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 March 31, 1997
                           Commission File No. 1-11402

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


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


     Delaware                                              22-3059335
(State or other jurisdiction                             (I.R.S. Employer
of incorporation or organization)                       Identification Number)

   6 Sylvan Way
Parsippany, New Jersey                                                07054
(Address of principal executive office)                             (Zip Code)

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

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


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


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


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

     The number of shares  outstanding  of each of the  Registrant's  classes of
common stock was 158,097,973  shares of Common Stock outstanding as of April 30,
1997.


<PAGE>

                        HFS Incorporated and Subsidiaries
                           CONSOLIDATED BALANCE SHEETS

                      (In thousands, except share amounts)

<TABLE>
<CAPTION>

                                                                   March 31,      December 31,
ASSETS                                                               1997            1996
---------------------------------------------------------------------------------------------
<S>                                                                  <C>              <C>

CURRENT ASSETS
Cash and cash equivalents ....................................   $    58,563      $    55,762
Accounts and notes receivable - net ..........................       188,670          147,338
Relocation receivables .......................................       100,344          125,662
Other current assets .........................................        66,438           68,320
Deferred income taxes ........................................        74,279           72,200
                                                                 -----------     ------------
     Total current assets ....................................       488,294          469,282
Property and equipment, net ..................................       240,303          236,383
Franchise agreements, net ....................................       956,012          995,947
Excess of cost over fair value of net assets acquired, net ..      1,773,527        1,736,130
Other intangibles - net ......................................       596,622          604,535
Investment in car rental operations of Avis, Inc. ...........         78,019           76,540
Other assets .................................................       191,408          170,104
                                                                 -----------     ------------
     TOTAL ASSETS ............................................   $ 4,324,185      $ 4,288,921
                                                                 ===========      ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and other ..................................    $   279,338      $   322,577
Deferred income .............................................        156,250          160,619
Income taxes payable ........................................         31,155           17,460
Short-term debt .............................................        150,000          150,000
Due to car rental operations of Avis, Inc. - net .............        45,615           61,807
Current portion of long-term debt ..........................           3,199            2,995
                                                                 -----------     ------------
     Total current liabilities .............................         665,557          715,458

Long-term debt .............................................         978,749          748,421
Deferred income and other non-current liabilities ..........         238,117          266,441
Deferred income taxes ......................................          78,928           82,100
Commitments and contingencies

STOCKHOLDERS' EQUITY
Common stock ..............................................            1,307            1,299
Additional paid-in capital ................................        2,241,477        2,236,444
Retained earnings .........................................          312,128          253,188
Net unrealized gain on investment .........................               --            4,366
Currency translation adjustment ...........................           (1,608)             356
Treasury stock, at cost (2,946,400 and 322,500 shares) ...          (190,470)         (19,152)
                                                                  -----------     ------------
     Total stockholders' equity ..........................         2,362,834        2,476,501
                                                                  -----------     ------------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...........      $ 4,324,185      $ 4,288,921
                                                                  ===========     ============
</TABLE>

-See notes to consolidated financial statements-

                                                         

<PAGE>






                        HFS Incorporated and Subsidiaries
                        CONSOLIDATED STATEMENTS OF INCOME

                    (In thousands, except per share amounts)






                                                    Three Months Ended
                                                          March 31,
                                                      1997       1996
                                                    --------   --------


REVENUE .........................................   $347,962   $124,545


EXPENSES:
    Selling, general and administrative ........     197,223     68,744
    Depreciation and amortization ...............     36,451     10,186
    Interest ....................................     14,389      6,791
                                                    --------   --------

       Total expenses ...........................    248,063     85,721
                                                    --------   --------

Income before income taxes ......................     99,899     38,824
Provision for income taxes ......................     40,959     16,006
                                                    --------   --------

Net income ......................................   $ 58,940   $ 22,818
                                                    ========   ========

SHARE INFORMATION (fully diluted):

Net income per share ............................   $    .41   $    .20
                                                    ========   ========

Weighted average common and common
    equivalent shares outstanding ...............    147,215    121,088
                                                    ========   ========







-See notes to consolidated financial statements-





                                                                

<PAGE>






                        HFS Incorporated and Subsidiaries
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                 (In thousands)


<TABLE>
<CAPTION>
                                                                                  Net
                                                     Additional                 Unrealized   Currency
                                 Common Stock          Paid In      Retained     Gain on     Translation   Treasury
                               Shares     Amount       Capital      Earnings    Investment   Adjustment     Stock        Total
                               -------  ---------   -----------    ---------    ----------   -----------  ----------  ----------
<S>                               <C>       <C>         <C>           <C>           <C>          <C>          <C>         <C>

Balance, January 1, 1997       129,889  $   1,299   $2,236,444     $ 253,188     $ 4,366      $  356      $ (19,152)  $2,476,501

Exercise of stock options          709          8        7,976            --          --          --             --        7,984


Tax benefit from exercise
    of stock options                --         --       14,624            --          --          --             --       14,624

Post-closing payment made
    in connection with
    shares issued to acquire
    Avis, Inc.                      --         --      (17,576)           --          --          --             --      (17,576)

Conversion of 4-1/2% Notes          --         --            9            --          --          --             --            9

Purchase of common stock            --         --           --            --          --          --       (171,318)    (171,318)

Currency translation
    adjustment                      --         --           --            --          --      (1,964)            --       (1,964)

Change in unrealized gain
    on investment                   --         --           --            --      (4,366)         --             --       (4,366)

Net income                          --         --           --        58,940          --          --             --       58,940
                             ---------  ---------   -----------    ---------     --------     -------     ----------  -----------

Balance, March 31, 1997        130,598  $   1,307   $2,241,477     $ 312,128     $    --     $(1,608)     $(190,470)  $2,362,834
                             =========  =========   ==========     =========     ========    ========     ==========  ==========

</TABLE>


-See notes to consolidated financial statements-

                                                                       

<PAGE>





                        HFS Incorporated and Subsidiaries
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)




<TABLE>
<CAPTION>
                                                                   Three Months Ended
                                                                         March 31,
                                                                    1997         1996
                                                                 ---------    ---------
<S>                                                                  <C>         <C>  

Operating Activities:

     Net cash provided by operating activities ...............   $  61,896    $  12,082
                                                                 ---------    ---------


Investing Activities:
     Property and equipment additions ... ....................     (13,864)      (7,075)
     Proceeds from sale of assets ............................      21,750           --
     Due to car rental operations of Avis Inc. ...............     (16,192)          --
     Loans and investments ...................................     (24,803)     (10,000)
     Net assets acquired, exclusive of cash acquired .........     (70,317)     (99,959)
                                                                  ---------    ---------

              Net cash used in investing activities ..........    (103,426)    (117,034)
                                                                  ---------    ---------


Financing Activities:
     Redemption of Series A Preferred Stock ....................        --      (80,000)
     Principal payments - long-term debt ............... .....     (27,147)        (545)
     Issuance of common stock ................................       7,984        2,217
     Purchases of treasury stock .............................    (171,318)          --
     Proceeds from borrowings, net ...........................     236,399      248,603
                                                                 ---------     ---------

              Net cash provided by financing activities .....       45,918      170,275
                                                                 ---------     ---------

Effect of changes in exchange rates on cash and cash equivalents    (1,587)          --
                                                                  ---------    ---------

Net increase in cash and cash equivalents ....................       2,801        65,323
Cash and cash equivalents, beginning of period ...............      55,762        16,109
                                                                 ---------     ---------

Cash and cash equivalents, end of period .....................   $  58,563     $  81,432
                                                                 =========     =========
</TABLE>






-See notes to consolidated financial statements-


                                                                              

<PAGE>



                        HFS Incorporated and Subsidiaries
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               For the three months ended March 31, 1997 and 1996



1.   Basis of Presentation

         The  consolidated  balance sheet of HFS  Incorporated  and subsidiaries
     (the "Company") as of March 31, 1997, the consolidated statements of income
     and cash flows for the three  months  ended March 31, 1997 and 1996 and the
     consolidated  statement of stockholders'  equity for the three months ended
     March 31, 1997 are unaudited. In the opinion of management, all adjustments
     necessary  for  a  fair  presentation  of  such  financial  statements  are
     included.  Such  adjustments  consist only of normal  recurring  items. The
     Company is a global provider of fee-based  consumer  services  primarily to
     the travel and real estate  industries.  The Company therefore  experiences
     seasonal  revenue  patterns  similar to those of the travel 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,  except
     for the  Company's  ownership of the car rental  operations  of Avis,  Inc.
     ("ARAC"),  which is  accounted  for under the  equity  method.  ARAC is not
     consolidated  because of the Company's  plan to undertake an initial public
     offering of ARAC ("IPO"), which will dilute its interest in ARAC to 25%. If
     the IPO is not consummated within one year of the Company's  acquisition of
     Avis,  Inc., the Company will consolidate  ARAC. 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,
     1996  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 1996 Annual Report on Form 10-K.

         Certain  reclassifications  have  been  made to the  1996  consolidated
     financial statements to conform with classifications used in 1997.


2.   HFS - PHH Merger

         Upon  receiving  approval  from  the  stockholders  of PHH  Corporation
     ("PHH") and the Company on April 30,  1997,  the  Company  acquired  PHH by
     merger (the "Merger") for approximately  $1.8 billion or approximately 30.3
     million  shares of Company  common stock,  which  represented  19.2% of the
     total outstanding  shares of the Company as of April 30, 1997.  Pursuant to
     the merger  agreement,  PHH  stockholders  received  .825 shares of Company
     common  stock  for each  share of PHH  common  stock.  The  Merger  will be
     accounted for as a pooling of interests.

         The  following   information  reflects  unaudited  pro  forma  combined
     condensed  financial  statements  which give effect to the Merger accounted
     for as a pooling of interests. These financial statements include certain

                                                                                
<PAGE>



     pro forma adjustments to conform the companies'  methods of accounting
     and certain  reclassifications to conform to the presentation to be used by
     the Company, post merger.

     Pro Forma Combined Condensed Balance Sheet                  (In thousands)
     At March 31,                                                      1997
                                                                 --------------
     Assets
      Current assets .........................................   $ 1,708,296
      Intangible assets ......................................     3,350,368
      Assets under fleet management and mortgage programs ....     4,944,771
      Other assets ...........................................       749,902
                                                                 -----------

         Total assets ......................................     $10,753,337
                                                                 ===========

     Liabilities and Stockholders' Equity
      Current liabilities ....................................   $ 1,373,788
      Long-term debt .........................................     1,505,576
      Liabilities under fleet management and mortgage programs     4,647,688
      Other non-current liabilities ..........................       384,853
      Stockholders' equity ...................................     2,841,432
                                                                 -----------

         Total liabilities and stockholders' equity ........     $10,753,337
                                                                 ===========


         The Pro Forma  Combined  Condensed  Balance  Sheet  includes a one-time
     pre-tax  restructuring  charge of approximately $287 million for severance,
     facility  consolidation and other transaction  related costs to be incurred
     in connection  with the Merger.  Such charge will be recorded in the second
     quarter of 1997 upon  consummation  of the Merger.  The Pro Forma  Combined
     Condensed   Balance   Sheet  at  March  31,  1997  reflects  the  after-tax
     restructuring  charge of $217 million as a reduction of retained  earnings.
     Accrued  merger-related  costs have been reflected primarily as an increase
     to current liabilities.

     Pro Forma Combined Condensed Statements of Income
                                    (In thousands, except per share amounts)
     Three Months Ended March 31,         1997                 1996
                                       -----------   -----------------------
                                       Pro Forma     Pro Forma      Combined
                                       Combined(1)   Combined(2)   Historical(3)
                                       -----------   -----------   -------------
Net revenue ..........................   $526,597     $458,011      $280,121
Total expenses .......................    372,008      352,235       206,297
                                         --------     --------      --------
Income before income taxes .....  ....    154,589      105,776        73,824
Provision for income taxes ...........     63,485       42,733        30,570
                                         --------     --------      --------
Net income ...........................   $ 91,104     $ 63,043      $ 43,254
                                         ========     ========      ========

Per Share Information (fully diluted):
    Net income per share(4)              $   0.52     $   0.36      $   0.29

Weighted average common and common
    equivalent shares outstanding         181,713      177,439       151,387

------------
(1) Reflects the combined  historical  results of  operations of the Company and
PHH. Such financial results are comparative to the Pro Forma Combined Results of
Operations for the three months ended March 31, 1996.

                                                                       

<PAGE>



(2) Reflects the results of  operations  of the Company on a pro forma basis for
all material  transactions  prior to the PHH Merger  ("Pro Forma HFS")  combined
with the  historical  results of  operations  of PHH. Pro forma HFS includes the
following acquisitions and related financing of such acquisitions as if they had
occurred on January 1, 1996: (i) Travelodge  franchise  system;  (ii) Electronic
Realty Associates  franchise system; (iii) the six CENTURY 21 non-owned regions;
(iv) Coldwell Banker Corporation; (v) Avis, Inc.
and (vi) Resort Condominiums International, Inc.
(3)  Reflects the combined historical results of operations of the Company and
PHH.
(4)  The $240 million 4-3/4% Notes issued in February 1996 ("4-3/4% Notes") are
dilutive in all calculations of combined historical
and pro forma  combined  net  income  per share for the  periods  presented  and
accordingly are included in such computations of net income per share.
------------


3.   Income Taxes

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


4.   Stockholders' Equity

         In January 1997, in connection with the Company's  acquisition of Avis,
     Inc.,  the  Company  made  a  $17.6  million   payment  to  General  Motors
     Corporation  representing a contingent payment determined by the price of
     the  Company's  common stock that was issued as  consideration  for such
     acquisition.
     Such payment is reflected as a reduction of stockholders' equity.


5.   Earnings per Share

         Earnings  per share for the three  months ended March 31, 1997 and 1996
     are based upon the weighted average number of common and common  equivalent
     shares  outstanding  during the  respective  periods.  The 4-3/4% Notes are
     antidilutive  for the  three  months  ended  March  31,  1997 and 1996 and,
     accordingly, are not included in the computations of net income per share.


6.   Subsequent Event

         In April 1997, the Company terminated a previously  announced agreement
     in principle to acquire Value  Rent-A-Car  from  Mitsubishi  Motor Sales of
     America.


                                     ******

                                                                         

<PAGE>



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


GENERAL OVERVIEW

     HFS  Incorporated  (together  with its  subsidiaries,  the  "Company") is a
leading  global  provider of consumer  services.  Although the Company  provides
fee-based  services  that  primarily  fall  within the  Travel  and Real  Estate
industries,  the Company  generally neither owns the assets nor shares the risks
associated  with the  underlying  businesses  of its  customers.  In the  travel
industry,  the Company is the world's largest  franchisor of lodging  facilities
("Lodging") and the leading  provider of vacation  timeshare  exchange  services
("Timeshare").  The  Company  also  licenses  the Avis  trademark  and  provides
franchise  services  to the  car  rental  operating  subsidiary  of  Avis,  Inc.
("ARAC"),  the second largest car rental system  worldwide ("Car  Rental").  The
Company  intends to undertake an initial public  offering of the Avis car rental
operations in September 1997 that is expected to dilute the Company's interest 
in ARAC to 25%. In the real estate  industry, the Company is the world's largest
franchisor  of real estate  brokerage  offices  ("Real  Estate  Franchise")  and
world's  largest  provider  of  corporate  relocation  services   ("Relocation")
following its merger with PHH Corporation ("PHH").

     The Company acquired PHH by merger on April 30, 1997 for approximately $1.8
billion by issuing approximately 30.3 million shares of Company common stock for
all of the outstanding  common stock of PHH. The  transaction  will be accounted
for as a pooling of  interests.  PHH's  business  lines,  which  complement  the
Company's travel and real estate industry segments,  include the world's largest
corporate  relocation business and the twelfth largest mortgage service business
in the United States. PHH also provides international fleet management services.

     All  comparisons in the following  discussion are to the same period of the
previous year, unless otherwise stated.


HISTORICAL RESULTS OF OPERATIONS

     Consolidated  net income increased 158% ($36.1 million) to $58.9 million in
1997 while earnings per share ("EPS")  increased 105% ($.21) to $.41.  Operating
income  (revenue less expenses  excluding  interest and income taxes)  increased
151% ($68.7 million) to $114.3 million.  Pro forma operating  income,  including
PHH  increased  44% for the same period.  (See pro forma  results of  operations
below)

     Consolidated revenue increased 179% ($223.4 million) to $348.0 million. Pro
forma net revenue increased 15% for the same period.

     Interest  expense  increased 112% ($7.6 million)  primarily  resulting from
borrowings   under  revolving  credit   arrangements   which  financed  the  RCI
acquisition  and 1997  treasury  stock  purchases,  while the  weighted  average
effective  interest rate  increased from 5.51% to 5.77% as a result of a greater
percentage  of total debt  comprised of borrowings  under the  revolving  credit
facilities partially offset by fixed rate securities with lower interest rates.

     The Company  collects  certain  service  fees from  lodging and real estate
franchisees,  which  it  disburses  completely  for  marketing  and  reservation
activities on behalf of franchisees. Since the Company administers such funds on
a pass through basis,  management analyzes business results from the Lodging and
Real  Estate  franchise  segments  in  terms of  revenue  net of  marketing  and
reservation  expenses  ("net  revenue")  and  operating  expenses.  Net  revenue
consists  of gross  revenue of $348.0  million  and $124.5  million for 1997 and
1996,  respectively,  less $38.0  million  and $33.6  million of  marketing  and
reservation revenue, for the same respective periods. Operating expenses
                                                                              

<PAGE>



     include  depreciation and  amortization  but excludes  interest expense and
income taxes. Results for the Company's segments are as follows:

                                                         Variance
     Operating income ($000's)             1997       1996    97 v 96
     -------------------------          --------   --------   --------

        Net revenue .........           $309,942   $ 90,952      241%
        Operating expenses ..            195,654     45,337      332%
                                        --------   --------
        Operating income ...            $114,288   $ 45,615      151%
                                        ========   ========


TRAVEL INDUSTRY

Lodging

     The Company operates eight nationally  recognized brands with approximately
5,500  Lodging  properties  under  franchise  contracts  of up to  20  years  in
duration.  The Company provides central reservation system services and national
marketing  programs,  which are completely  funded by its franchisees based on a
designated portion of the franchise fees. The Company charges royalty fees based
on a percentage of franchisee  gross room sales to fund all expenses not covered
by marketing and  reservation  fees, such as quality  assurance  inspections and
franchise sales and service  functions.  Accordingly,  the  significant  revenue
drivers of the Company are the number of royalty-paying  franchise units and the
average  royalty  rate which they pay.  Relevant  but less  significant  are the
average  daily  rates  and  occupancy   percentage  of  the  underlying  lodging
properties.

     Operating income ($000's)      1997      1996     Variance
     -------------------------    -------   -------    --------

       Net revenue .........      $54,042   $49,285        10%
       Operating expenses ..       18,042    21,886       (18%)
                                  -------   -------
       Operating income ....      $36,000   $27,399        31%
                                  =======   =======

     Operating income increased 31% as a result of a 10% increase in net revenue
and an 18% reduction in operating  expenses.  The net revenue increase  resulted
from a 7% increase in royalty fees and an 83% increase in revenue from preferred
alliances  seeking  access to the  Company's  franchisees  and their  underlying
consumer  base.  Total royalty paying rooms grew 7% from the same period in 1996
and total system  revenue per available room  ("REVPAR")  increased 2% primarily
due to a 3% increase in the average daily rates  charged at  franchised  lodging
facilities  ("ADR").  The 18% ($3.8  million)  decrease  in  operating  expenses
resulted  from the  absorption of corporate  overhead  expenses by the Company's
other operating segments substantially all of which were acquired in 1996.

Car Rental

     The Company  acquired Avis,  Inc. on October 17, 1996 for $806.5 million in
cash and  Company  common  stock.  Prior to the  acquisition  date,  the Company
announced  its plan to  undertake  an initial  public  offering  ("IPO") of ARAC
within  one year of the  acquisition  date and dilute  its  interest  in ARAC to
approximately  25%. The Company will retain assets that are consistent  with the
Company's service provider business profile, including the trademark,  franchise
agreements,  reservation  system and information  technology system assets.  The
Company currently  receives fees based on franchise  agreements from third party
licensees  that  are  typical  of  a  traditional  franchise  relationship.  The
Company's  equity  in the  earnings  of  ARAC  after  royalty,  reservation  and
information  technology  fees is recorded in the Company's  other segment as net
revenue.


                                                                      

<PAGE>



     Operating income ($000's)

         Net revenue                                      $    58,834
         Operating expenses                                    38,624
                                                          -----------
         Operating income                                 $    20,210
                                                          ===========

     Total net revenue  increased $10.1 million (20%) to $58.8 million  compared
to pro forma 1996 net revenue.  The increase  resulted from a $2.0 million (11%)
increase in royalty fees  (including a $1.2 million  increase in fees from ARAC)
and a  $6.1  million  (34%)  increase  in  information  technology  fees  earned
primarily  from customers  other than ARAC.  Operating  expenses  increased $5.7
million (17%) compared to 1996 pro forma operating expenses.  Operating expenses
consisted  primarily  of $11.0  million  and $15.2  million of  reservation  and
information  technology  expenses as well as $9.3  million of  depreciation  and
amortization expenses associated with the Avis trademark and goodwill.

Timeshare

     The Company  acquired Resort  Condominiums  International,  Inc. ("RCI") on
November  12,  1996 for  $487  million  plus up to $200  million  of  contingent
consideration.   RCI  sells  subscription  memberships  to  owners  of  vacation
timeshare   resorts  which  allows  the  members  to  exchange  their  timeshare
accommodations   for  timeshare   accommodations   owned  by  other  members  at
participating  affiliated resorts worldwide. In addition to membership fees, RCI
earns fees for exchanges processed by its call center. The key timeshare revenue
drivers  include the number of fee paying  members and exchanges as well as each
corresponding average fee.
The operating income summary for the first quarter of 1997 is as follows:

     Operating income ($000's)

         Net revenue                                      $   100,925
         Operating expenses                                    80,199
                                                          -----------
         Operating income                                 $    20,726
                                                          ===========

Net revenue  primarily  consists of $30.8 million of  membership  fees and $49.9
million of exchange fees.  Assuming  Company  ownership of timeshare  operations
since  January 1, 1996,  pro forma first  quarter  membership  and  exchange fee
revenue  increased  27%  and  4%,  respectively.  Total  members  and  exchanges
increased  8% to 2.0 million and 3% to 475,000  compared to 1996,  respectively.
Operating  expenses consist primarily of $39.8 million and $5.6 million of staff
and  communication  costs,  respectively,  associated  with member service (call
centers) and other timeshare functions.


REAL ESTATE INDUSTRY

Real Estate Franchise

     The Company licenses brand names to independently  owned brokerage  offices
associated  with  three of the four  largest  real  estate  brokerage  franchise
systems in the world.  The Company  acquired the CENTURY 21 franchise  system in
August 1995,  the ERA  franchise  system in February  1996 and  Coldwell  Banker
franchise  system in May 1996.  Such  systems  are the world's  largest,  fourth
largest and third largest real estate brokerage franchise systems, respectively.
The most significant  revenue driver for the real estate  franchise  business is
the  number of home  sales  which  generate  a  commission  to sales  associates
affiliated with franchised  brokerage offices  ("sides").  Royalties,  generally
based on a percentage  of  franchisee  commission  revenue,  fund the  franchise
sales,  service and training  efforts.  Marketing fee collections  fund national
advertising expenditures and other marketing activities.



                                                                      

<PAGE>



     Operating income ($000's)      1997              1996             Variance
     -------------------------    ----------       -----------       ----------

         Net revenue              $   53,178       $    24,904              114%
         Operating expenses           33,482            19,139               75%
                                 -----------       -----------
         Operating income         $   19,696       $     5,765              242%
                                 ===========       ===========


     Operating  income  increased  242% as a result  of a $28.3  million  (114%)
increase in net revenue and only a $14.3  million  (75%)  increase in  operating
expenses. The royalty portion of revenue increased $28.5 million (144%) to $48.3
million  primarily  attributable to acquired  Coldwell Banker  franchise  system
operations. Pro forma royalty revenue, which gives effect to the acquisitions of
Coldwell Banker and ERA as if these  acquisitions were consummated on January 1,
1996,  increased  $2.3  million  (5%) on the  strength of a 2% increase in sales
transactions  and a 4%  increase  in  the  average  price  of  homes  sold.  The
percentage  increase in sales  transactions  outperformed  comparative  industry
results for the first quarter of 1997.  Operating expenses increased as a result
of incremental expenses associated with acquired franchise systems.

Relocation

     Relocation segment services  primarily consist of the purchase,  management
and  resale  of homes  and fee  based  home  related  services  for  transferred
employees of corporate  clients and members of affinity group clients.  Although
the  Company  acquires  the home of client  employees,  the  client  corporation
reimburses  the Company for  carrying  costs until the home is sold and for home
sale losses.  Accordingly,  the Company  earns a fee for  services  with no real
estate risk.  Operating expenses primarily consist of sales and service staffing
and  related  costs.  Operating  results  for 1997  include  contributions  from
Coldwell Banker Relocation Services,  Inc. ("CBRS") acquired on May 31, 1996 and
from Worldwide Relocation Management, Inc.
("WRM")  for both periods as summarized below:

     Operating income ($000's)      1997              1996             Variance
     -------------------------   -----------       -----------       ----------

         Net revenue             $    24,466       $     4,269              473%
         Operating expenses           20,238             2,693              652%
                                 -----------       -----------
         Operating income        $     4,228       $     1,576              168%
                                 ===========       ===========


     The $2.7 million (168%)  increase in operating  income is  attributable  to
acquired CBRS  operations.  The operating  margin  decrease  reflects  increased
service costs  associated with a full service  relocation  company such as CBRS,
the second largest relocation services company worldwide.

Other Segment

     Other  segment  business  operations  primarily  consist  of casino  credit
information and marketing services ("Casino  Services"),  the equity in earnings
from  the  Company's   investment  in  ARAC  after   charging  ARAC   franchise,
reservation,   and  information   technology   fees  and  other   operations  or
transactions  which are not included in the Company's primary business segments.
Operating  expenses also include corporate  overhead expenses which could not be
allocated to other operating business  segments.  Operating income is summarized
as follows:

     Operating income ($000's)      1997              1996             Variance
     -------------------------   -----------       -----------       ----------

         Net revenue             $    18,497       $    12,494               48%
         Operating expenses            5,069             1,619              213%
                                 -----------       -----------
         Operating income        $    13,428       $    10,875               23%
                                 ===========       ===========


                                                                             

<PAGE>



     Operating income increased $2.6 million (23%) as a result of a $5.8 million
gain on the sale of the Company's  investment in Insignia  Financial Group, Inc.
and $3.5  million of equity in earnings of ARAC,  which was  acquired in October
1996. Such gains were offset by the absence of $4.1 million fees associated with
the license of the CENTURY 21 trademark to Amre, Inc. which filed for bankruptcy
protection  in February  1997.  The Company is currently  negotiating  with home
improvement  companies  to license the CENTURY 21  trademark.  Furthermore,  the
first  quarter of 1996  included  $2.7  million of  advisory  fees  received  in
connection with an agreement with Chartwell  Leisure Inc.,  which was terminated
in December 1996.


COMBINED HISTORICAL RESULTS OF OPERATIONS

     The combined historical results of operations represent the combined income
statements of the Company and PHH as if the merger  occurred on January 1, 1996.
Since the financial  statements represent restated historical results, pro forma
adjustments are inappropriate.

     Combined  historical  net  income  for the  quarter  ended  March 31,  1997
increased  $47.9 million (111%) to $91.1 million and EPS increased $.23 (79%) to
$.52 for the same comparative  period.  The increase in net income resulted from
$20.0 million of growth from  acquisitions  (operations of which are included in
1997 and no comparative  operations in 1996 prior to acquisition by the Company)
and $28.1 million from internally generated growth.


PRO FORMA RESULTS OF OPERATIONS

     Pro forma  results of  operations  include the  Company and PHH  historical
results of operations as well as the results of operations of certain businesses
acquired  by the Company  during 1996 as if they were  acquired as of January 1,
1996 including the  acquisitions  of: the  Travelodge,  ERA and Coldwell  Banker
franchise systems; the six CENTURY 21 non-owned regions; Avis, Inc. and RCI.

     The  following  is a summary  of pro  forma  operating  income by  business
segment for the three month periods ended March 31, 1997 and 1996 ($000's):

                                     1997       1996   Variance
                                 --------   --------   --------
Lodging ......................   $ 36,000   $ 28,537         26%
Real estate franchise ........     19,696     17,411         13%
Relocation ...................     13,962      9,006         55%
Car rental ...................     20,210     15,810         28%
Timeshare ....................     20,726     14,550         42%
Fleet management .............     32,165     26,199         23%
Mortgage services ............     12,792      2,429        427%
Other ........................     13,427      3,588        274%
                                 --------   --------
        Total operating income   $168,978   $117,530         44%
                                 ========   ========


     Pro forma net income increased $28.1 million (45%) to $91.1 million and pro
forma EPS  increased  $.16  (44%) to $.52 for the same  comparative  period.  As
demonstrated  in the table above,  such increases were driven by a $51.4 million
increase in operating  income and double digit  percentage  increases in each of
the Company's operating segments. The pro forma income statements do not reflect
anticipated cost savings such as headcount reductions, facility terminations and
consolidations and other economies  resulting from the restructuring of combined
Company and PHH operations.  The Company expects the  restructuring to result in
annual pre-tax  savings of  approximately  $100 million with the full benefit of
cost reductions  beginning in 1998.  Business operations acquired by merger with
PHH include  corporate  relocation,  fleet  (vehicle)  management  and  mortgage
services businesses.

                                                                        

<PAGE>



     PHH and CBRS  operate  the  world's  first and  second  largest  relocation
businesses, respectively. The $5.0 million (55%) increase in operating income in
the first quarter of 1997 resulted primarily from reductions in selling, general
and  administrative  costs ("SG&A") in PHH's  operations,  which excludes future
reductions that will result from actions included in the restructuring plan.

     Mortgage services primarily consists of the origination, sale and servicing
of residential  first mortgage loans.  Operating income for the first quarter of
1997  increased  $10.4  million  (427%) to $12.8  million as a result of a $17.2
million (87%)  increase in revenue net of only a $6.9 million (39%)  increase in
expenses.  Revenue increases  resulted primarily from an increase in the average
origination fee.

     Fleet management  services primarily include open-end operating leasing and
a variety of services provided to corporate  clients and government  agencies to
assist them in effectively  managing their  vehicles.  Operating  income for the
first quarter of 1997  increased  $6.0 million (23%) to $32.2 million  primarily
from an $8.6 million  increase in revenue.  The increase in operating income and
revenue was primarily  generated from a $7.0 million (18%) increase in fee based
services while asset based services (lease revenue) increased $1.5 million (5%).
The increase in operating income also included a non-recurring  $9.6 million net
pre-tax gain on the sale of certain  credit card  operations  in 1997.  However,
such comparative  increase was offset by $11.7 million of net revenue associated
with NTS Inc., which was sold by PHH in January 1996.


LIQUIDITY AND CAPITAL RESOURCES

Acquisitions overview

     The  Company  continues  to seek to expand and  strengthen  its  leadership
position  in its  travel  and real  estate  industry  segments  with  additional
acquisitions. Following the April 30, 1997 merger with PHH, the Company believes
it has  achieved  annual  points  of  contact  with over 100  million  consumers
involved  in over $1  trillion  of annual  transactions  in the  travel and real
estate  industries.  The Company seeks to cross-market  its businesses to expand
the revenue  streams of each  business  and also seeks to tap into its  valuable
consumer data base. The Company may acquire rather than develop businesses which
possess such systems or expertise.

     The Company's acquired businesses share similar  characteristics,  foremost
of which is that each was immediately accretive to Company earnings.  Revenue is
substantially  generated from service fees and not dependent on tangible  assets
or the need for capital  expenditures  other than technology  investments  which
support  and  historically  have  been  substantially  funded  by the  Company's
customers. These service businesses each generate significant cash flow which is
enhanced by the Company's  operating  leverage that  provides  acquired  revenue
streams without corresponding  increases in operating  infrastructure  expenses.
The Company is currently positioned to cross market within its existing business
segments and  continues to pursue  acquisitions  and/or  investments  in service
businesses that fit the profile described above.

Acquisitions

PHH - On April 30, 1997, the Company  acquired PHH by merger for $1.8 billion of
Company common stock  (approximately 30.3 million shares) in exchange for all of
the outstanding  common stock of PHH. PHH operates the world's largest  provider
of corporate  relocation  services and also provides mortgage services and fleet
management  services.  This  transaction  will be accounted  for as a pooling of
interests.

The  Company  will  incur a one-time  restructuring  charge  approximating  $287
million  before related tax benefits in the second quarter of 1997 in connection
with the merger. The charge includes severance, facility consolidation and other
transaction  related costs associated with the  restructuring of Company and PHH
businesses.  The  restructuring  charge will be paid with  borrowings  under the
Company's  revolving credit facility and cash flow from operations.  The Company
estimates the charge to result in annual pre-tax savings of  approximately  $100
million with the full benefit of cost reductions beginning in 1998.

                                                                         

<PAGE>



Although PHH debt to equity  ratio  approximates  7 to 1, such debt  corresponds
directly with related net  investments in leased vehicles and equity advances on
homes. Accordingly, Standard and Poors Corporation ("S&P") and Moody's Investors
Service,  Inc.  ("Moody's")  assigned  investment  grade  ratings  of A+ and A2,
respectively,  to PHH debt and A1 and P1, respectively, to PHH commercial paper.
On a pro forma basis for the PHH  transaction,  total  assets and  stockholders'
equity of the Company as of March 31, 1997  approximated  $10.7 billion and $2.8
billion, respectively.

Value - On March 3, 1997, the Company  announced that it reached an agreement in
principle to acquire Value  Rent-A-Car  ("Value") for $175 million in cash.  The
Company  determined not to pursue the  acquisition of Value and terminated  such
agreement in April 1997.

Sheraton - On January 27, 1997, Hilton Hotels Corporation  ("Hilton")  announced
that it had reached a preliminary understanding to license certain assets to the
Company in connection with its pending tender offer for the  outstanding  common
stock of ITT Corporation  ("ITT").  Pursuant to the  preliminary  understanding,
subject to Hilton's successful acquisition of ITT, the Company would license the
Sheraton trademark, franchise system and management agreements worldwide under a
long-term contract. The transaction is subject to Hilton's acquisition of ITT as
well as negotiation of definitive  agreements  relating to the proposed  license
agreement.  There can be no assurance that Hilton's  attempt to acquire ITT will
be  successful  or that the  Company  and Hilton will  consummate  its  proposed
transaction.


Equity Transactions

Treasury  Purchases - On January 7, 1997, the Board of Directors  authorized the
purchase of 2.6 million  shares of Company  common stock to satisfy stock option
exercises and  conversions  of  convertible  debt  securities and to fund future
acquisitions.  The Company acquired approximately 2.6 million treasury shares in
the first  quarter of 1997 for $171.3  million.  Such  purchases  were funded by
operating  cash  flow and with  proceeds  received  from  borrowings  under  the
Company's revolving credit facilities.


Financing

     The Company continues to believe that it has excellent  liquidity following
the PHH merger and has  expanded  its access to and sources of  liquidity.  Most
significant,  the  Company has  generated  significant  positive  cash flow from
operations in every quarter since its initial public  offering in December 1992,
including  the first  quarter of 1997.  The  Company has also  demonstrated  its
ability to access equity and public debt markets and financial  institutions  to
generate  capital  for  strategic  transactions.  Indicative  of  the  Company's
creditworthiness,  S&P and Duff & Phelps  affirmed  their A credit rating of the
Company's  publicly issued debt following the announcement of the PHH merger and
Moody's upgraded the Company's debt rating to A3.

     Liquidity is available to the Company through  revolving credit  facilities
which may provide up to $1 billion of  unsecured  borrowings  at interest  rates
generally  approximating  LIBOR plus a margin of 22.5 basis points. At March 31,
1997, the Company had $430 million of outstanding borrowings under its revolving
credit facilities.

     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.

     Long-term  debt  increased  $230 million to $979 million at March 31, 1997,
when compared to amounts  outstanding at December 31, 1996 primarily as a result
of $171.3 million of treasury share purchases and

                                                                         

<PAGE>



approximately $60.0 million of acquisition  liability  payments.  Long-term debt
primarily  consists of $540 million of fixed rate publicly  issued debt and $430
million of borrowings under the Company's revolving credit facilities.

     PHH will  continue  to operate  mortgage  services,  fleet  management  and
relocation  businesses  as  a  separate  public  reporting  entity  and  support
purchases  of leased  vehicles  and  originated  mortgages  primarily by issuing
commercial  paper and medium term  notes.  Although  PHH's debt to equity  ratio
approximates 7 to 1, such debt corresponds directly with net investments in high
quality related assets.  Accordingly,  following the announcement of the merger,
S&P and Moody's affirmed investment grade ratings of A+ and A2, respectively, to
PHH debt and A1 and P1, respectively, to PHH commercial paper.

     Although PHH debt is issued without  recourse to the Company,  the combined
company  will  continue to maintain  broad access to global  capital  markets by
maintaining  the  quality of its assets  under  management.  This is achieved by
establishing  credit  standards to minimize  credit risk and the  potential  for
losses.  Depending  upon  asset  growth and  financial  market  conditions,  PHH
utilizes the United States,  European and Canadian  commercial paper markets, as
well as other  cost-effective  short-term  instruments.  In  addition,  PHH will
continue  to utilize  the public and  private  debt  markets to issue  unsecured
senior  corporate debt.  Augmenting  these sources,  PHH will continue to reduce
outstanding  debt by the sale or  transfer  of managed  assets to third  parties
while retaining fee-related servicing  responsibility.  At March 31, 1997, PHH's
aggregate  outstanding  borrowings  approximated  $3.5  billion  of  outstanding
commercial  paper,  $1.2 billion in medium-term  notes and $292 million in other
debt securities.

     To provide  additional  financial  flexibility,  PHH's current policy is to
ensure that  minimum  committed  facilities  aggregate 80 percent of the average
amount of outstanding  commercial paper. PHH maintains a $2.5 billion syndicated
unsecured  credit  facility which is backed by domestic and foreign banks and is
comprised  of $1.25  billion  of lines  maturing  in 364 days and $1.25  billion
maturing in five years.  In  addition,  PHH has  approximately  $300  million of
uncommitted  lines of credit with  various  financial  institutions.  Management
closely  evaluates not only the credit quality of the banks but the terms of the
various  agreements  to ensure  ongoing  availability.  The full amount of PHH's
committed  facilities  at March 31, 1997 was undrawn and  available.  Management
believes that its current policy provides adequate  protection should volatility
in the financial  markets limit PHH's access to commercial  paper or medium-term
note funding.

     PHH  minimizes  its  exposure  to  interest  rate  and  liquidity  risk  by
effectively   matching   floating   and  fixed   interest   rate  and   maturity
characteristics  of funding  to  related  assets,  varying  short and  long-term
domestic and international  funding sources, and securing available credit under
committed banking facilities.

     The  Company   generated  $61.9  million  of  cash  flow  from  operations,
representing a $49.8 million  (412%)  increase from the same period of 1996. The
$49.8 million  increase in cash flow from operations  primarily  resulted from a
$36.1 million increase in net income which includes $26.3 million of incremental
depreciation  and  amortization.  The 61.9 million of cash flow from  operations
includes  reductions  of  approximately  $27.8  million of increases in accounts
receivable due to the seasonal  nature of  international  and marketing fund fee
collections as well as approximately  $16.0 million of real estate franchise fee
rebates  (royalty  discounts) which are paid annually in March. Net cash used in
investing  activities  decreased $13.6 million to $103.4  million,  reflecting a
$29.6  million  decrease in  acquisition  related  payments and $21.8 million of
equity  securities  sale  proceeds,  offset by $16.2 million of payments made on
behalf  of ARAC in  connection  with the  Avis  acquisition  and a $6.8  million
increase in capital  expenditures  primarily  associated  with the completion of
building  improvements  at  Company  headquarters,  lodging  reservation  center
telecommunication  equipment  and  technology  investments.   Cash  provided  by
financing  activities  decreased $124.4 million as a result of $171.3 million of
1997  treasury  stock  purchases  offset by $80.0  million  of  preferred  stock
redeemed in 1996 in connection  with the Century 21  acquisition.  The Company's
$77.3 million  working  capital  deficiency,  which arose from $128.1 million of
deferred  income  acquired and $150.0 million of short-term  debt assumed in the
RCI and Avis acquisitions,  respectively,  decreased $68.9 million from December
31, 1996.
                                                                             

<PAGE>



     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 issuance of securities in the capital markets,  if
appropriate,  will be adequate to fund operations,  investments and acquisitions
of other franchise related businesses.


IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards No. 128 ("SFAS 128"),  "Earnings Per Share",
which requires a change to the  presentation of EPS to include the  presentation
of  basic  and  diluted  EPS  in  place  of  primary  and  fully   diluted  EPS,
respectively.  SFAS 128 is effective for interim periods and fiscal years ending
after December 15, 1997. Earlier adoption of the pronouncement is not permitted.
Management of the Company believes that there will not be a material  difference
in fully  diluted  earnings  per share  under the  existing  pronouncement  when
compared to the new diluted presentation.

     Assuming SFAS 128 was  applicable  for the first quarter 1997,  the Company
would have reported the following:

                                               Historical           Pro Forma
                                               ----------           ---------
     Pro Forma:
         Basic EPS                                $ .46                $  .57
         Diluted EPS                              $ .41                $  .52
     As Reported:
         Primary EPS                              $ .41                $  .52
         Fully Diluted EPS                        $ .41                $  .52




                                      *****

                                       17

<PAGE>



                                            PART II - OTHER INFORMATION

ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

      Exhibit
         No.    Description
         11     Statement re: computation of per share earnings
         27     Financial data schedule

(b)  Reports on Form 8-K

     On March 27,  1997,  the Company  filed six Current  Reports on Form 8-K/A,
     amending the Current Reports on Form 8-K previously  filed on the following
     dates with the Securities and Exchange Commission:

          Date                                      Description
------------------------------     ---------------------------------------------
     February 16, 1996             Pursuant to the proposed acquisitions of the
                                   six CENTURY 21 non-owned Regions ("CENTURY 21
                                   NORS"), which were consummated during the
                                   second quarter of 1996 and the
                                   acquisition of Electronic Realty Associates
                                   "ERA") on February 12, 1996 and for purposes
                                   of incorporating by reference into a
                                   certain Company registration statement, the
                                   Company filed:
                                   (i) audited financial statements of four of
                                       the six CENTURY 21 NORS for the
                                       respective fiscal years as prescribed by
                                       Article 210.3-05 of Regulation S-X ;
                                  (ii) unaudited interim period financial
                                       statements as required of four of the
                                       six CENTURY 21 NORS to be acquired as
                                       prescribed by Article 210.3-05 of
                                       Regulation S-X ;
                                 (iii) audited consolidated financial statements
                                       of ERA as of and for the years ended
                                       December 31, 1994 and 1993;
                                  (iv) unaudited consolidated interim financial
                                       statements of ERA as of September 30, 
                                       1995 and for the nine months ended
                                       September 30, 1995 and 1994.

     April 5, 1996                 Pursuant to the proposed acquisitions of the
                                   CENTURY 21 NORS and the acquisition of ERA,
                                   for purposes of incorporating by reference
                                   into certain of the Company's registration
                                   statements, the Company filed:
                                   (i) updated audited full year and unaudited
                                       interim period finance statements as
                                       required for the financial statements of
                                       companies acquired or to be acquired as
                                       originally presented in the Form 8-K 
                                       dated February 16, 1996;
                                  (ii) pro forma financial statements of the
                                       Company as of and for the year ended
                                       December 31, 1995.

     May 8, 1996                   Pursuant to the proposed acquisition by
                                   merger of Coldwell Banker Corporation
                                   which was consummated on May 31, 1996,
                                   and for the purposes of incorporating by
                                   reference into certain of the Company's
                                   registration statements, the Company filed:



                                                                       

<PAGE>

          Date                                      Description
------------------------------     ---------------------------------------------
                                   (i) audited, consolidated financial
                                       statements   of   Coldwell    Banker
                                       Corporation and its  subsidiaries as
                                       of and for the years ended  December
                                       31, 1995 and 1994,  the three months
                                       ended December 31, 1993 and the nine
                                       months ended September 30, 1993; and
                                  (ii) pro forma financial  statements
                                       of the  Company  for the year  ended
                                       December 31, 1995.

     August 29, 1996
     (December 5, as amended)      Pursuant to the proposed acquisition of Avis,
                                   Inc., which was consummated on Octover 17,
                                   1996, and for purposes of incorporated by
                                   reference into certain of the Company's
                                   registration statements the Company filed:
                                   (i) audited consolidated financial statements
                                       of Avis, Inc. and its subsidiaries as of
                                       February 29, 1996 and February 28, 1995;
                                  (ii) 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;
                                 (iii) pro forma financial statements of the
                                       Company as of and for the six months
                                       ended June 30, 1996 and for the year
                                       ended December 31, 1995.

     October 15, 1996              The Company reported the October 2, 1996
                                   execution of credit agreements for $1.6
                                   billion in revolving credit financing and
                                   reported the execution of a definitive
                                   agreement to acquire Resort Condominiums
                                   International Inc. ("RCI") and filed
                                   summary pro forma financial information of
                                   the Company for the proposed acquisition of
                                   RCI as of and for the six months ended
                                   June 30, 1996 and for the year ended December
                                   31, 1995.  This Form 8-K was amended to
                                   include:
                                   (i) complete pro forma financial statements
                                       of the Company as of September 30, 1996
                                       and for the nine months ended September
                                       30, 1996 and 1995 and for the year ended
                                       December 31, 1995 for the acquisition
                                       of RCI; and
                                  (ii) audited combined financial statements of
                                       RCI and its subsidiaries and affiliates
                                       as of and for the year ended December
                                       31, 1995;
                                 (iii) unaudited interim combined financial
                                       statements of RCI and its subsidiaries
                                       and affiliates as of September 30, 1996
                                       and for the nine months ended
                                       September 30, 1996 and 1995.

     November 15, 1996
 (December 4, 1996 as amended)      Pursuant to the proposed merger with PHH
                                    Corporation ("PHH") which was consummated
                                    on April 30, 1997, the Company filed:
                                   (i) pro forma combining consolidated
                                       financial statements of the Company for
                                       the merger with PHH as of September 30,
                                       1996 and for each of the nine months
                                       ended September 30, 1996 and 1995 and for
                                       the year ended December 31, 1995; and
                                  (ii) combining historical consolidated
                                       financial statements of the Company
                                       for the Merger with PHH as of September
                                       30, 1996 and for each of the nine months
                                       ended September 30, 1996 and 1995 and
                                       each of the year ended December 31, 1995,
                                       1994 and 1993.
  
                                                                       

<PAGE>




                                   SIGNATURES



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


                                HFS Incorporated



                                By:  /s/  Scott E. Forbes
                                Scott E. Forbes
                                Senior Vice President-Finance and
                                Chief Accounting Officer


May 15, 1997