<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 June 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)

                                 Not Applicable
       (Former name, former address and former fiscal year, if applicable)


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


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 123,245,314 shares of Common Stock outstanding as at August 6, 1996.


<PAGE>
				     PART I

ITEM 1. FINANCIAL STATEMENTS

                        HFS Incorporated and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                 (In thousands)



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

CURRENT ASSETS
Cash and cash equivalents                               $ 387,837     $  16,109
Royalty accounts and notes receivable, net of
   allowance for doubtful accounts                         82,765        37,326
Marketing and reservation receivables, net of
   allowance for doubtful accounts                         43,351        22,297
Relocation receivables                                    113,075        51,180
Other current assets                                       32,337        21,304
Deferred income taxes                                      36,456        20,200
   Total current assets                                   695,821       168,416

Property and equipment, net                                99,411        67,892
Franchise agreements, net                                 599,631       517,218
Excess of cost over fair value of net assets
   acquired, net                                        1,316,146       356,754
Other assets                                               78,609        55,528
   TOTAL ASSETS                                        $2,789,618    $1,165,808


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

CURRENT LIABILITIES
Accounts payable and other                              $ 172,064     $  73,724
Income taxes payable                                       62,421        38,640
Accrued acquisition obligations                            32,002        10,276
Current portion of long-term debt                          29,562         2,249
   Total current liabilities                              296,049       124,889

Long-term debt                                            540,530       300,778
Other liabilities                                          30,894        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                                                1,232         1,025
Additional paid-in capital                              1,690,347       475,562
Retained earnings                                         145,166        83,604
   Total stockholders' equity                           1,836,745       560,191
   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY          $2,789,618    $1,165,808


                -See notes to consolidated financial statements-


<PAGE>

                        HFS Incorporated and Subsidiaries

                        CONSOLIDATED STATEMENTS OF INCOME

                    (In thousands, except per share amounts)






                                       Three Months Ended     Six Months Ended
                                            June 30,               June 30,
                                      -------------------   -------------------
                                       1996       1995       1996       1995
                                      --------   --------   --------   --------

REVENUE:
   Franchise                           $145,134   $ 85,634   $240,135   $151,789
   Other                                 34,531     10,695     64,075     18,693
                                         ------     ------     ------     ------

      Total revenue                     179,665     96,329    304,210    170,482
                                        -------     ------    -------    -------

EXPENSES:
   Marketing and reservation             43,873     37,325     75,491     66,682
   Selling, general and administrative   33,957      6,881     60,311     14,967
   Ramada license fee                     5,156      4,770     10,045      9,283
   Depreciation and amortization         13,219      6,776     23,405     13,332
   Interest                               7,783      5,156     14,574     10,255
   Other                                 11,193      1,117     17,076      1,219
                                         ------      -----     ------      -----

      Total expenses                    115,181     62,025    200,902    115,738
                                        -------     ------    -------    -------

Income before income taxes               64,484     34,304    103,308     54,744
Provision for income taxes               25,740     14,121     41,746     22,499
                                         ------     ------     ------     ------

Net income                             $ 38,744   $ 20,183   $ 61,562   $ 32,245
                                       ========   ========   ========   ========

SHARE INFORMATION (fully diluted):

Net income per share                   $    .31   $    .19   $    .51   $    .31
                                       ========   ========   ========   ========

Weighted average common and common
   equivalent shares outstanding        130,159    112,942    126,275    112,276
                                        =======    =======    =======    =======








                -See notes to consolidated financial statements-







<PAGE>

                        HFS Incorporated and Subsidiaries

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                 (In thousands)


<TABLE>

<CAPTION>


                                 Common Stock        Additional
                              ------------------       Paid In      Retained
                              Shares      Amount       Capital      Earnings        Total
                              --------------------------------------------------------------

<S>                            <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    1,205,917           --    1,206,120

Exercise of stock options          351            4        3,748           --        3,752

Tax benefit from exercise
  of stock options                  --           --        5,028           --        5,028

Conversion of 4 1/2% Notes           5           --           92           --           92

Net income                          --           --           --       61,562       61,562
                               -------   ----------   ----------       ------       ------

Balance, June 30, 1996         123,173   $    1,232   $1,690,347   $  145,166   $1,836,745
                               =======   ==========   ==========   ==========   ==========
</TABLE>












                -See notes to consolidated financial statements-
<PAGE>


                        HFS Incorporated and Subsidiaries

                       CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)




                                                            Six Months Ended
                                                                 June 30,
                                                            ---------------
                                                            1996       1995
                                                            ----       ----

Operating Activities:
   Net income                                               $ 61,562   $32,245
   Adjustments to reconcile net income to net
      cash provided by operating activities:
      Depreciation and amortization, including
         amortization of deferred financing costs             24,232    13,960
      Changes in operating assets and liabilities
         and other                                           (23,597)  (15,397)

         Net cash provided by operating activities            62,197    30,808


Investing Activities:
   Property and equipment additions                          (13,109)   (4,074)
   Loans and investments                                     (10,000)  (13,000)
   Net assets acquired, exclusive of cash acquired          (992,163)   (6,782)

         Net cash used in investing activities            (1,015,272)  (23,856)


Financing Activities:
   Issuance of common stock, net                           1,163,872     2,005
   Proceeds from borrowings, net                             241,999         -
   Redemption of Series A Preferred Stock                    (80,000)        -
   Principal payments - long-term debt                        (1,068)  (10,810)

         Net cash provided by (used in)
           financing activities                            1,324,803    (8,805)

Net increase (decrease) in cash and cash equivalents         371,728    (1,853)
Cash and cash equivalents, beginning of period                16,109     5,956

Cash and cash equivalents, end of period                    $387,837   $ 4,103
                                                            ========   =======




                -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
June 30, 1996, the consolidated statements of income for the three and six
months ended June 30, 1996 and 1995, the consolidated statements of cash flows
for the six months ended June 30, 1996 and 1995 and the consolidated statement
of stockholders' equity for the six months ended June 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 six months
ended June 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, the National Realty Trust (the "Trust") (See Note 2). The
Company engages 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 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 six months ended June 30, 1996 have been
included in the Company's consolidated results since the respective dates of
acquisition.


<PAGE>

     A. 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, National Lodging Corp. ("NLC"), 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 NLC's acquisition, the
Company guaranteed $75 million of NLC borrowings under a $125 million
revolving credit facility entered into by NLC 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 NLC and the Company at the Distribution Date (the "Financing
Agreement"). The Financing Agreement was modified to provide expressly for the
guaranty of such NLC borrowings. The Company and NLC terminated or modified
other agreements entered into with NLC at the Distribution Date, including a
gaming related marketing services agreement and an advisory agreement. NLC
paid the Company an advisory fee approximating $2 million in January 1996 in
connection with NLC's acquisition of FHI.

     B. ERA: In February 1996, the Company purchased the assets comprising the
Electronic Realty Associates ("ERA") residential real estate brokerage
franchise system and in June 1996, the Company purchased certain ERA
affiliates which conduct the ERA home warranty business in eight states. The
aggregate purchase price for ERA and ERA affiliates was approximately $40.5
million.

     C. CENTURY 21 NON-OWNED REGIONS: During the second quarter of 1996, the
Company purchased from four independent master licensees, the six U.S.
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.

     D. COLDWELL BANKER: On May 31, 1996, the Company acquired by merger (the
"Merger") Coldwell Banker Corporation ("Coldwell Banker"), 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 Merger, the Company conveyed
Coldwell Banker's 318 owned real estate brokerage offices (the "Owned
Brokerage Business") to the Trust, an independent entity governed by
independent trustees. The Company recorded a pre-tax restructuring charge of
$7 million (approximately $4.3 million, net of tax or $0.03 per share) related
primarily to the contribution of net assets to the Trust.





<PAGE>

   Pro Forma Information:

     The following information reflects the comparative pro forma statements
of operations of the Company for the six months ended June 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 Casino & Credit Services,
Inc.'s gambling patron credit information business, Central Credit Inc.
("CCI"); (iii) the 1996 acquisitions of Travelodge, ERA and the Century 21
NORS; (iv) the Merger; (v) the 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 Merger
and the related repayment of indebtedness and acquisition expenses; and (vii)
the 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 accounted for using the purchase
method of accounting. Accordingly, assets acquired and liabilities assumed
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 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.

                                                            June 30,
                                                     -------------------
   (000's, except net income per share)                1996       1995
                                                     --------   --------

   Revenue                                           $391,966   $342,313
   Income before income taxes                         119,439     69,569
   Net income                                          71,254     40,275
   Net income per share (fully diluted)              $    .54   $    .32
   Weighted average common and common equivalent
          shares outstanding (fully diluted)          137,211    131,509


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 six months ended June 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 are antidilutive
for the six months ended June 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.



<PAGE>

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"). Net proceeds from the Offering of $1.2 billion financed the
acquisition of Coldwell Banker and the balance is available for general
corporate purposes, including acquisitions.

6. Long-Term 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 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.

7. Recent Event - Pending Acquisition of Avis, Inc.

     On July 1, 1996, the Company entered into an agreement in principle to
acquire Avis, Inc., the second largest rental car system in the world, from
its shareholders. The Company agreed to pay approximately $800 million for all
of the outstanding capital stock of Avis, Inc., consisting of approximately
$500 million in cash and $300 million in Company common stock. While
completion of this transaction is not assured, the Company expects that the
transaction will be completed in the fourth quarter of 1996. The acquisition
of Avis, Inc., if consummated, will be accounted for under the purchase method
of accounting.


<PAGE>

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


GENERAL REVIEW

     HFS Incorporated (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"), the largest
gross revenue producing residential real estate company in North America and a
leading provider of relocation services.

     The Company continues to pursue acquisitions and other strategic
transactions in its two primary industries and other franchise or franchisable
businesses. On July 1, 1996, the Company entered into an agreement in
principle to acquire Avis, Inc., the second largest rental car system in the
world, from its shareholders. The Company agreed to pay approximately $800
million for all of the outstanding capital stock of Avis, Inc., consisting of
approximately $500 million in cash and $300 million in Company common stock.
While completion of this transaction is not assured, the Company expects that
the transaction will be completed in the fourth quarter of 1996.

RESULTS OF OPERATIONS -- REVENUE OVERVIEW

     Company revenue increased 87% ($83.3 million) to $179.7 million in the
second quarter of 1996 compared to $96.3 million in the second quarter of
1995. Approximately $62.9 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(R) (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 $6.8
million representing a 158% increase.

     Company revenue increased 78% ($133.7 million) to $304.2 million during
the six months ended June 30, 1996 compared to the same period in 1995. The
lodging and real estate segments each contributed to revenue increases; the
real estate segment, which was not established until the third quarter of
1995, generated $85.7 million of revenue for the six months ended June 30,
1996.

2Q96 vs.  2Q95

Lodging Franchise Fees

     The royalty portion of lodging franchise fees increased $6.0 million
(15%), in the second 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 24,712 rooms, net of terminations, during the twelve months
ended June 30, 1996, representing a 13% increase in the total number of rooms
from June 30, 1995. In the second quarter of 1996 total system revenue per
available room ("REVPAR") increased 3% driven by both increases in total
system average daily rate and occupancy percentages from the second quarter
1995 compared to 1996.





<PAGE>

Real Estate Franchise Fees

     The real estate segment contributed $50.7 million of franchise fees for
the second quarter of 1996 including $34.0 million from the CENTURY 21
franchise system acquired in August 1995, $5.3 million from the ERA franchise
system acquired on February 12, 1996 and $11.4 million from the Coldwell
Banker franchise system acquired on May 31, 1996. Pro forma franchise fees for
acquired franchise systems increased 23% ($13.9 million) for the quarter ended
June 30, 1996 compared to the same period in 1995 under predecessor company
ownership.

Other

     Other revenue is substantially comprised of relocation service revenue
and revenue from preferred vendor arrangements. Preferred vendor fees consist
of revenue generated from vendors seeking access to the Company's franchisees
and franchisees' customers. Preferred vendor revenue increased $6.8 million
(158%) from the second quarter of 1995 to the second 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 $12.2 million in the second quarter of
1996, including $7.7 million from Coldwell Banker Relocation Services, Inc.,
the second largest relocation business in the United States.

Year-to-date 1996 vs.  1995

Lodging Franchise Fees

     Lodging segment franchise fees and the royalty portion of franchise fees
increased $14.3 million (10%) and $12.0 million (17%), respectively, in the
first six months of 1996 compared to the same period in 1995, for primarily
the same reasons as indicated for the increases in second quarter 1996
results.

Real Estate Franchise Fees

     The real estate segment contributed $70.5 million of franchise fees for
the six months ended June 30, 1996 including approximately $51.8 million from
the CENTURY 21 franchise system acquired on August 1, 1995, approximately $7.3
million from the ERA franchise system acquired on February 12, 1996 and $11.4
million from the Coldwell Banker franchise system, acquired on May 31, 1996.
Pro forma franchise fees for those franchise systems increased 19% ($19.7
million) for the six months ended June 30, 1996 compared to the same period in
1995 under predecessor company ownership.

Other

     Other revenue was substantially comprised of fees from preferred vendor
arrangements, which increased $16.1 million (181%) from the first six months
of 1995 compared to the same period in 1996. Other revenue also includes $15.2
million of relocation services fees from businesses acquired in connection
with the Company's real estate segment acquisitions including $7.7 million
from Coldwell Banker Relocation Services, Inc., acquired on May 31, 1996.



<PAGE>

RESULTS OF OPERATIONS - EXPENSES AND INCOME

2Q96 VS 2Q95

     Income before income taxes increased $30.2 million (88%) resulting from a
$83.3 million increase in revenue (as discussed above in "Results of
Operations - Revenue Overview") net of a $53.1 million (86%) increase in
expenses. Operating profits (pre-tax income plus interest expense) for all
segments increased $33.1 million or 82% during the same comparable period.
Although the lodging segment continues to contribute to increases in
profitability, the Company's real estate acquisitions generated the most
significant increases in profitability. Interest expense for the second
quarter of 1996 increased $2.6 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 Company's lower average
borrowing rate for comparative periods. The Company's weighted average
effective interest rate decreased from 6.0% in the second quarter 1995 to 5.6%
in the second quarter of 1996 as a result of the issuance of the 4 3/4% Notes.

LODGING SEGMENT

     Operating profits increased 10% to $38.9 million from 1995 to 1996. The
9.1 million revenue increase, which included a 15% increase in royalty fees
was offset by $5.5 million (11%) of increased expenses. The increase in
expenses primarily consisted of a $3.2 million increase in marketing
expenditures corresponding with increased marketing fees collected from
lodging franchisees and a $1.0 million increase in depreciation and
amortization expenses associated with goodwill and franchise agreements
associated with the January 23, 1996 acquisition of the Travelodge franchise
system, the August 1995 acquisition of the Knights Inn franchise system and
the issuance of Company common stock in September 1995, pursuant to an earnout
agreement ("Earnout") entered into with the Bryanston Group, Inc., related to
the acquisition of Days Inn franchise system.

REAL ESTATE SEGMENT

     The Company's entry into the real estate brokerage franchise industry did
not occur until the Company acquired Century 21 in the third quarter of 1995.
Second quarter operating profits of $24.2 million consisted of $60.5 million
of revenue net of $36.3 million of expenses. Included in expenses were $19.6
million of SG&A primarily associated with Century 21 operations (Coldwell
Banker franchise system was not acquired until May 1995) and a $5.0 million
restructuring charge ("Restructuring Charge") related to the contribution of
Coldwell Banker's owned brokerage business to the National Realty Trust (the
"Trust"), an independent entity governed by an independent Board of Trustees.
Expenses also included $5.1 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 $5.5 million (48%) to $9.2
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.


<PAGE>

YEAR-TO-DATE 1996 VS. 1995

     Income before income taxes increased $48.6 million (89%), resulting from
a $133.7 million increase in revenue net of a $85.1 million (74%) increase in
expenses. Operating profits for all segments increased $52.9 million (81%)
during the same comparable period. Interest expense for the six months ended
June 30, 1996 increased $4.3 million due to the issuance of the 4 3/4% Notes
in February 1996. Interest expense was offset in part by the Company's lower
average borrowing rate for comparative periods. The Company's weighted average
effective interest rate decreased from 6.0% in the first six months of 1995 to
5.6% in the six months ended June 30, 1996 as a result of the issuance of the
4 3/4% Notes

LODGING SEGMENT

     Operating profits increased 15% to $67.9 million from 1995 to 1996. The
$19.9 million revenue increase, which included a 17% increase in royalty fees
was offset by a $11.1 million (11%) increase in expenses. The increase in
expenses primarily consisted of a $3.9 million increase in marketing
expenditures corresponding with marketing fees collected from lodging
franchisees and $2.0 million of depreciation and amortization primarily
corresponding with goodwill and franchise agreements associated with the
January 1996 Travelodge franchise system acquisition, the August 1995 Knights
Inns franchise system acquisition and the issuance of Company common stock in
September 1995, pursuant to the Earnout Agreement. The $5.2 million increase
in SG&A expenses consisted of $1.3 million of franchise sales expenses
associated with system growth, and costs associated with corporate
infrastructure development in advance of future company acquisitions including
information technology expenses.

REAL ESTATE SEGMENT

     Approximately $34.6 million of operating profits were generated compared
to none in 1995, since the Company acquired its initial real estate brokerage
franchise system in August 1995. Operating profits through June 1996 consisted
of $91.5 million of revenue and $56.9 million of expenses. Included in
expenses were $36.5 million of SG&A primarily associated with Century 21
operations since the Coldwell Banker franchise system was not acquired until
May 1995 and the $5 million Restructuring Charge. Expenses also included $7.2
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 $9.5 million (63%) to $15.4
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 Acquisitions

     On July 1, 1996, the Company entered into an agreement in principle to
acquire the common stock of Avis, Inc., for approximately $800 million
consisting of $500 million in cash and $300 million of Company common stock.
While completion of this transaction is not assured, the Company expects that
the transaction will be completed in the fourth quarter of 1996. The Company
has sufficient existing cash, short-term marketable securities and $300
million of available borrowings under its current revolving credit facility to
fund the cash portion of the purchase price.






<PAGE>

Acquisitions

     COLDWELL BANKER: On May 31, 1996, the Company acquired by merger Coldwell
Banker ("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 (the "Offering") of
approximately 19.4 million common shares in the second quarter of 1996.
Approximately $400 million of proceeds in excess of the purchase price and
$300 million of borrowings available under the Company's revolving credit
facility may be used for general corporate purposes, future acquisitions and
strategic transactions in franchise or franchisable businesses. Immediately
following the closing of the Merger, the Company conveyed the Owned Brokerage
Business to the Trust, an independent entity governed by independent trustees.
The Company incurred a $7 million pre-tax restructuring expense primarily
related 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.

     ERA: The Company purchased on February 12, 1996, the assets comprising
the ERA residential real estate brokerage franchise system and, in the second
quarter of 1996, the stock of certain ERA affiliates which conduct the ERA
home warranty business in eight states. The aggregate purchase price of $40.5
million 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 settled 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.

     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


<PAGE>

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, NLC 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 NLC's
acquisition, the Company guaranteed $75 million of NLC borrowings under a $125
million revolving credit facility entered into by NLC 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
NLC's acquisition of FHI, the marketing and advisory agreements between the
Company and NLC 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. NLC paid a $2.0 million advisory fee to the Company in connection
with NLC's acquisition of FHI.

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 assigned an "A" credit rating to the Company's
$540 million of publicly issued debt.

     The Company generated $62.2 million of cash flow from operations,
representing a $31.4 million (102%) increase from the six months ended June
30, 1995. Additional liquidity is available to the Company through a revolving
credit facility (the "Credit Facility"), which provides up to $300 million and
$200 million of unsecured borrowings through December 1996 and 1997,
respectively, at interest rates generally approximating LIBOR plus a margin
not to exceed 0.63% based on the Company's published credit rating and
percentage of facility utilized. The Company is currently arranging to replace
the Credit Facility with a revolving credit facility providing at least $500
million of available liquidity to provide cash for acquisitions, strategic
transactions and general corporate purposes.

     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 $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 Credit Facility. The remaining $331
million of proceeds are available for general corporate purposes including
capital for acquisitions and strategic transactions.

     Working capital at June 30, 1996 approximated $399.8 million including
the remaining $331 million of excess proceeds from the Offering. Excluding the
excess proceeds of the Offering, working capital increased $25.3 million at
June 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 June 30, 1996 is $113.1 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.


<PAGE>

     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
$300.1 million at December 31, 1995 to $540 million at June 30, 1996, due to
the issuance of the 4 3/4% Notes. The weighted average stated interest rate on
long-term debt at June 30, 1996 was 4.9% compared to the weighted average
stated interest rate of 5.2% at December 31, 1995. weighted average stated
interest rate of 5.2% at December 31, 1995.

     Capital expenditures approximating $13.1 million during the six months
ended June 30, 1996 consisted of approximately $4.5 million of software
development and the acquisition of computer equipment associated with a new
transactional data base and reporting system for the real estate segment and
$5.5 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 $3.1 million of leasehold improvements associated with the
purchase in late 1995, of a building near the Company's current 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



     The pro forma statements of operations for the six months ended June 30,
1996 and 1995 are each presented as if the following transactions had occurred
on January 1, 1995: (i) the May 31, 1996 acquisition of the common stock of
Coldwell Banker (the "Merger") and the related contribution of Coldwell
Banker's owned real estate brokerage offices to an independent trust (the
"Trust"); (ii) the receipt of proceeds from an offering of the Company's
common stock (the "Offering") to the extent necessary to fund the acquisition
of Coldwell Banker and the related repayment of indebtedness and acquisition
expenses; (iii) the acquisitions of: the six non-owned Century 21 regions
("Century 21 NORS"), the Travelodge franchise system on January 23, 1996 and
the ERA franchise system on February 12, 1996 (collectively, the "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 1996 Acquisitions. The pro forma statement of operations for
the six months ended June 30, 1995 is also presented as if the August 1, 1995
acquisition of Century 21 and the acquisition by merger (the "CCI Merger") in
May 1995 of Casino & Credit Services, Inc's gambling patron credit information
business, Central Credit Inc. ("CCI"), had occurred on January 1, 1995.

     The 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. The Company has entered into certain immaterial transactions
which are not reflected in the pro forma statements of operations.

     The pro forma consolidated financial statements do not purport to present
the financial position or results of operations of the Company 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 savings are
expected to be realized primarily through the restructuring of franchise
services of the acquired companies as well as revenue enhancements expected
through leveraging of the Company'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 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 June 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 Business Acquired or to be
Acquired."

<PAGE>

                        HFS Incorporated and Subsidiaries 
                    PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS 
                  For the Six Months Ended June 30, 1996 and 1995
                     (In thousands, except per share amounts)




                                    1996              1995
                                 ---------         ---------
Revenue
  Franchise                      $ 287,295         $ 265,482
  Owned brokerage                        -                 -
  Relocation                        50,057            40,470
  Other                             54,614            36,361
                                 ---------         ---------
   Total revenue                   391,966           342,313
                                 ---------         ---------

Expenses
  Marketing and reservation         76,625            77,440
  Selling, general and
    administrative                  85,422            92,768
  Ramada license fee                10,045             9,283
  Owned brokerage                        -                 -
  Depreciation and amortization     37,977            33,589
  Interest                          15,935            18,765
  Relocation                        38,355            31,398
  Other                              8,168             9,501
                                 ---------         ---------
   Total expenses                  272,527           272,744
                                 ---------         ---------

Income  before income taxes        119,439            69,569     
Provision  for income taxes         48,185            29,294
                                 ---------         ---------
Net income                       $  71,254         $  40,275
                                 =========         =========

Per Share Information  (primary)
  Net income                     $    0.54         $    0.33
                                 =========         =========
  Weighted average common
   and common equivalent
   shares outstanding              136,165           130,473
                                 =========         =========

Per Share Information  (fully diluted)
  Net income                     $     .54         $     .32
                                 =========         =========
  Weighted average common
   and common equivalent
   shares outstanding              137,211           131,509
                                 =========         =========



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

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




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






<PAGE>

                        HFS Incorporated and Subsidiaries
                   PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS 
                         For the Six Months Ended June 30, 1996
                      (In thousands, except per share amounts)


                                   Historical
                      -------------------------------
                              Coldwell     1996(1)     Pro Forma
                       HFS    Banker(1)  Acquisitions  Adjustments   Pro Forma
                      ------  ---------  ------------  -----------   ---------

Revenue
  Franchise         $240,135  $ 25,694     $ 9,631      $11,835 (A)   $287,295
  Owned brokerage          -   235,625           -     (235,625)(B)          -
  Relocation          15,179    34,159         719            -         50,057
  Other               48,896     4,067       1,651            -         54,614
                      ------     -----       -----                      ------
   Total revenue     304,210   299,545      12,001     (223,790)       391,966
                     -------   -------      ------     --------        -------
                                                      
Expenses                                              
  Marketing and                                       
   reservation        75,491         -       1,134            -         76,625
  Selling, general                                    
   & administrative   60,311    57,455       9,460      (41,804)(C)     85,422
  Ramada license                                      
    fee               10,045        -            -            -         10,045
  Owned brokerage          -   227,363           -     (227,363)(D)          -
  Depreciation and                                    
   amortization       23,405     9,021         421        5,130 (E)     37,977
  Interest            14,574     3,155       1,493       (3,287)(F)     15,935
  Relocation          10,184    27,530         641            -         38,355
  Other                6,892       512         764            -          8,168
                       -----   -------      ------     --------        -------
   Total expenses    200,902   325,036      13,913     (267,324)       272,527
                     -------   -------      ------     --------        -------
Income (loss) before                                  
  income taxes       103,308   (25,491)     (1,912)      43,534        119,439
Provision (benefit)                                   
  for income taxes    41,746   (10,432)          -       16,871 (H)     48,185
                      ------   -------     -------       ------         ------
Net income (loss)    $61,562  $(15,059)    $(1,912)     $26,663        $71,254
                     =======  ========     =======      =======        =======

Per Share Information
   (primary)
  Net income         $  0.51                                           $  0.54
                     =======                                           =======

Weighted average 
 common and common 
 equivalent shares
 outstanding         125,229                             10,936 (I)    136,165
                     =======                             ======        =======

Per Share Information
   (fully diluted)
  Net income         $   .51                                           $   .54
                     =======                                           =======

Weighted average 
 common and common 
 equivalent shares
 outstanding         126,275                             10,936 (I)    137,211
                     =======                             ======        =======

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

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

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


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






<PAGE>


                        HFS Incorporated and Subsidiaries
                HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS
                              OF 1996 ACQUISITIONS
                     For the Six Months Ended June 30, 1996
                                 (In thousands)

<TABLE>
<CAPTION>


                                              Century 21
                                               NORS (1)  Travelodge(1)  ERA(1)    Total
                                               ---------------------------------------------

<S>                                           <C>         <C>        <C>         <C>

Revenue:
   Franchise                                  $  6,668    $    688   $  2,275    $  9,631
   Relocation                                       --          --        719         719
   Other                                           449          --      1,202       1,651
                                              --------    --------   --------    --------
      Total revenue                              7,117         688      4,196      12,001
                                              --------    --------   --------    --------

Expenses:
   Marketing and
       reservation                                 681         453        --        1,134
   Selling, general and administrative           6,885          99      2,476       9,460
   Depreciation and amortization                   285          --        136         421
   Interest                                          2          --      1,491       1,493
   Relocation                                       --          --        641         641
   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>
---------------

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

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








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









<PAGE>

                         HFS Incorporated and Subsidiaries
                    PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS 
                       For the Six Months Ended June 30, 1995
                      (In thousands, except per share amounts)

<TABLE>
<CAPTION>

                                              Historical
                                   ---------------------------------
                                                          Other (1)
                                            Coldwell       Acquired     Pro Forma
                                   HFS      Banker (1)    Companies    Adjustments           Pro Forma
                                   ------   -----------   ----------   -----------           ---------
<S>                              <C>         <C>          <C>          <C>                    <C>

 Revenue
  Franchise                      $151,789    $ 26,980     $ 75,209     $ 11,504    (A)        $265,482
  Owned brokerage                    --       247,331         --       (247,331)   (B)            --
  Relocation                         --        33,302        7,168         --                   40,470
  Other                            18,693       3,303       14,365         --                   36,361
                                   ------       -----       ------      -------               --------
   Total revenue                  170,482     310,916       96,742     (235,827)               342,313
                                  -------     -------       ------     --------                -------

Expenses
  Marketing and
   reservation                     66,682        --         10,758         --                   77,440
  Selling, general and
   administrative                  14,967      17,750       62,301       (2,250)   (C)          92,768
  Ramada license fee                9,283          --          --           --                   9,283
  Owned brokerage                    --       247,129         --       (247,129)   (D)            --
  Depreciation and
   amortization                    13,332      11,959        6,277        2,021    (E)          33,589
  Interest                         10,255       1,938        3,989        2,583    (F)          18,765
  Relocation                         --        26,543        4,855         --                   31,398
  Other                             1,219       1,029        7,652         (399)   (G)           9,501
                                    -----       -----        -----         ----                  -----
   Total expenses                 115,738     306,348       95,832     (245,174)               272,744
                                   ------       -----        -----       ------                 ------
Income before
  income taxes                     54,744       4,568          910        9,347                 69,569
Provision for
  income taxes                     22,499       2,004        1,519        3,272    (H)          29,294
                                   ------       -----        -----       ------                 ------
Net income (loss)                 $32,245   $   2,564    $    (609)   $   6,075              $  40,275
                                  =======   =========    =========    =========              =========

Per Share Information
   (primary)
  Net income                      $   .30                                                    $     .33
                                  =======                                                    =========

  Weighted average common
   and common equivalent
   shares outstanding             111,240                                19,233    (I)         130,473
                                  =======                                ======                =======

Per Share Information
   (fully diluted)
  Net income                      $   .31                                                    $     .32
                                  =======                                                    =========

  Weighted average common
   and common equivalent
   shares outstanding             112,276                                19,233    (I)         131,509
                                  =======                                ======                =======
</TABLE>

---------

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

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


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



<PAGE>

                        HFS Incorporated and Subsidiaries
                 HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS
                           OF OTHER ACQUIRED COMPANIES
                    For the Six Months Ended June 30, 1995 
                   (In thousands, except per share amounts)



                                        Century 21
                   CCI(1) Century 21(1)   NORS     Travelodge    ERA     Total
                   ------------------------------------------------------------
Revenue
  Franchise       $     -  $45,190      $12,682   $  7,715   $ 9,622   $75,209
  Relocation            -    5,503            -          -     1,665     7,168
  Other             3,326    1,920          176         40     8,903    14,365
                    -----   ------       ------      -----    ------   -------
   Total revenue    3,326   52,613       12,858      7,755    20,190    96,742
                    -----   ------       ------      -----    ------   -------
                                       
Expenses                               
  Marketing and                        
   reservation          -    4,013        1,273      5,472         -    10,758
  Selling, general and                 
   administrative       -   36,603        9,986      1,118    14,594    62,301
  Depreciation and                     
   amortization       529    4,657          252          3       836     6,277
  Interest              -    2,786           23          -     1,180     3,989
  Relocation            -    4,122            -          -       733     4,855
  Other             1,917        -            -          -     5,735     7,652
                    -----   ------       ------      -----    ------   -------
   Total expenses   2,446   52,181       11,534      6,593    23,078    95,832
                    -----   ------       ------      -----    ------   -------
Income (loss) before                   
  income taxes        880      432        1,324      1,162    (2,888)      910
Provision for                          
  income taxes        313      728            -        478         -     1,519
                    -----   ------       ------      -----    ------   -------
Net income (loss) $   567  $  (296)     $ 1,324   $    684   $(2,888)  $  (609)
                  =======  =======      =======   ========   =======   =======
                                     



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

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

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










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



<PAGE>

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


A.  Franchise revenue:

     The pro forma adjustment reflect 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 and the addition of franchise fees to be
received under franchise contracts to be executed with owned brokerage offices
upon contribution of the Owned Brokerage Business to the Trust. Pro forma
adjustments to franchise revenue consists of the following ($000's):

                                                       For the Six Months Ended
                                                              June 30
                                                      --------------------------
                                                         1996         1995
                                                         ----         ----
       Eliminate:
          Discontinued operations                     $     -       $  (34)
          Century 21 revenue included as
             Century 21 NORS
             SG&A                                       (1,003)     (2,250)
       Add :
          Franchise fees from Owned Brokerage Business  12,838      13,788
                                                        ------      ------
       Total                                           $11,835     $11,504
                                                       =======     =======


B.  Owned brokerage revenue:

     The pro forma adjustments reflect the elimination of revenue for Coldwell
Banker's formerly owned 318 owned offices. The Company 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.

C.  Selling, general and administrative expense:

     The pro forma adjustments reflect the elimination of royalty payments
made by Century 21 NORS to Century 21 under subfranchise agreements (offset
against service fee revenue--See Note A) 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.

                                For the Six Months Ended 
                                         June 30,
                                 -----------------------
                                 1996              1995
                                 ----              ----
Franchise fees .............   $ 1,003           $ 2,250
Stock option expense .......    40,801                --
                               -------           -------
  Total ...................    $41,804           $ 2,250
                               =======           =======

<PAGE>





D.  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 B). 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.

E.  Depreciation and amortization:

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

     For the six months ended June 30, 1996:
                                               Coldwell       1996
                                                 Banker   Acquisitions  Total
                                               --------   ------------  -----
    Elimination of historical expense          $(9,021)    $   (421)   $(9,442)
    Property, equipment & furniture & fixtures     578            -        578
    Excess of cost over fair value
      of net assets acquired                     4,338        2,342      6,680
    Franchise agreements                         5,856        1,458      7,314
                                               -------     --------    -------
    Total                                      $ 1,751     $  3,379    $ 5,130
                                               =======     ========    =======

<TABLE>
<CAPTION>

    For the six months ended June 30, 1995:

                                          CCI                Coldwell     1996
                                         Merger  Century 21   Banker   Acquisitions  Total
                                         ------  ----------   ------   ------------  -----
<S>                                   <C>        <C>        <C>        <C>        <C>
Elimination of historical
  expense                             $   (529)  $ (4,657)  $(11,959)  $ (1,091)  $(18,236)
Property, equipment and
   furniture and fixtures                  100        393      1,623         --      2,116
Information data base                      375         --         --         --        375
Excess of cost over fair value
  of net assets acquired                   289      2,496      9,410      2,342     14,537
Franchise agreements                        --      1,396        375      1,458      3,229
                                      --------   --------   --------   --------   --------
Total                                 $    235   $   (372)  $   (551)  $  2,709   $  2,021
                                      ========   ========   ========   ========   ========
</TABLE>



    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.



<PAGE>

    Century 21

     The estimated fair values of Century 21's property and equipment,
franchise agreements and excess of 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.

    Coldwell Banker

     The estimated fair value of Coldwell Banker's property, plant 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.

    1996 Acquisitions

     The estimated fair values of 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 1996 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 benefited, which are forty years.


F.  Interest expense:

    The pro forma adjustment to interest expense is comprised of ($000's):

                                                   For the Six Months Ended
                                                          June 30,
                                                    --------------------
                                                       1996        1995
                                                    --------    --------
       Elimination of historical interest expense
        of 1996 Acquisitions & Century 21          $ (1,493)    $(3,989)
       Reversal of Coldwell Banker                   (3,155)     (1,938)
       Century 21                                         -       1,830
       Minority interest-preferred dividends              -       2,217
       4 3/4% Notes                                   1,361       4,463
                                                   --------     -------
       Total                                       $ (3,287)    $ 2,583
                                                   ========     =======




<PAGE>

    Century 21

     The pro forma adjustment reflects the recording of interest expense on
$70 million of borrowings under the Company'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.

     Interest expense was incurred on borrowings under the Company's revolving
credit facility which partially funded the acquisition of Century 21. The
Company recorded interest expense using the variable interest rate in effect on
the borrowing date. The effect on pro forma net income assuming a 1/8% variance
in the variable interest rate used to calculate interest expense is $26,000 for
both the six months ended June 30, 1996 and 1995. 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.

    Coldwell Banker

     The pro forma adjustment reflects the reversal of interest expense
relating to the following ($000's):
                                                      For the Six Months Ended
                                                              June 30,
                                                       --------------------
                                                         1996        1995
                                                       -------      -------
       Expense (income) associated with the Owned
          Brokerage Business (i)                       $  (179)    $     31
       Expense associated with revolving credit
          facility borrowings which will be repaid
          with proceeds from offering (ii)               3,334        1,907
                                                       -------     --------
       Total                                           $ 3,155     $  1,938
                                                       =======     ========

     (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%).



    Minority interest - preferred dividends

     The pro forma adjustment represents dividends on the redeemable Series A
Adjustable Rate Preferred Stock of Century 21. Preferred dividends are
calculated based on an $80 million face value and a 4.9% dividend rate.

    4 3/4% Notes

     The pro forma adjustment reflects interest 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 1996 acquisitions of ERA ($32.8 million), Travelodge ($39.3
million) and Century 21 NORS ($96.4 million).

G.  Other expenses:

     The pro forma adjustment eliminates $399,000 of accounting, legal and
other administrative expenses allocated to CCI which would not have been
incurred by the Company.




<PAGE>

H.  Income Taxes:

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

                                                     For the Six Months Ended
                                                            June 30,
                                                        -----------------
                                                        1996         1995
                                                        ----         ----
       Reversal of historical (provision) benefit of:
          Company                                     $(41,746)   $(22,499)
          CCI                                                -        (313)
          Century 21                                         -        (728)
          Coldwell Banker                               10,432      (2,004)
          Travelodge                                         -        (478)
       Pro forma provision                              48,185      29,294
                                                        ------      ------
       Total                                           $16,871    $  3,272
                                                       =======    ========

     The pro forma effective tax rates approximates the Company's historical
effective tax rates. The pro forma provision for taxes was computed using pro
forma pre-tax amounts and the provisions of Statement of Financial Accounting
Standards No. 109.

I.  Weighted average common and common equivalent shares outstanding:

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


                                                   For the Six Months Ended
                                     Issuance             June 30,
                                     Price per       -----------------
                                      Share          1996         1995
                                      -----          ----         ----

CCI (including dilutive 
   impact of warrants)(1)            $15.30              -        1,804
Century 21 (2)                       $49.88              -        4,000
Second Quarter 1996 Offering-
   Coldwell Banker (3)               $59.99         10,307       12,506
Century 21 NORS (4)                  $49.83            629          923
                                                    ------       ------
   Total                                            10,936       19,233
                                                    ======       ======

----------------
(1)  Date of Acquisition, May 11, 1995
(2)  Date of Acquisition, August 1, 1995
(3)  Date of Acquisition, May 31, 1996
(4)  Date of Acquisition, April 3, 1996


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

<PAGE>

J.  Estimated selling general and administrative cost savings:

     In connection with HFS's 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's 
restructuring plans in each case were developed prior to the consummation of
the respective acquisitions and were implemented concurrent with the 
consummation of the acquisitions. 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's 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 acquisitions 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):


<TABLE>
<CAPTION>
For the Six Months        Coldwell    Century 21
Ended June 30, 1996        Banker       NORS        Travelodge   ERA     Total
-------------------       --------    ----------    ----------   ---     -----
<S>                       <C>         <C>           <C>          <C>    <C>
Payroll and related ...    $4,451      $2,424          $25       $222   $ 7,122
Professional ..........     1,055         705            4          -     1,764
Occupancy .............         -         603            4        102       709
Other .................      (604)      1,069            4        157       626
                           ------      ------          ---       ----   -------
  Total ...............    $4,902      $4,801          $37       $481   $10,221
                           ======      ======          ===       ====   =======
</TABLE>

<TABLE>
<CAPTION>

For the Six Months        Coldwell   Century 21
Ended June 30, 1995        Banker      NORS       Travelodge    ERA     Total
-------------------       --------   ----------   ----------    ---     -----
<S>                       <C>         <C>           <C>        <C>     <C>
Payroll and related ...    $5,341      $2,951        $287      $1,064   $ 9,643
Professional ..........     1,073         649          40           -     1,762
Occupancy .............         -       1,159          48         444     1,651
Other .................      (846)        927          43         729       853
                           ------      ------        ----      ------   -------
  Total ...............    $5,568      $5,686        $418      $2,237   $13,909
                           ======      ======        ====      ======   =======
</TABLE>

     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 Six Months Ended
                                             ---------------------------------
                                             June 30, 1996       June 30, 1995
                                             -------------       -------------
<S>                                          <C>                 <C>
Income before taxes, as reported ........       $119,439            $69,569
SG&A adjustments ........................         10,221             13,909
                                                --------            -------
Income before taxes, as adjusted ........        129,660             83,478
Income taxes ............................         52,309             35,151
                                                --------            -------
Net income, as adjusted .................       $ 77,351            $48,327
                                                ========            =======

Net income per share (primary):
  As adusted ............................       $   0.58            $  0.39
                                                ========            =======
  As reported ...........................       $   0.54            $  0.33
                                                ========            =======

Net income per share (fully diluted):
  As adusted ............................       $    .58            $   .38
                                                ========            =======
  As reported ...........................       $    .54            $   .32
                                                ========            =======
</TABLE>
<PAGE>

K.  Accured acquisition liability

     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.

                                                Century 21            Coldwell
                                 Century 21        NORS       ERA      Banker
                                 ----------     ----------  -------   --------
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
                                 ==========     ==========  =======   ========

     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 June 30, 1996 approximately $23.0
million, $1.6 million, $3.3 million and $1.6 million were paid by Century 21,
Century 21 NORS, ERA and Coldwell Banker, respectively and charged against the
restructuring liability.

L.  Trust contribution

     Included in HFS historical SG&A for the six months ended June 30, 
1996, is a $5 million charge associated with the Company's contributions 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)