASSETS 
Current assets 
 Cash and cash equivalents.......................   $   75,683      $   (75,683)      $      -- 
 Accounts and notes receivable, net..............      174,047         (172,247)          1,800 
 Vehicles, net...................................    2,567,517       (2,567,517)             -- 
 Due from affiliated company.....................      114,976         (114,976)             -- 
 Other current assets ...........................       45,296          (43,415)          1,881 
 Deferred income taxes...........................       68,667          (68,667)             -- 
                                                  -------------  ----------------  ------------- 
TOTAL CURRENT ASSETS.............................    3,046,186       (3,042,505)          3,681 
                                                  -------------  ----------------  ------------- 
Property and equipment-net.......................      151,854         (118,026)         33,828 
Intangible assets--Avis..........................      499,143               --         499,143 
Investment in car rental operating company--net .           --           72,616          72,616 
Other assets ....................................       85,368          (25,735)         59,633 
                                                  -------------  ----------------  ------------- 
TOTAL............................................   $3,782,551      $(3,113,650)      $ 668,901 
                                                  =============  ================  ============= 
LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities 
 Accounts payable and other .....................   $  444,867      $  (242,731)      $ 202,136 
                                                  -------------  ----------------  ------------- 
Long-term debt ..................................    2,488,651       (2,488,651)             -- 
Public liability and property damage.............      215,135         (215,135)             -- 
Due to affiliated company........................      132,563         (132,563)             -- 
Other non-current liabilities 
 Deferred income taxes...........................       34,570          (34,570)             -- 
 Preferred stock--Avis, Inc. ....................       72,416               --          72,416 
 Redeemable portion of common stock--ESOP .......      295,465               --         295,465 
 Unearned compensation--ESOP.....................     (257,751)              --        (257,751) 
STOCKHOLDERS' EQUITY 
 Participating convertible preferred stock ......      132,000               --         132,000 
 Common stock....................................          290               --             290 
 Additional paid-in capital......................      220,401               --         220,401 
 Retained earnings...............................      103,339               --         103,339 
 Treasury stock .................................     (102,269)              --        (102,269) 
 Foreign currency equity adjustment..............        2,874               --           2,874 
                                                  -------------  ----------------  ------------- 
TOTAL STOCKHOLDERS' EQUITY.......................      356,635               --         356,635 
                                                  -------------  ----------------  ------------- 
TOTAL............................................   $3,782,551      $(3,113,650)      $ 668,901 
                                                  =============  ================  ============= 
</TABLE>

------------ 
Note:    The reclassification adjustment made to the historical consolidated 
         balance sheet of Avis, Inc. is to present the historical net assets 
         of car rental operations as "Investment in car rental operating 
         company -net" as a result of HFS' plan to undertake an initial 
         public offering of a majority interest in the corporation which owns 
         all company owned Avis car rental operations. 

See notes to pro forma consolidated balance sheet and statements of operations.

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
                  PRO FORMA CONSOLIDATED STATEMENT OF INCOME 
                     FOR THE YEAR ENDED DECEMBER 31, 1995 
                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 

<TABLE>
<CAPTION>
                                             HISTORICAL 
                                      ------------------------- 
                                                     ACQUIRED       PRO FORMA 
                                          HFS       COMPANIES      ADJUSTMENTS     PRO FORMA 
                                      -----------  ------------  ---------------  ------------ 
<S>                                   <C>          <C>           <C>              <C>
NET REVENUES 
 Service fees .......................   $369,442     $1,113,624      $  25,950 (C)  $1,061,202 
                                                                      (535,207)(D) 
                                                                        87,393 (F) 
 Other ..............................     43,541         67,163         (4,421)(D)      89,232 
                                                                       (17,051)(E) 
 Equity in loss of car rental 
  operating company .................         --             --         (5,272)(F)      (5,272) 
                                      -----------  ------------  -------------    ------------ 
  Net revenues ......................    412,983      1,180,787       (448,608)      1,145,162 
                                      -----------  ------------  -------------    ------------ 
EXPENSES 
 Marketing and reservation...........    143,965        130,366                        274,331 
 Selling, general and 
  administrative (N).................     78,232        843,878         (4,500)(G)     396,234 
                                                                      (521,376)(H) 
 Depreciation and amortization  .....     30,857         64,784         35,126 (I)     130,767 
 Interest ...........................     21,789         12,553         18,389 (J)      52,731 
 Other ..............................      3,235         17,143         (1,599)(K)      18,779 
                                      -----------  ------------  -------------    ------------ 
  Total expenses ....................    278,078      1,068,724       (473,960)        872,842 
                                      -----------  ------------  -------------    ------------ 
Income before income taxes ..........    134,905        112,063         25,352         272,320 
Provision for income taxes ..........     55,175         36,491         20,729 (L)     112,395 
                                      -----------  ------------  -------------    ------------ 
Net income ..........................   $ 79,730     $   75,572      $   4,623      $  159,925 
                                      ===========  ============  =============    ============ 
PER SHARE INFORMATION (PRIMARY) 
 Net income (N) .....................   $    .74                                    $     1.15 
                                      ===========                                 ============ 
 Weighted average common and common 
  equivalent shares outstanding  ....    113,817                        28,681 (M)     142,498 
                                      ===========                =============    ============ 
PER SHARE INFORMATION (FULLY 
 DILUTED) 
 Net income (N)......................   $    .73                                    $     1.14 
                                      ===========                                 ============ 
 Weighted average common and  common 
 equivalent shares  outstanding  ....    115,654                        28,681 (M)     144,335 
                                      ===========                =============    ============ 
</TABLE>

------------ 
Note:    Certain reclassifications have been made to the historical results 
         of HFS and acquired companies to conform to HFS's pro forma 
         classification. 

See notes to pro forma consolidated balance sheet and statements of operations.

                                      
<PAGE>

                       HFS INCORPORATED AND SUBSIDIARIES
                  HISTORICAL CONSOLIDATING STATEMENT OF INCOME
                             OF ACQUIRED COMPANIES
                      FOR THE YEAR ENDED DECEMBER 31, 1995
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                            HISTORICAL 
                                      ------------------------------------------------------ 
                                        AVIS, (1)                 COLDWELL        OTHER          TOTAL 
                                       AS ADJUSTED      RCI        BANKER      ACQUISITIONS    HISTORICAL 
                                      -------------  ----------  -----------  --------------  ------------ 
<S>                                   <C>            <C>         <C>          <C>             <C>
NET REVENUES 
 Service fees .......................    $ 21,608      $278,132    $679,137       $134,747      $1,113,624 
 Other ..............................          --        17,051      20,264         29,848          67,163 
                                      -------------  ----------  -----------  --------------  ------------ 
  Net revenues ......................      21,608       295,183     699,401        164,595       1,180,787 
                                      -------------  ----------  -----------  --------------  ------------ 
EXPENSES 
 Marketing and reservation...........          --       130,366          --             --         130,366 
 Selling, general and 
 administrative......................       7,205        91,757     616,182        128,734         843,878 
 Depreciation and amortization  .....      19,683        14,193      22,425          8,483          64,784 
 Interest ...........................         461           536       5,329          6,227          12,553 
 Other ..............................         410         1,976          --         14,757          17,143 
                                      -------------  ----------  -----------  --------------  ------------ 
  Total expenses ....................      27,759       238,828     643,936        158,201       1,068,724 
                                      -------------  ----------  -----------  --------------  ------------ 
Income (loss) before income taxes  ..      (6,151)       56,355      55,465          6,394         112,063 
Provision for income taxes ..........       4,100         4,464      24,385          3,542          36,491 
                                      -------------  ----------  -----------  --------------  ------------ 
Net income (loss) ...................    $(10,251)     $ 51,891    $ 31,080       $  2,852      $   75,572 
                                      =============  ==========  ===========  ==============  ============ 
</TABLE>

------------ 
(1)   The historical consolidated statement of income of Avis, as 
      adjusted, has been adjusted to present only the historical operating 
      results intended to be retained by HFS. The historical consolidated 
      statement of income of Avis, Inc., as adjusted is for the year ended 
      February 29, 1996. See Historical Consolidated Statement of Income 
      of Avis, Inc., as Adjusted, for the year ended February 29, 1996. 

Note: Certain reclassifications have been made to the historical results of 
      acquired companies to conform to HFS's pro forma classification. 

See notes to pro forma consolidated balance sheet and statements of operations.

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
                 HISTORICAL CONSOLIDATED STATEMENT OF INCOME 
                          OF AVIS, INC., AS ADJUSTED 
                     FOR THE YEAR ENDED FEBRUARY 29, 1996 
                                (IN THOUSANDS) 

<TABLE>
<CAPTION>
                                                             ADJUSTMENTS 
                                                   -------------------------------- 
                                                                     ELIMINATION OF 
                                                                       CAR RENTAL 
                                                                       OPERATING         AVIS, 
                                     HISTORICAL    RECLASSIFICATION     COMPANY       AS ADJUSTED 
                                    -------------  ----------------  --------------  ------------- 
<S>                                 <C>            <C>               <C>             <C>
REVENUES...........................   $1,716,677        $(21,608)      $(1,695,069)     $     -- 
 Service fees .....................           --          21,608                --        21,608 
                                    -------------  ----------------  --------------  ------------- 
  Net revenues ....................    1,716,677              --        (1,695,069)       21,608 
                                    -------------  ----------------  --------------  ------------- 
EXPENSES 
 Selling, general and 
  admnistrative ...................    1,119,888         (16,865)       (1,095,818)        7,205 
 Depreciation and amortization  ...      411,796          16,404          (408,517)       19,683 
 Interest .........................      149,534             461          (149,534)          461 
 Other ............................          410              --                --           410 
                                    -------------  ----------------  --------------  ------------- 
  Total expenses ..................    1,681,628              --        (1,653,869)       27,759 
                                    -------------  ----------------  --------------  ------------- 
Income (loss) before income taxes         35,049              --           (41,200)       (6,151) 
Provision for income taxes ........       23,977              --           (19,877)        4,100 
                                    -------------  ----------------  --------------  ------------- 
Net income (loss) .................   $   11,072        $     --       $    (21,323)    $(10,251) 
                                    =============  ================  ==============  ============= 

</TABLE>

------------ 
Note:     The reclassification adjustment made to the historical consolidated 
          statement of income of Avis, Inc. is to present information 
          technology services as "Service fees." The elimination of the car 
          rental operating company is presented as a result of HFS's plan to 
          undertake an initial public offering of a majority interest of 75 
          percent in the corporation which owns all company-owned Avis car 
          rental operations (the "IPO Company"). HFS intends to substantially 
          replace results of car rental operations with license fees from the 
          IPO Company. 

See notes to pro forma consolidated balance sheet and statements of operations.

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
               HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS 
                            OF OTHER ACQUISITIONS 
                     FOR THE YEAR ENDED DECEMBER 31, 1995 
                                (IN THOUSANDS) 

<TABLE>
<CAPTION>
                                                              CENTURY 21 
                                    CCI (1)  CENTURY 21 (1)      NORS       TRAVELODGE     ERA (2)       TOTAL 
                                    -------  --------------  ------------  ------------  -----------  ----------- 
<S>                                 <C>      <C>             <C>           <C>           <C>          <C>
NET REVENUES 
 Service fees .....................  $   --      $60,506        $29,021       $18,361       $26,859     $134,747 
 Other ............................   3,326       10,164            403            79        15,876       29,848 
                                    -------  --------------  ------------  ------------  -----------  ----------- 
  Net revenues ....................   3,326       70,670         29,424        18,440        42,735      164,595 
                                    -------  --------------  ------------  ------------  -----------  ----------- 
EXPENSES 
 Selling, general and 
  administrative ..................      --       57,241         25,763        15,604        30,126      128,734 
 Depreciation and amortization  ...     529        5,217            578             8         2,151        8,483 
 Interest .........................      --        2,904             54            --         3,269        6,227 
 Other.............................   1,917        2,751             --            --        10,089       14,757 
                                    -------  --------------  ------------  ------------  -----------  ----------- 
  Total expenses ..................   2,446       68,113         26,395        15,612        45,635      158,201 
                                    -------  --------------  ------------  ------------  -----------  ----------- 
Income (loss) before income taxes       880        2,557          3,029         2,828        (2,900)       6,394 
Provision for income taxes ........     313        2,097             --         1,132            --        3,542 
                                    -------  --------------  ------------  ------------  -----------  ----------- 
Net income (loss) .................  $  567      $   460        $ 3,029       $ 1,696       $ (2,900)   $  2,852 
                                    =======  ==============  ============  ============  ===========  =========== 
</TABLE>

------------ 
(1)      Reflects results of operations for the period from January 1, 1995 
         to the respective dates of acquisition. 

(2)      Reflects the historical statement of operations of Electronic Realty 
         Associates Inc. ("ERA Inc."). The financial statements which were 
         audited for the year ended December 31, 1995 were those of 
         Electronic Realty Associates LP ("ERA LP") which differ from the ERA 
         Inc. financial statements. The difference is primarily attributable 
         to (i) the home warranty business which was acquired by HFS but is 
         excluded from the audited financial statements of ERA LP; and (ii) 
         an intercompany charge to ERA LP by ERA Inc. Net revenues, total 
         expenses and net loss of ERA LP for the year ended December 31, 1995 
         were $39.4 million, $47.3 million and $7.9 million, respectively. 

Note:    Certain reclassifications have been made to the historical results 
         of acquired companies to conform to HFS's pro forma classification. 

See notes to pro forma consolidated balance sheet and statement of operations.

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
                 PRO FORMA CONSOLIDATED STATEMENTS OF INCOME 
            FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 
                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 

<TABLE>
<CAPTION>
                                                                     1995        1996 
                                                                  ----------  ---------- 
<S>                                                               <C>         <C>
NET REVENUES 
 Service fees ...................................................   $786,407    $889,473 
 Other ..........................................................     62,535      81,451 
                                                                  ----------  ---------- 
 Equity in earnings (loss) of car rental operating company  .....     (5,096)      2,459 
  Net revenues ..................................................    843,846     973,383 
                                                                  ----------  ---------- 
EXPENSES 
 Marketing and reservation.......................................    202,846     238,018 
 Selling, general and administrative ............................    289,332     289,822 
 Depreciation and amortization ..................................     97,972      99,703 
 Interest .......................................................     40,115      36,930 
 Other ..........................................................     22,328      17,359 
                                                                  ----------  ---------- 
  Total expenses ................................................    652,593     681,832 
                                                                  ----------  ---------- 
Income before income taxes ......................................    191,253     291,551 
Provision for income taxes ......................................     78,935     120,331 
                                                                  ----------  ---------- 
Net income (N) ..................................................   $112,318    $171,220 
                                                                  ==========  ========== 
PER SHARE INFORMATION (PRIMARY) 
 Net income......................................................   $    .83    $   1.18 
                                                                  ==========  ========== 
 Weighted average common and common equivalent shares 
  outstanding ...................................................    139,315     147,470 
                                                                  ==========  ========== 
PER SHARE INFORMATION (FULLY DILUTED) 
 Net income .....................................................   $    .82    $   1.18 
                                                                  ==========  ========== 
 Weighted average common and common equivalent shares 
  outstanding ...................................................    141,807     148,194 
                                                                  ==========  ========== 
</TABLE>

See notes to pro forma consolidated balance sheet and statements of operations.

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
                  PRO FORMA CONSOLIDATED STATEMENT OF INCOME 
                 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 
                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 

<TABLE>
<CAPTION>
                                                HISTORICAL 
                                          ----------------------- 
                                                       ACQUIRED      PRO FORMA 
                                             HFS       COMPANIES    ADJUSTMENTS     PRO FORMA 
                                          ----------  -----------  --------------  ----------- 
<S>                                       <C>         <C>          <C>             <C>
NET REVENUES 
 Service fees............................   $268,862    $848,763      $  19,508 (C)  $786,407 
                                                                       (411,795)(D) 
                                                                         61,069 (F) 
 Other ..................................     30,869      45,051        (13,385)(E)    62,535 
 Equity in loss of car rental operating 
  company ...............................         --          --         (5,096) (F)   (5,096) 
                                          ----------  -----------  --------------  ----------- 
  Net revenues ..........................    299,731     893,814       (349,699)      843,846 
                                          ----------  -----------  --------------  ----------- 
EXPENSES 
 Marketing and reservation ..............    110,842      92,004             --       202,846 
 Selling, general and administrative 
 (N).....................................     47,700     638,601         (3,375)(G)   289,332 
                                                                       (393,594)(H) 
 Depreciation and amortization ..........     21,721      52,566         23,685 (I)    97,972 
 Interest ...............................     16,272       8,135         15,708 (J)    40,115 
 Other ..................................      2,012      21,018           (702)(K)    22,328 
                                          ----------  -----------  --------------  ----------- 
  Total expenses ........................    198,547     812,324       (358,278)      652,593 
                                          ----------  -----------  --------------  ----------- 
Income before income taxes ..............    101,184      81,490          8,579       191,253 
Provision for income taxes ..............     41,820      21,624         15,491 (L)    78,935 
                                          ----------  -----------  --------------  ----------- 
Net income (loss)........................   $ 59,364    $ 59,866      $  (6,912)     $112,318 
                                          ==========  ===========  ==============  =========== 
PER SHARE INFORMATION (PRIMARY) 
 Net income (N) .........................   $    .57                                 $    .83 
                                          ==========                               =========== 
 Weighted average common and common 
  equivalent shares outstanding .........    109,564                     29,751 (M)   139,315 
                                          ==========               ==============  =========== 
PER SHARE INFORMATION (FULLY DILUTED) 
 Net income (N)..........................   $    .56                                 $    .82 
                                          ==========                               =========== 
 Weighted average common and common 
  equivalent shares outstanding .........    112,056                     29,751 (M)   141,807 
                                          ==========               ==============  =========== 
</TABLE>

------------ 

Note:    Certain reclassifications have been made to the historical results 
         of HFS and acquired companies to conform to HFS's pro forma 
         classification. 

See notes to pro forma consolidated balance sheet and statements of operations.

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
               HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS 
                            OF ACQUIRED COMPANIES 
                 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 
                                (IN THOUSANDS) 

<TABLE>
<CAPTION>
                                                            HISTORICAL 
                                       ----------------------------------------------------- 
                                         AVIS, (1)                 COLDWELL       OTHER          TOTAL 
                                        AS ADJUSTED      RCI        BANKER     ACQUISITIONS    HISTORICAL 
                                       -------------  ----------  ----------  --------------  ------------ 
<S>                                    <C>            <C>         <C>         <C>             <C>
NET REVENUES 
 Service fees ........................     $13,358      $209,242    $513,483      $112,680       $848,763 
 Other ...............................          --        13,385       3,972        27,694         45,051 
                                       -------------  ----------  ----------  --------------  ------------ 
  Net revenues .......................      13,358       222,627     517,455       140,374        893,814 
                                       -------------  ----------  ----------  --------------  ------------ 
EXPENSES 
 Marketing and reservation ...........          --        92,004          --            --         92,004 
 Selling, general and administrative         7,106        62,530     458,785       110,180        638,601 
 Depreciation and amortization  ......      14,253        12,698      17,272         8,343         52,566 
 Interest ............................          --           402       2,958         4,775          8,135 
 Other ...............................          --         6,570       1,944        12,504         21,018 
                                       -------------  ----------  ----------  --------------  ------------ 
  Total expenses .....................      21,359       174,204     480,959       135,802        812,324 
                                       -------------  ----------  ----------  --------------  ------------ 
Income (loss) before income taxes  ...      (8,001)       48,423      36,496         4,572         81,490 
Provision for income taxes ...........          18         1,940      16,422         3,244         21,624 
                                       -------------  ----------  ----------  --------------  ------------ 
Net income (loss) ....................     $(8,019)     $ 46,483    $ 20,074      $  1,328       $ 59,866 
                                       =============  ==========  ==========  ==============  ============ 
</TABLE>

------------ 
(1)      The historical consolidated statement of operations of Avis, as 
         adjusted, has been adjusted to present only the historical operating 
         results intended to be retained by HFS. The historical consolidated 
         statement of operations of Avis, Inc., as adjusted, is for the nine 
         months ended August 31, 1995. See Historical Consolidated Statement 
         of Operations of Avis, Inc., as Adjusted, for the nine months ended 
         August 31, 1995. 

Note:    Certain reclassifications have been made to the historical results 
         of acquired companies to conform to HFS's pro forma classification. 

See notes to pro forma consolidated balance sheet and statements of operations.

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
               HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS 
                          OF AVIS, INC. AS ADJUSTED 
                  FOR THE NINE MONTHS ENDED AUGUST 31, 1995 
                                (IN THOUSANDS) 

<TABLE>
<CAPTION>
                                                                ADJUSTMENT 
                                                     --------------------------------- 
                                                                         ELIMINATION 
                                                                        OF CAR RENTAL 
                                                                          OPERATING         AVIS, 
                                        HISTORICAL   RECLASSIFICATION      COMPANY       AS ADJUSTED 
                                       ------------  ----------------  ---------------  ------------- 
<S>                                    <C>           <C>               <C>              <C>
REVENUES .............................   $1,190,189       $(13,358)       $(1,176,831)      $    -- 
 Service fees.........................           --         13,358                 --        13,358 
                                       ------------  ----------------  ---------------  ------------- 
  Net revenues........................    1,190,189                        (1,176,831)       13,358 
                                       ------------  ----------------  ---------------  ------------- 
EXPENSES 
 Selling, general and administrative        766,509             --           (759,403)        7,106 
 Depreciation and amortization  ......      304,339             --           (290,086)       14,253 
 Interest ............................      105,379             --           (105,379)           -- 
 Other ...............................          311             --               (311)           -- 
                                       ------------  ----------------  ---------------  ------------- 
  Total expenses .....................    1,176,538             --         (1,155,179)       21,359 
                                       ------------  ----------------  ---------------  ------------- 
Income (loss) before income taxes  ...       13,651             --            (21,652)       (8,001) 
Provision for income taxes ...........       21,644             --             21,626            18 
                                       ------------  ----------------  ---------------  ------------- 
Net loss .............................   $   (7,993)      $     --        $       (26)      $(8,019) 
                                       ============  ================  ===============  ============= 

</TABLE>

------------ 
Note:     The reclassification adjustment made to the historical consolidated 
          statement of income of Avis, Inc. is to present information 
          technology services as "Service fees." The elimination of the car 
          rental operating company is presented as a result of HFS's plan to 
          undertake an initial public offering of a majority interest of 75% 
          in the corporation which owns all company-owned Avis car rental 
          operations (the "IPO Company"). HFS intends to substantially 
          replace results of car rental operations with license fees from the 
          IPO Company. 

See notes to pro forma consolidated balance sheet and statements of operations.

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
               HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS 
                            OF OTHER ACQUISITIONS 
                 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 
                                (IN THOUSANDS) 

<TABLE>
<CAPTION>
                                             CENTURY    CENTURY 21 
                                   CCI (1)   21 (1)        NORS       TRAVELODGE      ERA        TOTAL 
                                   -------  ---------  ------------  ------------  ----------  ---------- 
<S>                                <C>      <C>        <C>           <C>           <C>         <C>
NET REVENUES 
 Service fees ....................  $   --    $60,506     $20,750       $13,476      $17,948     $112,680 
 Other ...........................   3,326     10,164         288            59       13,857       27,694 
                                   -------  ---------  ------------  ------------  ----------  ---------- 
  Net revenues ...................   3,326     70,670      21,038        13,535       31,805      140,374 
                                   -------  ---------  ------------  ------------  ----------  ---------- 
EXPENSES 
 Selling, general and 
  administrative .................      --     57,241      18,421        11,503       23,015      110,180 
 Depreciation and amortization  ..     529      5,217         413             6        2,178        8,343 
 Interest ........................      --      2,904          38            --        1,833        4,775 
 Other ...........................   1,917      2,751          --            --        7,836       12,504 
                                   -------  ---------  ------------  ------------  ----------  ---------- 
  Total expenses .................   2,446     68,113      18,872        11,509       34,862      135,802 
                                   -------  ---------  ------------  ------------  ----------  ---------- 
Income (loss) before income 
 taxes............................     880      2,557       2,166         2,026       (3,057)       4,572 
Provision for income taxes  ......     313      2,097          --           834           --        3,244 
                                   -------  ---------  ------------  ------------  ----------  ---------- 
Net income (loss) ................  $  567    $   460     $ 2,166       $ 1,192      $(3,057)    $  1,328 
                                   =======  =========  ============  ============  ==========  ========== 
</TABLE>

------------ 
(1)      Reflects results of operations for the period from January 1, 1995 
         to the respective dates of acquisition. 

Note:    Certain reclassifications have been made to the historical results 
         of acquired companies to conform to HFS's pro forma classification. 

See notes to pro forma consolidated balance sheet and statement of operations.

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
                  PRO FORMA CONSOLIDATED STATEMENT OF INCOME 
                 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 
                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 

<TABLE>
<CAPTION>
                                               HISTORICAL 
                                         ----------------------- 
                                                      ACQUIRED       PRO FORMA 
                                            HFS       COMPANIES     ADJUSTMENTS     PRO FORMA 
                                         ----------  -----------  ---------------  ----------- 
<S>                                      <C>         <C>          <C>              <C>
NET REVENUES 
 Service fees...........................   $468,277    $569,204       $  11,835 (C)  $889,473 
                                                                       (235,625)(D) 
                                                                         75,782 (F) 
 Other .................................     81,733      20,559          (6,000)(F)    81,451 
                                                                        (14,841)(E) 
 Equity in earnings of car rental 
  operating company ....................         --          --           2,459 (F)     2,459 
                                         ----------  -----------  ---------------  ----------- 
  Net revenues .........................    550,010     589,763        (166,390)      973,383 
                                         ----------  -----------  ---------------  ----------- 
EXPENSES 
 Marketing and reservation .............    130,728     107,290              --       238,018 
 Selling, general and administrative 
  (N)...................................    139,709     419,280         (41,804)(G)   289,822 
                                                                       (227,363)(H) 
 Depreciation and amortization .........     41,129      37,041          21,533 (I)    99,703 
 Interest ..............................     22,194       4,993           9,743 (J)    36,930 
 Other .................................     10,988       6,716            (345)(K)    17,359 
                                         ----------  -----------  ---------------  ----------- 
  Total expenses .......................    344,748     575,320        (238,236)      681,832 
                                         ----------  -----------  ---------------  ----------- 
Income before income taxes .............    205,262      14,443          71,846       291,551 
Provision for income taxes .............     82,630      (7,966)         45,667 (L)   120,331 
                                         ----------  -----------  ---------------  ----------- 
Net income (N) .........................   $122,632    $ 22,409       $  26,179      $171,220 
                                         ==========  ===========  ===============  =========== 
PER SHARE INFORMATION (PRIMARY) 
 Net income (N).........................   $    .96                                  $   1.18 
                                         ==========                                =========== 
 Weighted average common and common 
  equivalent shares outstanding.........    130,960                      16,510 (M)   147,470 
                                         ==========               ===============  =========== 
PER SHARE INFORMATION (FULLY DILUTED) 
 Net income (N).........................   $    .96                                  $   1.18 
                                         ==========                                =========== 
 Weighted average common and common 
  equivalent shares outstanding ........    131,684                      16,510 (M)   148,194 
                                         ==========               ===============  =========== 
</TABLE>

------------ 
Note: Certain reclassifications have been made to the historical results of 
      HFS and acquired companies to conform to HFS's pro forma 
      classification. 

See notes to pro forma consolidated balance sheet and statement of operations.

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
               HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS 
                            OF ACQUIRED COMPANIES 
                 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 
                                (IN THOUSANDS) 

<TABLE>
<CAPTION>
                                                             HISTORICAL 
                                       ------------------------------------------------------ 
                                                                                   OTHER 
                                         AVIS, (1)                 COLDWELL       1996 (2)        TOTAL 
                                        AS ADJUSTED      RCI      BANKER (2)    ACQUISITIONS    HISTORICAL 
                                       -------------  ----------  -----------  --------------  ------------ 
<S>                                    <C>            <C>         <C>          <C>             <C>
NET REVENUES 
 Service fees.........................     $26,871      $236,505    $295,478       $10,350        $569,204 
 Other ...............................          --        14,841       4,067         1,651          20,559 
                                       -------------  ----------  -----------  --------------  ------------ 
  Net revenues .......................      26,871       251,346     299,545        12,001         589,763 
                                       -------------  ----------  -----------  --------------  ------------ 
EXPENSES 
 Marketing and reservation ...........          --       107,290          --            --         107,290 
 Selling, general and administrative .      20,173        75,524     312,348        11,235         419,280 
 Depreciation and amortization  ......      14,247        13,352       9,021           421          37,041 
 Interest ............................          --           345       3,155         1,493           4,993 
 Other ...............................          --         5,440         512           764           6,716 
                                       -------------  ----------  -----------  --------------  ------------ 
  Total expenses .....................      34,420       201,951     325,036        13,913         575,320 
                                       -------------  ----------  -----------  --------------  ------------ 
Income (loss) before income taxes  ...      (7,549)       49,395     (25,491)       (1,912)         14,443 
Provision (benefit) for income taxes            96         2,370     (10,432)           --          (7,966) 
                                       -------------  ----------  -----------  --------------  ------------ 
Net income (loss) ....................     $(7,645)     $ 47,025    $(15,059)      $(1,912)       $ 22,409 
                                       =============  ==========  ===========  ==============  ============ 
</TABLE>

------------ 

(1)      The historical financial statement of income of Avis, as adjusted, 
         has been adjusted to include the historical operating results of 
         Avis intended to be retained by HFS and the operating results of the 
         Avis Car rental subsidiary, included in Other Revenue. The 
         historical consolidated statement of income of Avis, Inc., as 
         adjusted is for the nine months ended August 31, 1996. See 
         Historical Consolidated Statement of Operations of Avis, Inc., as 
         Adjusted for the nine months ended August 31, 1996. 

(2)      Reflects results of operations for the period from January 1, 1996 
         to the respective dates of acquisition. 

Note:    Certain reclassifications have been made to the historical results of 
         acquired companies to conform to HFS's classification. 

See notes to pro forma consolidated balance sheet and statement of operations.

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
                 HISTORICAL CONSOLIDATED STATEMENT OF INCOME 
                          OF AVIS, INC., AS ADJUSTED 
                  FOR THE NINE MONTHS ENDED AUGUST 31, 1996 
                                (IN THOUSANDS) 

<TABLE>
<CAPTION>
                                                               ADJUSTMENTS 
                                                    ---------------------------------- 
                                                                         ELIMINATION 
                                                                        OF CAR RENTAL 
                                                                          OPERATING         AVIS, 
                                       HISTORICAL   RECLASSIFICATIONS      COMPANY       AS ADJUSTED 
                                      ------------  -----------------  ---------------  ------------- 
<S>                                   <C>           <C>                <C>              <C>
REVENUES ............................   $1,490,709        (26,871)        $(1,463,838)      $    -- 
 Service fees........................           --         26,871                            26,871 
                                      ------------  -----------------  ---------------  ------------- 
  Net revenues.......................    1,490,709             --          (1,463,838)       26,871 
                                      ------------  -----------------  ---------------  ------------- 
EXPENSES 
 Selling, general and administrative       975,769             --            (955,596)       20,173 
 Depreciation and amortization  .....      333,147             --            (318,900)       14,247 
 Interest ...........................      116,958             --            (116,958)           -- 
 Other ..............................           18             --                 (18)           -- 
                                      ------------  -----------------  ---------------  ------------- 
  Total expenses ....................    1,425,892             --          (1,391,472)       34,420 
                                      ------------  -----------------  ---------------  ------------- 
Income (loss) before income taxes  ..       64,817             --             (72,366)       (7,549) 
Provision for income taxes ..........       29,966             --             (29,870)           96 
                                      ------------  -----------------  ---------------  ------------- 
Net income (loss)....................   $   34,851             --         $   (42,496)      $(7,645) 
                                      ============  =================  ===============  ============= 

</TABLE>

------------ 
Note:     The reclassification adjustment made to the historical consolidated 
          statement of income of Avis, Inc. is to present information 
          technology services as "Service fees." The elimination of the car 
          rental operating company is presented as a result of HFS's plan to 
          undertake an initial public offering of a majority interest of 75 
          percent in the corporation which owns all company-owned Avis car 
          rental operations (the "IPO Company"). HFS intends to substantially 
          replace results of car rental operations with license fees from the 
          IPO Company. 

See notes to pro forma consolidated balance sheet and statements of operations.

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
               HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS 
                          OF OTHER 1996 ACQUISITIONS 
                 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 
                                (IN THOUSANDS) 

<TABLE>
<CAPTION>
                                       CENTURY 21 
                                        NORS (1)    TRAVELODGE (1)   ERA (1)      TOTAL 
                                      ------------  --------------  ----------  --------- 
<S>                                   <C>           <C>             <C>         <C>
NET REVENUES 
 Service fees........................     $6,668          $688        $ 2,994     $10,350 
 Other ..............................        449            --          1,202       1,651 
                                      ------------  --------------  ----------  --------- 
  Net revenues ......................      7,117           688          4,196      12,001 
                                      ------------  --------------  ----------  --------- 
EXPENSES 
 Selling, general and administrative       7,566           552          3,117      11,235 
 Depreciation and amortization  .....        285            --            136         421 
 Interest ...........................          2            --          1,491       1,493 
 Other ..............................         --            --            764         764 
                                      ------------  --------------  ----------  --------- 
  Total expenses ....................      7,853           552          5,508      13,913 
                                      ------------  --------------  ----------  --------- 
Income (loss) before income taxes  ..       (736)          136         (1,312)     (1,912) 
Provision for income taxes ..........         --            --             --          -- 
                                      ------------  --------------  ----------  --------- 
Net income (loss) ...................     $ (736)         $136        $(1,312)    $(1,912) 
                                      ============  ==============  ==========  ========= 
</TABLE>

------------ 
(1)      Reflects results of operations for the period from January 1, 1996 
         to the respective date of acquisition. 

Note:    Certain reclassifications have been made to the historical results of 
         Other 1996 Acquisitions to conform to HFS's classification. 

See notes to pro forma consolidated balance sheet and statements of operations.

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
              NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND 
                           STATEMENTS OF OPERATIONS 

A. ACQUISITION OF AVIS: 

   At the time HFS acquired Avis, it had developed and announced a plan (the 
"Plan") to do the following: 

   1. Retain certain assets acquired, including the reservation system, 
      franchise agreements, trademarks and tradenames and certain 
      liabilities. 

   2. Segregate the assets used in the car rental operations in a separate 
      subsidiary ("Car Rental Operating Company") and to dispose of 
      approximately 75% interest in Car Rental Operating Company within one 
      year through an initial public offering (IPO) of Car Rental Operating 
      Company. 

   3. Enter into a license agreement with Car Rental Operating Company for 
      use of the trademarks and tradename and other franchise services. 

   Based on the Plan, the purchase price for Avis has been allocated to the 
assets and liabilities acquired by HFS, including its investment in Car 
Rental Operating Company based on their estimated fair values. The amount 
allocated to Car Rental Operating Company was based on the estimated 
valuation of the Car Rental Operating Company including the effect of 
royalty, reservation and information technology agreements with HFS. Under 
the plan, the Car Rental Operating Company will sell approximately a 75%
interest at an assumed price of $225 million thereby diluting HFS' interest to
25%. All of the proceeds from the IPO will be retained by the Car Rental
Operating Company. Pro forma adjustments consist of the elimination of certain
acquired assets and assumed liabilities, net of the fair value ascribed to such
assets and liabilities.

   The Company acquired Avis for the following consideration ($000's): 

<TABLE>
<CAPTION>
<S>                                                                 <C>
Cash consideration (i) ...........................................   $ 410,742 
Issuance of approximately 4.6 million shares HFS common stock ....     320,843 
ESOP liability (ii) ..............................................     100,930 
                                                                   ----------- 
TOTAL PRO FORMA ACQUISITION COST..................................     832,515 
                                                                   ----------- 
Fair value of net assets acquired: 
 Historical book value of acquired company........................     356,635 
 Elimination of net assets (liabilities) not acquired or assumed: 
  Other assets....................................................      (9,614) 
  Preferred stock--Avis...........................................      72,416 
  Intangible assets--Avis.........................................    (499,143) 
  Redeemable portion of common stock--ESOP........................     295,465 
  Unearned compensation--ESOP.....................................    (257,751) 
Fair value adjustments to assets acquired and liabilities 
 assumed: 
  Deferred income tax asset, net (iii)............................       5,200 
  Property and equipment (iv) ....................................      58,172 
  Investment in Car Rental Operating Company (v)..................       2,384 
  Accrued acquisition obligations (vi)............................     (18,000) 
  Other...........................................................         182 
                                                                   ----------- 
FAIR VALUE OF IDENTIFIABLE NET ASSETS ACQUIRED....................       5,946 
                                                                   ----------- 
 Intangible assets--Avis (vii)....................................   $ 826,569 
                                                                   =========== 
</TABLE>

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
              NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND 
                    STATEMENTS OF OPERATIONS--(CONTINUED) 

A. ACQUISITION OF AVIS:  (Continued) 

    In connection with the Company's fair value allocation of net assets to 
the Car Rental Operating Company, the estimated net worth of the Car Rental 
Operating Company was valued at $75 million. Such net worth and corresponding 
company investment in the Car Rental Operating Company was allocated as 
follows: 

<TABLE>
<CAPTION>
<S>                                                       <C>
Historical net book value of car rental operating 
 company.................................................   $72,616 
Fair value adjustments to car rental operating company ..     2,384 
                                                          --------- 
                                                            $75,000 
                                                          ========= 
</TABLE>

   The condensed balance sheet of the Car Rental Operating Company including 
fair value adjustments at September 30, 1996 is as follows: 

<TABLE>
<CAPTION>
<S>                                                      <C>
Vehicles..............................................   $ 2,567,517 
Property and equipment................................       101,000 
Deferred tax asset....................................       102,000 
Excess of cost over fair value of net assets 
 acquired.............................................       154,000 
Debt..................................................    (2,488,651) 
Property liability and property damage................      (215,135) 
Other, net............................................      (145,731) 
                                                       ------------- 
Stockholder's equity..................................   $    75,000 
                                                       ============= 
</TABLE>

   HFS' investment in Car Rental Operating Company of $75 million represents 
the estimated value of its 100% interest in the Car Rental Operating Company 
at the date of acquisition and is accounted for under the equity method since 
HFS' control is temporary based on the planned IPO of the Car Rental Operating 
Company. Upon completion of the IPO, the value of the Car Rental Operating 
Company is expected to increase to $300 million (with the $225 million of IPO 
proceeds retained by the Car Rental Operating Company) with HFS' interest at 
25% equal to $75 million, its current investment balance. If the results of 
the IPO do not confirm the preliminary purchase price allocation for the 
investment in the Car Rental Operating Company, then such investment will be 
adjusted with a corresponding adjustment to Excess of cost over fair value of 
net assets acquired. 

------------ 
(i)     Cash consideration of $367.2 million was financed by the Second 
        Quarter 1996 Offering. Cash consideration also includes: (a) a cash 
        payment of $17.6 million made to General Motors Corporation ("GM"), 
        representing the amount by which the value attributable under the 
        Stock Purchase Agreement to the HFS Common Stock received by GM in 
        the Avis Acquisition exceeded the proceeds realized upon the 
        subsequent sale of such HFS Common Stock; and (b) payment of a $26 
        million bank facility termination fee by the Company in connection 
        with the Avis acquisition. 

(ii)    The ESOP liability bears interest at LIBOR plus 20 basis points for a 
        period commencing on the acquisition date to maturity which is 
        primarily the earlier of three days after the sale of Company shares 
        issued to the ESOP or the first anniversary of the acquisition. 

(iii)   The pro forma adjustment to deferred income taxes recorded in 
        connection with the acquisition results from differences in the fair 
        values of assets acquired and liabilities assumed and their 
        respective income tax bases. 

(iv)    The adjustment to property and equipment is primarily attributable to 
        the values ascribed to reservation equipment and related assets and 
        to the Avis headquarters office in excess of historical cost. 

(v)     The adjustment to investment in car rental operating company reflects 
        the net effect of push-down accounting adjustments which result in a 
        $75 million fair value of the car rental operating company. 

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
              NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND 
                    STATEMENTS OF OPERATIONS--(CONTINUED) 

A. ACQUISITION OF AVIS:  (Continued) 

 (vi)   Accrued acquisition obligations consist of professional fees ($3.7 
        million), investment banker fees ($8.0 million) and filing fees and 
        other ($6.3 million). 
(vii)   Intangible assets retained by HFS consist of the following: 

<TABLE>
<CAPTION>
                                                         (IN MILLIONS) 
                                                        ------------- 
<S>                                                     <C>
Avis trademark ........................................     $400.0 
Reservation system and customer database ..............      109.0 
Excess of cost over fair value of net assets acquired        317.6 
                                                        ------------- 
                                                            $826.6 
                                                        ============= 
</TABLE>

   The pro forma adjustments include the elimination of Avis stockholders' 
equity and the issuance of approximately 4.6 million shares of HFS's common 
stock to finance the acquisition. 

<TABLE>
<CAPTION>
                                                         STOCKHOLDERS' EQUITY 
                                           ----------------------------------------------- 
                                                               ($000'S) 
                                           ----------------------------------------------- 
                                             ISSUANCE OF    ELIMINATON OF    ADJUSTMENT TO 
                                                 HFS        STOCKHOLDERS'    STOCKHOLDERS' 
                                             COMMON STK.       EQUITY           EQUITY 
                                           -------------  ---------------  --------------- 
<S>                                        <C>            <C>              <C>
Participating convertible preferred 
 stock....................................    $     --        $(132,000)       $(132,000) 
Common stock..............................          46             (290)            (244) 
Additional paid-in capital................     320,797         (220,401)         100,396 
Retained earnings.........................          --         (103,339)        (103,339) 
Treasury stock............................          --          102,269          102,269 
Foreign currency equity adjustment .......          --           (2,874)          (2,874) 
                                           -------------  ---------------  --------------- 
                                              $320,843        $(356,635)       $ (35,792) 
                                           =============  ===============  =============== 

</TABLE>

B. ACQUISITION OF RCI: 

   The purchase price for RCI has been allocated to assets acquired and 
liabilities assumed at their estimated fair values. Pro forma adjustments 
consist of the elimination of certain acquired assets and assumed 
liabilities, net of the fair value ascribed to such assets and liabilities. 

HFS acquired RCI for the following consideration (000's): 

<TABLE>
<CAPTION>
<S>                                                                  <C>          <C>
 Cash consideration paid by HFS (i) ................................   $ 285,000 
 Issuance of approximately one million shares of HFS common stock  .      75,000 
                                                                     ----------- 
 HFS investment in RCI .............................................                $360,000 
 Existing cash and securities retained by RCI shareholders (ii)  ...     265,000 
                                                                     ----------- 
 Total consideration received by RCI shareholder ...................     625,000 
                                                                     ----------- 
Fair value of net assets acquired: 
 Historical book value of RCI ......................................      71,837 
 Elimination of cash and securities retained by RCI shareholder 
  (ii) .............................................................    (265,000) 
 Fair value adjustment to assets acquired and liabilities assumed: 
  Deferred income taxes--current (iv) ..............................      29,000 
  Property and equipment (iii) .....................................     (32,125) 
  Deferred income taxes--non-current (iv) ..........................      43,000 
  Customer lists ...................................................     100,000 
  Accrued acquisition obligations: 
   --current........................................................     (10,557) 
   --non-current....................................................     (20,000) 
                                                                     ----------- 
Fair value of net liabilities assumed ..............................                 (83,845) 
                                                                                  ---------- 
Excess of cost over fair value on net assets acquired  .............                $443,845 
                                                                                  ========== 
</TABLE>

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
              NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND 
                    STATEMENTS OF OPERATIONS--(CONTINUED) 

B. ACQUISITION OF RCI:  (Continued) 

------------ 
(i)     Cash consideration paid by HFS was financed with borrowings under 
        HFS's Revolving Credit Facilities. 

(ii)    Prior to the closing of the RCI acquisition, the former shareholder 
        of RCI retained, in the form of a dividend, cash and securities from 
        the RCI business comprised of $48.8 million in cash, $184.6 million 
        in short-term securities and $31.6 million in long-term securities. 

(iii)   Primarily comprised of write-off of $24.1 million of capitalized 
        costs associated with an information technology project terminated as 
        of the acquisition date and an $8 million write-down of building and 
        building improvements based upon fair market appraisals. 

(iv)    The pro forma adjustment to deferred income taxes reflects deferred 
        tax assets that will be recognized upon termination of RCI's 
        Subchapter S Corporation status for the temporary differences between 
        fair value of unearned income liabilities assumed and the respective 
        income tax bases. Prior to the acquisition, RCI was a Subchapter S 
        Corporation for tax purposes, therefore it had not recorded any tax 
        liabilities. 

(v)     HFS has recorded liabilities for charges to be incurred in connection 
        with the restructuring of RCI operations. At the date of acquisition, 
        November 12, 1996, HFS had formulated a preliminary plan that would 
        result in the consolidation of facilities, involuntary termination 
        and relocation of employees, and elimination of duplicative operating 
        and overhead activities. The plan is in the early stages and is 
        expected to be substantially complete in late 1997. The accrued 
        acquisition liability recorded as part of the purchase price 
        allocation consists of $9.9 million of personnel related costs, $6.9 
        million of facility related costs, $6.2 million of transaction costs 
        and $7.5 million of other costs. In connection with the 
        restructuring, HFS expects the reduction of approximately 250 
        employees. 

(vi)    Excess of cost over fair value of net assets acquired for pro forma 
        balance sheet purposes is derived from the net book value of RCI at 
        September 30, 1996. This differs from the excess of cost over fair 
        value of net assets acquired determined at date of acquisition which 
        is derived from the net book value at such date. The excess of cost 
        over fair value of net assets acquired at date of acquisition of 
        $477.7 million is used as the basis for adjustments in the pro forma 
        statements of income (see Note I) for the year ended December 31, 
        1995 and nine month periods ended September 30, 1995 and 1996, 
        respectively. 

<TABLE>
<CAPTION>
                                                                   STOCKHOLDERS' EQUITY 
                                                      ---------------------------------------------- 
                                                       ISSUANCE OF   ELIMINATION OF   ADJUSTMENT TO 
                                                         COMPANY     STOCKHOLDERS'    STOCKHOLDERS' 
                                                       COMMON STK.       EQUITY          EQUITY 
                                                      -------------  --------------  --------------- 
<S>                                                   <C>            <C>             <C>
Common stock.........................................     $    10        $     --        $     10 
Additional paid-in capital...........................      66,965          (6,392)         60,573 
Retained earnings....................................          --         (34,864)        (34,864) 
Treasury stock.......................................       8,025              --           8,025 
Net unrealized gain on available for sale 
 securities..........................................          --         (20,784)        (20,784) 
Foreign currency equity adjustment...................          --          (9,797)         (9,797) 
                                                      -------------  --------------  --------------- 
                                                          $75,000        $(71,837)       $  3,163 
                                                      =============  ==============  =============== 
</TABLE>

   The pro forma adjustments include the elimination of RCI stockholders' 
equity and the issuance of approximately one million shares of HFS's common 
stock as partial consideration for RCI. 

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
              NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND 
                    STATEMENTS OF OPERATIONS--(CONTINUED) 

C. SERVICE FEE REVENUE: 

   The pro forma adjustment reflects the elimination of franchise revenue 
associated with discontinued Century 21 international based operations, the 
elimination of franchise revenue paid by the Century 21 NORS to Century 21 
under sub-franchise agreements (offset against SG&A expense--see Note G) and 
the addition of franchise fees to be received under franchise contracts with 
owned brokerage offices upon contribution of the Owned Brokerage Business to 
the Trust. Pro forma adjustments to franchise revenue consists of the 
following: 

<TABLE>
<CAPTION>
                                                                   FOR THE NINE MONTHS 
                                               FOR THE YEAR ENDED         ENDED 
                                                  DECEMBER 31,        SEPTEMBER 30, 
                                                      1995           1995       1996 
                                               ------------------  ---------  --------- 
<S>                                            <C>                 <C>        <C>
Eliminate: 
 Discontinued operations......................       $   (57)        $   (34)   $    -- 
 Century 21 revenue included as Century 21 
  NORS SG&A...................................        (4,500)         (3,375)    (1,003) 
Add: 
 Franchise fees from Owned Brokerage 
 Business.....................................        30,507          22,917     12,838 
                                               ------------------  ---------  --------- 
  Total.......................................       $25,950         $19,508    $11,835 
                                               ==================  =========  ========= 
</TABLE>

   The Franchise fees from the Owned Brokerage Business, which is based on 
the franchise contracts with the Trust, is calculated at a net of 
approximately 5.7% of gross commissions earned by the Owned Brokerage 
Business on sales of real estate properties. Gross commissions earned by the 
Owned Brokerage Business were $535.2 million, $411.8 million and $235.6 
million for the year ended December 31, 1995, for the nine months ended 
September 30, 1995 and for the five months ended May 31, 1996 (January 1 
through date of acquisition). 

D. OWNED BROKERAGE BUSINESS REVENUE: 

   The pro forma adjustment reflects the elimination of revenue generated 
from Coldwell Banker's 318 formerly owned brokerage offices. HFS contributed 
the net assets of the Owned Brokerage Business to the Trust upon consummation 
of the Coldwell Banker acquisition. The free cash flow of the Trust will be 
expended at the discretion of the trustees to enhance the growth of funds 
available for advertising and promotion. 

E. OTHER REVENUE: 

   The pro forma adjustment reflects the elimination of revenue associated 
with investment income generated from RCI cash and marketable securities 
which were issued in the form of a dividend to the former shareholder prior 
to consummation of the RCI acquisition.

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
              NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND 
                    STATEMENTS OF OPERATIONS--(CONTINUED) 

F. CAR RENTAL OPERATING COMPANY OPERATIONS: 

   The pro forma adjustments are comprised of the following: 

<TABLE>
<CAPTION>
                                                      FOR THE YEAR                FOR THE NINE MONTHS ENDED
                                                         ENDED                          SEPTEMBER 30,           
                                                      DECEMBER 31,      ----------------------------------------------
                                                          1995                   1995                   1996 
                                                ----------------------  ----------------------  ----------------------
<S>                                             <C>         <C>         <C>         <C>         <C>         <C>
Historical income before taxes from Car Rental 
 Operating Company.............................               $ 41,200                $ 21,652                $ 72,366 
ADJUSTMENTS TO CAR RENTAL OPERATING COMPANY: 
Elimination of historical expense associated 
 with: 
 Long-term incentive compensation plans 
  eliminated in connection with the Avis 
  Acquisition .................................   $  4,700                      --                $  9,302 
 Depreciation and amortization ................     31,869                $ 23,208                  26,120 
Addition of pro forma expenses associated 
 with: 
 Depreciation and amortization (i) ............    (18,279)                (13,709)                (13,709) 
Increased financing costs (ii) ................     (8,004)     10,286      (4,714)      4,785      (1,549)     20,164 
                                                ----------              ----------              ---------- 
HFS SERVICE FEE ADJUSTMENT: 
 Service fees from franchised locations (iii)      (18,366)                (13,180)                (14,748) 
 Reservation and information technology 
  services (iv) ...............................     (9,700)                 (6,700)                 (9,800) 
 Gross royalty payment to HFS from Avis (v) ...    (59,327)                (41,189)                (51,234) 
                                                               (87,393)                (61,069)                (75,782) 
                                                ----------  ----------  ----------  ----------  ----------  ---------- 
Adjusted income (loss) before taxes from car 
 rental operating company .....................                (35,907)                (34,632)                 16,748 
Provision (benefit) for income taxes  .........                (14,820)                (14,249)                  6,912 
                                                            ----------              ----------              ---------- 
Adjusted net income (loss) from car rental 
 operating company ............................                (21,087)                (20,383)                  9,836 
HFS ownership percentage ......................                     25%                     25%                     25% 
                                                            ----------              ----------              ---------- 
HFS' equity in earnings (loss) in car rental 
 operating company ............................               $ (5,272)               $ (5,096)               $  2,459 
                                                            ==========              ==========              ========== 
(OTHER REVENUE ADJUSTMENT): 
 Elimination of historical interest income 
  related to cash consideration portion of 
  Avis Acquisition (vi)........................               $     --                $     --                $  6,000 
                                                            ==========              ==========              ========== 
</TABLE>

------------ 
(i)     The estimated fair value of Avis property and equipment intended to 
        be retained by the car rental company is $101.0 million, comprised 
        primarily of furniture, fixtures, and leasehold improvements, which 
        is amortized on a straight-line basis over the estimated useful 
        lives, which average seven years. Excess of cost over fair value of 
        net assets acquired by the Car Rental Operating Company is valued at 
        $154 million and is amortized on a straight line basis over a benefit 
        period of 40 years. 

(ii)    As a result of the merger between the Company and Avis, approximately 
        $1 billion of tax-advantaged debt was repaid and replaced by a 
        similar amount of non tax-advantaged debt. This resulted in an 
        increase in interest rates, due to the loss of tax benefits from ESOP 
        financing which were passed through from various lenders to Avis 
        ($000's): 

<TABLE>
<CAPTION>
                                                   FOR THE NINE MONTHS
                                                          ENDED       
                             FOR THE YEAR ENDED       SEPTEMBER 30,   
                                DECEMBER 31,     ---------------------
                                    1995            1995        1996 
                            ------------------  ----------  ----------
<S>                         <C>                 <C>         <C>
Add current facilities  ...      $ 129,472        $ 95,047    $ 97,854 
Reverse former facilities         (121,468)        (90,333)    (96,305) 
                            ------------------  ----------  ---------- 
Increased financing cost  .      $   8,004        $  4,714    $  1,549 
                            ==================  ==========  ========== 
</TABLE>

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
              NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND 
                    STATEMENTS OF OPERATIONS--(CONTINUED) 

F. CAR RENTAL OPERATING COMPANY OPERATIONS:  (Continued) 

(iii)   Reflects historical franchise fee revenue from third parties. 

(iv)    Subsequent to the IPO, HFS will retain and operate the 
        telecommunications and computer processing system which services the 
        Avis Car Rental Operating Company for reservations, rental agreement 
        processing, accounting and fleet control. Pursuant to a planned 
        contractual agreement with the Car Rental Operating Company, HFS will 
        charge the Car Rental Operating cost plus thirty-five percent for 
        services provided. The adjustment is calculated as follows: 

<TABLE>
<CAPTION>
                                                                   FOR THE NINE MONTHS
                                                                          ENDED       
                                               FOR THE YEAR ENDED     SEPTEMBER 30,   
                                                  DECEMBER 31,    --------------------
                                                      1995           1995       1996 
                                              ------------------  ---------  ---------
<S>                                           <C>                 <C>        <C>
Reservation and information technology costs 
 incurred ...................................       $27,714         $19,143    $28,000 
Markup percentage (cost plus 35%)............            35%             35%        35% 
                                              ------------------  ---------  --------- 
HFS Service Fees ............................       $ 9,700         $ 6,700    $ 9,800 
                                              ==================  =========  ========= 
</TABLE>

(v)     In connection with the Company's plan to dispose of approximately 75% 
        of the Car Rental Operating Company, the Company will enter into 
        franchise, information technology and other agreements to provide 
        services to the Car Rental Operating Company based on terms to be 
        determined. The royalty payment to be made to HFS from the Car Rental 
        Operating Company for use of the Avis trademarks and tradename is 
        calculated at 3.5% of the revenues generated by the Car Rental 
        Operating Company which is the net royalty percentage the Company 
        expects to receive as a result of a planned contractual arrangement 
        with the Avis Car Rental Operating Company subsequent to the IPO. 
        Such payments are calculated as follows ($000's): 

<TABLE>
<CAPTION>
                                                                 FOR THE NINE MONTHS ENDED
                                             FOR THE YEAR ENDED        SEPTEMBER 30,       
                                                DECEMBER 31,    --------------------------
                                                   1995             1995          1996 
                                            ------------------  ------------  ------------
<S>                                         <C>                 <C>           <C>
Revenues generated by Car Rental Operating 
 Company...................................      $1,695,069       $1,176,831    $1,463,838 
Royalty percentage.........................             3.5%             3.5%          3.5% 
                                            ------------------  ------------  ------------ 
Royalty payment to HFS.....................      $   59,327       $   41,189    $   51,234 
                                            ==================  ============  ============ 
</TABLE>

(vi)   The pro forma adjustment eliminates historical interest income on the 
       portion of cash generated from the Second Quarter 1996 Offering which 
       was used as consideration in the Avis Acquisition. 

G. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE: 

   The pro forma adjustments reflects the elimination of royalty payments 
made by the Century 21 NORS to Century 21 under subfranchise agreements 
(offset against service fee revenue--See Note C) and the payment of Coldwell 
Banker stock options as a result of change in control provisions in 
connection with the acquisition of Coldwell Banker by HFS. 

<TABLE>
<CAPTION>
                                            FOR THE NINE MONTH
                                                   ENDED      
                        FOR THE YEAR ENDED     SEPTEMBER 30,  
                           DECEMBER 31,    ------------------
                               1995           1995      1996 
                       ------------------  --------  --------
<S>                    <C>                 <C>       <C>
Franchise fees .......        $4,500         $3,375   $ 1,003 
Stock option expense              --             --    40,801 
                       ------------------  --------  -------- 
 Total................        $4,500         $3,375   $41,804 
                       ==================  ========  ======== 
</TABLE>

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
              NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND 
                    STATEMENTS OF OPERATIONS--(CONTINUED) 

H. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE: 

   The pro forma adjustment reflects the elimination of expenses associated 
with Coldwell Banker's formerly owned brokerage offices (See Note D). The 
majority of Owned Brokerage Business expenses are directly attributable to 
the business. Based on the Company's due diligence of Coldwell Banker 
Corporation and subsidiaries ("CB Consolidated") the Company determined that 
common expenses were allocated to the owned brokerage business based on a 
reasonable allocation method. Such allocations were based on the ratio of 
number of employees, the amount of space occupied and revenue generated 
relative to CB Consolidated in the aggregate and multiplied by corresponding 
common costs as appropriate to determine allocable expenses. 

I. DEPRECIATION AND AMORTIZATION: 

   The pro forma adjustment for depreciation and amortization is comprised of 
($000's): 

   For the year ended December 31, 1995: 

<TABLE>
<CAPTION>
                              CCI       CENTURY 
                             MERGER       21           RCI 
                           --------  -----------  ----------- 
<S>                        <C>       <C>          <C>
Elimination of historical 
 expense..................   $(529)     $ (5,217)   $(14,193) 
Property, equipment and 
 furniture and fixtures ..     100          534        7,294 
Information data base ....     375           --           -- 
Intangible assets.........     289        4,540       21,942 
                           --------  -----------  ----------- 
 Total....................   $ 235      $   (143)   $ 15,043 
                           ========  ===========  =========== 
</TABLE>

                    (RESTUBBED TABLE CONTINUED FROM ABOVE) 

<TABLE>
<CAPTION>
                                          COLDWELL      OTHER 1996 
                               AVIS        BANKER      ACQUISITIONS      TOTAL 
                           -----------  -----------  --------------  ----------- 
<S>                        <C>          <C>          <C>             <C>
Elimination of historical 
 expense..................   $(19,683)    $(22,425)      $(2,737)      $(64,784) 
Property, equipment and 
 furniture and fixtures ..      5,909        1,156           189         15,182 
Information data base ....         --           --            --            375 
Intangible assets.........     29,594       20,387         7,601         84,353 
                           -----------  -----------  --------------  ----------- 
 Total....................   $ 15,820     $   (882)      $ 5,053       $ 35,126 
                           ===========  ===========  ==============  =========== 
</TABLE>

   For the nine months ended September 30, 1995: 

<TABLE>
<CAPTION>
                              CCI       CENTURY 
                             MERGER       21           RCI 
                           --------  -----------  ----------- 
<S>                        <C>       <C>          <C>
Elimination of historical 
 expense..................   $(529)     $ (5,217)   $(12,698) 
Property, equipment and 
 furniture and fixtures ..     100          534        5,471 
Information data base ....     375           --           -- 
Intangible assets.........     289        4,540       16,456 
                           --------  -----------  ----------- 
 Total....................   $ 235      $   (143)   $  9,229 
                           ========  ===========  =========== 
</TABLE>

                    (RESTUBBED TABLE CONTINUED FROM ABOVE) 

<TABLE>
<CAPTION>
                                          COLDWELL      OTHER 1996 
                               AVIS        BANKER      ACQUISITIONS      TOTAL 
                           -----------  -----------  --------------  ----------- 
<S>                        <C>          <C>          <C>             <C>
Elimination of historical 
 expense..................   $(14,253)    $(17,272)      $(2,597)      $(52,566) 
Property, equipment and 
 furniture and fixtures ..      4,432          867            --         11,404 
Information data base ....         --           --            --            375 
Intangible assets.........     22,196       15,290         5,701         64,472 
                           -----------  -----------  --------------  ----------- 
 Total....................   $ 12,375     $ (1,115)      $ 3,104       $ 23,685 
                           ===========  ===========  ==============  =========== 
</TABLE>

   For the nine months ended September 30, 1996: 

<TABLE>
<CAPTION>
                                                       COLDWELL     OTHER 1996 
                                RCI         AVIS        BANKER     ACQUISITIONS      TOTAL 
                           -----------  -----------  ----------  --------------  ----------- 
<S>                        <C>          <C>          <C>         <C>             <C>
Elimination of historical 
 expense..................   $(13,352)    $(14,247)    $(9,021)       $ (421)      $(37,041) 
Property, equipment and 
 furniture and fixtures ..      5,471        4,432         482            --         10,385 
Intangible assets.........     16,456       22,196       8,495         1,042         48,189 
                           -----------  -----------  ----------  --------------  ----------- 
 Total....................   $  8,575     $ 12,381     $   (44)       $  621       $ 21,533 
                           ===========  ===========  ==========  ==============  =========== 
</TABLE>

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
              NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND 
                    STATEMENTS OF OPERATIONS--(CONTINUED) 

I. DEPRECIATION AND AMORTIZATION:  (Continued) 

  CCI Merger 

   The estimated fair values of CCI's information data base, property and 
equipment and excess of cost over fair value of net assets acquired are $7.5 
million, $1.0 million and $33.8 million, respectively, and are amortized on a 
straight-line basis over the periods to be benefited which are ten, five and 
forty years, respectively. The benefit periods associated with the excess 
cost over fair value of net assets acquired were determined based on CCI's 
position as the dominant provider of gambling patron credit information 
services since 1956, its ability to generate operating profits and expansion 
of its customer base and the longevity of the casino gaming industry. 

 Century 21 

   The estimated fair values of Century 21 property and equipment, franchise 
agreements and excess cost over fair value of net assets acquired are $5.5 
million, $33.5 million and $199.7 million, respectively, and are amortized on 
a straight-line basis over the periods to be benefited which are seven, 
twelve and forty years, respectively. The benefit periods associated with the 
excess cost over fair value of net assets acquired were determined based on 
Century 21's position as the world's largest franchisor of residential real 
estate brokerage offices, the most recognized brand name in the residential 
real estate brokerage industry and the longevity of the residential real 
estate brokerage business. 

 RCI 

   The fair value of RCI's property and equipment is estimated at 
approximately $55.7 million and is amortized on a straight line basis over 
the estimated useful lives, ranging from seven to thirty years. 

   RCI's intangible assets consist of customer lists and excess of cost over 
fair value of net assets acquired. The estimated fair value of RCI's customer 
lists are approximately $100 million and are amortized on a straight-line 
basis over the period to be benefited which is ten years. The fair value 
ascribed to customer lists is determined based on the historical renewal 
rates of RCI members. The fair value of excess of cost over fair value of net 
assets acquired is estimated at approximately $477.7 million and is 
determined to have a benefit period of forty years, which is based on RCI 
being a leading provider of services to the timeshare industry, which 
includes being the world's largest provider of timeshare exchange programs. 

 Avis 

   The estimated fair value of Avis' property and equipment intended to be 
retained by HFS is $96.0 million, comprised primarily of reservation 
equipment and related assets and to the Avis Headquarters office in excess of 
historical cost. Such property and equipment is amortized on a straight-line 
basis over the estimated benefit periods ranging from five to thirty years. 
Avis's intangible assets recorded by HFS (not applicable to car rental 
operating subsidiary) are comprised of the Avis trademark, a reservation 
system and customer data base, and excess of cost over fair value of net 
assets acquired. The estimated fair value of the Avis trademark is 
approximately $400 million and is amortized on a straight line basis over a 
benefit period of 40 years. The estimated fair value of the reservation 
system and customer data base are approximately 95.0 million and 14.0 
million, respectively and are amortized on a straight line basis over the 
periods to be benefited which are 10 years and 6.5 years, respectively. 

   The excess of cost over fair value of net assets acquired applicable to 
the allocated portion of the business to be retained by HFS is estimated at 
approximately $317.6 million and is determined to have a 

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
              NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND 
                    STATEMENTS OF OPERATIONS--(CONTINUED) 

I. DEPRECIATION AND AMORTIZATION:  (Continued) 

benefit period of forty years, which is based on Avis' position as the second 
largest car rental system in the world, the recognition of its brand name in 
the car rental industry and the longevity of the car rental business. 

 Coldwell Banker 

   The estimated fair value of Coldwell Banker's property and equipment 
(excluding land) of $15.7 million, is amortized on a straight-line basis over 
the estimated benefit periods ranging from five to twenty-five years. 
Coldwell Banker's intangible assets are comprised of franchise agreements and 
excess of cost over fair value of net assets acquired. The franchise 
agreements with the brokerage offices comprising the Trust are valued 
independently of all other franchise agreements with Coldwell Banker 
affiliates. Franchise agreements within the Trust and independent of the 
Trust are valued at $218.5 million and $218.7 million, respectively and are 
amortized on a straight line basis over the respective benefit periods of 
forty years and thirty-five years, respectively. The benefit period 
associated with Trust franchise agreements was based upon a long history of 
gross commission sustained by the Trust. The benefit period associated with 
the Coldwell Banker affiliates' franchise agreements was based upon the 
historical profitability of such agreements and historical renewal rates. The 
excess of cost over fair value of net assets acquired is estimated at 
approximately $347.0 million and is determined to have a benefit period of 
forty years, which is based on Coldwell Banker's position as the largest 
gross revenue producing real estate company in North America, the recognition 
of its brand name in the real estate brokerage industry and the longevity of 
the real estate brokerage business. 

 Other 1996 Acquisitions 

   The estimated fair values of Other 1996 Acquisitions franchise agreements 
aggregate $61.0 million and are being amortized on a straight line basis over 
the periods to be benefited, which range from twelve to thirty years. The 
estimated fair values of Other Acquisitions excess of cost over fair value of 
net assets acquired aggregate $187.4 million and are each being amortized on 
a straight line basis over the periods to be benefited, which are forty 
years. 

J. INTEREST EXPENSE: 

<TABLE>
<CAPTION>
                                                                      FOR THE NINE MONTHS 
                                                 FOR THE YEAR ENDED          ENDED 
                                                    DECEMBER 31,         SEPTEMBER 30, 
                                                        1995            1995       1996 
                                                ------------------  ----------  --------- 
<S>                                             <C>                 <C>         <C>
Elimination of historical interest expense of: 
 Century 21....................................       $(2,904)        $(2,904)    $    -- 
 Other 1996 Acquisitions.......................        (3,323)         (1,871)     (1,493) 
 RCI...........................................          (536)           (402)       (345) 
Reversal of Coldwell Banker....................        (5,329)         (2,958)     (3,155) 
Century 21.....................................         2,135           2,135          -- 
RCI............................................        17,955          13,466      13,466 
Minority interest--preferred dividends ........         1,796           1,796          -- 
4 3/4%Notes to finance Other 1996 
 Acquisitions..................................         8,595           6,446       1,270 
                                                ------------------  ----------  --------- 
  Total........................................       $18,389         $15,708     $ 9,743 
                                                ==================  ==========  ========= 
</TABLE>

 Century 21 

   The pro forma adjustment reflects the recording of interest expense on $70
million of borrowings under HFS's revolving credit facility at an interest 
rate of approximately 6.0% which is the variable rate in effect on the date of
borrowing. Borrowings represent the amount necessary to finance the initial
cash purchase price net.

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
              NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND 
                    STATEMENTS OF OPERATIONS--(CONTINUED) 

J. INTEREST EXPENSE:  (Continued) 

  Coldwell Banker 

   The pro forma adjustment reflects the reversal of historical interest 
expense relating to the following ($000's): 

<TABLE>
<CAPTION>
                                                                          FOR THE NINE 
                                                   FOR THE YEAR ENDED     MONTHS ENDED 
                                                      DECEMBER 31,       SEPTEMBER 30, 
                                                          1995           1995      1996 
                                                   ------------------  --------  -------- 
<S>                                                <C>                 <C>       <C>
Expense associated with the Owned Brokerage 
 Business (i) ....................................        $  138         $   72    $ (179) 
Expense associated with revolving credit facility 
 borrowings which will be repaid with proceeds 
 from offering (ii)...............................         5,191          2,886     3,334 
                                                   ------------------  --------  -------- 
 Total............................................        $5,329         $2,958    $3,155 
                                                   ==================  ========  ======== 
</TABLE>

(i)     HFS paid substantially all outstanding debt of Coldwell Banker 
        Corporation and subsidiaries ("CB Consolidated") at the consummation 
        date of the acquisition. Therefore, a determination as to the 
        reasonableness of allocated CB Consolidated interest to the Owned 
        Brokerage Business is unnecessary. 

(ii)    At the date of acquisition, HFS repaid $105 million of Coldwell 
        Banker indebtedness which represented borrowings under a revolving 
        credit facility at a variable rate of interest (LIBOR plus a margin 
        ranging from .5% to 1.25%). 

 RCI 

   The pro forma adjustment reflects the recording of interest expense on 
$285 million of borrowings under HFS's revolving credit facilities at an 
interest rate of 6.3% which is the variable rate in effect on the date of 
borrowing. Borrowings represent the amount used as partial consideration in 
the RCI acquisition. 

 Minority interest - Preferred dividends: 

   The pro forma adjustment represents dividends on the redeemable Series A 
Adjustable Rate Preferred Stock of Century 21. 

 4 3/4% Notes 

   The pro forma adjustment reflects interest expense and amortization of 
deferred financing costs related to the February 22, 1996 issuance of the 4 
3/4% Notes (5.0% effective interest rate) to the extent that such proceeds 
were used to finance the Acquisitions of ERA ($37.6 million), Travelodge 
($39.3 million), and Century 21 NORS ($95.0 million). 

 Effect of a 1/8% variance in variable interest rates 

   As mentioned above, interest expense was incurred on borrowings under the 
Company's revolving credit facility which partially funded the acquisitions 
of Century 21 and RCI. The Company recorded interest expense using the 
variable interest rate in effect on the respective borrowing dates. The 

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
              NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND 
                    STATEMENTS OF OPERATIONS--(CONTINUED) 

J. INTEREST EXPENSE:  (Continued) 

effect on pro forma net income assuming a 1/8% variance in the variable 
interest rate used to calculate interest expense is as follows ($000's): 

<TABLE>
<CAPTION>
                                        CENTURY 21    RCI     TOTAL 
                                      ------------  ------  ------- 
<S>                                   <C>           <C>     <C>
Year Ended December 31, 1995.........      $26        $209    $235 
Nine Months Ended September 30, 
 1995................................       26         157     183 
Nine Months Ended September 30, 
 1996................................       --         157     157 
</TABLE>

------------
    The pro forma net income effects of a 1/8% variance in the interest 
    rate has no impact on earnings per share for all periods presented. 

K. OTHER EXPENSES: 

   The pro forma adjustment eliminates charitable contributions made by the 
former stockholder of RCI and accounting, legal and other administrative 
expenses allocated to CCI, all of which would not have been incurred by the 
Company. Such expenses are summarized as follows ($000's): 

<TABLE>
<CAPTION>
                                                   FOR THE NINE 
                                 FOR THE YEAR         MONTHS 
                                     ENDED            ENDED 
                               DECEMBER 31, 1995   1995    1996 
                               -----------------  ------  ------
<S>                            <C>                <C>     <C>
RCI Charitable Contributions         $1,200         $303    $345 
CCI Administrative Expenses  .          399          399      -- 
                               -----------------  ------  ------ 
                                     $1,599         $702    $345 
                               =================  ======  ====== 
</TABLE>

L. INCOME TAXES: 

   The pro forma adjustment to income taxes is comprised of ($000's): 

<TABLE>
<CAPTION>
                                                                      FOR THE NINE MONTHS 
                                                FOR THE YEAR ENDED           ENDED 
                                                   DECEMBER 31,          SEPTEMBER 30, 
                                                       1995            1995         1996 
                                                ------------------  -----------  ----------- 
<S>                                             <C>                 <C>          <C>
Reversal of historical (provision) benefit of: 
 Company.......................................       $(55,175)       $(41,820)    $(82,630) 
 CCI...........................................           (313)           (313)          -- 
 Century 21....................................         (2,097)         (2,097)          -- 
 RCI...........................................         (4,464)         (1,940)      (2,370) 
 Avis..........................................         (4,100)            (18)         (96) 
 Coldwell Banker...............................        (24,385)        (16,422)      10,432 
 Travelodge....................................         (1,132)           (834)          -- 
Pro forma provision............................        112,395          78,935      120,331 
                                                ------------------  -----------  ----------- 
  Total........................................       $ 20,729        $ 15,491     $ 45,667 
                                                ==================  ===========  =========== 
</TABLE>

   The pro forma effective tax rates are approximately 1% higher than HFS's 
historical effective tax rates due to non-deductible excess of cost over fair 
value of net assets required to be recorded in connection with the 
acquisitions of Avis and RCI. The pro forma provisions for taxes were 
computed using pro forma pre-tax amounts and the provisions of Statement of 
Financial Accounting Standards No. 109. 

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
              NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND 
                    STATEMENTS OF OPERATIONS--(CONTINUED) 

M. WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING: 

   The pro forma adjustment to weighted average shares consists of the 
following (000's): 

<TABLE>
<CAPTION>
                                                                                    FOR THE NINE 
                                                  ISSUANCE    FOR THE YEAR ENDED    MONTHS ENDED 
                                                  PRICE PER      DECEMBER 31,       SEPTEMBER 30, 
                                                    SHARE            1995           1995     1996 
                                                 -----------  ------------------  --------  -------
<S>                                              <C>          <C>                 <C>       <C>
CCI (including dilutive impact of warrants)(1) .    $15.30              896          1,180       -- 
Century 21 (2) .................................    $49.88            2,334          3,120       -- 
Avis Offering (3) ..............................    $74.06            4,569          4,569    4,569 
RCI (4) ........................................    $75.00            1,000          1,000    1,000 
Second Quarter 1996 Offering--Coldwell Banker 
 (5) ...........................................    $59.99           12,838         12,838    7,122 
Second Quarter 1996 Offering--Avis (6)  ........    $59.99            6,121          6,121    3,401 
Century 21 NORS (7) ............................    $49.83              923            923      418 
                                                              ------------------  --------  ------- 
 Total..........................................                     28,681         29,751   16,510 
                                                              ==================  ========  ======= 
</TABLE>

(1)    Date of Acquisition, May 11, 1995 
(2)    Date of Acquisition, August 1, 1995 
(3)    Date of Acquisition, October 17, 1996 
(4)    Date of Acquisition, November 12, 1996 
(5)    Date of Acquisition, May 31, 1996 
(6)    Date of Acquisition, October 17, 1996 
(7)    Date of Acquisition, April 3, 1996 

   The unaudited Pro Forma Consolidated Statements of Operations are 
presented as if the acquisitions took place at the beginning of the periods 
presented; thus, the stock issuances and warrants assumed referred to above 
are considered outstanding as of the beginning of the period for purposes of 
per share calculations. 

N. ESTIMATED SELLING GENERAL AND ADMINISTRATIVE COST SAVINGS: 

   In connection with its acquisitions, HFS developed related business plans 
to restructure each of the respective acquired companies which will result in 
future cost savings subsequent to the acquisitions. HFS restructuring plans 
in each case were developed prior to the consummation of the respective 
acquisitons and were implemented concurrent with the consummation of the 
acquistions. Restructuring plans included the involuntary termination and 
relocation of employees, the consolidation and closing of facilities and the 
elimination of duplicative operating and overhead activities. Pursuant to 
HFS' specific restructuring plans, certain selling, general and 
administrative expenses may not be incurred subsequent to each acquisition 
that existed prior to consummation. In addition, there are incremental costs 
in the conduct of activities of the acquired companies prior to the 
acquistions that may not be incurred subsequent to consummation and have no 
future economic benefit to HFS. The estimated cost savings that HFS believes 
would have been attained had its acquisitions occurred on January 1, 1995 and 
the related impact of such cost savings on pro forma net income and net 
income per share are not reflected in the pro forma consolidated statements 
of income, but are presented below ($000's): 

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
              NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND 
                    STATEMENTS OF OPERATIONS--(CONTINUED) 

N. ESTIMATED SELLING GENERAL AND ADMINISTRATIVE COST SAVINGS:  (Continued) 

    For the year ended December 31, 1995: 

<TABLE>
<CAPTION>
                       CENTURY              COLDWELL 
                         21        RCI       BANKER 
                     ---------  --------  ---------- 
<S>                  <C>        <C>       <C>
Payroll and 
 related............   $10,885    $1,198    $10,682 
Professional........     2,693     1,000      1,500 
Occupancy...........     3,628        --         -- 
Other...............     3,128     2,900     (1,517) 
                     ---------  --------  ---------- 
 Total..............   $20,334    $5,098    $10,665 
                     =========  ========  ========== 
</TABLE>

                    (RESTUBBED TABLE CONTINUED FROM ABOVE) 

<TABLE>
<CAPTION>
                       CENTURY 21 
                          NORS       TRAVELODGE     ERA       TOTAL 
                     ------------  ------------  --------  --------- 
<S>                  <C>           <C>           <C>       <C>
Payroll and 
 related............    $ 7,706        $1,110      $7,236    $38,817 
Professional........      1,486           154         387      7,220 
Occupancy...........      2,754           186       1,172      7,740 
Other...............      2,326           167       1,036      8,040 
                     ------------  ------------  --------  --------- 
 Total..............    $14,272        $1,617      $9,831    $61,817 
                     ============  ============  ========  ========= 
</TABLE>

   For the nine months ended September 30, 1995: 

<TABLE>
<CAPTION>
                       CENTURY              COLDWELL 
                         21        RCI       BANKER 
                     ---------  --------  ---------- 
<S>                  <C>        <C>       <C>
Payroll and 
 related............   $10,885    $  914    $ 9,830 
Professional........     2,693       750      1,573 
Occupancy...........     3,628        --         -- 
Other...............     3,128     1,275     (1,072) 
                     ---------  --------  ---------- 
 Total..............   $20,334    $2,939    $10,331 
                     =========  ========  ========== 
</TABLE>

                    (RESTUBBED TABLE CONTINUED FROM ABOVE) 

<TABLE>
<CAPTION>
                       CENTURY 21 
                          NORS       TRAVELODGE     ERA       TOTAL 
                     ------------  ------------  --------  --------- 
<S>                  <C>           <C>           <C>       <C>
Payroll and 
 related............     $5,354         $502       $1,526    $29,011 
Professional........      1,063           70           --      6,149 
Occupancy...........      1,944           84          666      6,322 
Other...............      1,528           74          983      5,916 
                     ------------  ------------  --------  --------- 
 Total..............     $9,889         $730       $3,175    $47,398 
                     ============  ============  ========  ========= 
</TABLE>

   For the nine months ended September 30, 1996: 

<TABLE>
<CAPTION>
                                 COLDWELL    CENTURY 21 
                        RCI       BANKER        NORS 
                     --------  ----------  ------------ 
<S>                  <C>       <C>         <C>
Payroll and 
 related............   $  880     $5,462       $2,425 
Professional........      750      1,055          705 
Occupancy...........       --         --          604 
Other...............    1,333       (604)       1,069 
                     --------  ----------  ------------ 
 Total..............   $2,963     $5,913       $4,803 
                     ========  ==========  ============ 
</TABLE>
<PAGE>
                    (RESTUBBED TABLE CONTINUED FROM ABOVE) 

<TABLE>
<CAPTION>
                       TRAVELODGE    ERA     TOTAL 
                     ------------  ------  -------- 
<S>                  <C>           <C>     <C>
Payroll and 
 related............      $25        $222   $ 9,014 
Professional........        4          --     2,514 
Occupancy...........        4         102       710 
Other...............        4         157     1,959 
                     ------------  ------  -------- 
 Total..............      $37        $481   $14,197 
                     ============  ======  ======== 
</TABLE>

                                      
<PAGE>

                      HFS INCORPORATED AND SUBSIDIARIES 
              NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND 
                    STATEMENTS OF OPERATIONS--(CONTINUED) 

N. ESTIMATED SELLING GENERAL AND ADMINISTRATIVE COST SAVINGS:  (Continued) 

    The impact on pro forma net income and net income per share of the 
estimated SG&A cost savings are as follows: 

<TABLE>
<CAPTION>
                                                             FOR THE NINE-MONTH 
                                       FOR THE YEAR ENDED          ENDED 
                                          DECEMBER 31,         SEPTEMBER 30, 
                                       ------------------  ---------------------- 
                                              1995            1995        1996 
                                       ------------------  ----------  ---------- 
<S>                                    <C>                 <C>         <C>
Income before taxes, as reported  ....       $272,320        $191,253    $291,551 
SG&A adjustments .....................         61,817          47,398      14,197 
Income before taxes, as adjusted  ....        334,137         238,651     305,748 
Income taxes .........................        137,908          98,497     126,190 
                                       ------------------  ----------  ---------- 
Net income, as adjusted ..............       $196,229        $140,154    $179,558 
                                       ==================  ==========  ========== 
Net income per share (primary): 
 As adjusted .........................       $   1.41        $   1.03    $   1.24 
                                       ==================  ==========  ========== 
 As reported .........................       $   1.15        $    .83    $   1.18 
                                       ==================  ==========  ========== 
Net income per share (fully diluted): 
 As adjusted .........................       $   1.39        $   1.01    $   1.23 
                                       ==================  ==========  ========== 
 As reported .........................       $   1.14        $    .82    $   1.18 
                                       ==================  ==========  ========== 
</TABLE>

O. ACCRUED ACQUISITION LIABILITIES: 

   The Company has recorded liabilities for charges to be incurred in 
connection with the restructuring of acquired Century 21, Century 21 NORS, 
ERA and Coldwell Banker operations. These acquisitions were consummated in 
1995 and 1996 and resulted in the consolidation of facilities, involuntary 
termination and relocation of employees, and elimination of duplicative 
operating and overhead activities. The following table provides details of 
these charges by type. At September 30, 1996 the Company was substantially 
complete with its restructuring Plan. 

<TABLE>
<CAPTION>
                                       CENTURY 21               COLDWELL 
                         CENTURY 21       NORS         ERA       BANKER 
                       ------------  ------------  ---------   ---------- 
<S>                    <C>           <C>           <C>          <C>
Personnel related  ...    $12,647        $1,720      $ 8,000     $4,237 
Facility related  ....     16,511         2,293        1,558      5,491 
Other costs ..........        990           711          501        211
                       ------------  ------------  ---------   ----------
Total.................    $30,148        $4,724      $10,059     $9,939 
                       ============  ============  =========   ==========
Terminated employees          325 
</TABLE>

   Personnel related charges include termination benefits such as severance, 
wage continuation, medical and other benefits. Facility related costs include 
contract and lease terminations, temporary storage and relocation costs 
associated with assets to be disposed of, and other charges incurred in the 
consolidation of excess office space. Through September 30, 1996 
approximately $25.6 million, $2.5 million, $4.6 million and $2.9 million were
paid by Century 21, Century 21 NORS, ERA and Coldwell Banker, respectively
and charged against the restructuring liability. 

P. TRUST CONTRIBUTION 

   Included in HFS historical SG&A for the nine months ended September 30, 
1996, is a $5 million charge associated with the Company's contribution of 
the Owned Brokerage Business to the Trust. The charge represents the fair 
value of the Owned Brokerage Business based upon a valuation which considered 
earnings, cash flow, assets and business prospects of the contributed 
business. 

                                     
<PAGE>

                                   SIGNATURES



Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                       HFS Incorporated




                                       By:  /s/ Michael P. Monaco
                                            Michael P. Monaco
                                            Vice Chairman
Date: March 26, 1997                          And Chief Financial Officer
                                              (Principal Financial Officer
                                              And Principal Accounting Officer)