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 June 30, 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 158,752,592  shares of Common Stock  outstanding as of July 31,
1997.


<PAGE>



                         PART 1 - FINANCIAL INFORMATION


ITEM 1.        FINANCIAL STATEMENTS


                        HFS Incorporated and Subsidiaries
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>


ASSETS                                                     June 30,    December 31,
                                                             1997          1996
                                                         -----------   -----------
<S>                                                          <C>           <C>
CURRENT ASSETS
Cash and cash equivalents ............................   $    58,511   $    69,541
Restricted cash ......................................        23,742        89,849
Accounts and notes receivable,
     net of allowance for doubtful accounts ..........       840,941       687,907
Other current assets .................................       159,506       117,320
Deferred income taxes ................................        92,825        93,798
                                                         -----------   -----------

TOTAL CURRENT ASSETS .................................     1,175,525     1,058,415


Property and equipment - net .........................       331,844       328,528
Franchise agreements - net of accumulated amortization       948,753       995,947
Excess of cost over fair value of net assets acquired
      net of accumulated amortization ................     1,868,438     1,783,409
Other intangibles - net of accumulated amortization ..       588,710       604,535
Investment in Avis Rent A Car, Inc. ..................        87,086        76,540
Other assets .........................................       429,427       289,392
                                                         -----------   -----------

Total assets exclusive of assets under programs ......     5,429,783     5,136,766
                                                         -----------   -----------

Assets under management and mortgage programs:
     Net investment in leases and leased vehicles ....     3,643,601     3,418,666
     Relocation receivables ..........................       579,575       773,326
     Mortgage loans held for sale ....................       820,615     1,248,299
     Mortgage servicing rights and fees ..............       272,042       288,943
                                                         -----------   -----------
                                                           5,315,833     5,729,234
                                                         -----------   -----------

TOTAL ASSETS .........................................   $10,745,616   $10,866,000
                                                         ===========   ===========

</TABLE>



See  accompanying  notes to consolidated  financial statements.


<PAGE>



                        HFS Incorporated and Subsidiaries
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)
<TABLE>
<CAPTION>



LIABILITIES AND SHAREHOLDERS' EQUITY                            June 30,      December 31,
                                                                  1997            1996
                                                             ------------    ------------
<S>                                                              <C>               <C> 

CURRENT LIABILITIES
Accounts payable and other accrued expenses ..............   $  1,112,557    $    855,770
Short-term debt ..........................................        150,000         150,000
Due to car rental operations of Avis Rent A Car, Inc., net         14,522          61,807
Current portion of long-term debt ........................          1,959           2,995
                                                             ------------    ------------

TOTAL CURRENT LIABILITIES ................................      1,279,038       1,070,572

Long-term debt ...........................................      1,173,967         748,421
Deferred revenue .........................................        250,525         397,034
Other liabilities ........................................        120,165         131,021
                                                             ------------    ------------

Total liabilities exclusive of liabilities under programs       2,823,695       2,347,048
                                                             ------------    ------------

Liabilities under management and mortgage programs:
     Debt ................................................      4,776,153       5,089,943
     Deferred income taxes ...............................        301,200         281,948
                                                             ------------    ------------
                                                                5,077,353       5,371,891
                                                             ------------    ------------

Commitments and contingencies


SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value
   - authorized 10,000,000 shares;
     none issued and outstanding .........................           --              --
Common stock, $.01 par value
   - authorized 600,000,000 shares;
     issued 161,393,645 and
     158,728,807 shares, respectively ....................          1,614           1,588
Additional paid-in capital ...............................      2,234,646       2,337,297
Retained earnings ........................................        808,982         830,970
Net unrealized gain on investment ........................           --             4,366
Currency translation adjustment ..........................        (10,204)         (8,008)
Treasury stock, at cost (3,087,400
   and 322,500 shares, respectively) .....................       (190,470)        (19,152)
                                                             ------------    ------------

TOTAL SHAREHOLDERS' EQUITY ...............................      2,844,568       3,147,061
                                                             ------------    ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...............   $ 10,745,616    $ 10,866,000
                                                             ============    ============
</TABLE>






 See  accompanying  notes to consolidated  financial statements.


<PAGE>



                        HFS Incorporated and Subsidiaries
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
<TABLE>
<CAPTION>


                                                   Three Months Ended            Six Months Ended
                                                         June 30,                      June 30,
                                                --------------------------   -----------   ------------
                                                    1997           1996          1997          1996
                                                -----------    -----------   -----------   ------------
<S>                                                 <C>            <C>            <C>         <C> 

REVENUES:
   Service fees, net ........................   $   443,428    $   243,230   $   830,346    $   423,022
   Fleet leasing (net of depreciation and
       interest costs of $298,200, $272,871,
       $584,275 and $555,994, respectively) .        65,786         62,822       146,581        133,770
   Other, net ...............................        70,406         39,265       122,670         66,252
                                                -----------    -----------   -----------    -----------

       Net revenues .........................       579,620        345,317     1,099,597        623,044
                                                -----------    -----------   -----------    -----------


EXPENSES:
   Operating ................................       219,173        155,286       435,062        295,383
   Marketing and reservation ................        69,683         38,716       130,481         65,950
   General and administrative ...............        25,206         24,379        57,112         39,189
   Merger and restructuring charge associated
     with business combination ..............       303,000           --         303,000           --
   Depreciation and amortization ............        43,418         20,846        86,534         36,982
   Interest, net ............................        17,070          5,141        30,747         10,766
                                                -----------    -----------   -----------    -----------

       Total expenses .......................       677,550        244,368     1,042,936        448,270
                                                -----------    -----------   -----------    -----------

Income (loss) before income taxes ...........       (97,930)       100,949        56,661        174,774
Provision for income taxes ..................         8,519         41,010        72,005         71,157
                                                -----------    -----------   -----------    -----------
Net income (loss) ...........................   $  (106,449)   $    59,939   $   (15,344)   $   103,617
                                                ===========    ===========   ===========    ===========

SHARE INFORMATION:

Net income (loss) per share
   Primary ..................................   $      (.67)   $       .38   $      (.10)   $       .69
                                                ===========    ===========   ===========    ===========

   Fully diluted ............................   $      (.67)   $       .38   $      (.10)   $       .68
                                                ===========    ===========   ===========    ===========

Weighted average common and common
   equivalent shares outstanding
       Primary ..............................       158,355        158,798       158,342        154,232
                                                ===========    ===========   ===========    ===========

       Fully diluted ........................       158,355        159,405       158,342        155,398
                                                ===========    ===========   ===========    ===========
</TABLE>


 See  accompanying  notes to consolidated  financial statements.


<PAGE>



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

<TABLE>
<CAPTION>

                                                                         Six Months Ended
                                                                             June 30,
                                                                   ---------------------------
                                                                        1997           1996
                                                                   ------------   ------------
<S>                                                                    <C>             <C>    

Net cash provided by operating activities ......................   $ 1,083,599    $   368,129

Investing Activities:
   Property and equipment additions ............................       (32,520)       (25,717)
   Loans and investments .......................................       (16,325)       (10,000)
   Proceeds from sale of assets ................................        21,750         33,618
   Due to Avis Rent A Car, Inc. ................................       (47,285)          --
   Investment in leases and leased vehicles ....................    (1,179,905)      (936,225)
   Repayment of investment in leases and leased vehicles .......       437,239        339,680
   Proceeds from sales of mortgage servicing rights ............        29,134          7,113
   Net assets acquired, exclusive of cash acquired .............      (298,524)      (992,163)
   All other investing activities ..............................        18,449          1,481
                                                                   -----------    -----------
          
       Net cash used in investing activities ...................    (1,067,987)    (1,582,213)
                                                                   -----------    -----------

Financing Activities:
   Issuance of common stock, net ...............................        13,785      1,163,872
   Proceeds from borrowings ....................................     1,284,196      1,073,675
   Redemption of Series A Preferred Stock ......................          --          (80,000)
   Net change in borrowings with terms of less than 90 days ....       (54,948)        78,958
   Principal payments on borrowings ............................    (1,133,432)      (603,061)
   Purchases of treasury stock .................................      (171,318)          --
   Stock option plan transactions ..............................        22,014          7,074
   Payment of dividends ........................................        (6,644)       (11,758)
                                                                   -----------    -----------

       Net cash provided by (used in) financing activities .....       (46,347)     1,628,760
                                                                   -----------    -----------

Effect of changes in exchange rates on cash and cash equivalents        19,705         (3,003)

Net increase (decrease) in cash and cash equivalents ...........       (11,030)       411,673
Cash and cash equivalents, beginning of period .................        69,541         22,923
                                                                   -----------    -----------

Cash and cash equivalents, end of period .......................   $    58,511    $   434,596
                                                                   ===========    ===========

</TABLE>






 See  accompanying  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  and subsidiaries
     (the  "Company")  as of June  30,  1997,  the  consolidated  statements  of
     operations  for the three and six months ended June 30, 1997 and 1996,  and
     the consolidated statements of cash flows for the six months ended June 30,
     1997 and 1996 are unaudited. In the opinion of management,  all adjustments
     necessary  for  a  fair  presentation  of  such  financial  statements  are
     included.  There were no adjustments of an unusual nature  recorded  during
     the three and six months ended June 30, 1997 and 1996 except for a one-time
     charge of $303 million  ($227  million  after tax),  recorded in the second
     quarter of 1997 representing  transaction and restructuring  costs incurred
     in connection with the merger of the Company with PHH  Corporation  ("PHH")
     (See Note 4) and a $7.0 million  restructuring  charge ($4.3  million after
     tax) recorded in June 1996,  related primarily to the contribution of owned
     Coldwell Banker brokerage offices to an independent trust. 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 Avis Rent A Car, Inc.  ("ARAC"),  which is
     accounted   for  under  the  equity  method  (See  Note  7).  All  material
     intercompany   balances   and   transactions   have  been   eliminated   in
     consolidation. On April 30, 1997, the Company acquired PHH by merger, which
     has  been  accounted  for  as a  pooling  of  interests.  Accordingly,  the
     accompanying consolidated financial statements have been restated as if the
     Company and PHH had  operated as one entity since  inception  (See Note 3).
     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,  included in
     the Form 8-K filed on July 16, 1997.

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


2.   Pending Merger with CUC International, Inc.

         On May 27, 1997, the Company entered into a definitive merger agreement
     (the "CUC Merger") with CUC  International,  Inc. ("CUC") pursuant to which
     each share of the Company's  common stock shall be converted into the right
     to receive 2.4031 shares of CUC common stock. CUC is a leading  technology-
     driven,  membership-based consumer services company,  providing its members
     with access to a variety of goods and services  worldwide,  including  such
     services as shopping,  travel,  auto, dining, home improvement,  lifestyle,
     vacation exchange,  credit card and checking account enhancement  packages,
     financial products and discount  programs.  CUC recorded total revenues and
     net income of $2.3 billion and $164.1 million,  respectively,  for the year
     ended  January 31,  1997.  Consummation  of the  transaction  is subject to
     approval of the  shareholders  of each company at special  meetings of such
     shareholders  to be held in the second  half of 1997.  The CUC  Merger,  if
     consummated, will be accounted for as a pooling of interests.


3.   Merger with PHH Corporation

         On April  30,  1997,  the  Company  acquired  PHH by  merger  (the "PHH
     Merger"),  issuing 30.3 million  shares of Company common stock in exchange
     for all of the  outstanding  common  stock of PHH.  Pursuant  to the merger
     agreement,  PHH  stockholders  received .825 shares of Company common stock
     for each share of PHH common stock.  The PHH Merger has been  accounted for
     as a pooling  of  interests.  Accordingly,  the  accompanying  consolidated
     financial  statements  have been  prepared  as if PHH and the  Company  had
     operated as one entity since inception. PHH is the world's largest provider
     of corporate  relocation  services and also provides  mortgage services and
     vehicle management services.

         The  following  table  shows the  historical  operating  results of the
     Company and PHH for the periods prior to the PHH merger ($000's):

                                       For the four months    For the six months
                                      ended April 30, 1997   ended June 30, 1996
                                      --------------------   -------------------
Net revenues
     HFS ...........................       $473,969                $300,403
     PHH ...........................        237,838                 322,641
                                           --------                --------
         Total .....................       $711,807                $623,044
                                           ========                ========

Net income
     HFS ...........................       $ 83,667                $  61,619
     PHH ...........................         41,747                   41,998
                                           --------                ---------
         Total .....................       $125,414                $103,617
                                           ========                ========


4.   Merger and Restructuring Charge

         The Company recorded a one-time pre-tax merger and restructuring charge
     of $303 million ($227 million, after tax) during the second quarter of 1997
     in  connection  with  the PHH  Merger for merger-related  costs,  including
     severance,  facility  and system  consolidations  and  terminations,  costs
     associated with exiting certain activities and merger-related  professional
     fees.  Excluding  the  charge,  net income was $120.6  million or $0.69 per
     share for the three months ended June 30, 1997, and $211.7 million or $1.21
     per share for the six months ended June 30, 1997, respectively.


5.   Pro forma Information

         The following  table  reflects the unaudited  operating  results of the
     Company for the six months ended June 30, 1996 on a pro forma basis,  which
     gives effect to  the following 1996  acquisitions, accounted  for under the


<PAGE>



     purchase method of accounting,  and the related financing of such
     acquisitions as if they had occurred on January 1, 1996: (i) the Travelodge
     franchise system;  (ii) the 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. ($000's, except per share data):

                                                             For the six months
                                                            ended June 30, 1996
                                                            -------------------
         Net revenues                                         $   963,942
         Net income                                               141,212
         Net income per share (fully diluted)                        0.80


6.   Shareholders' Equity

         In January 1997, in connection with the Company's  acquisition of Avis,
     Inc., (n/k/a HFS Car Rental, 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
     shareholders' equity.


7.   Investment in ARAC

         The  Company's  investment  in ARAC is  accounted  for using the equity
     method of  accounting.  ARAC is not  consolidated  because of the Company's
     plan to undertake  an initial  public  offering of ARAC (the "IPO"),  which
     will dilute its interest in ARAC from 100% to approximately 25%. If the IPO
     is not  consummated  within one year of the Company's  acquisition of Avis,
     Inc. on October 16, 1996,  the Company will  consolidate  ARAC.  Summarized
     financial information of ARAC is as follows ($000's):

                              Avis Rent A Car, Inc.
                                  June 30, 1997


Balance sheet data           June 30, 1997        December 31, 1996
                             -------------        -----------------
     Vehicles ............   $2,312,109                $2,243,492
     All other assets ....      716,964                   887,865
     Debt ................    2,183,769                 2,295,474
     All other liabilities      758,218                   759,343
     Shareholders' equity        87,086                    76,540


                               Three Month            Six Months
                                  Ended                 Ended
                             June 30, 1997          June 30, 1997
                             -------------          -------------
Statement of income data   
     Revenues ................  $489,633                $945,647
     Income before provision
      for income taxes .......    17,374                  24,360
     Net income .............      9,733                  13,106





<PAGE>



     ARAC Subsequent Events

         On August 8, 1997, ARAC signed a purchase agreement for the acquisition
     of The First Gray Line Corporation and its  subsidiaries for  approximately
     $195 million in cash plus expenses.  The fair value of unaudited assets and
     liabilities,  exclusive  of cost in excess of the fair  value of net assets
     acquired,  at  June  30,  1997  are  $332.3  million  and  $296.3  million,
     respectively.  The transaction is subject to customary  closing  conditions
     and regulatory approval.

         On July 31, 1997,  ARAC  refinanced all of its domestic debt. This debt
     was refinanced by utilizing a $3.65 billion asset-backed  structure,  which
     consisted of (i) a $2.0 billion  commercial  paper program and (ii) a $1.65
     billion medium term note issuance with maturities of 3 and 5 years.

         ARAC is  party  to a  $470.0  million  secured  credit  agreement  that
     provides for (i) a revolving  credit facility in the amount of up to $125.0
     million  which is  available on a revolving  basis until  December 31, 2000
     (the "Final Maturity Date") in order to finance the general corporate needs
     of ARAC in the  ordinary  course of business  (with up to $75.0  million of
     such amount  available  for the  issuance  of standby  letters of credit to
     support worker's  compensation and other insurance and bonding requirements
     of ARAC, in the ordinary course of business),  (ii) a term loan facility in
     the  amount of $120.0  million to finance  general  corporate  needs in the
     ordinary course of business,  which will be repayable in four installments,
     the first three of which shall be in the amount of $1.0 million  payable on
     June 30, 1998,  June 30, 1999 and June 30, 2000 and the  remainder of which
     will be due on the Final  Maturity  Date,  and  (iii) a  standby  letter of
     credit  facility of up to $225.0 million  available on a revolving basis to
     fund (a) any shortfall in certain  payments  owing  pursuant to fleet lease
     agreements and (b) maturing commercial paper notes if such commercial paper
     notes cannot be repaid through the issuance of additional  commercial paper
     notes or draws under the liquidity facility.

8.   Subsequent Event

     On  August  12,  1997  the  Company  agreed  to make an  investment  in NRT
Incorporated  ("NRT"), a newly formed corporation created to acquire residential
real estate  brokerage firms. The Company has agreed to invest $157 million and,
under certain  conditions,  to invest up to  approximately  an  additional  $100
million, in senior and convertible  preferred stock of NRT and may also purchase
approximately  $400  million of certain  assets of real estate  brokerage  firms
acquired by NRT. NRT has agreed to acquire the assets of National  Realty Trust,
("Trust")  an  independent  trust to which  the  Company  contributed  the owned
brokerage  business  of  Coldwell  Banker  Corporation  in  connection  with the
Company's  acquisition  of Coldwell  Banker  Corporation  on May 31,  1996.  The
Company's investment in NRT is subject to the Trust acquisition. The acquisition
of  the  Trust  is  subject  to  customary   conditions,   including  anti-trust
clearnances.  There  can be no  assurances  that  any such  transaction  will be
consummated.




                                     ******


<PAGE>



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


GENERAL OVERVIEW

     HFS  Incorporated  (together  with its  subsidiaries)  is a leading  global
provider of consumer  services.  The Company  provides  fee-based  services that
primarily  fall  within  the  Travel and Real  Estate  industries,  in which the
Company generally does not own the assets or share the risks associated with the
underlying  businesses of its customers.  The businesses  acquired by the merger
with PHH Corporation  ("PHH") on April 30, 1997 are consistent with this profile
and provide the Company with various  cross-marketing  opportunities  within its
business segments.

     On May 27, 1997,  the Company  entered into a definitive  merger  agreement
with CUC  International,  Inc.  ("CUC"),  pursuant  to which  each  share of the
Company's  common  stock  shall be  converted  into the right to receive  2.4031
shares of CUC common stock.  CUC, a leading  technology-driven  membership-based
consumer  services  company with shares  traded on the New York Stock  Exchange,
reported  $2.5  billion of total assets at January 31, 1997 and $2.3 billion and
$164.1  million of revenue  and net  income,  respectively,  for the fiscal year
ended January 31, 1997.  CUC's business profile is consistent with the Company's
in that CUC's primary  revenue source consists of recurring  membership  revenue
rather  than  revenue  from the  sale of goods  and  services  to club  members.
Membership  is  generated  through  CUC's  technology-driven   direct  marketing
efforts.  The combination of CUC and HFS is intended to provide CUC's membership
businesses  access to the  Company's  more than 100 million  consumer  contacts,
while providing Company businesses with the technology-driven,  direct marketing
expertise  necessary to successfully  cross-market  within its existing business
units.

     In the travel  industry,  the Company is the world's largest  franchisor of
lodging  facilities  ("Lodging"),  the leading  provider  of vacation  timeshare
exchange services  ("Timeshare")  and a leading provider of international  fleet
management services ("Fleet Management").  The Company also owns HFS Car Rental,
Inc.  (formerly  Avis,  Inc.) which  operates,  through an  indirect  subsidiary
("ARAC") or through licensees,  the second largest general use car rental system
in the world.  The Company  expects to complete an initial public  offering (the
"IPO") of ARAC in September  1997.  The IPO is expected to dilute the  Company's
interest in ARAC to approximately 25% and replace car rental ownership  earnings
with revenue from franchise and related agreements ("Car Rental").

     In the real estate industry,  the Company is the world's largest franchisor
of real estate brokerage offices ("Real Estate Franchise"),  the world's largest
provider of  corporate  relocation  services  ("Relocation")  and  operates  the
thirteenth  largest mortgage  service  business in the United States  ("Mortgage
Services").

     The  merger  with PHH was  accounted  for as a  pooling  of  interests  and
accordingly the financial results discussed herein have been restated to include
PHH for all periods presented.  All comparisons in the following  discussion are
to the same period of the previous year, unless otherwise stated.

     Certain  statements  in  this  Quarterly  Report  on Form  10-Q  constitute
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown  risks,  uncertainties  and other  factors  which  may cause the  actual
results,  performance, or achievements of the Company to be materially different
from any future results,  performance,  or achievements  expressed or implied by
such forward-looking statements.  These forward-looking statements were based on
various factors and were derived utilizing  numerous  important  assumptions and
other  important  factors that could cause actual  results to differ  materially
from those in the forward-looking statements.

<PAGE>



Important  assumptions  and other  important  factors  that could  cause  actual
results  to differ  materially  from  those in the  forward-looking  statements,
include,  but  are  not  limited  to:  uncertainty  as to the  Company's  future
profitability;  the Company's  ability to develop and implement  operational and
financial  systems to manage  rapidly  growing  operations;  competition  in the
Company's existing and potential future lines of business; the Company's ability
to  integrate  and  operate  successfully  acquired  businesses  and  the  risks
associated with such  businesses;  the Company's  ability to obtain financing on
acceptable terms to finance the Company's growth strategy and for the company to
operate within the limitations imposed by financing arrangements; uncertainty as
to the future  profitability of acquired  businesses,  and other factors.  Other
factors  and  assumptions  not  identified  above  were  also  involved  in  the
derivation of these  forward-looking  statements,  and the failure of such other
assumptions  to be  realized  as well as other  factors  may also  cause  actual
results  to differ  materially  from those  projected.  The  Company  assumes no
obligation to update these forward-looking statements to reflect actual results,
changes   in   assumptions   or  changes  in  other   factors   affecting   such
forward-looking statements.


RESULTS OF OPERATIONS

     The Company  incurred  an  anticipated  $303  million  one-time  merger and
restructuring charge ($227 million,  after tax) (the "PHH Restructuring Charge")
during the  second  quarter of 1997 in  connection  with the merger  with PHH on
April 30, 1997. As a result,  the Company  reported a net loss of $106.5 million
or $.67 per share and $15.3 million or $.10 per share for the second quarter and
six months ended June 30, 1997,  respectively.  For  comparative  purposes,  the
following  financial  information and discussions  under the heading "RESULTS OF
OPERATIONS" exclude the PHH Restructuring Charge.

2Q 1997 vs 2Q 1996

     Consolidated net income increased 101% ($60.6 million) to $120.6 million in
1997 while  earnings per share ("EPS")  increased 82% ($.31) to $.69.  Operating
income  (revenue less expenses  excluding  interest and income taxes)  increased
109% ($116.1 million) to $222.1 million.  Consolidated net revenue increased 68%
($234.3 million) to $579.6 million.

     Interest  expense   increased  $11.9  million   primarily   resulting  from
borrowings  under  revolving  credit  arrangements  which financed 1997 treasury
stock  purchases,   restructuring   expenditures,   the  acquisition  of  Resort
Condominiums International, Inc. and other acquisition related expenditures. The
weighted  average  effective  interest rate  increased  from 5.56% to 5.73% 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) ("adjusted net revenue") and operating expenses.  Adjusted
net revenue  consists of gross revenue of $579.6  million and $345.3 million for
1997 and 1996,  respectively,  less $47.8 million and $43.9 million of marketing
and reservation  expenses,  for the same respective periods.  Operating expenses
include  depreciation and amortization but excludes  interest expense and income
taxes. Results for the Company's segments are as follows:


<PAGE>



     Operating income ($000's)            1997            1996         Variance
     -------------------------        -----------     -----------     ---------
         Adjusted net revenue         $   531,832     $   301,444           76%
         Operating expenses               309,692         195,354           59%
                                      -----------     -----------
         Operating income             $   222,140     $   106,090          109%
                                      ===========     ===========


TRAVEL INDUSTRY

Lodging

     The Company operates eight nationally  recognized brands with approximately
5,600  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 lodging segment 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
     -------------------------      -----------       -----------       --------
         Adjusted net revenue       $    63,438       $    58,397            9%
         Operating expenses              19,237            21,147           (9%)
                                    -----------       -----------
         Operating income           $    44,201       $    37,250           19%
                                    ===========       ===========

     Operating income increased 19% as a result of a 9% increase in adjusted net
revenue and a 9%  reduction  in  operating  expenses.  The  adjusted net revenue
increase  resulted  from a 6%  increase  in royalty  fees and a 55%  increase in
revenue from preferred alliances seeking access to the Company's franchisees and
their underlying consumer base. Total royalty paying rooms grew 5% from the same
period in 1996 and total system revenue per available room ("REVPAR")  increased
2%  primarily  due to a 2%  increase  in the  average  daily  rates  charged  at
franchised  lodging  facilities  ("ADR").  The 9%  ($1.9  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 ARAC and
third party licensees that are typical of a traditional franchise  relationship.
The Company's  equity in the earnings of ARAC after royalty and reservation fees
are recorded in the Company's other segment as revenue.

     Operating income ($000's)
         Adjusted net revenue                             $    60,036
         Operating expenses                                    37,669
                                                          -----------
         Operating income                                 $    22,367
                                                          ===========



<PAGE>



     The car rental segment  generated $22.4 million of operating  income in the
second  quarter of 1997.  Adjusted  net  revenue  consisted  primarily  of $46.9
million of franchise fees and $11.6 million of information  technology fees from
third party clients. Operating expenses consisted primarily of $11.5 million and
$15.1 million of reservation and information technology expenses as well as $9.2
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 1997 is as follows:

     Operating income ($000's)
         Adjusted net revenue                             $    89,261
         Operating expenses                                    70,416
                                                          -----------
         Operating income                                 $    18,845
                                                          ===========

Adjusted net revenue primarily  consists of $30.8 million of membership fees and
$43.0  million  of  exchange  fees.  Assuming  Company  ownership  of  timeshare
operations  since January 1, 1996, pro forma membership and exchange fee revenue
increased 20% and 16%, respectively. Total members and exchanges increased 8% to
2.0  million  and 11% to  405,100  compared  to  1996,  respectively.  Operating
expenses  consist  primarily  of $39.3  million  and $5.6  million  of staff and
communication costs, respectively, associated with member service (call centers)
and other timeshare functions.

Fleet Management

     Fleet management  services are offered to corporate  clients and government
agencies to assist them in  effectively  managing  their  vehicle  fleet  costs,
reducing  in-house  administrative  costs  and  enhancing  driver  productivity.
Services  consist of leasing  (which  generally  requires an  investment  by the
Company in the vehicles and includes new vehicle purchasing, open and closed-end
operating leasing, direct finance leasing and used vehicle marketing) as well as
a  variety  of  fee-based  services   including  fuel  purchasing,   maintenance
management programs,  expense reporting, fuel management programs,  accident and
safety programs and other driver services for managing  clients' vehicle fleets.
The Company has  experienced  minimal losses  associated  with its investment in
vehicles due to the overall creditworthiness of its corporate clients.

     Operating income ($000's)        1997              1996           Variance
     -------------------------     ----------       -----------        --------
         Adjusted net revenue      $   65,786       $    62,822             5%
         Operating expenses            40,756            46,150           (12%)
                                   ----------       -----------
         Operating income          $   25,030       $    16,672             50%
                                   ==========       ===========

     Operating income  increased $8.4 million (50%) to $25.0 million,  primarily
as a result of a $6.4 million  (23%)  increase in fee-based  services.  The $5.4
million  (12%)  decrease in operating  expenses was  primarily  attributable  to
expenses  associated  with a truck fuel  management  business  which was sold in
January 1996 and operational efficiencies realized as part of the second quarter
1997 restructuring of certain fleet management operations.



<PAGE>



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 world's largest franchise system,
the CENTURY 21 franchise  system in, August 1995,  the ERA  franchise  system in
February 1996 and the Coldwell  Banker  franchise  system in May 1996.  The most
significant  revenue driver for the real estate franchise business is the number
of home sales  transactions  for which the broker receives  commission  revenue.
Royalties are calculated based on a percentage of franchisee  commission revenue
and  fund  franchise  sales,  service  and  training  expenses.   Marketing  fee
collections   fund  national   advertising   expenditures  and  other  marketing
activities.

     Operating income ($000's)         1997              1996           Variance
     -------------------------     -----------       -----------       ---------
         Adjusted net revenue      $    80,556       $    53,238           51%
         Operating expenses             33,075            29,787           11%
                                   -----------       -----------
         Operating income          $    47,481       $    23,451          102%
                                   ===========       ===========

     Operating  income  increased  102% as a  result  of a $27.3  million  (51%)
increase in  adjusted  net revenue  and only a $3.3  million  (11%)  increase in
operating expenses. The royalty portion of revenue increased $23.9 million (47%)
to $74.6 million, primarily  attributable to acquired  Coldwell Banker franchise
system  operations.  Pro  forma  royalty  revenue,  which  gives  effect  to the
acquisitions  of the  Coldwell  Banker  and ERA  franchise  systems  as if these
acquisitions  were  consummated  on January 1, 1996,  would have  increased $4.4
million  (6%) on the  strength of a 10%  increase in the average  price of homes
sold.  Operating  expenses  increased  11% as a result of  incremental  expenses
associated  with  acquired  franchise  systems  net  of a  $5.0  million  charge
associated with the second quarter 1996 contribution of Coldwell Banker's former
owned  brokerage  business to National  Realty Trust  ("Trust"),  an independent
entity governed by independent trustees.

Mortgage Services

     Mortgage services primarily consist of the origination,  sale and servicing
of residential  first mortgage loans.  The Company  packages such mortgage loans
for sale in  secondary  markets  generally  within  90 days of  origination  and
retains  servicing  rights.  The  Company  markets a variety  of first  mortgage
products to consumers through relationships with corporations,  affinity groups,
government  agencies,  financial  institutions,  real estate brokerage firms and
mortgage  banks by a combination of retail  teleservices  delivery and wholesale
correspondent lending arrangements.

     Operating income ($000's)          1997              1996          Variance
     -------------------------      -----------       -----------       --------
         Adjusted net revenue       $    42,497       $    35,269           20%
         Operating expenses              23,829            21,631           10%
                                    -----------       -----------
         Operating income           $    18,668       $    13,638           37%
                                    ===========       ===========

     Operating  income  increased  37% as a result of a 20% increase in adjusted
net  revenue,  net of a 10%  increase in  operating  expenses.  The  increase in
adjusted net revenue  resulted from a 44% increase in loan  origination  revenue
offset by a 16% decrease in loan  servicing  fees.  The volume of loan  closings
increased 6% from $2.3 billion to $2.5 billion and the average  origination  fee
increased  from 91 to 124 basis points.  The increase in the average fee was due
to an increase in  profitability  achieved in the sale of loans in the secondary
market  and an  increase  in  volume  from  retail  teleservices  delivery.  The
portfolio of loans  serviced  increased 17% from $22.0 billion to $25.6 billion,
the average servicing fee decreased 28% from 6.4 to 4.6 basis points.  The

<PAGE>



decrease in the average fee earned is due to the impact of SFAS 122 which became
effective  in 1995.  Operating  expenses  increased  as a result  of the  larger
servicing portfolio and increased recruiting and staff training expenses.

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, members of affinity group clients and government
agencies. 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
minimal  real estate risk.  Operating  expenses  primarily  consist of sales and
service staffing and related costs. Operating results include contributions from
PHH Real Estate  Services,  Inc.  for both  periods  shown and  Coldwell  Banker
Relocation Services, Inc. ("CBRS") since May 31, 1996.

     Operating income ($000's)        1997              1996           Variance
     -------------------------     -----------       -----------       --------
         Adjusted net revenue      $   103,448       $    83,741           24%
         Operating expenses             78,158            72,871            7%
                                   -----------       -----------
         Operating income          $    25,290       $    10,870          133%
                                   ===========       ===========

     The $14.4 million (133%) increase in operating  income is attributable to a
$19.7  million  (24%)  increase in revenue  adjusted  net of a $5.3 million (7%)
increase  in  expenses.  The  increase in  adjusted  net  revenue was  primarily
attributable to $8.3 million of incremental  revenue  generated by acquired CBRS
operations. Pro forma revenue increased $6.1 million (6%) from 1996 primarily as
a result of an increase in referral fees. The $5.3 million increase in operating
expenses included expenses  associated with the acquired  operations net of $2.4
million of restructuring related savings in 1997.

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
     -------------------------     -----------       -----------        --------
         Adjusted net revenue      $    26,810       $     7,977          236%
         Operating expenses              6,552             3,768           74%
                                   -----------       -----------
         Operating income          $    20,258       $     4,209          381%
                                   ===========       ===========

     Operating  income  increased $16.0 million (381%)  primarily as a result of
$20.8 million of equity in earnings of ARAC, which was acquired in October 1996.
Such gains were offset by the absence of $4.1  million in fees  associated  with
the license of the CENTURY 21 trademark to Amre, Inc. which filed for bankruptcy
protection in February 1997.






<PAGE>



Year-To-Date 1997 vs 1996

     Consolidated  net income  increased 104% ($108.0 million) to $211.7 million
in 1997  while  earnings  per  share  ("EPS")  increased  78%  ($.53)  to $1.21.
Operating income increased 110% ($204.8 million) to $390.4 million. Consolidated
net revenue increased 76% ($476.6 million) to $1.1 billion.

     Interest expense  increased 186% ($20.0 million)  primarily  resulting from
borrowings  under  revolving  credit  arrangements  which financed 1997 treasury
stock  purchases,  restructuring  expenditures,  the RCI  acquisition  and other
acquisition related expenditures,  while the weighted average effective interest
rate increased from 5.61% to 5.72% 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.

     Adjusted net revenue  consists of gross  revenue of $1.1 billion and $623.0
million for 1997 and 1996, respectively, less $85.8 million and $75.5 million of
marketing and reservation  revenue,  for the same respective periods.  Operating
expenses include  depreciation and amortization but exclude interest expense and
income taxes. Results for the Company's segments are as follows:

     Operating income ($000's)        1997                1996          Variance
     -------------------------    -----------       -----------         --------
         Adjusted net revenue     $ 1,013,789       $   547,553           85%
         Operating expenses           623,381           362,013           72%
                                  -----------       -----------
         Operating income         $   390,408       $   185,540          110%
                                  ===========       ===========


TRAVEL INDUSTRY

Lodging

     Operating income ($000's)        1997              1996            Variance
     -------------------------    -----------       -----------         --------
         Adjusted net revenue     $   117,480       $   109,657            7%
         Operating expenses            37,279            44,458         (16%)
                                  -----------       -----------
         Operating income         $    80,201       $    65,199           23%
                                  ===========       ===========

     Operating income increased 23% as a result of a 7% increase in adjusted net
revenue and a 16%  reduction  in  operating  expenses.  The adjusted net revenue
increase  resulted  from a 6%  increase  in royalty  fees and a 70%  increase in
revenue from preferred alliances seeking access to the Company's franchisees and
their underlying consumer base. Total royalty paying rooms grew 3% from the same
period in 1996 and total REVPAR  increased 2% primarily  due to a 3% increase in
ADR charged at franchised lodging facilities. The 16% ($7.2 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

     Operating income ($000's)                               1997
     -------------------------                            -----------
         Adjusted net revenue                             $   118,870
         Operating expenses                                    76,293
                                                          -----------
         Operating income                                 $    42,577
                                                          ===========

     The car rental segment  generated $42.6 million of operating  income in the
six months ended June 30,  1997.  Adjusted  net revenue  consisted  primarily of
$86.9 million of franchise fees and $21.6 million of information technology fees
from third  party  clients.  Operating  expenses  consisted  primarily  of $22.4
million and $30.3


<PAGE>



million of  reservation  and  information  technology  expenses as well as $18.5
million of  depreciation  and  amortization  expenses  associated  with the Avis
trademark and goodwill.

Timeshare

     Operating income ($000's)                               1997
     -------------------------                            -----------
         Adjusted net revenue                             $   187,710
         Operating expenses                                   148,139
                                                          -----------
         Operating income                                 $    39,571
                                                          ===========

     Adjusted net revenue primarily consists of $61.6 million of membership fees
and $92.8  million of exchange  fees.  Assuming  Company  ownership of timeshare
operations since January 1, 1996, pro forma first quarter membership revenue and
exchange  fee  revenue  would have  increased  23% and 10%  respectively.  Total
members and exchanges  increased 8% to 2.0 million and 6% to 880,000 compared to
1996,  respectively.  Operating  expenses consist primarily of $94.9 million and
$25.1 million of staff and communication  costs,  respectively,  associated with
member service (call centers) and other timeshare functions.

Fleet Management Services

     Operating income ($000's)          1997              1996          Variance
     -------------------------      -----------       -----------       --------
         Adjusted net revenue       $   146,581       $   133,770           10%
         Operating expenses              89,387            90,899          (2%)
                                    -----------       -----------
         Operating income           $    57,194       $    42,871           33%
                                    ===========       ===========

     Operating income increased $14.3 million (33%) to $57.2 million,  primarily
as a result of a $9.4 million  (14%)  increase in fee-based  services.  The $1.5
million  (2%)  decrease in  operating  expenses was  primarily  associated  with
expenses  associated  with a truck fuel  management  business  which was sold in
January 1996 and operational efficiencies realized as part of the second quarter
1997 restructuring of certain fleet management operations.


REAL ESTATE INDUSTRY

Real Estate Franchise

     Operating income ($000's)        1997              1996            Variance
     -------------------------    -----------       -----------         --------
         Adjusted net revenue     $   133,734       $    75,600           77%
         Operating expenses            66,557            43,785           52%
                                  -----------       -----------
         Operating income         $    67,177       $    31,815          111%
                                  ===========       ===========

     Operating  income  increased  111% as a  result  of a $58.1  million  (77%)
increased in adjusted  net revenue and only a $22.8  million  (52%)  increase in
operating expenses. The royalty portion of revenue increased $52.4 million (74%)
to $123.0 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,  would have  increased $6.8 million (6%) on the
strength  of an 8%  increase  in the  average  price  of homes  sold.  Operating
expenses increased as a result of incremental  expenses associated with acquired
franchise systems.



<PAGE>



Relocation

     Operating income ($000's)          1997              1996          Variance
     -------------------------      -----------       -----------       --------
         Adjusted net revenue       $   188,693       $   151,115           25%
         Operating expenses             149,441           132,885           12%
                                    -----------       -----------
         Operating income           $    39,252       $    18,230          115%
                                    ===========       ===========

     The $21.0 million (115%)  increase in operating  income is  attributable to
approximately $14.3 million of operating income from relocation businesses owned
for the entire six month  periods of 1997 and 1996 and the balance was generated
from acquired CBRS operations.

Mortgage Services

     Operating income ($000's)          1997              1996          Variance
     -------------------------      -----------       -----------       --------
         Adjusted net revenue       $    76,129       $    55,154           38%
         Operating expenses              44,669            39,087           14%
                                    -----------       -----------
         Operating income           $    31,460       $    16,067           96%
                                    ===========       ===========

     Operating  income  increased  96% as a result of a 38% increase in adjusted
net  revenue,  net of a 14%  increase in  operating  expenses.  The  increase in
adjusted net revenue resulted from a 63% increase in revenue from new production
and a 7% increase in revenue  from the  servicing  portfolio.  The volume of new
loan production  decreased 6% from $4.5 billion to $4.3 billion as a result of a
37%  decrease  in  refinancing  volume  which was  offset by a 21%  increase  in
purchase  mortgage  volume.  The average fee earned in new production  increased
from 68 basis points to 117 basis  points as a result of improved  profitability
achieved  in the sale of  loans  in the  secondary  market.  Operating  expenses
increased  14% due to the  larger  servicing  portfolio  as  well  as  increased
recruiting, training and systems development costs.

Other Segment

     Operating income ($000's)          1997              1996          Variance
     -------------------------      -----------       -----------       --------
         Adjusted net revenue       $    44,592       $    22,257          100%
         Operating expenses              11,616            10,898            7%
                                    -----------       -----------
         Operating income           $    32,976       $    11,359          190%
                                    ===========       ===========

     Operating  income  increased 190% ($21.6 million)  primarily as a result of
$24.3 million of equity in earnings of ARAC, which was acquired in October 1996.


LIQUIDITY AND CAPITAL RESOURCES

Acquisitions Overview

     The  Company  continues  to seek to expand and  strengthen  the  leadership
position in its travel and real estate  industry  segments.  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 significant  dollar volumes
of annual  transactions in the travel and real estate industries.  The Company's
desire to  cross-market  within its businesses and expand the revenue streams of
each business as well as market to its millions of consumer


<PAGE>



contacts was the primary  motivation for the proposed merger with CUC, which the
Company believes currently possesses the expertise in direct marketing necessary
to accomplish the Company's objectives.

     The   Company's    businesses    acquired   by   purchase   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.

     Assuming the successful  completion of the proposed CUC merger, the Company
expects to significantly  enhance its  opportunities to cross-market  within its
existing business segments.  The Company continues to pursue acquisitions and/or
investments in service businesses that fit the profile described above.

Acquisitions

C21 HOLDING CORP - On May 15,  1997,  the Company  acquired  the 12.5%  minority
ownership  interest in C21 Holding Corp.,  the parent company of Century 21 Real
Estate  Corporation  from a company  comprised  primarily  of former  management
employees for $52.8 million.  Such purchase  resulted in an increase in goodwill
associated with the August 1995 acquisition of the CENTURY 21 franchise system.

PHH - On April 30,  1997,  the Company  acquired  PHH by merger for 30.3 million
shares of Company  common  stock,  exchanged 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 was accounted for as a pooling of interests.

The Company  incurred a $303 million  merger and  restructuring  charge upon the
close of the PHH Merger in the  second  quarter  of 1997.  The  charge  includes
severance, facility consolidation and other transaction related costs associated
with the restructuring of Company and PHH businesses.  The restructuring  charge
was paid with borrowings  under the Company's  revolving  credit  facility.  The
Company   estimates  the  charge  will  result  in  annual  pre-tax  savings  of
approximately $100 million with the full benefit of cost reductions beginning in
1998.

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  the  proposed
licensing transaction.

Equity Transactions

Treasury  Purchases - On January 7, 1997, the Board of Directors  authorized the
purchase of up to 2.6 million  shares of Company  common stock to satisfy  stock
option  exercises and conversions of convertible  debt securities and for future
acquisitions. The Company acquired approximately 2.6 million treasury shares in


<PAGE>



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

     Management  believes  that the  Company  has  excellent  liquidity  and has
expanded its access to liquidity  following  both the completed  merger with PHH
and the proposed  merger with CUC. Most  significant,  the Company has generated
significant  positive  cash  flow from  operations  in every  quarter  since its
initial public  offering in December 1992,  excluding the second quarter of 1997
when it  incurred a pre-tax  $303  million  merger and  restructuring  charge in
connection with the PHH merger. 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,  Standard & Poors  Corporation  ("S&P")  affirmed its A credit
rating of the Company's  publicly issued debt following the announcement of both
the PHH and CUC mergers and Moody's Investors Service, Inc. ("Moody's") upgraded
the  Company's  debt rating to A3 following  the PHH merger.  Please note that a
rating is not a recommendation to buy, sell or hold securities and is subject to
revision or withdrawal at any time by the rating  agency.  Each rating should be
evaluated independently of any other rating.

     Liquidity is available to the Company through  revolving credit  facilities
which may provide up to $1.5 billion of unsecured  borrowings at interest  rates
generally  approximating  LIBOR plus a margin of 22.5 basis points. The proposed
combined  company  expects to amend or replace  either the CUC or HFS  revolving
credit   facility  with  a  syndicated   facility  or   facilities   aggregating
approximately  $2 billion with tranches of various tenor.  At June 30, 1997, the
Company had $605 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.  The Company  expects to replace  this shelf
registration statement after the merger with CUC.

     Long-term  debt  increased  $425  million to $1.2 billion at June 30, 1997,
when compared to amounts  outstanding at December 31, 1996 primarily as a result
of $171.3 million of treasury share purchases and approximately  $115 million of
acquisition  liability  payments.  Long-term  debt  primarily  consists  of $536
million of fixed rate publicly issued debt and $615 million of borrowings  under
the Company's revolving credit facilities.

     PHH will continue to operate its 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 8 to 1, such debt corresponds directly with net investments in high
quality  related  assets.  Accordingly,  following the  announcement  of the PHH
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.

     PHH debt is issued without recourse to the Company.  The Company expects to
continue  to have 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


<PAGE>



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 June 30, 1997, PHH's
aggregate  outstanding  borrowings  approximated  $3.1 billion  in  outstanding
commercial  paper,  $1.5billion 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 of credit  maturing  in 364 days and $1.25
billion  of lines  of  credit  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 June 30, 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.

     The Company and PHH  currently  operate  under  policies  limiting  (a) the
payment of  dividends on PHH's  capital  stock to 40% of net income of PHH on an
annual basis, less the outstanding principal balance of loans from PHH to HFS as
of the date of any proposed dividend payment, and (b) the outstanding  principal
balance of loans from PHH to HFS to 40% of net income of PHH on an annual basis,
less payment of dividends on PHH's capital stock during such year.

     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  $1.1  billion  of  cash  flow  from   operations,
representing  a $358 million  (202%)  increase from the same period of 1996. The
comparative increase in cash flow from operations primarily resulted from a $779
million  increase  in  mortgage  loans held for sale Net cash used in  investing
activities  decreased  $514.2 million to $1.1 billion,  reflecting a decrease in
acquisition related payments.  Cash provided by financing  activities  decreased
$1.7  billion as a result of $1.1  billion of  proceeds  received in a June 1996
equity  offering of 1997 treasury  stock  purchases and $240 million of proceeds
received from the issuance of the 4-1/2% Notes in February 1996.

     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,  strategic  investments  and
acquisitions of other service related businesses.



<PAGE>



IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In June 1996,  the FASB issued SFAS No. 125  "Accounting  for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." the statement
provides  accounting  and reportin  standards  for  transfers  and  servicing of
financial  assets  and,  among other  things,  SFAS No. 125 also  requires  that
previously recognized servicing receivables that exceed contractually  specified
servicing fees shall be reclassified as interest-0only  strips  receivable,  and
subsequently  measured  under the  provisions  of SFAS No. 115  "Accounting  for
Certain  Investments in Debt and Equity  Securities." The Company will adopt the
provisions  of SFAS No. 125 on January 1, 1997 and will  reclassify a portion of
its exces servicing fees to  interest-only  strips.  The effect of adopting SFAS
No. 125 is not expected to be material to the Company's  operations or financial
condition.

     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 second quarter 1997, the Company
would have reported a loss per share of $.67 million  including the $303 million
one-time  PHH  restructuring  charge  and  the  following  earnings  per  share,
excluding such charge:

     Pro Forma SFAS 128:
         Basic EPS                               $  .75
         Diluted EPS                             $  .69
     As Reported:
         Primary EPS                             $  .69
         Fully Diluted EPS                       $  .69

     In June 1997, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting Standards No. 130 ("SFAS 130"),  "Reporting  Comprehensive
Income",  which requires  preparation of a new basic  financial  statement which
considers  the impact of  certain  economic  events  that have  heretofore  been
reflected as adjustments to stockholders'  equity but have not impacted reported
earnings on the consolidated statements of operations.  Comprehensive income per
share is not  required to be shown on the new  statement.  SFAS 130 is effective
for fiscal years  beginning  after December 15, 1997. The Company plans to adopt
the provision of SFAS 130 on January 1, 1998.

     Upon  adoption of SFAS 130, the Company will classify  other  comprehensive
income  separately into foreign  currency  translation  adjustments,  unrealized
gains and losses on securities and minimum pension liability adjustments.


     In June 1997, the Financial  Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related  Information",  which requires  companies to report
information   about  the  operating   segments  in  interim  reports  issued  to
shareholders.  SFAS 131 also established standards for related disclosures about
products  and  services,  geographic  areas,  and major  customers.  SFAS 131 is
effective for fiscal years  beginning after December 15, 1997. The Company plans
to adopt the disclosure requirements of SFAS 131 on December 31, 1998.

                                      *****


 
<PAGE>



ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      A special meeting of the shareholders of the Company was held on April 30,
1997 to consider the following matters:

(i)   To consider and vote upon a proposal (the "Share Issuance") to approve the
      issuance of up to 31.4 million shares of HFS common stock,  par value $.01
      per share ("HFS  common  stock"),  pursuant to the  Agreement  and Plan of
      Merger  dated as of November  10, 1996 (the  "Merger  Agreement"),  by and
      among the Company,  Mercury Acq.  Corp., a wholly owned  subsidiary of the
      Company  ("Merger  Sub"),  and PHH Corporation  ("PHH")  pursuant to which
      Merger Sub will be merged  with and into PHH and PHH will  become a wholly
      owned subsidiary of the Company.

(ii)  To consider and vote upon a proposal to amend the Company's Certificate of
      Incorporation  to increase the maximum  number of authorized  directors of
      the Company from twelve (12) to twenty (20) (the "Directors Amendment").

(iii) To consider and vote upon a proposal to amend the Company's Certificate of
      Incorporation  to increase the number of  authorized  shares of HFS common
      stock  from  300,000,000   shares  to  600,000,000   shares  (the  "Shares
      Amendment").

(iv)  To consider  and vote upon a proposal to amend the  Company's  Amended and
      Restated  1993  Stock  Option  Plan (the "1993  Plan") to  provide  for an
      increase of 10,000,000  shares in the total number of shares of HFS common
      stock  currently  authorized for issuance under the 1993 Plan (which would
      increase the total number of shares  authorized  for issuance  pursuant to
      the 1993 Plan from 24,541,600, to 34,541,660) (the "1993 Plan Amendment").

     As of the  close of  business  on March 3,  1997,  there  were  issued  and
outstanding 127,529,530 shares of HFS common stock. Of such shares,  112,120,601
were duly  represented  at the meeting,  constituting  a quorum.  The  following
represents the results of such meeting:

         For approval of the Share Issuance:
                       FOR:                    104,205,182
                       AGAINST:                     83,442
                       ABSTAINED:                  106,261

         For approval of the Directors Amendment:
                       FOR:                    111,835,808
                       AGAINST:                    144,452
                       ABSTAINED:                  140,341

         For approval of the Shares Amendment:
                       FOR:                    104,984,113
                       AGAINST:                  7,025,778
                       ABSTAINED:                  110,710

         For approval of the 1993 Plan Amendment:
                       FOR:                     74,355,897
                       AGAINST:                 29,888,331
                       ABSTAINED:                  160,657

         Accordingly, all such proposals were duly approved

                                      *****

 
<PAGE>



ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

Exhibit
No.       Description

3.1       Certificates of Amendment to the Restated Certificate of Incorporation
          of the Company, dated April 30, 1997.

3.2       Amended and Restated By-Laws of the Company.

10.1      Master License Agreement, dated July 30, 1997, among HFS Car Rental,
          Inc., Avis Rent A Car System, Inc. and Wizard Co., Inc.

11        Statement of Computation of Earnings Per share.

27          Financial Data Schedule.

(b)       Reports on Form 8-K

          The Company  filed a report on Form 8-K dated May 14, 1997,  reporting
          in Item 2 the  consummation of the Company's  acquisition by merger of
          PHH  Corporation  ("PHH").  The  Company  also  reported in Item 7 the
          following financial statements:

         Financial statements of business acquired:

              1.  The   audited   consolidated   balance   sheets   of  PHH  and
                  subsidiaries  as of April  30,  1996 and 1995 and the  related
                  consolidated  statements of income,  stockholders'  equity and
                  cash  flows  for each of the years in the  three  year  period
                  ended April 30, 1996.

              2.  The unaudited interim consolidated financial statements of PHH
                  as of January 31, 1997 and for the nine months  ended  January
                  31, 1997 and 1996.

          The Company filed a report on Form 8-K dated May 28, 1997 reporting in
          Item  5  the  signing  of  a  definitive  merger  agreement  with  CUC
          International,  Inc.  ("CUC") which  provides the Company to be merged
          with and into CUC, with CUC continuing as the surviving corporation.

          The Company  filed a report on Form 8-K dated July 15, 1997  reporting
          in Item 5 the combined  results of operations  for the month ended May
          31, 1997 of the Company and PHH.

          The Company  filed a report on Form 8-K dated July 16, 1997  reporting
          under  Items  5  and  7  the  financial  statements  and  management's
          discussion  and  analysis  of  financial   condition  and  results  of
          operations  of  the  Company  and  gives  retroactive  effect  to  the
          acquisition  of PHH with and into the Company which has been accounted
          for as a pooling of interests  The Form 8-K included the audited
          consolidated balance sheets of the Company as of December 31, 1996 and
          1995, and the related consolidated statements of income, shareholders'
          equity and cash flows for each of the years in the period ended
          December 31, 1996.

                                      *****



<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
Date: August 14, 1996                            and Chief Accounting Officer

<PAGE>
                                  EXHIBIT INDEX

Exhibit
 No.              Description

3.1               Certificates of Amendment to the Restated Certificate of
                  Incorporation of the Company, dated  April 30, 1997.

3.2               Amended and Restated By-Laws of the Company

10.1              Master License Agreement, dated July 30, 1997, among HFS Car
                  Rental, Inc., Avis Rent A Car System, Inc. and Wizard Co.,
                  Inc.

11                Statement of Computation of Earnings Per share

27                Financial Data Schedule