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


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

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


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


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

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



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


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


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

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


<PAGE>



                                 HFS Incorporated and Subsidiaries
                                    CONSOLIDATED BALANCE SHEETS

                                          (In thousands)

<TABLE>
<CAPTION>


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

<S>                                                                    <C>               <C>

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

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


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

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

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

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

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

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


<PAGE>



                                 HFS Incorporated and Subsidiaries
                                 CONSOLIDATED STATEMENTS OF INCOME

                             (In thousands, except per share amounts)



<TABLE>
<CAPTION>


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

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

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

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

SHARE INFORMATION (fully diluted):

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

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



     -See notes to consolidated financial statements-




<PAGE>




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


<TABLE>
<CAPTION>



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


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

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

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

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

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

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

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

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

</TABLE>





     -See notes to consolidated financial statements-

<PAGE>



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

<TABLE>
<CAPTION>

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


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

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


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

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

</TABLE>

     -See notes to consolidated financial statements-

<PAGE>



                               HFS Incorporated and Subsidiaries
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




1.  Basis of Presentation

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

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

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

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

2.  Acquisitions

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


<PAGE>



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

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

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

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

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

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

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

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

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


<PAGE>



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

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

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


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


<PAGE>



     associated  with the  assets  acquired,  the  reflection  of the  Company's
financing  arrangements,  the  elimination  of  redundant  costs and the related
income tax effects.  Certain  other Company  acquisitions  were not material and
therefore were not reflected in the pro forma statements of operations.

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

Revenue ..............................................   $  999,865   $  841,323
Income before income taxes ...........................      332,150      232,827
Net income per share (fully diluted) .................   $     1.35   $     1.00
Weighted average common and  common equivalent shares
         outstanding  (fully diluted) ................      147,513      140,582


3.  Income Taxes

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


4.  Earnings per Share

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


5.  Stockholders' Equity

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

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


6. Debt

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


<PAGE>



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

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

7. Recent Events

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

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


<PAGE>



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


GENERAL OVERVIEW

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

RESULTS OF OPERATIONS -- REVENUE OVERVIEW

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

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

3Q96 vs.  3Q95

Lodging Franchise Fees

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


<PAGE>



Real Estate Franchise Fees

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

Other

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

Year-to-date 1996 vs.  1995

Lodging Franchise Fees

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

Real Estate Franchise Fees

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

Other

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


<PAGE>



RESULTS OF OPERATIONS - EXPENSES AND INCOME

3Q96 vs 3Q95

     Income before income taxes for the third  quarter of 1996  increased  $55.5
million  (120%)  over the same  period  in 1995 as a result of the  increase  in
revenue for such period  discussed  above in  "Results of  Operations  - Revenue
Overview", net of a $61.0 million (74%) increase in expenses.

     Marketing and reservation  expenses  increased $11.1 million (25%) compared
to the same period in 1995.  This increase  includes a $9.2 million  increase in
marketing  fees from  franchised  lodging  properties,  $5.1 million of which is
attributable  to the  acquisition of Travelodge  and a $1.9 million  increase in
contributions  by the  Company  to the  CENTURY  21  National  Advertising  Fund
("NAF"), a dedicated advertising fund for national and local marketing.  Century
21  Real  Estate  Corporation  ("Century  21")  is  contractually  obligated  to
contribute 10% of net service fees received to the NAF.

     Selling,  general and  administrative  expenses  ("SG&A")  increased  $18.4
million  for the  third  quarter  of 1996  over the  comparable  period in 1995,
primarily as a result of $15.7 million of incremental  expenses  attributable to
the recently acquired real estate segment operations.

     Depreciation  and amortization for the third quarter of 1996 increased $9.3
million when  compared to the same period in 1995,  which  increase is primarily
attributable to amortization of fixed assets, franchise agreements and excess of
cost over fair value of net assets acquired  ("goodwill") in connection with the
acquisitions of the CENTURY 21, Coldwell  Banker,  ERA and Travelodge  franchise
systems and the Century 21 non-owned regions.

     Interest  expense for the third quarter of 1996 increased $1.6 million as a
result of the issuance of $240 million 4 3/4% Convertible  Senior Notes ("4 3/4%
Notes") in February 1996. The increase in interest expense was offset in part by
the decrease in the Company's weighted average effective interest rate from 6.7%
in the third  quarter  1995 to 5.6% in the third  quarter of 1996 as a result of
the issuance of the 4 3/4% Notes.  Outstanding  borrowings at September 30, 1996
were substantially comprised of fixed rate debt securities.

     Other  expenses  increased  $20.7  million  in the  third  quarter  of 1996
compared to the same quarter of 1995,  corresponding to a $45.9 million increase
in related revenue.  Other expenses include $17.4 million of relocation services
expenses  associated  with the  Company's  1995 and 1996 real  estate  franchise
system acquisitions.


Year-To-Date 1996 vs.  1995

     Income before income taxes  increased  $104.1  million  (103%) for the nine
months  ended  September  30, 1996 versus the  comparable  period in 1995.  This
increase  resulted  from the  increase in revenue  for such period as  discussed
above in "Results of Operations -Revenue Overview" net of a $146.2 million (74%)
increase in expenses.

     SG&A increased  $64.5 million for the nine months ended  September 30, 1996
over the  comparable  period in 1995,  primarily as a result of $57.8 million of
incremental  expenses  attributable to real estate segment operations  including
the  CENTURY 21, ERA and  Coldwell  Banker  franchise  systems  following  their
respective acquisitions. Included in real estate segment SG&A expenses is a $7.0
million restructuring charge related primarily to the contribution to the Trust.
The $19.9 million  increase in marketing  and  reservation  expenses  includes a
$13.1 million  increase in marketing fees from  franchised  lodging  properties,
$10.0 million of which is attributable  to the acquisition of Travelodge,  and a
$6.8 million contractual contribution by Century 21 to the NAF.

<PAGE>

     Depreciation  and amortization for the nine months ended September 30, 1996
increased  $19.4 million when compared to the same period in 1995. This increase
is primarily attributable to amortization of fixed assets,  franchise agreements
and goodwill in connection  with the  acquisitions  of the CENTURY 21,  Coldwell
Banker,  ERA, Knights Inn(R) and Travelodge  franchise  systems;  the Century 21
non-owned regions and Central Credit, Inc.

     Interest  expense for the nine months ended  September  30, 1996  increased
$5.9 million due to the issuance of the 4 3/4% Notes in February 1996.  Interest
expense was offset in part by the  decrease in the  Company's  weighted  average
effective  interest  rate from 6.0% in the first nine  months of 1995 to 5.7% in
the nine months  ended  September  30, 1996 as a result of the issuance of the 4
3/4% Notes.

     The $36.5  million  increase in other  expenses  for the nine months  ended
September 30, 1996 compared to the same period in 1995, corresponds to the $91.2
million  increase in other  revenue.  The  increase  includes  $27.5  million of
relocation  expenses generated by the relocation services businesses acquired in
the real estate franchise system acquisitions.

Pro Forma Results of Operations

     Pro forma net income  increased  $58.3 million  (43%) for the nine  months
ended September 30, 1996 over the comparable pro forma 1995 period. The increase
results from a $158.5 million increase in revenue with a corresponding  increase
in total  expenses  of only $59.2  million.  The revenue  increase is  primarily
attributable to increases in: combined lodging and real estate franchise fees of
$36.0 million (8%),  relocation  service fees of $11.6 million (17%),  timeshare
revenue of $27.4 million (13%), net rental car operations of $64.6 million (97%)
and reported preferred vendor revenue of $26.6 million (200%). Pro forma revenue
does not reflect  potential  revenue  enhancements  which may be  realized  from
preferred  vendors  seeking  access to the Company's  newly  acquired  franchise
systems.  The  increase  in  lodging  segment  franchise  fees  is  attributable
primarily to system growth during periods of Company ownership.  The increase in
real estate  segment  franchise fees is a result of increased  gross  commission
revenue  from  franchised  brokerage  offices.  The  increase  in net rental car
operations is primarily due to industry  growth and an increase in market share.
Increases in relocation revenue are directly  attributable to increased services
provided to relocating  employees and the timeshare  revenue  increase is due to
increased timeshare members and related timeshares exchanges.


LIQUIDITY AND CAPITAL RESOURCES

Pending Acquisition

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

<PAGE>



Acquisitions

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

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

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

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

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

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

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

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


<PAGE>



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

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

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

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

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

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

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



<PAGE>



Financing

     The  Company  believes  that  it has  excellent  liquidity  and  access  to
liquidity  through  various  sources.  The  Company  has  generated  significant
positive cash flow from operations in every quarter since its public offering in
December  1992. The Company has also  demonstrated  its ability to access equity
and public  debt  markets and  financial  institutions  to generate  capital for
strategic acquisitions. Indicative of the Company's creditworthiness, Standard &
Poors  Corporation  and Duff and Phelps  assigned  an "A"  credit  rating to the
Company's  $540 million of publicly  issued debt. The Company  generated  $139.4
million of cash flow from operations  during the nine months ended September 30,
1996,  representing  a $55.1 million  (65%)  increase from the nine months ended
September 30, 1995.


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

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

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

     Working capital at September 30, 1996  approximated  $443 million including
the remaining $331 million of excess  proceeds from the Offering.  Excluding the
excess  proceeds  of the  Offering,  working  capital  increased  $68 million at
September  30, 1996 from December 31, 1995.  The increase in working  capital is
attributable  to cash  generated from  operations  and the seasonal  increase in
lodging segment royalty receivables.  Additionally,  included in working capital
at September 30, 1996 is $136 million in relocation  receivables relating to the
Company's  relocation  services business acquired as part of the acquisitions of
Century  21  and  Coldwell  Banker.   Outstanding   relocation  receivables  are
guaranteed by client  corporations  and  accordingly  are, in the opinion of the
Company, subject to minimal risk.

     Long-term  debt consists of $540 million of publicly  issued debt including
the 4 3/4% Notes,  $150 million of 4 1/2% convertible  senior notes due 1999 and
$150 million of 5 7/8% senior notes due December 1998.  Interest on the publicly
issued debt is paid semi-annually.  Long-term debt increased from $300.8 million
at  December  31,  1995 to $541.6  million at  September  30,  1996,  due to the
issuance of the 4 3/4% Notes.  The  weighted  average  stated  interest  rate on
long-term  debt at September 30, 1996 was 5.0% compared to the weighted  average
stated interest rate of 5.2% at December 31, 1995.


<PAGE>



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

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

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


 
<PAGE>



ITEM 5.        OTHER INFORMATION

                        HFS Incorporated And Subsidiaries
                  PRO FORMA CONSOLIDATED FINANCIAL INFORMATION


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

     The pro forma  statements of operations for the nine months ended September
30, 1996 and 1995 are presented as if the  acquisitions  of Avis and RCI and the
following  transactions  had  occurred on January 1, 1995:  (i) the May 31, 1996
acquisition  of the  common  stock of  Coldwell  Banker  Corporation  ("Coldwell
Banker") and the related  contribution  of Coldwell  Banker's  owned real estate
brokerage   offices  (the  "Owned  Brokerage   Business")  to  a  newly  created
independent  trust (the "Trust") (the "Coldwell Banker  Transaction");  (ii) the
receipt of proceeds from an offering of the Company's  common stock (the "Second
Quarter 1996  Offering") to the extent  necessary to fund (a) the acquisition of
Coldwell  Banker and the  related  repayment  of  indebtedness  and  acquisition
expenses;  and (b) the cash consideration  portion in the Avis acquisition (iii)
the  acquisitions of: the six non-owned  Century 21 regions  ("Century 21 NORS")
during  the  second   quarter  of  1996,   the   Travelodge   franchise   system
("Travelodge")  on  January  23,  1996  and  the  Electronic  Realty  Associates
franchise  system  ("ERA") on February 12, 1996  (collectively,  the "Other 1996
Acquisitions");  and (iv) the  February  22, 1996  issuance of $240 million of 4
3/4% convertible  senior notes due 2003 to the extent such proceeds were used to
finance the Other 1996  Acquisitions.  The pro forma statement of operations for
the nine months ended  September 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 are accounted for using the purchase method of accounting.
Accordingly,  assets  acquired  and  liabilities  assumed are  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.  In  addition  to the  cost  savings  reflected  in the  pro  forma
consolidated statements of operations,  the pro forma consolidated statements of
operations  do  not  reflect   certain   additional  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  vendor
programs.  No assurances can be made as to the amount of cost savings or revenue
enhancements, if any, that actually will be realized.
<PAGE>


     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  September  30,
1996;  and (iii) the  financial  statements  and related notes of certain of the
acquired  companies  previously filed in Current Reports on Form 8-K pursuant to
Regulation S-X Rule 3.05,  "Financial Statements of Businesses Acquired or to be
Acquired".


<PAGE>

                        HFS Incorporated and Subsidiaries
                      PRO FORMA CONSOLIDATED BALANCE SHEET
                            As of September 30, 1996
                                 (In thousands)
<TABLE>
<CAPTION>

                                                            Historical                     Pro Forma Adjustments
                                            -----------------------------------------   --------------------------
                                               HFS (1)       Avis (2)           RCI       Avis  (A)        RCI (B)      Pro Forma
                                            -----------------------------------------   --------------------------    ------------
<S>                                             <C>            <C>              <C>         <C>             <C>           <C>

Assets
Current assets
  Cash and cash equivalents .............   $   471,194    $      --      $    89,070   $  (367,166)   $   (42,198)   $   150,900
  Marketable securities .................          --             --          184,599          --         (184,599)          --
  Accounts & notes receivable, net               76,975         1,800          33,107          --             --          111,882
  Relocation receivables ................       136,052           --             --            --             --          136,052
  Marketing and reservation
    receivables, net ....................        36,200           --             --            --             --           36,200
  Other current assets ..................        22,625          1,881         22,836          --             --           47,342
  Deferred income taxes .................        36,456           --             --            --             --           36,456
                                            -----------    -----------    -----------   -----------    -----------    -----------
Total current assets ....................       779,502          3,681        329,612      (367,166)      (226,797)       518,832
                                            -----------    -----------    -----------   -----------    -----------    -----------

Property and equipment-net ..............       106,233         33,828         87,785        58,172        (45,000)       241,018
Franchise agreements-net ................       594,415           --             --            --             --          594,415
Excess of cost over fair value of
  net assets acquired-net ...............     1,339,836           --             --            --             --        1,339,836
Intangible assets .......................          --          499,143           --         127,426        541,831      1,168,400
Investment in car rental
  operating company-net .................          --         (127,384)          --         202,384           --           75,000
Deferred income taxes-net ...............          --             --             --           5,200         56,000         61,200
Other assets ............................        80,064         59,633         40,936        (9,614)       (33,203)       137,816
                                            -----------    -----------    -----------   -----------    -----------    -----------
Total ...................................   $ 2,900,050    $   468,901    $   458,333   $    16,402    $   292,831    $ 4,136,517
                                            ===========    ===========    ===========   ===========    ===========    ===========

Liabilities and Stockholders' Equity
Current Liabilities
  Accounts payable and other
    accrued liabilities .................   $   160,357    $     1,954    $    80,996   $      --      $      --      $   243,307
  Unearned income .......................        24,655           --          119,218          --             --          143,873
  Income taxes payable ..................        81,633            182           --            (182)          --           81,633
  Accrued acquisition obligations .......        40,287           --             --          44,000           --           84,287
  Current portion of long-term debt              29,907           --             --         100,930           --          130,837
                                            -----------    -----------    -----------   -----------    -----------    -----------
Total current liabilities ...............       336,839          2,136        200,214       144,748           --          683,937
                                            -----------    -----------    -----------   -----------    -----------    -----------

Long-term debt ..........................       534,264           --            3,536          --          285,000        822,800
Unearned income .........................         7,299           --          185,703          --             --          193,002
Other non-current liabilities ...........        31,259           --            1,711          --             --           32,970
Deferred income taxes ...................        85,400           --             --            --             --           85,400
Preferred Stock - Avis, Inc. ............          --           72,416           --         (72,416)          --             --
Redeemable portion of common
   stock - ESOP .........................          --          295,465           --        (295,465)          --             --
Unearned compensation-ESOP ..............          --         (257,751)          --         257,751           --             --

Stockholders' Equity:
  Participating convertible
    preferred stock .....................          --          132,000           --        (132,000)          --             --
  Common stock ..........................         1,237            290           --            (244)            10          1,293
  Additional paid-in capital ............     1,705,541        220,401         16,189       117,972         58,801      2,118,904
  Retained earnings .....................       206,236        103,339         37,459      (103,339)       (37,459)       206,236
  Treasury stock ........................        (8,025)      (102,269)          --         102,269           --           (8,025)
  Net unrealized gain on available
    for sale of securities ..............          --             --           13,521          --          (13,521)          --
  Foreign currency equity adjustment ....          --            2,874           --          (2,874)          --             --
                                            -----------    -----------    -----------   -----------    -----------    -----------
Total stockholders' equity ..............     1,904,989        356,635         67,169       (18,216)         7,831      2,318,408
                                            -----------    -----------    -----------   -----------    -----------    -----------
Total ...................................   $ 2,900,050    $   468,901    $   458,333   $    16,402    $   292,831    $ 4,136,517
                                            ===========    ===========    ===========   ===========    ===========    ===========

(1) Certain reclassifications have been made to the historical results of HFS to conform with the Company's pro forma
classification.
(2) See Historical Consolidated Balance Sheet of Avis, Inc. as adjusted as of August 31, 1996.
</TABLE>

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


<PAGE>


                        HFS Incorporated and Subsidiaries
                      CONSOLIDATED HISTORICAL BALANCE SHEET
                           OF AVIS, INC., AS ADJUSTED
                              As of August 31, 1996
                                 (In thousands)

<TABLE>
<CAPTION>

                                             Historical        Reclassification       Avis
                                                Avis              Adjustment         As Adjusted
                                        -----------------      ----------------      -----------
<S>                                            <C>                  <C>                   <C>    

Assets
Current Assets
  Cash and cash equivalents ........     $    75,683               $   (75,683)       $      --
  Accounts and notes
    receivable, net ................         174,047                  (172,247)            1,800
  Vehicles, net ....................       2,567,517                (2,567,517)              --
  Due from affiliated company ......         114,976                  (114,976)              --
  Other current assets .............          45,296                   (43,415)            1,881
  Deferred income taxes ............          68,667                   (68,667)              --
                                         -----------                -----------      -----------
Total Current assets ...............       3,046,186                (3,042,505)            3,681
                                         -----------                -----------      -----------

Property and equipment-net .........         151,854                  (118,026)           33,828
Intangible assets-Avis .............         499,143                      --             499,143
Investment in car rental
    operating company-net ..........            --                    (127,384)         (127,384)
Other assets .......................          85,368                   (25,735)           59,633
                                         -----------                -----------      -----------
Total ..............................     $ 3,782,551                $(3,313,650)     $   468,901
                                         ===========                ===========      ===========

Liabilities and Stockholders' Equity
Current Liabilities
  Accounts Payable and other .......     $   444,867                $  (442,731)     $     2,136
                                         -----------                 -----------     -----------


Long-term debt .....................       2,488,651                 (2,488,651)          --
Public liability and property damage         215,135                   (215,135)          --
Due to affiliated company ..........         132,563                   (132,563)          --

Other non-current liabilities
  Deferred income taxes ............          34,570                    (34,570)          --
  Preferred stock - Avis, Inc. .....          72,416                        --            72,416
  Redeemable portion of common
    stock - ESOP ...................         295,465                        --           295,465
  Unearned compensation-ESOP .......        (257,751)                       --          (257,751)

Stockholders' Equity
  Participating convertible
    preferred stock ................         132,000                        --           132,000
  Common stock .....................             290                        --               290
  Additional paid-in capital .......         220,401                        --           220,401
  Retained earnings ................         103,339                        --           103,339
  Treasury stock ...................        (102,269)                       --          (102,269)
  Foreign currency equity adjustment           2,874                        --             2,874
                                         -----------                -----------      -----------
Total stockholders' Equity .........         356,635                        --           356,635
                                         -----------                -----------      -----------
Total ..............................     $ 3,782,551                $(3,313,650)     $   468,901
                                         ===========                ===========      ===========


Note:  The reclassification adjustment made to the historical balance sheet of Avis, Inc. is to present the historical net
       assets of car rental operations as "investment in car rental subsidiary-net".
</TABLE>

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



<PAGE>



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




                                           1996       1995
                                        ---------  ---------
Revenue
  Franchise .........................   $471,322   $435,344
  Relocation ........................     78,993     67,394
  Timeshare .........................    236,675    209,242
  Other .............................    212,875    129,343
                                        --------   --------
    Total revenue ...................    999,865    841,323
                                        --------   --------

Expenses
  Marketing and reservation .........    238,606    219,395
  Selling, general and administrative    217,431    179,345
  Depreciation and amortization .....    102,208    100,632
  Interest ..........................     36,930     41,063
  Relocation ........................     56,281     45,733
  Other .............................     16,259     22,328
                                        --------   --------
    Total expenses ..................    667,715    608,496
                                        --------   --------

Income before income taxes ..........    332,150    232,827
Provision for income taxes ..........    137,087     96,094
                                        --------   --------
Net income ..........................   $195,063   $136,733
                                        ========   ========

Per Share Information (fully diluted)
  Net income ........................   $   1.35   $   1.00
                                        ========   ========

Weighted average common and common
  equivalent shares outstanding .....    147,513    140,582
                                        ========   ========


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>


<TABLE>
<CAPTION>


                                      Historical
                               -----------------------
                                             Acquired      Pro Forma
                                   HFS      Companies     Adjustments           Pro Forma
                               ---------    ---------     -----------           ---------
<S>                               <C>          <C>            <C>                  <C>

Revenue
  Franchise                    $ 424,162     $  35,325    $   11,835    (C)     $ 471,322
  Owned brokerage business             -       235,625      (235,625)   (D)             -
  Relocation services             44,115        34,878             -               78,993
  Timeshare                            -       251,516       (14,841)   (E)       236,675
  Other                           81,733       104,955        26,187    (F)       212,875
                               ---------     ---------    ----------            ---------
    Total revenue                550,010       662,299      (212,444)             999,865
                               ---------     ---------    -----------           ---------

Expenses
  Marketing and reservation      130,728       107,878             -              238,606
  Selling, general
    and administrative           110,588       161,833       (54,990)   (G)       217,431
  Owned brokerage                      -       227,363      (227,363)   (D)             -
  Depreciation
    and amortization              41,129        37,041        24,038    (H)       102,208
  Interest                        22,194         4,993         9,743    (I)        36,930
  Relocation                      29,121        28,171        (1,011)              56,281
  Other                           10,988         5,616          (345)              16,259
                               ---------     ---------    -----------           ---------
    Total expenses               344,748       572,895      (249,928)             667,715
                               ---------     ---------    -----------           ---------

Income before income taxes       205,262        89,404         37,484             332,150
Provision for income taxes        82,630        21,904         32,553   (J)       137,087
                               ---------     ---------    -----------           ---------
Net income                     $ 122,632     $  67,500    $     4,931           $ 195,063
                               ---------     ---------    -----------           =========


Per Share Information
  (fully diluted)
  Net income                   $    0.96             -              -           $    1.35

  Weighted average common and
     common equivalent shares
    outstanding                  131,684             -         15,829   (K)       147,513
                               =========                  ===========           =========
</TABLE>


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 statement of operations.



<PAGE>



                        HFS Incorporated and Subsidiaries
                HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS
                              OF ACQUIRED COMPANIES
                  For the Nine Months Ended September 30, 1996
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>


                                                          Historical
                                  ----------------------------------------------------------
                                                                                   Other
                                    Avis (1)                        Coldwell      1996   (2)      Total
                                  As Adjusted          RCI         Banker (2)   Acquisitions   Historical
                                  -----------       -------     -------------   ------------   ----------
<S>                                  <C>               <C>          <C>  
Revenue
  Franchise ...........           $        --       $    --     $      25,694    $   9,631     $  35,325
  Owned brokerage
    business ..........                    --            --           235,625         --         235,625
  Relocation services .                    --            --            34,159          719        34,878
  Timeshare ...........                    --       251,516              --           --         251,516
  Other ...............                99,237            --             4,067        1,651       104,955
                                    ---------     ---------         ---------    ---------     ---------
    Total revenue .....                99,237       251,516           299,545       12,001       662,299
                                    ---------     ---------         ---------    ---------     ---------

Expenses
  Marketing and
    reservation .......                   --        106,744              --          1,134       107,878
  Selling, general and
    administrative ....               20,173         74,745            57,455        9,460       161,833
  Owned brokerage .....                   --             --           227,363         --         227,363
  Depreciation and
    amortization ......               14,247         13,352             9,021          421        37,041
  Interest ............                   --            345             3,155        1,493         4,993
  Relocation ..........                   --             --            27,530          641        28,171
  Other ...............                   --          4,340               512          764         5,616
                                   ---------      ---------         ---------    ---------     ---------
    Total expenses ....               34,420        199,526           325,036       13,913       572,895
                                   ---------      ---------         ---------    ---------     ---------

Income (loss) before
  income taxes ........               64,817         51,990           (25,491)      (1,912)       89,404
Provision (benefit) for
  income taxes ........               29,966          2,370           (10,432)        --          21,904
                                   ---------      ---------          ---------    ---------    ---------
Net income (loss) .....            $  34,851      $  49,620         $ (15,059)   $  (1,912)    $  67,500
                                   =========      =========         =========    =========     =========

</TABLE>


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

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

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

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



<PAGE>



                        HFS Incorporated and Subsidiaries
                 HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS
                           OF AVIS, INC., AS ADJUSTED
                    For the Nine Months Ended August 31, 1996
                                 (In thousands)


<TABLE>
<CAPTION>

                                                                 Rental Car
                                                                 Subsidiary           Avis
                                                 Historical      Adjustment       As Adjusted
                                                -----------     ------------     ------------
<S>                                                 <C>              <C>              <C> 

Revenue                                         $ 1,490,709     $(1,391,472)     $   99,237
                                                -----------     -----------      ----------


Expenses:
   Selling, general and administrative.......       975,769        (955,596)         20,173
  Depreciation and amortization .............       333,147        (318,900)         14,247
  Interest ..................................       116,958        (116,958)          --
  Other .....................................            18             (18)          --
                                                -----------      -----------    -----------
    Total expenses ..........................     1,425,892      (1,391,472)         34,420
                                                -----------      -----------    -----------

Income before income taxes ..................        64,817           --             64,817
Provision for income taxes ..................        29,966           --             29,966
                                                -----------     -----------     -----------

Net income ..................................   $    34,851     $      --       $    34,851
                                                ===========     ===========     ===========

</TABLE>




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


<PAGE>


<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 date 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 Nine Months Ended September 30, 1995
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>

                                      Historical
                               -----------------------
                                             Acquired       Pro Forma
                                 HFS         Companies    Adjustments           Pro Forma
                               ---------     ---------    -----------           ---------
<S>                              <C>            <C>           <C>                  <C> 

Revenue
  Franchise                    $ 265,129     $ 150,707    $   19,508    (C)     $ 435,344
  Owned brokerage business             -       411,795      (411,795)   (D)             -
  Relocation services              3,733        63,661             -               67,394
  Timeshare                            -       222,627       (13,385)   (E)       209,242
  Other                           30,869        66,676        31,798    (F)       129,343
                               ---------     ---------    ----------            ---------
    Total revenue                299,731       915,466      (373,874)             841,323
                               ---------     ---------    -----------           ---------

Expenses
  Marketing and reservation      110,842       108,553             -              219,395
  Selling, general
    and administrative            46,117       182,182       (48,954)   (G)       179,345
  Owned brokerage                      -       393,594      (393,594)   (D)             -
  Depreciation
    and amortization              21,721        52,566        26,345    (H)       100,632
  Interest                        16,272         8,135        16,656    (I)        41,063
  Relocation                       1,583        45,969        (1,819)              45,733
  Other                            2,012        21,018          (702)              22,328
                               ---------     ---------    -----------           ---------
    Total expenses               198,547       812,017      (402,068)             608,496
                               ---------     ---------    -----------           ---------

Income before income taxes
  and extraordinary loss         101,184       103,449        28,194              232,827
Provision for income taxes        41,820        43,250        11,024    (J)        96,094
                               ---------     ---------    ----------            ---------
Income before extraordinary loss  59,364        60,199        17,170              136,733
Extraordinary loss                     -         2,027        (2,027)                   -
                               ---------     ---------    -----------           ---------
Net income                     $  59,364     $  58,172    $    19,197           $ 136,733
                               =========     =========    ===========           =========

Per Share Information
  (fully diluted)
  Net income                   $    0.56                                        $    1.00
                               =========                                        =========

  Weighted average common &
    common equivalent shares
    outstanding                  112,056                       28,526   (K)       140,582
                               =========                  ===========           =========

</TABLE>


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
                HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS
                              OF ACQUIRED COMPANIES
                  For the Nine Months Ended September 30, 1995
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>



                                                        Historical
                                   ----------------------------------------------------
                                     Avis (1)                Coldwell          Other         Total
                                   As Adjusted       RCI      Banker       Acquisitions   Historical
                                   -----------    --------   --------      ------------   ----------
<S>                                    <C>           <C>        <C>            <C>          <C> 

Revenue
  Franchise                        $       -      $      -   $ 47,219       $ 103,488       $ 150,707
  Owned brokerage                          -             -    411,795             -           411,795
  Relocation                               -             -     54,469           9,192          63,661
  Timeshare                                -       222,627          -             -           222,627
  Other                               35,010             -      3,972          27,694          66,676
                                   ---------      --------   --------       ---------       ---------
    Total revenue                     35,010       222,627    517,455         140,374         915,466
                                   ---------      --------   --------       ---------       ---------

Expenses
  Marketing and
    reservation                            -        91,792          -          16,761         108,553
  Selling, general
    and administrative                 7,106        62,435     25,289          87,352         182,182
  Owned brokerage                          -             -    393,594             -           393,594
  Depreciation and
    amortization                      14,253        12,698     17,272           8,343          52,566
  Interest                                 -           402      2,958           4,775           8,135
  Relocation                               -             -     39,902           6,067          45,969
  Other                                    -         6,570      1,944          12,504          21,018
                                   ---------      --------   --------       ---------       ---------
    Total expenses                    21,359       173,897    480,959         135,802         812,017
                                   ---------      --------   --------       ---------       ---------
Income  before
  income taxes and
  extraordinary loss                  13,651        48,730     36,496           4,572         103,449

Provision for
  income taxes                        21,644         1,940     16,422           3,244          43,250
                                   ---------       --------   --------      ---------       ---------
Income (loss) before
  extraordinary loss                 (7,993)        46,790     20,074           1,328          60,199
Extraordinary loss                         -             -      2,027               -           2,027
                                   ---------      --------   --------       ---------       ---------
Net income (loss)                  $ (7,993)      $ 46,790   $ 18,047       $   1,328       $  58,172
                                   =========      ========   ========       =========       =========

</TABLE>


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

(1) The historical  financial statement of operations of Avis, as adjusted,
has been adjusted to present only the historical results of operations  intended
to be  retained  by  the  Company.  See  Historical  Consolidated  Statement  of
Operations of Avis, Inc., as Adjusted, for the six months ended August 31, 1996.
See notes to pro forma consolidated balance sheet and statements of operations.


<PAGE>



                        HFS Incorporated and Subsidiaries
                 HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS
                            OF AVIS, INC. AS ADJUSTED
                    For the Nine Months Ended August 31, 1995
                                 (In thousands)

<TABLE>
<CAPTION>


                                                              Rental Car
                                                              Subsidiary             Avis
                                                Historical      Adjustment         As Adjusted
                                              ------------   -------------      -------------
<S>                                                <C>             <C>               <C>

Revenue ...................................   $ 1,190,189    $(1,155,179)        $    35,010
                                              -----------    -----------         -----------


Expenses:
   Selling, general & administrative              766,509       (759,403)              7,106
  Depreciation & amortization .............       304,339       (290,086)             14,253
  Interest ................................       105,379       (105,379)               --
  Other ...................................           311           (311)              --
                                              -----------    -----------         -----------
    Total expenses ........................     1,176,538     (1,155,179)             21,359
                                              -----------    -----------         -----------

Income before income taxes ................        13,651           --                13,651
Provision for income taxes ................        21,644           --                21,644
                                              -----------    -----------         -----------

Net income ................................   $    (7,993)   $      --           $    (7,993)
                                              ===========    ===========          ===========
</TABLE>



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

<PAGE>



 <TABLE>
<CAPTION>



                                             Century     Century 21
                                 CCI (1)      21  (1)       NORS        Travelodge      ERA       Total
                                --------    ---------    ----------    -----------    -------   ----------
<S>                                <C>         <C>           <C>          <C>          <C>           <C>

Revenue:
  Franchise .................   $   --      $ 53,992     $ 20,750      $ 13,476      $ 15,270    $103,488
  Relocation ................       --         6,514           --         --            2,678       9,192
  Other .....................      3,326      10,164          288            59        13,857      27,694
                                --------    --------     --------      --------      --------    --------
    Total revenue ...........      3,326      70,670       21,038        13,535        31,805     140,374
                                --------    --------     --------       --------     --------    --------

Expenses:
  Marketing and
    reservation .............       --         5,128        2,082         9,551         --         16,761
  Selling, general
    & administrative ........       --        47,232       16,339         1,952        21,829      87,352
  Depreciation &
    amortization ............        529       5,217          413             6         2,178       8,343
  Interest ..................       --         2,904           38         --            1,833       4,775
  Relocation ................       --         4,881           --         --            1,186       6,067
  Other .....................      1,917       2,751           --         --            7,836      12,504
                                --------    --------     --------      --------      --------    --------
    Total expenses ..........      2,446      68,113       18,872        11,509        34,862     135,802
                                --------    --------     --------      --------      --------    --------
Income (loss) before
  income taxes ..............        880       2,557        2,166         2,026        (3,057)      4,572
Provision for income taxes           313       2,097           --           834         --          3,244
                                --------    --------     --------      --------      --------    --------
Net income (loss) ...........   $    567    $    460     $  2,166      $  1,192      $ (3,057)   $  1,328
                                ========    ========     ========      ========      ========    ========
</TABLE>


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 statement of operations.


<PAGE>



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


A.  Acquisition of Avis:

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

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


    Cash consideration (i)                                    $  367,166
    Issuance of approximately 4.6 million shares of Company
        common stock                                             338,419
    Issuance of note to ESOP                                     100,930
                                                              ----------
    Total pro forma acquisition cost                             806,515
                                                              ----------


    Fair value of net assets acquired:
        Historical book value of acquired company                356,635


        Elimination of net assets (liabilities) not acquired or assumed:
           Other assets                                           (9,614)
           Preferred stock - Avis                                 72,416
           Intangible assets - Avis                             (499,143)
           Redeemable portion of common stock - ESOP             295,465
           Unearned compensation - ESOP                         (257,751)

    Fair value adjustments to assets acquired and liabilities assumed:
           Deferred income tax asset, net (ii)                     5,200
           Property and equipment                                 58,172
           Investment in car rental operating company            202,384
           Accrued acquisition obligations                       (44,000)
           Other                                                     182
                                                              ----------
        Fair value of identifiable net assets acquired           179,946
                                                              ----------
        Intangible assets-Avis (iii)                          $  626,569
                                                              ==========



(i)   The cash  consideration of the pro forma  acquisition cost was financed
by the Second Quarter 1996 Offering.

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

(iii)  The  Company  has  not  completed  the  valuation  of   identifiable
intangible assets.

<PAGE>



A.  Acquisition of Avis (continued)

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

<TABLE>
<CAPTION>

                                                         Stockholders' Equity
                                            ---------------------------------------------
                                            Issuance of   Elimination of    Adjustment to
                                              Company      Stockholders'    Stockholders'
                                             Common Stk.      Equity           Equity
                                            ------------  --------------    -------------
<S>                                              <C>          <C>                <C>

Participating convertible preferred stock   $    --           $ 132,000      $(132,000)
Common stock ............................          46               290           (244)
Additional paid-in capital ..............     338,373           220,401        117,972
Retained earnings .......................        --             103,339       (103,339)
Treasury stock ..........................        --            (102,269)       102,269
Foreign currency equity adjustment ......        --               2,874         (2,874)
                                            ---------         ---------       ---------
                                            $ 338,419         $ 356,635       $ (18,216)
                                            =========         =========        =========
</TABLE>


B.  Acquisition of RCI

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

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

        Cash (i)                                         $ 265,000 
        Borrowings  under  the
          Company's  Revolving
          Credit Facilities                                285,000
        Issuance of  approximately
          one  million  shares of
            Company common stock (ii)                       75,000
                                                       -----------
        Total pro forma acquisition cost                             $  625,000

        Fair value of net assets acquired
          is as follows:
        Historical book value of RCI                   $    67,169

        Fair value adjustments to assets acquired
          and liabilities assumed:
              Property and equipment                       (45,000)
              Other non-current assets                       5,000
              Deferred income taxes - non -current (iii)    56,000
                                                       -----------
        Fair value of net assets acquired                                83,169
                                                                     ----------
        Intangible assets - RCI (iv)                                 $  541,831
                                                                     ==========

(i)  Cash consideration is comprised of $185 in marketable securities and $38
million in notes not  acquired  and $42  million of  acquired  RCI cash.

(ii) The
number  of  shares  of  Company  common  stock  issued  in  connection  with the
acquisition  was calculated  using a $75.0375 per share stock price.

(iii) The proforma adjustment to deferred income taxes recorded in the fair
value of  unearned  income  liabilities  assumed and the  respective  income tax
basis.
(iv)  The Company has not completed the valuation of identifiable intangible
assets.


<PAGE>



B.  Acquisition of RCI (continued)
<TABLE>
<CAPTION>


                                                    Stockholders' Equity
                                       --------------------------------------------------
                                       Issuance of     Elimination of       Adjustment to
                                         Company        Stockholders'       Stockholders'
                                        Common Stk.        Equity              Equity
                                       ------------    --------------       -------------
<S>                                           <C>            <C>                  <C>  

Common stock .......................   $     10          $   --              $     10
Additional paid-in capital .........     74,990          (16,189)              58,801
Retained earnings ..................       --            (37,459)             (37,459)
Net unrealized gain on available for
    sale of securities .............       --            (13,521)             (13,521)
                                       --------          --------             --------
                                       $ 75,000         $(67,169)            $  7,831
                                       ========          ========            ========
</TABLE>

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

 C. Franchise revenue:

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

                                                       For the Nine Months Ended
                                                               September 30,
                                                             1996        1995
                                                       ----------    -----------
Eliminate:
   Discontinued operations ...........................   $   --      $    (34)
   Century 21 revenue included as Century 21 NORS SG&A     (1,003)     (3,375)
Add:
   Franchise fees from Owned Brokerage Business ......     12,838      22,917
                                                         --------    --------
Total ................................................   $ 11,835    $ 19,508
                                                         ========    ========


D.  Owned brokerage revenue and expenses:

     The pro forma  adjustments  reflect the elimination of revenue and expenses
for  Coldwell  Banker's  318  formerly  owned  brokerage  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.

E.  Timeshare revenue

    The pro forma  adjustment  reflects the  elimination  of  timeshare  revenue
    associated  with  investment  income  generated from RCI cash and marketable
    securities which were used by the Company as partial  consideration  for the
    RCI acquisition.


<PAGE>



F.   Other revenue

    The pro forma adjustment is comprised of the following:

                                                       For the Nine Months Ended
Adjustments to Rental Car Operations:                         September 30,
                                                               1996        1995
                                                            --------    --------
Elimination of historical expense associated with:
    Long-term incentive compensation plans ..............   $  9,302    $   --
    Unfavorable vehicle leases ..........................     15,488     30,478
    Depreciation and amortization .......................     26,120     23,208

Addition of pro forma expenses associated with:
    Depreciation and amortization of  property, equipment
   and other intangibles ................................    (17,174)   (17,174)
Increased financing costs ...............................     (1,549)    (4,714)
                                                            --------   --------
Total adjustments to rental car operations ..............     32,187     31,798

Other Adjustment:
 Elimination of historical interest income related to
   cash consideration portion of Avis Acquisition (i) ...     (6,000)       --
                                                            --------   --------
Total ...................................................   $ 26,187  $  31,798
                                                            ========   ========

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

G.  Selling, general and administrative expense:

     The pro forma  adjustments  eliminate  redundant costs  associated with the
restructuring  of franchise  services  and other  businesses  and the  resulting
termination  of certain  functions  and  positions  in  connection  with company
acquisitions. Adjustments are comprised of the following ($000's):

    For the nine months ended September 30, 1996:
<TABLE>
<CAPTION>


                                                        Coldwell   Century 21
                                                RCI      Banker        NORS      Travelodge      ERA       Total
                                             --------   --------   ----------   -----------    -------   --------
<S>                                            <C>         <C>        <C>          <C>           <C>         <C>

Payroll and related ......................   $    880   $  4,451    $  2,425     $     25      $   222   $  8,003
Stock option expense .....................       --       40,801        --           --            --      40,801
Professional .............................        750      1,055         705            4          --       2,514
Occupancy ................................       --         --           604            4          102        710
Franchise fees (Note B) ..................       --         --         1,003         --           --        1,003
Other ....................................      1,333       (604)      1,069            4          157      1,959
                                             --------   --------    --------     --------     --------   --------
Total ....................................   $  2,963   $ 45,703    $  5,806     $     37     $    481   $ 54,990
                                             ========   ========    ========     ========     ========   ========


</TABLE>


<PAGE>



    For the nine months ended September 30, 1995:
<TABLE>
<CAPTION>

                          Century             Coldwell   Century 21
                             21       RCI      Banker      NORS        Travelodge     ERA       Total
                          -------   -------   --------   ----------   -----------    ------    -------
<S>                          <C>     <C>         <C>         <C>          <C>         <C>         <C>

Payroll and related ...   $10,885   $   914   $ 8,011    $ 5,354       $   502     $ 1,526      $27,192
Professional ..........     2,693       750     1,573      1,063            70          --        6,149
Occupancy .............     3,628      --        --        1,944            84         666        6,322
Franchise fees (Note B)      --        --        --        3,375          --            --        3,375
Other .................     3,128     1,275    (1,072)     1,528            74         983        5,916
                          -------   -------   -------    -------       -------     -------      -------
Total .................   $20,334   $ 2,939   $ 8,512    $13,264       $   730     $ 3,175      $48,954
                          =======   =======   =======    =======       =======     =======      =======
</TABLE>


H.  Depreciation and amortization:

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

    For the nine months ended September 30, 1996:
<TABLE>
<CAPTION>

                                                            Coldwell    Other 1996
                                      RCI        Avis       Banker      Acquisitions      Total
                                  --------    ---------   ----------    ------------  ---------
<S>                                  <C>        <C>          <C>             <C>          <C> 

Elimination of historical
    expense .............         $(13,352)   $(14,247)   $ (9,021)     $   (421)     $(37,041)
Property, equipment &
    furniture & fixtures             3,467       9,300         540            --        13,307
Intangible assets .......           20,285      15,246      10,775         1,466        47,772
                                  --------    --------    --------      --------      --------
Total ...................         $ 10,400    $ 10,299    $  2,294      $  1,045      $ 24,038
                                  ========    ========    ========      ========      ========

</TABLE>


    For the nine months ended September 30, 1995:
<TABLE>
<CAPTION>

                                CCI      Century                            Coldwell   Other 1996
                              Merger        21         RCI        Avis       Banker   Acquisitions        Total
                            ---------   ---------   --------   ---------   ---------  ------------       --------
<S>                            <C>        <C>          <C>         <C>         <C>         <C>               <C>

Elimination of historical
  expense ...............   $   (529)   $ (5,217)   $(12,698)  $ (14,253) ($(17,272)   $ (2,597)        $(52,566)
Property, equipment &
  furniture and fixtures         100         534       3,467       9,300        972        --             14,373
Information data base ...        375        --          --          --         --          --                375
Intangible assets .......        289       3,669      20,285      15,246     19,408       5,266           64,163
                            --------    --------    --------    --------   --------    --------         --------
Total ...................   $    235    $ (1,014)   $ 11,054    $ 10,293   $  3,108    $  2,669         $ 26,345
                            ========    ========    ========    ========   ========    ========         ========

</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 property and  equipment,  franchise
agreements  and  excess  cost over fair value of net  assets  acquired  are $5.5
million, $33.5 million and $140.0 million,  respectively, and are amortized on a
straight-line basis over the periods to be benefited which are seven, twelve and
forty years,  respectively.  The benefit periods associated with the excess cost
over fair value of net assets  acquired  were  determined  based on Century 21's
position as the world's largest  franchisor of residential real estate brokerage
offices, the most recognized brand name in the residential real estate brokerage
industry and the longevity of the residential real estate brokerage business.

    RCI

     The  fair  value  of  RCI's   property   and   equipment  is  estimated  at
approximately  $37 million and is  amortized  on a straight  line basis over the
estimated useful lives, ranging from seven to thirty years.

     RCI's  intangible  assets consist of customer lists and excess of cost over
fair value of net assets  acquired.  The estimated fair value of such intangible
assets is approximately  $542 million and is amortized on a straight-line  basis
over the  periods  to be  benefited.  The  excess of cost over fair value of net
assets  acquired was determined to have a benefit  period of forty years,  which
was based on RCI being a leading provider of services to the timeshare industry,
which  includes  being  the  world's  largest  provider  of  timeshare  exchange
programs.

    Avis

     The estimated  fair value of Avis'  property and  equipment  intended to be
retained by the Company,  is $92 million,  comprised  primarily of a reservation
system and related  assets.  Such  property  and  equipment  is  amortized  on a
straight-line  basis over the  estimated  benefit  periods  ranging from five to
eight years.  The estimated fair values of Avis'  intangible  assets,  comprised
principally of excess of cost over fair value of net assets  acquired,  are $627
million and are amortized on a  straight-line  basis over the respective  assets
benefit periods which range between ten to forty years.

     The excess of cost over fair value of net assets acquired was determined to
have a benefit  period of forty years,  which was based on Avis' position as the
second largest car rental system in the world, the recognition of its brand name
in the car rental industry and the longevity of the car rental business.

    Coldwell Banker

     The  estimated  fair value of  Coldwell  Banker's  property  and  equipment
(excluding  land) of $16.7 million,  is amortized on a straight-line  basis over
the  estimated  benefit  periods  ranging from five to  twenty-five  years.  The
estimated  fair value of  Coldwell  Banker's  intangible  assets,  comprised  of
franchise  agreements and excess of cost over fair value of net assets acquired,
is $768.4 million and is amortized on a straight-line  basis over the periods to
be  benefited.  The excess of cost over fair value of net  assets  acquired  was
determined to have a benefit period of forty years,  which was based on Coldwell
Banker's  position as the largest gross revenue producing real estate company in
North American,  the recognition of its brand name in the real estate  brokerage
industry and the longevity of the real estate brokerage business.



<PAGE>



    Other 1996 Acquisitions

     The estimated fair values of Other 1996 Acquisitions  franchise  agreements
aggregate  $61.0  million and are being  amortized on a straight line basis over
the  periods to be  benefited,  which  range from  twelve to thirty  years.  The
estimated  fair values of Other  Acquisitions  excess of cost over fair value of
net assets acquired  aggregate  $164.2 million and are each being amortized on a
straight line basis over the periods to benefited which are forty years.


I.  Interest expense:
                                                 For the Nine Months Ended
                                                          September 30,
                                                    1996        1995
                                                 ---------   ----------

Elimination of historical interest expense of:
  Century 21 .................................   $   --      $ (2,904)
  Other 1996 Acquisitions ....................     (1,493)     (1,871)
  RCI ........................................       (345)       (402)
Reversal of Coldwell Banker ..................     (3,155)     (2,958)
Century 21 ...................................       --         2,835
RCI ..........................................     13,466      13,466
Minority interest - preferred dividends ......       --         1,796
43/4% Notes to finance Other 1996 Acquisitions      1,270       6,694
                                                 --------    --------
Total ........................................   $  9,743    $ 16,656
                                                 ========    ========


    Century 21

     The pro forma adjustment  reflects the recording of interest expense on $60
million of  borrowings  under the  Company's  revolving  credit  facility  at an
interest rate 6.3%.  Borrowings  represent  the amount  necessary to finance the
initial cash purchase price net of $10.2 million of acquired cash.

    Coldwell Banker

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

                                            For the Nine Months Ended
                                                    September 30,
                                                1996        1995
                                             ----------  ----------
Expense associated with the Owned
   Brokerage Business .....................   $  (179)   $    72
Expense associated with revolving credit
   facility borrowings which will be repaid
   with proceeds from offering ............     3,334      2,886
                                              -------    -------
Total .....................................   $ 3,155    $ 2,958
                                              =======    =======


    RCI

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

<PAGE>



    Minority interest - preferred dividends:

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

4-3/4% Notes

     The pro forma  adjustment  reflects  interest  expense and  amortization of
deferred financing costs related to the February 22, 1996 issuance of the 4-3/4%
Notes to the  extent  that such  proceeds  were used to  finance  the Other 1996
Acquisitions.


J.  Income Taxes

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

                                                   For the Nine Months Ended
                                                         September 30,
                                                        1996         1995
                                                    ----------   -----------
   Reversal of historical (provision) benefit of:
   Company ......................................   $ (82,630)   $ (41,820)
   CCI ..........................................        --           (313)
   Century 21 ...................................        --         (2,097)
   RCI ..........................................      (2,370)      (1,940)
   Avis .........................................     (29,966)     (21,644)
   Coldwell Banker ..............................      10,432      (16,422)
   Travelodge ...................................        --           (834)
Pro forma provision .............................     137,087       96,094
                                                    ---------    ---------
Total ...........................................   $  32,553    $  11,024
                                                    =========    =========

     The pro forma  effective  tax rates are  approximately  1% higher  than the
Company's  historical  effective tax rates due to non-deductible  excess of cost
over fair value of net assets  acquired to be recorded  in  connection  with the
acquisition of Avis and RCI.


K.  Weighted average common and common equivalent shares outstanding

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


                                                 For the Nine Months
                                                    September 30,
                                                   1996     1995
                                                 -------  -------

CCI ..........................................     --      1,180
Century 21 ...................................     --      3,120
Avis Offering ................................    4,569    4,569
RCI ..........................................    1,000    1,000
Second Quarter 1996 Offering - Coldwell Banker    7,122   12,838
Second Quarter 1996 Offering - Avis ..........    2,720    4,896
Century 21 NORS ..............................      418      923
                                                 ------   ------
Total ........................................   15,829   28,526
                                                 ======   ======


<PAGE>



     The unaudited Pro Forma Consolidated  Statements of Operations is presented
as if the  acquisitions  took place at the  beginning of the periods  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>



ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

(a)     Exhibits

Exhibit
No.     Description

2.1  Stock  Purchase  Agreement  dated as of  October  6,  1996 by and among the
     Company, Christel DeHaan and Resort Condominiums International, Inc.

3.1  By laws of the Company, as amended effective October 24, 1996.

10.1 Third  Amendment  to  Employment  Agreement  dated as of October  30,  1996
     between the Company and John D. Snodgrass.

10.2 Employment Agreement dated October 14, 1996 between the Company and Michael
     P. Monaco.

11   Computation of per share earnings.

27   Financial Data Schedule.


(b)  Reports on Form 8-K

     The Company  filed a Current  Report on Form 8-K dated  August 29, 1996 for
purposes of  incorporating  by reference  certain  financial  statements  in the
Company's  Registration  Statements which were filed shortly after the filing of
such Current Report on Form 8-K. The financial statements filed included:

     1. Pro forma  financial  statements of the Registrant as of and for the six
months ended June 30, 1996 and for the year ended  December 31, 1995,  including
the proposed acquisition of Avis, Inc.

     2. The audited consolidated  statements of financial position of Avis, Inc.
and its subsidiaries at February 29, 1996 and February 28, 1995, and the related
consolidated  statements of operations,  of changes in stockholders'  equity, of
changes in redeemable  preferred  stock, and of cash flows for each of the three
years in the period ended February 29, 1996.

     3. The unaudited  consolidated  financial  statements of Avis, Inc. and its
subsidiaries  at May 31,  1996 and for the three  months  ended May 31, 1996 and
1995.



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                                   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/   James E. Buckman
                                                      James E. Buckman
                                                      Executive Vice President
Date: November 14, 1996                               And General Counsel




                                              By:       /s/   Michael P. Monaco
                                                      Michael P. Monaco
                                                      Vice Chairman
Date: November 14, 1996                              And Chief Financial Officer
                                                    (Principal Financial Officer
                                               And Principal Accounting Officer)


 
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                                  EXHIBIT INDEX



Exhibit
 No.        Description

(a)         Exhibits

2.1  Stock  Purchase  Agreement  dated as of  October  6,  1996 by and among the
     Company, Christel DeHaan and Resort Condominiums International, Inc.

3.1  By laws of the Company, as amended effective October 24, 1996.

10.1 Third  Amendment  to  Employment  Agreement  dated as of October  30,  1996
     between the Company and John D. Snodgrass.

10.2 Employment Agreement dated October 14, 1996 between the Company and Michael
     P. Monaco.

11   Computation of per share earnings.

27   Financial Data Schedule.
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