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


                                    Form 10-Q
             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 1998
                           Commission File No. 1-10308

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


                               Cendant Corporation
             (Exact name of Registrant as specified in its charter)


          Delaware                                              06-0918165
(State or other jurisdiction                                 (I.R.S. Employer
    of incorporation or                                   Identification Number)
        organization)

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

                                 (973) 428-9700
              (Registrant's telephone number, including area code)

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


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


     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  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 [T] No [ ]


                                        APPLICABLE ONLY TO CORPORATE ISSUERS:

     The number of shares  outstanding  of each of the  Registrant's  classes of
common stock was 853,078,387  shares of Common Stock  outstanding as of November
12, 1998.







                      CENDANT CORPORATION AND SUBSIDIARIES

                                      INDEX
PART I        Financial Information                                     PAGE NO.

Item 1.       Financial Statements

              Consolidated Statements of Operations - 
              Three and Nine Months Ended September 30, 1998 and 1997        3-4

              Consolidated Balance Sheets - 
              September 30, 1998 and December 31, 1997                       5-6

              Consolidated Statements of Cash Flows - Nine Months Ended
              September 30, 1998 and 1997                                    7-8

              Notes to Consolidated Financial Statements                       9

Item 2.       Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                       26

Item 3.       Quantitative and Qualitative Disclosures About Market Risk      44

PART II       Other Information

Item 1.       Legal Proceedings                                               45
Item 6.       Exhibits and Reports on Form 8-K                                45

Certain  statements in this Quarterly  Report on Form 10-Q  constitute  "forward
looking  statements"  within the  meaning of the Private  Securities  Litigation
Reform Act of 1995.  Such forward looking  statements  involve known and unknown
risks,  uncertainties  and other  factors  which may cause the  actual  results,
performance,  or achievements of the Company to be materially different from any
future  results,  performance,  or  achievements  expressed  or  implied by such
forward  looking  statements.  These forward  looking  statements  were based on
various factors and were derived utilizing  numerous  important  assumptions and
other  important  factors that could cause actual  results to differ  materially
from those in the forward looking  statements.  Important  assumptions and other
important  factors that could cause  actual  results to differ  materially  from
those in the forward looking  statements,  include,  but are not limited to: the
resolution or outcome of the pending  litigation  and  government  investigation
relating to the previously announced accounting  irregularities,  uncertainty as
to the Company's future  profitability and, the Company's ability to develop and
implement   operational   and  financial   systems  to  manage  rapidly  growing
operations;  competition in the Company's existing and potential future lines of
business;  the Company's ability to integrate and operate successfully  acquired
and merged  businesses and the risks associated with such businesses,  including
the merger that created Cendant,  the National Parking  Corporation  acquisition
and the Royal Automobile Club motoring services acquisition,  the completion and
impact of the sale of discontinued operations,  such as Hebdo Mag International,
International, Inc. and the Company's software businesses, the Company's ability
to obtain financing on acceptable terms to finance the Company's growth strategy
and for the  Company to  operate  within the  limitations  imposed by  financing
arrangements; uncertainty as to the future profitability of acquired businesses,
the ability of the Company and its vendors to complete the necessary  actions to
achieve a year 2000  conversion for its computer  systems and  applications  and
other factors.  Other factors and  assumptions  not  identified  above were also
involved in the derivation of these forward looking statements,  and the failure
of such other assumptions to be realized as well as other factors may also cause
actual results to differ materially from those projected. The Company assumes no
obligation to update these forward looking statements to reflect actual results,
changes in  assumptions  or  changes in other  factors  affecting  such  forward
looking statements.






PART I - FINANCIAL INFORMATION
ITEM 1  - FINANCIAL STATEMENTS


                      CENDANT CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In millions, except per share data)



                                                                    Three Months Ended            Nine Months Ended
                                                                       September 30,                September 30,
                                                                  -----------------------      -----------------------
                                                                     1998         1997           1998         1997   
                                                                              As Restated                 As Restated
                                                                                 (Note 2)                     (Note 2)
                                                                  -----------------------      -----------------------
                                                                                         
Revenues
   Membership and service fees - net                              $  1,416.4    $ 1,099.3      $  3,678.8   $  2,932.5
   Fleet leasing (net of depreciation and interest
     costs of $324.9, $307.9, $954.6 and $892.2)                        18.5         12.8            57.5         42.9
   Other                                                                22.9         74.4           128.8        164.4
                                                                  ----------    ---------      ----------   ----------

Net revenues                                                         1,457.8      1,186.5         3,865.1      3,139.8

Expenses
   Operating                                                           515.9        344.3         1,306.9        958.1
   Marketing and reservation                                           297.2        278.5           853.2        750.3
   General and administrative                                          187.6        150.6           487.4        455.0
   Depreciation and amortization                                        88.9         59.0           241.3        175.4
   Other charges:
     Merger-related costs and other unusual charges (credits)            -             -            (24.4)       278.9
     Investigation related costs and termination benefits               61.9           -             81.4           -
     Financing costs                                                    14.5           -             27.2           -
     Asset impairments                                                  50.0           -             50.0           -
   Interest - net                                                       31.0         13.5            72.9         36.3
                                                                  ----------    ---------      ----------   ----------

Total expenses                                                       1,247.0        845.9         3,095.9      2,654.0
                                                                  ----------    ---------      ----------   ----------

Income from continuing operations before
   income taxes, minority interest and cumulative
   effect of accounting change                                         210.8        340.6           769.2        485.8
Provision for income taxes                                              73.2        137.6           273.0        238.4
Minority interest, net                                                  14.5           -             34.3           -
                                                                  ----------    --------       ----------   ---------

Income from continuing operations before
   cumulative effect of accounting change                              123.1        203.0           461.9        247.4

Loss from discontinued operations,
   net of taxes (Note 7)                                               (12.1)        (0.4)          (25.0)       (12.2)
                                                                  -----------   ----------     -----------  -----------

Income before cumulative effect of
   accounting change                                                   111.0        202.6           436.9        235.2
Cumulative effect of accounting change, net of tax                        -            -               -        (283.1)
                                                                  ---------     --------       ---------    -----------
Net income (loss)                                                 $    111.0    $   202.6      $    436.9   $    (47.9)
                                                                  ==========    =========      ==========   ===========



 See  accompanying   notes  to  consolidated financial statements.




                      CENDANT CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
                      (In millions, except per share data)




                                                                   Three Months Ended            Nine Months Ended
                                                                       September 30,                September 30,
                                                                  -----------------------      -----------------------
                                                                     1998         1997           1998         1997   
                                                                              As Restated                 As Restated
                                                                                 (Note 2)                     (Note 2)
                                                                  -----------------------      -----------------------
                                                                                         

  Income (Loss) Per Share:
   Basic
     Income from continuing operations
       before cumulative effect of accounting change              $     0.14    $    0.25      $    0.55    $     0.31
     Loss from discontinued operations, net                            (0.01)          -           (0.03)        (0.02)
     Cumulative effect of accounting change, net                          -            -               -         (0.35)
                                                                  ---------     --------       ---------    -----------

     Net income (loss)                                            $     0.13    $    0.25      $    0.52    $    (0.06)
                                                                  ==========    =========      =========    ===========


   Diluted
     Income from continuing operations
       before cumulative effect of accounting change              $     0.14    $    0.23      $    0.53    $     0.29
     Loss from discontinued operations, net                            (0.01)          -           (0.03)        (0.01)    (1)
     Cumulative effect of accounting change, net                          -            -               -         (0.32)    (1)
                                                                  ---------     --------       ---------    -----------

     Net income (loss)                                            $     0.13    $    0.23      $    0.50    $    (0.04)
                                                                  ==========    =========      =========    ===========



       (1) The number of weighted  average  shares  used to compute  income from
       continuing  operations per share was also used to calculate the per share
       amounts for the net loss from  discontinued  operations,  the  cumulative
       effect of  accounting  change,  net of tax and net  loss.  As a result of
       losses recorded for such amounts,  the per share amounts for the net loss
       from discontinued operations, the cumulative effect of accounting change,
       net of tax and net loss are  anti-dilutive  to their respective basic per
       share amounts.




 See accompanying  notes to consolidated financial statements.










                      CENDANT CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (In millions, except share data)




                                                                       September 30,     December 31,
                                                                           1998              1997    
                                                                       -------------    -------------
                                                                                  
Assets
Current assets
    Cash and cash equivalents                                          $     1,611.2    $        67.0
    Receivables, net                                                         1,327.8          1,170.7
    Deferred income taxes                                                      330.9            311.9
    Other current assets                                                       973.7            767.2
    Net assets of discontinued operations                                      520.2            273.3
                                                                       -------------    -------------

Total current assets                                                         4,763.8          2,590.1
                                                                       -------------    -------------

    Property and equipment                                                   1,298.2            460.8
    Franchise agreements, net                                                  961.3            890.3
    Goodwill, net                                                            4,015.8          2,148.2
    Other intangibles, net                                                   1,043.6            897.5
    Other assets                                                               688.5            642.8
                                                                       -------------    -------------

Total assets exclusive of assets under programs                             12,771.2          7,629.7
                                                                       -------------     ------------

Assets under management and mortgage programs
    Net investment in leases and leased vehicles                             3,738.0          3,659.1
    Relocation receivables                                                     631.0            775.3
    Mortgage loans held for sale                                             2,360.8          1,636.3
    Mortgage servicing rights                                                  573.4            373.0
                                                                       -------------     ------------

                                                                             7,303.2          6,443.7
                                                                       -------------    -------------

Total assets                                                           $    20,074.4    $    14,073.4
                                                                       =============    =============




 See  accompanying   notes  to  consolidated financial statements.









                      CENDANT CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (In millions, except share data)




                                                                            September 30,    December 31,
                                                                                1998             1997     
                                                                           -------------     -------------
                                                                                       
Liabilities and shareholders' equity
Current liabilities
Accounts payable and other current liabilities                             $     1,489.3     $     1,492.4
Current portion of long-term debt                                                2,702.7                 -
Deferred income                                                                  1,392.2           1,042.0
                                                                           -------------     -------------

Total current liabilities                                                        5,584.2           2,534.4
                                                                           -------------     -------------

Deferred income                                                                    227.8             292.1
Long-term debt                                                                   1,308.5           1,246.0
Other noncurrent liabilities                                                       320.6             181.2
                                                                           -------------     -------------

Total liabilities exclusive of liabilities under programs                        7,441.1           4,253.7
                                                                           -------------     -------------

Liabilities under management and mortgage programs
    Debt                                                                         6,195.8           5,602.6
    Deferred income taxes                                                          257.9             295.7

Mandatorily redeemable preferred securities issued by subsidiaries               1,472.1                --

Commitments and contingencies (Note 15)

Shareholders' Equity
Preferred stock, $.01 par value - authorized
    10 million shares; none issued and outstanding                                    --                --
Common stock, $.01 par value - authorized
    2 billion shares; issued 858,281,922
    and 838,333,800 shares, respectively                                             8.6               8.4
Additional paid-in capital                                                       3,405.2           3,088.4
Retained earnings                                                                1,377.5             940.6
Accumulated other comprehensive loss                                                (6.7)            (38.2)
Restricted stock, deferred compensation                                             (2.7)             (3.4)
Treasury stock, at cost 6,750,546 shares                                           (74.4)            (74.4)
                                                                           --------------    --------------

Total shareholders' equity                                                       4,707.5           3,921.4
                                                                           -------------     -------------

Total liabilities and shareholders' equity                                 $    20,074.4     $    14,073.4
                                                                           =============     =============



 See  accompanying   notes  to  consolidated financial statements.







                      CENDANT CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (In millions)



                                                                                           Nine Months Ended
                                                                                             September 30,         
                                                                                        1998              1997     
                                                                                    -------------    --------------
                                                                                                      As Restated
                                                                                                        (Note 2)
                                                                                                  
Operating Activities
Net income (loss)                                                                   $       436.9    $       (47.9)
Loss from discontinued operations, net of taxes                                              25.0             12.2
Cumulative effect of accounting change, net of tax                                            -              283.1
Depreciation and amortization                                                               241.3            175.4
Other charges - asset impairments and termination benefits                                   62.5                 -
Merger-related costs and other unusual charges (credits)                                    (24.4)           278.9
Payments of merger-related costs and other unusual
    charge liabilities                                                                     (127.2)          (157.6)
Other                                                                                       (76.1)          (305.5)
                                                                                    --------------   --------------
Net cash provided by operations exclusive of
    management and mortgage programs                                                        538.0            238.6
                                                                                    -------------    -------------

Management and mortgage programs:
    Depreciation and amortization                                                           944.9            812.3
    Mortgage loans held for sale                                                           (724.4)            86.1
                                                                                    --------------   -------------
                                                                                            220.5            898.4
                                                                                    -------------    -------------
Net cash provided by operating activities
    of continuing operations                                                                758.5          1,137.0
                                                                                    -------------    -------------

Investing Activities
Property and equipment additions                                                           (240.8)           (97.4)
Investments                                                                                 (94.2)          (181.2)
Net change in marketable securities                                                           4.7           (646.5)
Net assets acquired (net of cash acquired) and acquisition-related payments              (2,658.2)          (539.9)
Other, net                                                                                   77.0           (131.3)
                                                                                    -------------    --------------
Net cash used in investing activities of continuing
    operations exclusive of management
    and mortgage programs                                                                (2,911.5)        (1,596.3)
                                                                                    --------------   --------------

Management and mortgage programs:
    Investment in leases and leased vehicles                                             (1,876.4)        (1,629.4)
    Payments received on investment in leases and leased vehicles                           765.5            615.2
    Proceeds from sales and transfers of leases and leased vehicles to third parties        136.8             63.5
    Equity advances on homes under management                                            (5,186.5)        (4,185.5)
    Repayment of advances on homes under management                                       5,333.8          4,341.3
    Additions to originated mortgage servicing rights                                      (338.7)          (147.6)
    Proceeds from sales of mortgage servicing rights                                         75.2             49.0
                                                                                    -------------    -------------
                                                                                         (1,090.3)          (893.5)
                                                                                    --------------   --------------
Net cash used in investing activities of
    continuing operations                                                                (4,001.8)        (2,489.8)
                                                                                    --------------   --------------



See  accompanying   notes  to  consolidated financial statements.






                      CENDANT CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                  (In millions)





                                                                                           Nine Months Ended
                                                                                             September 30,         
                                                                                        1998              1997     
                                                                                    -------------    --------------
                                                                                                      As Restated
                                                                                                        (Note 2)
                                                                                               
Financing Activities
Proceeds from borrowings                                                            $     3,279.6    $       917.5
Principal payments on borrowings                                                           (420.5)          (174.2)
Issuance of convertible debt                                                                    -            542.8
Issuance of common stock                                                                    160.4            119.9
Purchases of common stock                                                                       -           (171.3)
Proceeds from mandatorily redeemable preferred securities
    issued by subsidiaries, net                                                           1,446.7                 -
Other, net                                                                                      -             (6.6)
                                                                                    -------------    --------------

Net cash provided by financing activities of continuing operations
    exclusive of management and mortgage programs                                         4,466.2          1,228.1
                                                                                    -------------    -------------

Management and mortgage programs:
    Proceeds from debt issuance or borrowings                                             2,455.1          2,129.2
    Principal payments on borrowings                                                     (2,215.7)        (1,575.8)
    Net change in short-term borrowings                                                     347.0           (693.9)
                                                                                    -------------    --------------

                                                                                            586.4           (140.5)
                                                                                    -------------    --------------

Net cash provided by financing activities of
    continuing operations                                                                 5,052.6          1,087.6
                                                                                    -------------    -------------

Effect of changes in exchange rates on cash and cash equivalents                             (9.7)            (0.4)

Net cash used in discontinued operations                                                   (255.4)           (45.0)
                                                                                    --------------   --------------

Net increase (decrease) in cash and cash equivalents                                      1,544.2           (310.6)

Cash and cash equivalents, beginning of period                                               67.0            448.1
                                                                                    -------------    -------------

Cash and cash equivalents, end of period                                            $     1,611.2    $       137.5
                                                                                    =============    =============




See  accompanying   notes  to  consolidated financial statements.










                      CENDANT CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.      Basis of Presentation

        Cendant Corporation,  together with its subsidiaries (the "Company"), is
        one of the  foremost  consumer and  business  services  companies in the
        world. The Company was created through the merger (the "Cendant Merger")
        of HFS  Incorporated  ("HFS")  and CUC  International  Inc.  ("CUC")  in
        December 1997 with the merged company being renamed Cendant Corporation.
        The Company provides  fee-based services to consumers within the Travel,
        Real Estate and Alliance Marketing business segments.

        The consolidated  balance sheet of the Company as of September 30, 1998,
        the consolidated  statements of operations for the three and nine months
        ended  September  30, 1998 and 1997 and the  consolidated  statements of
        cash flows for the nine  months  ended  September  30, 1998 and 1997 are
        unaudited.  The accompanying  consolidated  financial statements include
        the  accounts  and  transactions  of the  Company  and all  wholly-owned
        subsidiaries.  All  intercompany  balances  and  transactions  have been
        eliminated in  consolidation.  The accompanying  unaudited  consolidated
        financial  statements  have been prepared in accordance  with  generally
        accepted  accounting  principles for interim  financial  information and
        with the  instructions  of Form 10-Q and Rule  10-01 of  Regulation  S-X
        promulgated under the Securities  Exchange Act of 1934. The December 31,
        1997  consolidated  balance sheet was derived from the Company's audited
        financial   statements  included  in  the  Company's  Annual  Report  on
        Form10-K/A  for the year ended  December  31, 1997 and should be read in
        conjunction  with  such  consolidated  financial  statements  and  notes
        thereto.

        In the opinion of the Company's management,  all adjustments  considered
        necessary for a fair presentation have been included.  Operating results
        for  the  three  and  nine  months  ended  September  30,  1998  are not
        necessarily  indicative of the results that may be expected for the year
        ending December 31, 1998.

2.      Restatement

        As  publicly  announced  on  April  15,  1998,  the  Company  discovered
        accounting irregularities in certain business units of CUC. As a result,
        the  Company  together  with  its  counsel  and  assisted  by  auditors,
        immediately   began   an   intensive    investigation    (the   "Company
        Investigation"). In addition, the Audit Committee of the Company's Board
        of Directors  initiated an  investigation  into such matters (the "Audit
        Committee Investigation",  together with the Company Investigation,  the
        "Investigations").  On July 14,  1998,  the Company  announced  that the
        accounting  irregularities were greater than those initially  discovered
        in April and that the irregularities  affected the accounting records of
        the majority of the CUC business  units. On August 13, 1998, the Company
        announced  that the Company  Investigation  was completed and, on August
        27, 1998, the Company  announced that the Audit  Committee had submitted
        its  report  to  the  Board  of   Directors   on  the  Audit   Committee
        Investigation  into the accounting  irregularities  and its  conclusions
        regarding  responsibility for those actions. As a result of the findings
        from the Investigations,  the Company restated its financial  statements
        for the years ended  December 31,  1997,  1996 and 1995.  Such  restated
        financial  statements  were  audited  and filed on Form  10-K/A with the
        Securities  and Exchange  Commission  ("SEC") on September  29, 1998. In
        addition,  as a result of the Investigations  and a concurrent  internal
        financial  review process by the Company which revealed both  accounting
        errors and accounting irregularities, the Company restated its financial
        statements  for the quarterly  periods ended March 31 and June 30, 1998,
        respectively.   The  Company's  restated  financial  statement  for  the
        quarterly  periods  ended  March 31, 1998 and 1997 and June 30, 1998 and
        1997 were filed on Quarterly Reports Form 10-Q/A with the SEC on October
        13, 1998.  The financial  statements for the three and nine months ended
        September 30, 1997 are restated herein in this Form 10-Q.

        In connection  with the Company  Investigation  and coincident  with the
        audit and restatement process, certain adjustments were made in 1997 for
        accounting  errors  (that  were not a result  of  irregularities)  which
        relate to the former HFS businesses. Such adjustments were substantially
        comprised of $47.8  million in reductions  to  merger-related  costs and
        other  unusual  charges,  which  increased  1997 income from  continuing
        operations.

        In connection with the aforementioned accounting irregularities, the SEC
        and the United  States  Attorney for the District of New Jersey are also
        conducting investigations relating to the accounting irregularities (See
        Note 15). In connection  with the SEC's  investigation,  in August 1998,
        the SEC requested that the Company  change its accounting  policies with
        respect to revenue and expense recognition for its membership businesses
        effective  January 1,  1997.  Although  the  Company  believed  that its
        accounting for  memberships  had been  appropriate  and consistent  with
        industry  practice,  the  Company  complied  with the SEC's  request and
        adopted new accounting policies for its membership businesses. (See Note
        3-Accounting Change).  Accordingly,  the financial results for the three
        and nine months ended  September  30, 1997 as set forth herein have been
        restated for the accounting change.

        The Company has  recorded all  corrections  arising from the findings of
        the  Investigations.  Such  corrections  were the  result of  accounting
        irregularities,  the  misapplication  of generally  accepted  accounting
        principles and the aforementioned  change in accounting for memberships.
        Provided  below is a summary  of the  impact of such  corrections  and a
        reconciliation of the financial results from amounts previously reported
        to the  restated  financial  statement  amounts,  as  presented  in this
        Quarterly  Report  on  Form  10-Q.  The   reconciliation   includes  the
        reclassification  of  discontinued  operations  (see Note 7 Discontinued
        Operations).  While  management  has  made  all  adjustments  considered
        necessary as a result of the findings of the  Investigations,  there can
        be no assurance that  additional  adjustments  will not be required as a
        result of the ongoing SEC investigation.







                             STATEMENT OF OPERATIONS
                      (In millions, except per share data)




                                                              Three Months Ended September 30, 1997
                                              ------------------------------------------------------------------
                                                                                  Accounting
                                                                                  adjustments
                                                                                  for errors,
                                                  As                            irregularities
                                              previously       Discontinued     and accounting           As
                                               reported         operations          change            restated
                                            -------------     --------------    ----------------   -------------
                                                                                       
Net revenues                                $     1,431.3     $      (142.0)    $        (102.8)   $     1,186.5
                                            -------------     --------------    ----------------   -------------
Expenses
   Operating                                        464.5             (78.6)              (41.6)           344.3
   Marketing and reservation                        360.9             (26.4)              (56.0)           278.5
   General and administrative                       105.8             (25.5)               70.3            150.6
   Depreciation and amortization                     70.2              (9.9)               (1.3)            59.0
   Interest, net                                     15.6              (4.2)                2.1             13.5
                                            -------------     --------------    ---------------    -------------
Total expenses                                    1,017.0            (144.6)              (26.5)           845.9
                                            -------------     --------------    ----------------   -------------

Income from continuing operations
   before income taxes                              414.3               2.6               (76.3)           340.6
Provision (benefit) for income taxes                166.0               2.2               (30.6)           137.6
                                            -------------     -------------     ----------------   -------------
Income from continuing operations                   248.3               0.4               (45.7)           203.0
Loss from discontinued operations,
   net of taxes                                          -             (0.4)                  -             (0.4)
                                            --------------    --------------    ---------------    --------------

Net income                                  $       248.3     $           -     $         (45.7)   $       202.6
                                            =============     =============     ================   =============

Income per share
Basic
   Income from continuing
     operations                             $        0.31                                          $       0.25
   Loss from discontinued
     operations, net                                   -                                                      -
                                            ------------                                           ------------
Net income                                  $        0.31                                          $       0.25
                                            =============                                          ============

Income per share
Diluted
   Income from continuing
     operations                             $        0.29                                          $       0.23
   Loss from discontinued
      operations, net                                  -                                                      -
                                            ------------                                           ------------
Net income                                  $        0.29                                          $       0.23
                                            =============                                          ============

Weighted Average Shares
Basic                                               805.9                                                  805.9
Diluted                                             889.0                                                  889.0








                             STATEMENT OF OPERATIONS
                      (In millions, except per share data)





                                                                   Nine Months Ended September 30, 1997
                                                   --------------------------------------------------------------------
                                                                                         Accounting
                                                                                         adjustments
                                                                                         for errors,
                                                         As                            irregularities
                                                     previously      Discontinued      and accounting           As
                                                      reported        operations           change           restated
                                                   -------------     --------------   ----------------    -------------
                                                                                              
Net revenues                                       $     3,890.0     $      (407.2)   $        (343.0)    $     3,139.8
                                                   -------------     --------------   ----------------    -------------
Expenses
   Operating                                             1,317.8            (209.4)            (150.3)            958.1
   Marketing and reservation                               963.4             (97.2)            (115.9)            750.3
   General and administrative                              324.1             (65.4)             196.3             455.0
   Depreciation and amortization                           190.6             (23.9)               8.7             175.4
   Merger-related costs and other unusual charges          303.0             (16.5)              (7.6)            278.9
   Interest, net                                            43.9             (14.2)               6.6              36.3
                                                   -------------     --------------   ---------------     -------------
Total expenses                                           3,142.8            (426.6)             (62.2)          2,654.0
                                                   -------------     --------------   ----------------    -------------

Income (loss) from continuing operations
   before income taxes and cumulative
   effect of accounting change                             747.2              19.4             (280.8)            485.8
Provision (benefit) for income taxes                       346.5               7.2             (115.3)            238.4
                                                   -------------     -------------    ----------------    -------------
Income (loss) from continuing operations
   before cumulative effect of accounting change           400.7              12.2             (165.5)            247.4
Loss from discontinued operations,
   net of taxes                                               -              (12.2)                 -             (12.2)
                                                   ------------      --------------   ---------------     --------------

Income (loss) before cumulative effect
   of accounting change                                    400.7                 -             (165.5)            235.2
Cumulative effect of accounting change,
   net of tax                                                 -                  -             (283.1)           (283.1)
                                                   ------------      -------------    ----------------    --------------
Net income (loss)                                  $       400.7     $           -    $        (448.6)    $       (47.9)
                                                   =============     =============    ================    ==============

Income (loss) per share
Basic
   Income from continuing operations before
     cumulative effect of accounting change        $        0.50                                          $         0.31
   Loss from discontinued operations, net                     -                                                    (0.02)
   Cumulative effect of accounting change, net                -                                                    (0.35)
                                                   ------------                                           ---------------
Net income (loss)                                  $        0.50                                          $        (0.06)
                                                   =============                                          ===============

Income (loss) per share
Diluted
   Income from continuing operations before
     cumulative effect of accounting change        $        0.47                                          $         0.29
   Loss from discontinued operations, net                     -                                                    (0.01)
   Cumulative effect of accounting change, net                -                                                    (0.32)
                                                   ------------                                           ---------------
Net income (loss)                                  $        0.47                                          $        (0.04)
                                                   =============                                          ===============

Weighted Average Shares
Basic                                                     804.3                                                     804.3
Diluted                                                   877.1                                                     877.1






3.   Accounting Change

     Effective  January 1, 1997, the Company  adopted a change in accounting for
     the  recognition  of  membership  revenues  and  expenses.  Prior  to  such
     adoption, the Company recorded deferred membership income, net of estimated
     cancellations, at the time members were billed (upon expiration of the free
     trial period),  which was recognized as revenue ratably over the membership
     term and modified periodically based on actual cancellation experience.  In
     addition, membership acquisition and renewal costs, which related primarily
     to membership solicitations were capitalized as direct response advertising
     costs due to the Company's  ability to demonstrate that the direct response
     advertising resulted in future economic benefits. Such costs were amortized
     on a  straight-line  basis as revenues  were  recognized  (over the average
     membership period). The Company believed that such accounting policies were
     appropriate and consistent with industry practice.

     In August 1998, in connection with the Company's  cooperation  with the SEC
     investigation into accounting  irregularities  discovered in the former CUC
     business  units,  the SEC  concluded  that when  membership  fees are fully
     refundable during the entire membership  period,  membership revenue should
     be recognized at the end of the  membership  period upon the  expiration of
     the  refund  offer.   The  SEC  further   concluded   that   non-refundable
     solicitation  costs should be expensed as incurred since such costs are not
     recoverable if membership fees are refunded. Accordingly, effective January
     1, 1997, the Company recorded a non-cash after-tax charge of $283.1 million
     or $.32 per diluted share for the nine months ended  September 30, 1997, to
     account for the cumulative effect of the accounting change.

4.   Earnings Per Share ("EPS")

     Basic EPS is computed based solely on the weighted average number of common
     shares  outstanding  during the period.  Diluted EPS reflects all potential
     dilution of common stock. Basic and diluted EPS from continuing  operations
     is calculated as follows:





                                                         Three Months Ended              Nine Months Ended
     (In millions, except per share amounts)                September 30,                  September 30,
                                                     --------------------------     --------------------------
                                                         1998           1997           1998            1997
                                                     -----------     ----------     -----------    -----------
                                                                                       
     Income from continuing operations
       before cumulative effect of accounting
       change                                        $     123.1     $    203.0     $     461.9    $     247.4
     Convertible debt interest                               2.8            5.8             8.6           11.3
                                                     -----------     ----------     -----------    -----------

     Income from continuing operations,
       before cumulative effect of accounting
       change, as adjusted                           $     125.9     $    208.8     $     470.5    $     258.7
                                                     ===========     ==========     ===========    ===========

     Weighted average shares - basic                       850.8          805.9           844.8          804.3
     Potential dilution of common stock:
       Stock options                                         8.5           34.6            31.2           33.7
       Convertible debt                                     18.0           48.5            19.0           39.1
                                                     -----------     ----------     -----------    -----------
     Weighted average shares - diluted                     877.4          889.0           895.0          877.1
                                                     ===========     ==========     ===========    ===========

     EPS - continuing operations before
       cumulative effect of accounting
       change
     Basic                                           $      0.14     $     0.25     $      0.55    $      0.31
                                                     ===========     ==========     ===========    ===========

     Diluted                                         $      0.14     $     0.23     $      0.53    $      0.29
                                                     ===========     ==========     ===========    ===========



5.   Comprehensive Income

     The Company adopted Statement of Financial  Accounting  Standards  ("SFAS")
     No. 130 "Reporting  Comprehensive  Income"  effective January 1, 1998. This
     statement  establishes  standards  for  the  reporting  and  display  of an
     alternative   income  measurement  and  its  components  in  the  financial
     statements.

     Components of comprehensive income (loss) are summarized as follows:




                                                                              Nine Months Ended
     (In millions)                                                              September 30,
                                                                       ------------------------------
                                                                           1998              1997    
                                                                       -------------    -------------
                                                                                  
     Net income (loss)                                                 $       436.9    $       (47.9)
                                                                       -------------    --------------
     Other comprehensive income (loss), net of tax:
       Currency translation adjustment                                          35.5            (16.4)
       Unrealized gains (losses) on marketable securities:
         Unrealized holding gains (losses)
           arising during the period                                            (4.0)               -
         Reclassification adjustment for gains included
           in earnings                                                             -             (4.3)
                                                                       -------------    --------------
     Comprehensive income (loss)                                       $       468.4    $       (68.6)
                                                                       =============    ==============




     The components of  accumulated  other  comprehensive  income (loss) for the
nine months ended September 30, 1998 are as follows:





                                                     Net unrealized                       Accumulated
                                                     gain (loss) on       Currency           other
                                                       marketable       translation      comprehensive
     (In millions)                                     securities       adjustment       income (loss)
                                                     --------------    --------------   --------------
                                                                               
     Balance, January 1, 1998                        $         0.2     $       (38.4)   $       (38.2)
     Currency translation adjustment                             -              35.5             35.5
     Net unrealized gain (loss) on marketable
       securities                                             (4.0)                -             (4.0)
                                                     --------------    -------------    --------------
     Balance, September 30, 1998                     $        (3.8)    $        (2.9)   $        (6.7)
                                                     ==============    ==============   ==============




6.   Business Combinations

     The  acquisitions  discussed  below were  accounted  for using the purchase
     method of accounting.  Accordingly, assets acquired and liabilities assumed
     were recorded at their  estimated fair values.  Excess  purchase price over
     fair value of the underlying net assets  acquired is allocated to goodwill.
     Goodwill is amortized on a straight-line  basis over the estimated  benefit
     periods,  ranging  from  25 to 40  years.  The  operating  results  of such
     acquired companies are reflected in the Company's  consolidated  statements
     of operations since the respective dates of acquisition.

     The  following  table  reflects  the fair  values  of assets  acquired  and
     liabilities   assumed  in  connection   with  the  Company's   acquisitions
     consummated  and other  acquisition-related  payments  made during the nine
     months ended September 30, 1998.





     (In millions)
     Total consideration:
     Cash paid (net of $52.4 million of cash acquired)            $     2,658.2
                                                                  -------------

     Assets acquired                                                    1,187.3
     Liabilities assumed                                                  495.8
     Fair value of identifiable net assets acquired                       691.5
                                                                  -------------

     Goodwill                                                     $     1,996.7
                                                                  =============


     National Parking Corporation - On April 27, 1998, the Company completed the
     acquisition  of  National  Parking  Corporation  Limited  ("NPC")  for $1.6
     billion in cash, which included the repayment of approximately $227 million
     of outstanding  NPC debt. NPC is  substantially  comprised of two operating
     subsidiaries:  National Car Parks and Green Flag. National Car Parks is the
     largest  private  (non-municipal)  single car park  operator  in the United
     Kingdom  ("UK")  and  Green  Flag  operates  the  third  largest   roadside
     assistance group in the UK and offers a wide-range of emergency support and
     rescue services.

     Harpur Group - On January 20, 1998, the Company  completed the  acquisition
     of The  Harpur  Group  Ltd.  ("Harpur"),  a leading  fuel card and  vehicle
     management company in the UK for approximately  $186.0 million in cash plus
     future contingent payments of up to $20.0 million over two years.

     Jackson Hewitt - On January 7, 1998, the Company  completed the acquisition
     of Jackson Hewitt Inc. ("Jackson Hewitt"), for approximately $480.0 million
     in cash. Jackson Hewitt operates the second largest tax preparation service
     franchise system in the United States.  The Jackson Hewitt franchise system
     specializes in  computerized  preparation  of federal and state  individual
     income tax returns.

     Other 1998  Acquisitions  and  Acquisition-Related  Payments - The  Company
     acquired  certain  other  entities  for  an  aggregate  purchase  price  of
     approximately  $336.9  million in cash during the nine month  period  ended
     September 30, 1998.  Additionally,  the Company made a $100.0  million cash
     payment  to the  seller  of  Resort  Condominiums  International,  Inc.  in
     satisfaction of a contingent purchase liability.

     Pro  forma  Information  -  The  following  table  reflects  the  unaudited
     operating  results of the Company for the nine months ended  September  30,
     1998 and 1997 on a pro forma basis,  which gives effect to the  acquisition
     of NPC,  accounted  for  under  the  purchase  method  of  accounting.  The
     remaining  acquisitions  completed during 1998 are not significant on a pro
     forma basis and are therefore  not included.  The pro forma results are not
     necessarily  indicative of the  operating  results that would have occurred
     had the NPC  transaction  been  consummated on January 1, 1997 nor are they
     intended to be  indicative  of results  that may occur in the  future.  The
     underlying  pro  forma  information   includes  the  amortization   expense
     associated with the assets acquired, the Company's financing  arrangements,
     certain purchase accounting adjustments and the related income tax effects.










                                                                              Nine Months Ended
     (In millions, except per share amounts)                                    September 30,
                                                                           1998              1997    
                                                                       -------------    -------------
                                                                                  
     Net revenues                                                      $     4,066.6    $     3,565.8
     Income before cumulative effect of accounting change (1)                  436.8            228.9
     Net income (loss)                                                         436.8            (54.2)  (2)

     Per share information:
     Income per share before cumulative effect of accounting
       change (1)
       Basic                                                           $        0.52    $        0.28
       Diluted                                                                  0.50             0.27

     Net income (loss) per share
       Basic                                                           $        0.52    $       (0.07)
       Diluted                                                                  0.50            (0.05)  (2)

     Weighted average shares outstanding:
       Basic                                                                   844.8            804.3
       Diluted                                                                 895.0            877.1




- -------------------
(1)  Includes loss from  discontinued  operations,  net of taxes for the nine 
     months ended September 30, 1998 and 1997 of $25.0 million ($.03 per diluted
     share) and $12.2 million ($.01per diluted share), respectively.
(2)  Includes the  cumulative  effect of a change in  accounting of $283.1
     million  ($0.32 per diluted  share)  related to revenue and expense
     recognition for memberships with full refund offers.

7.   Discontinued Operations

     On August 12, 1998 (the "Measurement Date"), the Company announced that its
     Executive  Committee of the Board of Directors committed to discontinue the
     Company's  classified  advertising  and  consumer  software  businesses  by
     disposing  of Hebdo Mag  International,  Inc.  ("Hebdo  Mag")  and  Cendant
     Software Corporation  ("Cendant Software"),  respectively.  The Company has
     since entered into a definitive agreement, as amended, to sell Hebdo Mag to
     its former 50% owners for 7.1 million  shares of Company  common  stock and
     approximately  $360  million in cash.  The  transaction  is  expected to be
     consummated  in the  fourth  quarter  of 1998  and is  subject  to  certain
     conditions,  including  regulatory approval and financing by the purchaser.
     The Company expects to recognize a gain of approximately  $230 million upon
     the  disposal  of Hebdo Mag,  assuming a Company  stock price of $13.25 per
     share, the closing price of the Company's common stock on November 3, 1998.
     In addition,  the Company has engaged investment bankers to analyze various
     strategic alternatives in regard to the disposition of Cendant Software and
     the Company is  currently  in various  stages of  discussions  with certain
     parties  regarding the potential  sale of such business  unit.  The Company
     anticipates  that the disposition of Cendant Software will also result in a
     significant gain.






     Summarized financial data of discontinued operations are as follows:

     Statement of Operations Data:




                                                                              Consumer Software
                                                     ------------------------------------------------------------------
                                                            Three Months Ended                  Nine Months Ended
     (In millions)                                             September 30,                      September 30,        
                                                     -------------------------------    -------------------------------
                                                          1998             1997              1998             1997     
                                                     -------------     -------------    -------------     -------------
                                                                                              
     Net revenues                                    $       119.5     $        90.7    $       345.8     $       261.4
                                                     -------------     -------------    -------------     -------------

     Loss before income taxes                                (20.2)             (4.6)           (57.3)            (31.6)
     Benefit from income taxes                                (9.7)             (3.2)           (22.9)            (12.1)
                                                     --------------    --------------   --------------    --------------
     Net loss                                        $       (10.5)    $        (1.4)   $       (34.4)    $       (19.5)
                                                     ==============    ==============   ==============    ==============


                                                                           Classified Advertising
                                                     ------------------------------------------------------------------
                                                            Three Months Ended                  Nine Months Ended
     (In millions)                                             September 30,                      September 30,        
                                                     -------------------------------    -------------------------------
                                                          1998             1997              1998             1997     
                                                     -------------     -------------    -------------     -------------
     Net revenues                                    $        65.2     $        51.3    $       202.4     $       145.8
                                                     -------------     -------------    -------------     -------------

     Income (loss) before income taxes                        (0.2)              2.0             20.4              12.2
     Provision for income taxes                                1.4               1.0             11.0               4.9
                                                     -------------     -------------    -------------     -------------
     Net income (loss)                               $        (1.6)    $         1.0    $         9.4     $         7.3
                                                     ==============    =============    =============     =============



     The  Company  has  allocated  $13.8  million  and $3.8  million of interest
     expense to discontinued  operations for the nine months ended September 30,
     1998 and 1997,  respectively.  Such interest expense represents the cost of
     funds  associated with  businesses  acquired by the  discontinued  business
     segments at an interest rate  consistent  with the  Company's  consolidated
     effective borrowing rate.

     Balance Sheet Data:





                                                    Consumer Software                     Classified Advertising
                                          -----------------------------------     -------------------------------------
                                            September 30,       December 31,        September 30,        December 31,
     (In millions)                              1998                1997                1998                 1997      
                                          ----------------    ---------------     -----------------     ---------------
                                                                                            
     Current assets                       $         163.0     $         209.1     $          69.0       $          58.6
     Goodwill                                       111.3                42.2               273.3                 181.5
     Other assets                                    94.5                49.2                34.5                  33.2
     Total liabilities                             (102.6)             (127.0)             (122.8)               (173.5)
                                          ----------------    ----------------    ----------------      ----------------
     Net assets of discontinued
       operations                         $         266.2     $         173.5     $         254.0       $          99.8
                                          ===============     ===============     ===============       ===============




8.   Financing Transactions

     Term Loan  Facility - On May 29, 1998,  the Company  entered into a 364-day
     term loan  agreement  with a  syndicate  of  financial  institutions  which
     provided for  borrowings of $3.25 billion (the "Term Loan  Facility").  The
     Term Loan Facility, as amended,  bears interest at LIBOR plus an applicable
     LIBOR spread,  as defined.  Upon the  execution of the Term Loan  Facility,
     temporary credit agreements, which provided for $1.0 billion of borrowings,
     were  terminated.  The Term Loan  Facility,  as amended,  contains  certain
     restrictive  covenants,  which are substantially  similar to and consistent
     with the covenants in effect for the Company's  existing  revolving  credit
     agreements.  At  September  30,  1998,  the Term  Loan  Facility  was fully
     utilized  with  approximately  $700  million of  borrowings  classified  as
     long-term  based on the  Company's  ability  and intent to  refinance  such
     borrowings  on a  long-term  basis.  The  Company  used $2  billion  of the
     proceeds  from the Term Loan Facility to repay the  outstanding  borrowings
     under its revolving credit facilities.

     Issuance  of FELINE  PRIDES and Trust  Preferred  Securities  - On March 2,
     1998,  Cendant Capital I (the "Trust"),  a statutory  business Trust formed
     under the laws of the State of  Delaware  and a  wholly-owned  consolidated
     subsidiary  of the  Company,  issued  29.9  million  FELINE  PRIDES and 2.3
     million trust preferred securities and received  approximately $1.5 billion
     in gross  proceeds  therefrom.  The Trust  invested  the  proceeds in 6.45%
     Senior Debentures due 2003 (the "Debentures") issued by the Company,  which
     represents  the sole  asset of the  Trust.  The  obligations  of the  Trust
     related  to  the  FELINE  PRIDES  and  trust   preferred   securities   are
     unconditionally  guaranteed  by the Company to the extent the Company makes
     payments pursuant to the Debentures. Upon the issuance of the FELINE PRIDES
     and trust preferred  securities,  the Company recorded a liability of $43.3
     million with a corresponding reduction to shareholders' equity equal to the
     present value of the total future contract  adjustment  payments to be made
     under the FELINE  PRIDES.  The FELINE PRIDES,  upon issuance,  consisted of
     27.6 million Income PRIDES and 2.3 million Growth PRIDES,  each with a face
     amount of $50 per PRIDE.  The  Income  PRIDES  consist  of trust  preferred
     securities  and  forward  purchase  contracts  under  which the holders are
     required to purchase  common stock from the Company in February  2001.  The
     Growth PRIDES consist of zero coupon U.S.  Treasury  securities and forward
     purchase  contracts under which the holders are required to purchase common
     stock from the Company in February 2001. The trust preferred securities and
     the trust preferred  securities  forming a part of the Income PRIDES,  each
     with a face amount of $50, bear  interest,  in the form of preferred  stock
     dividends,  at the  annual  rate of 6.45  percent  payable  in  cash.  Such
     preferred stock dividends are presented as minority interest, net of tax in
     the  consolidated  statements  of  operations.  Payments  under the forward
     purchase  contract  forming a part of the Income PRIDES will be made by the
     Company in the form of a contract  adjustment  payment at an annual rate of
     1.05 percent.  The forward  purchase  contract forming a part of the Growth
     PRIDES  will be made by the  Company in the form of a  contract  adjustment
     payment at an annual rate of 1.30 percent.  The forward purchase  contracts
     require the holder to purchase a minimum of 1.0395  shares and a maximum of
     1.3514 shares of Company common stock per PRIDES  security,  depending upon
     the average of the closing price per share of Company common stock for a 20
     consecutive  day period ending in mid-February of 2001. The Company has the
     right to defer the contract adjustment payments and the payment of interest
     on its  Debentures to the Trust.  Such election will subject the Company to
     certain restrictions, including restrictions on making dividend payments on
     its common stock until all such payments in arrears are settled.

     Redemption  of 4-3/4% Notes - On May 4, 1998,  the Company  redeemed all of
     the outstanding ($144.5 million principal amount) 4-3/4% Convertible Senior
     Notes (the "4-3/4%  Notes") at a price of 103.393% of the principal  amount
     together  with  interest  accrued  to the  redemption  date.  Prior  to the
     redemption date, during 1998, holders of such notes exchanged $95.5 million
     of the 4-3/4%  Notes for 3.4 million  shares of Company  common  stock (See
     Note 11).

     Redemption  of 6-1/2% Notes - On April 8, 1998,  the Company  exercised its
     option to call its  6-1/2%  Convertible  Subordinated  Notes  (the  "6-1/2%
     Notes") for  redemption on May 11, 1998, in accordance  with the provisions
     of the  indenture  relating to the 6-1/2%  Notes.  Prior to the  redemption
     date, during 1998, all of the outstanding  6-1/2% Notes were converted into
     2.1 million shares of Company common stock.

9.   Merger-Related Costs and Other Unusual Charges

     The  Company  incurred  merger-related  costs  and  other  unusual  charges
     ("Unusual  Charges") in 1997  related to  continuing  operations  of $704.1
     million  primarily  associated with and/or coincident to the Cendant Merger
     (the "Fourth Quarter 1997 Charge") and the merger with PHH Corporation (the
     "Second  Quarter 1997 Charge").  The remaining  liabilities at December 31,
     1997,   which  are  classified  as  accounts   payable  and  other  current
     liabilities and the reduction of such liabilities for the nine months ended
     September 30, 1998 are summarized by category of expenditure  and by charge
     as follows:





                                     Liabilities                                                         Liabilities at
                                    at December 31,       Cash                                            September 30,
       (In millions)                    1997             Payment         Non-Cash         Adjustments          1998    
                                    -------------    -------------     -------------    --------------    -------------
                                                                                           
     Professional fees              $        50.7    $        37.6     $           -    $        (9.3)    $         3.8
     Personnel related                      168.5             72.2                 -            (18.2)             78.1
     Business terminations                    3.9              1.8               1.4             (2.4)              1.1
     Facility related and other              50.4             15.7               2.5              5.5              42.7
                                    -------------    -------------     -------------    -------------     -------------
       Total                        $       273.5    $       127.3     $         3.9    $       (24.4)    $       125.7
                                    =============    =============     =============    ==============    =============


                                     Liabilities                                                          Liabilities at
                                    at December 31,       Cash                                            September 30,
       (In millions)                    1997             Payment         Non-Cash         Adjustments         1998    
                                    -------------    -------------     -------------    --------------     ------------
     Fourth Quarter 1997
       Charge                       $       197.4    $        99.3     $         0.9    $       (13.2)    $        85.8
     Second Quarter 1997
       Charge                                76.1             28.0               3.0            (11.2)             39.9
                                    -------------    -------------     -------------    --------------    -------------
       Total                        $       273.5    $       127.3     $         3.9    $       (24.4)    $       125.7
                                    =============    =============     =============    ==============    =============




     Fourth Quarter 1997 Charge.  The $85.8 million of liabilities  remaining at
     September  30, 1998 are  primarily  comprised of $63.3 million of severance
     and  other  personnel  related  costs  and  $18.8  million  of  outstanding
     facility-related  liabilities.  Approximately  $4.1  million  of  remaining
     severance costs will be paid upon the closure of nine European call centers
     which will be substantially completed in 1998.  Approximately $37.8 million
     of executive  termination  benefits will be paid or otherwise  extinguished
     upon the settlement of employment obligations. Outstanding facility-related
     liabilities will be paid or otherwise  extinguished upon the aforementioned
     closures of European call centers and other office  consolidations.  During
     the nine months ended September 30, 1998, the Company recorded a net credit
     of $13.2  million to Unusual  Charges  with a  corresponding  reduction  to
     liabilities  primarily as a result of a change in the original  estimate of
     costs to be incurred.

     Second Quarter 1997 Charge.  The $39.9 million of liabilities  remaining at
     September 30, 1998 primarily  consists of $14.8 million of future severance
     and  benefit  payments  and  $23.9  million  of  future  lease  termination
     payments.  During the nine months ended  September  30,  1998,  the Company
     recorded  a  net  credit  of  $11.2  million  to  Unusual  Charges  with  a
     corresponding  reduction  to  liabilities  as a result  of a change  in the
     original  estimate  of costs to be  incurred.  Such credit was net of $24.1
     million of costs incurred related to lease terminations.

10.  Investigation Related Costs and Termination Benefits

     The Company  records all costs incurred in connection  with and as a result
     of the  investigations  into accounting  irregularities  as  "investigation
     related costs and termination  benefits" in the  consolidated  statement of
     operations.

     On July 28, 1998, the Company  announced that Walter A. Forbes  resigned as
     Chairman  of the  Company  and as a member of the Board of  Directors.  The
     severance  agreement  reached  with Mr.  Forbes  entitles  him the benefits
     required  by his  employment  contract  relating  to a  termination  of Mr.
     Forbes'  employment  with the  Company  for  reasons  other than for cause.
     Aggregate  benefits  resulted in a $50.4  million third quarter 1998 charge
     comprised  of $37.9  million in cash  payments  and 1.3  million of Company
     stock options with a  Black-Scholes  value of $12.5  million.  Such options
     were  immediately  vested and expire on July 28, 2008.  Other costs for the
     three and nine months ended  September  30, 1998 of $11.5 million and $31.0
     million,  respectively,  are primarily  comprised of professional  fees and
     public relations costs incurred in connection with the investigations.

11.  Other Charges - Financing Costs

     The Company paid $25 million of banking fees on May 29, 1998 in  connection
     with executing the Term Loan Facility (see Note 8 Financing  Transactions).
     Such financing was arranged to ensure  Company  liquidity in the absence of
     access to public financing  markets as a result of the Company's  discovery
     and announcement of accounting irregularities and the corresponding lack of
     audited  financial  statements.  The financing costs have been deferred and
     are being amortized over six months, the anticipated borrowing period.

     In connection  with the Company  exercising its option to redeem the 4 3/4%
     Notes,  the Company  anticipated that all holders of the 4 3/4% Notes would
     elect to convert  the 4 3/4% notes to Company  common  stock based upon the
     fair value of the common stock at such time. However, during the redemption
     period,   the  Company's  common  stock  price  experienced  a  significant
     decrease.  As a result,  holders of the 4 3/4% Notes elected not to convert
     the 4 3/4% notes to common stock and redeemed  such notes at a premium (see
     Note 8 - Financing Transactions).  Accordingly, the Company recorded a $7.2
     million ($4.5 million after-tax) loss on early extinguishment of debt which
     is  classified  in the statement of operations as Other Charges - Financing
     Costs.

12.  Other Charges - Asset Impairments

     The Company  periodically  evaluates the  recoverability of its investments
     and long-lived assets. As a result of such practices,  the Company recorded
     a $50.0 million  non-cash charge during the third quarter of 1998. Based on
     a recent  evaluation of its  long-lived  assets and in connection  with the
     Company's regular budget and forecasting processes,  the Company determined
     that $37 million of goodwill  associated with a Company  subsidiary  within
     its Alliance Marketing  segment,  National Library of Poetry, was impaired.
     In addition,  the Company had equity investments in interactive  businesses
     within its Other  segment,  which were  generating  negative cash flows and
     were  unable  to  access  sufficient   liquidity  through  equity  or  debt
     offerings.  As  a  result,  the  Company  wrote-off  $13  million  of  such
     investments.

13. Investment in Avis Rent A Car, Inc.

     The  Company's  equity  interest  in Avis  Rent A Car,  Inc.  ("Avis ") was
     reduced from 27.5% to 20.4% as a result of a secondary  offering by Avis of
     its common stock in March 1998 in which the Company sold one million shares
     of  Avis  common   stock.   The  Company   recognized  a  pre-tax  gain  of
     approximately  $17.7 million as a result of the sale,  which is included in
     other revenue in the consolidated statement of operations.

14.  Pending Acquisition

     RAC Motoring  Services - On May 21,  1998,  the Company  announced  that it
     reached  a  definitive  agreement  with  the  Board of  Directors  of Royal
     Automobile  Club Limited  ("RACL") to acquire  their RAC Motoring  Services
     subsidiary  ("RACMS") for  approximately  $735 million in cash. The sale of
     RACMS has subsequently been approved by its shareholders.  On September 24,
     1998,  the UK Secretary of State for Trade and Industry  referred the RACMS
     acquisition to the UK Monopolies and Mergers Commission (the "MMC") for its
     approval. Closing is subject to certain conditions, including MMC approval.
     Although no assurances can be made, the Company currently  anticipates that
     the transaction,  if completed,  will close in the spring of 1999. RACMS is
     the second-largest  roadside assistance company in the UK and also owns the
     UK's largest driving school company.

15.  Company Investigation and Litigation

     Accounting Irregularities, Litigation and Investigation. On April 15, 1998,
     the Company announced that it discovered  accounting  irregularities in the
     former CUC business units.  Since the Company's  announcement  and prior to
     the date hereof, seventy-one purported class action lawsuits, two purported
     derivative  lawsuits and one individual lawsuit have been filed against the
     Company  and certain  current  and former  officers  and  directors  of the
     Company and HFS,  asserting various claims under the federal securities law
     (the  "Federal  Securities  Actions").  Some of the  actions  also  name as
     defendants  Merrill Lynch & Co. and, in one case, Chase  Securities,  Inc.,
     underwriters for the Company's PRIDES securities  offering;  and two others
     also name Ernst & Young LLP, the Company's former independent  accountants.
     Sixty-four  of the  Federal  Securities  Actions  were  filed in the United
     States District Court for the District of New Jersey, six were filed in the
     United States District Court for the District of Connecticut (including the
     individual  action),  one was filed in the United States District Court for
     the  Eastern  District  of  Pennsylvania,  and one was filed in New  Jersey
     Superior  Court.  The Federal  Securities  Actions filed in the District of
     Connecticut and the Eastern District of Pennsylvania  have been transferred
     to the  District  of New Jersey.  On June 10,  1998,  the Company  moved to
     dismiss or stay the Federal Securities Actions filed in New Jersey Superior
     Court on the ground that,  among other  things,  it is  duplicative  of the
     actions filed in federal courts. The court granted that motion on August 7,
     1998 without  prejudice to the plaintiff's  right to refile the case in the
     District of New Jersey.

     Certain of these Federal Securities Actions purport to be brought on behalf
     of purchasers of the Company's  common stock and/or options on common stock
     during various periods,  most frequently  beginning May 28, 1997 and ending
     April 15, 1998  (although the alleged class periods begin as early as March
     21, 1995 and ends as late as July 15, 1998).  Others claim to be brought on
     behalf of  persons  who  exchanged  common  stock of HFS for the  Company's
     common stock in connection with the Cendant Merger. Some plaintiffs purport
     to represent both of these types of investors.  In addition,  eight actions
     pending in the  District  of New Jersey  purport to be  brought,  either in
     their entirety or in part, on behalf of purchasers of the Company's  PRIDES
     securities.  The complaints in the Federal Securities Actions allege, among
     other things, that as a result of accounting irregularities,  the Company's
     previously issued financial statements were materially false and misleading
     and that the  defendants  knew or should  have known  that these  financial
     statements  caused the prices of the  Company's  securities  to be inflated
     artificially. The Federal Securities Actions variously allege violations of
     Section  10(b) of the  Securities  Exchange Act of 1934,  as amended,  (the
     "Exchange Act") and Rule 10b-5 promulgated thereunder, Section 14(a) of the
     Exchange Act and Rule 14a-9  promulgated  thereunder,  Section 20(a) of the
     Exchange Act and Sections 11, 12 and 15 of the  Securities  Act of 1933, as
     amended (the "Securities  Act").  Certain actions also allege violations of
     common law. The individual action also alleges  violations of Section 18(a)
     of the  Exchange  Act and the  Florida  securities  law.  The class  action
     complaints seek damages in unspecified amounts. The individual action seeks
     damages  in the  amount of  approximately  $9  million  plus  interest  and
     expenses.

     On May 29, 1998,  United States  Magistrate Judge Joel A. Pisano entered an
     order consolidating the 50 Federal Securities Actions that had at that time
     been filed in the United  States  District  Court for the  District  of New
     Jersey,  under the caption In re: Cendant  Corporation  Litigation,  Master
     File  No.  98-1664  (WHW).  Pursuant  to the  Order,  all  related  actions
     subsequently  filed in the  District  of New Jersey are to be  consolidated
     under that caption. United States District Court Judge William H. Walls has
     selected lead  plaintiffs and lead counsel to represent all potential class
     members in the consolidated actions and ordered that a consolidated amended
     complaint  be filed by December 14,  1998.  On November 11, 1998,  the lead
     plaintiff representing  purchasers of the Company's PRIDES securities filed
     an amended and consolidated complaint.  Simultaneously, that lead plaintiff
     filed  motions  seeking:  (1)  certification  of a  class  of  persons  who
     purchased the Company's  PRIDES  securities  between February 24, and April
     15, 1998 pursuant to a registration  statement and  prospectus  prepared in
     connection with the public offering of the Company's PRIDES securities; (2)
     summary  judgment  against  the Company on the claims  brought  pursuant to
     Section  11  of  the  Securities  Act;  and  (3) a  preliminary  injunction
     requiring the Company to place $300 million in trust for the benefit of the
     proposed class of PRIDES purchasers.  The Company intends to vigorously 
     oppose the motions; however, the Company can make no assurances as  to  the
     timing, outcome or resolutions thereof.


     In addition, on April 27, 1998, a shareholder  derivative action, Deutch v.
     Silverman,  et al.,  No.  98-1998  (WHW),  was filed in The District of New
     Jersey against  certain of the Company's  current and former  directors and
     officers;  The Bear Stearns Companies,  Inc., Bear Stearns & Co., Inc. and,
     as a nominal party, the Company. The complaint in the Deutch action alleges
     that  certain  individual  officers and  directors of the Company  breached
     their  fiduciary  duties by selling shares of the Company's  stock while in
     possession  of  non-public  material  information   concerning   accounting
     irregularities.  The  complaint  also  alleges  various  other  breaches of
     fiduciary  duty,  mismanagement,  negligence and corporate  waste and seeks
     damages on behalf of the Company.

     Another action,  entitled Corwin v. Silverman,  et al., No.  16347-NC,  was
     filed on April 29, 1998 in the Court of Chancery for the State of Delaware.
     The Corwin action is purportedly  brought both  derivatively,  on behalf of
     the Company,  and as a class action,  on behalf of all  shareholders of HFS
     who exchanged their HFS shares for the Company's  shares in connection with
     the  Cendant  Merger.  The  Corwin  action  names  as  defendants  HFS  and
     twenty-eight individuals who are and were directors of Cendant and HFS. The
     complaint in the Corwin action alleges that the  defendants  breached their
     fiduciary duties of loyalty, good faith, care and candor in connection with
     the  Cendant  Merger,  in that they  failed  to  properly  investigate  the
     operations  and financial  statements of the Company  before  approving the
     Cendant Merger at an allegedly inadequate price. The amended complaint also
     alleges that the Company's  directors  breached their  fiduciary  duties by
     entering into an  employment  agreement  with  Cendant's  former  Chairman,
     Walter  Forbes,  in  connection  with the Cendant  Merger that  purportedly
     amounted to corporate waste.  The Corwin action seeks,  among other things,
     recision of the Cendant Merger and  compensation for all losses and damages
     allegedly suffered in connection therewith. On October 7, 1998, the Company
     filed a motion to dismiss the Corwin action or, in the  alternative,  for a
     stay of the Corwin action pending  determination of the Federal  Securities
     Actions.

     The staff of the  Securities  and Exchange  Commission  (the "SEC") and the
     United  States  Attorney  for the  District  of New Jersey  are  conducting
     investigations  relating to the matters referenced above. The SEC staff has
     advised  the  Company  that  its  inquiry  should  not be  construed  as an
     indication  by  the  SEC or its  staff  that  any  violations  of law  have
     occurred.

     In connection  with the Cendant Merger,  certain  officers and directors of
     HFS exchanged their shares of HFS common stock and options  exercisable for
     HFS  common  stock for shares of the  Company's  common  stock and  options
     exercisable for the Company's  common stock,  respectively.  As a result of
     the aforementioned accounting  irregularities,  such officers and directors
     have advised the Company  that they  believe  they have claims  against the
     Company in connection with such exchange. In addition,  certain current and
     former  officers and directors of the Company would consider  themselves to
     be members of any class  ultimately  certified  in the  Federal  Securities
     Actions now pending in which the Company is named as a defendant  by virtue
     of their have been HFS stockholders at the time of the Cendant Merger.

     The Company  does not believe it is  feasible to predict or  determine  the
     final outcome of these  proceedings  or  investigations  or to estimate the
     amounts or potential  range of loss with respect to the resolution of these
     proceedings  or  investigations.  In  addition,  the  timing  of the  final
     resolution of the proceedings or investigations is uncertain.  The possible
     outcomes or resolutions of the proceedings could include a judgment against
     the Company or a settlement and could require  substantial  payments by the
     Company.  The Company's  management believes that adverse outcomes
     with respect to such  proceedings  could have a material  adverse impact on
     the  financial  condition,  results  of  operations  and cash  flows of the
     Company.

     ABI Litigation.  On October 14, 1998, an action entitled P Schoenfeld Asset
     Management  LLC v.  Cendant  Corp.,  et al.,  No.  98-4734  (WHW) (the "ABI
     Action"), was filed in the United States District Court for the District of
     New  Jersey  against  the  Company  and  four of its  former  officers  and
     directors. The plaintiff in the ABI Action claims to be bringing the action
     on behalf of a class of all persons who  purchased  securities  of American
     Bankers  between March 23, 1998 and October 13, 1998.  The complaint in the
     ABI Action  alleges  that the  plaintiff  and the  putative  class  members
     purchased  American Bankers  securities in reliance on false and misleading
     public  announcements  and  filings  with  the SEC made by the  Company  in
     connection with its proposed acquisition of American Bankers. The complaint
     alleges that those public  announcements and filings  contained  materially
     misstated  financial  statements,   because  of  accounting  irregularities
     discussed  above,  and that the Company falsely  announced its intention to
     consummate the acquisition of American  Bankers.  It is asserted that these
     misstatements  were made in  violation  of Sections  10(b) and 20(a) of the
     Exchange Act and caused the plaintiff and other  putative  class members to
     purchase American Bankers securities at inflated prices.

     Other pending litigation.  The Company and its subsidiaries are involved in
     pending  litigation  in the usual  course of  business.  In the  opinion of
     management,  such litigation will not have a material adverse effect on the
     Company's  consolidated  financial position,  results of operations or cash
     flows.

16.  New Accounting Pronouncement

     In June 1998, the Financial  Accounting Standards Board issued Statement of
     Financial  Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
     Instruments and Hedging Activities"  effective for all quarterly and annual
     periods   beginning  after  June  15,  1999.  SFAS  No.  133  requires  the
     recognition of all derivatives in the consolidated  balance sheet as either
     assets or liabilities  measured at fair value.  The Company will adopt SFAS
     No. 133 effective  January 1, 2000.  The Company has not yet determined the
     impact  SFAS No.  133 will have on its  financial  position  or  results of
     operations when such statement is adopted.

17.  Subsequent Events

     Repricing of Stock Options

     On September 23, 1998, the Compensation Committee of the Board of Directors
     approved  a  repricing  and  option  exchange  program  for  mid-management
     employees  relating  to Company  stock  options  granted to such  employees
     during  December  1997 and the first  quarter of 1998.  Such  options  were
     repriced on October 15, 1998 at $9.8125 per share (the "New Price"),  which
     was the market price at the time of repricing.  On September 23, 1998,  the
     Compensation  Committee  also  approved a  repricing  and  option  exchange
     program for certain  executive  officers and senior managers of the Company
     subject to certain conditions including revocation of a portion of existing
     options.  Additionally,  a management  equity ownership program was adopted
     that  requires  these  executive  officers  and senior  managers to acquire
     Company common stock at various levels  commensurate  with their respective
     compensation  levels.  The repricing was accomplished by canceling existing
     options  and  issuing  new  options at the New Price and,  with  respect to
     certain options of executive officers and senior managers,  at prices above
     the New Price.

     Termination of Acquisition Agreements

     American Bankers Insurance Group, Inc. Due to uncertainties  concerning the
     eventual  completion  of the  Company's  pending  acquisition  of  American
     Bankers Insurance Group, Inc. ("American Bankers") on October 13, 1998, the
     Company and  American  Bankers  entered into a  settlement  agreement  (the
     "Settlement Agreement"), pursuant to which the Company and American Bankers
     terminated  a  definitive  agreement  dated  March 23,  1998  (the  "Merger
     Agreement")  which  provided  for the  Company's  acquisition  of  American
     Bankers for $3.1 billion.  Accordingly,  the Company's pending tender offer
     for American Bankers shares was also terminated.

     Pursuant to the Settlement  Agreement and in connection with termination of
     the Company's proposed  acquisition of American Bankers, the Company made a
     $400 million cash payment to American  Bankers and wrote-off  approximately
     $30 million of costs,  primarily  professional fees, which were deferred in
     connection with the proposed transaction. Such charges were recorded by the
     Company during the fourth  quarter of 1998.  The Company also  terminated a
     bank  commitment  to  provide  a $650  million,  364-day  revolving  credit
     facility, which was made available to partially fund the acquisition.

     Providian Auto and Home Insurance Company.  On October 5, 1998, the Company
     announced the  termination  of an agreement to acquire  Providian  Auto and
     Home  Insurance  Company  ("Providian")  for  $219  million  in  cash.  The
     termination  date in the such agreement to acquire  Providian was September
     30, 1998. Certain  representations  and covenants in acquisition  agreement
     had not been  fulfilled and the conditions to closing had not been met. The
     Company  did  not  pursue  an  extension  of the  termination  date  of the
     agreement  because  Providian  no  longer  met  the  Company's  acquisition
     criteria.

     Share Repurchase Program

     In October  1998,  the Company  announced  that its Board of Directors  had
     authorized  a $1  billion  common  share  repurchase  program.  Subject  to
     compliance   with  bank  credit   facility   covenants  and  rating  agency
     constraints, the Company expects to execute the program through open-market
     purchases.






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


General Overview

In December 1997,  Cendant  Corporation  (the "Company") was created through the
merger (the "Cendant Merger") of HFS Incorporated  ("HFS") and CUC International
Inc. ("CUC").  The Company is one of the foremost consumer and business services
companies in the world.  The Company  provides  fee-based  services to consumers
within the Travel,  Real Estate and Alliance Marketing  business  segments.  The
Company generally does not own the assets or share the risks associated with the
underlying businesses of its customers.

In the Travel Services segment, the Company is the world's largest franchisor of
lodging  facilities and rental car facilities,  the leading provider of vacation
timeshare  exchange  services,   a  leading  provider  of  international   fleet
management  services,  a leading roadside assistance company in the U.K. and the
largest  operator of brand name  parking  garages in the U.K. In the Real Estate
Services  segment,  the  Company  is both  the  world's  largest  franchisor  of
residential real estate brokerage  offices and provider of corporate  relocation
services and is a leading mortgage lender in the United States.  In the Alliance
Marketing  segment,  the Company is a leading  provider of  membership  consumer
services and products,  a significant  marketer and  administrator  of insurance
products through financial  institutions and a provider of products and services
designed to enhance customers' lifestyles.

As publicly  announced  on April 15,  1998,  the Company  discovered  accounting
irregularities  in  certain  business  units of CUC.  As a result,  the  Company
together  with its  counsel  and  assisted  by  auditors,  immediately  began an
intensive  investigation (the "Company  Investigation").  In addition, the Audit
Committee of the Company's Board of Directors  initiated an  investigation  into
such matters (the "Audit  Committee  Investigation",  together  with the Company
Investigation,  the  "Investigations").  As a result  of the  findings  from the
Investigations  and a  concurrent  internal  financial  review  process  by  the
Company,  the Company  restated  its  financial  statements  for the years ended
December  31, 1997,  1996 and 1995 and the six months  ended June 30, 1998.  The
financial  information  contained  herein has been restated to  incorporate  all
relevant  information  obtained  from  the  Investigations.  The  1997  results,
presented herein, have also been restated for a change in accounting,  effective
January 1, 1997, related to revenue and expense recognition for memberships with
full refund offers.

The Company recently changed its focus from making strategic acquisitions of new
businesses to maximizing the  opportunities and growth potential of its existing
businesses.  In  connection  with this change in focus,  the Company  intends to
review and  evaluate  its  existing  businesses  to  determine  whether  certain
businesses  continue  to meet its  business  objectives.  As part of its ongoing
evaluation of such businesses,  the Company intends from time to time to explore
and conduct  discussions  with  regard to  divestitures  and  related  corporate
transactions.  However,  the Company can give no  assurance  with respect to the
magnitude,  timing,  likelihood or financial or business  effect of any possible
transaction.  The Company also cannot predict whether any  divestitures or other
transactions will be consummated or, if consummated,  will result in a financial
or other  benefit to the  Company.  The Company  intends to use a portion of the
proceeds from such dispositions,  if any, together with the proceeds of this and
future debt issues and bank borrowings and cash from  operations,  to retire the
Company's  outstanding  $3.25  billion  bank term loan,  to execute a program to
initially  repurchase up to $1.0 billion of the  Company's  common stock and for
other general corporate purposes.

As a result of the Company's  change in focus,  on August 12, 1998,  the Company
announced  that it agreed to sell 100% of its  classified  advertising  business
unit,  Hebdo Mag  International,  Inc.  ("Hebdo Mag") to a company  organized by
Hebdo Mag management and engaged Credit Suisse First Boston to analyze strategic
alternatives in regard to a potential  third party sale of the Company's  entire
consumer  software  business unit. The Company is currently in various stages of
discussions  with certain parties  regarding the potential sale of such consumer
software  business unit (see  "Liquidity  and Capital  Resources -  Discontinued
Operations").

Results of Operations - Three Months Ended September 30, 1998 vs Three Months 
Ended September 30, 1997

The  operating  results of the Company and  certain of its  underlying  business
segments for the three months ended September 30, 1998 and 1997 are comprised of
business  combinations  accounted  for by the  purchase  method  of  accounting.
Accordingly,  the results of  operations of such  acquired  companies  have been
included in the consolidated operating results of the Company and its applicable
business segments from the respective dates of acquisition.

In the  underlying  Results of  Operations  discussion  of the  Company  and its
business  segments,  operating  expenses exclude net interest expense and income
taxes. The operating results of the Company for the three months ended September
30, 1998 and 1997 are as follows:





                                                                  Three Months Ended September 30,
                                                          ------------------------------------------------
(In millions)                                                 1998              1997           Variance   
                                                          -------------    -------------     -------------
                                                                                    

Continuing operations:
Net revenues                                              $     1,457.8    $     1,186.5           23%
                                                          -------------    -------------

Operating income                                                  256.3            354.1          (28%)
Interest, net (1)                                                  45.5             13.5          237%
                                                          -------------    -------------
Pre-tax income  before minority interest                          210.8            340.6          (38%)
Provision for income taxes                                         73.2            137.6          (47%)
Minority interest, net                                             14.5                -            *
                                                          -------------    -------------
Income from continuing operations                                 123.1            203.0          (39%)

Loss from discontinued operations                                 (12.1)            (0.4)           *
                                                          --------------   --------------
Net income                                                $       111.0    $       202.6          (45%)
                                                          =============    =============



- ---------------
(1)  Includes $14.5 million of financing costs incurred as a result of the 
     Company's discovery of accounting irregularities in the CUC business units.
*  Not meaningful.

Operating  income from  continuing  operations  decreased $97.8 million (28%) in
1998 despite a $271.3  million  (23%) revenue  increase and continued  operating
income growth in the Travel (35%) and Real Estate (52%)  segments.  The decrease
in operating income resulted primarily from increased  operating expenses in the
Company's  Alliance  Marketing and Other  segments.  Such  incremental  expenses
included  $61.9  million  of  costs  associated  with  the   Investigations  and
non-recurring  termination  benefits  provided  to the  former  CUC and  Company
Chairman,  Walter  Forbes,  as well as $50.0  million of non-cash  write-offs of
impaired intangible assets and interactive marketing business investments.

Net interest  expense  increased  $32.0 million  (237%) in 1998 primarily due to
financing  costs  associated with $2.7 billion of 1998  acquisitions,  including
$1.6 billion for National  Park  Corporation  ("NPC"),  $0.5 billion for Jackson
Hewitt ("Jackson Hewitt") and $0.2 billion for the Harpur Group Ltd. ("Harpur").
The Company also incurred $14.5 million of incremental  financing costs incurred
in connection with the execution of a term loan facility. The term loan facility
provided  liquidity to the Company in the absence of access to public  financing
markets prior to the filing of restated financial  statements in the wake of the
discovery  of  accounting   irregularities   in  previously   issued   financial
statements.

The Company's  effective tax rate was reduced to 34.7% from 40.4%. Such decrease
is due to the Company's  execution of certain tax minimization  strategies,  the
favorable  impact of lower tax rates in  international  jurisdictions  and lower
non-deductible amortization expense as a percentage of pre-tax income.

Minority  interest of $14.5  million in 1998 related to the  preferred  dividend
payable on mandatorily  redeemable  preferred securities issued on March 2, 1998
(See  "Liquidity And Capital  Resources - Financing  Exclusive of Management and
Mortgage Program Financing").

Discontinued  operations,  consisting  of the  Company's  consumer  software and
classified advertising businesses generated net losses in 1998 and 1997 of $12.1
million and $0.4 million,  respectively. The consumer software business incurred
net losses of $10.5 million in 1998 and $1.4 million in 1997.  Net income of the
classified  advertising business decreased $2.6 million primarily as a result of
economic volatility in Russia.

Segment Discussions

The  underlying  discussion of each  segment's  operating  results for the three
months ended  September  30, 1998 and 1997  focuses on profits  from  continuing
operations, excluding interest and taxes.

Travel Services Segment

The  Company  provides  a  spectrum  of  services   necessary  to  domestic  and
international  travelers.  The  Company is the  world's  largest  franchisor  of
nationally  recognized hotel brands and car rental  operations  (Avis).  Royalty
revenue is received from  franchisees  under contracts that generally range from
10 to 50 years in  duration.  The  Company is the  world's  largest  provider of
timeshare  exchange  services (RCI) to timeshare  owners under one to three year
membership  programs  which require both exchange fees for  exchanging  vacation
weeks and  recurring  membership  fees.  In  addition,  the Company is a leading
provider of corporate  fleet  management and leasing  services and also operates
the largest value-added tax refund service worldwide.

The Company  acquired NPC on April 27, 1998.  NPC owns  National Car Parks,  the
largest private  (non-municipal)  single car park operator in the United Kingdom
("UK"). NPC also owns Green Flag, the third largest roadside assistance group in
the UK, which offers a wide-range  of emergency  support and rescue  services to
approximately 3.5 million members in the UK.





                                                             Three Months Ended September 30,
                                                     ------------------------------------------------
(In millions)                                             1998             1997            Variance  
                                                     -------------     -------------    -------------
                                                                               
Net revenues                                         $       564.4     $       354.8             59%
Operating expenses                                           396.4             230.5             72%
                                                     -------------     -------------
Operating income                                     $       168.0     $       124.3             35%
                                                     =============     =============




Operating  income  increased $43.7 million (35%) as a result of a $209.6 million
(59%)  increase  in revenue  while  expenses  increased  $165.9  million  (72%).
Excluding the 1998  acquisitions of Harpur and NPC,  operating  income increased
$25.8 million (21%),  revenue increased $48.6 million (14%),  operating expenses
increased $22.8 million (10%) and operating margins increased from 35% to 37%.

In  addition  to  acquisitions,  revenue  increases  were  achieved by all major
business  units  comprising  the  Travel  Services   segment.   Corporate  fleet
management revenue,  exclusive of Harpur, increased $11.5 million (16%) due to a
$7.5 million (25%) increase in leasing revenue and a $6.8 million (16%) increase
in service fees.  While the increase in lease revenue was  attributable to a 16%
increase in the average fee per vehicle, the increase in servicing fees resulted
primarily  from a 15%  increase  in the number of fuel and other  service  based
cards.  Lodging  franchise fees increased $5.1 million (4%) due to a 2% increase
in revenue per available  room and a 1% increase in the royalty rate.  Timeshare
exchange  revenue  increased  $5.7  million  (13%) due to a 10%  increase in the
average fee and timeshare  subscription  revenue increased $1.4 million (4%) due
to a 6% increase in members. The operating expense increase was due primarily to
$143.1 million in  acquisitions  while the remaining  $22.8 million  increase in
operating  expenses  represents a 10% increase  reflecting  the Travel  Services
segment's operating leverage.

Real Estate Services Segment

The Company provides a range of services  related to home sales,  principally in
the United States.  The Company is the world's largest franchisor of real estate
brokerage  offices  through its CENTURY  21(R),  COLDWELL  BANKER(R)  and ERA(R)
franchise brands. Similar to the Travel Services Segment franchise business, the
Company receives royalty revenue from  approximately  12,000  franchisees  under
contracts  with terms  ranging  from 5 to 50 years.  The  Company is the world's
largest provider of corporate employee relocation services and receives fees for
providing an array of services  such as reselling  relocating  employees'  homes
with the  employee  or client  corporation  bearing  the  economic  risk of such
transaction,  assisting  relocating employees in finding homes, moving household
goods,  expense  reporting  and other  services.  The Company also  operates the
largest  in-bound  mortgage   telemarketing   operation  in  the  United  States
generating  origination  profits  from the sale of mortgage  notes,  but retains
recurring servicing revenue streams over the life of the mortgage.  In addition,
the Company is a distributor of welcome  packages,  which provide discounts from
local  merchants  to new  homeowners.  Customer  referrals  are made  within the
various  real estate  related  services  as well as  generating  a database  for
prospective Alliance Marketing Segment cross selling.





                                                             Three Months Ended September 30,
                                                     ------------------------------------------------
(In millions)                                             1998             1997            Variance  
                                                     -------------     -------------    -------------
                                                                               
Net revenues                                         $       360.0     $       281.3             28%
Operating expenses                                           183.4             165.1             11%
                                                     -------------     -------------
Operating income                                     $       176.6     $       116.2             52%
                                                     =============     =============




Operating  income  increased  $60.4  million  (52%)  primarily  as a  result  of
increases in mortgage origination revenue and real estate franchise royalty fees
while  operating  expenses  increased a modest 11%  generating a 7.7  percentage
point operating margin improvement for the Real Estate Services Segment. Revenue
increased  $78.7  million (28%)  principally  comprised of a $30.9 million (36%)
increase  in real  estate  franchise  royalty  fees and a $42.5  million  (121%)
increase in mortgage origination revenue. A 23% increase in home sale volume and
an 11% increase in underlying  average price of homes sold drove the royalty fee
increase while a $3.4 billion (96%) increase in mortgage originations  generated
the mortgage  origination  revenue growth.  Operating  expenses  increased $18.3
million  (11%)  consisting of an $11.8 million  (139%)  increase in  information
technology  expenses  required  to  support  growth  and  the  consolidation  of
duplicate  systems of  acquired  companies  and $5.7  million  (39%)  additional
depreciation  and  amortization  due to expansion  with the balance  being other
growth related expenses.






Alliance Marketing Segment

The Company derives its Alliance  Marketing revenue  principally from membership
fees,  insurance  premiums and product sales. The Alliance  Marketing segment is
divided into three divisions:  individual membership ("Individual  Membership");
insurance/wholesale   ("Insurance/Wholesale");   and  lifestyle   ("Lifestyle").
Individual  Membership,  with more than 33 million members,  provides  customers
with  access to a variety  of  products  and  services  in such  areas as retail
shopping, travel, auto, dining and home improvement.  Insurance/Wholesale,  with
nearly  31  million  customers,  markets  and  administers  insurance  products,
primarily accidental death insurance. Insurance/Wholesale also provides services
such as checking account  enhancement  packages,  various financial products and
discount  programs  to  financial  institutions,  which  in turn  provide  these
services to their customers. Lifestyle, with over 11 million customers, provides
customers  with unique  products  and  services  that are  designed to enhance a
customer's lifestyle.




                                                             Three Months Ended September 30,
                                                     ------------------------------------------------
(In millions)                                             1998             1997            Variance  
                                                     -------------     -------------    -------------
                                                                               
Net revenues                                         $       499.0     $       437.6             14%
Operating expenses                                           484.6             377.2             28%
                                                     -------------     -------------
Operating income                                     $        14.4     $        60.4            (76%)
                                                     =============     =============




Operating  income decreased $46.0 million (76%) to $14.4 million despite a $61.4
million  (14%)  increase  in revenue.  A $107.4  million  increase in  operating
expenses  primarily  resulted from a $37.0 million non-cash write-off related to
impaired goodwill associated with a Company subsidiary,  the National Library of
Poetry,  $18.1 million of incremental  marketing  expenditures in the individual
membership  businesses,   $11.7  million  of  costs  associated  with  expanding
international   operations  and  $15.2  million  of  expenses   associated  with
Credentials,  Inc. ("Credentials") an individual membership business acquired in
March 1998.  The Company's  decision to increase  marketing  solicitation  costs
preceded the Company's awareness of the requirement to change its accounting for
memberships  sold with a full  refund  offer,  which  requires  the  deferral of
revenue  generated by such  solicitation  efforts until the refund offer expires
and to expensing such solicitation costs as incurred.

The $61.4 million  increase in revenue to $499.0  million  resulted  principally
from a $30.5 million increase in individual membership revenue.  Excluding $10.6
million of revenue from acquired Credentials  operations,  individual membership
revenue  increased $19.9 million (12%) primarily from an increase in the average
price of a membership. Insurance/wholesale revenue increased $17.0 million (14%)
primarily  from a $10.2  million  (50%)  increase in revenue from  international
sources and a $6.8  million (7%)  domestic  revenue  increase.  Revenue from the
Company's  North American  Outdoor Group  subsidiary  ("NAOG")  increased  $13.5
million  (58%)  to  $36.8  million  primarily  as a result  of $6.3  million  of
increased  book and  video  sales and $3.9  million  of  increased  subscription
revenue.

Other Segment

The Company  operates a variety of other  businesses  in addition to those which
comprise each of the Company's core business segments.  Such business operations
and transactions  are primarily  comprised of (i) franchising the second largest
tax preparation service system in the United States as a result of the Company's
first quarter 1998 acquisition of Jackson Hewitt;  (ii)  information  technology
and reservation  system support services  provided to the car rental,  hotel and
other travel related  industries;  (iii) casino credit information and marketing
services;  (iv) financial  products provided to banks and (v) equity in earnings
from the Company's  investment in the Avis Rent A Car, Inc.  ("Avis") car rental
company.







                                                             Three Months Ended September 30,
                                                     ------------------------------------------------
(In millions)                                             1998             1997            Variance  
                                                     -------------     -------------    -------------
                                                                               
Net revenues                                         $        34.4     $       112.8            (70%)
Operating expenses                                           137.1              59.6            130%
                                                     -------------     -------------
Operating income                                     $      (102.7)    $        53.2           (293%)



                                                     ==============    =========


Operating  income  decreased  $155.9  million  (293%) from both a $78.4  million
decrease in revenue and a $77.5 million increase in expenses.

The  increase in expenses  was  primarily  comprised  of $61.9  million of costs
incurred  during  1998  associated  with the  Investigations  including  a $50.4
million  non-recurring  termination  benefit provided to former Company Chairman
Walter Forbes upon his July 1998  separation from the Company in accordance with
his employment  contract.  The remaining $15.6 million increase  resulted from a
$13.0  million   write-off  of  certain   Company   investments  in  interactive
businesses.  Other increases in 1998 operating expenses reflect the acquisitions
and  integration  of acquired  businesses  and assets such as Jackson Hewitt and
travel agency operations.  Such increases were partially offset by $23.3 million
of 1997 expenses associated with Interval  International,  Inc. ("Interval"),  a
former Company subsidiary which was sold in December 1997.

The $78.4 million  decrease in revenue  resulted  primarily from a $23.8 million
decrease in equity in earnings  from the  Company's  investment in Avis due to a
decrease in common equity ownership  interest from 100% to approximately  20%, a
$32.0  million  decrease  from the absence of revenue  associated  with Interval
operations  and $22.6  million  of other  revenue,  including  gains on sales of
casino marketing assets.

Results of Operations - Nine Months Ended September 30, 1998 vs Nine Months 
Ended September 30, 1997

The  operating  results of the Company and  certain of its  underlying  business
segments for the nine months ended  September 30, 1998 and 1997 are comprised of
business  combinations  accounted  for by the  purchase  method  of  accounting.
Accordingly,  the results of  operations of such  acquired  companies  have been
included in the consolidated operating results of the Company and its applicable
business segments from the respective dates of acquisition.

In the  underlying  Results of  Operations  discussion  of the  Company  and its
business segments, operating expenses exclude net interest expense, income taxes
and minority interest.  The operating results of the Company for the nine months
ended September 30, 1998 and 1997 are as follows:








                                                              Nine Months Ended September 30,
                                                     ------------------------------------------------
(In millions)                                             1998             1997            Variance  
                                                     -------------     -------------    -------------
                                                                               

Continuing operations:
Net revenues                                         $     3,865.1     $     3,139.8           23%
                                                     -------------     -------------
Operating expenses:
   Excluding Unusual Charges                               3,020.2           2,338.8           29%
   Unusual Charges (1)                                       (24.4)            278.9            *
                                                     --------------    -------------
Total operating expenses                                   2,995.8           2,617.7           14%
                                                     -------------     -------------

Operating income                                             869.3             522.1           67%
Interest, net (2)                                            100.1              36.3          176%
                                                     -------------     -------------
Pre-tax income before minority interest
   and cumulative effect of accounting change                769.2             485.8           58%
Provision for income taxes                                   273.0             238.4           15%

Minority interest, net                                        34.3                 -            *
                                                     -------------     -------------
Income from continuing operations
   before cumulative effect of accounting change             461.9             247.4           87%

Loss from discontinued operations,
   net of taxes                                              (25.0)            (12.2)        (105%)
Cumulative effect of accounting change,
   net of tax                                                    -            (283.1)           *
                                                     -------------     --------------
Net income (loss)                                    $       436.9     $       (47.9)           *
                                                     =============     ==============





- ------------
(1) Merger-related costs and other unusual charges.
(2)  Includes  $27.2  million of  financing  costs  incurred  as a result of the
Company's discovery of accounting irregularities in the CUC business units.
*Not meaningful.

Operating income from continuing  operations  increased $347.2 million which was
comprised  of a $725.3  million  (23%)  increase  in net  revenues  and a $378.1
million (14%) increase in operating  expenses.  Contributing  to the increase in
operating income was a reduction of Unusual Charges of $303.3 million  primarily
attributable  to $278.9 million of Unusual  Charges  incurred  during the second
quarter of 1997  principally in connection with and coincident to the April 1997
merger of PHH  Corporation  ("PHH")  with and into HFS.  A net credit to Unusual
Charges of $24.4  million was  recorded  in 1998,  which  primarily  represented
changes in previously  recorded  estimates.  Excluding  incurred Unusual Charges
operating income increased $43.9 million in 1998 from 1997 despite $81.4 million
of costs incurred related to the Investigations and a non-recurring  termination
benefit provided to Walter Forbes, the former CUC and Company Chairman,  as well
as $50.0 million of non-cash  write-offs of impaired Alliance  Marketing segment
intangible assets and Other segment interactive  marketing business investments.
In  addition,  in 1998,  the  Company  incurred  $62.1  million  of  incremental
individual  membership  solicitation  costs which were planned before management
was aware of the accounting  change associated with memberships sold with a full
refund  offer,  requiring  the Company to expense  such costs as  incurred.  The
Company experienced  increases in operating income in 1998 primarily as a result
of the continued  growth in the Travel (38%) and Real Estate (75%) segments.  In
addition,  businesses  acquired  during 1998  accounted for $46.8 million of the
incremental  increase in operating  income in 1998.  A  discussion  of operating
income  excluding  merger related costs and other unusual charges is included in
the segment discussion to follow.

Interest  expense,  net,  increased  $63.8 million in 1998  primarily due to (i)
$27.2 million of incremental  financing  costs which were primarily  incurred in
connection with the execution of a term loan facility;  (ii) incremental average
borrowings  which  the  Company  used to  finance  more  than  $2.6  billion  of
acquisitions  during the nine months  ended  September  30, 1998  including  the
acquisitions  of NPC,  Jackson  Hewitt and Harpur  (See  "Liquidity  and Capital
Resources - Completed  Acquisitions");  and (iii) interest income earned in 1997
on the proceeds from the February  1997 issuance of $550 million 3%  Convertible
Subordinated  Notes and other available cash,  which were invested in short-term
marketable securities.

The Company's effective tax rate was reduced from 49.1% in 1997 to 35.5% in 1998
due to the non-deductibility of a significant amount of Unusual Charges recorded
during  1997 and the  Company's  continued  focus  on  executing  strategies  to
optimize its effective tax rate. The 1997  effective  income tax rate includes a
tax benefit from only a 25.3%  effective tax rate on Unusual  Charges due to the
significant  non-deductibility  of such costs.  Excluding  Unusual Charges,  the
effective  income tax rate on income from continuing  operations  decreased from
40.4% in 1997 to 35.6% in 1998. Such decrease is due to the Company's  execution
of certain tax minimization strategies,  the favorable impact of lower tax rates
in international  jurisdictions and lower non-deductible amortization expense as
a percentage of pre-tax income.

Minority  interest of $34.3 million in 1998  primarily  related to the preferred
dividend payable in cash on the FELINE PRIDES and the trust preferred securities
issued  on March 2, 1998 (See  "Liquidity  and  Capital  Resources  -  Financing
Exclusive of Management and Mortgage Program Financing").

Discontinued  operations,  consisting  of the  Company's  consumer  software and
classified advertising businesses generated net losses in 1998 and 1997 of $25.0
million and $12.2 million,  respectively.  The operating results of discontinued
operations in 1997  included  Unusual  Charges,  after tax, of $10.0 million for
severance   associated  with  the  termination  of  certain  consumer   software
executives.  Excluding  Unusual  Charges,  the consumer  software  business unit
incurred  incremental  net  losses  in 1998  compared  to 1997 of $24.9  million
comprised  of  increased  net  revenues of $84.4  million,  which were more than
offset by a $121.2 million increase in operating expenses.  Additional operating
expenses were incurred  during 1998 for  development  and marketing  costs.  Net
income of the classified  advertising  business  increased $2.1 million on a net
revenue  increase  of $56.6  million.  Operating  income  within the  classified
advertising  business  unit  increased  $13.1  million  primarily as a result of
profits from businesses  acquired by Hebdo Mag International,  Inc. prior to its
merger with the Company, during the fourth quarter of 1997. The operating income
increase within the classified advertising unit was partially offset by a higher
effective tax rate in 1998.

The Company  recorded a non-cash  after tax charge in 1997 of $283.1  million to
account for the cumulative effect of an accounting change,  effective January 1,
1997,  related to revenue  and expense  recognition  for  memberships  with full
refund offers.

Segment Discussion

The  underlying  discussion  of each  segment's  operating  results for the nine
months ended  September  30, 1998 and 1997  focuses on results  from  continuing
operations, excluding interest, taxes, Unusual Charges and the cumulative effect
of a  change  in  accounting  ("Operating  Income").  Management  believes  such
discussion   is   the   most    informative    representation    of   recurring,
non-transactional related operating results of the Company's business segments.






Travel Services Segment




                                                              Nine Months Ended September 30,
                                                     ------------------------------------------------
(In millions)                                             1998             1997            Variance  
                                                     -------------     -------------    -------------
                                                                               
Net revenues                                         $     1,415.4     $     1,015.0             39%
Operating expenses                                           931.0             663.1             40%
                                                     -------------     -------------
Operating income                                     $       484.4     $       351.9             38%
                                                     =============     =============





Operating  income  increased  $132.5 million (38%) due to a revenue  increase of
$400.4 million (39%) while expenses  increased  $267.9 million (40%).  Excluding
the 1998  acquisitions  of Harpur  and NPC,  operating  income  increased  $94.5
million  (27%),  revenue  increased  $112.3 million  (11%),  operating  expenses
increased $17.8 million (3%) and operating margins increased from 35% to 40%.

In addition to  acquisitions,  revenue  increases  were achieved by all business
units  comprising  the  Travel  Services  segment.  Corporate  fleet  management
revenue,  exclusive of Harpur,  increased  $17.9 million (7%) due primarily to a
$17.1 million (17%) increase in vehicle  leasing due to a 10% price  improvement
and an $18.2 million (14%) increase in service fees due to a 24% increase in the
number of fuel and other service based cards.  Lodging  franchise fees increased
$17.3 million (6%) driven by a 2% increase in revenue per  available  room and a
2% increase in royalty rate.  Timeshare exchange revenue increased $14.5 million
(11%)  driven by a 7%  increase in the  exchange  fee and  subscription  revenue
increased  $5.3  million  (6%)  driven  by 6%  growth in the  member  base.  The
operating  expense increase was due to $250.2 million in acquisitions  while the
remaining  $17.7 million  increase in operating  expenses  represents  only a 3%
increase reflecting the Travel Segment's operating leverage.

Real Estate Services Segment




                                                              Nine Months Ended September 30,
                                                     ------------------------------------------------
(In millions)                                             1998             1997            Variance  
                                                     -------------     -------------    -------------
                                                                               
Net revenues                                         $       994.0     $       718.4             38%
Operating expenses                                           555.9             468.1             19%
                                                     -------------     -------------
Operating income                                     $       438.1     $       250.3             75%
                                                     =============     =============





Operating  income  increased  $187.8  million  (75%)  primarily  as a result  of
significant  increases in mortgage  origination  revenue,  real estate franchise
royalty  fees and  relocation  revenue  while  operating  expenses  increased  a
moderate 19% generating a 9.2 percentage point operating margin  improvement for
the Real  Estate  Services  Segment.  Revenue  increased  $275.6  million  (38%)
principally  comprised  of an  $87.8  million  (42%)  increase  in  real  estate
franchise royalty fees, a $126.0 million (147%) increase in mortgage origination
revenue and a $40.7 million (14%) increase in relocation  related revenue. A 23%
increase in home sale volume and a 14% increase in the underlying  average price
of homes  sold drove the  royalty  fee  increase  while a $10.3  billion  (132%)
increase in mortgage  originations  generated the mortgage  origination  revenue
growth with government home sales and referrals  driving $27.6 and $11.7 million
respectively of growth in relocation revenue. Operating expenses increased $87.8
million  (19%)  consisting  of a $24.7 million  (111%)  increase in  information
technology  expenses  required  to  support  growth  and  the  consolidation  of
duplicate  systems  of  acquired  companies,  $28.7  million  (46%)  incremental
mortgage production and support department costs, $14.0 million (30%) additional
government  home sale  expense and $16.5  million  additional  depreciation  and
amortization  due to  expansion  with the  balance  being other  growth  related
expenses.






Alliance Marketing Segment





                                                              Nine Months Ended September 30,
                                                     ------------------------------------------------
(In millions)                                             1998             1997            Variance  
                                                     -------------     -------------    -------------
                                                                               
Net revenues                                         $     1,248.3     $     1,123.9             11%
Operating expenses                                         1,273.9           1,019.8             25%
                                                     -------------     -------------
Operating income (loss)                              $       (25.6)    $       104.1           (125%)
                                                     ==============    =============





Operating  income  decreased  $129.7  million  (125%) to a loss of $25.6 million
despite a $124.4 million (11%) increase in revenue. A $254.1 million increase in
operating  expenses  primarily  resulted from a $37.0 million non-cash write-off
related to impaired goodwill associated with a Company subsidiary,  the National
Library of Poetry,  $77.0 million of incremental  marketing  expenditures in the
individual  membership  businesses,  $27.3  million  of  costs  associated  with
expanding international operations, $28.8 million associated with revenue growth
and  increased  marketing  expenditures  at NAOG and $31.7  million of  expenses
associated with  Credentials,  Inc.  ("Credentials"),  an individual  membership
business  acquired in March 1998. The Company's  decision to increase  marketing
solicitation costs preceded the Company's awareness of the requirement to change
its accounting for memberships sold with a full refund offer, which requires the
deferral of revenue generated by such solicitation offers until the refund offer
expires and expensing such solicitation costs as incurred.

Individual  membership  revenues  increased $54.8 million (11%) due primarily to
the  Credentials  acquisition  and an  increase  in average  membership  prices.
Insurance/wholesale  revenues  increased  $57.1 million (16%)  primarily  from a
$25.3 million (41%) increase in revenues from international  sources and a $31.8
million (11%) domestic revenue increase.  NAOG revenues  increased $25.1 million
(36%) due primarily to increases in book video and advertising revenues.

Other Segment




                                                              Nine Months Ended September 30,
                                                     ------------------------------------------------
(In millions)                                             1998             1997            Variance  
                                                     -------------     -------------    -------------
                                                                               
Net revenues                                         $       207.4     $       282.5            (27%)
Operating expenses                                           259.4             187.8             38%
                                                     -------------     -------------
Operating income (loss)                              $       (52.0)    $        94.7           (155%)
                                                     ==============    =============





Operating  income  decreased  $146.7  million  (155%) from both a $75.1  million
decrease in revenue and a $71.6 million increase in expenses.

The increase in expenses  included $81.4 million of costs  incurred  during 1998
associated with the Investigations including a $50.4 million termination benefit
provided  to the  former  Company  Chairman  Walter  Forbes  upon his July  1998
separation  from  the  Company  in  accordance  with  his  employment  contract.
Incremental  expenses  incurred  during  1998  also  included  a  $13.0  million
write-off of certain Company investments in interactive businesses and other net
increases in operating  expenses resulting from acquisitions and the integration
of acquired  businesses  and assets  including  $30.2 million of Jackson  Hewitt
expenses and other travel agency operations.  The increase in operating expenses
during 1998 were partially offset by $64.4 million of 1997 expenses  incurred by
Interval which was sold in December 1997.

The $75.1 million  decrease in revenue  resulted  primarily from a $39.1 million
decrease in equity of earnings  from the  Company's  investment in Avis due to a
decrease in common equity ownership  interest from 100% to approximately 20% and
a $90.7 million  decrease  from the absence of revenue from Interval  operations
net  of  $52.4  million   increase   associated  with  acquired  Jackson  Hewitt
operations.

Liquidity and Capital Resources

Pending Acquisition

RAC  Motoring  Services - On May 21,  1998,  the Company  announced  that it has
reached a definitive  agreement with the Board of Directors of Royal  Automobile
Club  Limited  ("RACL")  to  acquire  their  RAC  Motoring  Services  subsidiary
("RACMS")  for  approximately  $735  million  in cash.  The  sale of  RACMS  has
subsequently  been approved by its  shareholders.  On September 24, 1998, the UK
Secretary of State for Trade and Industry  referred the RACMS acquisition to the
UK Monopolies and Mergers  Commission  (the "MMC") for its approval.  Closing is
subject to certain  conditions,  including MMC approval.  Although no assurances
can be  made,  the  Company  currently  anticipates  that  the  transaction,  if
completed,  will close in the  spring of 1999.  The  Company  plans to fund this
acquisition  with  proceeds  from  borrowings  under its  committed  facilities,
operating cash flows or a combination of the above.

Completed Acquisitions

National Parking  Corporation  Limited - On April 27, 1998, the Company acquired
NPC for $1.6 billion in cash, which included the repayment of approximately $227
million of outstanding NPC debt. NPC is substantially comprised of two operating
subsidiaries:  National  Car  Parks and Green  Flag.  National  Car Parks is the
largest  private  (non-municipal)  single car park  operator in the UK and Green
Flag operates the third largest roadside assistance group in the UK and offers a
wide-range of emergency support and rescue services.  The Company funded the NPC
acquisition with borrowings under its revolving credit facilities.

Harpur Group - On January 20, 1998,  the Company  completed the  acquisition  of
Harpur,  a leading  fuel card and  vehicle  management  company in the UK,  from
privately held H-G Holdings,  Inc. for  approximately  $186 million in cash plus
future contingent payments of up to $20 million over two years.

Jackson  Hewitt - On January 7, 1998, the Company  completed the  acquisition of
Jackson Hewitt for approximately  $480 million in cash.  Jackson Hewitt operates
the  second  largest  tax  preparation  service  franchise  system in the United
States.   The  Jackson  Hewitt  franchise  system  specializes  in  computerized
preparation of federal and state individual income tax returns.

Other 1998 Acquisitions and Acquisition-Related  Payments - The Company acquired
certain other entities for an aggregate  purchase price of approximately  $336.9
million in cash during the nine months ended  September 30, 1998.  Additionally,
the  Company  made  a  $100  million  cash  payment  to  the  seller  of  Resort
Condominiums  International,  Inc.  in  satisfaction  of a  contingent  purchase
liability.

Termination of Acquisition Agreements

American  Bankers  Insurance  Group,  Inc. Due to  uncertainties  concerning the
eventual  completion of the Company's  pending  acquisition of American  Bankers
Insurance Group, Inc. ("American  Bankers") on October 13, 1998, the Company and
American   Bankers  entered  into  a  settlement   agreement  (the   "Settlement
Agreement"),  pursuant to which the Company and American Bankers  terminated the
definitive  agreement  dated  March 23,  1998  (the  "Merger  Agreement")  which
provided for the  Company's  acquisition  of American  Bankers for $3.1 billion.
Accordingly,  the Company's pending tender offer for American Bankers shares was
also terminated.

Pursuant to the Settlement  Agreement and in connection with  termination of the
Company's  proposed  acquisition  of American  Bankers,  the Company made a $400
million cash payment to American Bankers and wrote off approximately $30 million
of costs, primarily professional fees which were deferred in connection with the
proposed  transaction.  Such  charges  were  recorded by the Company  during the
fourth quarter of 1998. The Company also terminated a bank commitment to provide
a $650 million,  364-day revolving credit facility,  which was made available to
partially fund the acquisition.

Providian  Auto and Home  Insurance  Company.  On October 5, 1998,  the  Company
announced  it  terminated  its  agreement  to acquire  for $219  million in cash
Providian Auto and Home Insurance Company ("Providian"). The termination date in
the Company's  agreement to acquire  Providian  was September 30, 1998.  Certain
representations  and  covenants  in  the  acquisition  agreement  had  not  been
fulfilled  and the  conditions  to closing had not been met. The Company did not
pursue an extension of the termination date of the agreement  because  Providian
no longer met the Company's acquisition criteria.

Discontinued Operations

On August 12, 1998 (the  "Measurement  Date"),  the Company  announced  that its
Executive  Committee of the Board of  Directors  committed  to  discontinue  the
Company's  classified  advertising and consumer software businesses by disposing
of Hebdo Mag  International  ("Hebdo  Mag")  and  Cendant  Software  Corporation
("Cendant  Software"),  respectively.  The  Company  has  since  entered  into a
definitive agreement, as amended, to sell Hebdo Mag to its former 50% owners for
7.1 million  shares of Company  common stock and  approximately  $360 million in
cash.  The  transaction  is expected to be  consummated in the fourth quarter of
1998 and is subject to certain  conditions,  including  regulatory  approval and
financing  by the  purchaser.  The  Company  expects  to  recognize  a  gain  of
approximately  $230 million  upon the disposal of Hebdo Mag,  assuming a Company
stock price of $13.25 per share, the closing price of the Company's common stock
on November 3, 1998. In addition,  the Company has engaged investment bankers to
analyze various  strategic  alternatives in regard to the disposition of Cendant
Software. The Company is currently in various stages of discussions with certain
parties regarding the potential sale of the consumer software business unit. The
Company anticipates that the disposition of Cendant Software will also result in
a significant gain. The Company believes that the divesting of its Hebdo Mag and
Cendant Software subsidiaries will generate significant proceeds.

Financing (Exclusive of Management and Mortgage Program Financing)

The Company  believes  that it has  adequate  liquidity  and access to liquidity
through various sources. The Company had been unable to access equity and public
debt markets until October 13, 1998, the date in which the Company completed the
filing of its  restated  financial  statements  with the SEC.  Accordingly,  the
Company has secured  additional  liquidity  through  other  sources  including a
364-day,  $3.25  billion  term loan  facility  and  committed  revolving  credit
facilities of $1.75 billion.

On May 29, 1998,  the Company  entered into a 364-day term loan  facility with a
syndicate of financial  institutions  which  provides  for  borrowings  of $3.25
billion (the "Term Loan  Facility").  The Term Loan Facility  bears  interest at
LIBOR plus the applicable LIBOR spread, as defined. The Company intends to repay
all outstanding  borrowings under the Term Loan Facility as soon as practicable.
Upon the execution of the Term Loan Facility, temporary credit agreements, which
provided for $1.0 billion of borrowings, were terminated. The Term Loan Facility
contains certain restrictive  covenants,  which are substantially similar to and
consistent  with  the  covenants  in  effect  for the  Company's  then  existing
revolving  credit  agreements.  At September  30,  1998,  the full amount of the
commitment under the Term Loan Facility was drawn. The Company used $2.0 billion
of the proceeds from the Term Loan Facility to repay the outstanding  borrowings
under its revolving  credit  facilities and intends to use the remainder for the
acquisition of RACMS and for general corporate purposes.

The Company's  primary  credit  facility,  as amended,  consists of (i) a $750.0
million,  five year revolving  credit facility (the "Five Year Revolving  Credit
Facility") and (ii) a $1.0 billion,  364 day revolving credit facility (the "364
Day  Revolving   Credit   Facility")   (collectively   the   "Revolving   Credit
Facilities").  The 364 Day Revolving  Credit Facility will mature on October 29,
1999 but may be  renewed  on an  annual  basis for an  additional  364 days upon
receiving lender  approval.  The Five Year Revolving Credit Facility will mature
on October 1, 2001.  Borrowings  under the Revolving Credit  Facilities,  at the
option of the  Company,  bear  interest  based on  competitive  bids of  lenders
participating  in the facilities,  at prime rates or at LIBOR,  plus a margin of
approximately  60 basis  points.  The  Company  is  required  to pay a per annum
facility fee of .175% and .15% of the average daily unused commitments under the
Five Year  Revolving  Credit  Facility and 364 Day  Revolving  Credit  Facility,
respectively.  The interest  rates and facility fees are subject to change based
upon  credit  ratings  on the  Company's  senior  unsecured  long-term  debt  by
nationally  recognized debt rating  agencies.  The Revolving  Credit  Facilities
contain certain restrictive  covenants  including  restrictions on indebtedness,
mergers,  liquidations  and sale and  leaseback  transactions  and  requires the
maintenance  of certain  financial  ratios,  including  a 3:1  minimum  interest
coverage ratio and a 3.5:1 maximum debt coverage ratio, as defined.

The  Company  filed  an  amended  shelf   registration   statement  (the  "Shelf
Registration Statement") on February 6, 1998 with the SEC for the issuance of up
to an  aggregate  $4.0  billion of debt and equity  securities.  Pursuant to the
Shelf Registration Statement, on March 2, 1998, Cendant Capital I (the "Trust"),
a statutory  business Trust formed under the laws of the State of Delaware and a
wholly-owned  subsidiary of the Company,  issued 29.9 million  FELINE PRIDES and
2.3 million trust preferred  securities and received  approximately $1.5 billion
in gross  proceeds  therefrom.  The Trust  invested the proceeds in 6.45% Senior
Debentures due 2003 (the "Debentures"),  issued by the Company,  which represent
the sole asset of the Trust.  The obligations of the Trust related to the FELINE
PRIDES and trust  preferred  securities  are  unconditionally  guaranteed by the
Company to the extent the Company makes payments pursuant to the Debentures. The
issuance of the FELINE  PRIDES and trust  preferred  securities  resulted in the
utilization  of  approximately  $3.0  billion  of  availability  under the Shelf
Registration  Statement.  Upon  issuance,  the FELINE  PRIDES  consisted of 27.6
million Income PRIDES and 2.3 million Growth PRIDES,  each with a face amount of
$50 per PRIDE.  The Income  PRIDES  consist of trust  preferred  securities  and
forward  purchase  contracts  under which the  holders are  required to purchase
common stock from the Company in February of 2001.  The Growth PRIDES consist of
zero coupon U.S. Treasury  securities and forward purchase contracts under which
the holders are  required to purchase  common stock from the Company in February
2001. The trust preferred  securities and the trust preferred  securities  under
the Income PRIDES,  each with a face amount of $50 per security,  bear interest,
in the form of preferred  stock  dividends,  at the annual rate of 6.45 percent,
payable in cash.  Payments under the forward purchase contract forming a part of
the  Income  PRIDES  will be  made  by the  Company  in the  form of a  contract
adjustment  payment at an annual  rate of 1.05  percent.  The  forward  purchase
contract  forming  part of the Growth  PRIDES will be made by the Company in the
form of a contract  adjustment  payment at an annual rate of 1.30  percent.  The
forward  purchase  contracts  require the holder to purchase a minimum of 1.0395
shares and a maximum of 1.3514  shares of the  Company  common  stock per PRIDES
security,  depending  upon the  average  of the  closing  price per share of the
Company  common  stock  for  a 20  consecutive  trading  day  period  ending  in
mid-February of 2001. The Company has the right to defer the contract adjustment
payments  and the  payment of  interest  on its  Debentures  to the Trust.  Such
election   will   subject  the  Company  to  certain   restrictions,   including
restrictions  on making  dividend  payments  on its common  stock until all such
payments in arrears are settled.

The Company filed a shelf registration statement with the SEC, which has not yet
become  effective for the  aggregate  issuance of up to $3.0 billion of debt and
equity  securities.  The  Company  expects to issue debt  securities  during the
fourth quarter of 1998 pursuant to such  registration  statement for purposes of
refinancing a portion of the Term Loan Facility.

On May 4, 1998,  the Company  redeemed all of the  outstanding  ($144.5  million
principal  amount)  4-3/4%  Convertible  Senior  Notes  due  2003 at a price  of
103.393%  of  the  principal  amount,  together  with  interest  accrued  to the
redemption  date.  Prior to the redemption  date,  during 1998, $95.5 million of
such notes were exchanged for 3.4 million shares of the Company's common stock.

On  April  8,  1998,  the  Company  exercised  its  option  to call  its  6-1/2%
Convertible  Subordinated  Notes (the "6-1/2%  Notes") for redemption on May 11,
1998, in accordance with the provisions of the indenture  relating to the 6-1/2%
Notes.  Prior to the redemption date, during 1998, all of the outstanding 6-1/2%
Notes were converted into 2.1 million shares of Company common stock.

The Company's  long-term debt,  including  current portion,  was $4.0 billion at
September  30, 1998,  which  primarily  consisted of $3.25 billion of borrowings
under the Company's Term Loan Facility and $700 million of publicly issued fixed
rate debt.

Management and Mortgage Program Financing

PHH, a wholly-owned subsidiary of the Company, operates their mortgage services,
fleet  management  services and  relocation  services  businesses  as a separate
public reporting entity and supports purchases of leased vehicles and originated
mortgages primarily by issuing commercial paper and medium term notes. Financial
covenants  related  to such  debt are  designed  to ensure  the  self-sufficient
liquidity status of PHH. Accordingly,  PHH's publicly filed financial statements
were not impacted by the accounting  irregularities previously disclosed and PHH
continues to issue debt  securities in public  markets.  Such borrowings are not
classified  based  on  contractual  maturities,   but  rather  are  included  in
liabilities  under  management and mortgage  programs rather than long-term debt
since  such  debt  corresponds   directly  with  high  quality  related  assets.
Additionally,  PHH  continues to pursue  opportunities  to reduce its  borrowing
requirements by securitizing  increasing  amounts of its high quality assets. In
May 1998,  PHH  commenced  a program  to sell  originated  mortgage  loans to an
unaffiliated  buyer, at the option of the Company, up to the buyer's asset limit
of $1.5 billion.  The buyer may sell or securitize  such mortgage loans into the
secondary  market,  however,  servicing rights are retained by the Company.  The
Company has  entered  into  negotiations  and,  in the near  future,  expects to
increase  the  amount  of  mortgage  loans  it may  sell to this  buyer to $2.25
billion.

PHH debt is issued without  recourse to the Company.  PHH expects to continue to
maximize its access to global capital  markets by maintaining the quality of its
assets under  management.  This is achieved by establishing  credit standards to
minimize  credit risk and the potential for losses.  Depending upon asset growth
and financial market  conditions,  PHH utilizes the United States,  European and
Canadian  commercial paper markets, as well as other  cost-effective  short-term
instruments.  In addition,  PHH will  continue to utilize the public and private
debt  markets  as sources  of  financing.  Augmenting  these  sources,  PHH will
continue  to manage  outstanding  debt with the  potential  sale or  transfer of
managed  assets  to  third  parties  while   retaining   fee-related   servicing
responsibility.  At September 30, 1998, PHH had outstanding debt of $6.2 billion
comprised of $3.0 billion in commercial paper, $3.0 billion of medium term notes
and other borrowings of $0.2 billion.

Consistent  with  general  market  trends for issuers of  commercial  paper with
comparable  credit ratings,  maturities of recent PHH commercial paper issuances
have become  shorter than PHH's  historical  experiences or desirable by PHH. In
the event that the public debt market is unable to meet PHH's funding needs, the
Company believes that it has appropriate alternative sources to provide adequate
liquidity, including PHH's $2.7 billion of revolving credit facilities.

PHH filed a shelf  registration  statement with the SEC effective March 2, 1998,
for  the  aggregate  issuance  of up to $3  billion  of  medium-term  note  debt
securities.  These  securities  may be offered  from time to time,  together  or
separately,  based on terms to be determined  at the time of sale.  The proceeds
will be used to finance  assets PHH  manages for its clients and for general PHH
corporate purposes. As of September 30, 1998, PHH had approximately $1.5 billion
of medium-term notes outstanding under this shelf registration statement.

To provide additional financial  flexibility,  PHH's current policy is to ensure
that minimum committed  facilities aggregate 80 percent of the average amount of
outstanding  commercial  paper.  It is PHH's  intention  to increase the minimum
percentage of committed bank facilities to outstanding  commercial  paper to 100
percent by December 31, 1998. PHH maintains a $2.5 billion syndicated  unsecured
credit  facility  which is backed by domestic and foreign banks and is comprised
of $1.25  billion of lines of credit  maturing  in March 1999 and $1.25  billion
maturing in the year 2000. In addition,  PHH has a $200 million revolving credit
facility,  which matures on June 24, 1999, and other uncommitted lines of credit
with various  financial  institutions  which were unused at September  30, 1998.
Management closely evaluates not only the credit of the banks but also the terms
of the various  agreements to ensure  ongoing  availability.  The full amount of
PHH's  committed  facilities  at September  30, 1998 was undrawn and  available.
Management  believes that its current policy provides adequate protection should
volatility  in the financial  markets limit PHH's access to commercial  paper or
medium-term  notes  funding.   PHH  continuously  seeks  additional  sources  of
liquidity to accommodate PHH asset growth and to provide further protection from
volatility in the financial markets.

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

On  July  10,  1998,  PHH  entered  into a  Supplemental  Indenture  No.  1 (the
"Supplemental  Indenture") with The First National Bank of Chicago,  as trustee,
under the Senior Indenture dated as of June 5, 1997, which formalizes the policy
for PHH of  limiting  the payment of  dividends  and the  outstanding  principal
balance of loans to the Company to 40% of consolidated net income (as defined in
the  Supplemental  Indenture) for each fiscal year. The  Supplemental  Indenture
prohibits PHH from paying dividends or making loans to the Company if upon given
effect to such dividend  and/or loan,  PHH's debt to equity ratio exceeds 8 to 1
at the time of the dividend or loan as the case may be.

Credit Ratings

In October  1998,  Duff & Phelps Credit  Rating Co.  ("DCR"),  Standard & Poor's
("S&P"),  and Moody's  reduced the Company's  long-term debt credit rating to A-
from A, BBB from A, and A3 to Baa1,  respectively.  In October 1998, Moody's and
S&P reduced PHH's  long-term and short-term debt ratings to A3/P2 and A-/A2 from
A2/P1 and A+/A1,  respectively.  PHH's  long-term and short-term  credit ratings
remain A+/F1 and A+/D1 with Fitch IBCA and DCR,  respectively.  While the recent
downgrading  caused  PHH to  incur  an  increase  in cost of  funds,  management
believes its sources of liquidity continue to be adequate. (A security rating is
not a recommendation  to buy, sell or hold securities and is subject to revision
or withdrawal at any time).

Cash Flows

Cash flows provided from operations in 1998 were $758.5 million,  representing a
$378.5 million  decrease from the same period in 1997. The decrease in operating
cash  flows  reflects  growth  in  mortgage  loan   origination   volume  and  a
corresponding  $810.5  million  decrease  in  related  cash flow.  Rapid  growth
contributed  to the 138% increase in Mortgage  Services  operating  income.  The
Company used $4.0 billion in cash flows from investing activities in 1998, which
consisted of $2.7 billion of acquisitions and  acquisition-related  payments and
$1.1 billion of net investment in assets under management and mortgage-programs.
Cash  provided by financing  activities of $1.4 billion  primarily  reflects the
issuance of the FELINE PRIDES and proceeds of $3.3 billion from borrowings under
the Term Loan  Facility  and $586.4  million of proceeds  from debt issued under
management and mortgage programs.

Capital Expenditures

The  Company  incurred  $240.8  million of costs for  capital  expenditures  and
anticipates  investing up to approximately $300 million in capital  expenditures
in 1998. Such capital expenditures are primarily associated with the development
of integrated  corporate  relocation  business  systems in  accordance  with the
merger plan developed  upon the PHH merger date,  mortgage  services  office and
system  additions  to support  the rapid  growth in  origination  volume and the
consolidation of internationally-based call centers.

Litigation

As  a  result  of  the  aforementioned  accounting  irregularities,  which  were
discovered in the former CUC business  units,  numerous  purported  class action
lawsuits,  two purported derivative lawsuits and an individual lawsuit have been
filed against the Company and, among others,  its  predecessor  HFS, and certain
current and former  officers  and  directors  of the Company and HFS,  asserting
various claims under the federal securities laws and certain state statutory and
common laws. In addition,  the staff of the SEC and the United  States  Attorney
for the  District of New Jersey are  conducting  investigations  relating to the
accounting issues. The SEC staff advised the Company that its inquiry should not
be construed as an indication by the SEC or its staff that any violations of law
have  occurred  (See Note 15 to the  financial  statements  for a more  detailed
litigation discussion).

The Company  does not believe  that it is feasible to predict or  determine  the
final outcome of these  proceedings or investigations or to estimate the amounts
or potential range of loss with respect to these proceedings or  investigations.
The possible outcomes or resolutions of the proceedings could include a judgment
against the Company or a settlements and could require  substantial  payments by
the Company. In addition,  the timing of the final resolution of the proceedings
or  investigations  is uncertain.  Management  believes that a adverse
outcome with respect to such proceedings or investigations could have a material
impact on the financial  condition,  results of operations and cash flows of the
Company.

Severance Agreement

On July 28,  1998,  the Company  announced  that  Walter A.  Forbes  resigned as
Chairman of the Company and as a member of the Board of Directors. The severance
agreement  reached with Mr.  Forbes  entitles  him the benefits  required by his
employment contract relating to a termination of Mr. Forbes' employment with the
Company for reasons other than for cause. Aggregate benefits resulted in a $50.4
million  third  quarter 1998 charge  comprised of $37.9 million in cash payments
and 1.3 million of Company stock options,  with a  Black-Scholes  value of $12.5
million. Such options were immediately vested and expire on July 28, 2008.

Repricing of Stock Options

On September  23,  1998,  the  Compensation  Committee of the Board of Directors
approved a repricing and option exchange  program for  mid-management  employees
relating to Company stock options granted to such employees during December 1997
and the first quarter of 1998. Such options were repriced on October 15, 1998 at
$9.8125 per share (the "New Price"),  which was the fair market value as defined
in the option plans.  On September 23, 1998,  the  Compensation  Committee  also
approved a repricing and option exchange program for certain executive  officers
and senior  managers  of the  Company  subject to certain  conditions  including
revocation of a portion of existing options.  Additionally,  a management equity
ownership program was adopted that requires these executive  officers and senior
managers to acquire  Company  common stock at various levels  commensurate  with
their  respective   compensation  levels.  The  repricing  was  accomplished  by
canceling  existing  options and issuing new options at the New Price and,  with
respect to certain options of executive officers and senior managers,  at prices
above the New Price.

Share Repurchase Program

In  October  1998,  the  Company  announced  that  its  Board of  Directors  had
authorized a $1 billion common share repurchase  program.  Subject to compliance
with bank credit facility covenants and rating agency  constraints,  the Company
expects to execute the program through open-market purchases.

Impact of New Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards ("SFAS") No. 131 "Disclosures About Segments
of an Enterprise and Related Information" effective for annual periods beginning
after  December 15, 1997 and interim  periods  subsequent to the initial year of
application. SFAS No. 131 establishes standards for the way that public business
enterprises  report  information about their operating  segments in their annual
and  interim  financial  statements.  It also  requires  public  enterprises  to
disclose  company-wide  information  regarding  products  and  services  and the
geographic  areas in which they  operate.  The  Company  will adopt SFAS No. 131
effective for the 1998 calendar year end.

In February 1998,  the FASB issued SFAS No. 132  "Employers'  Disclosures  about
Pension and Other Postretirement  Benefits" effective for period beginning after
December 15, 1997.  The Company will adopt SFAS No. 132  effective  for the 1998
calendar year end.

SFAS No. 131 and No. 132 establish  standards for disclosures only and therefore
will  have  no  impact  on  the  Company's  financial  position  or  results  of
operations.

In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instrument
and Hedging Activities" effective for all quarterly and annual periods beginning
after June 15, 1999. SFAS No. 133 requires the recognition of all derivatives in
the consolidated  balance sheet as either assets or liabilities measured at fair
value.  The  Company  will  adopt SFAS No. 133  effective  January 1, 2000.  The
Company  has not yet  determined  the  impact  SFAS  No.  133  will  have on its
financial statements.

Year 2000 Compliance

The Year 2000  presents  the risk  that  information  systems  will be unable to
recognize and process date-sensitive information properly from and after January
1, 2000.

To  minimize  or  eliminate  the  effect of the year 2000 risk on the  Company's
business  systems  and  applications,  the Company is  continually  identifying,
evaluating,   implementing   and  testing  changes  to  its  computer   systems,
applications  and  software  necessary  to  achieve  Year 2000  compliance.  The
Company's  predecessor,  HFS,  implemented a Year 2000  initiative in March 1996
that has now been adopted by all business units of the Company.  As part of such
initiative,  the Company has selected a team of managers to  identify,  evaluate
and implement a plan to bring all of the Company's critical business systems and
applications into Year 2000 compliance prior to December 31, 1999. The Year 2000
initiative  consists of four phases: (i) identification of all critical business
systems subject to Year 2000 risk (the "Identification  Phase"); (ii) assessment
of such business  systems and applications to determine the method of correcting
any  Year  2000  problems  (the  "Assessment  Phase");  (iii)  implementing  the
corrective  measures  (the   "Implementation   Phase");  and  (iv)  testing  and
maintaining   system   compliance  (the  "Testing   Phase").   The  Company  has
substantially  completed  the  Identification  and  Assessment  Phases  and  has
identified and assessed five areas of risk: (i)  internally  developed  business
applications;  (ii) third party vendor software,  such as business applications,
operating  systems  and  special  function  software;  (iii)  computer  hardware
components;  (iv) electronic  data transfer  systems between the Company and its
customers;  and (v) embedded systems, such as phone switches,  check writers and
alarm systems.  Although no assurances can be made, the Company believes that it
has  identified  substantially  all of its  systems,  applications  and  related
software  that  are  subject  to  Year  2000  compliance  risk  and  has  either
implemented  or initiated the  implementation  of a plan to correct such systems
that are not Year 2000 compliant. The Company has targeted December 31, 1998 for
completion  of the  Implementation  Phase.  Although  the  Company has begun the
Testing  Phase,  it does not  anticipate  completion  of the Testing Phase until
sometime prior to December 1999.

The  Company  relies on third  party  service  providers  for  services  such as
telecommunications, internet service, utilities, components for its embedded and
other systems and other key services. Interruption of those services due to Year
2000 issues could affect the Company's operations.  The Company has initiated an
evaluation  of the  status of such third  party  service  providers'  efforts to
determine alternative and contingency requirements. While approaches to reducing
risks of  interruption  of business  operations  vary by business unit,  options
include  identification of alternative  service  providers  available to provide
such services if a service  provider fails to become Year 2000 compliant  within
an acceptable timeframe prior to December 31, 1999.

The Company is revising its existing business interruption  contingency plans to
address  internal  and  external  issues  specific to Year 2000  compliance.  In
addition,  where necessary,  the Company is establishing  contingency  plans for
specific  issues that may arise.  We  anticipate  completing  and testing  these
contingency  plans by July 1999.  These plans,  which are intended to enable the
Company  to  function   operationally,   include  performing  certain  processes
manually,  repairing or obtaining replacement systems;  changing suppliers;  and
reducing or suspending  operations.  The Company believes,  however, that due to
the widespread  nature of potential Year 2000 issues,  the contingency  planning
process  is an ongoing  one which  will  require  further  modifications  as the
Company obtains additional  information regarding the Company's internal systems
and equipment during the remediation and testing phases of its Year 2000 program
and the status of third party Year 2000 readiness.

The total cost of the Company's Year 2000  compliance  plan is anticipated to be
$53 million. Approximately $19 million of these costs have been incurred through
September 30, 1998,  and the Company  expects to incur the balance of such costs
to complete the  compliance  plan.  The remainder of the costs is expected to be
funded  through  operating  cash flows or from  borrowings  under the  Company's
credit facilities.  The Company has been expensing and capitalizing the costs to
complete the compliance plan in accordance with appropriate accounting policies.
Variations from anticipated  expenditures and the effect on the Company's future
results of  operations  are not  anticipated  to be  material in any given year.
However,  if Year 2000  modifications  and  conversions are not made, or are not
completed  in time,  the Year 2000 problem  could have a material  impact on the
operations and financial condition of the Company.

The estimates and  conclusions  herein are  forward-looking  statements  and are
based on management's  best estimates of future events.  Risks of completing the
plan include the availability of resources,  the ability to discover and correct
the potential Year 2000  sensitive  problems that could have a serious impact on
certain  operations and the ability of the Company's  service providers to bring
their systems into Year 2000 compliance.






ITEM 3--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In  recurring  operations,  the  Company  must deal with  effects  of changes in
interest rates and currency exchange rates. The following discussion presents an
overview of how such changes are managed and a view of their potential effects.

The Company uses various financial  instruments,  particularly interest rate and
currency swaps and currency forwards, to manage its respective interest rate and
currency  risks.  The Company is exclusively  an end user of these  instruments,
which are commonly  referred to as  derivatives.  The Company does not engage in
trading,  market-making  or  other  speculative  activities  in the  derivatives
markets.  Established  practices require that derivative  financial  instruments
relate to  specific  asset,  liability  or equity  transactions  or to  currency
exposures.

The  Securities  and  Exchange  Commission  requires  that  registrants  include
information  about  potential  effects of changes in interest rates and currency
exchange in their financial  statements.  Although the rules offer  alternatives
for  presenting  this   information,   none  of  the   alternatives  is  without
limitations. The following discussion is based on so-called "shock tests," which
model  effects of interest rate and currency  shifts on the  reporting  company.
Shock  tests,  while  probably  the  most  meaningful  analysis  permitted,  are
constrained by several factors,  including the necessity to conduct the analysis
based  on a  single  point  in  time  and by  their  inability  to  include  the
extraordinarily  complex  market  reactions  that normally  would arise from the
market shifts modeled.  While the following  results of shock tests for interest
rate and currencies may have some limited use as benchmarks,  they should not be
viewed as forecasts.

o    One  means  of   assessing   exposure  in  interest   rate   changes  is  a
     duration-based  analysis that  measures the potential  loss in net earnings
     resulting  from a  hypothetical  10% change  (decrease)  in interest  rates
     across all maturities  (sometimes  referred to as a "parallel  shift in the
     yield curve").  Under this model,  it is estimated that, all else constant,
     such  decrease  would not  adversely  impact the 1998 net  earnings  of the
     Company based on September 30, 1998 positions.

o     One means of assessing  exposure to changes in currency  exchange rates is
      to model effects on future  earnings  using a sensitivity  analysis.  Nine
      months ended September 30, 1998 consolidated currency exposures, including
      financial instruments designated and effective as hedges, were analyzed to
      identify the Company's  assets and  liabilities  denominated in other than
      their  relevant  functional  currency.  Net  unhedged  exposures  in  each
      currency were then remeasured assuming a 10% change (decrease) in currency
      exchange  rates  compared with the U.S.  dollar.  Under this model,  it is
      estimated  that,  all else  constant,  such a decrease would not adversely
      impact the 1998 net earnings of the Company  based on  September  30, 1998
      positions.

       The  categories  of primary  market risk exposure of the Company are: (i)
       long-term  U.S.   interest   rates  due  to  mortgage  loan   origination
       commitments  and an  investment in mortgage  loans held for resale;  (ii)
       short-term   interest   rates  as  they  impact  vehicle  and  relocation
       receivables;  and (iii) LIBOR and commercial  paper interest rates due to
       their impact on variable rate borrowings.







PART II. OTHER INFORMATION

ITEM 1--LEGAL PROCEEDINGS

The  discussion   contained  under  the  heading  "Company   Investigation   and
Litigation"  in  Note  15  contained  in  Part  1--FINANCIAL  INFORMATION,  Item
1--Financial Statements, is incorporated herein by reference in its entirety.

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

       (a)  Exhibits


       (b)  Reports on Form 8-K

       The Company filed a report on Form 8-K, dated July 14, 1998, reporting in
       Item 5 that the accounting irregularities at the former CUC International
       Inc.  business  units,  were greater than those  initially  discovered in
       April 1998.

       The Company filed a report on Form 8-K, dated July 15, 1998, reporting in
       Item  5  certain  supplemental   information   regarding  the  accounting
       irregularities  and  affirmed  its  intention  to complete  the  American
       Bankers Insurance Group, Inc. acquisition.

       The Company filed a report on Form 8-K, dated July 28, 1998, reporting in
       Item 5 management and corporate governance changes and an audit committee
       investigation update.

       The Company filed a report on Form 8-K,  dated August 4, 1998,  reporting
       in Item 5 announcing the timing of the release of second quarter earnings
       and the timing for the submission of  shareholder  proposals for the 1998
       Annual Meeting of Shareholders.

       The Company filed a report on Form 8-K, dated August 13, 1998,  reporting
       in Item 5 the completion of the accounting investigation,  second quarter
       earnings,  approval of the Royal Automobile Club acquisition,  the intent
       to sell Hebdo Mag and Cendant Software and segment information.

       The Company filed a report on Form 8-K, dated August 28, 1998,  reporting
       in  Item  5  the  completion  of  the  Audit  Committee   Report  on  the
       investigation,  the  delay  in the  filing  of the  Form  10-K/A  and the
       postponement of the 1998 Annual Meeting.

       The  Company  filed a  report  on Form  8-K/A,  dated  August  28,  1998,
       reporting  in Item 5 the filing of an appendix to the Report to the Audit
       Committee and the record date for the 1998 Annual Meeting.








                                   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.

                                   CENDANT CORPORATION



                                   By:  /s/  David M. Johnson         
                                        David M. Johnson
                                        Senior Executive Vice President and
                                        Chief Financial Officer


                                   By:  /s/  Scott E. Forbes          
                                        Scott E. Forbes
                                        Executive Vice President
                                        and Chief Accounting Officer

Date:  November 16, 1998