<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    FORM 10-Q

(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the quarterly period ended September 30, 1999
                                        ------------------

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the transition period from __________ to ___________

                         Commission File Number 1-13719



                            PROMUS HOTEL CORPORATION
             (Exact name of registrant as specified in its charter)


        DELAWARE                                   I.R.S.  NO. 62-1716020
(State of Incorporation)                    (I.R.S. Employer Identification No.)

                               755 CROSSOVER LANE
                          MEMPHIS, TENNESSEE 38117-4900
               (Address of principal executive offices)(Zip Code)

                                 (901) 374-5000
              (Registrant's telephone number, including area code)


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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 [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of September 30, 1999.

                 Common Stock ................78,690,852 shares


<PAGE>   2
                        FORM 10-Q CROSS-REFERENCE INDEX

<TABLE>
<S>                                                                  <C>
PART I--FINANCIAL INFORMATION.........................................1

     ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

           Consolidated Balance Sheets
              December 31, 1998 and September 30, 1999................2
           Consolidated Statements of Operations
              September 30, 1998 and September 30, 1999...............3
           Consolidated Statements of Cash Flows
              September 30, 1998 and September 30, 1999...............4
           Notes to Consolidated Financial Statements.................5

     ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
             FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........10

     ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
             MARKET RISK.............................................25


PART II--OTHER INFORMATION...........................................26

     ITEM 1. LEGAL PROCEEDINGS.......................................26

     ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...............26

     ITEM 3. DEFAULTS UPON SENIOR SECURITIES.........................26

     ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....26

     ITEM 5. OTHER INFORMATION.......................................26

     ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................27

     SIGNATURES......................................................28

</TABLE>
<PAGE>   3

PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The accompanying unaudited consolidated condensed financial statements of Promus
Hotel Corporation (Promus), incorporated in the state of Delaware, have been
prepared in accordance with the instructions to Form 10-Q, and therefore do not
include all information and notes necessary for complete financial statements in
conformity with generally accepted accounting principles. The results for the
periods indicated are unaudited, but reflect all adjustments (consisting only of
normal recurring adjustments) which management considers necessary for a fair
presentation of operating results. Results of operations for interim periods are
not necessarily indicative of a full year of operations. These unaudited
consolidated condensed financial statements should be read in conjunction with
Promus' consolidated financial statements and notes thereto included in Promus'
1998 Annual Report to Shareholders.











                                   Page 1 of 30
                              Exhibit Index Page 29
<PAGE>   4


                            PROMUS HOTEL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                              DECEMBER 31,    SEPTEMBER 30,
                                                                                  1998             1999
                                                                              -----------      -----------
<S>                                                                           <C>              <C>
                                     ASSETS

Cash and cash equivalents ...............................................     $     6,466      $    51,616
Accounts receivable, net ................................................         101,742          103,103
Assets held for sale, net ...............................................              --           89,435
Notes receivable, short-term ............................................              --           30,236
Other ...................................................................          44,485           37,360
                                                                              -----------      -----------
         Total current assets ...........................................         152,693          311,750
                                                                              -----------      -----------

Property and equipment, net .............................................       1,109,868          952,834
Investments .............................................................         220,268          185,054
Management and franchise contracts, net .................................         427,421          414,391
Goodwill, net ...........................................................         392,419          371,667
Notes receivable ........................................................          68,991           89,435
Investment in franchise system ..........................................          57,023           62,056
Deferred costs and other assets .........................................          45,318           42,119
                                                                              -----------      -----------
                                                                              $ 2,474,001      $ 2,429,306
                                                                              ===========      ===========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued expenses ...................................     $   180,189      $   170,046
Current portion of notes payable ........................................           1,797            1,731
                                                                              -----------      -----------
         Total current liabilities ......................................         181,986          171,777
                                                                              -----------      -----------

Deferred income taxes ...................................................         276,498          265,598
Notes payable ...........................................................         768,891          750,359
Other long-term obligations .............................................          87,931           86,619
                                                                              -----------      -----------
                                                                                1,315,306        1,274,353
                                                                              -----------      -----------

Commitments and contingencies

Stockholders' equity:
     Common stock, $0.01 par value. Authorized 500,000,000 shares;
         87,457,099 and 87,973,152 shares issued and outstanding ........             875              880
     Additional paid-in capital .........................................         898,900          913,051
     Retained earnings ..................................................         379,423          522,231
     Accumulated other comprehensive income (loss) ......................          (2,909)          (5,234)
     Treasury stock, at cost (3,620,000 and 9,282,300 shares) ...........        (117,594)        (275,975)
                                                                              -----------      -----------
                                                                                1,158,695        1,154,953
                                                                              -----------      -----------
                                                                              $ 2,474,001      $ 2,429,306
                                                                              ===========      ===========
</TABLE>



        The accompanying notes are an integral part of these consolidated
                        condensed financial statements.



                                       2
<PAGE>   5


                            PROMUS HOTEL CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED        NINE MONTHS ENDED
                                                     SEPTEMBER 30,           SEPTEMBER 30,
                                               ----------------------    ----------------------
                                                  1998         1999         1998         1999
                                               ---------    ---------    ---------    ---------
<S>                                            <C>          <C>          <C>          <C>
Revenues:
     Franchise and management fees .........   $  59,341    $  56,296    $ 167,773    $ 165,656
     Owned hotel revenues ..................     107,355      110,671      300,946      322,788
     Leased hotel revenues .................     110,823      102,086      318,489      293,341
     Purchasing and service fees ...........       7,091        6,781       18,379       16,786
     Joint venture income and other revenues      11,617        9,316       35,910       33,831
                                               ---------    ---------    ---------    ---------
         Total revenues ....................     296,227      285,150      841,497      832,402
                                               ---------    ---------    ---------    ---------
Operating costs and expenses:
     General and administrative expenses ...      26,060       17,753       64,654       62,741
     Owned hotel expenses ..................      64,752       68,926      184,489      204,163
     Leased hotel expenses .................      95,555       87,724      279,624      259,075
     Depreciation and amortization .........      20,086       18,587       58,623       61,317
     Business combination expenses .........          --        3,194           --        3,194
                                               ---------    ---------    ---------    ---------
         Total operating costs and expenses      206,453      196,184      587,390      590,490
                                               ---------    ---------    ---------    ---------
     Net gain on asset dispositions ........       8,541       26,719       10,826       26,011
                                               ---------    ---------    ---------    ---------
         Operating income ..................      98,315      115,685      264,933      267,923
     Interest and dividend income ..........       4,675        4,432       15,300       14,206
     Interest expense, net .................     (16,290)     (17,873)     (46,518)     (50,704)
                                               ---------    ---------    ---------    ---------
         Income before income taxes and
              minority interest ............      86,700      102,244      233,715      231,425
Minority interest share of net income ......      (1,313)      (1,150)      (3,016)      (2,566)
                                               ---------    ---------    ---------    ---------
         Income before income taxes ........      85,387      101,094      230,699      228,859
Income tax expense .........................     (33,557)     (38,011)     (90,665)     (86,051)
                                               ---------    ---------    ---------    ---------
         Net income ........................   $  51,830    $  63,083    $ 140,034    $ 142,808
                                               =========    =========    =========    =========
Net income per share
         Basic .............................   $    0.60    $    0.80    $    1.62    $    1.76
                                               =========    =========    =========    =========
         Diluted ...........................   $    0.60    $    0.80    $    1.60    $    1.75
                                               =========    =========    =========    =========
</TABLE>




        The accompanying notes are an integral part of these consolidated
                        condensed financial statements.



                                       3
<PAGE>   6


                            PROMUS HOTEL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         NINE MONTHS ENDED
                                                                            SEPTEMBER 30,
                                                                       ----------------------
                                                                         1998         1999
                                                                       ---------    ---------
<S>                                                                    <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .........................................................   $ 140,034    $ 142,808
    Adjustments to reconcile net income to net cash
       provided by operations:
       Payment of business combination expenses ....................     (44,321)     (38,739)
       Depreciation and amortization ...............................      58,623       61,317
       Other non-cash income .......................................      (3,866)        (564)
       Equity in earnings of nonconsolidated affiliates ............     (16,050)     (13,309)
       Net gain on asset dispositions ..............................     (10,826)     (26,011)
    Changes in assets and liabilities:
       (Increase) decrease in accounts receivable, net .............     (17,170)       2,960
       Decrease in other current assets ............................       9,636        9,897
       (Decrease) increase in deferred costs and other assets ......      (4,041)        (145)
       Increase (decrease) in accounts payable and accrued expenses        7,084       30,603
       Decrease in other long-term obligations and
          deferred income taxes ....................................      (1,319)     (18,057)
                                                                       ---------    ---------
              NET CASH PROVIDED BY OPERATING ACTIVITIES ............     117,784      150,760
                                                                       ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
       Acquisitions ................................................     (61,150)      (5,026)
       Purchases of property and equipment .........................    (126,101)     (50,773)
       Proceeds from sale of real estate, securities and investments      15,053      134,198
       Investments in and advances to partnerships and affiliates ..     (20,145)      (7,472)
       Distributions from partnerships and affiliates ..............      28,816       24,386
       Net investment in management and franchise contracts ........         149         (685)
       Escrow deposits used for development ........................      20,537           --
       Loans to owners of managed and franchised hotels ............     (14,163)     (36,809)
       Collections of loans to owners of managed and
          franchised hotels ........................................      36,474       12,178
       Other .......................................................         424       (5,322)
                                                                       ---------    ---------
              NET CASH (USED IN) PROVIDED BY
                    INVESTING ACTIVITIES ...........................    (120,106)      64,675
                                                                       ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
       Proceeds from exercise of common stock options ..............      31,555       11,760
       Purchases of treasury stock .................................     (59,656)    (158,381)
       Net activity under revolving credit facility ................       7,320      (19,250)
       Proceeds from notes payable .................................      14,422       80,000
       Principal payments on notes payable .........................      (1,915)     (84,414)
                                                                       ---------    ---------
              NET CASH USED IN FINANCING ACTIVITIES ................      (8,274)    (170,285)
                                                                       ---------    ---------
Net (decrease) increase in cash and cash equivalents ...............     (10,596)      45,150
Cash and cash equivalents, beginning of period .....................      24,066        6,466
                                                                       ---------    ---------
Cash and cash equivalents, end of period ...........................   $  13,470    $  51,616
                                                                       =========    =========
</TABLE>



        The accompanying notes are an integral part of these consolidated
                        condensed financial statements.



                                       4
<PAGE>   7


                            PROMUS HOTEL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1999
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

   The accompanying consolidated financial statements include the accounts of
   Promus Hotel Corporation (Promus) and its majority-owned subsidiaries. All
   significant intercompany accounts and transactions are eliminated. The
   preparation of financial statements in accordance with generally accepted
   accounting principles requires management to make estimates and assumptions
   that affect the reported amounts of assets, liabilities, revenues and
   expenses, and the disclosure of contingent assets and liabilities. While
   management seeks to make accurate estimates, actual results could differ from
   these estimates.

   During the first quarter of 1998, Promus adopted the provisions of Statement
   of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
   Income." The standard requires that entities include within their financial
   statements information on comprehensive income, which is defined as all
   activity impacting equity from non-owner sources. For Promus, adjustments to
   calculate comprehensive income are comprised exclusively of changes in
   unrealized gains (losses), net of gains (losses) realized, on its investments
   in marketable equity securities. The adjustments, net of tax, for the nine
   months ended September 30, 1998 and 1999 were $(9,319,000) and $(2,325,000),
   respectively.

NOTE 2 - NATURE OF OPERATIONS

   Through its wholly-owned subsidiaries, Promus franchises and manages hotels
   with the following brands: Doubletree Hotels, Doubletree Guest Suites,
   Embassy Suites, Hampton Inn, Hampton Inn & Suites, Homewood Suites, Club
   Hotels by Doubletree, and Red Lion Inns and Hotels. Promus may also own all
   or a portion of these hotels or lease these hotels from others. In addition,
   Promus leases and manages hotels that are not Promus-branded. At September
   30, 1999, Promus franchised 1,112 hotels and operated 331 hotels, of which 51
   hotels were wholly owned, 23 were partially owned through joint ventures, 73
   were leased from third parties and 184 were managed for third parties. These
   hotels were located in all 50 states, the District of Columbia, Puerto Rico
   and six foreign countries. Promus also operates and licenses vacation
   interval ownership systems under the Embassy Vacation Resort and Hampton
   Vacation Resort names.

   Promus' primary focus is to develop, grow and support its franchise and
   management business. Promus' primary sources of revenues are from the
   operations of owned and leased hotels, franchise royalty fees and management
   fees. Promus charges franchisees a royalty fee of up to four percent of the
   franchised hotels' room revenues. Management fees are based on a percentage
   of the managed hotels' gross revenues, operating profits, cash flow, or a
   combination thereof. Generally, Promus is also reimbursed for certain costs
   associated with providing central reservations, sales, marketing, accounting,
   data processing, internal audit and employee training services to hotels.

NOTE 3 - ACQUISITIONS AND BUSINESS COMBINATIONS

   On September 3, 1999, Promus signed a definitive agreement with Hilton Hotels
   Corporation (Hilton) whereby Hilton will acquire Promus for stock and cash.
   The completion of the acquisition is anticipated on November 30, 1999,
   pending approval by stockholders of both companies. The transaction will be
   accounted for as a purchase. For more information, see Promus' Joint Proxy
   Statement filed on Schedule 14A with the Securities and Exchange Commission
   on October 21, 1999.

   On December 19, 1997, Promus Hotel Corporation and Doubletree Corporation
   merged. The merger was accounted for under the pooling of interests method.
   In connection with the merger, Promus recorded a $115.0 million provision for
   business combination expenses in December 1997 and an employee severance
   accrual of $28.1 million in the fourth quarter of 1998. At September 30,
   1999, all amounts accrued were paid.




                                       5
<PAGE>   8

   Acquisition of Harrison Conference Associates, Inc.

   In January 1998, Promus acquired Harrison Conference Associates, Inc.
   (Harrison) for approximately $61.2 million cash, including acquisition costs,
   in a transaction accounted for as a purchase. Harrison is a leading
   conference center operator with over 1,200 rooms under management, including
   two owned and six managed properties.

   Acquisition of Doubletree La Posada Resort

   In June 1999, Promus acquired the remaining 50% interest in the Doubletree La
   Posada Resort, a joint venture hotel, for $5.5 million in cash. The
   transaction was accounted for as a purchase. Prior to its purchase Promus had
   accounted for the joint venture as an equity investment.

NOTE 4 - ASSET DISPOSITIONS

   In the third quarter of 1999, Promus identified 26 owned hotels to be sold as
   part of a plan to reduce ownership of real estate. Fourteen of these hotels
   were sold by September 30, 1999. The aggregate sales price for these hotels
   was $135.3 million, of which $26.6 million was received in the form of a note
   with a one year maturity. The total net book value for the 14 hotels was
   $81.0 million and the total gain recognized, net of costs to sell, was $44.7
   million. A portion of the gain, $5.8 million, was deferred and will be
   recognized on the installment method as the note receivable is collected.
   Promus signed franchise agreements for all of the sold hotels and will retain
   management agreements for four of these hotels.

   The remaining 12 hotels have been classified on the balance sheet as current
   assets under the caption "Assets held for sale, net". The net assets of these
   hotels totaled $89.4 million. A reserve of $17.3 million was recorded in the
   third quarter to reduce the carrying value on two of the hotels to their
   estimated net realizable values. This reserve is shown in the Consolidated
   Statement of Operations in the line item "Net gain on asset dispositions".
   Sales for nine of the hotels held for sale are scheduled to close in the
   fourth quarter of 1999. Sales of the three remaining hotels should occur
   within the next 12 months.

NOTE 5 - INVESTMENTS

   Investments consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                  DECEMBER 31,   SEPTEMBER 30,
                                                      1998           1999
                                                    --------       --------
<S>                                                 <C>            <C>
   Hotel partnerships .......................       $165,678       $133,295
   Investments in common stock (at market)...         36,090         33,259
   Convertible preferred stock ..............         18,500         18,500
                                                    --------       --------
                                                    $220,268       $185,054
                                                    ========       ========
</TABLE>

   Promus' non-controlling general and/or limited interests in hotel
   partnerships range from less than 1.0% to 50.0%. Investments in common stock
   are carried at market value. Promus' cost of these investments at September
   30, 1999 was approximately $41.8 million.



                                       6
<PAGE>   9



NOTE 6 - NOTES PAYABLE

   Promus' indebtedness consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                            DECEMBER 31,     SEPTEMBER 30,
                                                               1998             1999
                                                             ---------        ---------
<S>                                                          <C>              <C>
   Promus Facility ...................................       $ 634,250        $ 615,000
   Mortgages, 6.4% - 8.6%, maturities
       through 2008 ..................................          95,660           96,132
   Convertible rate term loan ........................          20,000           20,000
   Notes payable and other unsecured debt, 6.0%-13.0%,
       maturities through 2022 .......................          20,778           20,958
                                                             ---------        ---------
                                                               770,688          752,090
   Current portion of notes payable ..................          (1,797)          (1,731)
                                                             ---------        ---------
                                                             $ 768,891        $ 750,359
                                                             =========        =========
</TABLE>

   Derivative Financial Instruments

   To manage its interest rate sensitivity, Promus maintains several interest
   rate swap agreements, which serve to convert a portion of the Promus Facility
   from a floating to a fixed rate. At September 30, 1999, the fair value of
   Promus' swap agreements, which Promus would have been required to pay to
   terminate them, was approximately $0.5 million.

NOTE 7 - STOCKHOLDERS' EQUITY

   In August 1998, Promus' board of directors authorized the repurchase of up to
   $200.0 million of its common stock for cash. The authorization provided for
   Promus to conduct the repurchase program in the open market, or in negotiated
   or block transactions at prevailing market prices until December 31, 1999. On
   April 30, 1999, Promus' board of directors authorized a continuation of the
   share repurchase program through December 31, 2000. This authorization allows
   Promus to repurchase up to an additional $200.0 million of common stock for
   cash under the same conditions as the August 1998 authorization. Through
   September 30, 1999, Promus had repurchased a total of 9.3 million shares of
   its common stock, pursuant to these authorizations, at a total cost of
   approximately $275.6 million, excluding brokers' commissions. There were no
   shares repurchased in the third quarter of 1999 due to the business
   combination discussions with Hilton and no additional shares are expected to
   be repurchased in the fourth quarter.

NOTE 8 - EARNINGS PER SHARE

   The following table reflects Promus' weighted average common shares
   outstanding and the impact of its dilutive common share equivalents (in
   thousands):

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED     NINE MONTHS ENDED
                                                     SEPTEMBER 30,          SEPTEMBER 30,
                                                   -----------------     -----------------
                                                    1998       1999       1998       1999
                                                   ------     ------     ------     ------
<S>                                                <C>        <C>        <C>        <C>
   Basic weighted average shares outstanding .     86,552     78,673     86,631     81,156
      Effect of dilutive securities:
         Stock options and warrants ..........        447        233        721        272
                                                   ------     ------     ------     ------
   Diluted weighted average shares outstanding     86,999     78,906     87,352     81,428
                                                   ======     ======     ======     ======
</TABLE>

   Outstanding options to purchase shares of common stock, where the options'
   exercise prices were greater than the average market price of the common
   shares for the time period reported, must be excluded from the above
   computations of diluted weighted average outstanding shares. For the three
   months ended September 30, 1999, 9,644,075 options were excluded. For the
   three months ended September 30, 1998, 5,713,750 options were excluded. For
   the nine months ended September 30, 1999, 9,219,565 options were excluded.
   For the nine months ended September 30, 1998, 137,346 options were excluded.




                                       7
<PAGE>   10

NOTE 9 - STOCK OPTIONS

   The 1997 Equity Participation Plan allows options to be granted to key
   personnel to purchase shares of Promus' stock at a price not less than the
   current market price at the date of grant. The options vest annually and
   ratably over a four-year period from the date of grant and expire ten years
   after the grant date. An aggregate of 10,000,000 shares has been authorized
   for issuance under the plan. The plan also provides for the issuance of stock
   appreciation rights, restricted stock or other awards.

   Additionally, Promus and Doubletree had stock option plans prior to their
   merger on December 19, 1997. On the date of the merger, options were issued
   to replace the options outstanding under the prior plans. The replacement
   options were issued with identical remaining terms and conditions, except the
   replacement options vested immediately. The immediate vesting was in
   accordance with the terms of the prior plans.

   As of September 30, 1999, approximately 11,063,000 options were outstanding.

NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION

   Cash paid for interest, net of interest capitalized, amounted to $37.5
   million and $38.4 million for the nine months ended September 30, 1998 and
   1999, respectively. Cash paid for income taxes, net of refunds received,
   amounted to $44.7 million and $63.9 million for the nine months ended
   September 30, 1998 and 1999, respectively. Investments in marketable equity
   securities, carried at market values, had unrealized losses of $2.7 million
   at September 30, 1998 and unrealized losses of $8.7 million at September 30,
   1999.



                                       8
<PAGE>   11


NOTE 11 - SEGMENT REPORTING

   On January 1, 1998, Promus adopted the provisions of SFAS No. 131,
   "Disclosures about Segments of an Enterprise and Related Information." Under
   SFAS No. 131, Promus has one operating segment, lodging, which is managed as
   one business unit. The accounting policies of the segment are the same as
   those described in the summary of significant accounting policies. Promus
   does not record income taxes at the segment level.

   The following table presents the revenues, operating profit and assets of
   Promus' reportable segment for the nine months ended September 30, (in
   thousands):

<TABLE>
<CAPTION>
                                                      1998              1999
                                                  ------------     -------------
<S>                                               <C>              <C>
       Revenues
          Lodging................................ $    819,268     $     809,780
          Other (a)..............................       22,229            22,622
                                                  ------------     -------------
                                                  $    841,497     $     832,402
                                                  ============     =============
       Operating profit (b)
          Lodging................................ $    303,896     $     292,119
          Other..................................       14,865            15,728
                                                  ------------     -------------
                                                  $    318,761     $     307,847
                                                  ============     =============
       Depreciation and amortization
          Lodging................................ $     46,407     $      49,014
          Corporate..............................       12,216            12,303
                                                  ------------     -------------
                                                  $     58,623     $      61,317
                                                  ============     =============
       Segment assets
          Lodging................................ $  2,065,678     $   2,049,884
          Other..................................       45,121            15,551
          Corporate..............................      342,264           363,871
                                                  ------------     -------------
                                                  $  2,453,063     $   2,429,306
                                                  ============     =============
       Capital expenditures (c)
          Lodging................................ $    119,542     $      43,030
          Other..................................            -                 -
          Corporate..............................        6,559             7,743
                                                  ------------     -------------
                                                  $    126,101     $      50,773
                                                  ============     =============
</TABLE>

    ----------
   (a) Other revenues are derived from Promus Vacation Resorts and Promus'
       purchasing subsidiary.
   (b) Operating profit excludes corporate and business combination expenses and
       interest and net gain on asset dispositions.
   (c) Capital expenditures do not include the purchase of Harrison in 1998 or
       Doubletree LaPosada in 1999.

   Promus does not record net gains on asset dispositions, interest and dividend
   income, or interest expense at the segment level; therefore, segment assets
   do not include investments or notes receivable.



                                       9
<PAGE>   12


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

   On September 3, 1999, Promus Hotel Corporation (Promus) signed a definitive
   merger agreement with Hilton Hotels Corporation (Hilton). Under the terms of
   the agreement, Hilton will acquire all of Promus' outstanding common stock
   for cash and Hilton common stock. Promus stockholders may elect to receive
   cash or stock but in any event, 55% of the Promus shares will be converted
   into cash and 45% will be converted into Hilton common stock. Promus
   stockholders of record at the close of business on October 15, 1999 are
   eligible to vote on the merger. Promus filed a joint proxy statement with the
   Securities and Exchange Commission on Schedule 14A on October 21, 1999. The
   joint proxy statement includes the notice of the meeting of stockholders to
   be held on November 30, 1999, a description and discussion of the merger, the
   agreement and plan of merger, and other important information pertaining to
   the merger. The definitive merger agreement also provides for various
   covenants and other restrictions for us to follow until the merger is
   complete. The merger is expected to be completed on November 30, 1999,
   subject to the approval of the Promus and Hilton stockholders.

   On September 30, 1999, the Promus system contained 1,443 hotels, representing
   over 203,000 hotel rooms. Promus has hotels in all 50 states, the District of
   Columbia, Puerto Rico, and six foreign countries. Our brands include:

   -     Doubletree Hotels
   -     Doubletree Guest Suites
   -     Doubletree Club Hotels
   -     Embassy Suites
   -     Hampton Inn
   -     Hampton Inn & Suites
   -     Homewood Suites
   -     Red Lion Inns and Hotels

   The Promus system also includes certain properties that are not
   Promus-branded.

   Of these 1,443 hotels, 1,112 were owned/operated by franchisees and we
   operated 331 and owned 51. Depending on the hotel brand, each franchisee is
   charged royalty fees of up to four percent of suite or room revenues in
   exchange for the use of one of our brand names and franchise-related
   services.

   At September 30, 1999, Promus operated properties included:

<TABLE>
<S>                                                            <C>
              Wholly-owned hotels.........................     51
              Leased hotels...............................     73
              Joint venture hotels........................     23
              Hotels managed for third parties............    184
                                                            -----
                       Total..............................    331
                                                            =====
</TABLE>

   We receive management fees for operating hotels. Management fees are based on
   a percentage of the hotel's gross revenues, operating profits, cash flow, or
   a combination of each. Our results of operations for owned and leased hotels
   reflect the revenues and expenses of these hotels.

   We also license eight vacation interval ownership properties under the
   Embassy Vacation Resort and Hampton Vacation Resort brand names. We earn
   franchise fees on net interval sales and on revenues related to the rental of
   interval units. We also earn management fees for our role as manager of some
   of the vacation resort properties.

   We own a mix of Promus-brand hotels that enhance our role as manager and
   franchisor for our brands. In the second quarter of 1999, we announced our
   intention to reduce our ownership of real estate by opportunistically selling
   our owned hotels. During the third quarter of 1999, we sold 10 Hampton Inns
   and 4 Homewood Suites. For a more detailed discussion please see "Real Estate
   Sales".



                                       10
<PAGE>   13


RESULTS OF OPERATIONS

   The principal factors affecting our results are:

   -     continued growth in the number of system-wide hotel rooms
   -     occupancy and room rates achieved by hotels
   -     the relative mix of owned, leased, managed and franchised hotels
   -     our ability to manage costs

   The number of rooms at franchised and managed properties and revenue per
   available room (RevPAR) significantly affect our results because franchise
   royalty and management fees are generally based upon a percentage of room
   revenues. Increases in franchise royalty and management fee revenues have a
   favorable impact on our operating margin due to minimal incremental costs
   associated with this type of revenue.

   Almost all components of our revenues are favorably impacted by system-wide
   increases in RevPAR, even though our revenues come from various sources. On a
   comparable hotel basis, RevPAR increases were as follows:

   Revenue per Available Room for
   Comparable Hotels (a)

<TABLE>
<CAPTION>
                                 THREE MONTHS ENDED             NINE MONTHS ENDED
                                     SEPTEMBER 30,                SEPTEMBER 30,
                                1998     1999   INCREASE    1998      1999    INCREASE
                                ----     ----   --------    ----      ----    --------
<S>                            <C>      <C>       <C>      <C>       <C>        <C>
   Doubletree Hotels.......... $75.63   $76.39    1.0 %    $74.71    $75.83     1.5 %
   Embassy Suites............. $88.49   $90.17    1.9 %    $90.38    $91.92     1.7 %
   Hampton Inn................ $52.02   $53.11    2.1 %    $48.99    $49.77     1.6 %
   Hampton Inn & Suites....... $65.56   $66.67    1.7 %    $59.39    $60.93     2.6 %
   Homewood Suites............ $70.17   $72.42    3.2 %    $73.36    $72.70    (0.9)%
   Other hotels (b)........... $73.21   $73.58    0.5 %    $69.96    $70.87     1.3 %
</TABLE>

   ----------
   (a)   Revenue statistics are for comparable hotels, and include information
         only for those hotels in the system as of September 30, 1999 and
         managed or franchised by Promus since July 1, 1998, for the quarterly
         comparison and since January 1, 1998 for the year-to-date comparison.
         Doubletree franchised hotels are not included in the statistical
         information.

   (b)   Includes results for the 15 Red Lion hotels as well as the results for
         comparable hotels managed/leased under other franchisors' brands or as
         independent hotels and/or conference centers.



                                       11
<PAGE>   14


THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1998

   OPERATING REVENUES AND EXPENSES

   Third quarter 1999 revenues decreased 3.7%, or $11.1 million, to $285.2
   million compared to third quarter 1998 revenues of $296.2 million.

   The following table compares operating revenues and expenses for the three
   months ended September 30, 1998 and 1999 (dollars in thousands):

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED
                                                       SEPTEMBER 30,           INCREASE      PERCENTAGE
                                                    1998           1999       (DECREASE)       CHANGE
                                                 ----------    ----------     ----------       ------
<S>                                              <C>           <C>            <C>                <C>
       Franchise and management fees............ $   59,341    $   56,296     $  (3,045)         (5.1) %
       Owned hotel revenues.....................    107,355       110,671         3,316           3.1
       Leased hotel revenues....................    110,823       102,086        (8,737)         (7.9)
       Purchasing and service fees..............      7,091         6,781          (310)         (4.4)
       Joint venture income and other revenues..     11,617         9,316        (2,301)        (19.8)
                                                 ----------    ----------     ---------        ------
              Total operating revenues..........    296,227       285,150       (11,077)         (3.7)
                                                 ----------    ----------     ---------        ------
       General and administrative expenses......     26,060        17,753         8,307          31.9
       Owned hotel expenses.....................     64,752        68,926        (4,174)         (6.4)
       Leased hotel expenses....................     95,555        87,724         7,831           8.2
       Depreciation and amortization............     20,086        18,587         1,499           7.5
       Business combination expenses............          -         3,194        (3,194)          N/A
                                                 ----------    ----------     ---------        ------
              Total operating expenses..........    206,453       196,184        10,269           5.0
                                                 ----------    ----------     ---------        ------
       Net gain on asset dispositions...........      8,541        26,719        18,178         212.8
                                                 ----------    ----------     ---------        ------
              Operating income.................. $   98,315    $  115,685     $  17,370          17.7 %
                                                 ==========    ==========     =========        ======

       Operating margins:
         Total (a)..............................      33.2 %         40.6 %
         Owned hotels (b).......................      39.7           37.7
         Leased hotels (c)......................      13.8           14.1
</TABLE>

   ----------
  (a) Operating income divided by total operating revenue.
  (b) Owned hotel revenues less owned hotel expenses divided by owned hotel
      revenues.
  (c) Leased hotel revenues less leased hotel expenses divided by leased hotel
      revenues.

   Franchise and management fees - The decrease was due to lower termination
   fees and incentive management fees that declined by $5.7 million from the
   amounts received in the third quarter of 1998. Excluding the termination fees
   of $3.6 million for the third quarter of 1998, franchise and management fees
   would have been up 0.9%. Incentive management fees declined by $2.1 million
   in the third quarter of 1999 from the third quarter of 1998 due mainly to
   scheduled reductions in incentive fee percentages on three larger hotels'
   management contracts. An increase in fees from new contracts and improved
   performance at existing franchised and managed properties helped to offset
   the declines. Since September 30, 1998 we added 144 franchise and management
   contracts (net of terminations) to the Promus system.

   Owned hotel revenues and expenses - Revenue and expense increases are due to
   the addition of five hotels since September 30, 1998, partially offset by the
   sale of 15 hotels, 14 of which closed in September 1999. Revenue growth also
   occurred as a result of increases in RevPAR. The operating margin decline on
   owned hotels primarily resulted from the impact of our new hotels opened
   since the third quarter of 1998. New hotels typically generate lower
   operating margins prior to reaching maturity.

   Leased hotel revenues and expenses - Since September 30, 1998, the number of
   leased hotels decreased by five, including four hotels which were converted
   to management contracts. The decrease in the number of leased hotels caused a
   decrease in revenues and expenses for the third quarter of 1999. The
   operating margin for leased hotels increased to 14.1% for the quarter ended
   September 30, 1999 from 13.8% for the same period in 1998.



                                       12
<PAGE>   15

   Purchasing and service fees - We negotiate preferred supplier agreements on
   behalf of our franchised and managed hotels which generate rebates and we
   manage various capital projects for a fee. Our fees decreased 4.4% for the
   three months ended September 30, 1999, compared with the same period in 1998
   due to a reduction in project management fees.

   Joint venture income and other revenues - Compared to the third quarter of
   1998, joint venture income and other revenues declined by $2.3 million, or
   19.8%, versus the third quarter of 1999. The decline was primarily due to
   gains recognized last year on several joint venture ownership positions, as
   well as performance declines for the joint venture portfolio this year.

   General and administrative expenses - Expenses for the third quarter of 1999
   included a charge of $0.7 million for retention and employment-related
   expenses associated with the management change following the
   Promus/Doubletree merger. Expenses for the third quarter of 1998 included a
   charge of $10.1 million relating to the resignation of Promus' then
   Chairman/CEO and its President. Excluding the effect of these unusual items,
   general and administrative expenses increased $1.1 million, or 6.8%, in the
   third quarter of 1999 compared with the third quarter of 1998.

   Depreciation and amortization - The decrease of $1.5 million for the third
   quarter of 1999 compared to the third quarter of 1998 is primarily due to the
   hotel sales as well as the discontinuance of depreciation on hotels held for
   sale in the third quarter of 1999. These reductions were partially offset by
   depreciation associated with the addition of five company-owned hotels, as
   well as, property and equipment additions at existing hotels since the third
   quarter of 1998.

   Business combination expenses - In connection with our pending merger with
   Hilton, we incurred $3.2 million of expenses in the third quarter of 1999.
   The expenses were primarily for fees to investment bankers and attorneys,
   travel related to the merger, and the write-off of certain deferred costs
   whose benefit will not be realized after the merger.

   OTHER ITEMS AFFECTING NET INCOME

   Interest and dividend income - Interest and dividend income was $4.4 million
   in the third quarter of 1999 compared to $4.7 million in the third quarter of
   1998. The decrease was due to lower interest income from notes receivable.

   Interest expense - Interest expense was $17.9 million in third quarter 1999
   compared to $16.3 million in third quarter 1998. The increase was due to
   higher average borrowings for the third quarter of 1999 over the third
   quarter of 1998. Average borrowings increased to fund the repurchase of a
   portion of Promus' outstanding common stock. A lower average interest rate
   paid for borrowings in third quarter 1999 helped to reduce the increase in
   interest expense caused by the higher average borrowings.

   Operating results for the third quarter of 1999 reflected an overall tax rate
   of 37.6%, compared with an overall rate of 39.3% for the third quarter of
   1998. Minority interest share of net income reflects the profits allocable to
   third party owners of consolidated joint venture hotels.

   Net income and earnings per diluted share for the quarter ended September 30,
   1999 were $63.1 million and $0.80, respectively, compared to $51.8 million
   and $0.60, respectively for 1998. It is difficult to compare operating
   results due to the inclusion in the third quarter of 1999 and 1998 of certain
   unusual items. Included in third quarter 1999 results were (a) a $0.7 million
   charge for retention and employment-related expenses associated with the
   management change following the Promus/Doubletree merger, (b) charges of $3.2
   million related to the Hilton/Promus business combination, and (c) $26.7
   million of net gains on asset dispositions. Unusual items for the third
   quarter of 1998 were (a) a gain of $8.5 million on the sale of securities and
   (b) a charge of $10.1 million for severance costs related to the resignation
   of Promus' then Chairman/CEO and its President. Excluding these items, net
   income and earnings per diluted share for the third quarter of 1999 and 1998
   would have been $48.9 million and $0.62 and $52.8 million and $0.61,
   respectively.



                                       13
<PAGE>   16


NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1998

   OPERATING REVENUES AND EXPENSES

   Revenues for the first nine months of 1999 decreased 1.1%, or $9.1 million,
   to $832.4 million compared to the revenues for the first nine months of 1998
   of $841.5 million.

   The following table compares operating revenues and expenses for the nine
   months ended September 30, 1998 and 1999 (dollars in thousands):

<TABLE>
<CAPTION>
                                                     NINE MONTHS ENDED
                                                       SEPTEMBER 30,           INCREASE       PERCENTAGE
                                                    1998           1999       (DECREASE)       CHANGE
                                                 ----------    ----------    -----------       ------
<S>                                              <C>           <C>           <C>                 <C>
       Franchise and management fees............ $  167,773    $  165,656    $   (2,117)         (1.3) %
       Owned hotel revenues.....................    300,946       322,788        21,842           7.3
       Leased hotel revenues....................    318,489       293,341       (25,148)         (7.9)
       Purchasing and service fees..............     18,379        16,786        (1,593)         (8.7)
       Joint venture income and other revenues..     35,910        33,831        (2,079)         (5.8)
                                                 ----------    ----------    -----------       ------
              Total operating revenues..........    841,497       832,402        (9,095)         (1.1)
                                                 ----------    ----------    ----------        ------
       General and administrative expenses......     64,654        62,741         1,913           3.0
       Owned hotel expenses.....................    184,489       204,163       (19,674)        (10.7)
       Leased hotel expenses....................    279,624       259,075        20,549           7.3
       Depreciation and amortization............     58,623        61,317        (2,694)         (4.6)
       Business combination expenses............          -         3,194        (3,194)          N/A
                                                 ----------    ----------    ----------        ------
              Total operating expenses..........    587,390       590,490        (3,100)         (0.5)
                                                 ----------    ----------    ----------        ------
       Net gain on asset dispositions...........     10,826        26,011        15,185         140.3
                                                 ----------    ----------    ----------        ------
              Operating income.................. $  264,933    $  267,923    $    2,990           1.1 %
                                                 ==========    ==========    ==========        ======

       Operating margins:
         Total (a)..............................      31.5 %         32.2 %
         Owned hotels (b).......................      38.7           36.8
         Leased hotels (c)......................      12.2           11.7
</TABLE>
   ----------
   (a) Operating income divided by total operating revenue.
   (b) Owned hotel revenues less owned hotel expenses divided by owned hotel
       revenues.
   (c) Leased hotel revenues less leased hotel expenses divided by leased
       hotel revenues.

   Franchise and management fees - Franchise and management fees declined by
   1.3% for the first nine months of 1999, compared to the first nine months of
   1998. The decreases were due to change of ownership fees, termination fees
   and incentive management fees. These fee types decreased $14.1 million for
   the nine months ended September 30, 1999, compared to the same period in
   1998. The decrease in fee revenue was partially offset by the addition of 144
   franchise and management contracts (net of terminations) since September 30,
   1998 and by improved performance at existing franchised and managed
   properties.

   Owned hotel revenues and expenses - Revenue and expense increases are due to
   the addition of five hotels since September 30, 1998, partially offset by the
   sale of 15 hotels, 14 of which closed in September 1999. Revenue growth also
   occurred as a result of increases in RevPAR. The operating margin decline on
   owned hotels primarily resulted from the impact of the new hotels opened
   since the beginning of 1998. New hotels typically generate lower operating
   margins prior to reaching maturity.

   Leased hotel revenues and expenses - Since September 30, 1998, the number of
   leased hotels decreased by five, including four hotels which were converted
   to management contracts. The decrease in the number of leased hotels caused a
   decrease in revenues and expenses for the third quarter of 1999. A decline in
   the performance at existing leased hotels also contributed to lower leased
   revenue. The operating margin for leased hotels decreased to 11.7% for the
   nine months ended September 30, 1999 from 12.2% for the same period in 1998.





                                       14
<PAGE>   17

   Purchasing and service fees - We negotiate preferred supplier agreements on
   behalf of our franchised and managed hotels which generate rebates and we
   manage various capital projects for a fee. Our fees decreased 8.7% for the
   nine months ended September 30, 1999, over the same period in 1998 due to
   lower project management fees. The decrease was partially offset by a 16%
   increase in our preferred vendor programs.

   Joint venture income and other revenues - During the first nine months of
   1999, we realized a $1.3 million gain related to the sale of a joint venture
   hotel. Also, during the first nine months of 1998 we realized a $1.3 million
   gain on the sale of excess joint venture land. Excluding these unusual items,
   joint venture income and other revenues for the nine months ended September
   30, 1999 compared to the nine months ended September 30, 1998 decreased by
   $2.1 million, or 6.1%. The decline was primarily due to gains recognized last
   year on several joint venture ownership positions, as well as performance
   declines for the joint venture portfolio this year.

   General and administrative expenses - Expenses for the first nine months of
   1999 included a charge of $9.7 million for retention and employment-related
   expenses associated with the management change following the
   Promus/Doubletree merger. Expenses for the first nine months of 1998 included
   a charge of $10.1 million relating to the resignation of Promus' then
   Chairman/CEO and its President. Excluding the effect of these unusual items,
   general and administrative expenses decreased $1.5 million, or 2.8%, in the
   first nine months of 1999 compared with the first nine months of 1998.

   Depreciation and amortization - The increase of $2.7 million for the first
   nine months of 1999 over the same period in 1998 was primarily due to the
   addition of five owned hotels and property and equipment additions at
   existing hotels since the first nine months of 1998. The increase was
   partially offset by hotel sales and the discontinuance of depreciation on
   hotels held for sale in the third quarter of 1999.

   Business combination expenses - In connection with our pending merger with
   Hilton, we incurred $3.2 million of expenses in the third quarter of 1999.
   The expenses were primarily for fees to investment bankers and attorneys,
   travel related to the merger, and the write-off of certain deferred costs
   whose benefit will not be realized after the merger.

   OTHER ITEMS AFFECTING NET INCOME

   Interest and dividend income - Interest and dividend income was $14.2 million
   in the first nine months of 1999 compared to $15.3 million in the first nine
   months of 1998. The decrease was due to lower interest income from notes
   receivable and escrow deposits. Escrow deposits represented proceeds from
   hotel sales in 1997. We deposited these proceeds into interest earning
   accounts until they were used for hotel purchases during the first quarter of
   1998.

   Interest expense - Interest expense was $50.7 million for the first nine
   months of 1999 compared to $46.5 million for the first nine months of 1998.
   The increase was due to higher average borrowings for the first nine months
   of 1999 over the first nine months of 1998. Average borrowings increased to
   fund the repurchase of a portion of Promus' outstanding common stock. A lower
   average interest rate paid for borrowings in the first nine months of 1999
   helped to reduce the increase in interest expense caused by the higher
   average borrowings.

   Operating results for the first nine months of 1999 reflected an overall tax
   rate of 37.6%, compared with an overall rate of 39.3% for the first nine
   months of 1998. Minority interest share of net income reflects the profits
   allocable to third party owners of consolidated joint venture hotels.

   Net income and earnings per diluted share for the nine months ended September
   30, 1999 were $142.8 million and $1.75, respectively, compared to $140.0
   million and $1.60, respectively for 1998. It is difficult to compare
   operating results due to the inclusion in the first nine months of 1999 and
   1998 of certain unusual items. Included in the results for the first nine
   months of 1999 were (a) a $1.3 million gain on the sale of a joint venture
   hotel, (b) $9.7 million in charges relating to employment-related expenses
   associated with the management change following the Promus/Doubletree merger,
   (c) charges of $3.2 million related to the Hilton/Promus business
   combination, and (d) $26.0 million of net gains on asset dispositions.
   Unusual items in the first nine months of 1998 included (a) a net gain of
   $1.3 million on the sale of excess joint venture land, (b) gains of $0.6
   million on the prior sale of hotels, (c) gains of $10.2 million on the sale
   of securities, and (d) a charge of $10.1 million for severance costs related
   to the resignation of Promus' then Chairman/CEO and its President. Excluding
   these items, net income and earnings per diluted share for the first nine
   months of 1999 and 1998 would have been $133.8 million and $1.64 and $138.8
   million and $1.59, respectively.



                                       15
<PAGE>   18


   Overall

   Promus' operating income, excluding the effect of unusual items, decreased
   7.0% to $92.9 million for the third quarter of 1999 from $99.9 million for
   the same period in 1998. Promus' operating income, excluding the effect of
   unusual items, decreased 3.6% to $253.5 million for the first nine months of
   1999 from $262.9 million for the same period in 1998. This decrease in
   operating income was due to lower franchise and management fee revenue and
   decreases in the operating income from leased hotels. These decreases were
   partially offset by increases in operating income from owned hotels. The
   decrease in franchise and management fee revenue from 1998 levels was due to
   lower one-time fees from change of ownership and termination fees and lower
   incentive management fees. The decrease in one-time fees has been offset
   somewhat by our ability to grow our portfolio of franchised and managed
   hotels. Due to the size and strength of our infrastructure and systems,
   openings of additional franchised or managed properties require fewer
   incremental costs.

EARNINGS BEFORE INTEREST EXPENSE, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA)

   We consider EBITDA to be a useful measure of our operating performance.
   EBITDA is also considered useful by the investment community to aid in
   understanding our results and can be used to measure our ability to service
   debt or fund capital expenditures. EBITDA should not be used as an
   alternative to net income, operating income, cash from operations or any
   other operating or liquidity performance measure as defined by generally
   accepted accounting principles. We will continue to incur cash expenditures
   for interest expense and income taxes, which are not included in EBITDA. Our
   EBITDA before unusual items for the third quarter of 1999 decreased $8.8
   million or 7.0% compared to the third quarter of 1998. The decrease for the
   first nine months of 1999 compared to the same period in 1998 was $7.9
   million or 2.3%. Our interest coverage, defined as EBITDA before unusual
   items divided by interest expense, was 6.5 times for the third quarter of
   1999 compared to 7.7 times for the third quarter of 1998. Interest coverage
   for the first nine months of 1999 was 6.5 times compared to 7.2 times for the
   same period in 1998.

SYSTEM GROWTH

   Hotels

   In the first nine months of 1999, we added 106 net hotels and 11,522 net
   rooms to our hotel system, compared to the addition of 114 net hotels and
   11,379 net rooms during the first nine months of 1998. Net room additions,
   by brand, were as follows:

<TABLE>
<CAPTION>
                                              NET ROOMS ADDED
                             -------------------------------------------------------
                             QUARTERS ENDED SEPT. 30,    NINE MONTHS ENDED SEPT. 30,
                             ------------------------    ---------------------------
                               1998           1999           1998           1999
                              ------        -------        -------        -------
<S>                           <C>           <C>            <C>            <C>
   Doubletree Hotels ..          999            346            906             57
   Hampton Inn ........        1,922          3,184          7,145          7,301
   Hampton Inn & Suites          460            790          1,900          1,742
   Embassy Suites .....          401            482            243          1,583
   Homewood Suites ....          328             (2)         2,067          1,321
   Other ..............         (185)           240           (882)          (482)
                              ------        -------        -------        -------
                               3,925          5,040         11,379         11,522
                              ======        =======        =======        =======
</TABLE>

   Hampton Inn continued to lead Promus' unit growth, with 33 net property
   additions during the quarter and 77 net properties added during the first
   nine months. We expect to continue growing the Hampton Inn brand as demand
   from franchisees and hotel guests appears strong. Doubletree added a net of
   one hotel during the nine months ended September 30, 1999. Embassy Suites
   added a net of five hotels in the first nine months of 1999. The greatest
   percentage growth in the first nine months of 1999 occurred within the
   Homewood Suites and Hampton Inn & Suites brands. Homewood Suites added 10
   hotels, a 16.8% increase in total rooms. Hampton Inn & Suites added 15
   hotels, a 31.2% increase in total rooms. Other non-Promus branded hotel rooms
   decreased by a net of two management contracts, including terminations of
   three contracts and an addition of one management contract.



                                       16
<PAGE>   19


   Promus' development pipeline as of September 30, 1999 contained 301
   properties that were either in the design or construction phase, as follows:

<TABLE>
<CAPTION>
                                                    UNDER
                                                CONSTRUCTION/    IN
                                                 CONVERSION    DESIGN      TOTAL
                                                 ----------    ------      -----
<S>                                              <C>           <C>         <C>
         Hampton Inn .......................          81          81         162
         Homewood Suites ...................          13          15          28
         Hampton Inn & Suites ..............          28          24          52
         Embassy Suites ....................          10          25          35
         Doubletree Hotels, Suites and Clubs           7          13          20
         Other .............................           1           3           4
                                                     ---         ---         ---
                                                     140         161         301
                                                     ===         ===         ===
</TABLE>

   The 161 properties in design represent over 22,000 rooms. During the quarter,
   Promus' rate of rescissions of hotel projects in its development pipeline was
   consistent with past history. We are developing 13 of the properties in the
   pipeline for operation as company owned hotels until they are sold to third
   parties. Franchisees are developing the remaining hotels in the pipeline.
   Financing for our franchise driven brands continues to be made available by
   local and regional banks. The underwriting on these loans remains
   conservative with loan-to-cost ratios of 60-75%. This means the developers
   are required to provide the balance of the funding. We expect to achieve our
   target of opening 150 hotels in 1999.

   Promus plans to grow its brands through franchising, the addition of
   management contracts and construction of new hotels. In addition, we are
   assessing the market position of individual properties/markets.

   The success of our ability to grow our number of franchised and managed
   hotels is affected by, among other things, national and regional economic
   conditions, capital markets, credit availability, relationships with
   franchisees and owners as well as competition from other hotel franchisors
   and managers, and, temporarily, uncertainty relating to the pending merger
   with Hilton.

   Acquisitions

   In June 1999, we purchased the remaining 50% interest in the Doubletree
   LaPosada Resort, a joint venture hotel located in Phoenix, Arizona for $5.5
   million in cash. The acquisition was accounted for as a purchase. Prior to
   the hotel's purchase we accounted for the joint venture as an equity
   investment.

   In January 1998, Promus acquired Harrison Conference Associates, Inc. for
   $61.2 million in cash, including acquisition costs. Harrison is a leading
   conference center operator with over 1,200 rooms under management, including
   two owned and six managed properties.

   Vacation Resorts

   We have two licensed Promus Vacation Resort products: Embassy Vacation
   Resorts and Hampton Vacation Resorts. Promus Vacation Resort statistics are
   as follows:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,     SEPT. 30,
                                                           1998             1999
                                                         ------------     ---------
<S>                                                      <C>              <C>
         Total vacation resorts open...................          8               8
         Total available timeshare units...............      1,374           1,374
         Total available timeshare intervals...........     70,074          70,074
         Total timeshare intervals sold*...............     24,425          36,187
</TABLE>

   * Includes pre-sold intervals for resorts under construction




                                       17
<PAGE>   20

   Other

   System growth comes mainly from construction of franchised hotels, strategic
   alliances with others, and incentives provided to hotel owners as a means of
   obtaining franchise and management contracts. The hotel industry is in a
   period of consolidation, which is expected to continue.

CAPITAL SPENDING

   We expect to spend between $175.0 million and $200.0 million during 1999 to
fund the following:

   -     hotel and resort development
   -     refurbish existing facilities
   -     support our hotel management and business systems
   -     loan funds to hotel owners
   -     invest in joint ventures
   -     and pursue other corporate related projects

   In order to maintain our quality standards, ongoing refurbishment of existing
   company owned and leased hotel properties will continue in 1999 with
   estimated annual expenditures of approximately $65.0 million. Our capital
   expenditures for refurbishment totaled $26.2 million for the nine months
   ended September 30, 1999. Total capital expenditures for the items listed
   above totaled $95.1 million in the first nine months of 1999. Additionally,
   we spent $158.4 million in the first nine months of 1999 to reacquire a
   portion of our outstanding shares under the share repurchase programs
   authorized by our board of directors and announced in August 1998 and April
   1999. The repurchase program announced in August 1998 was completed in the
   second quarter of 1999. The share repurchase program announced in April 1999
   is authorized through December 31, 2000. However, due to the business
   combination discussions with Hilton, we did not repurchase any shares during
   the third quarter of 1999 and we do not intend to repurchase shares in the
   fourth quarter. The business combination with Hilton is subject to approval
   by Hilton's and our stockholders. Stockholder meetings are scheduled for
   November 30, 1999, for both Promus and Hilton. The 1999 projected capital
   spending of $175.0 to $200.0 million does not include the share repurchase
   programs.

   Cash necessary to finance projects currently identified can be made available
   from the following sources:

   -     operating cash flows
   -     our revolving credit facility
   -     joint venture partners
   -     specific project financing
   -     sales of existing hotel assets and/or investments
   -     and, if necessary, Promus debt and/or equity offerings

We are currently subject to certain restrictions as described in the merger
agreement with Hilton as to amounts of capital transactions over and above these
outlined in our capital spending plan for 1999.

LIQUIDITY AND CAPITAL RESOURCES

   Net operating cash flows increased $33.0 million for the first nine months of
   1999 over the comparable 1998 level. This increase was primarily due to the
   decrease in accounts receivable, deferred costs and other assets in the first
   nine months of 1999 compared to first nine months of 1998. Non-recurring
   items in the first nine months of 1999 provided $14.4 million in pre-tax
   operating cash flows, compared to $2.0 million in the first nine months of
   1998.



                                       18
<PAGE>   21

   Net cash flows used in investing activities decreased by $184.8 million in
   1999 from 1998 levels. Uses of cash for investing activities in 1998 included
   $61.2 million for the purchase of Harrison and $126.1 million for purchases
   of property and equipment. Proceeds from the sale of real estate and
   securities and the use of escrow deposits provided $35.6 million in investing
   cash flows in the first nine months of 1998. The decrease in cash flows used
   in 1999 over 1998 was partially offset by increased loans, net of
   collections, to owners of managed and franchised hotels in 1999, an increase
   of $119.1 million in cash provided by sales of real estate and securities,
   and a decrease of $75.3 million in cash used to purchase property and
   equipment.

   Net cash used in financing activities increased $162.0 million in the first
   nine months of 1999 from the same period in 1998. The increase in net cash
   used during the first nine months of 1999 was attributable to treasury stock
   purchases of $158.4 million, compared to $59.7 million in the first nine
   months of 1998. Proceeds from the exercise of stock options decreased by
   $19.8 in the first nine months of 1999, compared to 1998. Increases in net
   borrowings used to fund treasury stock purchases were partially offset by the
   proceeds of real estate sales. Compared to 1998, cash used for net repayments
   of borrowings increased $43.5 million for the first nine months of 1999.

   On September 30, 1999, we had a working capital surplus of $140.0 million,
   compared to a $29.3 million deficit at December 31, 1998. The change in
   working capital from a deficit to a surplus was primarily due to the
   reclassification of $89.4 million in net assets of 12 owned hotels to assets
   held for sale. These net assets were shown as current assets because the
   sales are anticipated to close within the next 12 months. Also contributing
   to the change in working capital from a deficit to a surplus was the issuance
   of a $26.6 million short-term note receivable. This note receivable was
   issued to the purchaser of four Homewood Suites and is due on October 1,
   2000.

   Our cash management program uses all excess cash to pay down debt amounts
   outstanding under the Promus Facility. We do not believe that the current
   ratio is an appropriate measure of our short-term liquidity without
   considering the aggregate availability of our capital resources. Strong
   operating cash flow, borrowings available under the Promus Facility, and our
   ability to obtain additional financing through various financial markets,
   provide more than sufficient resources to meet our liquidity needs for the
   next year.

REAL ESTATE SALES

   In the third quarter of 1999, we sold four owned Homewood Suites and 10 owned
   Hampton Inn hotels. Management and franchise agreements for the four Homewood
   Suites and franchise agreements for the 10 Hampton Inn hotels were signed.
   The aggregate sales price of these hotels was $135.3 million. The total net
   book value of the 14 hotels was approximately $81.0 million. The total gain
   recognized, net of costs to sell, was $44.7 million. In connection with the
   sale of the four Homewood Suites, we issued a note receivable to the
   purchaser in the amount of $26.6 million. This note represented 75% of the
   sales price. The note requires monthly principal and interest payments and
   will mature in October 2000. We deferred $5.8 million of the net gains on the
   sale of the Homewood Suites under the installment method of accounting. The
   deferred gain will be recognized over the term of the note as payments are
   collected.

   We have identified 12 additional hotels to be held for sale. Nine of these
   hotels will be sold in the fourth quarter of this year. We expect to sell the
   three remaining hotels within the next 12 months. A valuation reserve of
   $17.3 million was recorded on two of the hotels held for sale. This valuation
   reserve was recognized in the third quarter and included in operating income.




                                       19
<PAGE>   22

YEAR 2000

   The "Year 2000 Problem" is the result of many computer programs that were
   designed to save valuable computer storage space by representing years with a
   two-digit number such as `99' for 1999. When the change in the millennium
   occurs and year 2000 is represented as `00', such computer programs as well
   as certain chip-embedded technology systems may interpret the year as 1900.
   If not corrected, computer applications could fail or deliver unreliable and
   erroneous results.

   As a franchisor, manager and owner of hotels, we rely heavily on computer
   systems. These computer systems are present at our corporate offices and at
   our franchised, managed and owned hotels.

   Promus' Computer Technologies

   Promus groups the computer technologies used in support of its business into
   the following three categories:

   -     Enterprise-wide, mission-critical business systems that support Promus'
         franchised, managed and owned hotels as well as other corporate
         requirements, including reservation, marketing, property management,
         and revenue management systems; financial, human resources and
         operational reporting systems; and corporate support technologies that
         provide external and internal management reporting.

         Most of these systems were built and installed after 1990 when the Year
         2000 Problem was well understood within the technology industry. These
         systems were largely Year 2000 compliant when built.

   -     Property-based systems that perform functions relating to the
         operational support of all of our franchised, managed and owned hotels,
         including PBX, call accounting, point-of-sale, and local sales systems.
         These systems are selected by the hotel owners and managers and are not
         consistently implemented at all hotels.

   -     Facility systems that contain embedded computer chips and perform
         functions relating to the operation of all of our franchised, managed
         and owned hotels, including elevators, automated room key systems,
         HVAC, and fire and safety systems. These systems also are selected by
         the hotel owners and managers and are not consistently implemented at
         all hotels.

   Promus' Response to the Year 2000 Problem

   Beginning in early 1997, Promus developed and began implementing a plan
   designed to identify its exposure to the Year 2000 problem and to minimize
   potential disruptions and losses. The initial steps in this plan are as
   follows:

   -     Enterprise-Wide, Mission Critical Business Systems

         The remediation steps for the enterprise-wide, mission-critical
         business systems have been executed and tested. No significant issues
         have surfaced in the integration testing. This phase was completed in
         the second quarter of 1999.

   -     Vendor Identification and Contact

         The external businesses that provide technology systems and other
         products and services to Promus and its hotels have been sent letters
         requesting verification of their Year 2000 readiness. Responses are
         tracked and a vendor database is available through Promus' Intranet for
         hotel owners and managers. This effort will continue throughout 1999.




                                       20
<PAGE>   23

   -     Property-Based Systems and Facility Systems

         Promus has engaged an independent consultant to perform on-site
         inventories and assessments of the property-based systems and facility
         systems at all hotels that are managed or owned by us. This phase is
         complete, although it is anticipated that remediation activities will
         continue throughout the remainder of the year. For franchised hotels,
         we have provided their owners and general managers with a Year 2000
         Compliance Guide and additional communications to assist them in
         performing their assessments. We requested all franchise hotels sign a
         Year 2000 compliance sign-off form indicating that remediation steps
         and contingency plans are complete and that emergency procedures will
         be reviewed by the hotel staff prior to December 31, 1999. Year 2000
         readiness is part of our 1999 quality assurance audits of all hotels.

   -     Contingency Planning

         Promus is developing contingency plans to respond to business
         disruptions that may occur as a result of Year 2000 problems. The
         principal areas of focus for contingency planning are hotel operations,
         corporate finance, human resources, information technology, and
         corporate facilities. The hotels have completed their plans, subject to
         updating and refinement throughout the remainder of the year. The
         remaining areas are scheduled for completion in November 1999.

   Year 2000 Remediation Costs

   During the first nine months of 1999, Promus spent approximately $0.6 million
   on Year 2000 remediation costs. Since 1997, we have spent approximately $1.7
   million on the remediation of the Year 2000 problem in the computer systems
   at our corporate offices and hotels, most of which was internal labor costs.
   We expect to incur approximately $0.4 million in additional Year 2000 problem
   remediation costs over the remainder of 1999.

   The costs associated with remediation of the Year 2000 problem of
   property-based systems and facility systems at the hotels that are managed by
   Promus and at the franchised hotels are borne by their respective owners.

   Risks Arising from the Year 2000 Problem

   Promus believes that the Year 2000 problem will not have a material adverse
   effect on its business or its financial condition.

   Promus believes that its enterprise-wide, mission-critical business systems,
   as well as the property-based systems and facility systems at its owned
   hotels, will be ready for Year 2000 in all material respects and will pose
   minimal risks of business disruption. We cannot predict with certainty the
   Year 2000 readiness of the property-based systems and facility systems at our
   managed and franchised hotels, because the decision-making authority with
   respect to Year 2000 assessment and remediation, and the incurrence of costs
   related thereto, rests principally with the owners of those hotels.

   Promus and all of its franchised, managed and owned hotels depend on numerous
   independent, external providers of products and services. These external
   businesses include suppliers of electricity, natural gas, telephone service
   and other public utilities; financial institutions and credit card companies;
   food, beverage and linen suppliers; and airlines, air traffic control
   systems, car rental companies, and gasoline station operators. We do not
   control these external businesses and cannot ensure that they and their
   products and services will be ready for Year 2000. The most reasonably likely
   worst case Year 2000 scenario for Promus and its hotels would be the failure
   by one or more critical external businesses (e.g., airlines, utilities or
   credit card companies) to be ready for Year 2000. This in turn could disrupt
   service or cause potential hotel guests to postpone or cancel their travel
   plans or make claims under the "100% Satisfaction Guarantee" program
   available at most Promus-branded hotels, causing a disruption of our
   business. We are seeking to verify the Year 2000 readiness of these external
   businesses; however, if these external businesses - particularly critical
   ones - were to experience a Year 2000 problem, the resulting business
   disruption could have a material adverse effect on our results of operations
   and financial condition.




                                       21
<PAGE>   24

NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS

   In June 1998, the Financial Accounting Standards Board (FASB) issued
   Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
   Derivative Instruments and Hedging Activities." This statement establishes
   accounting and reporting standards for derivative instruments, including
   certain derivative instruments embedded in other contracts (collectively
   referred to as derivatives), and for hedging activities. It requires that an
   entity recognize all derivatives either as assets or liabilities in the
   statement of financial position and measure those instruments at fair value.

   SFAS No. 133 allows an entity to designate a derivative instrument, if
   certain conditions are met, as one of the following three types:

         1)       a Fair Value Hedge, which is a hedge of the exposure to
                  changes in the fair value of a recognized asset or liability,
                  or of an unrecognized firm commitment

         2)       a Cash Flow Hedge, which is a hedge of the exposure to
                  variability in the cash flow of a recognized asset or
                  liability, or of a forecasted transaction, or

         3)       a Foreign Currency Hedge, which is a hedge of the foreign
                  currency exposure of an unrecognized firm commitment, an
                  available-for-sale security, a forecasted transaction, or a
                  net investment in a foreign operation.

   The accounting for changes in the fair value of a derivative (that is, gains
   and losses) depends on the intended use of the derivative and the resulting
   designation. Promus' derivatives at September 30, 1999 were cash flow hedges.

   This Statement is effective for all fiscal quarters of fiscal years beginning
   after September 15, 1999. The adoption of SFAS No. 133 is not anticipated to
   have a material impact on the financial position or results of operations of
   Promus.

FORWARD LOOKING STATEMENTS

   Certain matters discussed in this report may constitute forward-looking
   statements within the meaning of the federal securities laws.

   Forward-looking statements are those that express management's view of future
   performance and trends, and usually are preceded with "expects",
   "anticipates", "believes", "hopes", "estimates", "plans" or similar phrasing,
   and include statements regarding Year 2000 readiness and potential exposure,
   Promus' ability to increase rates, margin improvements and projected
   expenditures, capital spending and availability of capital resources and the
   status of the pending merger with Hilton. Such statements are based on
   management's beliefs, assumptions and expectations, which in turn are based
   on information currently available to management. Our actual performance and
   results could differ materially from those expressed in or contemplated by
   the forward-looking statements due to a number of factors, many of which are
   beyond our ability to predict or control. Such factors include, but are not
   limited to, operations of existing hotel properties, including the effects of
   competition and customer demand; changes in the size of Promus' hotel system,
   including anticipated scope and opening dates of new developments, planned
   future capital spending, terminations of franchise or management agreements
   or dispositions of properties; relationships with third parties, including
   franchisees, lessors, hotel owners, lenders and others; litigation or other
   judicial actions; changes in the national economy or regional economies,
   which among other things, affect business and leisure travel and expenditures
   and capital availability for hotel development; and adverse changes in
   interest rates for both Promus and its franchisees and business partners
   which, among other things, affect new hotel development; real estate values;
   and credit availability. Promus disclaims any obligation to update
   forward-looking information. For further information on factors which could
   impact Promus and the statements contained herein, please refer to the
   current, quarterly and annual reports and other filings, including without
   limitation our joint proxy statement on Schedule 14A filed on October 21,
   1999, and our 10-K for the year ended December 31, 1998, made with the
   Securities and Exchange Commission.



                                       22
<PAGE>   25


PERFORMANCE STATISTICS

<TABLE>
<CAPTION>
                                    NUMBER OF HOTELS                  NUMBER OF ROOMS/SUITES
                            ------------------------------      ----------------------------------
                              AS OF        CHANGE SINCE            AS OF         CHANGE SINCE
                            ---------  -------------------      ----------   ---------------------
                            SEPT. 30,  JUNE 30,   DEC. 31,       SEPT. 30,   JUNE 30,     DEC. 31,
                              1999      1999        1998          1999         1999         1998
                              -----     ----      --------      --------      -------      -------
<S>                         <C>         <C>        <C>          <C>           <C>         <C>
   Doubletree Hotels (a)
      Company owned .....        16       --            --         4,649           --          (97)
      Leased ............        14       --            (4)        3,877           --         (935)
      Joint venture (b) .         4       --            --         1,100           --           98
      Management contract        91       --             4        24,962         (123)         633
      Franchised ........        52        2             1        12,281          469          358
                              -----     ----      --------      --------      -------      -------
                                177        2             1        46,869          346           57
   Embassy Suites
      Company owned .....         6       --            --         1,299           --           --
      Joint venture (b) .        19       --            --         5,098           --          154
      Management contract        60       --             2        15,049           (1)         624
      Franchised ........        65        2             3        14,710          483          805
                              -----     ----      --------      --------      -------      -------
                                150        2             5        36,156          482        1,583
   Hampton Inn
      Company owned .....         0      (10)          (11)           --       (1,378)      (1,504)
      Leased ............        18       --            --         2,250           --           --
      Management contract         7       --            --           929           --           --
      Franchised ........       878       43            88        90,203        4,562        8,805
                              -----     ----      --------      --------      -------      -------
                                903       33            77        93,382        3,184        7,301
   Hampton Inn & Suites
      Company owned .....         1        1             1           133          133          133
      Management contract         3       --            --           408           --           --
      Franchised ........        59        6            14         6,792          657        1,609
                              -----     ----      --------      --------      -------      -------
                                 63        7            15         7,333          790        1,742
   Homewood Suites
      Company owned .....        18       (4)           (1)        2,127         (478)        (105)
      Management contract         8        4             3           949          478          395
      Franchised ........        58       --             8         6,112           (2)       1,031
                              -----     ----      --------      --------      -------      -------
                                 84       --            10         9,188           (2)       1,321
   Other Hotels (c)
      Company owned .....        10       --            --         1,622            2            2
      Leased ............        41       --            --         6,433           --           --
      Management Contract        15        1            (2)        2,583          238         (484)
                              -----     ----      --------      --------      -------      -------
                                 66        1            (2)       10,638          240         (482)
   Total System
      Company owned .....        51      (13)          (11)        9,830       (1,721)      (1,571)
      Leased ............        73       --            (4)       12,560           --         (935)
      Joint venture (b) .        23       --            --         6,198           --          252
      Management contract       184        5             7        44,880          592        1,168
      Franchised ........     1,112       53           114       130,098        6,169       12,608
                              -----     ----      --------      --------      -------      -------
                              1,443       45           106       203,566        5,040       11,522
                              =====     ====      ========      ========      =======      =======
</TABLE>
----------
(a)      Includes Doubletree Hotels, Doubletree Guest Suites and Doubletree Club
         Hotel brands.
(b)      For statistical purposes only, Promus classifies unconsolidated joint
         ventures in which it holds less than a 20% interest as management
         contracts and consolidated joint ventures in which it owns more than a
         50% interest as company owned.
(c)      Includes Red Lion Inns and Hotels, University Hotels and Conference
         Centers, as well as hotels managed/leased under other franchisors'
         brands or as independent hotels and/or conference centers.





                                       23
<PAGE>   26


<TABLE>
<CAPTION>
                                                   MANAGED       FRANCHISED         TOTAL
                                             ----------------  ---------------   ---------------
                                                  SEPT. 30,       SEPT. 30,        SEPT. 30,
                                             ----------------  ---------------   ---------------
                                              1998     1999     1998    1999     1998     1999      INCREASE
                                             -------  -------  -------  ------   ------  -------    ---------
<S>                                          <C>      <C>      <C>      <C>      <C>      <C>       <C>
Promus Vacation Resorts
   Resort properties........................       5        5        3       3        8        8          -
   Timeshare units..........................     442      500      874     874    1,316    1,374         58
   Timeshare intervals available............  22,542   25,500   44,574  44,574   67,116   70,074      2,958
   Timeshare intervals sold (a) ............  12,324   22,020    8,939  14,167   21,263   36,187     14,924
</TABLE>

----------
 (a) Includes pre-sales for resorts under construction but not yet open.

<TABLE>
<CAPTION>
                             THIRD QUARTER ENDED SEPT. 30,(a)      NINE MONTHS ENDED SEPT. 30, (a)
                             --------------------------------      -------------------------------
                               1998       1999       CHANGE        1998         1999        CHANGE
                             -------    --------     ------       --------     --------     ------
<S>                          <C>        <C>           <C>         <C>          <C>            <C>
   Doubletree Hotels (b)
     Occupancy .........        74.2%       73.7%    (0.5) pts        71.7 %       71.5%     (0.2) pts
     ADR ...............     $101.97    $ 103.70      1.7 %       $ 104.22     $ 105.99       1.7 %
     RevPAR ............     $ 75.63    $  76.39      1.0 %       $  74.71     $  75.83       1.5 %

   Embassy Suites
     Occupancy .........        74.5%       75.8%     1.3 pts         74.2 %       75.3%      1.1 pts
     ADR ...............     $118.77    $ 119.01      0.2 %       $ 121.82     $ 122.06       0.2 %
     RevPAR ............     $ 88.49    $  90.17      1.9 %       $  90.38     $  91.92       1.7 %

   Hampton Inn
     Occupancy .........        74.9%       73.4%    (1.5) pts        68.6 %       70.2%     (1.6) pts
     ADR ...............     $ 69.54    $  72.39      4.1 %       $  68.23     $  70.89       3.9 %
     RevPAR ............     $ 52.02    $  53.11      2.1 %       $  48.99     $  49.77       1.6 %

   Hampton Inn & Suites
     Occupancy .........        74.1%       73.7%    (0.4) pts        71.5 %       71.5%      0.0 pts
     ADR ...............     $ 88.62    $  90.48      2.1 %       $  83.11     $  85.27       2.6 %
     RevPAR ............     $ 65.56    $  66.67      1.7 %       $  59.39     $  60.93       2.6 %

   Homewood Suites
     Occupancy .........        73.9%       77.7%     3.8 pts         76.4 %       75.8%      0.6 pts
     ADR ...............     $ 94.93    $  93.22     (1.8)%       $  97.55     $  95.89      (1.7)%
     RevPAR ............     $ 70.17    $  72.42      3.2 %       $  73.36     $  72.70      (0.9)%

   Other Hotels (c)
     Occupancy .........        73.5%       71.2%    (2.3) pts        70.6 %       68.7%     (1.9) pts
     ADR ...............     $ 99.53    $ 103.31      3.8 %       $  98.96     $ 103.12       4.2 %
     RevPAR ............     $ 73.21    $  73.58      0.5 %       $  69.96     $  70.87       1.3 %
</TABLE>

----------
(a)  Revenue statistics are for comparable hotels, and include information only
     for those hotels in the system as of September 30, 1999 and managed or
     franchised by Promus or managed by Doubletree since July 1, 1998 for the
     quarterly comparison and since January 1, 1998 for the year-to-date
     comparison. Doubletree franchised hotels are not included in the
     statistical information.

(b)  Includes Doubletree Hotels, Doubletree Guest Suites and Doubletree Club
     Hotel brands.
(c)  Includes results for the 15 Red Lion hotels as well as the results for
     comparable hotels managed/leased under other franchisors' brands or as
     independent hotels and/or conference centers.



                                       24
<PAGE>   27


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Promus is exposed to market risk, primarily changes in interest rates. We have
entered into derivative transactions to hedge our exposure to interest rate
changes. We do not hold or issue derivative financial instruments for trading
purposes and do not enter into derivative transactions that would be considered
speculative positions.

The table below provides information about our derivative financial instruments
and other financial instruments that are sensitive to changes in interest rates,
including interest rate swaps and debt obligations. For debt obligations, the
table presents principal cash flows and related weighted average interest rates
by expected maturity dates for fixed rate obligations and by earliest repricing
date for variable rate obligations. For interest rate swaps, the table presents
notional amounts and weighted average rates by contractual maturity dates.

<TABLE>
<CAPTION>
                                                            MATURITY DATE
                                  ----------------------------------------------------------------                FAIR
                                     1999       2000       2001       2002       2003   THEREAFTER    TOTAL      VALUE(1)
                                  --------    -------    -------    -------    -------  ----------   --------    --------
                                                           (DOLLARS IN MILLIONS)
<S>                               <C>         <C>        <C>        <C>        <C>        <C>        <C>         <C>
Assets:
Notes Receivable
  Fixed rate ................     $    0.4    $  29.8    $  18.6    $    --    $   1.9    $  53.4    $  104.1    $  102.6
    Average interest rate .....        7.1%       8.6%      13.2%        --       10.0%       7.9%        9.0%
  Variable rate .............     $   15.6    $    --    $    --    $    --    $    --    $    --    $   15.6    $   15.6
    Average interest rate (2)          9.4%        --         --         --         --         --         9.4%

Liabilities:
Long-term debt
  Fixed rate ................     $    2.2    $   1.9    $   2.1    $  37.9    $   1.3    $  56.6    $  102.0    $   99.9
    Average interest rate .....        7.9%       7.9%       7.9%       6.1%       7.5%       7.4%        6.9%
  Variable rate .............     $  650.1    $    --    $    --    $    --    $    --    $    --    $  650.1    $  650.1
    Average interest rate (2)          5.8%        --         --         --         --         --         5.8%

Interest Rate Swaps:
  Variable to Fixed .........     $  175.0    $    --    $    --    $  38.6    $    --    $    --    $  213.6    $   (0.5)
    Average pay rate ........          6.1%        --         --        6.4%        --         --         6.1%
    Average receive rate ....          5.5%        --         --        5.3%        --         --         5.5%
</TABLE>

----------
(1)    The carrying values of variable rate notes receivable approximate fair
       value due to their interest terms. The fair value of the fixed rate notes
       receivable was based on discounted cash flows. The carrying values of
       variable rate long-term debt approximate fair value due to their short
       maturities and interest terms. The fair value of the fixed rate long-term
       debt was based on market quotes for debt instruments with similar terms.
       The fair value of the swap agreements was based on the price we would
       have to pay to terminate them.
(2)    The average interest rates were based on September 30, 1999, variable
       rates. Actual rates in future periods could vary.

The notes receivable consist of secured and unsecured loans to our franchisees
and other nonconsolidated affiliates.

The long-term debt consists of an unsecured credit arrangement (the Promus
Facility), mortgage indebtedness, and other unsecured notes payable. For a more
detailed discussion of the Promus Facility and our other indebtedness, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - Promus Facility and Other
Indebtedness" on page 30 and "Note 8 - Notes Payable" on pages 44 and 45 of the
1998 Annual Report to Shareholders, which information is incorporated herein by
reference.

The interest rate swap agreements contain a credit risk to Promus that the
counterparties may be unable to meet the terms of the agreements. We minimize
this risk by evaluating the creditworthiness of our counterparties, which are
limited to major banks and financial institutions.



                                       25
<PAGE>   28


PART II--OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On or around September 7, 1999, two actions were filed in the Court of Chancery
for the State of Delaware by alleged common stockholders of Promus on behalf of
a purported class of similarly situated Promus stockholders. The actions are
styled Steven Goldstein v. Promus Hotel Corporation, et al., C.A. No. 17410NC
and Joseph Carco v. Promus Hotel Corporation, et al., C.A. No. 17411NC. The
complaints in the actions, which are substantially similar, name as defendants
Promus, the members of the Promus board of directors and Hilton, and allege that
the Promus directors breached their fiduciary duties to Promus stockholders by
agreeing to the acquisition and by allegedly failing to obtain the highest value
for Promus stockholders, and that Hilton allegedly aided and abetted such
alleged breaches of fiduciary duty. The complaints seek injunctive relief and
monetary damages in an unspecified amount. We intend to defend the actions
vigorously.

On or about October 11, 1999, an action was filed in the United States District
Court for the Southern District of Florida entitled Hotelrama Associates, Ltd.
v. Hilton Hotels Corporation (Case No. 99-CV02717). The plaintiff is the owner
of the Fountainebleu Hilton Resort & Towers in Miami, Florida, which is managed
by Hilton. The complaint alleges that the acquisition will cause Hilton to be in
violation of territorial restrictions contained in the management agreement. The
complaint seeks an injunction enjoining Hilton from violating the restrictive
covenant by its acquisition of Promus and for the entry of a judgment entitling
the plaintiff to any and all remedies available under Florida law. Hilton has
indicated that it intends to defend the action vigorously and we have filed a
motion to intervene in the proceedings.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

   None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

   None.

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

   None.

ITEM 5. OTHER INFORMATION

   None.





                                       26
<PAGE>   29



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         EX-2         Agreement and Plan of Merger. (1)

         EX-11        Computation of Per Share Earnings. (2)

         EX-27        Financial Data Schedule. (2)

(b)      Reports on Form 8-K  (File No. 1-13719):

<TABLE>
<CAPTION>
         Date of Current Report                                       Subject
         ----------------------                                       -------
         <S>                                     <C>
         September 3, 1999                       Joint press release with Hilton Hotels Corporation
                                                 announcing an Agreement and Plan of Merger
                                                 providing for the merger of Promus Hotel Corporation
                                                 and a wholly owned subsidiary of Hilton, reported
                                                 under Item 5.

                                                 Agreement and Plan of Merger
                                                 dated as of September 3, 1999
                                                 among Promus Hotel Corporation
                                                 Hilton Hotels Corporation and
                                                 Chicago Hilton, Inc., reported
                                                 under Item 7.

           October 26, 1999                      Press release announcing Promus Hotel
                                                 Corporation's earnings for the three and nine months
                                                 ended September 30, 1999, reported under Item 5.

</TABLE>




--------
Footnotes

(1)  Incorporated by reference to Form 8-K filed September 3, 1999.
(2)  Filed herewith.



                                       27
<PAGE>   30


SIGNATURES

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


                                     PROMUS HOTEL CORPORATION



November 12, 1999                    By: /s/ DAN L. HALE
                                     -------------------------------------------
                                     Dan L. Hale
                                     Executive Vice President and
                                     Chief Financial Officer
                                     (Principal Financial Officer and
                                     Duly Authorized Officer)






                                       28
<PAGE>   31


                                  EXHIBIT INDEX

                      SEQUENTIAL
EXHIBIT NO.           DESCRIPTION                                     PAGE NO.
-----------           -----------                                     --------

(a)    EX-2           Agreement and Plan of Merger (1)

(b)    EX-11          Computation of Per Share Earnings. (2)            30

(c)    EX-27          Financial Data Schedule. (2)

(d) Reports on Form 8-K:

<TABLE>
<CAPTION>
       Date of Current Report                                         Subject
       ----------------------                                         -------
<S>                                              <C>
September 3, 1999                                Joint press release with Hilton Hotels Corporation
                                                 announcing an Agreement and Plan of Merger
                                                 providing for the merger of Promus Hotel Corporation
                                                 and a wholly owned subsidiary of Hilton, reported
                                                 under Item 5.

                                                 Agreement and Plan of Merger dated as of September 3, 1999
                                                 among Promus Hotel Corporation, Hilton Hotels Corporation and
                                                 Chicago Hilton, Inc., reported under Item 7.

October 26, 1999                                 Press release announcing Promus Hotel Corporation's earnings
                                                 for the three and nine months ended September 30, 1999,
                                                 reported under Item 5.
</TABLE>




--------
Footnotes

(1)  Incorporated by reference to Form 8-K filed September 3, 1999.
(2)  Filed herewith.





                                       29