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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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                                   FORM 10-K/A
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1998
                           COMMISSION FILE NO. 1-10308

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                               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)

           9 WEST 57TH STREET                             10019
              NEW YORK, NY                             (Zip Code)
          (Address of principal
            executive office)

                                  212-413-1800
              (Registrant's telephone number, including area code)

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

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                              NAME OF EACH EXCHANGE
           TITLE OF EACH CLASS                 ON WHICH REGISTERED
           -------------------                 -------------------
        Common Stock, Par Value $.01         New York Stock Exchange
            Income PRIDES(SM)                New York Stock Exchange
            Growth PRIDES(SM)                New York Stock Exchange

           Securities registered pursuant to Section 12(g) of the Act:

                  6.45% Trust Originated Preferred Securities
                              7 1/2% Notes due 2000
                              7 3/4% Notes due 2003
                   3% Convertible Subordinated Notes Due 2002

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K/A. [ ]

     The aggregate market value of the Common Stock issued and outstanding and
held by nonaffiliates of the Registrant, based upon the closing price for the
Common Stock on the New York Stock Exchange on September 30, 1999 was
$12,592,847,053. All executive officers and directors of the registrant have
been deemed, solely for the purpose of the foregoing calculation, to be
"affiliates" of the registrant.

     The number of shares outstanding of each of the Registrant's classes of
common stock was 712,119,142 shares of Common Stock outstanding as of September
30, 1999.

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                                     PART I

ITEM 1. BUSINESS

     Except as expressly indicated or unless the context otherwise requires, the
"Company", "Cendant", "we", "our", or "us" means Cendant Corporation, a Delaware
Corporation, and its subsidiaries.

GENERAL

     We are one of the foremost consumer and business services companies in the
world. We were created through the merger (the "Merger") of HFS Incorporated
("HFS") into CUC International, Inc. ("CUC") in December 1997 with the resultant
corporation being renamed Cendant Corporation. We provide the fee-based services
formerly provided by each of CUC and HFS, including travel services, real estate
services and membership-based consumer services, to our customers throughout the
world.

     We operate in four principal divisions--travel related services, real
estate related services, direct marketing services (formerly known as the
alliance marketing division) and other consumer and business services. Our
businesses provide a wide range of complementary consumer and business services,
which together represent eight business segments. The travel related services
businesses facilitate vacation timeshare exchanges, manage corporate and
government vehicle fleets and franchise car rental and hotel businesses; the
real estate related services businesses franchise real estate brokerage
businesses, provide home buyers with mortgages and assist in employee
relocation; and the direct marketing services businesses provide an array of
value driven products and services. Our other consumer and business services
include our tax preparation services franchise, information technology services,
car parks and vehicle emergency support and rescue services in the United
Kingdom, discount coupon books, credit information services, financial products
and other consumer-related services.

     As a franchisor of hotels, residential real estate brokerage offices, car
rental operations and tax preparation services, we license the owners and
operators of independent businesses to use our brand names. We do not own or
operate hotels, real estate brokerage offices, car rental operations or tax
preparation offices. Instead, we provide our franchisee customers with services
designed to increase their revenue and profitability.

Travel Related Services

     The travel division is comprised of the travel and fleet segments. In our
travel segment, we franchise hotels primarily in the mid-priced and economy
markets. We are the world's largest hotel franchisor, operating the Days Inn(R),
Ramada(R) (in the United States), Howard Johnson(R), Super 8(R), Travelodge(R)
(in North America), Villager Lodge(R), Knights Inn(R) and Wingate Inn(R) lodging
franchise systems. We own the Avis(R) worldwide vehicle rental franchise system
which, operated by its franchisees, is the second largest car rental system in
the world (based on total revenues and volume of rental transactions). We
currently own approximately 19% of the capital stock of the largest Avis
franchisee, Avis Rent A Car, Inc. ("ARAC"). We also own Resort Condominiums
International, LLC ("RCI"), the world's leading timeshare exchange organization.

     Our fleet segment operations were conducted primarily by our PHH Vehicle
Management Services Corporation subsidiary which operated the second largest
provider in North America of comprehensive vehicle management services and our
former PHH Vehicle Management Services PLC subsidiary which was the market
leader in the United Kingdom for fuel and fleet management services. We disposed
of our fleet segment on June 30, 1999. See "Recent Developments - Strategic
Developments"

                                       1


Real Estate Related Services

     Our real estate division consists of the real estate franchise, relocation
and mortgage segments. In the real estate franchise segment, we franchise real
estate brokerage offices under the CENTURY 21(R), COLDWELL BANKER(R) and ERA(R)
real estate brokerage franchise systems and are the world's largest real estate
brokerage franchisor. In the relocation segment, our Cendant Mobility Services
Corporation subsidiary is the largest provider of corporate relocation services
in the world, offering relocation clients a variety of services in connection
with the transfer of a client's employees. In the mortgage segment, our Cendant
Mortgage Corporation ("Cendant Mortgage") subsidiary originates, sells and
services residential mortgage loans in the United States, marketing such
services to consumers through relationships with corporations, affinity groups,
financial institutions, real estate brokerage firms and mortgage banks.

Direct Marketing Services

     Our direct marketing division is divided into two segments: individual
membership and insurance/ wholesale. The individual membership segment, with
approximately 32 million memberships, provides customers with access to a
variety of discounted products and services in such areas as retail shopping,
travel, auto, dining, and home improvement. The insurance/wholesale segment,
with nearly 31 million customers, markets and administers insurance products,
primarily accidental death and dismemberment insurance and term life insurance,
and also provides products and services such as checking account enhancement
packages, financial products and discount programs to customers of various
financial institutions. Our direct marketing activities are conducted
principally through our Cendant Membership Services, Inc. subsidiary and certain
of the Company's other wholly-owned subsidiaries, including FISI*Madison
Financial Corporation ("FISI") and Benefit Consultants, Inc. ("BCI").

Other Consumer and Business Services

     We also provide a variety of other consumer and business services. Our
Jackson Hewitt Inc. ("Jackson Hewitt") subsidiary operates the second largest
tax preparation service system in the United States with locations in 43 states
and franchises a system of approximately 3,000 offices that specialize in
computerized preparation of federal and state individual income tax returns. Our
National Parking Corporation Limited ("NPC") subsidiary is the largest private
(non-municipally owned) car park operator in the United Kingdom and a leader in
vehicle emergency support and rescue services for approximately 3.5 million
members in the United Kingdom. Our former Global Refund subsidiary operated the
world's leading value-added tax refund service for travelers. Our Entertainment
Publications, Inc. ("EPub") subsidiary provides customers with unique products
and services that are designed to enhance a customer's purchasing power. We also
provide information technology services, credit information services, financial
services and other consumer services.

RECENT DEVELOPMENTS

Strategic Developments

     General. In connection with our previously announced plan to focus on
maximizing the opportunities and growth potential of our existing businesses, we
have divested or announced our intention to divest certain non-strategic
businesses and assets and have completed or commenced certain other strategic
initiatives related to the internet as stated below. The divestiture program has
resulted in the disposition of 18 business units and, upon consideration of the
pending dispositions, will ultimately generate approximately $4.5 billion in
proceeds. Proceeds have been partially utilized to repurchase our common stock
and reduce our indebtedness.

     Disposition of Businesses

     In connection with the aforementioned program, we have completed or have
pending the following dispositions:

     Pending disposition of Green Flag. On October 8, 1999, we entered into a
definitive agreement to dispose of our Green Flag business unit for
approximately $410 million in cash. The transaction, subject to customary
regulatory approval in the United Kingdom ("UK"), is expected to be consummated
in the fourth quarter of 1999.



                                       2


Green Flag is a roadside assistance organization based in the UK, which provides
a wide range of emergency support and rescue services.

     Pending sale of Entertainment Publications, Inc. On September 14, 1999, we
entered into a definitive agreement to sell 84% of our Entertainment
Publications, Inc. ("EPub") business unit for approxmately $325 million in cash.
We will retain approximatley 16% of EPub's equity in connection with the
transaction. In addition, we will have a designee on the EPub Board of
Directors. The transaction is subject to customary regulatory approvals and
customary conditions and is expected to be consummated in the fourth quarter of
1999.

     We have determined that the size and nature of our retained equity stake in
EPUB, including the retention of board representation, will require us to
account for our ongoing investment in EPUB using the equity accounting method.
In addition, our earlier classification of EPUB as a discontinued operation was
reversed in accordance with generally accepted accounting principles.

     North American Outdoor Group. On October 8, 1999, we completed the
disposition of 94% of our North American Outdoor Group ("NAOG") business unit
for approximately $140 million in cash and will retain approximately 6% of
NAOG's equity in connection with the transaction.

     Global Refund Group. On August 24, 1999, we completed the sale of our
Global Refund Group subsidiary ("Global Refund") for approximately $160 million
in cash. Global Refund, formerly known as Europe Tax Free Shopping, was the
world's largest value-added tax refund services company.

     Fleet. On June 30, 1999, we completed the disposition of the fleet business
segment ("fleet segment" or "fleet businesses"), which included PHH Vehicle
Management Services Corporation, Wright Express Corporation, The Harpur Group,
Ltd., and other subsidiaries pursuant to an agreement between our PHH
Corporation ("PHH") subsidiary and Avis Rent A Car, Inc. ("ARAC"). Pursuant to
the agreement, ARAC acquired net assets of the fleet businesses through the
assumption and subsequent repayment of $1.44 billion of intercompany debt and
the issuance of $360 million of convertible preferred stock of Avis Fleet
Leasing and Management Corporation , a wholly-owned subsidiary of ARAC.

     Cendant Software Corporation. On January 12, 1999, we completed the sale of
our consumer software division, Cendant Software Corporation ("Software") and
its subsidiaries, to Paris-based Havas SA, a subsidiary of Vivendi SA, for
approximately $800 million in cash plus future potential cash payments.

     Other Businesses. During 1999, we completed the dispositions of certain
other businesses, including Central Credit, Inc., Spark Services, Inc.,
Match.com, National Leisure Group, National Library of Poetry and Essex
Corporation. Aggregate consideration received on the dispositions of such
businesses was comprised of $110.3 million in cash and $43.3 million of common
stock.

     Hebdo Mag International, Inc. On December 15, 1998, we completed the sale
of our Hebdo Mag International subsidiary ("Hebdo Mag") to a company organized
by Hebdo Mag management for approximately $450 million, including approximately
$315 million in cash and 7.1 million shares of our common stock.

     Internet Developments

     As part of our focus on maximizing the opportunities and growth potential
of our existing businesses, we have completed or have pending the following
internet initiatives:

     New Real Estate Portal - CompleteHome.com. On September 30, 1999, we
announced that our Board of Directors approved a plan to create a new class of
common stock to track the performance of CompleteHome.com, our new real estate
portal. The plan to create a tracking stock, which is subject to shareholder
approval, anticipates the initial public offering of CompleteHome.com in the
second quarter of 2000. CompleteHome.com encompasses all aspects of the home
experience including finding a home, buying or renting a home, moving and post
closing home improvements. CompleteHome.com's business consists of three primary
sources of revenue: rental directory services, e-commerce/advertising and real
estate related products including mortgage brokerage. CompleteHome.com will
integrate and enhance the online efforts of our residential real estate brands
(Century 21(R), Coldwell Banker (R) and ERA(R)) and those of our other real
estate business units (Cendant Mobility and Cendant Mortgage) drawing on the

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success of our RentNet on-line apartment guide business model, the leading
on-line rental locator service.

     Formation of Netmarket, Inc. On September 15, 1999, Netmarket, Inc. ("NGI")
began operations as an independent company that will pursue the development of
the interactive businesses formerly within our direct marketing division. NGI
will own, operate, develop and expand the on-line membership businesses, which
collectively have 1.3 million on-line members. Prior to September 15, 1999, our
ownership of NGI was restructured into common stock and preferred stock
interests. On September 15, 1999, we donated NGI's outstanding common stock to a
charitable trust, and NGI issued additional shares of its common stock to
certain of its marketing partners. Accordingly, as a result of the change in
ownership of NGI's common stock from us to independent third parties, NGI's
operating results will no longer be included in our consolidated financial
statements. We retained the opportunity to participate in NGI's value through
the ownership of a convertible preferred stock of NGI, which is ultimately
exchangeable, at our option, into 78% of NGI's fully diluted common shares.

Termination of American Bankers Acquisition and Settlement Agreement

     On March 23, 1998, we announced that we had entered into a definitive
agreement (the "ABI Merger Agreement") to acquire American Bankers Insurance
Group Inc. ("American Bankers") for $67 per share in cash and stock, for an
aggregate consideration of approximately $3.1 billion. Because of uncertainties
concerning the eventual completion of this acquisition, on October 13, 1998, we
and American Bankers entered into a settlement agreement pursuant to which we
and American Bankers terminated the ABI Merger Agreement and our then pending
tender offer for American Bankers shares. Pursuant to the settlement agreement:

         o  we and American Bankers released each other from any claims relating
            to the proposed acquisition of American Bankers;

         o  we paid $400 million, pre-tax, in cash to American Bankers;

         o  we agreed to withdraw any applications we had pending with insurance
            regulatory authorities in order to obtain control of American
            Bankers and to withdraw from any proceedings or hearings in
            connection with these applications; and

         o  we agreed not to take any actions or make any statements intended to
            frustrate or delay any business combination between American Bankers
            and any other party.

     In connection with the termination of the American Bankers transaction, we
recorded a $281 million after-tax charge in the fourth quarter of 1998 in
connection with our payment to American Bankers and transaction-related
expenses.

Termination of Providian Acquisition

     On December 10, 1997, we announced that we had entered into a definitive
agreement to acquire Providian Auto and Home Insurance Company and its
subsidiaries ("Providian") from a subsidiary of Aegon N.V. for approximately
$219 million in cash. On October 5, 1998, we announced that we terminated the
agreement to acquire Providian because the acquisition agreement provided that
the closing had to occur on or before September 30, 1998, and certain
representations, covenants and conditions of closing in the acquisition
agreement had not been fulfilled by that date. We did not pursue an extension of
the termination date of the agreement because Providian no longer met our
acquisition criteria.

National Parking Corporation Acquisition

     On April 27, 1998, we acquired NPC for $1.6 billion in cash, which included
our repayment of approximately $227 million of outstanding NPC debt. NPC is the
largest private (non-municipally owned) car park operator in the United Kingdom,
with a portfolio of approximately 500 owned, leased and managed car parks in
over 100

                                       4


towns and city centers and major airport locations. NPC has also developed a
broad-based breakdown assistance group under the brand name of Green Flag. Green
Flag offers a wide range of emergency support and rescue services to
approximately 3.5 million members in the United Kingdom.

Termination of RAC Motoring Services Acquisition

     On May 21, 1998, we announced that we reached definitive agreements with
the Board of Directors of Royal Automobile Club ("RAC") to purchase RAC Motoring
Services ("RACMS") for total consideration of pound sterling 450 million, or
approximately $735 million in cash. On February 4, 1999, the U.K. Secretary of
State for Trade and Industry cleared our proposed acquisition of RACMS on the
condition that we divest our Green Flag breakdown assistance business. We did
not regard this proposed condition as reasonably acceptable or commercially
feasible and therefore we have determined not to proceed with the acquisition of
RACMS.

MATTERS RELATING TO THE ACCOUNTING IRREGULARITIES AND ACCOUNTING POLICY CHANGE

Accounting Irregularities

     On April 15, 1998, we announced that in the course of transferring
responsibility for our accounting functions from Cendant personnel associated
with CUC prior to the Merger to Cendant personnel associated with HFS before the
Merger and preparing for the reporting of first quarter 1998 financial results,
we discovered accounting irregularities in certain CUC business units. As a
result, we, together with our counsel and assisted by auditors, immediately
began an intensive investigation (the "Company Investigation"). In addition, our
Audit Committee engaged Willkie Farr & Gallagher ("Willkie Farr") as special
legal counsel and Willkie Farr engaged Arthur Andersen LLP to perform an
independent investigation into these accounting irregularities (the "Audit
Committee Investigation," and together with the Company Investigation, the
"Investigations").

     On July 14, 1998, we 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, we announced that the Company Investigation was complete. On
August 27, 1998, we announced that our Audit Committee had submitted its report
(the "Report") to the Board of Directors on the Audit Committee Investigation
into the accounting irregularities and its conclusions regarding responsibility
for those actions. A copy of the Report has been filed as an exhibit to the
Company's Current Report on Form 8-K dated August 28, 1998.

     As a result of the findings of the Investigations, we restated our
previously reported financial results for 1997, 1996 and 1995 and the six months
ended June 30, 1998 and 1997. The 1997 restated amounts also included certain
adjustments related to the former HFS businesses which are substantially
comprised of $47.8 million in reductions to merger-related costs and other
unusual charges ("Unusual Charges") and a $14.5 million decrease in pre-tax
income excluding Unusual Charges, which on a net basis increased 1997 net income
from continuing operations. The 1997 annual and six months results have also
been restated for a change in accounting, effective January 1, 1997, related to
revenue and expense recognition for memberships with a full refund offer (see
Notes 2 and 18 to the Consolidated Financial Statements).

Class Action Litigation and Government Investigation

     Since our April 15, 1998 announcement of the discovery of accounting
irregularities in the former CUC business units, and prior to the date of this
Annual Report on Form 10-K/A, 70 lawsuits claiming to be class actions, two
lawsuits claiming to be brought derivatively on our behalf and several
individual lawsuits and arbitration proceedings have been filed against us and,
among others, our predecessor, HFS, and several current and former officers and
directors of Cendant and HFS. These lawsuits assert, among other things, various
claims under the federal securities laws including claims under sections 11, 12
and 15 of the Securities Act of 1933 and sections 10(b), 14(a) and 20(a) of and
Rules 10b-5 and 14a-9 under the Securities Exchange Act of 1934 and state
statutory and common laws, including claims that financial statements previously
issued by us allegedly were false and misleading and that these statements
allegedly caused the price of our securities to be artificially inflated. SEE
"ITEM 3. LEGAL PROCEEDINGS".

                                       5


     In addition, 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 accounting irregularities. The SEC
staff has advised us that its inquiry should not be construed as an indication
by the SEC or its staff that any violations of law have occurred. As a result of
the findings from the investigations, we made all adjustments considered
necessary which are reflected in our restated financial statements. Although we
can provide no assurances that additional adjustments will not be necessary as a
result of these government investigations, we do not expect that additional
adjustments will be necessary.

     Other than with respect to the portion of the PRIDES litigation which is
discussed below, we do not believe that it is feasible to predict the final
outcome or resolution of these proceedings and investigations or to estimate the
amount or potential range of loss with respect to the resolution of these
proceedings and investigations. In addition, the timing of the final resolution
of these proceedings and investigations is uncertain. The possible outcomes or
resolutions of these proceedings and investigations could include judgments
against us or settlements and could require substantial payments by us. Our
management believes that adverse outcomes in such proceedings and investigations
or any other resolutions, including settlements could have a material impact on
our financial condition, results of operations and cash flows.

Settlement of PRIDES Class Action Litigation

     On March 17, 1999, we entered into a stipulation of settlement in the
PRIDES action and the court subsequently granted the settlement its approval.
Under the settlement stipulation, in return for the release of all claims
arising from any purchase of current FELINE PRIDES on or before April 15, 1998,
we are obligated to issue up to 29,161,474 Rights with a stated theoretical
value of $11.71 each. Each class member who does not opt out and who submits a
timely and valid proof of claim will be entitled to one Right for each current
FELINE PRIDES held at the close of business on April 15, 1998. Under the
settlement stipulation, until February 14, 2001, we will issue two new FELINE
PRIDES to every person who delivers to us three Rights and two current FELINE
PRIDES. The terms of the new FELINE PRIDES will be the same as the currently
outstanding PRIDES, except that the conversion rate will be revised so that, at
the time the Rights are distributed, each of the new PRIDES will have a value
equal to $17.57 more than each original PRIDES, based upon a generally accepted
valuation model. The settlement does not resolve claims based upon purchases of
current FELINE PRIDES after April 16, 1998.

     Based on the settlement, we recorded an after tax charge of approximately
$228 million, or $0.26 per diluted share, which is $351 million pre-tax, in the
fourth quarter of 1998. We recorded an increase in additional paid-in capital of
$350 million offset by a decrease in retained earnings of $228 million,
resulting in a net increase in stockholders' equity of $122 million as a result
of the prospective issuance of the common stock. As a result, the settlement
should not reduce net book value. In addition, the settlement is not expected to
reduce 1999 earnings per share unless our common stock price materially
appreciates. SEE "ITEM 3. LEGAL PROCEEDINGS" for a more detailed description of
the settlement.

Management and Corporate Governance Changes

     On July 28, 1998, Walter A. Forbes resigned as Chairman of the Company and
as a member of the Board of Directors. Henry R. Silverman, Chief Executive
Officer of the Company, was unanimously elected by the Board of Directors to be
Chairman and continues to serve as our Chief Executive Officer and President.
Since July 28, 1998, ten members of the Board formerly associated with CUC also
resigned.

     On July 28, 1998, the Board also approved the adoption of Amended and
Restated By-Laws of the Company and voted to eliminate the governance plan
adopted as part of the Merger, resulting in the elimination of the 80%
super-majority vote requirement provisions of our By-Laws relating to the
composition of the Board and the limitations on the removal of the Chairman and
the Chief Executive Officer.

                                      * * *

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FINANCIAL INFORMATION

     Financial information about our business segments may be found in Note 26
to our consolidated financial statements presented in Item 8 of this Annual
Report on Form 10-K/A and incorporated herein by reference.

FORWARD LOOKING STATEMENTS

     We make statements about our future results in this Annual Report on Form
10-K/A that may constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are based
on our current expectations and the current economic environment. We caution you
that these statements are not guarantees of future performance. They involve a
number of risks and uncertainties that are difficult to predict. Our actual
results could differ materially from those expressed or implied in the
forward-looking statements. Important assumptions and other important factors
that could cause our actual results to differ materially from those in the
forward-looking statements, include, but are not limited to:

         o  the resolution or outcome of the pending litigation and government
            investigations relating to the previously announced accounting
            irregularities;

         o  uncertainty as to our future profitability and our ability to
            integrate and operate successfully acquired businesses and the risks
            associated with such businesses, including the merger that created
            Cendant and the NPC acquisition;

         o  our ability to successfully divest the remaining non-core businesses
            and assets and implement our plan to create a tracking stock for our
            new real estate portal (described in "Businesses and Recent
            Developments");

         o  our ability to develop and implement operational and financial
            systems to manage rapidly growing operations;

         o  competition in our existing and potential future lines of business;

         o  our ability to obtain financing on acceptable terms to finance our
            growth strategy and for us to operate within the limitations imposed
            by financing arrangements; and

         o  our ability and our vendors', franchisees' and customers' ability to
            complete the necessary actions to achieve a year 2000 conversion for
            computer systems and applications.

     We derived the forward-looking statements in this Annual Report on Form
10-K/A (including the documents incorporated by reference in this Annual Report
on Form 10-K/A) from the foregoing factors and from other factors and
assumptions, and the failure of such assumptions to be realized as well as other
factors may also cause actual results to differ materially from those projected.
We assume no obligation to publicly correct or update these forward-looking
statements to reflect actual results, changes in assumptions or changes in other
factors affecting such forward-looking statements or if we later become aware
that they are not likely to be achieved.

PRINCIPAL EXECUTIVE OFFICES

     Our principal executive offices are located at 9 West 57th Street, New
York, New York 10019 (telephone number: (212) 413-1800).

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TRAVEL DIVISION

THE TRAVEL SEGMENT

     The Travel Segment consists of our lodging franchise services, timeshare
exchange, and Avis car rental franchise businesses and represented approximately
20.1%, 22.9% and 13.2% of our revenues for the year ended December 31, 1998,
1997 and 1996, respectively.

LODGING FRANCHISE BUSINESS

     GENERAL. The lodging industry can be divided into three broad segments
based on price and services: luxury or upscale, which typically charge room
rates above $82 per night; middle market, with room rates generally between $55
and $81 per night; and economy, where room rates generally are less than $54 per
night. Of our franchised brand names, Ramada, Howard Johnson and Wingate Inn
compete principally in the middle market segment and Days Inn, Knights Inn,
Super 8, Travelodge and Villager Lodge ("Villager") compete primarily in the
economy segment, which is currently the fastest growing segment of the industry.

     As franchisor of lodging facilities, we provide a number of services
designed to directly or indirectly increase hotel occupancy rates, revenues and
profitability, the most important of which is a centralized brand-specific
national reservations system. Similarly, brand awareness derived from nationally
recognized brand names, supported by national advertising and marketing
campaigns, can increase the desirability of a hotel property to prospective
guests. We believe that, in general, national franchise brands with a greater
number of hotels enjoy greater brand awareness among potential hotel guests, and
thus are perceived as more valuable by existing and prospective franchisees than
brands with a lesser number of properties. Franchise brands can also increase
franchisee property occupancy through national direct sales programs to
businesses, associations and affinity groups.

     In determining whether to affiliate with a national franchise brand, hotel
operators compare the costs of affiliation (including the capital expenditures
and operating costs required to meet a brand's quality and operating standards,
plus the ongoing payment of franchise royalties and assessments for the
reservations system and marketing programs) with the increase in gross room
revenue anticipated to be derived from brand membership. Other benefits to brand
affiliation include group purchasing services, training programs, design and
construction advice, and other franchisee support services, all of which provide
the benefits of a national lodging services organization to operators of
independently-owned hotels. We believe that, in general, franchise affiliations
are viewed as enhancing the value of a hotel property by providing economic
benefits to the property.

     We entered the lodging franchise business in July 1990 with the acquisition
of the Howard Johnson franchise system and the rights to operate the U.S. Ramada
franchise system. We acquired the Days Inn franchise system in January 1992, the
Super 8 franchise system in April 1993, the Villager Lodge franchise system in
November 1994, the Knights Inn franchise system in August 1995 and the
Travelodge franchise system in January 1996. Each of these acquisitions has
increased our earnings per share. We continue to seek opportunities to acquire
or license additional hotel franchise systems, including established brands in
the upper end of the market, where we are not currently represented. See
"Lodging Franchise Growth" below.

     The fee and cost structure of our lodging business provides significant
opportunities for us to increase earnings by increasing the number of franchised
properties. Hotel franchisors, such as our Company, derive substantially all of
their revenue from continuing franchise fees. Continuing franchise fees are
comprised of two components, a royalty portion and a marketing and reservations
portion, both of which are normally charged by the franchisor as a percentage of
the franchisee's gross room revenue. The royalty portion of the franchise fee is
intended to cover the operating expenses of the franchisor, such as expenses
incurred in quality assurance, administrative support and other franchise
services and to provide the franchisor with operating profits. The
marketing/reservations portion of the franchise fee is intended to reimburse the
franchisor for the expenses associated with providing such franchise

                                       8


services as a national reservations system, national media advertising and
certain training programs.

     Our franchisees are dispersed geographically which minimizes the exposure
to any one hotel owner or geographic region. Of the more than 6,000 properties
and 4,000 franchisees in our systems, no individual hotel owner accounts for
more than 2% of our lodging revenue.

     LODGING FRANCHISE GROWTH. Growth of the franchise systems through the sale
of long-term franchise agreements to operators of existing and newly constructed
hotels is the leading source of revenue and earnings growth in our lodging
franchise business. Franchises are terminated primarily for not paying the
required franchise fees and/or not maintaining compliance with brand quality
assurance standards required pursuant to the applicable franchise agreement.

     LODGING FRANCHISE SALES. We market franchises principally to independent
hotel and motel owners, as well as to owners whose property affiliation with
other hotel brands can be terminated. We believe that our existing franchisees
also represent a significant potential market because many own, or may own in
the future, other hotels, which can be converted to our brand names.
Accordingly, a significant factor in our sales strategy is maintaining the
satisfaction of our existing franchisees by providing quality services.

     We employ a national franchise sales force consisting of approximately 80
salespeople and sales management personnel, which is divided into several brand
specific sales groups, with regional offices around the country. The sales force
is compensated primarily through commissions. In order to provide broad
marketing of our brands, sales referrals are made among the sales groups and a
referring salesperson is entitled to a commission for a referral which results
in a franchise sale.

     We seek to expand our franchise systems and provide marketing and other
franchise services to franchisees on an international basis through a series of
master license agreements with internationally based developers and franchisors.
As of December 31, 1998, our franchising subsidiaries (other than Ramada) have
entered into international master licensing agreements for part or all of 46
countries on six continents. The agreements typically include minimum
development requirements and require payment of an initial development fee in
connection with the execution of the license agreement as well as recurring
franchise fees.

     LODGING FRANCHISE SYSTEMS. The following is a summary description of our
lodging franchise systems. Information reflects properties that are open and
operating and is presented as of December 31, 1998.



                      PRIMARY         AVG. ROOMS          # OF          # OF           DOMESTIC
                      -------         ----------          ----          ----           --------
      BRAND        MARKET SERVED     PER PROPERTY      PROPERTIES       ROOMS       INTERNATIONAL*
      -----        -------------     ------------      ----------       -----       --------------
                                                                    
Days Inn           Lower Economy           90            1,830         163,999      International(1)
Howard Johnson       Mid-market           106              489          51,807      International(2)
Knights Inn        Lower Economy           82              222          18,196        International
Ramada               Mid-market           131             1004         131,591         Domestic
Super 8               Economy              61             1759         108,111      International(3)
Travelodge         Upper Economy           82              521          42,857       Domestic(1)(5)
Villager Lodge     Lower Economy           74               99           7,284      International(4)
Wingate           Upper Mid-market         94               54           5,051      International(4)
- ---------------


*     Description of rights owned or licensed.
(1)   Includes properties in Mexico, Canada, China, South Africa, India, Uruguay
      and the Philippines.
(2)   Includes Mexico, Canada, Colombia, Israel, Venezuela, Malta, U.A.E. and
      the Dominican Republic.
(3)   Includes properties in Canada and Singapore.
(4)   No international properties currently open and operating.
(5)   Rights include all of North America.

                                       9


     OPERATIONS - LODGING. Our organization is designed to provide a high level
of service to our franchisees while maintaining a controlled level of overhead
expense. In the lodging segment, expenses related to marketing and reservations
services are budgeted to match marketing and reservation fees each year.

     NATIONAL RESERVATIONS SYSTEMS. Unlike many other franchise businesses (such
as restaurants), the lodging business is characterized by remote purchasing
through travel agencies and through use by consumers of toll-free telephone
numbers. Each of our reservation systems is independently operated, focusing on
its specific brand and franchise system, and is comprised of one or more
nationally advertised toll-free telephone numbers, reservation agents who accept
inbound calls, a computer operation that processes reservations, and automated
links which accept reservations from travel agents and other travel providers,
such as airlines, and which report reservations made through the system to each
franchisee property. Each reservation agent handles reservation requests and
inquiries for only one of our franchise systems and there is no "cross selling"
of franchise systems to consumers. We maintain seven reservations centers that
are located in Knoxville and Elizabethton, Tennessee; Phoenix, Arizona; Winner
and Aberdeen, South Dakota; Orangeburg, South Carolina and Saint John, New
Brunswick, Canada.

     LODGING FRANCHISE AGREEMENTS. Our lodging franchise agreements grant the
right to utilize one of the brand names associated our lodging franchise systems
to lodging facility owners or operators under long-term franchise agreements. An
annual average of 2.1% of our existing franchise agreements are scheduled to
expire from January 1, 1999 through December 31, 2006, with no more than 2.8%
(in 2002) scheduled to expire in any one of those years.

     The current standard agreements generally are for 15-year terms for
converted properties and 20-year terms for newly constructed properties and
generally require, among other obligations, franchisees to pay a minimum initial
fee based on property size and type, as well as continuing franchise fees
comprised of royalty fees and marketing/reservation fees based on gross room
revenues.

     Under the terms of the standard franchise agreements in effect at December
31, 1998, franchisees are typically required to pay recurring fees comprised of
a royalty portion and a reservation/marketing portion, calculated as a
percentage of annual gross room revenue that range from 7.0% to 8.8%. We
discount fees from the standard rates from time to time and under certain
circumstances.

     Our typical franchise agreement is terminable by us upon the franchisee's
failure to maintain certain quality standards, to pay franchise fees or other
charges or to meet other specified obligations. In the event of such
termination, we are typically entitled to be compensated for lost revenues in an
amount equal to the franchise fees accrued during periods specified in the
respective franchise agreements which are generally between one and five years.

     LODGING SERVICE MARKS AND OTHER INTELLECTUAL PROPERTY. The service marks
"Days Inn," "Ramada," "Howard Johnson," "Super 8," "Travelodge" and related
logos are material to our business. We, through our franchisees, actively use
these marks. All of the material marks in each franchise system are registered
(or have applications pending for registration) with the United States Patent
and Trademark Office. We own the marks relating to the Days Inn system, the
Howard Johnson system, the Knights Inn system, the Super 8 system, the
Travelodge system (in North America), the Villager Lodge system and the Wingate
Inn system through our subsidiaries.

     We franchise the service mark "Ramada" and related marks, Ramada brands and
logos (the "Ramada Marks") to lodging facility owners in the United States
pursuant to two license agreements (the "Ramada License Agreements") between an
indirect subsidiary of Marriott Corporation ("Licensor") and Ramada Franchise
Systems, Inc. ("RFS"), our wholly-owned subsidiary. The Ramada License
Agreements limit RFS's use of the Ramada Marks to the U.S. market.

     The Ramada License Agreements have initial terms terminating on March 31,
2024. At the end of the initial terms, RFS has the right either (i) to extend
the Ramada License Agreements, (ii) to purchase the Ramada Marks for their fair
market value at the date of purchase, subject to certain minimums after the
initial terms, or (iii) to terminate the Ramada License Agreements. The Ramada
License Agreements require that RFS pay license fees

                                       10


to the Licensor calculated on the basis of percentages of annual gross room
sales, subject to certain minimums and maximums as specified in each Ramada
License Agreement. RFS received approximately $46 million in royalties from its
Ramada franchisees in 1998 and paid the Licensor approximately $23 million in
license fees.

     The Ramada License Agreements are subject to certain termination events
relating to, among other things, (i) the failure to maintain aggregate annual
gross room sales minimum amounts stated in the Ramada License Agreements, (ii)
the maintenance by us of a minimum net worth of $50 million (however, this
minimum net worth requirement may be satisfied by a guaranty of an affiliate of
ours with a net worth of at least $50 million or by an irrevocable letter of
credit (or similar form of third-party credit support)), (iii) non-payment of
royalties, (iv) failure to maintain registrations on the Ramada Marks and to
take reasonable actions to stop infringements, (v) failure to pay certain
liabilities specified by the Restructuring Agreement, dated July 15, 1991, by
and among New World Development Co., Ltd. (a predecessor to Licensor), Ramada
International Hotels and Resorts, Inc., Ramada Inc., Franchise System Holdings,
Inc., the Company and RFS and (vi) failure to maintain appropriate hotel
standards of service and quality. A termination of the Ramada License Agreements
would result in the loss of the income stream from franchising the Ramada brand
names and could result in the payment by us of liquidated damages equal to three
years of license fees. We do not believe that it will have difficulty complying
with all of the material terms of the Ramada License Agreements.

     LODGING COMPETITION. Competition among the national lodging brand
franchisors to grow their franchise systems is intense. Our primary national
lodging brand competitors are the Holiday Inn(R)and Best Western(R) brands and
Choice Hotels, which franchises seven brands, including the Comfort Inn(R),
Quality Inn(R)and Econo Lodge(R) brands. Days Inn, Travelodge and Super 8
properties principally compete with Comfort Inn, Red Roof Inn(R), and Econo
Lodge in the limited service economy sector of the market. The chief competitor
of Ramada, Howard Johnson and Wingate Inn properties, which compete in the
middle market segment of the hotel industry, is Holiday Inn(R) and Hampton
Inn(R). Our Knights Inn and Travelodge brands compete with Motel 6(R)
properties. In addition, a lodging facility owner may choose not to affiliate
with a franchisor but to remain independent.

     We believe that competition for the sale of franchises in the lodging
industry is based principally upon the perceived value and quality of the brand
and services offered to franchisees, as well as the nature of those services. We
believe that prospective franchisees value a franchise based upon their view of
the relationship of conversion costs and future charges to the potential for
increased revenue and profitability. The reputation of the franchisor among
existing franchisees is also a factor, which may lead a property owner to select
a particular affiliation. We also believe that the perceived value of its brand
names to prospective franchisees is, to some extent, a function of the success
of its existing franchisees.

     The ability of our lodging franchisees to compete in the lodging industry
is important to our prospects for growth, although, because franchise fees are
based on franchisee gross room revenue, our revenue is not directly dependent on
franchisee profitability.

     The ability of an individual franchisee to compete may be affected by the
location and quality of its property, the number of competing properties in the
vicinity, its affiliation with a recognized brand name, community reputation and
other factors. A franchisee's success may also be affected by general, regional
and local economic conditions. The effect of these conditions on our results of
operations is substantially reduced by virtue of the diverse geographical
locations of our franchises.

     LODGING SEASONALITY. The principal source of lodging revenue for us is
based upon the annual gross room revenue of franchised properties. As a result,
our revenue from the lodging franchise business experiences seasonal lodging
revenue patterns similar to those of the hotel industry wherein the summer
months, because of increases in leisure travel, produce higher revenues than
other periods during the year. Therefore, any occurrence that disrupts travel
patterns during the summer period could have a material adverse effort on the
franchisee's annual performance and effect our annual performance.

                                       11


THE TIMESHARE EXCHANGE BUSINESS

     GENERAL. We acquired Resort Condominiums International, Inc. (now Resort
Condominiums International, LLC), on November 12, 1996. Our RCI subsidiary is
the world's largest provider of timeshare vacation exchange opportunities and
timeshare services for more than 2.5 million timeshare households from more than
200 nations and more than 3,400 resorts in more than 90 countries around the
world. RCI's business consists primarily of the operation of an exchange program
for owners of condominium timeshares or whole units at affiliated resorts, the
publication of magazines and other periodicals related to the vacation and
timeshare industry, travel related services, resort management, integrated
software systems and service and consulting services. RCI has significant
operations in North America, Europe, the Middle East, Latin America, Africa,
Australia, and the Pacific Rim. RCI has more than 3,900 employees worldwide.

     The resort component of the leisure industry is primarily serviced by two
alternatives for overnight accommodations: commercial lodging establishments and
timeshare resorts. Commercial lodging consists principally of: a) hotels and
motels in which a room is rented on a nightly, weekly or monthly basis for the
duration of the visit and b) rentals of privately-owned condominium units or
homes. Oftentimes, this segment is designed to serve both the leisure and
business traveler. Timeshare resorts present an economical and reliable
alternative to commercial lodging for many vacationers who want to experience
the added benefits associated with ownership. Timeshare resorts are purposely
designed and operated for the needs and enjoyment of the leisure traveler.

     Resort timesharing -- also referred to as vacation ownership -- is the
shared ownership and/or periodic use of property by a number of users or owners
for a defined period of years or in perpetuity. An example of a simple form of
timeshare is a condominium unit that is owned by fifty-one persons, with each
person having the right to use the unit for one week of every year and with one
week set aside for maintenance. In the United States, industry sources estimate
that the average price of such a timeshare is about $10,000, plus a yearly
maintenance fee of approximately $350 per interval owned. Based upon information
published about the industry, we believe that 1998 sales of timeshares exceeded
$6 billion worldwide. Two principal segments make up the timeshare exchange
industry: owners of timeshare interest (consumers) and resort properties
(developers/operators). Industry sources have estimated that the total number of
owner households of timeshare interests is nearly 4.5 million worldwide, while
the total number of timeshare resorts worldwide has been estimated to be nearly
5,000. The timeshare exchange industry derives revenue from annual subscribing
membership fees paid by owners of timeshare interests, fees paid by such owners
for each exchange and fees paid by members and resort affiliates for various
other products and services.

     The "RCI Network" provides RCI members who own timeshares at RCI-affiliated
resorts the capability to exchange their timeshare vacation accommodations in
any given year for comparable value accommodations at other RCI-affiliated
resorts. Approximately 1.2 million members of the RCI Network, representing
approximately 50% of the total members of the RCI Network reside outside of the
United States. RCI's membership volume has grown at a compound annual rate for
the last five years of approximately 8%, while exchange volumes have grown at a
compound annual rate of approximately 8% for the same time period.

     RCI provides members of the RCI Network with access to both domestic and
international timeshare resorts, publications regarding timeshare exchange
opportunities and other travel-related services, including discounted purchasing
programs. In 1998, members in the United States paid an average annual
subscribing membership fee of $66 as well as an average exchange fee of $120 for
every exchange arranged by RCI. In 1998, membership and exchange fees totaled
approximately $330 million and RCI arranged more than 1.8 million exchanges.

     Developers of resorts affiliated with the RCI Network typically pay the
first year subscribing membership fee for new owner/members upon the sale of the
timeshare interest.

     TIMESHARE EXCHANGE BUSINESS GROWTH. The timeshare exchange industry has
experienced significant growth over the past decade. We believe that the factors
driving this growth include the demographic trend toward older, more affluent
Americans who travel more frequently; the entrance of major hospitality and
entertainment companies

                                       12


into timeshare development; a worldwide acceptance of the timeshare concept; and
an increasing focus on leisure activities, family travel and a desire for value,
variety and flexibility in a vacation experience. We believe that future growth
of the timeshare exchange industry will be determined by general economic
conditions both in the U.S. and worldwide, the public image of the industry,
improved approaches to marketing and sales, a greater variety of products and
price points, the broadening of the timeshare market and a variety of other
factors. Accordingly, we cannot predict if future growth trends will continue at
rates comparable to those of the recent past.

     OPERATIONS. Our timeshare exchange business is designed to provide high
quality, leisure travel services to its members and cost-effective,
single-source support services to its affiliated timeshare resorts. Most members
are acquired from timeshare developers who purchase an initial RCI subscribing
membership for each buyer at the time the timeshare interval is sold. A small
percentage of members are acquired through direct solicitation activities of
RCI.

     MEMBER SERVICES. International Exchange System. Members are served through
a network of call centers located in more than 20 countries throughout the
world. These call centers are staffed by approximately 1,900 people. Major
regional call and information support centers are located in Indianapolis, Saint
John (Canada), Kettering (England), Cork (Ireland), Mexico City and Singapore.
All members receive a directory that lists resorts available through the
exchange system, a periodic magazine and other information related to the
exchange system and available travel services. These materials are published in
various languages.

     TRAVEL SERVICES. In addition to exchange services, RCI's call centers also
engage in telemarketing and cross selling of other ancillary travel and
hospitality services. These services are offered to a majority of members
depending on their location. RCI provides travel services to U.S. members of the
RCI Network through its affiliate, RCI Travel, Inc. ("RCIT"). On a global basis,
RCI provides travel services through entities operating in local jurisdictions
(hereinafter, RCIT and its local entities are referred to as "Travel Agencies").
Travel Agencies provide airline reservations and airline ticket sales to members
in conjunction with the arrangement of their timeshare exchanges, as well as
providing other types of travel services, including hotel accommodations, car
rentals, cruises and tours. Travel Agencies also from time to time offer travel
packages utilizing resort developers' unsold inventory to generate both revenue
and prospective timeshare purchasers to affiliated resorts.

     RESORT SERVICES. Resort Affiliations. Growth of the timeshare business is
dependent on the sale of timeshare units by affiliated resorts. RCI affiliates
international brand names and independent developers, owners' associations and
vacation clubs. We believe that national lodging and hospitality companies are
attracted to the timeshare concept because of the industry's relatively low
product cost and high profit margins, and the recognition that timeshare resorts
provide an attractive alternative to the traditional hotel-based vacation and
allow the hotel companies to leverage their brands into additional resort
markets where demand exists for accommodations beyond traditional rental-based
lodging operations. Today, 7 of every 10 timeshare resorts worldwide are
affiliated with RCI. We also believe that RCI's existing affiliates represent a
significant potential market because many developers and resort managers may
become involved in additional resorts in the future which can be affiliated with
RCI. Accordingly, a significant factor in RCI's growth strategy is maintaining
the satisfaction of its existing affiliates by providing quality support
services.

     TIMESHARE CONSULTING. RCI provides worldwide timeshare consulting services
through its affiliate, RCI Consulting, Inc. ("RCIC"). These services include
comprehensive market research, site selection, strategic planning, community
economic impact studies, resort concept evaluation, financial feasibility
assessments, on-site studies of existing resort developments, and tailored sales
and marketing plans.

     RESORT MANAGEMENT SOFTWARE. RCI provides computer software systems to
timeshare resorts and developers through its affiliate, Resort Computer
Corporation ("RCC"). RCC provides software that integrates resort functions such
as sales, accounting, inventory, maintenance, dues and reservations. Our RCC
Premier information management software is believed to be the only technology
available today that can fully support timeshare club operations and points
based reservation systems.

                                       13


     PROPERTY MANAGEMENT. RCI provides resort property management services
through its affiliate, RCI Management, Inc. ("RCIM"). RCIM is a single source
for any and all resort management services, and offers a menu including
hospitality services, a centralized reservations service center, advanced
reservations technology, human resources expertise and owners' association
administration.

     TIMESHARE PROPERTY AFFILIATION AGREEMENTS. More than 3,400 timeshare
resorts are affiliated with the RCI Network, of which more than 1,400 resorts
are located in the United States and Canada, more than 1,260 in Europe and
Africa, more than 475 in Mexico and Latin America, and more than 320 in the
Asia-Pacific region. The terms of RCI's affiliation agreement with its
affiliates generally require that the developer enroll each new timeshare
purchaser at the resort as a subscribing member of RCI, license the affiliated
resort to use the RCI name and trademarks for certain purposes, set forth the
materials and services RCI will provide to the affiliate, and generally describe
RCI's expectations of the resort's management. The affiliation agreement also
includes stipulations for representation of the exchange program, minimum
enrollment requirements and treatment of exchange guests. Affiliation agreements
are typically for a term of five years, and automatically renew thereafter for
terms of one to five years unless either party takes affirmative action to
terminate the relationship. RCI makes available a wide variety of goods and
services to its affiliated developers, including publications, advertising,
sales and marketing materials, timeshare consulting services, resort management
software, travel packaging and property management services.

     RCI LICENSED MARKS AND INTELLECTUAL PROPERTY. The service marks "RCI",
"Resort Condominiums International" and related trademarks and logos are
material to RCI's business. RCI and its subsidiaries actively use the marks. All
of the material marks used in RCI's business are registered (or have
applications pending for registration) with the United States Patent and
Trademark Office as well as major countries worldwide where RCI or its
subsidiaries have significant operations. We own the marks used in RCI's
business.

     COMPETITION. The global timeshare exchange industry is comprised of a
number of entities, including resort developers and owners. RCI's largest
competitor is Interval International Inc. ("Interval"), formerly our wholly
owned subsidiary, and a few other smaller firms. Based upon industry sources, we
believe that 98% of the nearly 5,000 timeshare resorts in the world are
affiliated with either RCI or Interval. Based upon 1997 published statistics and
our information, RCI had over 2.5 million timeshare households that are members,
while Interval had approximately 850,000 timeshare households that are members.
Also, in 1997, RCI confirmed more than 1.8 million exchange transactions while
Interval confirmed approximately 480,000 transactions. As a result, based on
1997 business volume, RCI services approximately 73% of members and
approximately 79% of exchange transactions. RCI is bound by the terms of a
Consent Order issued by the Federal Trade Commission which restricts the right
of RCI to solicit, induce, or attempt to induce clients of Interval
International Inc. to either terminate or not to renew their existing Interval
contracts. The proposed Consent Order contains certain other restrictions. The
restrictions generally expire on or before December 17, 1999.

     SEASONALITY. A principal source of timeshare revenue relates to exchange
services to members. Since members have historically shown a tendency to plan
their vacations in the first quarter of the year, revenues are generally
slightly higher in the first quarter in comparison to other quarters of the
year. The Company cannot predict whether this trend will continue in the future
as the timeshare business expands outside of the United States and Europe, and
as global travel patterns shift with the aging of the world population.

AVIS CAR RENTAL FRANCHISE BUSINESS

     GENERAL. On October 17, 1996, we completed the acquisition of all of the
outstanding capital stock of Avis, Inc. which together with its subsidiaries,
licensees and affiliates, operated the Avis Worldwide Vehicle System (the "Avis
System"). As part of its previously announced plan, on September 24, 1997, we
completed the initial public offering ("IPO") of our subsidiary, Avis Rent A
Car, Inc. ("ARAC"), which owned and operated the company-owned Avis car rental
operations. We currently own approximately 19% of the outstanding Common Stock
of ARAC. We no longer operate any car rental locations but own the Avis brand
name and the Avis System, which we license to our franchisees, including ARAC,
the largest Avis System franchisee.

                                       14


     The Avis System is comprised of approximately 4,200 rental locations,
including locations at the largest airports and cities in the United States and
approximately 160 other countries and territories and a fleet of approximately
404,000 vehicles during the peak season, all of which are granted by
franchisees. Approximately 90% of the Avis System rental revenues in the United
States are received from locations operated by ARAC directly or under agency
arrangements, with the remainder being received from locations operated by
independent licensees. The Avis System in Europe, Africa, part of Asia and the
Middle East is operated under franchise by Avis Europe Ltd. ("Avis Europe").

     INDUSTRY. The car rental industry provides vehicle rentals to business and
individual customers worldwide. The industry has been composed of two principal
segments: general use (mainly at airport and downtown locations) and local
(mainly at downtown and suburban locations). The car rental industry rents
primarily from on-airport, near-airport, downtown and suburban locations to
business and leisure travelers and to individuals who have lost the use of their
vehicles through accident, theft or breakdown. In addition to revenue from
vehicle rentals, the industry derives significant revenue from the sale of
rental related products such as insurance, refueling services and loss damage
waivers (a waiver of the franchisee's right to make a renter pay for damage to
the rented car).

     Car renters generally are (i) business travelers renting under negotiated
contractual arrangements between specified rental companies and the travelers'
employers, (ii) business travelers who do not rent under negotiated contractual
arrangements (but who may receive discounts through travel, professional or
other organizations), (iii) leisure travelers and (iv) renters who have lost the
use of their own vehicles through accident, theft or breakdown. Contractual
arrangements normally are the result of negotiations between rental companies
and large corporations, based upon rates, billing and service arrangements, and
influenced by reliability and renter convenience. Business travelers who are not
parties to negotiated contractual arrangements and leisure travelers generally
are influenced by advertising, renter convenience and access to special rates
because of membership in travel, professional and other organizations.

     AVIS SYSTEM AND WIZARD SYSTEM SERVICES. The Avis System provides Avis
System franchisees access to the benefits of a variety of services, including
(i) comprehensive safety initiatives, including the "Avis Cares" Safe Driving
Program, which offers vehicle safety information, directional assistance such as
satellite guidance, regional maps, weather reports and specialized equipment for
travelers with disabilities; (ii) standardized system identity for rental
location presentation and uniforms; (iii) training program and business
policies, quality of service standards and data designed to monitor service
commitment levels; (iv) marketing/advertising/public relations support for
national consumer promotions including Frequent Flyer/Frequent Stay programs and
the Avis System internet website; and (v) brand awareness of the Avis System
through the familiar "We try harder" service announcements.

     Avis System franchisees are also provided with access to the Wizard System,
a reservations, data processing and information management system for the
vehicle rental business. The Wizard System is linked to all major travel
networks on six continents through telephone lines and satellite communications.
Direct access with other computerized reservations systems allows real-time
processing for travel agents and corporate travel departments. Among the
principal features of the Wizard System are:

         o  an advanced graphical interface reservation system;

         o  "Roving Rapid Return," which permits customers who are returning
            vehicles to obtain completed charge records from radio-connected
            "Roving Rapid Return" agents who complete and deliver the charge
            record at the vehicle as it is being returned;

         o  "Preferred Service," an expedited rental service that provides
            customers with a preferred service rental record printed prior to
            arrival, a pre-assigned vehicle and fast convenient check out;

         o  "Wizard on Wheels," which enables the Avis System locations to
            assign vehicles and complete rental agreements while customers are
            being transported to the vehicle;

                                       15


         o  "Flight Arrival Notification," a flight arrival notification system
            that alerts the rental location when flights have arrived so that
            vehicles can be assigned and paperwork prepared automatically;

         o  "Avis Link," which automatically identifies the fact that a user of
            a major credit card is entitled to special rental rates and
            conditions, and therefore sharply reduces the number of instances in
            which the Company inadvertently fails to give renters the benefits
            of negotiated rate arrangements to which they are entitled;

         o  interactive interfaces through third-party computerized reservation
            systems; and

         o  sophisticated automated ready-line programs that, among other
            things, enable rental agents to ensure that a customer who rents a
            particular type of vehicle will receive the available vehicle of
            that type which has the lowest mileage.

     In 1998, the Wizard System processed approximately 30.8 million incoming
customer calls, during which customers inquired about locations, rates and
availability and placed or modified reservations. In addition, millions of
inquiries and reservations come to franchisees through travel agents and travel
industry partners, such as airlines. Regardless of where in the world a customer
may be located, the Wizard System is designed to ensure that availability of
vehicles, rates and personal profile information is accurately delivered at the
proper time to the customer's rental destination.

     AVIS LICENSED MARKS AND INTELLECTUAL PROPERTY. The service mark "Avis",
related marks incorporating the word "Avis", and related logos are material to
our business. Our subsidiaries, joint ventures and licensees, actively use these
marks. All of the material marks used in Avis's business are registered (or have
applications pending for registration) with the United States Patent and
Trademark Office. We own the marks used in Avis's business. The purposes for
which we are authorized to use the marks include use in connection with
businesses in addition to car rental and related businesses, including, but not
limited to, equipment rental and leasing, hotels, insurance and information
services.

     LICENSEES AND LICENSE AGREEMENTS. We have 68 independent licensees that
operate locations in the United States. The largest licensee, ARAC, accounts for
approximately 89% of all United States licensees' rentals. Other than ARAC,
certain licensees in the United States pay us a fee equal to 5% of their total
time and mileage charges, less all customer discounts, of which we are required
to pay 40% for corporate licensee-related programs, while 6 licensees pay 8% of
their gross revenue. Licensees outside the United States normally pay higher
fees. Other than ARAC, our United States licensees currently pay .54 cents per
rental agreement for use of certain portions of the Wizard System, and they are
charged for use of other aspects of the Wizard System.

     ARAC has entered into a Master License Agreement with the Company, which
grants ARAC the right to operate the Avis vehicle rental business in certain
specified territories. Pursuant to the Master License Agreement, ARAC has agreed
to pay us a monthly base royalty of 3.0% of ARAC's gross revenue. In addition,
ARAC has agreed to pay a supplemental royalty of 1.1 % of gross revenue payable
quarterly in arrears which will increase 0.1% per year in each of the following
three years thereafter to a maximum of 1.5% (the "Supplemental Fee"). These fees
have been paid by ARAC since January 1, 1997. Until the fifth anniversary of the
effective date of the Master License Agreement, the Supplemental Fee or a
portion thereof may be deferred by ARAC if ARAC does not attain certain
financial targets.

     In 1997, Avis Europe's previously paidup license for Europe, the Middle
East and Africa was modified to provide for a paid-up license only as to Europe
and the Middle East. Avis Europe will pay us annual royalties for Africa and a
defined portion of Asia which covers the area between 60E longitude and 150E
longitude, excluding Australia, New Zealand and Papua New Guinea. The Avis
Europe license expires on November 30, 2036, unless earlier termination is
effected in accordance with the license terms. Avis Europe also entered into a
Preferred Alliance Agreement with us under which Avis Europe became a preferred
alliance provider for car rentals to RCI customers in Europe, Asia and Africa,
and for car rentals to PHH customers needing replacement vehicles for fleets
managed by PHH in

                                       16


Europe, Asia and Africa.

     COMPETITION. The vehicle rental industry is characterized by intense price
and service competition. In any given location, franchisees may encounter
competition from national, regional and local companies, many of which,
particularly those owned by the major automobile manufacturers, have greater
financial resources than Avis and us. However, because the Company's royalty
fees are based upon the gross revenue of Avis and the other Avis System
franchisees, our revenue is not directly dependent on franchisee profitability.

     The franchisees' principal competitors for commercial accounts in the
United States are the Hertz Corporation ("Hertz") and National Car Rental
System, Inc. ("National"). Principal competitors for unaffiliated business and
leisure travelers in the United States are Budget Rent A Car Corporation, Hertz
and National, and, particularly with regard to leisure travelers, Alamo
Rent-A-Car Inc. In addition, the franchisees compete with a variety of smaller
vehicle rental companies throughout the country.

     SEASONALITY. The car rental franchise business is subject to seasonal
variations in customer demand, with the third quarter of the year, which covers
the summer vacation period, representing the peak season for vehicle rentals.
Therefore, any occurrence that disrupts travel patterns during the summer period
could have a material adverse effect on the franchisee's annual performance and
affect our annual financial performance. The fourth quarter is generally the
weakest financial quarter for the Avis System because there is limited leisure
travel and a greater potential for adverse weather conditions at such time.

FLEET SEGMENT

Pursuant to our program to divest non-strategic businesses and assets, on June
30, 1999, we completed the disposition of our Fleet Segment for aggregate
consideration of $1.8 billion (see "Recent Developments - Strategic
Developments"). The following is a description of the Fleet Segment businesses
for the year ended December 31, 1998:

     GENERAL. Through our PHH Vehicle Management Services Corporation and PHH
Management Services PLC subsidiaries, we offered a full range of fully
integrated fleet management services to corporate clients and government
agencies comprising over 780,000 vehicles under management on a worldwide basis.
These services included vehicle leasing, advisory services and fleet management
services for a broad range of vehicle fleets. Advisory services included fleet
policy analysis and recommendations, benchmarking, and vehicle recommendations
and specifications. In addition, we provided managerial services which included
ordering and purchasing vehicles, arranging for their delivery through
dealerships located throughout the United States, Canada, the United Kingdom,
Germany and the Republic of Ireland, as well as capabilities throughout Europe,
administration of the title and registration process, as well as tax and
insurance requirements, pursuing warranty claims with vehicle manufacturers and
re-marketing used vehicles. We also offered various leasing plans for our
vehicle leasing programs, financed primarily through the issuance of commercial
paper and medium-term notes and through unsecured borrowings under revolving
credit agreements, securitization financing arrangements and bank lines of
credit.

     Through our PHH Vehicle Management Services and Wright Express subsidiaries
in the United States and our Harper Group Limited subsidiary in the U.K., we
also offered fuel and expense management programs to corporations and government
agencies for the effective management and control of automotive business travel
expenses. By utilizing our service cards issued under the fuel and expense
management programs, a client's representatives were able to purchase various
products and services such as gasoline, tires, batteries, glass and maintenance
services at numerous outlets.

     We also provided fuel and expense management programs and a centralized
billing service for companies operating truck fleets in each of the United
Kingdom, Republic of Ireland and Germany. Drivers of the clients' trucks were
furnished with courtesy cards together with a directory listing the names of
strategically located truck stops and service stations, which participated in
this program. Service fees were earned for billing, collection and record
keeping services and for assuming credit risk. These fees were paid by the truck
stop or service stations and/or the

                                       17


fleet operator and were based upon the total dollar amount of fuel purchased or
the number of transactions processed.

     PRODUCTS. Our fleet management services were divided into two principal
products: (1) Asset Based Products, and (2) Fee Based Products.

     Asset Based Products represented the services our clients require to lease
a vehicle that included vehicle acquisition, vehicle re-marketing, financing,
and fleet management consulting. We leased in excess of 350,000 units on a
worldwide basis through both open-end lease structures and closed end
structures. Open-end leases were the prevalent structure in North America
representing 96% of the total vehicles financed in North America and 86% of the
total vehicles financed worldwide. The open-end leases were structured on either
a fixed rate or floating rate basis (where the interest component of the lease
payment changes month to month based upon an index) depending upon client
preference. The open-end leases were typically structured with a 12-month
minimum lease term, with month to month renewals thereafter. The typical unit
remained under lease for approximately 34 months. A client received a full range
of services in exchange for a monthly rental payment that included a management
fee. The residual risk on the value of the vehicle at the end of the lease term
remained with the lessee under an open-end lease, except for a small amount that
was retained by the lessor.

     Closed-end leases were structured with a fixed term with the lessor
retaining the vehicle residual risk. The most prevalent lease terms were 24
months, 36 months, and 48 months. The closed end structure was preferred in
Europe due to certain accounting regulations. The closed-end lease structure was
utilized by approximately 71% of the vehicles leased in Europe, but only 14% of
the vehicles leased on a worldwide basis. We utilized independent third party
valuations and internal projections to set the residuals utilized for these
leases.

     The Fee Based Products were designed to effectively manage costs and
enhance driver productivity. The three main Fee Based Products were Fuel
Services, Maintenance Services and Accident Management. Fuel Services
represented the utilization of our proprietary cards to access fuel through a
network of franchised and independent fuel stations. The cards operated as a
universal card with centralized billing designed to measure and manage costs. In
the United States, Wright Express was the leading fleet fuel cards supplier with
over 125,000 fuel facilities in its network and in excess of 1.6 million cards
issued. Wright Express distributed its fuel cards and related offerings through
three primary channels: (1) the WEX-branded Universal Card, which was issued
directly to fleets by Wright Express, (2) the Private Label Card, under which
Wright Express provided private label fuel cards and related services to
commercial fleet customers of major petroleum companies, and (3) Co-Branded
Marketing, under which Wright Express fuel cards were co-branded and issued in
conjunction with products and services of partners such as commercial vehicle
leasing companies. In the UK, our Harper Group Limited and Cendant Business
Answers PLC subsidiaries, utilizing the All Star and Dial brands, maintained the
largest independent fueling network with more than 12,000 fueling sites and more
than 1.2 million cards in circulation.

     We offered customer vehicle maintenance charge cards that were used to
facilitate repairs and maintenance payments. The vehicle maintenance cards
provided customers with benefits such as (1) negotiated discounts off full
retail prices through our convenient supplier network, (2) access to our
in-house team of certified maintenance experts that monitor each card
transaction for policy compliance, reasonability, and cost effectiveness, and
(3) inclusion of vehicle maintenance card transactions in a consolidated
information and billing database that helps evaluate overall fleet performance
and costs. We maintained an extensive network of service providers in the United
States, Canada, and the United Kingdom to ensure ease of use by the client's
drivers.

     We also provided our clients with comprehensive accident management
services such as (1) providing immediate assistance after receiving the initial
accident report from the driver (i.e. facilitating emergency towing services and
car rental assistance, etc.) (2) organizing the entire vehicle appraisal and
repair process through a network of preferred repair and body shops, and (3)
coordinating and negotiating potential accident claims. Customers received
significant benefits from our accident management services such as (1)
convenient coordinated 24-hour assistance from our call center, (2) access to
our leverage with the repair and body shops included in our preferred supplier
network (the largest in the industry), which typically provided customers with
extremely favorable repair terms and (3) expertise of our damage specialists,
who ensured that vehicle appraisals and repairs were appropriate,
cost-efficient, and in

                                       18


accordance with each customer's specific repair policy.

     COMPETITIVE CONDITIONS. The principal factors for competition in vehicle
management services were service, quality and price. We were competitively
positioned as a fully integrated provider of fleet management services with a
broad range of product offerings. We ranked second in the United States in the
number of vehicles under management and first in the number of proprietary fuel
and maintenance cards for fleet use in circulation. There were four other major
providers of fleet management service in the United States, hundreds of local
and regional competitors, and numerous niche competitors who focused on only one
or two products and did not offer the fully integrated range of products
provided by us. In the United States, it is estimated that only 45% of fleets
are leased by third party providers.

     In the UK, we ranked first in both vehicles under management and
proprietary fuel and maintenance cards. We competed against numerous local and
regional competitors. The UK operation had been able to differentiate itself
through its breadth of product offerings.

REAL ESTATE DIVISION

REAL ESTATE FRANCHISE SEGMENT

     GENERAL. Our Real Estate Franchise Segment represented approximately 8.6%,
7.9% and 7.3% of our revenue for the year ended December 31, 1998, 1997 and
1996, respectively. In August 1995, we acquired Century 21 Real Estate
Corporation ("CENTURY 21"). Century 21 is the world's largest franchisor of
residential real estate brokerage offices with approximately 6,300 independently
owned and operated franchised offices with approximately 102,000 active sales
agents worldwide. In February 1996, we acquired the ERA franchise system. The
ERA system is a leading residential real estate brokerage franchise system with
over 2,600 independently owned and operated franchised offices and more than
29,000 sales agents worldwide. In May 1996, we acquired Coldwell Banker
Corporation ("COLDWELL BANKER"), the owner of the world's premier brand for the
sale of million-dollar-plus homes and now the third largest residential real
estate brokerage franchise system with approximately 3,000 independently owned
and operated franchised offices and approximately 72,000 sales agents worldwide.

     We believe that application of our franchisee focused management strategies
and techniques can significantly increase the revenues produced by our real
estate brokerage franchise systems while also increasing the quality and
quantity of services provided to franchisees. We believe that independent real
estate brokerage offices currently affiliate with national real estate
franchisors principally to gain the consumer recognition and credibility of a
nationally known and promoted brand name. Brand recognition is especially
important to real estate brokers since homebuyers are generally infrequent users
of brokerage services and have often recently arrived in an area, resulting in
little ability to benefit from word-of-mouth recommendations.

     During 1996, we implemented a preferred alliance program which seeks to
capitalize on the dollar volume of home sales brokered by CENTURY 21, COLDWELL
BANKER and ERA agents and the valuable access point these brokerage offices
provide for service providers who wish to reach these home buyers and sellers.
Preferred alliance marketers include providers of property and casualty
insurance, moving and storage services, mortgage and title insurance,
environmental testing services, and sellers of furniture, fixtures and other
household goods.

     Our real estate brokerage franchisees are dispersed geographically, which
minimizes the exposure to any one broker or geographic region. During 1997, we
acquired a preferred equity interest in NRT Incorporated ("NRT"), a newly formed
corporation created to acquire residential real estate brokerage firms. NRT
acquired the assets of National Realty Trust, the largest franchisee of the
COLDWELL BANKER system, in August 1997. NRT has also acquired other independent
regional real estate brokerage businesses during 1998 and 1997 which NRT has
converted to COLDWELL BANKER, CENTURY 21 and ERA franchises. As a result, NRT is
the largest franchisee of our franchise systems, based on gross commissions, and
represents 6% of the franchised offices. Of the nearly 12,000 franchised offices
in our real estate brokerage franchise systems, no individual broker, other than
NRT, accounts for more than 1% of our real estate brokerage revenues.

                                       19


     REAL ESTATE FRANCHISE SYSTEMS. CENTURY 21. CENTURY 21 is the world's
largest residential real estate brokerage franchisor, with approximately 6,300
independently owned and operated franchise offices with more than 102,000 active
sales agents located in 25 countries and territories.

     The primary component of CENTURY 21's revenue is service fees on
commissions from real estate transactions. Service fees are 6% of gross
commission income. CENTURY 21 franchisees who meet certain levels of annual
gross revenue (as defined in the franchise agreements) are eligible for the
CENTURY 21 Incentive Bonus ("CIB") Program, which results in a rebate payment to
qualifying franchisees determined in accordance with the applicable franchise
agreement (up to 2% of gross commission income in current agreements) of such
annual gross revenue. For 1998, approximately 15% of CENTURY 21 franchisees
qualified for CIB payments and such payments aggregated less than 1% of gross
commissions.

     CENTURY 21 franchisees generally contribute 2% (subject to specified
minimums and maximums) of their brokerage commissions each year to the CENTURY
21 National Advertising Fund (the "NAF") which in turn disburses them for local,
regional and national advertising, marketing and public relations campaigns. In
1998, the NAF spent approximately $45 million on advertising and marketing
campaigns.

     COLDWELL BANKER. COLDWELL BANKER is the world's premier brand for the sale
of million-dollar-plus homes and the third largest residential real estate
brokerage franchisor, with approximately 3,000 independently owned and operated
franchise offices in the United States, Canada and the Caribbean, with
approximately 72,000 sales agents. The primary revenue from the COLDWELL BANKER
system is derived from service and other fees paid by franchisees, including
initial franchise fees and ongoing services. COLDWELL BANKER franchisees pay us
annual fees consisting of ongoing service and advertising fees, which are
generally 6.0% and 2.5%, respectively, of a franchisee's annual gross revenues
(subject to annual rebates to franchisees who achieve certain threshold levels
of gross commission income annually, and to minimums and maximums on advertising
fees).

     COLDWELL BANKER franchisees who meet certain levels of annual gross revenue
(as defined in the franchise agreements) are eligible for the Performance
Premium Award ("PPA") Program, which results in a rebate payment to qualifying
franchisees determined in accordance with the applicable franchise agreement (up
to 3% in current agreements) of such annual gross revenue. For 1998,
approximately 28% of COLDWELL BANKER franchisees qualified for PPA payments and
such payments aggregated approximately less than 1% of gross commissions.

     Advertising fees collected from COLDWELL BANKER franchisees are generally
expended on local, regional and national marketing activities, including media
purchases and production, direct mail and promotional activities and other
marketing efforts. In 1998, the COLDWELL BANKER National Advertising Fund
expended approximately $21 million for such purposes.

     ERA. The ERA franchise system is a leading residential real estate
brokerage franchise system, with more than 2,600 independently owned and
operated franchise offices, and more than 29,000 sales agents located in 20
countries. The primary revenue from the ERA franchise system results from (i)
franchisees' payments of monthly membership fees ranging from $216 to $852 per
month, based on volume, plus $196 per branch and a per transaction fee of
approximately $121, and (ii) for franchise agreements entered into after July
1997, royalty fees equal to 6% of the franchisees' gross revenues (5.0% until
December 31, 1999). For franchise agreements dated after January 1, 1998, the
Volume Incentive Program may result in a rebate payment to qualifying
franchisees determined in accordance with the applicable franchise agreement.

     In addition to membership fees and transaction fees, franchisees of the ERA
system pay (i) a fixed amount per month, which ranges from $233 to $933, based
on volume, plus an additional $233 per month for each branch office, into the
ERA National Marketing Fund (the "ERA NMF") and (ii) for franchise agreements
entered into after July 1997, an NMF equal to 2% of the franchisees' gross
revenues, subject to minimums and maximums. The funds in the ERA NMF are
utilized for local, regional and national marketing activities, including media
purchases and production, direct mail and promotional activities and other
marketing efforts. In 1998, the ERA NMF spent

                                       20


approximately $10 million on marketing campaigns.

     REAL ESTATE BROKERAGE FRANCHISE SALES. We market real estate brokerage
franchises primarily to independent, unaffiliated owners of real estate
brokerage companies as well as individuals who are interested in establishing
real estate brokerage businesses. We believe that our existing franchisee base
represents another source of potential growth, as franchisees seek to expand
their existing business to additional markets. Therefore, our sales strategy
focuses on maintaining satisfaction and enhancing the value of the relationship
between the franchisor and the franchisee.

     Our real estate brokerage franchise systems employ a national franchise
sales force consisting of approximately 125 salespersons and sales management
personnel, which is divided into separate sales organizations for the CENTURY
21, COLDWELL BANKER and ERA systems. These sales organizations are compensated
primarily through commissions on sales concluded. Members of the sales forces
are also encouraged to provide referrals to the other sales forces when
appropriate.

     OPERATIONS - REAL ESTATE BROKERAGE. Our brand name marketing programs for
the real estate brokerage business focus on increasing brand awareness
generally, in order to increase the likelihood of potential homebuyers and home
sellers engaging franchise brokers' services. Each brand has a dedicated
marketing staff in order to develop the brand's marketing strategy while
maintaining brand integrity. The corporate marketing services department
provides services related to production and implementation of the marketing
strategy developed by the brand marketing staffs.

     Each brand provides its franchisees and their sales associates with
training programs that have been developed by such brand. The training programs
include mandatory programs instructing the franchisee and/or the sales associate
on how to best utilize the methods of the particular system and additional
optional training programs that expand upon such instruction. Each brand's
training department is staffed with instructors experienced in both real estate
practice and instruction. In addition, we have established regional support
personnel who provide consulting services to the franchisees in their respective
regions.

     Each system provides a series of awards to brokers and their sales
associates who are outstanding performers in each year. These awards signify the
highest levels of achievement within each system and provide a significant
incentive for franchisees to attract and retain sales associates.

     Each system provides its franchisees with referrals of potential customers,
which referrals are developed from sources both within and outside of the
system.

     Through our Cendant Supplier Services operations, we provide our
franchisees with volume purchasing discounts for products, services, furnishings
and equipment used in real estate brokerage operations. In addition to the
preferred alliance programs described hereinafter, Cendant Supplier Services
establishes relationships with vendors and negotiates discounts for purchases by
its customers. We do not maintain inventory, directly supply any of the products
or, generally, extend credit to franchisees for purchases. See "COMBINED
OPERATIONS -- Preferred Alliance and CoMarketing Arrangements" below.

     REAL ESTATE BROKERAGE FRANCHISE AGREEMENTS. Our real estate brokerage
franchise agreements grant the franchises the right to utilize one of the brand
names associated with our real estate brokerage franchise systems to real estate
brokers under franchise agreements.

     Our current form of franchise agreement for all real estate brokerage
brands is terminable by us for the franchisee's failure to pay fees thereunder
or other charges or for other material default under the franchise agreement. In
the event of such termination, the Century 21 and ERA agreements generally
provide that we are entitled to be compensated for lost revenues in an amount
equal to the average monthly franchise fees calculated for the remaining term of
the agreement. Pre-1996 agreements do not provide for liquidated damages of this
sort. See "CENTURY 21," "COLDWELL BANKER" and "ERA" above for more information
regarding the commissions and fees

                                       21


payable under our franchise agreements.

     NRT is the largest franchisee, based on gross commission income, for our
real estate franchise systems. NRT's status as a franchisee is governed by
franchise agreements (the "Franchise Agreements") with our wholly owned
subsidiaries (the "Real Estate Franchisors") pursuant to which NRT has the
non-exclusive right to operate as part of the COLDWELL BANKER, ERA and CENTURY
21 real estate franchise systems at locations specified in the Franchise
Agreements. In February 1999, NRT entered into new fifty year franchise
agreements with the Real Estate Franchisors. These agreements require NRT to pay
royalty fees and advertising fees of 6.0% and 2.0% (2.5% for its COLDWELL BANKER
offices), respectively, on its annual gross revenues. Lower royalty fees apply
in certain circumstances. The Franchise Agreements generally provide
restrictions on NRT's ability to close offices beyond certain limits.

     REAL ESTATE BROKERAGE SERVICE MARKS. The service marks "CENTURY 21,"
"COLDWELL BANKER," and "ERA" and related logos are material to our business.
Through our franchisees, we actively use these marks. All of the material marks
in each franchise system are registered (or have applications pending for
registration) with the United States Patent and Trademark Office. The marks used
in the real estate brokerage systems are owned by us through our subsidiaries.

     COMPETITION. Competition among the national real estate brokerage brand
franchisors to grow their franchise systems is intense. The chief competitors to
our real estate brokerage franchise systems are the Prudential, Better Homes &
Gardens and RE/MAX real estate brokerage brands. In addition, a real estate
broker may choose to affiliate with a regional chain or not to affiliate with a
franchisor but to remain independent.

     We believe that competition for the sale of franchises in the real estate
brokerage industry is based principally upon the perceived value and quality of
the brand and services offered to franchisees, as well as the nature of those
services. We also believe that the perceived value of its brand names to
prospective franchisees is, to some extent, a function of the success of its
existing franchisees.

     The ability of our real estate brokerage franchisees to compete in the
industry is important to our prospects for growth, although, because franchise
fees are based on franchisee gross commissions or volume, our revenue is not
directly dependent on franchisee profitability.

     The ability of an individual franchisee to compete may be affected by the
location and quality of its office, the number of competing offices in the
vicinity, its affiliation with a recognized brand name, community reputation and
other factors. A franchisee's success may also be affected by general, regional
and local economic conditions. The effect of these conditions on our results of
operations is substantially reduced by virtue of the diverse geographical
locations of our franchises. At December 31, 1998, the combined real estate
franchise systems had approximately 8,400 franchised brokerage offices in the
United States and approximately 12,000 offices worldwide. The real estate
franchise systems have offices in 31 countries and territories in North America,
Europe, Asia, Africa and Australia.

     SEASONALITY. The principal sources of our real estate segment revenue are
based upon the timing of residential real estate sales, which are lower in the
first calendar quarter each year, and relatively level the other three quarters
of the year. As a result, our revenue from the real estate brokerage segment of
its business is less in the first calendar quarter of each year.

RELOCATION SEGMENT

     GENERAL. Our Relocation Segment represented approximately 8.4%, 9.5% and
10.7% of our revenues for the year ended December 31, 1998, 1997 and 1996,
respectively. Our Cendant Mobility Services Corporation ("Cendant Mobility")
subsidiary is the largest provider of employee relocation services in the world.
Our Cendant Mobility subsidiary assists more than 100,000 transferring employees
annually, including approximately 15,000 employees internationally each year in
92 countries and 300 destination cities. At December 31, 1998, we employed
approximately 2,400 people in our relocation business.

                                       22


     SERVICES. The employee relocation business offers a variety of services in
connection with the transfer of our clients' employees. The relocation services
provided to our customers include primarily evaluation, inspection and selling
of transferees' homes or purchasing a transferee's home which is not sold for at
least a price determined on the estimated value within a specified time period,
equity advances (generally guaranteed by the corporate customer), certain home
management services, assistance in locating a new home at the transferee's
destination, consulting services and other related services.

     Corporate clients pay a fee for the services performed. Another source of
revenue is interest on the equity advances. Substantially, all costs associated
with such services are reimbursed by the corporate client, including, if
necessary, repayment of equity advances and reimbursement of losses on the sale
of homes purchased in most cases (other than government clients and one
corporate client). As a result of the obligations of most corporate clients to
pay the losses and guarantee repayment of equity advances, our exposure on such
items is limited to the credit risk of the corporate clients of our relocation
businesses and not on the potential changes in value of residential real estate.
We believe such risk is minimal, due to the credit quality of the corporate
clients of our relocation subsidiaries. In transactions with government clients
and one corporate client, which comprise approximately 5% of net revenue, we
assume the risk for losses on the sale of homes, but we control all facets of
the resale process, thereby limiting our exposure.

     The homesale program service is the core service for many domestic and
international programs. This program gives employees guaranteed offers for their
homes and assists clients in the management of employees' productivity during
their relocation. Cendant Mobility allows clients to outsource their relocation
programs by providing clients with professional support for planning and
administration of all elements of their relocation programs. The majority of new
proposals involve outsourcing due to corporate downsizing, cost containment, and
increased need for expense tracking.

     Our relocation accounting services supports auditing, reporting, and
disbursement of all relocation-related expense activity.

     Our group move management services provides coordination for moves
involving a number of employees. Services include planning, communications,
analysis, and assessment of the move. Policy consulting provides customized
consultation and policy review, as well as industry data, comparisons and
recommendations. Cendant Mobility also has developed and/or customized numerous
non-traditional services including outsourcing of all elements of relocation
programs, moving services, and spouse counseling.

     Our moving service, with nearly 70,000 shipments annually, provides support
for all aspects of moving an employee's household goods. We also handle
insurance and claim assistance, invoice auditing, and control the quality of van
line, driver, and overall service.

     Our marketing assistance service provides assistance to transferees in the
marketing and sale of their own home. A Cendant Mobility professional assists in
developing a custom marketing plan and monitors its implementation through the
broker. The Cendant Mobility contact also acts as an advocate, with the local
broker, for employees in negotiating offers which helps clients' employees
benefit from the highest possible price for their homes.

     Our affinity services provide value-added real estate and relocation
services to organizations with established members and/or customers.
Organizations, such as insurance and airline companies that have established
members offer our affinity services' to their members at no cost. This service
helps the organizations attract new members and to retain current members.
Affinity services provide home buying and selling assistance, as well as
mortgage assistance and moving services to members of applicable organizations.
Personal assistance is provided to over 40,000 individuals with approximately
17,500 real estate transactions annually.

     Our international assignment service provides a full spectrum of services
for international assignees. This group coordinates the services previously
discussed; however, they also assist with immigration support, candidate

                                       23


assessment, intercultural training, language training, and repatriation
coaching.

     VENDOR NETWORKS. Cendant Mobility provides relocation services through
various vendor networks that meet the superior service standards and quality
deemed necessary by Cendant Mobility to maintain its leading position in the
marketplace. We have a real estate broker network of approximately 340 principal
brokers and 420 associate brokers. Our van line, insurance, appraisal and
closing networks allow us to receive deep discounts while maintaining control
over the quality of service provided to clients' transferees.

     COMPETITIVE CONDITIONS. The principal methods of competition within
relocation services are service, quality and price. In the United States, there
are two major national providers of such services. We are the market leader in
the United States and third in the United Kingdom.

     SEASONALITY. Our principal sources of relocation service revenue are based
upon the timing of transferee moves, which are lower in the first and last
quarter each year, and at the highest levels in the second quarter.

MORTGAGE SEGMENT

     GENERAL. Our Mortgage Segment represented approximately 6.7%, 4.2% and 3.9%
of our revenues for the year ended December 31, 1998, 1997 and 1996,
respectively. Through our Cendant Mortgage Corporation ("Cendant Mortgage")
subsidiary, we are the tenth largest originator of residential first mortgage
loans in the United States as reported by Inside Mortgage Finance in 1998, and,
on a retail basis, we are the sixth largest originator in 1998. We offer
services consisting of the origination, sale and servicing of residential first
mortgage loans. A full line of first mortgage products are marketed to consumers
through relationships with corporations, affinity groups, financial
institutions, real estate brokerage firms, including CENTURY 21, COLDWELL BANKER
and ERA franchisees, and other mortgage banks. Cendant Mortgage is a centralized
mortgage lender conducting its business in all 50 states. At December 31, 1998,
Cendant Mortgage had approximately 4,000 employees.

     Cendant Mortgage customarily sells all mortgages it originates to investors
(which include a variety of institutional investors) either as individual loans,
as mortgage backed securities or as participation certificates issued or
guaranteed by Fannie Mae Corp., the Federal Home Loan Mortgage Corporation or
the Government National Mortgage Association. Cendant Mortgage also services
mortgage loans. We earn revenue from the sale of the mortgage loans to
investors, as well as from fees earned on the servicing of the loans for
investors. Mortgage servicing consists of collecting loan payments, remitting
principal and interest payments to investors, holding escrow funds for payment
of mortgage related expenses such as taxes and insurance, and otherwise
administering our mortgage loan servicing portfolio.

     Cendant Mortgage offers mortgages through the following platforms:

         o  Teleservices. Mortgages are offered to consumers through an 800
            number teleservices operation based in New Jersey under programs
            including Phone In-Move In(Registered Trademark) for real estate
            organizations, private label programs for financial institutions and
            for relocation clients in conjunction with the operations of Cendant
            Mobility. The teleservices operation provides us with retail
            mortgage volume that contributes to Cendant Mortgage ranking as the
            sixth largest retail originator (Inside Mortgage Finance) in 1998.

         o  Point of Sale. Mortgages are offered to consumers through 175 field
            sales professionals with all processing, underwriting and other
            origination activities based in New Jersey. These field sales
            professionals generally are located in real estate offices and are
            equipped with software to obtain product information, quote interest
            rates and prepare a mortgage application with the consumer.
            Originations from these point of sale offices are generally more
            costly than teleservices originations.

         o  Wholesale/Correspondent. We purchase closed loans from financial
            institutions and mortgage banks after underwriting the loans.
            Financial institutions include banks, thrifts and credit unions.

                                       24


            Such institutions are able to sell their closed loans to a large
            number of mortgage lenders and generally base their decision to sell
            to Cendant Mortgage on price, product menu and/or underwriting. We
            also have wholesale/correspondent originations with mortgage banks
            affiliated with real estate brokerage organizations. Originations
            from our wholesale/correspondent platform are more costly than point
            of sale or teleservices originations.

     STRATEGY. Our strategy is to increase market share by expanding all of our
sources of business with emphasis on the Phone In-Move In(R) program. Phone
In-Move In(R) was developed for real estate firms approximately 21 months ago
and is currently established in over 4,000 real estate offices at December 31,
1998. We are well positioned to expand our relocation and financial institutions
business channels as it increases our linkage to Cendant Mobility clients and
works with financial institutions which desire to outsource their mortgage
originations operations to Cendant Mortgage. Each of these market share growth
opportunities is driven by our low cost teleservices platform, which is
centralized in Mt. Laurel, New Jersey. The competitive advantages of using a
centralized, efficient and high quality teleservices platform allows us to
capture a higher percentage of the highly fragmented mortgage market more cost
effectively.

     COMPETITIVE CONDITIONS. The principal methods of competition in mortgage
banking services are service, quality and price. There are an estimated 20,000
national, regional or local providers of mortgage banking services across the
United States. Cendant Mortgage has increased its mortgage origination market
share in the United States to 1.8% in 1998 from 0.9% in 1996. The market share
leader reported a 7.7% market share in the United States according to Insider
Mortgage Finance for 1998.

     SEASONALITY. The principal sources of mortgage services segment revenue are
based principally on the timing of mortgage origination activity, which is based
upon the timing of residential real estate sales. Real estate sales are lower in
the first calendar quarter each year and relatively level the other three
quarters of the year. As a result, our revenue from the mortgage services
business is less in the first calendar quarter of each year.

DIRECT MARKETING DIVISION

     Our direct marketing division is divided into two segments: individual
membership and insurance/wholesale. The individual membership segment, with
approximately 32 million memberships, provides customers with access to a
variety of discounted products and services in such areas as retail shopping,
travel, auto and home improvement. The individual membership products and
services are designed to enhance customer loyalty by delivering value to the
customer. The insurance/wholesale segment, with nearly 31 million customers,
markets and administers insurance products, primarily accidental death
insurance, and also provides products and services such as checking account
enhancement packages, financial products and discount programs to customers of
various financial institutions. The direct marketing activities are conducted
principally through our Cendant Membership Services, Inc. subsidiary and certain
of our other wholly owned subsidiaries, including FISI and BCI.

     We derive our direct marketing revenue principally from membership service
fees, insurance premiums and product sales. We solicit members and customers for
many of our programs by direct marketing and by using a direct sales force to
call on financial institutions, schools, community groups, companies and
associations. Some of the our individual memberships are available online to
interactive computer users via major online services and the Internet's World
Wide Web. See "--Distribution Channels".

INDIVIDUAL MEMBERSHIP SEGMENT

     Our Individual Membership segment represented approximately 17.6%, 18.4%
and 23% of our revenues for the year ended December 31, 1998, 1997 and 1996,
respectively. We affiliate with business partners such as leading financial
institutions, retailers, and oil companies to offer membership as an enhancement
to their credit card customers. Participating institutions generally receive
commissions on initial and renewal memberships, based on a percentage of the net
membership fees. Individual memberships are marketed, primarily using direct
marketing techniques, through participating institutions with the Company
generally paying for the marketing costs to

                                       25


solicit the prospective members. The member pays our business partners directly
for the service and, in most instances, is billed via a credit card. Membership
fees vary depending upon the particular membership program, and annual fees
generally range from $49 to $79 per year. Most of our memberships are for
one-year renewable terms, and members are generally entitled to unlimited use
during the membership period of the service for which the members have
subscribed. Members generally may cancel their memberships and obtain a full
refund at any point during the membership term. As of November 1998, all new
online individual memberships are refundable on a pro-rata basis over the term
of the membership. The services may be accessed either through the Internet
(online) or through the mail or by telephone (off-line).

OFF-LINE PRODUCTS

     Individual membership programs offer consumers discounts on over 500,000
products and services by providing shop at home convenience in areas such as
retail shopping, travel, automotive, dining and home improvement. Membership
programs include among others Shoppers Advantage(R), Travelers Advantage(R),
AutoVantage(R), Credit Card Guardian(R), and PrivacyGuard(R), and other
membership programs. A brief description of the different types of membership
programs is as follows:

     Shopping. Shoppers Advantage(R) is a discount shopping program whereby we
provide product price information and home shopping services to our members. Our
merchandise database contains information on over 100,000 brand name products,
including a written description of the product, the manufacturer's suggested
retail price, the vendor's price, features and availability. All of these
products may be purchased through our independent vendor network. Vendors
include manufacturers, distributors and retailers nationwide. Individual members
are entitled to an unlimited number of toll free calls seven days a week to our
shopping consultants, who access the merchandise database to obtain the lowest
available fully delivered cost from participating vendors for the product
requested and accept any orders that the member may place. We inform the vendor
providing the lowest price of the member's order and that vendor then delivers
the requested product directly to the member. We act as a conduit between our
members and the vendors; accordingly, we do not maintain an inventory of
products.

     As part of our individual member Shoppers Advantage(R) program, we
distribute catalogs four to ten times per year to certain members. In addition,
we automatically extend the manufacturer's warranty on all products purchased
through the Shoppers Advantage(R) program and offer a low price guarantee.

     Travel. Travelers Advantage(R) is a discount travel service program whereby
our Cendant Travel, Inc. ("Cendant Travel") subsidiary (one of the ten largest
full service travel agencies in the U.S.), obtains information on schedules and
rates for major scheduled airlines, hotel chains and car rental agencies from
the American Airlines Sabre(R) Reservation System. In addition, we maintain our
own database containing information on tours, travel packages and short notice
travel arrangements. Members book their reservations through Cendant Travel,
which earns commissions (ranging from 5%-25%) on all travel sales from the
providers of the travel services. Certain Travelers Advantage(R) members can
earn cash awards from the Company equal to a specified percentage (generally 5%)
of the price of travel arrangements purchased by the member through Cendant
Travel. Travel members may book their reservations by making toll-free telephone
calls seven days a week, generally twenty-four hours a day to agents at Cendant
Travel. Cendant Travel provides its members with special negotiated rates on
many air, car and hotel bookings. Cendant Travel's agents reserve the lowest
air, hotel and car rental fares available for the members' travel requests and
offer a low price guarantee on such fares.

     Auto. Our auto service, AutoVantage(R), offers members comprehensive new
car summaries and preferred prices on new domestic and foreign cars purchased
through our independent dealer network (which includes over 1,800 dealer
franchises); discounts on maintenance, tires and parts at more than 25,000
locations, including over 35 chains, including nationally known names, such as
Goodyear(R)and Firestone(R), plus regional chains and independent locations; and
used car valuations. AutoVantage Gold(R) offers members additional services
including road and tow emergency assistance 24 hours a day in the United States
and trip routing.

                                       26


     Credit Card Registration. Our Credit Card Guardian(R) and "Hot-Line"
services enable consumers to register their credit and debit cards with us so
that the account numbers of these cards may be kept securely in one place. If
the member notifies us that any of these credit or debit cards are lost or
stolen, we will notify the issuers of these cards, arrange for them to be
replaced and reimburse the member for any amount for which the card issuer may
hold the member liable.

     PrivacyGuard Service. The PrivacyGuard(R) and Credentials(R) services
provide members with a comprehensive and understandable means of monitoring key
personal information. The service offers a member access to information in
certain key areas including: credit history and monitoring, driving records
maintained by state motor vehicle authorities, and medical files maintained by
third parties. This service is designed to assist members in obtaining and
monitoring information concerning themselves that is used by third parties in
making decisions such as granting or denying credit or setting insurance rates.

     Buyers Advantage. The Buyers Advantage(R) service extends the
manufacturer's warranty on products purchased by the member. This service also
rebates 20% of repair costs and offers members price protection by refunding any
difference between the price the member paid for an item and its reduced price,
should the item be sold at a lower price within sixty days after purchase. In
addition, the service offers return guarantee protection by refunding the
purchase price of an item that the member wishes to return.

     CompleteHome. The CompleteHome(R) service is designed to save members time
and money in maintaining and improving their homes. Members can order
do-it-yourself "How-To Guides" or call the service for a tradesperson referral.
Tradespersons are available in all 50 states through a toll-free phone line.
Members also receive discounts ranging from 10% to 50% off on a full range of
home-related products and services.

     Family FunSaver Club. The Family FunSaver Club(R) provides its members with
a variety of benefits, including the opportunity to inquire about and purchase
family travel services and family related products, the opportunity to buy new
cars at a discount, a discounted family dining program and a Family Values Guide
offering coupon savings on family related products such as movie tickets, casual
restaurants, and theme parks.

     The Family Software Club. The Family Software ClubSM has no membership fee
and offers members a way to purchase educational and entertainment CD-ROM
titles, often at an introductory price with a small commitment to buy titles at
regular club prices over a specified time period. Approximately every six to
eight weeks, members receive information on CD-ROM titles and other related
products and have the opportunity to purchase their featured selection,
alternate titles or no selections at that time. The club also provides its
members with special offers and discounts on software and other related products
from time to time.

     Health Services. The HealthSaverSM membership provides discounts ranging
from 10% to 60% off retail prices on prescription drugs, eyewear, eye care,
dental care, selected health-related services and fitness equipment, including
sporting goods. Members may also purchase prescription and over-the-counter
drugs through the mail.

     Other Clubs. Our North American Outdoor Group, Inc. subsidiary ("NAOG")
owns and operates the North American Hunting Club(R), the North American Fishing
Club(R), the Handyman Club of America(R), the National Home Gardening Club(R)
and the PGA Tour Partners Club(R), among others. Members of these clubs receive
fulfillment kits, discounts on related goods and services, magazines and other
benefits. In September 1999, we entered into a definitive agreement to sell 94%
of NAOG for approximately $140 million. In connection with the transaction, we
will retain an equity interest in NAOG of approximately 6% (see "Recent
Developments").

ONLINE PRODUCTS

     We operate Netmarket (www.netmarket.com), our flagship online,
membership-based, value-oriented consumer site which offers discounts on over
800,000 products and services. Netmarket offers discounted shopping and other
benefits to both members and non-members, with members receiving preferred
pricing, access to specials, cash back benefits, low price guarantees and
extended warranties on certain items. In addition, we also offer the following

                                       27


online products and services: AutoVantage(R),Travelers Advantage(R) and
PrivacyGuard(R) membership programs and Haggle Zone(TM) and Fair Agent(R)
consumer services. As part of our internet strategy, on September 15, 1999, we
donated Netmarket, Inc.'s (the owner of our on-line membership business)
outstanding common stock to a charitable trust, and Netmarket issued additional
shares of its common stock to certain of its marketing partners. Accordingly, as
a result of the change in ownership Netmarket's common stock from us to an
independent third party, Netmarket operating results will no longer be included
in our consolidated financial statements. We retained the opportunity to
participate in Netmarket's value through the ownership of the convertible
preferred stock of Netmarket, which is ultimately exchangable, at our option,
into 78% of Netmarket's diluted common shares. See "Recent Developments -
Internet Developments".

     We also currently operate other online consumer offerings such as Books.com
(www.books.com), one of the largest online booksellers in the world with more
than four million titles available in its database with discounts of up to 20 to
40 percent below retail prices; Musicspot (www.musicspot.com) an online music
store with more than 145,000 titles discounted up to 20 percent below retail
prices; and GoodMovies (www.goodmovies.com) an online movie store offering more
than 30,000 movie titles up to 20 to 40 percent below retail cost. Prior to its
sale in 1999, we operated Match.com, Inc. ("Match"), the leading matchmaking
service on the Internet, servicing over 100,000 consumers. Subscriptions to the
Match service range from approximately $10 per month to just under $60 for one
year.

     Through our Rent Net operation (www.rent.net) subsidiary, we are the
leading apartment information and rental service on the Internet, with listings
in more than 2,000 North American cities. Rent Net's clients include many of the
top 50 property management companies across North America, and its apartment and
relocation information has been seen by more than one million users monthly. The
RentNet operation principally derives revenues from advertising or listing fees
of products and service providers.

As part of our internet strategy, on September 30, 1999, we announced
that our board of directors approved a plan to create a new class of common
stock to track the performance of our new real estate portal to be named
CompleteHome.com, which will include the operations of Rent Net.
CompleteHome.com will integrate and greatly enhance the online efforts of our
residential real estate brands (CENTURY 21(R), COLDWELL BANKER(R), and ERA(R))
and those of its real-estate business units (Cendant Mobility and Cendant
Mortgage), drawing on the success of the RentNet online apartment guide business
model. RentNet's operations are currently being expanded as the technology
fulcrum for CompleteHome.com. See "Recent Developments - Strategic
Developments".

INSURANCE/WHOLESALE SEGMENT

     Our Insurance/Wholesale segment represented approximately 10.3%, 11.4% and
13.8% of our revenues for the year ended December 31, 1998, 1997 and 1996,
respectively. We affiliate with financial institutions, including credit unions
and banks, to offer their respective customer base competitively priced
insurance products, primarily accidental death and dismemberment insurance and
term life insurance, as well as an array of services associated with the
Individual Membership division segment.

     ENHANCEMENT PACKAGE SERVICE. Primarily through our FISI subsidiary, we sell
enhancement packages for financial institution consumer and business checking
and deposit account holders. FISI's financial institution clients select a
customized package of our products and services and then usually adds its own
services (such as unlimited check writing privileges, personalized checks,
cashiers' or travelers' checks without issue charge, or discounts on safe
deposit box charges or installment loan interest rates). With our marketing and
promotional assistance, the financial institution then offers the complete
package of account enhancements to its checking account holders as a special
program for a monthly fee. Most of these financial institutions choose a
standard enhancement package, which generally includes $10,000 of accidental
death insurance, travel discounts and a nationwide check cashing service. Others
may our shopping and credit card registration services, a financial newsletter
or pharmacy, eyewear or entertainment discounts as enhancements. The accidental
death coverage is underwritten under group insurance policies with independent
insurers. We continuously seek to develop new enhancement features, which may be
added to any package at an additional cost to the financial institution. We
generally charge a financial institution client an initial fee to implement this
program and monthly fees thereafter based on the number of customer accounts
participating in that financial institution's program. Our enhancement packages
are designed to enable a financial institution to generate additional fee
income, because the institution should be able to charge participating accounts
more than the combined costs of the services it provides and the payments it
makes to us.

                                       28


     Primarily through our National Card Control Inc. ("NCCI") subsidiary, we
also sell enhancement services to credit card issuers who make these services
available to their credit card holders to foster increased product usage and
loyalty. NCCI's clients create a customized package of our products and
services. These enhancements include loyalty products, such as frequent
flyer/buyer programs, as well as shopping, travel, concierge, insurance and
credit card registration services. Like FISI, NCCI generally charges its credit
card issuer clients an initial fee to implement the program and monthly fees
thereafter, based on the number of accounts participating in that institution's
program.

     INSURANCE PRODUCTS. Through our BCI subsidiary, we serve as a third party
administrator for marketing accidental death insurance throughout the country to
the customers of BCI's financial institution clients. This accidental death
insurance is often combined with our other services to enhance their value.
These products are generally marketed through direct mail solicitations, which
generally offer $1,000 of accidental death insurance at no cost to the customers
and the opportunity to choose additional coverage of up to $300,000. The annual
premium generally ranges from $10 to $250. BCI also acts as an administrator for
term life, graded term life and hospital accident insurance. BCI's insurance
products and other services are offered through banks and credit unions to their
account holders.

DIRECT MARKETING DISTRIBUTION CHANNELS

     We market our Individual Membership and Insurance/Wholesale products
through a variety of distribution channels. The consumer is ultimately reached
in the following ways: 1) at financial institutions or other associations
through direct marketing; 2) at financial institutions or other associations
through a direct sales force, participating merchants or general advertising;
and 3) through schools, community groups and companies. Some of our individual
memberships, such as shopping, travel, privacy guard and auto services, are
available to computer users via online services and the Internet's World Wide
Web. These users are solicited primarily through major online services such as
America Online, traditional offline direct marketing channels, major destination
sites on the World Wide Web, such as portals, and through our affinity partners.
We believe that our interactive members account for approximately 4% of our
total Individual Membership Segment members. Strategic alliances have been
formed with online services and various other companies, including the major
Internet portals.

DIRECT MARKETING INTERNATIONAL OPERATIONS

     Individual Membership and Insurance/Wholesale. Our Cendant International
Membership Services subsidiary has developed the international distribution of
Enhancement Package Service and Insurance Products together with certain
Individual Memberships including Shopping, Auto and Payment Card Protection.

     As of December 31, 1998, Cendant International Membership Services had
expanded its international membership and customer base to almost four million
individuals. This base is driven by retail and wholesale membership through over
35 major banks in Europe and Asia, as well as through other distribution
channels. We also have exclusive licensing agreements covering the use of our
merchandising systems in Canada, Australia, Japan and certain other Asian
countries under which licensees paid initial license fees and agree to pay
royalties to us on membership fees, access fees and merchandise service fees
paid to them. Royalties to us from these licenses were less than 1% of our
direct marketing revenues and profits in the years ended December 31, 1998, 1997
and 1996, respectively.

     The economic impact of currency exchange rate movements on the Company is
complex because it is linked to variability in real growth, inflation, interest
rates and other factors. Because we operate in a mix of services and numerous
countries, management believes currency exposures are fairly well diversified.
See Item 7A: "Quantitative and Qualitative Disclosure About Market Risk".

                                       29


DIRECT MARKETING SEASONALITY

     Our direct marketing businesses are not seasonal.

DIRECT MARKETING COMPETITION

     Individual Membership. We believe that there are competitors, which offer
membership programs similar to ours, and some of these entities, which include
large retailers, travel agencies, insurance companies and financial service
institutions, have financial resources, product availability, technological
capabilities or customer bases greater than ours. To date, we have been able to
compete effectively with such competitors. However, there can be no assurances
that we will continue to be able to do so. In addition, we compete with
traditional methods of merchandising that enjoy widespread consumer acceptance,
such as catalog and in-store retail shopping and shopping clubs (with respect to
its discount shopping service), and travel agents (with respect to its discount
travel service). Our systems are, for the most part, not protected by patent.

     Insurance/Wholesale. Each of our account enhancement services competes with
similar services offered by other companies, including insurance companies. Many
of the competitors are large and more established, with greater resources and
financial capabilities than ours. Finally, in attempting to attract any
relatively large financial institution as a client, we also compete with that
institution's in-house marketing staff and the institution's perception that it
could establish programs with comparable features and customer appeal without
paying for the services of an outside provider.

OTHER CONSUMER AND BUSINESS SERVICES DIVISION

     Our Other Consumer and Business Services Division represented approximately
20.9%, 18.1% and 18.9% of our revenues for the year ended December 31, 1998,
1997 and 1996, respectively.

     TAX PREPARATION BUSINESS. In January 1998, we acquired Jackson Hewitt, the
second largest tax preparation service in the United States. The Jackson Hewitt
franchise system is comprised of a 43-state network (plus the District of
Columbia) with approximately 3,000 offices operating under the trade name
"Jackson Hewitt Tax Service". We believe that the application of our focused
management strategies and techniques for franchise systems to the Jackson Hewitt
network can significantly increase revenues produced by the Jackson Hewitt
franchise system while also increasing the quality and quantity of services
provided to franchisees.

     Office locations range from stand-alone store front offices to offices
within Wal-Mart Stores, Inc. and Montgomery Ward & Co., Inc. locations. Through
the use of proprietary interactive tax preparation software, we are engaged in
the preparation and electronic filing of federal and state individual income tax
returns (collectively referred to as "tax returns"). During 1998, Jackson Hewitt
prepared approximately 1.2 million tax returns, which represented an increase of
37% from the approximately 875,000 tax returns it prepared during 1997. To
complement our tax preparation services, we also offer accelerated check refunds
and refund anticipation loans to our tax preparation customers.

     NATIONAL CAR PARKS. Our National Car Parks ("NCP") subsidiary is the
largest single, commercial car park operating company in the UK and Europe, with
over 60 years experience of owning and/or managing a portfolio of nearly 500 car
parks, mostly located in city and town centers and at airports.

     NCP owns or operates nearly 500 car parks across the UK and has
approximately 2,800 full and part-time employees. NCP provides a high-quality,
professional service, developing a total solution for its customers and for
organizations such as town and city administrations that wish to develop modern
and professionally managed parking and traffic management facilities, tailored
towards local business.

                                       30


     NCP owns and operates car parks in over 100 city and town centers
throughout the UK, most of which are regularly patrolled and many of which have
closed-circuit television surveillance. NCP is the only car park manager that
can provide the motorist with such a comprehensive geographical coverage and
such levels of investment in security facilities. In addition, NCP is a leader
in on-airport car parking at UK airports, with over 35,000 car parking spaces in
facilities close to passenger terminals at ten airports across the UK. Booking
facilities are available through NCP's telesales service for convenient car
parking reservation at these airports, with free courtesy coach transfers to and
from airport terminals at most locations.

     The brand names of NCP and Flightpath (NCP's airport brand) are registered
in the UK as trademarks. Furthermore, the NCP trademark is in the process of
being registered in the rest of the European Community.

     NCP's business has a distinct seasonal trend with revenue from parking in
city and town centers being closely associated with levels of retail business.
Therefore, peaks in revenue are experienced particularly around the Christmas
period. In respect of the airport parking side of the business, seasonal peaks
are experienced in line with summer vacations.

     NCP's main competition is from non-commercial, local government authorities
who usually choose to operate car parking facilities themselves in their
respective cities and towns.

     There is increasing government regulation over all aspects of transport
within the UK. Therefore, an objective of NCP is to work together with its
customers, local and national government and other service organizations in
order to maintain the mutually beneficial partnership between motorists and city
center environment.

     ENTERTAINMENT PUBLICATIONS BUSINESS. In September 1999, we entered a
definitive agreement to sell 84% of EPub for approximately $325 million. In
connection with the transaction, we will retain an equity interest in EPub of
approximately 16% (see "Recent Developments").

     Primarily through our EPub subsidiary, we offer discount programs in
specific markets throughout North America and certain international markets and
enhance other of our Individual and Insurance/Wholesale segment products. We
believe that EPub is the largest marketer of discount program books of this type
in the United States. EPub has a sales force of approximately 1,100 people with
approximately 800 people soliciting schools and approximately 300 people
soliciting merchants.

     EPub solicits restaurants, hotels, theaters, sporting events, retailers and
other businesses which agree to offer services and/or merchandise at discount
prices (primarily on a two-for-the-price-of-one or 50% discount basis). EPub
sells discount programs under its Entertainment(R), Entertainment(R) Values,
Gold C(R) and other trademarks, which typically provide discount offers to
individuals in the form of local discount coupon books. These books typically
contain coupons and/or a card entitling individuals to hundreds of discount
offers from participating establishments. Targeting middle to upper income
consumers, many of EPub's products also contain selected discount travel offers,
including offers for hotels, car rentals, airfare, cruises and tourist
attractions. More than 70,000 merchants with over 275,000 locations participate
in these programs. EPub also uses this national base of merchants to develop
other products, most notably, customized discount programs for major
corporations. These programs also may contain additional discount offers,
specifically designed for customized discount programs.

     EPub's discount coupon books are sold annually by geographic area.
Customers are solicited primarily through schools and community groups that
distribute the discount coupon books and retain a portion of the proceeds for
their nonprofit causes. To a lesser extent, distribution occurs through
corporations as an employee benefit or customer incentive, as well as through
retailers and directly to the public. The discount coupon books are generally
provided to schools and community groups on a consignment basis. Customized
discount programs are distributed primarily by major corporations as loyalty
incentives for their current customers and/or as premiums to attract new
customers.

                                       31


     While prices of local discount coupon books vary, the customary price for
Entertainment(R), Entertainment(R) Values and Gold C(R) coupon books range
between $10 and $45. Customized discount programs are generally sold at
significantly lower prices. In 1998, over nine million for Entertainment(R),
Entertainment(R) Values and Gold C(R) and other trademarked local coupon books
were published in North America.

     Sally Foster, Inc., a subsidiary of EPub, provides elementary and middle
schools and selected youth community groups with gift wrap and other seasonal
products for sale in their fund-raising efforts. EPub uses the same sales force
that sells the discount coupon books to schools, attempting to combine the sale
of gift wrap and the sale of discount coupon books. In addition, EPub has a
specialized Sally Foster sales force.

     GREEN FLAG. In October 1999, we entered into a definitive agreement to
dispose of our Green Flag business unit for approximately $410 million in cash.
The transaction, subject to customary regulatory approval in the United Kingdom,
is expected to be consummated in the fourth quarter of 1999 (see "Recent
Developments").

     Green Flag is the third largest assistance group in the UK providing a wide
range of emergency, support and rescue services to millions of drivers and home
owners in the UK through its Green Flag Motor, Green Flag Truck and Green Flag
Home services. Green Flag has approximately 900 full and part-time employees.

     Using a well established network of 6,000 mechanics and 1,500 fully
equipped garages, Green Flag Motor provides roadside recovery and assistance
services to over 3.5 million members who can choose from five levels of cover. A
distinctive feature of the Green Flag Motor service is its partnership with
independent operators who provide emergency assistance to motorists throughout
the UK and Europe. Using a network of specialists allows Green Flag to offer its
customers a fast service in emergency situations. Through regular inspections
and strictly enforced performance measures, Green Flag's teams of operators are
able to delivery reassurance to the customer, as well as a highly reliable
service.

     In the truck assistance sector, the Green Flag Truck service has developed
to include pay-on-use services in the UK and Europe and a service in the UK
suited to operators who run local delivery businesses. Service is provided using
the same network of independent operators that provide fast and efficient
expertise for businesses who cannot afford to be off the road.

     A network of specialists is also available to provide Green Flag's
Emergency Home Assistance and Property Repair Services. Reassurance is key for
homeowners who take an insured assistance service or choose a pay-on-use option.
Two levels of coverage are available to insure against a wide range of problems,
including central heating, roofing, gas and electrical appliances. Through its
specially selected network of operators, 75% of Green Flag's calls for
assistance are completed within one hour, 90% within two hours.

     Green Flag operates in a number of principal markets. Direct services to
the consumer is one route to market, but also through insurance companies, car
manufacturers and dealers and a large number of businesses that sell on Green
Flag assistance services as an optional or a mandatory product linked to their
own service, i.e. with car insurance or via a bank or building society account.

     The brand name of 'Green Flag' (together with the LOGO) is registered in
the United Kingdom. There is also a pending registration for a European Union
Community Mark. In addition, we have registered or pending marks for other key
brands used within the business. These include names such as:
Fleetcall/Truckcall/Dialassist/React/ Locator/Home-call and Home Assistance
Services. Also registered is the CHEQUERED SIDE STRIPE used in connection with
the MOTOR Roadside Assistance and Recovery service. (This is a safety device for
use on vehicles, which attend at the roadside.)

     Green Flag's operations are seasonally influenced in that the purchase of
motoring assistance follows holiday patterns and used car purchase, as well as
by weather conditions. This has a great impact on call volumes especially in the
winter.

                                       32


     INFORMATION TECHNOLOGY SERVICES. Our WizCom International, Ltd. ("WizCom")
subsidiary owns and operates the Wizard System more fully described under
"TRAVEL SERVICES -- Avis Car Rental Franchise Business -- Avis System and Wizard
System" above. In 1995, Budget Rent A Car Corporation ("Budget") entered into a
computer services agreement with WizCom that provides Budget with certain
reservation system computer services that are substantially similar to computer
services provided to the Avis System. WizCom has also entered into agreements
with hotel and other rental car companies to provide travel related reservation
and distribution system services.

     CREDIT INFORMATION BUSINESS. Our former Central Credit Inc. ("CCI")
subsidiary (sold in August 1999), was a gambling patron credit information
business. CCI maintained a database of information provided by casinos regarding
the credit records of casino gaming patrons, and provided, for a fee, such
information and related services to its customers, which primarily consisted of
casinos. See "Recent Developments".

     FINANCIAL PRODUCTS. Our former Essex Corporation ("Essex") subsidiary (sold
in January 1999) was a third-party marketer of financial products for banks,
primarily marketing annuities, mutual funds and insurance products through
financial institutions. Essex generally marketed annuities issued by insurance
companies or their affiliates, mutual funds issued by mutual fund companies or
their affiliates, and proprietary mutual funds of banks. Essex's contracts with
the insurance companies whose financial products it distributed generally
entitled Essex to a commission of slightly less than 1% on the premiums
generated through Essex's sale of annuities for these insurance companies. See
"Recent Developments".

     MUTUAL FUNDS. In August 1997, we formed an alliance with Frederick R.
Kobrick, a longtime mutual fund manager, to form a mutual fund company known as
Kobrick-Cendant Funds, Inc. (Kobrick which was subsequently renamed the Kobrick
Funds). Kobrick currently offers three no-load funds, Kobrick Capital Fund,
Kobrick Emerging Growth Fund and Kobrick Growth Fund. Our interest in Kobrick
was sold to ARAC in connection with the disposition of the fleet segment.

     TAX REFUND BUSINESS. Through our former Global Refund subsidiary (sold in
August 1999), we assisted travelers to receive valued added tax ("VAT") refunds
in 22 European countries, Canada and Singapore. Global Refund was the world's
leading VAT refund service, with over 125,000 affiliated retailers and seven
million transactions per year. Global Refund operated over 400 cash refund
offices at international airports and other major points of departure and
arrival worldwide. See "Recent Developments".

     OTHER SERVICES. Our former Spark Services, Inc. ("Spark") subsidiary (sold
in August 1999) provided database-driven dating services to over 300 radio
stations throughout the United States and Canada. Spark was the leading provider
of dating and personals services to the radio industry. Spark had also begun to
test television distribution of its services through infomercials, as well as
through short form advertising and affiliation deals with various programs.
Consumers paid for Spark's services on a per minute of usage transaction basis.
See "Recent Developments".

     Our Numa Corporation ("NUMA") subsidiary publishes personalized heritage
publications, including publications under the Halbert's name, and markets and
sells personalized merchandise. We terminated the operations of NUMA effective
September 30, 1999.

     Operating under the trade name "Welcome Wagon", we distribute complimentary
welcoming packages which provide new homeowners and other consumers throughout
the United States and Canada with discounts for local merchants. These
activities are conducted through our Welcome Wagon International Inc. and Getko
Group, Inc. subsidiaries. We are exploring opportunities to leverage the assets
and the distribution channels of such subsidiaries.

COMBINED OPERATIONS

     PREFERRED ALLIANCE AND CO-MARKETING ARRANGEMENTS. We believe that there are
significant opportunities to capitalize on the significant and increasing amount
of aggregate purchasing power and marketing outlets

                                       33


represented by the businesses in our business units. We initially tapped the
potential of these synergies within the lodging franchise systems in 1993 when
we launched our Preferred Alliance Program, under which hotel industry vendors
provide significant discounts, commissions and co-marketing revenue to hotel
franchisees plus preferred alliance fees to us in exchange for being designated
as the preferred provider of goods or services to the owners of our franchised
hotels or the preferred marketer of goods and services to the millions of hotel
guests who stay in the hotels and customers of our real estate brokerage
franchisees each year.

     We currently participate in preferred alliance relationships with more than
95 companies, including some of the largest corporations in the United States.
The operating profit generated by most new preferred alliance arrangements
closely approximates the incremental revenue produced by such arrangements since
the costs of the existing infrastructure required to negotiate and operate these
programs are largely fixed.

DISCONTINUED OPERATIONS

     On August 12, 1998, we announced that our Executive Committee of the Board
of Directors committed to discontinue our consumer software and classified
advertising businesses by disposing of our wholly owned subsidiaries Cendant
Software and Hebdo Mag, respectively. On December 15, 1998, we completed the
sale of Hebdo Mag to a company organized by Hebdo Mag management for
approximately $450 million, including approximately $315 million in cash and 7.1
million shares of our common stock. On January 12, 1999, we completed the sale
of Software to Paris based Havas SA, a subsidiary of Vivendi SA, for $800
million in cash plus future potential cash payments.

     SOFTWARE. Our Software subsidiary offered consumer software in various
multimedia forms, predominately on CD-ROM for personal computers. The Software
unit was one of the largest personal computer consumer software groups in the
world, and a leader in entertainment, educational and personal productivity
software. It included Sierra On-Line, Inc., Blizzard Entertainment and Knowledge
Adventure, Inc., and offered such titles as Diablo, Starcraft, You Don't Know
Jack, King's Quest, JumpStart, Math Blaster, Reading Blaster and many others.
These products were offered through a variety of distribution channels,
including specialty retailers, mass merchandisers, discounters and schools.

     The entertainment, education and productivity software industry is
competitive. Software competed primarily with other developers of multimedia PC
based software. Products in the market compete primarily on the basis of
subjective factors such as entertainment value and objective factors such as
price, graphics and sound quality. Large diversified entertainment, cable and
telecommunications companies, in addition to large software companies, are
increasing their focus on the interactive entertainment and education software
market, which will result in greater competition.

     The software segment had seasonal elements. Revenues were typically highest
during the third and fourth quarters and lowest during the first and second
quarters. This seasonal pattern was due primarily to the increased demand for
software products during the holiday season.

     CLASSIFIED ADVERTISING. Hebdo Mag was our international publisher of over
180 titles and distributor of classified advertising information with operations
in fifteen countries including Canada, France, Sweden, Hungary, Taiwan, the
United States, Italy, Russia, the Netherlands, Australia, Argentina and Spain.
Hebdo Mag was involved in the publication, printing and distribution, via print
and electronic media, of branded classified advertising information products.
Hebdo Mag had also expanded into other related business activities, including
the distribution of third-party services and classified advertising web sites.

     Hebdo Mag published over 11 million advertisements per year in over 180
publications. With a total annual circulation of over 85 million, management
estimated Hebdo Mag publications were read by over 200 million people. Unlike
newspapers, which contain significant editorial content, Hebdo Mag publications
contained primarily classified and display advertisements. These advertisements
targeted buyers and sellers of goods and services in the markets for used and
new cars, trucks, boats, real estate, computers, second-hand general merchandise
and

                                       34


employment as well as personals.

     Hebdo Mag owned leading local classified advertising publishing franchises
in most of the regional markets where it had a presence. In addition to its
print titles, Hebdo Mag generated revenues by distributing third-party services
related to its classified business such as vehicle financing, vehicle and life
insurance and warranty protection.

     The classified advertising information industry is highly fragmented, with
a large number of small, independent companies publishing local or regional
titles. Hebdo Mag was the only major company focused exclusively on this
industry on an international basis. In most of its major markets, Hebdo Mag
owned leading classified advertising franchises that have long standing,
recognized reputations with readers and advertisers. Among Hebdo Mag's leading
titles, many of which have been in existence for over 15 years, were: La
Centrale des Particuliers (France), Expressz (Hungary), The Trader
(Indianapolis), Traders Post (Nashville), Car News (Taiwan), Secondamano
(Italy), Auto Trader, Renters News, The Computer Paper (Canada), Iz Ruk v Ruki
(Russia), Gula Tidningen (Sweden), Segundamano (Argentina) and The Melbourne
Trading Post (Australia).

REGULATION

     DIRECT MARKETING REGULATION. We market our products and services through a
number of distribution channels including telemarketing, direct mail and
on-line. These channels are regulated on the state and federal level and we
believe that these activities will increasingly be subject to such regulation.
Such regulation may limit our ability to solicit new members or to offer one or
more products or services to existing members.

     A number of our products and services (such as Travelers Advantage(R) and
certain insurance products) are also subject to state and local regulations. We
believe that such regulations do not have a material impact on our business or
revenues.

     FRANCHISE REGULATION. The sale of franchises is regulated by various state
laws, as well as by the Federal Trade Commission (the "FTC"). The FTC requires
that franchisors make extensive disclosure to prospective franchisees but does
not require registration. A number of states require registration or disclosure
in connection with franchise offers and sales. In addition, several states have
"franchise relationship laws" or "business opportunity laws" that limit the
ability of the franchisor to terminate franchise agreements or to withhold
consent to the renewal or transfer of these agreements. While our franchising
operations have not been materially adversely affected by such existing
regulation, we cannot predict the effect of any future legislation or
regulation.

     REAL ESTATE REGULATION. The federal Real Estate Settlement Procedures Act
and state real estate brokerage laws restrict payments which real estate brokers
and mortgage brokers and other parties may receive or pay in connection with the
sales of residences and referral of settlement services (e.g., mortgages,
homeowners insurance, title insurance). Such laws may to some extent restrict
preferred alliance arrangements involving our real estate brokerage franchisees,
mortgage business and relocation business. Our mortgage banking services
business is also subject to numerous federal, state and local laws and
regulations, including those relating to real estate settlement procedures, fair
lending, fair credit reporting, truth in lending, federal and state disclosure,
and licensing.

     TIMESHARE EXCHANGE REGULATION. Our timeshare exchange business is subject
to foreign, federal, state and local laws and regulations including those
relating to taxes, consumer credit, environmental protection and labor matters.
In addition, we are subject to state statutes in those states regulating
timeshare exchange services, and must prepare and file annually, with regulators
in states that require it, the "RCI Disclosure Guide to Vacation Exchange". We
are not subject to those state statutes governing the development of timeshare
condominium units and the sale of timeshare interests, but such statutes
directly affect the members and resorts that participate in the RCI Network.
Therefore, the statutes indirectly impact our timeshare exchange business.

                                       35


EMPLOYEES

     As of December 31, 1998, we employed approximately 35,000 persons full
time. Management considers our employee relations to be satisfactory.

ITEM 2. PROPERTIES

     Our principal executive offices are located in leased space and located at
9 West 57th Street, New York, NY 10019. Many of our general corporate functions
are conducted at a building owned by us and located at 6 Sylvan Way, Parsippany,
New Jersey 07054 and at a building leased by us and located at 1 Sylvan Way,
Parsippany, New Jersey 07054 with a lease term expiring in 2008.

     Our Travel Division has two properties which we own, a 166,000 square foot
facility in Virginia Beach, Virginia which serves as a satellite administrative
and reservations facility for Wizcom and ARAC, and a property located in
Kettering, UK which is the European office for RCI. The Travel Division also
leases space for its reservations centers and data warehouse in Winner and
Aberdeen, South Dakota; Phoenix, Arizona; Knoxville and Elizabethtown,
Tennessee; Tulsa and Drumright, Oklahoma; Indianapolis, Indiana; Orangeburg,
South Carolina and St. John, New Brunswick, Canada pursuant to leases that
expire in 2000, 2003, 2007, 2004, 1999, 2001, 2000, 2001, 2008, 2001 and 2008,
respectively. The Tulsa and Drumright, Oklahoma location serves as an Avis car
rental reservations center. In addition, the Travel Division has 18 leased
offices spaces located within the United States and an additional 30 leased
spaces in various countries outside the United States.

     The Real Estate Division shares approximately six leases with the Travel
Division in various locations that function as sales offices.

     The Individual Membership Segment has its principal offices located in
Stamford and Trumbull, Connecticut. The Individual Membership Segment leases
space for several of its call centers in Aurora, Colorado; Westerville, Ohio;
Brentwood, Tennessee; Houston and Arlington, Texas; Woburn, Massachusetts and
Great Falls, Montana pursuant to leases that expire in 2000, 2005, 2002, 2000,
2000, 2001 and 1999, respectively. We also own one building located in Cheyenne,
Wyoming which serves as a call center. In addition, the Individual Membership
Segment has leased smaller space in various locations for business unit and
ancillary needs. Internationally, the Individual Membership Segment has
approximately seven leased offices spaces located in various countries.

     The main offices for the Fleet Segment were located in two leased spaces;
one in Hunt Valley, Maryland (200,000 square feet) and three in South Portland,
Maine (91,000 square feet) pursuant to leases that expire in 2003, 2008, 2004
and 2007, respectively. In addition, there were nine smaller leased spaces that
function as sales/distribution locations.

     The Relocation Segment has their main corporate operations located in a
leased building in Danbury, Connecticut with a lease term expiring in 2008.
There are also five regional offices located in Walnut Creek, California;
Oakbrook and Schaumburg, Illinois; Irving, Texas and Mission Viejo, California
which provide operation support services for the region pursuant to leases that
expire in 2004, 2003, 2001 and 2003, respectively. We own the office in Mission
Viejo.

     The Mortgage Segment has centralized its operations to one main area
occupying various leased offices in Mt. Laurel, New Jersey for a total of
approximately 600,000 square feet. The lease terms expire over the next ten
years.

     The Insurance/Wholesale Segment leases domestic space in Nashville,
Tennessee; San Carlos, California; and Crozier, Virginia with lease terms ending
in 2002, 2003 and 1999, respectively. In addition, there are 11 leased locations
internationally that function as sales and administrative offices for
international membership with the main office located in Portsmouth, UK.

     We own properties in Virginia Beach, Virginia and Westbury, New York and
lease space in Garden City, New York and Troy, Michigan that supports the Other
Consumer and Business Services Segment. The Garden City and

                                       36


Troy locations are the main operation and administrative centers for Wizcom and
EPub, respectively. In addition, there are approximately six leased office
locations in the United States. Internationally, we lease office space in
London, UK (18,000 square feet) and own two buildings in Leeds, UK (86,000
square feet) and one building in Bradford, England (25,000 square feet) to
support this segment.

     We believe that such properties are sufficient to meet our present needs
and we do not anticipate any difficulty in securing additional space, as needed,
on acceptable terms.

ITEM 3. LEGAL PROCEEDINGS

Class Action and Other Litigation and Government Investigations

     Since our April 15, 1998 announcement of the discovery of accounting
irregularities in the former CUC business units, and prior to the date of this
Annual Report on Form 10-K/A, 70 lawsuits claiming to be class actions, two
lawsuits claiming to be brought derivatively on our behalf and several other
lawsuits and arbitration proceedings have been filed in various courts against
us and other defendants.

     In re: Cendant Corporation Litigation, Master File No. 98-1664 (WHW)
(D.N.J.) (the "Securities Action"), is a consolidated action consisting of over
sixty constituent class action lawsuits that were originally filed in the United
States District Court for the District of New Jersey, the District of
Connecticut, and the Eastern District of Pennsylvania. The Securities Action is
brought on behalf of all persons who acquired securities of the Company and CUC,
except our PRIDES securities, between May 31, 1995 and August 28, 1998. The
Court granted the lead plaintiffs' unopposed motion for class certification on
January 27, 1999. Named as defendants are the Company; twenty-eight current and
former officers and directors of the Company, CUC and HFS; and Ernst & Young
LLP ("Ernst & Young"), CUC's former independent accounting firm.

     The Amended and Consolidated Class Action Complaint in the Securities
Action alleges that, among other things, the lead plaintiffs and members of the
class were damaged when they acquired securities of the Company and CUC because,
as a result of accounting irregularities, the Company's and CUC's previously
issued financial statements were materially false and misleading, and the
allegedly false and misleading financial statements caused the prices of the
Company's and CUC's securities to be inflated artificially. The Amended and
Consolidated Complaint alleges violations of Sections 11, 12(a)(2), and 15 of
the Securities Act of 1933 (the "Securities Act") and Sections 10(b), 14(a),
20(a), and 20A of the Securities Exchange Act of 1934 (the "Exchange Act"). Lead
plaintiffs in the Securities Action seek damages for themselves in unspecified
amounts.

     On December 14, 1998, the lead plaintiffs in the Action moved for partial
summary judgment, on liability only, against the Company on the claims under
Section 11 of the Securities Act. The lead plaintiffs adjourned this motion,
however, without prejudice to their right to re-notice the motion at a
subsequent time.

     On January 25, 1999, the Company answered the Amended Consolidated
Complaint and asserted Cross-Claims against Ernst & Young. The Company's
Cross-Claims allege that Ernst & Young failed to follow professional standards
to discover, and recklessly disregarded, the accounting irregularities, and is
therefore liable to the Company for damages in unspecified amounts. The
Cross-Claims assert claims for breaches of Ernst & Young's audit agreements with
the Company, negligence, breaches of fiduciary duty, fraud, and contribution.

                                       37


     On March 26, 1999, Ernst & Young filed Cross-Claims against the Company and
certain of the Company's present and former officers and directors, alleging
that any failure to discover the accounting irregularities was caused by
misrepresentations and omissions made to Ernst & Young in the course of its
audits and other reviews of the Company's financial statements. Ernst & Young's
Cross-Claims assert claims for breach of contract, fraud, fraudulent inducement,
negligent misrepresentation and contribution. Damages in unspecified amounts are
sought for the costs to Ernst & Young associated with defending the various
shareholder lawsuits and for harm to Ernst & Young's reputation.

     Welch & Forbes, Inc. v. Cendant Corp., et al., No. 98-2819 (WHW) (the
"PRIDES Action") is a class action brought on behalf of purchasers of the
Company's PRIDES securities between February 24, and July 15, 1998. The PRIDES
Action is a consolidation of Welch & Forbes, Inc. v. Cendant Corp., et. al. with
seven other class action lawsuits filed on behalf of purchasers of PRIDES. Named
as defendants are the Company; Cendant Capital I, a statutory business trust
formed by the Company to participate in the offering of PRIDES securities;
seventeen current and former officers and directors of the Company, CUC and HFS;
Ernst & Young; and the underwriters for the PRIDES offering, Merrill Lynch &
Co.; Merrill Lynch, Pierce, Fenner & Smith Incorporated; and Chase Securities
Inc.

     The allegations in the Amended Consolidated Complaint in the PRIDES Action
are substantially similar to those in the Securities Action, and violations of
Sections 11, 12(a)(2) and 15 of the Securities Act and Sections 10(b) and 20(a)
of the Exchange Act are asserted. Damages in unspecified amounts are sought.

     On November 11, 1998, the plaintiffs in the PRIDES Action brought motions
for (i) certification of a proposed class of PRIDES purchasers; (ii) summary
judgment against the Company on liability under Section 11 of the Securities
Act; and (iii) an injunction requiring the Company to place $300 million in a
trust account for the benefit of the PRIDES investors pending final resolution
of their claims. These motions were withdrawn in connection with a partial
settlement of the PRIDES Action (see Note 6).


     Semerenko v. Cendant Corp., et al., Civ. Action No. 98-5384 (D.N.J.) and P.
Schoenfield Asset Management LLC v. Cendant Corp., et al., (Civ. Action No.
98-4734) (D.N.J.) (the "ABI Actions") were initially commenced in October and
November of 1998, respectively, on behalf of a putative class of persons who
purchased securities of American Bankers Insurance Group, Inc. ("ABI") between
January, 1998 and October 13, 1998. Named as defendants are the Company, four
former CUC officers and directors, and Ernst & Young. The complaints in the ABI
actions, as amended on February 8, 1999, assert violations of Sections 10(b),
14(e) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder.
Plaintiffs allege that they purchased shares of ABI common stock at artificially
inflated prices due to the accounting irregularities after we announced a cash
tender offer for 51% of ABI's outstanding shares of common stock in January
1998. Plaintiffs also allege that after the disclosure of the accounting
irregularities, we misstated our intention to complete the tender offer and a
second step merger pursuant to which the remaining shares of ABI stock were to
be acquired by us. Plaintiffs seek, among other things, unspecified compensatory
damages. The Company and the other defendants filed motions to dismiss the ABI
Actions on March 10, 1999. The United States District Court for the District of
New Jersey found that the complaints failed to state a claim upon which relief
could be granted and, accordingly, dismissed the complaints by order dated April
30, 1999. Plaintiffs' appeal from the District Court's decision is pending
before the United States Court of Appeals for the Third Circuit.



                                       38


B. Other Litigation

         Prior to April 15, 1999, actions making substantially similar
allegations to the allegations in the Securities Action were filed by various
plaintiffs on their own behalf in the United States District Courts for the
District of New Jersey, the Eastern and Central Districts of California, the
Southern District of Florida, the Eastern District of Louisiana, the District of
Connecticut and the Eastern District of Wisconsin. The Company filed motions
before the Judicial Panel on Multidistrict Litigation (the "JPML") to transfer
to the District of New Jersey, for consolidation with the Securities Action, the
actions filed in judicial districts other than the District of New Jersey. The
motions to transfer were granted in August and September 1999. The Company has
filed Cross-Claims against Ernst & Young in two of these transferred actions,
Yeager v. Cendant Corp., originally filed on the Central District of California,
and Wyatt v. Cendant Corp., originally filed in the Southern District of
Florida.

     Among the actions transferred is Reliant Trading and Shepherd Trading Lmt.
v. Cendant Corp., originally filed in the Eastern District of Wisconsin. The
plaintiffs in Reliant allegedly purchased certain 4 3/4% Senior Notes originally
issued by HFS and claim to have converted these notes to shares of Cendant
common stock in April 1998, before our April 15, 1998 announcement concerning
the accounting irregularities.



                                       39


Plaintiffs seek, among other things, rescission of the conversion of the notes,
unspecified compensatory damages resulting from the conversion, and additional
unspecified damages resulting from the original purchase of the notes at
allegedly artifically inflated prices.

     Another action transferred to the District of New Jersey is Daystar Special
Situations Fund, L.P. and Daystar LLC v. Cendant Corp., originally filed in the
Southern District of New York in July 1999. Plaintiffs in Daystar, allege that
after disclosure of the accounting irregularities by us in April 1998, Cendant's
Chief Executive Officer, and another Cendant director, made material
misstatements in face-to-face meetings with representatives of plaintiffs
regarding the full extent of the accounting irregularities. Plaintiffs allege
that they relied on such statements in purchasing over 3 million shares of
Cendant stock in April, May and June 1998. Plaintiffs seek, among other things,
damages in excess of $35 million.

     Kennilworth Partners, L.P., et al., v. Cendant Corp., et al., 98 Civ. 8939
(DC) (the "Kennilworth Action") was filed on December 18, 1998 on behalf of
three investment companies. Named as defendants are the Company; thirty of its
present and former officers and directors; HFS; and Ernst & Young. The complaint
in the Kennilworth Action, as amended on January 26, 1999, alleges that the
plaintiffs purchased convertible notes issued by HFS pursuant to an indenture
dated February 28, 1996 and were damaged when they converted their notes into
shares of common stock in the Company shortly prior to the Company's April 15,
1998




                                       40


announcement. The amended complaint asserts violations of Sections 11, 12 and 15
of the Securities Act and Sections 10(b) and 20 of the Exchange Act; a
common-law breach of contract claim is also asserted. Damages are sought in an
amount estimated to be in excess of $13.6 million. On April 29, 1999, the
Company moved to dismiss the Securities Act claims brought against it. On August
10, 1999, the District Court dismissed plaintiffs' claims under Sections 11 and
12(2) of the Securities Act against us and all of the other defendants and
dismissed the claims under Section 10(b) of the Exchange Act against the
individual officers and directors and Ernst & Young. On August 23, 1999, the
Company filed an Answer and Affirmative Defenses, in which it denied all
material allegations in the amended complaint.

         Kevlin, et al v. Cendant Corp., No. C-98-12602-B (the "Kevlin Action"),
was commenced in December 1998 in the County Court of Dallas County, Texas.
According to the complaint, plaintiffs are former shareholders of an entity
known as Kevlin Services, Inc. In 1996, a subsidiary of Cendant acquired all of
the assets of Kevlin Services, Inc. in exchange for approximately 1,155,733
shares of common stock of CUC International Inc. According to the complaint,
plaintiffs were to receive CUC shares worth $26,370,000 and instead received
shares worth substantially less than that amount due to the impact of the
accounting irregularities on the market price of CUC common stock. Plaintiffs
have asserted claims against Cendant, its subsidiary and Ernst & Young for
fraud, negligent misrepresentation, breach of duty of good faith and fair
dealing, breach of contract, conspiracy, negligence and gross



                                       41


negligence. Plaintiffs seek compensatory and exemplary damages in unspecified
amounts. Cendant and its subsidiary have filed a general denial to the
allegations in the complaint.

         Raymond H. Stanton II and Raymond H. Stanton III v. Cendant Corp. is an
arbitration proceeding filed by Raymond H. Stanton II and Raymond H. Stanton
III, former owners of Dine-A-Mate, Inc. The Demand for Arbitration alleges that
the Stantons sold their Dine-A-Mate stock to CUC in September 1996 in exchange
for 929,930 shares of CUC common stock. The Demand alleges that due to the
accounting irregularities the price of CUC stock was artificially inflated at
the time and asserts claims for fraud, fraudulent inducement, breach of
warranty, and violation of Sections 18(a) and 10(b) of the Exchange Act. The
Stantons seek, among other things, damages equal to the difference between
$33,314,736 (the alleged value of the transaction) and the actual value of the
CUC stock they received in the sale, and punitive damages on their claims for
fraud and fraudulent inducement.

         Janice G. Davidson and Robert M. Davidson v. Cendant Corp.
(JAMS/Endispute - Los Angeles, No. 122002145) is an arbitration proceeding filed
on December 17, 1998, by Janice G. and Robert M. Davidson, former majority
shareholders of a California-based computer software firm acquired by the
Company in a July 1996 stock merger (the "Davidson Merger"). The Davidson's
Demand for Arbitration purported to assert claims against Cendant in connection
with the


                                       42


Davidson Merger and a May 1997 settlement agreement settling all disputes
arising out of the Davidson Merger (the "Davidson Settlement"). The Demand
asserts claims for: (i) securities fraud under federal, state and common law
theories relating to the Davidson Merger, through which the Davidsons received
approximately 21,670,000 common shares of CUC stock and options on CUC stock in
exchange for all of their Davidson & Associates, Inc. common shares, based upon
CUC's accounting irregularities and alleged misrepresentations concerning the
Davidsons' employment as CUC executives; (ii) wrongful taking of trust property
based on fraud in connection with the Davidson Merger; (iii) unjust enrichment,
in connection with the Davidson Merger; (iv) rescission of the Davidson
Settlement for fraud under the federal securities laws, California Corporations
Code, and common law, and on grounds of unilateral mistake, failure of
consideration, and prejudice to the public interest; and (v) damages under the
Settlement Agreement for fraud in connection with the grant of CUC stock options
to the Davidsons under that Agreement. The Demand seeks unspecified compensatory
and punitive damages and a declaratory judgment that the Davidsons are entitled
to rescind the Davidson Settlement and that the claims in the Demand are
arbitrable.

     Cendant answered the Demand on January 12, 1999, denying all of the
material allegations in the Demand, and also filed a Complaint for Injunctive
and Declaratory Relief against the Davidsons in the United States District Court
for the



                                       43


Central District of California (the "Cendant Complaint"), seeking to enjoin the
arbitration on the grounds that the parties to the Davidson Settlement agreed
therein not to arbitrate ten of the eleven claims contained in the Demand, and
that the arbitration clauses under which the Davidsons bring their claims are
inapplicable to the dispute. In February 1999, Cendant filed a Motion for
Preliminary Injunction seeking to enjoin the arbitration proceedings pending the
court's final resolution of the dispute on the merits. The Davidsons filed a
motion to dismiss the Cendant Complaint or for summary judgment, On April 14,
1999, the court entered an order granting summary judgment in favor of the
Davidsons, denying Cendant's Motion for Preliminary Injunction and dismissing
the Cendant Complaint. The Company's appeal from this order is pending before
the United States Court of Appeals for the Ninth Circuit. The arbitration has
been stayed by agreement of the parties until the Ninth Circuit issues a mandate
on the appeal, except discovery is proceeding on whether the Davidson Settlement
should be rescinded.

     On April 14, 1999, the Davidsons filed a complaint in the United States
District Court for the Central District of California against Cendant alleging
essentially the same claims asserted in the Demand. The complaint seeks
unspecified compensatory and punitive damages, and was filed purportedly to toll
the statute of limitations pending arbitration of the claims in the Demand.
Cendant's motion to



                                       44


transfer this case to the District Court of New Jersey was granted by the JPML
on August 12, 1999.


     Deutch v. Silverman, et al., No. 98-1998 (WHW)(the "Deutch Action"), is a
purported shareholder derivative action, purportedly filed on behalf of, and for
the benefit of the Company. The Deutch Action was commenced on April 27, 1998 in
the District of New Jersey against certain of the Company's current or 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,
as amended on December 7, 1998, 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 the accounting irregularities. The complaint also alleges that the
individual officers and directors breached their fiduciary duties and committed
acts of gross negligence by, among other things, causing and/or allowing the
Company to make a series of false and misleading statements regarding the
Company's financial condition, earnings and growth; entering into an agreement
to acquire ABI and later paying $400 million to ABI in connection with
termination of that agreement; re-pricing certain stock options previously
granted to certain Company executives; and entering into certain severance and
other agreements with Walter Forbes,



                                       45


the Company's former Chairman, last summer under which Mr. Forbes received
approximately $47.5 million from the Company pursuant to an employment agreement
we had entered into with him in connection with the Cendant Merger. Damages are
sought on behalf of Cendant in unspecified amounts. The Company and the other
defendants each moved to dismiss the Deutch Action. On August 8, 1999, the Court
dismissed certain claims against some of the individual officers and directors
and all claims against the Bear Stearns defendants. The Court denied the
Company's motion to dismiss. On August 23, 1999, the Company filed its Answer
and Affirmative Defenses to the Complaint, in which it denied all of the
material allegations in the Complaint.

     Corwin v. Silverman et al., No. 16347-NC (the "Corwin Action"), was filed
on August 28, 1998 in the Court of Chancery for the State of Delaware. The
Corwin Action is purportedly brought derivatively, on behalf of the Company,
and as a class action, on behalf of all shareholders of HFS who exchanged
their HFS shares for CUC shares in connection with the Merger. The Corwin
Action names as defendants HFS and twenty-eight individuals who are or were
directors of the Company and HFS. The complaint in the Corwin Action, as
amended on July 28, 1998, alleges that HFS and its directors 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 CUC before


                                       46


approving the 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 our former Chairman, Walter A.
Forbes, in connection with the Merger that purportedly amounted to corporate
waste. The Corwin Action seeks, among other things, rescission of the Merger and
compensation for all losses and damages allegedly suffered in connection
therewith. On October 7, 1998, Cendant filed a motion to dismiss the Corwin
Action or, in the alternative, for a stay of the Corwin Action pending
determination of the Deutch Action. On June 30, 1999, the Court of Chancery for
the State of Delaware stayed the Corwin Action pending a determination of the
Deutch Action.

   C. Government Investigations
      -------------------------

     The SEC and the United States for the District of New Jersey are
conducting investigations relating to accounting irregularities. The SEC
staff has advised us that its inquiry should not be construed as an indication
by the SEC or its staff that any violations of law have occurred. As a result
of the findings from the investigations, we made all adjustments considered
necessary which are reflected in our restated financial statements. Although
we can provide no assurances that additional adjustments will not be necessary
as a result of these government investigations, we do not expect that
additional adjustments will be necessary.

                                       47


     In addition, in connection with the Merger, certain officers 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.

     Other than with respect to the PRIDES class action litigation described
below, we do not believe it is feasible to predict or determine the final
outcome or resolution of these matters or to estimate the amounts or potential
range of loss with respect to these proceedings and investigations. In
addition, the timing of the final resolution of these proceedings and
investigations is uncertain. The possible outcomes or resolutions of these
proceedings and investigations could include judgments against us or
settlements, and could require substantial payments by us. Our management
believes that adverse outcomes with respect to such proceedings and
investigations could have a material impact on our financial condition, results
of operations and cash flows.




                                       48



Settlement of PRIDES Class Action Litigation

     On March 17, 1999, we entered into a stipulation of settlement with the
plaintiff's counsel representing the class of holders of our PRIDES securities
who purchased their securities on or prior to April 15, 1998 ("eligible
persons") to settle their class action lawsuit against us. Under the stipulation
of settlement, eligible persons will receive a new security -- a Right -- for
each PRIDES security held on April 15, 1998. Current holders of PRIDES will not
receive any Rights (unless they also held PRIDES on April 15, 1998). We had
originally announced a preliminary agreement in principle to settle such lawsuit
on January 7, 1999. The final agreement maintained the basic structure and
accounting treatment as the preliminary agreement.

     Based on the settlement agreement, we recorded an after tax charge of
approximately $228 million, or $0.26 per share ($351 million pre-tax), in the
fourth quarter of 1998 associated with the settlement agreement in principle to
settle the PRIDES securities class action. We recorded an increase in additional
paid-in capital of $350 million offset


                                       49


by a decrease in retained earnings of $228 million resulting in a net increase
in stockholders' equity of $122 million as a result of the prospective issuance
of the Rights. As a result, the settlement should not reduce net book value. In
addition the settlement is not expected to reduce 1999 earnings per share unless
our common stock price materially appreciates.

     At any time during the life of the Rights, holders may (a) sell them or (b)
exercise them by delivering to us three Rights together with two PRIDES in
exchange for two new PRIDES (the "New PRIDES"). The terms of the New PRIDES will
be the same as the currently outstanding PRIDES, except that the conversion rate
will be revised so that, at the time the Rights are distributed, each of the New
PRIDES will have a value equal to $17.57 more than cash original PRIDES, based
upon a general accepted valuation model. Based upon the closing price per share
of $17.53 of our Common Stock on September 30, 1999, the effect of the issuance
of the New PRIDES will be to distribute approximately 19 million more shares of
our common stock when the mandatory purchase of our common stock associated with
the PRIDES occurs in February of 2001. This represents approximately 2% more
shares of common stock than are currently outstanding.

     The settlement agreement also requires us to offer to sell 4 million
additional PRIDES (having identical terms to currently outstanding PRIDES) (the
"Additional PRIDES") at "theoretical value" to holders of Rights for cash.
Theoretical value will be based on the same valuation model utilized to set the
conversion rate of the new PRIDES. The offering of Additional PRIDES will be
made only pursuant to a prospectus filed with the SEC. We currently expect to
use the proceeds of such an offering to repurchase our common stock or for the
other general corporate purposes. The arrangement to offer Additional PRIDES is
designed to enhance the trading value of the Rights by removing up to 6 million
Rights from circulation via exchanges associated with the offering. If holders
of Rights do not acquire all such PRIDES, they will be offered to the public.

     Under the settlement agreement, we have also agreed to file a shelf
registration statement for an additional 15 million PRIDES, which could be
issued by us at any time for cash. However, during the last 30 days prior to the
expiration of the Rights in February 2001, we will be required to make these
additional PRIDES available to holders of Rights at a price in cash equal to
105% of the theoretical value of the additional PRIDES as of a specified date.
The PRIDES, if issued, would have the same terms as the currently outstanding
PRIDES and could be used to exercise Rights.

     On June 15, 1999, the United States District Court for the District of New
Jersey entered an order and judgment approving the settlement and awarding fees
to counsel to the class. Cendant presently intends to distribute the Rights in
or about October 1999.

     One objector, who objected to a portion of the settlement notice concerning
fees to be sought by counsel to the class, and the amount of fees sought by
counsel to the class, has filed an appeal to the United States Court of Appeals
for the Third Circuit from the order and judgment approving the settlement.
Cendant believes this appeal is without merit. Counsel for the plaintiff class
has moved to dismiss this appeal. This motion is pending before the Third
Circuit.

     On September 7, 1999 Cendant moved the District Court for an order
disallowing claims by purported class members seeking a total of approximately 4
million Rights pursuant to the settlement, on the grounds that such claims were
filed untimely and/or not supported by appropriate documentation. On October 6,
1999, the District Court of New Jersey heard oral argument on the Company's
motion. A definitive written decision is expected shortly.

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

     We held an annual meeting of our shareholders on October 30, 1998, pursuant
to a Notice of Annual Meeting and Proxy Statement dated September 28, 1998, a
copy of which has been filed previously with the Securities and Exchange
Commission, at which our shareholders considered and approved the election of
six directors for a term of three years, the Company's 1998 Employee Stock
Purchase Plan, and ratification of Deloitte & Touche LLP as auditors. The
results of such matters are as follows:


                                       50


Proposal 1: To elect six directors for a three-year term and until their
successors are duly elected and qualified.

            Results:         For           Withheld
                          729,374,048     21,047,428


Proposal 2: To approve the Company's 1998 Employee Stock Purchase Plan

            Results:         For           Against         Abstain
                          714,345,354    33,516,760      1,938,144


Proposal 3: To ratify and approve the appointment of Deloitte & Touche LLP as
the Company's Independent Auditors for the year ending December 31, 1998.


            Results:            For        Against         Abstain
                          744,191,719    5,471,312         758,445









                                       51


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS

MARKET PRICE ON COMMON STOCK

     Our Common Stock is listed on the New York Stock Exchange ("NYSE") under
the symbol "CD". At March 22, 1999 the number of stockholders of record was
approximately 10,841. The following table sets forth the quarterly high and low
sales prices per share as reported by the NYSE for 1998 and 1997 based on a year
ended December 31.

               1997                  HIGH              LOW
               ----                  ----              ---
               First Quarter         26 7/8            22 1/2
               Second Quarter        26 3/4            20
               Third Quarter         31 3/4            23 11/16
               Fourth Quarter        31 3/8            26 15/16

               1998                  HIGH              LOW
               ----                  ----              ---
               First Quarter         41                32 7/16
               Second Quarter        41 3/8            18 9/16
               Third Quarter         22 7/16           10 7/16
               Fourth Quarter        20 5/8            7 1/2


     On March 22, 1999, the last sale price of our Common Stock on the NYSE was
$16 5/16 per share.

     All stock price information has been restated to reflect a three-for-two
stock split effected in the form of a dividend to stockholders of record on
October 7, 1996, payable on October 21, 1996.

DIVIDEND POLICY

     We expect to retain our earnings for the development and expansion of its
business and the repayment of indebtedness and do not anticipate paying
dividends on Common Stock in the foreseeable future.


                                       52


ITEM 6.   SELECTED FINANCIAL DATA (1) (2)




                                                          AT OR FOR THE YEAR ENDED DECEMBER 31,
                                                          -------------------------------------
                                                     1998           1997             1996           1995
                                                     ----           ----             ----           ----
                                                                                    
(In millions, except per share amounts)
OPERATIONS
NET REVENUES                                    $   5,283.8     $   4,240.0     $   3,237.7     $   2,616.1
                                                -----------     -----------     -----------     -----------

Operating expense                                   1,869.1(3)      1,322.3         1,183.2         1,024.9
Marketing and reservation expense                   1,158.5         1,031.8           910.8           743.6
General and administrative expense                    666.3           636.2           341.0           283.3
Depreciation and amortization expense                 322.7           237.7           145.5           100.4
Other charges                                         838.3(4)        704.1(5)        109.4(6)         97.0(7)
Interest expense, net                                 113.9            50.6            14.3            16.6
Provision for income taxes                            104.5           191.0           220.2           143.2
Minority interest, net                                 50.6              --              --              --
                                                -----------     -----------     -----------     -----------

INCOME FROM CONTINUING OPERATIONS               $     159.9     $      66.3     $     313.3     $     207.1
                                                -----------     -----------     -----------     -----------

INCOME FROM CONTINUING OPERATIONS PER SHARE:
Basic                                           $       0.19    $       0.08    $       0.41    $       0.30
Diluted                                                 0.18            0.08            0.39            0.28

FINANCIAL POSITION
Total assets                                    $  20,216.5     $  14,073.4     $  12,762.5     $   8,519.5
Long-term debt                                      3,362.9         1,246.0           780.8           336.0
Assets under management and mortgage programs       7,511.9         6,443.7         5,729.2         4,955.6
Debt under management and mortgage programs         6,896.8         5,602.6         5,089.9         4,427.9
Mandatorily redeemable securities issued by
subsidiary                                          1,472.1              --              --              --
Shareholders' equity                                4,835.6         3,921.4         3,955.7         1,898.2

OTHER INFORMATION (8)
ADJUSTED EBITDA (9)                             $   1,589.9      $  1,249.7     $     802.7     $     564.3

Cash flows provided by (used in):
Operating activities                                  808.0         1,213.0         1,493.4         1,144.3
Investing activities                               (4,351.8)       (2,328.6)       (3,090.8)       (1,789.0)
Financing activities                                4,689.6           900.1         1,780.8           661.2


- ----------


(1)   Selected financial data is presented for four years. Financial data
      subsequent to December 31, 1994 had been restated as a result of findings
      from investigations into accounting irregularities discovered at the
      former business units of CUC International, Inc. ("CUC"). Financial data
      for periods prior to December 31, 1994 was not restated and therefore
      should not be relied on (see Note 18 to the consolidated financial
      statements).

(2)   Selected financial data includes the operating results of acquisitions
      accounted for under the purchase method of accounting since the respective
      dates of acquisition, including: (i) National Parking Corporation in April
      1998; (ii) Harpur Group in January 1998; (iii) Jackson Hewitt, Inc. in
      January 1998; (iv) Resort Condominiums International, Inc. in November
      1996; (v) Avis, Inc. in October 1996; (vi) Coldwell Banker Corporation in
      May 1996; and (vii) Century 21 Real Estate Corporation in August 1995.


                                       53


(3)   Includes a non-cash charge of $50.0 million ($32.2 million, after tax or
      $0.04 per diluted share) related to the write off of certain equity
      investments in interactive membership businesses and impaired goodwill
      associated with the National Library of Poetry, a Company subsidiary.
(4)   Represents charges of: (i) $433.5 million ($281.7 million, after tax or
      $0.32 per diluted share) for the costs of terminating the proposed
      acquisitions of American Bankers Insurance Group, Inc. and Providian Auto
      and Home Insurance Company; (ii) $351.0 million ($228.2 million, after tax
      or $0.26 per diluted share) associated with the final agreement to settle
      the PRIDES securities class action suit; and (iii) $121.0 million ($78.7
      million, after tax or $0.09 per diluted share) comprised of the costs of
      the investigations into previously discovered accounting irregularities at
      the former CUC business units, including incremental financing costs and
      separation payments, principally to the Company's former chairman. The
      aforementioned charges were partially offset by a credit of $67.2 million
      ($43.7 million, after tax or $0.05 per diluted share) associated with
      changes in the original estimate of 1997 merger-related costs and other
      unusual charges.
(5)   Represents merger-related costs and other unusual charges related to
      continuing operations of $704.1 million ($504.7 million, after tax or
      $0.58 per diluted share) primarily associated with the Cendant merger in
      December 1997 and merger with PHH Corporation ("PHH") in April 1997.
(6)   Represents merger-related costs and other unusual charges related to
      continuing operations of $109.4 million ($70.0 million, after tax or $0.09
      per diluted share) substantially related to the Company's August 1996
      merger with Ideon Group, Inc. ("Ideon").
(7)   Represents a provision for costs related to the abandonment of certain
      Ideon development efforts and the restructuring of certain Ideon
      operations. The charges aggregated $97.0 million ($62.1 million, after tax
      or $0.08 per diluted share).
(8)   There were no dividends declared during the periods presented above except
      for PHH and Ideon, which declared and paid dividends to their shareholders
      prior to their respective mergers with the Company.
(9)   Adjusted EBITDA is defined as earnings before interest, income taxes,
      depreciation and amortization, adjusted to exclude other charges, which
      are of a non-recurring or unusual nature. Adjusted EBITDA is a measure of
      performance which is not recognized under generally accepted accounting
      principles and should not replace income from continuing operations or
      cash flows in measuring operating results or liquidity. However,
      management believes such measure is an informative representation of how
      management evaluates the operating performance of the Company and its
      underlying business segments (see Note 26 to the consolidated financial
      statements).



                                       54


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

We are one of the foremost consumer and business services companies in the
world. We were created through the December 1997 merger (the "Cendant Merger")
of HFS Incorporated ("HFS") and CUC International Inc. ("CUC"). We provide
business services to our customers, many of which are consumer services
companies, and also provide fee-based services directly to consumers, generally
without owning the assets or sharing the risks associated with the underlying
businesses of our customers or collaborative partners.

We operate in four principal divisions -- travel related services, real estate
related services, direct marketing services and other consumer and business
services. Our businesses provide a wide range of complementary consumer and
business services, which together represent eight business segments. The travel
related services businesses facilitate vacation timeshare exchanges, manage
corporate and government vehicle fleets and franchise car rental and hotel
businesses; the real estate related services businesses franchise real estate
brokerage businesses, provide home buyers with mortgages and assist in employee
relocation; and the direct marketing services businesses, provide an array of
value driven products and services. Our other consumer and business services
include our tax preparation services franchise, information technology services,
car parking facility services, vehicle emergency support and rescue services,
credit information services, financial products and other consumer-related
services.

As a franchisor of hotels, real estate brokerage offices, car rental operations
and tax preparation services, we license the owners and operators of independent
businesses to use our brand names. We do not own or operate hotels, real estate
brokerage offices, car rental operations or tax preparation offices (except for
certain company-owned Jackson Hewitt offices, which we intend to franchise).
Instead, we provide our franchisee customers with services designed to increase
their revenue and profitability.

In connection with our previously announced program to focus on maximizing the
opportunities and growth potential of our existing businesses, we divested or
announced our intention to divest several non-strategic businesses and assets
and have completed or commenced certain other strategic initiatives related to
our internet businesses. Pursuant to such program, we completed the dispositions
of North American Outdoor Group, Global Refund Group, the Fleet businesses,
Central Credit, Inc., Spark Services, Inc., Match.com, National Leisure Group,
National Library of Poetry, Essex Corporation, Cendant Software Corporation and
Hebdo Mag International, Inc. and have entered into definitive agreements to
dispose of the Green Flag Group ("Green Flag") and Entertainment Publications,
Inc ("EPub"). The Green Flag and EPub transactions are expected to close during
the fourth quarter of 1999. The divestiture program will ultimately generate
approximately $4.5 billion in proceeds. (see "Liquidity and Capital Resources -
Divestitures").

In addition to the above mentioned divestitures, we have recently initiated
certain internet strategies outlined below.

We recently announced that our Board of Directors approved a plan to create a
new class of common stock to track the performance of CompleteHome.com, our new
real estate portal. The plan to create a tracking stock, subject to shareholder
approval, anticipates the initial public offering of CompleteHome.com in the
second quarter of 2000. CompleteHome.com will integrate and enhance the online
efforts of our residential real estate brands and those of our other real estate
business units drawing on the success of our RentNet online apartment guide
business model. CompleteHome.com encompasses all aspects of the home experience
including finding a home, buying or renting a home, moving and after close home
improvements. CompleteHome.com's business consists of three primary sources of
revenue: rental directory services, e-commerce/advertising and real estate
related products including mortgage brokerage. We plan to file a proxy with the
Securities and Exchange Commission, which will contain financial details as well
as more specific plans concerning the transaction. Beginning in the third
quarter 1999, we will provide footnote disclosure of CompleteHome.com's
financial information within our consolidated financial statements.


                                       55


On September 15, 1999, we donated Netmarket, Inc. ("NGI") outstanding common
stock to a charitable trust and NGI began operations as an independent company
that will pursue the development of our interactive on-line businesses formerly
within our direct marketing division. NGI will own, operate, develop and expand
the on-line membership businesses. We donated NGI's outstanding common stock to
a charitable trust and retained an ownership of a convertible preferred stock of
NGI, which is ultimately exchangeable, at our option into 78% of NGI's diluted
common shares. Accordingly, as a result of the change in ownership NGI's
operating results will no longer be included in our consolidated financial
statements.

Prior to the Cendant Merger, both HFS and CUC had grown significantly through
mergers and acquisitions accounted for under both the pooling of interests
method, the most significant being the merger of HFS with PHH Corporation
("PHH") in April 1997 (the "PHH Merger"), and purchase method of accounting. The
underlying Results of Operations discussions are presented as if all businesses
acquired in mergers and acquisitions accounted for as poolings of interests have
operated as one entity since inception.

RESULTS OF OPERATIONS

This discussion should be read in conjunction with the information contained in
our Consolidated Financial Statements and accompanying Notes thereto included
elsewhere herein.

Our operating results and the operating results of certain of our underlying
business segments are comprised of business combinations accounted for under the
purchase method of accounting. Accordingly, the results of operations of such
acquired companies have been included in our consolidated operating results and
our applicable business segments from the respective dates of acquisition. See
"Liquidity and Capital Resources" for a discussion of our purchase method
acquisitions.

The underlying discussions of each segment's operating results focuses on
Adjusted EBITDA, which is defined as earnings before non-operating interest,
income taxes, depreciation and amortization, adjusted for Other charges which
are of a non-recurring or unusual nature, and are not included in assessing
segment performance or are not segment-specific. Our management believes such
discussion is the most informative representation of how management evaluates
performance. We have determined that we have eight reportable operating segments
based primarily on the types of services we provide, the consumer base to which
marketing efforts are directed and the methods we use to sell services. For
additional information, including a description of the services provided in each
of our reportable operating segments, see Note 26 to the Consolidated Financial
Statements.

CONSOLIDATED RESULTS - 1998 VS. 1997



                                                                 YEAR ENDED DECEMBER 31,
                                                          ----------------------------------------
(DOLLARS IN MILLIONS)                                        1998            1997        % CHANGE
                                                          ---------       ---------      ---------
                                                                                     
Net revenues                                              $ 5,283.8       $  4,240.0          25%
                                                          ---------       ----------
Expenses
  Operating                                                 1,869.1          1,322.3          41%
  Marketing and reservation                                 1,158.5          1,031.8          12%
  General and administrative                                  666.3            636.2           5%
                                                          ---------       ----------
                                                            3,693.9          2,990.3          24%
                                                          ---------       ----------

Adjusted EBITDA                                             1,589.9          1,249.7          27%
Depreciation and amortization expense                         322.7            237.7          36%
Other charges
  Litigation settlement                                       351.0              -             *
  Termination of proposed acquisitions                        433.5              -             *
  Executive terminations                                       52.5              -             *
  Investigation-related costs                                  33.4              -             *
  Merger-related costs and other unusual
    charges (credits)                                         (67.2)           704.1           *

  Financing costs                                              35.1              -             *
Interest expense, net                                         113.9             50.6         125%
                                                          ---------       ----------
Pre-tax income from continuing operations
  before minority interest, extraordinary
  gain and cumulative effect of accounting


                                       56


  change                                                      315.0            257.3          22%
Provision for income taxes                                    104.5            191.0         (45%)
Minority interest, net of tax                                  50.6              -             *
                                                          ---------       ----------
Income from continuing operations before
  extraordinary gain and cumulative effect
  of accounting change                                        159.9             66.3         141%
Loss from discontinued operations, net of tax                 (25.0)           (26.8)          *
Gain on sale of discontinued operations, net of tax           404.7              -             *
Extraordinary gain, net of tax                                  -               26.4           *
Cumulative effect of accounting
  change, net of tax                                            -             (283.1)          *
                                                          ---------       ----------
Net income (loss)                                         $   539.6       $   (217.2)          *
                                                          =========       ==========

- ---------
*    Not meaningful.

REVENUES AND ADJUSTED EBITDA

Revenues and Adjusted EBITDA increased $1.0 billion (25%) and $340.2 million
(27%), respectively, in 1998 over 1997, which reflected growth in substantially
all of our reportable operating segments. Significant contributing factors which
gave rise to such increases included substantial growth in the volume of
mortgage services provided and an increase in the amount of royalty fees
received from our franchised brands, principally within the real estate
franchise segment. In addition, revenues and Adjusted EBITDA in 1998 included
the operating results of 1998 acquisitions, including National Parking
Corporation Limited ("NPC") and Jackson Hewitt Inc. ("Jackson Hewitt"). A
detailed discussion of revenues and Adjusted EBITDA trends from 1997 to 1998 is
included in the section entitled "Results of Reportable Operating Segments --
1998 vs. 1997."

DEPRECIATION AND AMORTIZATION EXPENSE

Depreciation and amortization expense increased $85.0 million (36%) in 1998 over
1997 as a result of incremental amortization of goodwill and other intangible
assets from 1998 acquisitions and increased capital spending primarily to
accommodate growth in our businesses.

1998 OTHER CHARGES

LITIGATION SETTLEMENT. We recorded a non-cash charge of $351.0 million in the
fourth quarter of 1998 in connection with an agreement to settle a class action
lawsuit that was brought on behalf of the holders of our Income or Growth FELINE
PRIDES securities who purchased their securities on or prior to April 15, 1998,
the date on which we announced the discovery of accounting irregularities in the
former business units of CUC (see "Liquidity and Capital Resources -- FELINE
PRIDES and Trust Preferred Securities").

TERMINATION OF PROPOSED ACQUISITIONS. We incurred $433.5 million of costs, which
included a $400.0 million cash payment to American Bankers Insurance Group, Inc.
("American Bankers"), in connection with terminating the proposed acquisitions
of American Bankers and Providian Auto and Home Insurance Company ("Providian")
(see "Liquidity and Capital Resources -- Termination of Proposed Acquisitions").

EXECUTIVE TERMINATIONS. We incurred $52.5 million of costs in 1998 related to
the termination of certain of our former executives, principally Walter A.
Forbes, who resigned as our Chairman and as a member of our Board of Directors
in July 1998. The severance agreement reached with Mr. Forbes entitled him to
the benefits required by his employment contract relating to a termination of
Mr. Forbes' employment with us for reasons other than for cause. Aggregate
benefits given to Mr. Forbes resulted in a charge of $50.9 million comprised of
$38.4 million in cash payments and 1.3 million of immediately vested Company
stock options, with a Black-Scholes value of $12.5 million.

INVESTIGATION-RELATED COSTS. We incurred $33.4 million of professional fees,
public relations costs and other miscellaneous expenses in connection with our
discovery of accounting irregularities in the former business units of CUC and
the resulting investigations into such matters.


                                       57


FINANCING COSTS. In connection with our discovery and announcement of accounting
irregularities and the corresponding lack of audited financial statements, we
were temporarily disrupted in accessing public debt markets. As a result, we
paid $27.9 million in fees associated with waivers and various financing
arrangements. Additionally, during 1998, we exercised our option to redeem our
4-3/4% Convertible Senior Notes (the "4 3/4% Notes"). At such time, we
anticipated that all holders of the 4 3/4% Notes would elect to convert the 4
3/4% Notes to our common stock. However, at the time of redemption, holders of
the 4 3/4% Notes elected not to convert the 4 3/4% Notes to our common stock and
as a result, we redeemed such notes at a premium. Accordingly, we recorded a
$7.2 million loss on early extinguishment of debt.

1997 MERGER-RELATED COSTS AND OTHER UNUSUAL CHARGES

We incurred merger-related costs and other unusual charges ("Unusual Charges")
in 1997 related to continuing operations of $704.1 million primarily associated
with the Cendant Merger (the "Fourth Quarter 1997 Charge") and the PHH Merger
(the "Second Quarter 1997 Charge").



                                         NET                                    BALANCE AT
                                       UNUSUAL              REDUCTIONS          DECEMBER 31,
(IN MILLIONS)                          CHARGES          1997         1998          1998
                                    -----------    ------------  -----------    ----------
                                                                 
Fourth Quarter 1997 Charge          $     454.9    $    (257.5)  $   (130.2)    $      67.2
Second Quarter 1997 Charge                283.1         (207.0)       (59.7)           16.4
                                    -----------    ------------  -----------    -----------
Total                                     738.0         (464.5)      (189.9)           83.6
Reclassification for discontinued
    operations                            (33.9)          33.9           -               -
                                    ------------   -----------   ---------      ----------
Total Unusual Charges related to
    continuing operations           $     704.1    $    (430.6)  $   (189.9)    $      83.6
                                    ===========    ============  ===========    ===========



FOURTH QUARTER 1997 CHARGE. We incurred Unusual Charges in the fourth quarter of
1997 totaling $454.9 million substantially associated with the Cendant Merger
and our merger in October 1997 with Hebdo Mag International, Inc. ("Hebdo Mag"),
a classified advertising business. Reorganization plans were formulated prior to
and implemented as a result of the mergers. We determined to streamline our
corporate organization functions and eliminate several office locations in
overlapping markets. Our management's plan included the consolidation of
European call centers in Cork, Ireland and terminations of franchised hotel
properties.

Unusual Charges included $93.0 million of professional fees primarily consisting
of investment banking, legal and accounting fees incurred in connection with the
aforementioned mergers. We also incurred $170.7 million of personnel-related
costs including $73.3 million of retirement and employee benefit plan costs,
$23.7 million of restricted stock compensation, $61.4 million of severance
resulting from consolidations of European call centers and certain corporate
functions and $12.3 million of other personnel-related costs. Unusual Charges
included $78.3 million of business termination costs which consisted of a $48.3
million non-cash impairment write-down of hotel franchise agreement assets
associated with a quality upgrade program and $30.0 million of costs incurred to
terminate a contract which may have restricted us from maximizing opportunities
afforded by the Cendant Merger. We also provided for facility-related and other
costs of $112.9 million including $70.0 million of irrevocable contributions
made to independent technology trusts for the direct benefit of lodging and real
estate franchisees, $16.4 million of building lease termination costs and a
$22.0 million reduction in intangible assets associated with our wholesale
annuity business for which impairment was determined in 1997. During the year
ended December 31, 1998, we recorded a net credit of $28.1 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. We made cash payments
of $102.6 million and $152.2 million during 1998 and 1997, respectively, related
to the Fourth Quarter 1997 Charge. Liabilities of $67.2 million remained at
December 31, 1998 which were primarily attributable to future severance costs
and executive termination benefits.

SECOND QUARTER 1997 CHARGE. We incurred $295.4 million of Unusual Charges in the
second quarter of 1997 primarily associated with the PHH Merger. During the
fourth quarter of 1997, as a result of changes in estimate, we adjusted certain
merger-related liabilities, which resulted in a $12.3 million credit to Unusual
Charges. Reorganization

                                       58


plans were formulated in connection with the PHH Merger and were implemented
upon consummation. The PHH Merger afforded us, at such time, an opportunity to
rationalize our combined corporate, real estate and travel-related businesses,
and enabled our corresponding support and service functions to gain
organizational efficiencies and maximize profits. We initiated a plan just prior
to the PHH Merger to close hotel reservation call centers, combine travel agency
operations and continue the downsizing of fleet operations by reducing headcount
and eliminating unprofitable products. In addition, we initiated plans to
integrate our relocation, real estate franchise and mortgage origination
businesses to capture additional revenues through the referral of one business
unit's customers to another. We also formalized a plan to centralize the
management and headquarters functions of our corporate relocation business unit
subsidiaries. Such initiatives resulted in write-offs of abandoned systems and
leasehold assets commencing in the second quarter of 1997. The aforementioned
reorganization plans included the elimination of PHH corporate functions and
facilities in Hunt Valley, Maryland.

Unusual Charges included $154.1 million of personnel-related costs associated
with employee reductions necessitated by the planned and announced consolidation
of our corporate relocation service businesses worldwide as well as the
consolidation of our corporate activities. Personnel-related charges also
included termination benefits such as severance, medical and other benefits and
provided for retirement benefits pursuant to pre-existing contracts resulting
from a change in control. Unusual Charges also included professional fees of
$30.3 million, primarily comprised of investment banking, accounting and legal
fees incurred in connection with the PHH Merger. We incurred business
termination charges of $55.6 million, which were comprised of $38.8 million of
costs to exit certain activities primarily within our fleet business (including
$35.7 million of asset write-offs associated with discontinued activities), a
$7.3 million termination fee associated with a joint venture that competed with
our PHH Mortgage Services business (now known as Cendant Mortgage Corporation)
and $9.6 million of costs to terminate a marketing agreement with a third party
in order to replace the function with internal resources. We also incurred
facility-related and other charges totaling $43.1 million including costs
associated with contract and lease terminations, asset disposals and other
expenses related to the consolidation and closure of excess office space. During
the year ended December 31, 1998, we recorded a net credit of $39.6 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. We made
cash payments of $27.8 million and $150.2 million during 1998 and 1997,
respectively, related to the Second Quarter 1997 Charge. Liabilities of $16.4
million remained at December 31, 1998, which were attributable to future
severance and lease termination payments.

INTEREST EXPENSE AND MINORITY INTEREST, NET

Interest expense, net, increased $63.3 million (125%) in 1998 over 1997
primarily as a result of incremental average borrowings during 1998 and a
nominal increase in the cost of funds. We primarily used debt to finance $2.9
billion of acquisitions and investments during 1998, which resulted in an
increase in the average debt balance outstanding as compared to 1997. The
weighted average interest rate on long-term debt increased from 6.0% in 1997 to
6.2% in 1998. In addition to interest expense on long-term debt, we also
incurred $50.6 million of minority interest, net of tax, primarily related to
the preferred dividends payable in cash on our FELINE PRIDES and trust preferred
securities issued in March 1998 (see "Liquidity and Capital Resources --
Financing Exclusive of Management and Mortgage Financing -- FELINE PRIDES and
Trust Preferred Securities").

PROVISION FOR INCOME TAXES

Our effective tax rate was reduced from 74.3% in 1997 to 33.2% in 1998 due to
the non-deductibility of a significant amount of Unusual Charges recorded during
1997 and the favorable impact in 1998 of reduced rates in international tax
jurisdictions in which we commenced business operations during 1998. The 1997
effective income tax rate included a tax benefit on 1997 Unusual Charges, which
were deductible at an effective rate of only 29.1%. Excluding Unusual Charges,
the effective income tax rate on income from continuing operations in 1997 was
40.6%.


                                       59


DISCONTINUED OPERATIONS

Pursuant to our program to divest non-strategic businesses and assets, we
committed to discontinue our consumer software and classified advertising
businesses in August 1998 (the "Measurement Date") and subsequently sold such
businesses in January 1999 and December 1998, respectively. We recorded a $404.7
million gain, net of tax, on the sale of discontinued operations in 1998,
related to the dispositions of our classified advertising and consumer software
businesses.

Loss from discontinued operations, net of tax, was $25.0 million in 1998
compared to $26.8 million in 1997. Loss from discontinued operations in 1998
includes the operating results of our former classified advertising and consumer
software businesses through the Measurement Date. The operating results of
discontinued operations in 1997 included $24.4 million of Unusual Charges, net
of tax and a $15.2 million extraordinary loss, net of tax. Unusual Charges, net
of tax, in 1997 primarily consisted of $19.4 million of severance associated
with terminated consumer software company executives and $5.0 million of
compensation related to a stock appreciation rights plan which was paid in
connection with our merger with Hebdo Mag in October 1997. Such merger also
resulted in a $15.2 million extraordinary loss, net of tax, associated with the
early extinguishment of debt.

EXTRAORDINARY GAIN, NET

In 1997, we recorded a $26.4 million extraordinary gain, after tax, on the sale
of Interval International, Inc. ("Interval") in December 1997. The Federal Trade
Commission requested that we sell Interval in connection with the Cendant Merger
as a result of their anti-trust concerns within the timeshare industry.

CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET

In 1997, we recorded a non-cash after-tax charge of $283.1 million to account
for the cumulative effect of an accounting change. In August 1998, the
Securities and Exchange Commission ("SEC") requested that we change our
accounting policies with respect to revenue and expense recognition for our
membership businesses, effective January 1, 1997. Although we believed that our
accounting for memberships had been appropriate and consistent with industry
practice, we complied with the SEC's request and adopted new accounting policies
for our individual membership businesses.

RESULTS OF REPORTABLE OPERATING SEGMENTS -- 1998 VS. 1997



                                                                   YEAR ENDED DECEMBER 31,
                              ------------------------------------------------------------------------------------------
                                                                                                   ADJUSTED EBITDA
                                        REVENUES                        ADJUSTED EBITDA                 MARGIN
                              ----------------------------   ---------------------------------   ---------------------
                                1998       1997   % CHANGE    1998(1)      1997(2)    % CHANGE     1998         1997
                              --------  --------  --------   --------      --------   --------   --------     --------

(Dollars in millions)
                                                                                          
Travel                      $1,063.3    $ 971.6        9%    $  542.5       $ 467.3      16%        51%           48%
Individual
  Membership                   929.1      778.7       19%       (57.8)          5.3       *         (6%)           1%
Insurance/
  Wholesale                    544.0      482.7       13%       137.8         111.0      24%        25%           23%
Real Estate
  Franchise                    455.8      334.6       36%       348.6         226.9      54%        76%           68%
Relocation                     444.0      401.6       11%       124.5          92.6      34%        28%           23%
Fleet                          387.4      324.1       20%       173.8         120.5      44%        45%           37%
Mortgage                       353.4      179.2       97%       187.6          74.8     151%        53%           42%
Other                        1,106.8      767.5       44%       132.9(3)      151.3     (12%)       12%           20%
                             --------   --------             --------      -------
Total                        $5,283.8   $4,240.0      25%    $1,589.9      $1,249.7      27%        30%           29%
                             ========   ========             ========      ========


- ------------------
(1)   Excludes the following Other charges or credits: (i) $433.5 million for
      the costs of terminating the proposed acquisitions of American Bankers and
      Providian; (ii) $351.0 million of costs associated with an agreement to
      settle the PRIDES securities class action suit; (iii) $121.0 million
      comprised of the costs of the investigations into previously discovered
      accounting irregularities at the former CUC


                                       60


      business units, including incremental financing costs and separation
      payments, principally to our former chairman; and (iv) $67.2 million of
      net credits associated with changes to the original estimate of costs to
      be incurred in connection with 1997 Unusual Charges.
(2)   Excludes Unusual Charges of $704.1 million primarily associated with the
      Cendant Merger and the PHH Merger.
(3)   Includes a $50.0 million non-cash write-off of certain equity investments
      in interactive membership businesses and impaired goodwill associated with
      our National Library of Poetry subsidiary.
*     Not meaningful.

TRAVEL

Revenues and Adjusted EBITDA increased $91.7 million (9%) and $75.2 million
(16%), respectively, in 1998 over 1997. Contributing to the revenue and Adjusted
EBITDA increase was a $35.4 million (7%) increase in franchise fees, consisting
of increases of $23.5 million (6%) and $11.9 million (8%) in lodging and car
rental franchise fees, respectively. Our franchise businesses experienced
increases during 1998 in worldwide available rooms (29,800 incremental rooms,
domestically), revenue per available room, car rental days and average car
rental rates per day. Timeshare subscription and exchange revenue increased
$27.1 million (9%) as a result of a 7% increase in average membership volume and
a 4% increase in the number of exchanges. Also contributing to the revenue and
Adjusted EBITDA increase was $16.4 million of incremental fees received from
preferred alliance partners seeking access to our franchisees and their
customers, $12.7 million of fees generated from the execution of international
master license agreements and a $17.7 million gain on our sale of one million
shares of Avis common stock in 1998. The aforementioned drivers supporting
increases in revenues and Adjusted EBITDA were partially offset by a $37.8
million reduction in the equity in earnings of our investment in the car rental
operations of Avis, Inc. ("ARAC") as a result of reductions in our ownership
percentage in such investment during 1997 and 1998 (see "Liquidity and Capital
Resources -- 1996 Purchase Acquisitions and Investments -- Avis"). A $16.7
million (7%) increase in marketing and reservation costs resulted in a $16.5
million increase in total expenses while other operating expenses were
relatively flat due to leveraging our corporate infrastructure among more
businesses, which contributed to an improvement in the Adjusted EBITDA margin
from 48% in 1997 to 51% in 1998.

INDIVIDUAL MEMBERSHIP

Revenues increased $150.4 million (19%) in 1998 over 1997 while Adjusted EBITDA
and Adjusted EBITDA margin decreased $63.1 million and 7 percentage points,
respectively, for the same period. The revenue growth was primarily attributable
to an incremental $27.9 million associated with an increase in the average price
of a membership, $25.8 million of increased billings as a result of incremental
marketing arrangements, primarily with telephone and mortgage companies, and
$35.9 million from the acquisition of a company in April 1998 that, among other
services, provides members access to their personal credit information. Also
contributing to the revenue growth are increased product sales and service fees,
which are offered and provided to individual members. The reduction in Adjusted
EBITDA and Adjusted EBITDA margin is a direct result of a $104.3 million (25%)
increase in membership solicitation costs. We increased our marketing efforts
during 1998 to solicit new members and as a result increased our gross average
annual membership base by approximately 3.3 million members (11%) at December
31, 1998, compared to the prior year. The growth in members during 1998 resulted
in increased servicing costs during 1998 of approximately $33.2 million (13%).
While the costs of soliciting and acquiring new members were expensed in 1998,
the revenue associated with these new members will not begin to be recognized
until 1999, upon expiration of the membership period.

INSURANCE/WHOLESALE

Revenues and Adjusted EBITDA increased $61.3 million (13%) and $26.8 million
(24%), respectively, in 1998 over 1997, primarily due to customer growth. This
growth generally resulted from increases in affiliations with financial
institutions. Domestic operations, which comprised 77% of segment revenues in
1998, generated higher Adjusted EBITDA margins than the international businesses
as a result of continued expansion costs incurred internationally to penetrate
new markets.


                                       61


Domestic revenues and Adjusted EBITDA increased $25.4 million (6%) and $23.6
million (22%), respectively. Revenue growth, which resulted from an increase in
customers, also contributed to an improvement in the overall Adjusted EBITDA
margin from 23% in 1997 to 25% in 1998, as a result of the absorption of such
increased volume by the existing domestic infrastructure. International revenues
and Adjusted EBITDA increased $35.9 million (41%) and $3.2 million (54%),
respectively, due primarily to a 42% increase in customers while the Adjusted
EBITDA margin remained relatively flat at 7%.

REAL ESTATE FRANCHISE

Revenues and Adjusted EBITDA increased $121.2 million (36%) and $121.7 million
(54%), respectively, in 1998 over 1997. Royalty fees collectively increased for
our CENTURY 21, COLDWELL BANKER and ERA franchise brands by $102.0 million (35%)
as a result of a 20% increase in home sales by franchisees and a 13% increase in
the average price of homes sold. Home sales by franchisees benefited from
existing home sales in the United States reaching a record 4.8 million units in
1998, according to data from the National Association of Realtors, as well as
from expansion of our franchise systems. Because many costs associated with the
real estate franchise business, such as franchise support and information
technology, do not vary directly with home sales volumes or royalty revenues,
the increase in royalty revenues contributed to an improvement in the Adjusted
EBITDA margin from 68% to 76%.

RELOCATION

Revenues and Adjusted EBITDA increased $42.4 million (11%) and $31.9 million
(34%), respectively, in 1998 over 1997. The Adjusted EBITDA margin improved from
23% to 28%. The primary source of revenue growth was a $29.3 million increase in
revenues from the relocation of government employees. We also experienced growth
in the number of relocation-related services provided to client corporations and
in the number of household goods moves handled, partially offset by lower home
sale volumes. The divestiture of certain niche-market property management
operations accounted for other revenue of $8.2 million. Expenses associated with
government relocations increased in conjunction with the volume and revenue
growth, but economies of scale and a reduction in overhead and administrative
expenses permitted the reported improvement in Adjusted EBITDA margin.

FLEET

On June 30, 1999, we completed the disposition of our Fleet Segment for
aggregate consideration of $1.8 billion (see "Liquidity and Capital Resources -
Divestitures Fleet"). Fleet Segment revenues and Adjusted EBITDA increased $63.3
million (20%) and $53.3 million (44%), respectively, in 1998 over 1997,
contributing to an improvement in the Adjusted EBITDA margin from 37% to 45%. We
acquired The Harpur Group Ltd. ("Harpur"), a leading fuel card and vehicle
management company in the United Kingdom ("UK"), on January 20, 1998. Harpur
contributed incremental revenues and Adjusted EBITDA in 1998 of $31.8 million
and $20.8 million, respectively. The revenue increase is further attributable to
a 12% increase in fleet leasing fees and a 31% increase in service fee revenue.
The fleet leasing revenue increase is due to a 5% increase in pricing and a 7%
increase in the number of vehicles leased, while the service fee revenue
increase is the result of a 40% increase in number of fuel cards and vehicle
maintenance cards partially offset by a 7% decline in pricing. The Adjusted
EBITDA margin improvement reflects streamlining of costs at newly acquired
Harpur and a leveraging of our corporate infrastructure among more businesses.

MORTGAGE

Revenues and Adjusted EBITDA increased $174.2 million (97%) and $112.8 million
(151%), respectively, in 1998 over 1997, primarily due to strong mortgage
origination growth and average fee improvement. The Adjusted EBITDA margin
improved from 42% to 53%. Mortgage origination grew across all lines of
business, including increased refinancing activity and a shift to more
profitable sale and processing channels and was responsible for substantially
all of the segment's revenue growth. Mortgage closings increased $14.3 billion
(122%) to $26.0 billion and average origination fees increased 12 basis points,
resulting in a $180.3 million increase in origination revenues. Although the
servicing portfolio grew $9.6 billion (36%), net servicing revenue was
negatively impacted by average servicing fees declining 7 basis points due to
the increased refinancing levels in the 1998 mortgage market, which shortened
the


                                       62


servicing asset life and increased amortization charges. Consequently, net
servicing revenues decreased $9.1 million, partially offset by a $5.7 million
increase in the sale of servicing rights. Operating expenses increased in all
areas, reflecting increased hiring and expansion of capacity in order to support
continued growth; however, revenue growth marginally exceeded such
infrastructure enhancements.

OTHER SERVICES

Revenues increased $339.3 million (44%), while Adjusted EBITDA decreased $18.4
million (12%). Revenues increased primarily from acquired NPC and Jackson Hewitt
operations, which contributed $409.8 million and $53.7 million to 1998 revenues,
respectively. The revenue increase attributable to 1998 acquisitions was
partially offset by a $140.0 million reduction in revenues associated with the
operations of certain of our ancillary businesses which were sold during 1997,
including Interval, which contributed $121.0 million to 1997 revenues. We sold
Interval in December 1997 coincident to the proposed Cendant Merger, in
consideration of Federal Trade Commission anti-trust concerns within the
timeshare industry.

The revenue increase did not translate into increases in Adjusted EBITDA
primarily due to asset write-offs, dispositions of certain ancillary business
operations and approximately $8.0 million of incremental operating costs
associated with establishing a consolidated worldwide data center. We wrote-off
$37.0 million of impaired goodwill associated with our National Library of
Poetry subsidiary, and $13.0 million of certain of our equity investments in
interactive membership businesses. Adjusted EBITDA in 1997 associated with
aforementioned disposed ancillary operations included $27.2 million from
Interval and $18.0 million related to services formerly provided to the casino
industry. Our NPC and Jackson Hewitt subsidiaries contributed $92.7 million and
$27.0 million to 1998 Adjusted EBITDA, respectively.

CONSOLIDATED RESULTS -- 1997 VS. 1996



                                                                 YEAR ENDED DECEMBER 31,
                                                          ----------------------------------------
(DOLLARS IN MILLIONS)                                        1998            1997        % CHANGE
                                                          ---------       ---------      ---------
                                                                                    
Net revenues                                              $ 4,240.0        $ 3,237.7          31%
                                                          ---------       ----------
Expenses
  Operating                                                 1,322.3          1,183.2          12%
  Marketing and reservation                                 1,031.8            910.8          13%
  General and administrative                                  636.2            341.0          87%
                                                          ---------       ----------
                                                            2,990.3          2,435.0          23%
                                                          ---------       ----------

Adjusted EBITDA                                             1,249.7            802.7          56%
Depreciation and amortization expense                         237.7            145.5          63%
Merger-related costs and other unusual charges                704.1            109.4           *
Interest expense, net                                          50.6             14.3         254%
                                                          ---------       ----------
Pre-tax income from continuing operations
  before extraordinary gain and cumulative
  effect of accounting change                                 257.3            533.5         (52%)
Provision for income taxes                                    191.0            220.2         (13%)
                                                          ---------       ----------
Income from continuing operations before
  extraordinary gain and cumulative effect
  of accounting change                                         66.3            313.3         (79%)
Income (loss) from discontinued
  operations, net of tax                                      (26.8)            16.7           *
Extraordinary gain, net of tax                                 26.4               -            *
Cumulative effect of accounting
  change, net of tax                                         (283.1)              -            *
                                                          ---------       ----------
Net income (loss)                                         $  (217.2)       $   330.0           *
                                                          =========       ==========

- ------------
*    Not meaningful.


                                       63


REVENUES AND ADJUSTED EBITDA

Revenues and Adjusted EBITDA increased $1.0 billion (31%) and $447.0 million
(56%), respectively, in 1997 over 1996, and were supported by growth in
substantially all of our reportable operating segments. Revenues and Adjusted
EBITDA in 1997 included a full year of operations from companies acquired during
1996, including Coldwell Banker Corporation ("Coldwell Banker") in May 1996,
Avis, Inc. ("Avis") in October 1996 and Resort Condominiums International, Inc.
("RCI") in November 1996 (see "Liquidity and Capital Resources -- 1996 Purchase
Acquisitions and Investments"). A detailed discussion of fluctuations in
revenues and Adjusted EBITDA from 1996 to 1997 is included in the section
entitled "Results of Reportable Operating Segments -- 1997 vs. 1996."

DEPRECIATION AND AMORTIZATION EXPENSE

Depreciation and amortization expense increased $92.2 million (63%) in 1997 over
1996, primarily as a result of incremental amortization of goodwill and other
intangible assets from 1996 acquisitions and increased capital spending.

MERGER-RELATED COSTS AND OTHER UNUSUAL CHARGES

1997. We incurred merger-related costs and other unusual charges ("Unusual
Charges ") in 1997 related to continuing operations of $704.1 million primarily
associated with the Cendant Merger and the PHH Merger. See "Results of
Operations -- Consolidated Results 1998 vs. 1997 -- Merger-Related Costs and
Other Unusual Charges" for a detailed discussion of such charges.

1996. We incurred Unusual Charges in 1996 related to continuing operations of
$109.4 million substantially related to our merger with Ideon Group, Inc.
("Ideon"). Unusual Charges primarily included $80.4 million of
litigation-related liabilities associated with our determination to settle
acquired Ideon litigation, which existed at the August 1996 merger date. We have
since settled all outstanding litigation matters pursuant to which the primary
resulting obligation consisted of a settlement made in June 1997 with the
cofounder of SafeCard Services, Inc. which was acquired by Ideon in 1995. The
settlement required us to make $70.5 million of payments in annual installments
through 2003. We made cash payments of $27.8 million and $56.3 million in 1998
and 1997, respectively, associated with 1996 Unusual Charges.

INTEREST EXPENSE, NET

Interest expense, net, increased $36.3 million in 1997 over 1996 primarily as a
result of the February 1997 issuance of $550.0 million 3% Convertible
Subordinated Notes and interest income earned in 1996 on approximately $420.0
million of excess proceeds generated from the $1.2 billion public offering of
46.6 million shares of our common stock in May 1996. The increase in interest,
net, was partially offset by a reduction in the weighted average interest rate
from 7.5% in 1996 to 6.0% in 1997 as a result of a greater proportion of fixed
rate debt, carrying lower interest rates, to total debt.

PROVISION FOR INCOME TAXES

Our effective tax rate increased from 41.2% in 1996 to 74.3% in 1997. The 1997
effective income tax rate included a 29.1% effective tax rate on the tax benefit
related to Unusual Charges due to the significant non-deductibility of such
costs. The effective income tax rate on 1997 income from continuing operations
excluding Unusual Charges was 40.6%.

DISCONTINUED OPERATIONS

We recorded a $26.8 million net loss from discontinued operations in 1997
compared to net income of $16.7 million in 1996. The operating results of
discontinued operations included a $15.2 million extraordinary loss, net of tax,
in 1997 and $24.4 million and $24.9 million of Unusual Charges, net of tax, in
1997 and 1996, respectively. The


                                       64


extraordinary loss and Unusual Charges incurred in 1997 have been previously
discussed in the section entitled "Results of Operations --Consolidated Results
- -- 1998 vs. 1997." Unusual Charges in 1996 consisted primarily of professional
fees incurred in connection with our mergers with certain software businesses
acquired in 1996. Excluding Unusual Charges and extraordinary items, income from
discontinued operations decreased $28.8 million (69%) from $41.6 million in 1996
to $12.8 million in 1997. Net income from the classified advertising business
remained relatively unchanged from 1996 while net income from the consumer
software businesses decreased $28.5 million (72%) to $11.1 million in 1997. In
1997 revenues increased $49.2 million (13%) which were offset by increased
operating expenses of $93.2 million (29%). The disproportionate increase in
operating expenses resulted from accelerating development and marketing costs
incurred on titles without a corresponding revenue increase because titles were
not released to the marketplace as planned in December 1997.

RESULTS OF REPORTABLE OPERATING SEGMENTS - 1997 VS. 1996



                                                    YEAR ENDED DECEMBER 31,
               ------------------------------------------------------------------------------------------
                                                                                         ADJUSTED EBITDA
                          REVENUES                     ADJUSTED EBITDA                        MARGIN
               ------------------------------  --------------------------------------   ------------------
                1997       1996     % CHANGE     1997 (1)       1996 (2)    % CHANGE      1997      1996
               -------    -------   ---------  -----------    ----------  -----------   --------   -------

                                                                             
Travel         $ 971.6    $ 429.2      126%     $  467.3        $ 189.5       147%        48%        44%
Individual
  Membership     778.7      745.9        4%          5.3           43.2       (88%)        1%         6%
Insurance/
  Wholesale      482.7      448.0        8%        111.0           99.0        12%        23%        22%
Real Estate
  Franchise      334.6      236.3       42%        226.9          137.8        65%        68%        58%
Relocation       401.6      344.9       16%         92.6           65.5        41%        23%        19%
Fleet            324.1      293.5       10%        120.5           99.0        22%        37%        34%
Mortgage         179.2      127.7       40%         74.8           45.7        64%        42%        36%
Other            767.5      612.2       25%        151.3          123.0        23%        20%        20%
              --------   --------               --------        -------
Total         $4,240.0   $3,237.7       31%     $1,249.7        $ 802.7        56%        29%        25%
              ========   ========               ========        =======


- ------------------
(1)   Excludes Unusual Charges of $704.1 million primarily associated with the
      Cendant Merger and the PHH Merger.
(2)   Excludes Unusual Charges of $109.4 million incurred in connection with the
      Ideon merger.

TRAVEL

Revenues and Adjusted EBITDA increased $542.4 million (126%) and $277.8 million
(147%), respectively, while the Adjusted EBITDA margin improved from 44% to 48%.
The acquisitions of Avis and RCI in October 1996 and November 1996,
respectively, contributed incremental revenues and Adjusted EBITDA of $503.9
million and $248.2 million, respectively. Excluding the 1996 acquisitions,
revenues and Adjusted EBITDA increased $38.5 million (9%) and $29.6 million
(16%), respectively, primarily as a result of an increase in lodging franchise
fees which was driven by a 4% increase in franchised rooms and a 2% increase in
revenue per available room. Expense increases were minimized due to the
significant operating leverage associated with mature franchise operations and a
leveraging of the corporate infrastructure among more businesses.

INDIVIDUAL MEMBERSHIP

Revenues increased $32.8 million (4%) while Adjusted EBITDA and Adjusted EBITDA
margin decreased $37.9 million (88%) and 5 percentage points, respectively. The
revenue increase in 1997 was primarily due to $25.4 million of increased product
sales and service fees, which are offered and provided to individual members.
The increase in revenues also included $7.1 million of incremental monthly
billings from new marketing arrangements made during 1996 with telephone and
mortgage companies. The reduction in Adjusted EBITDA and Adjusted EBITDA margin
from 1996 to 1997 was principally due to increased membership solicitation costs
incurred during 1997, higher call center and servicing expenses and start-up
costs incurred to introduce new membership clubs. The accounting policies for
membership revenue and expense recognition were changed effective January 1,
1997. Therefore, results of operations for 1997 and 1996 were accounted for
using different accounting policies. The pro forma effect of the


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accounting change, as if such a change had been applied retroactively to 1996,
would have resulted in a reduction in 1996 revenues and Adjusted EBITDA of $16.6
million and $11.3 million, respectively.

INSURANCE/WHOLESALE

Revenues and Adjusted EBITDA increased $34.7 million (8%) and $12.0 million
(12%), respectively, primarily due to an overall growth in customer base during
1997. Domestic operations, which comprised 82% and 84% of segment revenues in
1997 and 1996, respectively, generated higher Adjusted EBITDA margins than the
international businesses as a result of expansion costs incurred internationally
to penetrate new markets. Domestic revenues and Adjusted EBITDA increased $18.7
million (5%) and $10.2 million (11%), respectively, in 1997 over 1996 while
international revenues and Adjusted EBITDA increased $16.0 million (22%) and
$1.8 million (45%), respectively, for the comparable periods.

REAL ESTATE FRANCHISE

Revenues and Adjusted EBITDA increased $98.3 million (42%) and $89.1 million
(65%), respectively, in 1997 over 1996 while the Adjusted EBITDA margin improved
from 58% to 68%. The acquisitions of ERA and Coldwell Banker franchised brands
in February 1996 and May 1996, respectively, contributed incremental revenues
and Adjusted EBITDA of $73.8 million and $74.6 million, respectively, in 1997.
Excluding the 1996 acquisitions, revenues and Adjusted EBITDA increased $24.5
million (17%) and $14.5 million (17%) which was principally driven by increased
royalty fees generated from the Century 21 franchised brand. Royalty fees from
Century 21 franchisees increased as a result of a 5% increase in home sales by
franchisees and an 11% increase in the average price of homes sold. Existing
home sales in the United States increased 3% from 1996 to 1997 according to data
from the National Association of Realtors. Operating expenses, which did not
change proportionately with home sale volume, increased a minimal $9.3 million
(9%) to support the significant growth of the business. In addition, the
corporate infrastructure was leveraged among more businesses.

RELOCATION

Revenues and Adjusted EBITDA increased $56.7 million (16%) and $27.1 million
(41%), respectively, primarily as a result of the acquisition of Coldwell Banker
in May 1996. Coldwell Banker was a leading provider of corporate relocation
services and contributed incremental revenues and Adjusted EBITDA of $47.2
million and $18.6 million, respectively. The Adjusted EBITDA margin improved
from 19% to 23% as a result of economic efficiencies realized from the
consolidation of our relocation businesses.

FLEET

Revenues and Adjusted EBITDA increased $30.6 million (10%) and $21.5 million
(22%), respectively, in 1997 over 1996. The Adjusted EBITDA margin improved from
34% to 37%. Revenue and Adjusted EBITDA growth in 1997 was primarily
attributable to a 24% increase in service fee revenues, supported by a 20%
increase in number of cards and an 8% increase in fleet leasing revenues,
principally resulting from a 5% increase in pricing. The Adjusted EBITDA margin
improvement reflected a leveraging of the corporate infrastructure among more
businesses.

MORTGAGE

Revenues and Adjusted EBITDA increased $51.5 million (40%) and $29.1 million
(64%), respectively, which was primarily driven by mortgage origination growth
and gain on sale of servicing rights. The Adjusted EBITDA margin improved from
36% to 42%. Mortgage originations increased 40% to $11.7 billion contributing
$35.3 million additional revenue while servicing revenue was relatively flat.
The loan servicing portfolio grew 18% to $26.7 billion while gain on sale of
servicing rights increased $12.6 million to $14.1 million. Operating expenses
increased to support volume growth and to prepare for continued expansion as the
annual loan origination run rate approached $18.0 billion. However, revenue
growth marginally exceeded increases in operating expenses.


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OTHER SERVICES

Revenues and Adjusted EBITDA increased $155.3 million (25%) and $28.3 million
(23%), respectively, in 1997 over 1996. Such increases were primarily supported
by the operating results of an information technology business ("WizCom") which
was acquired in October 1996 as part of the Avis acquisition. Our WizCom
subsidiary operates the telecommunications and computer system that facilitates
reservations and agreement processing for lodging and car rental operations. The
acquisition of WizCom accounted for incremental revenues and Adjusted EBITDA in
1997 of $90.3 million and $30.6 million, respectively.

Our other ancillary businesses collectively contributed to the additional
revenue growth, although Adjusted EBITDA margins declined, primarily within
certain business units, which were sold during 1997.

LIQUIDITY AND CAPITAL RESOURCES

DIVESTITURES

During 1998, we implemented a program to divest non-strategic businesses and
assets in order to focus on our core businesses, repay debt and repurchase our
common stock (see "Overview"). Pursuant to such program, we have completed or
have pending the following dispositions through October 8, 1999:

Pending disposition of Green Flag. On October 8, 1999, we entered into a
definitive agreement to dispose of our Green Flag business unit for
approximately $410 million in cash. The transaction, subject to customary
regulatory approval in the United Kingdom ("UK"), is expected to be consummated
in the fourth quarter of 1999. Green Flag is a roadside assistance organization
based in the UK, which provides a wide range of emergency support and rescue
services.

Pending disposition of Entertainment Publications, Inc. On September 14, 1999,
we entered into a definitive agreement to sell 84% of our EPub business unit for
approximately $325.0 million in cash. We will retain approximately 16% of EPub's
equity in connection with the transaction. In addition, we will have a designee
on the EPub's Board of Directors. The transaction is subject to customary
regulatory approvals and customary conditions and is expected to be consummated
in the fourth quarter of 1999. The sale of EPub is expected to generate an
after-tax gain of approximately $140.0 million. We have determined that the size
and nature of our retained equity stake in EPUB, including the retention of
board representation, will require us to account for our ongoing investment in
EPUB using the equity accounting method. In addition, our earlier classification
of EPUB as a discontinued operation was reversed in accordance with generally
accepted accounting principles. EPub is the world's largest marketer and
publisher of coupon books and discount programs which provides customers with
unique products and services that are designed to enhance a customer's
purchasing power.

North American Outdoor Group. On October 8, 1999, we disposed of 94% of our NAOG
business unit for approximately $140.0 million in cash and we will retain
approximately 6% of NAOG's equity in connection with the transaction. The sale
of NAOG is expected to generate a pre-tax gain of approximately $107.0 million.
NAOG is the world's largest lifestyle affinity membership organization.

Global Refund Group. On August 24, 1999, we completed the sale of our Global
Refund Group subsidiary ("Global Refund") for approximately $160.0 million in
cash. Global Refund, formerly known as Europe Tax Free Shopping, is the world's
largest value-added tax refund services company.

Fleet Segment. On June 30, 1999, we completed the disposition of our fleet
business segment ("fleet segment" or "fleet businesses"), which included PHH
Vehicle Management Services Corporation, Wright Express Corporation, The Harpur
Group, Ltd., and other subsidiaries pursuant to an agreement between PHH
Corporation ("PHH"), our wholly-owned subsidiary, and Avis Rent A Car, Inc.
("ARAC"). Pursuant to the agreement, ARAC acquired the net assets of our fleet
businesses through the assumption and subsequent repayment of $1.44 billion of
intercompany debt and the issuance of $360.0 million of convertible preferred
stock of Avis Fleet Leasing and Management Corporation ("Avis Fleet"), a
wholly-owned subsidiary of ARAC. The transaction followed a competitive bidding
process. Coincident to the closing of the transaction, ARAC refinanced the
assumed debt under management programs which


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was payable to us. Accordingly, on June 30, 1999, we received additional
consideration from ARAC of $3,047.5 million comprised of $3,016.9 million of
cash proceeds and a $30.6 million note receivable. On such date, we used
proceeds of $1,809.4 million to repay outstanding fleet segment financing
arrangements. Additionally, in July 1999, we utilized cash proceeds from the
transaction of $1,033.0 million (received in the form of a dividend payment from
PHH) to substantially execute the "Dutch Auction" tender offer by us to purchase
50 million shares of our common stock (See "Common Share Repurchases"). The
remaining proceeds from the transaction were used to repay outstanding corporate
debt as it matured (the borrowings of which had been loaned to the fleet segment
to finance the purchases of leased vehicles) and to finance other assets under
management and mortgage programs.

The convertible preferred stock of Avis Fleet is convertible into common stock
of ARAC at our option upon the satisfaction of certain conditions, including the
per share price of ARAC Class A common stock equaling or exceeding $50 per share
and the fleet segment attaining certain EBITDA (earnings before interest, taxes,
depreciation and amortization) thresholds, as defined. There are additional
circumstances upon which the shares of Avis Fleet convertible preferred stock
are automatically or mandatorily convertible into ARAC common stock. At June 30,
1999, we beneficially owned approximately 19% of the outstanding Class A common
stock of ARAC. If all of the Avis Fleet convertible preferred stock was
converted into common stock of ARAC, as of the closing date, we would have owned
approximately 34% of ARAC's outstanding common equity (although the voting
interest would be limited, in most instances, to 20%).

We realized a net gain on disposition of $881.4 million ($865.7 million, after
tax) of which $714.8 million ($702.1 million, after tax) was recognized in the
second quarter of 1999 and $166.6 million ($163.6 million, after tax) was
deferred at June 30, 1999. The realized gain is net of approximately $90.0
million of transaction costs. We deferred the portion of the realized net gain,
which was equivalent to our common equity ownership percentage in ARAC at the
time of closing. The fleet segment disposition was structured in accordance with
applicable tax law to be treated as a tax-free reorganization and, accordingly,
no tax provision has been recorded on a majority of the gain. Should the
transaction be deemed taxable, the resultant tax liability could be material.

Other Businesses. During 1999, we completed the dispositions of certain
businesses, including Central Credit, Inc., Spark Services, Inc., Match.com,
National Leisure Group, National Library of Poetry and Essex Corporation.
Aggregate consideration received on the dispositions of such businesses was
comprised of $110.3 million in cash and $43.3 million of common stock. We
realized a net gain of $47.5 million ($27.2 million, after tax) on the
dispositions of such businesses.

Discontinued Operations. On August 12, 1998, we announced that our Board of
Directors committed to discontinue our classified advertising and consumer
software businesses by disposing of Hebdo Mag and Cendant Software Corporation
("CDS"), respectively. On December 15, 1998, we completed the sale of Hebdo Mag
to its former 50% owners for $449.7 million. We received $314.8 million in cash
and 7.1 million shares of our common stock valued at $134.9 million on the date
of sale. We recognized a $206.9 million gain on the sale of Hebdo Mag, which
included a tax benefit of $52.1 million. On November 20, 1998, we announced the
execution of a definitive agreement to sell CDS for approximately $800.0 million
in cash. The sale was completed on January 12, 1999. We realized a gain of
approximately $371.9 million in connection with the transaction. We recognized
$197.8 million of such gain in 1998 substantially in the form of a tax benefit
and corresponding deferred tax asset.

INVESTMENT IN NETMARKET, INC.
On September 15, 1999, NGI began operations as an independent company that will
pursue the development of interactive businesses formerly within our direct
marketing division. NGI will own, operate, develop and expand the on-line
membership businesses, including Netmarket.com, Travelers Advantage, Auto
Vantage, Privacy Guard and Hagglezone.com, which collectively have 1.3 million
on-line members (and are expected to produce approximately $70.0 million of
revenues in 1999). Prior to September 15, 1999, our ownership of NGI was
restructured into common stock and preferred stock interests. On September 15,
1999, we donated NGI's outstanding common stock to a charitable trust, and NGI
issued additional shares of its common stock to certain of its marketing
partners. Accordingly, as a result of the change in ownership of NGI's common
stock from us to independent third parties, NGI's operating results will no
longer be included in our consolidated financial statements. We retained the


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opportunity to participate in NGI's value through the ownership of a convertible
preferred stock of NGI, which is ultimately exchangeable, at our option, into
78% of NGI's diluted common shares. Subsequent to our contribution of NGI's
common stock to the trust, we provided a development advance of $77.0 million to
NGI, which is contingently repayable to us if certain financial targets related
to NGI are achieved. We recorded a charge, inclusive of transaction costs, of
$85.0 million ($48.0 million, after tax), during the third quarter of 1999, in
connection with the donation of NGI shares to the charitable trust and the
subsequent development advance.

TERMINATION OF PROPOSED ACQUISITIONS

RAC Motoring Services. On February 4, 1999, we announced our intention to not
proceed with the acquisition of RAC Motoring Services ("RACMS") due to certain
conditions imposed by the UK Secretary of State for Trade and Industry that we
determined to be not commercially feasible and, therefore, unacceptable. We
originally announced on May 21, 1998 a definitive agreement with the Board of
Directors of Royal Automobile Club Limited to acquire RACMS for approximately
$735.0 million in cash. We wrote-off $7.0 million of deferred acquisition costs
in the first quarter of 1999 in connection with the termination of the proposed
acquisition of RACMS.

American Bankers Insurance Group, Inc. On October 13, 1998, we and American
Bankers entered into a settlement agreement (the "ABI Settlement Agreement"),
pursuant to which we and American Bankers terminated a definitive agreement
dated March 23, 1998, which provided for our acquisition of American Bankers for
$3.1 billion. Accordingly, our pending tender offer for American Bankers shares
was also terminated. Pursuant to the ABI Settlement Agreement and in connection
with the termination of our proposed acquisition of American Bankers, we made a
$400.0 million cash payment to American Bankers and wrote off $32.3 million of
costs, primarily professional fees. In addition, we terminated a bank commitment
to provide a $650.0 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, we announced the
termination of an agreement to acquire Providian, for $219.0 million in cash.
Certain representations and covenants in such agreement had not been fulfilled
and the conditions to closing had not been met. We did not pursue an extension
of the termination date of the agreement because Providian no longer met our
acquisition criteria. In connection with the termination of our proposed
acquisition of Providian, we wrote off $1.2 million of costs.

1998 PURCHASE ACQUISITIONS

National Parking Corporation. On April 27, 1998, we acquired NPC for $1.6
billion, substantially in cash, which included the repayment of approximately
$227.0 million of outstanding NPC debt. NPC was substantially comprised of two
operating subsidiaries: National Car Parks and Green Flag. National Car Parks is
the largest private (non-municipal) 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. We funded the NPC
acquisition with borrowings under our revolving credit facilities.

Harpur Group. On January 20, 1998, we completed the acquisition of Harpur, a
leading fuel card and vehicle management company in the UK, for $206.1 million
in cash plus contingent payments of up to $20.0 million over two years.

Jackson Hewitt. On January 7, 1998, we completed the acquisition of Jackson
Hewitt for approximately $476.3 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. We acquired certain
other entities for an aggregate purchase price of approximately $463.9 million
in cash during 1998. Additionally, we made a $100.0 million cash payment to the
seller of RCI in satisfaction of a contingent purchase liability.


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1997 PURCHASE ACQUISITIONS AND INVESTMENTS

Investment in NRT. In 1997, we executed agreements with NRT Incorporated
("NRT"), a corporation created to acquire residential real estate brokerage
firms. Under these agreements, we acquired $182.0 million of NRT preferred stock
(and may be required to acquire up to an additional $81.3 million of NRT
preferred stock). We received preferred dividend payments of $15.4 million and
$5.2 million during the years ended 1998 and 1997, respectively. On February 9,
1999, we executed new agreements with NRT, which among other things, increased
the term of each of the three franchise agreements under which NRT operates from
40 years to 50 years.

In connection with the aforementioned agreements, at our election, we will
participate in NRT's acquisitions by acquiring up to an aggregate $946.3 million
(plus an additional $500.0 million if certain conditions are met) of intangible
assets, and in some cases mortgage operations, of real estate brokerage firms
acquired by NRT. Through December 31, 1998, we acquired $445.7 million of such
mortgage operations and intangible assets, (primarily franchise agreements)
associated with real estate brokerage companies acquired by NRT, which brokerage
companies will become subject to the NRT 50-year franchise agreements. In
February 1999, NRT entered into an agreement with us whereby we made an upfront
payment of $30.0 million to NRT for services to be provided by NRT to us related
to the identification of potential acquisition candidates, the negotiation of
agreements and other services in connection with future brokerage acquisitions
by NRT. Such fee is refundable in the event the services are not provided.

Other. We acquired certain entities in 1997 for an aggregate purchase price of
$289.5 million, comprised of $267.9 million in cash and $21.6 million in our
common stock (0.9 million shares).

1996 PURCHASE ACQUISITIONS AND INVESTMENTS

RCI. In November 1996, we completed the acquisition of all the outstanding
capital stock of RCI for $487.1 million comprised of $412.1 million in cash and
$75.0 million (approximately 2.4 million shares) in our common stock plus
contingent payments of up to $200.0 million over a five year period. (We made a
contingent payment of $100.0 million during the first quarter of 1998). RCI is
the world's largest provider of timeshare exchange.

Avis. In October 1996, we completed the acquisition of all of the outstanding
capital stock of Avis, including payments under certain employee stock plans of
Avis and the redemption of a certain series of preferred stock of Avis for
$806.5 million. The purchase price was comprised of approximately $367.2 million
in cash, $100.9 million in indebtedness and $338.4 million (approximately 11.1
million shares) in our common stock. Subsequently, we made contingent cash
payments of $26.0 million in 1996 and $60.8 million in 1997. The contingent
payments made in 1997 represented the incremental amount of value attributable
to our common stock as of the stock purchase agreement date in excess of the
proceeds realized upon subsequent sale of our common stock.

Upon entering into a definitive merger agreement to acquire Avis, we announced
our strategy to dilute our interest in the Avis car rental operations while
retaining assets associated with the franchise, including trademarks,
reservation system assets and franchise agreements with ARAC and other
licensees. In September 1997, ARAC (the company which operated the rental car
operations of Avis) completed an initial public offering ("IPO") which resulted
in a 72.5% dilution of our equity interest in ARAC. Net proceeds from the IPO of
$359.3 million were retained by ARAC. In March 1998, we sold one million shares
of Avis common stock and recognized a pre-tax gain of approximately $17.7
million. At December 31, 1998, our interest in ARAC was approximately 22.6%. In
January 1999, our equity interest was further diluted to 19.4% as a result of
our sale of an additional 1.3 million shares of Avis common stock.

Coldwell Banker. In May 1996, we acquired by merger Coldwell Banker, the largest
gross revenue producing residential real estate company in North America and a
leading provider of corporate relocation services. We paid $640.0 million in
cash for all of the outstanding capital stock of Coldwell Banker and repaid
$105.0 million of Coldwell Banker indebtedness. The aggregate purchase price for
the transaction was financed through the May 1996 sale of an aggregate 46.6
million shares of our common stock generating $1.2 billion of proceeds pursuant
to a public offering.


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Other. During 1996, we acquired certain other entities for an aggregate purchase
price of $281.5 million comprised of $224.0 million in cash, $52.5 million of
our common stock (2.5 million shares) and $5.0 million of notes.

FINANCING (EXCLUSIVE OF MANAGEMENT AND MORTGAGE PROGRAM FINANCING)

We believe that we have sufficient liquidity and access to liquidity through
various sources, including our ability to access public equity and debt markets
and financial institutions. We currently have a $1.25 billion term loan facility
in place as well as committed back-up facilities totaling $1.75 billion,
substantially all of which is currently undrawn and available and $2.45 billion
of availability under existing shelf registration statements. Long-term debt
increased $2.1 billion to $3.4 billion at December 31, 1998 when compared to
amounts outstanding at December 31, 1997, primarily as a result of borrowings in
1998 to finance acquisitions and the repurchase of our common stock under a
share repurchase program. Our long-term debt, including current portion, at
December 31, 1998, substantially consisted of $2.1 billion of publicly issued
fixed rate debt and $1.25 billion of borrowings under a term facility. In
addition, we had $1.5 billion of equity-linked FELINE PRIDES securities
outstanding at December 31, 1998.

TERM LOAN FACILITIES

On May 29, 1998, we 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, incurred interest
based on the London Interbank Offered Rate ("LIBOR") plus a margin of
approximately 87.5 basis points. At December 31, 1998, borrowings under the Term
Loan Facility of $1.25 billion were classified as long-term based on our proven
intent and ability to refinance such borrowings on a long-term basis.

On February 9, 1999, we replaced the Term Loan Facility with a new two year term
loan facility (the "New Facility") which provides for borrowings of $1.25
billion. The New Facility bears interest at LIBOR plus a margin of approximately
100 basis points and is payable in five consecutive quarterly installments
beginning on the first anniversary of the closing date. The New Facility
contains certain restrictive covenants, which are substantially similar to and
consistent with the covenants in effect for our existing revolving credit
agreements. We used $1.25 billion of the proceeds from the New Facility to
refinance the majority of the outstanding borrowings under the Term Loan
Facility.

CREDIT FACILITIES

Our 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 our option, bear interest based on
competitive bids of lenders participating in the facilities, at prime rates or
at LIBOR, plus a margin of approximately 75 basis points. We are 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 our 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 maximum debt-to-capitalization ratio of 0.5:1. At December
31, 1998, we had no outstanding borrowings under the Revolving Credit
Facilities.

7 1/2% AND 7 3/4% SENIOR NOTES

We filed a shelf registration statement with the SEC, effective November 1998,
which provided for the aggregate issuance of up to $3.0 billion of debt and
equity securities. Pursuant to such registration statement, we issued $1.55
billion of Senior Notes (the "Notes") in two tranches, consisting of $400.0
million principal amount of 7 1/2% Senior


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Notes due December 1, 2000 and $1.15 billion principal amount of 7 3/4% Senior
Notes due December 1, 2003. Interest on the Notes is payable on June 1 and
December 1 of each year, beginning on June 1, 1999. The Notes may be redeemed,
in whole or in part, at any time, at our option at a redemption price plus
accrued interest to the date of redemption. The redemption price is equal to the
greater of (i) the face value of the Notes or (ii) the sum of the present values
of the remaining scheduled payments discounted at the treasury rate plus a
spread as defined in the indenture. The offering was a component of a plan
designed to refinance an aggregate of $3.25 billion of borrowings under our
former Term Loan Facility, based on provisions contained in the indenture. Net
proceeds from the offering were used to repay $1.3 billion of borrowings under
the Term Loan Facility and for general corporate purposes, which included the
purchase of our common stock.

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 our wholly-owned consolidated
subsidiary, 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 our 6.45% Senior Debentures due 2003 (the
"Debentures), 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 us to the extent we make 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
a $4.0 billion shelf registration statement. Upon issuance, the FELINE PRIDES
consisted of 27.6 million Income PRIDES and 2.3 million Growth PRIDES (Income
PRIDES and Growth PRIDES hereinafter referred to as "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
our common stock 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 our common stock in February 2001. The stand-alone 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%, payable in cash.
Payments under the forward purchase contract forming a part of the Income PRIDES
will be made by us in the form of a contract adjustment payment at an annual
rate of 1.05%. Payments under the forward purchase contract forming a part of
the Growth PRIDES will be made by us in the form of a contract adjustment
payment at an annual rate of 1.30%. The forward purchase contracts require the
holder to purchase a minimum of 1.0395 shares and a maximum of 1.3514 shares of
our common stock per PRIDES security, depending upon the average of the closing
price per share of our common stock for a 20 consecutive day period ending in
mid-February of 2001. We have the right to defer the contract adjustment
payments and the payment of interest on its Debentures to the Trust. Such
election will subject us to certain restrictions, including restrictions on
making dividend payments on our common stock until all such payments in arrears
are settled.

On March 17, 1999, we reached a final agreement to settle a class action lawsuit
that was brought on behalf of the holders of PRIDES securities who purchased
their securities on or prior to April 15, 1998. Under the terms of the final
agreement, only holders who owned PRIDES at the close of business on April 15,
1998 will be eligible to receive a new additional "Right" for each PRIDES
security held. At any time during the life of the Rights (expires February
2001), holders may (i) sell them or (ii) exercise them by delivering to us three
Rights together with two PRIDES in exchange for two new PRIDES (the "New
PRIDES"). The terms of the New PRIDES will be the same as the original PRIDES
except that the conversion rate will be revised so that, at the time the Rights
are distributed, each New PRIDES will have a value equal to $17.57 more than
each original PRIDES, or, in the aggregate, approximately $351.0 million. The
settlement resulted in a net increase to shareholders' equity of $121.8 million.
The final agreement also requires us to offer to sell four million additional
PRIDES (having identical terms to currently outstanding PRIDES) ("Additional
PRIDES") to holders of Rights for cash, at a value which will be based on the
valuation model that was utilized to set the conversion rate of the New PRIDES.
The offering of Additional PRIDES will be made only pursuant to a prospectus
filed with the SEC. We currently expect to use the proceeds of such an offering
for general corporate purposes. The arrangement to offer Additional PRIDES is
designed to enhance the trading value of the Rights by removing up to six
million Rights from circulation via exchanges associated with the offering and
to enhance the open market liquidity of New PRIDES by creating four million New
PRIDES via exchanges associated with the offering. If holders of Rights do not
acquire all such PRIDES, they will be offered to the public. Under the


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settlement agreement, we also agreed to file a shelf registration statement for
an additional 15 million special PRIDES, which could be issued by us at any time
for cash. However, during the last 30 days prior to the expiration of the Rights
in February 2001, we will be required to make these additional PRIDES available
to holders of Rights at a price in cash equal to 105% of their theoretical
value. The special PRIDES, if issued, would have the same terms as the currently
outstanding PRIDES and could be used to exercise Rights. Based on an average
market price of $17.53 per share of our common stock (calculated based on the
average closing price per share of our common stock for a consecutive five-day
period ended September 30, 1999), the effect of the issuance of the New PRIDES
will be to distribute approximately 19 million more shares of our common stock
when the mandatory purchase of our common stock associated with the PRIDES
occurs in February 2001. This represents approximately 2% more shares of our
common stock than are currently outstanding.

    On June 15, 1999, the United States District Court for the District of New
Jersey entered an order and judgment approving the settlement described above
and awarding fees to counsel to the class. One objector, who objected to a
portion of the settlement notice concerning fees to be sought by counsel to the
class has filed an appeal to the U.S. Court of Appeals for the Third Circuit
from the District Court order approving the settlement and awarding fees to
counsel to the class. Although under the settlement the Rights are required to
be distributed following the conclusion of court proceedings, including appeals,
we believe that the appeal is without merit. As a result, we presently intend to
distribute the Rights in October 1999 after the effectiveness of the
registration statement filed with the SEC covering the New PRIDES, Additional
PRIDES and Special PRIDES.

DEBT RETIREMENTS

On December 15, 1998, we repaid the $150.0 million principal amount of our
5 7/8% Senior Notes outstanding in accordance with the provisions of the
indenture agreement.

On May 4, 1998, we redeemed all of our 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 our common stock.

On April 8, 1998, we exercised our option to call our 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 our common stock.

FINANCING RELATED TO MANAGEMENT AND MORTGAGE PROGRAMS

Our PHH subsidiary operates our mortgage, fleet and relocation services
businesses as a separate public reporting entity and supports purchases of
leased vehicles, originated mortgages and advances under relocation contracts
primarily by issuing commercial paper and medium term notes and maintaining
securitized obligations. Such financing is not classified based on contractual
maturities, but rather is included in liabilities under management and mortgage
programs rather than long-term debt since such debt corresponds directly with
high quality related assets. Upon the disposition of our fleet segment on June
30, 1999, we received cash proceeds equivalent to the outstanding debt
applicable to our fleet segment (see "Liquidity and Capital Resources -
Divestitures -Fleet Segment"). PHH continues to pursue opportunities to reduce
its borrowing requirements by securitizing increasing amounts of its high
quality assets. Additionally, we entered into a three year agreement effective
May 1998 and expanded in December 1998 under which an unaffiliated Buyer (the
"Buyer") committed to purchase, at our option, mortgage loans originated by us
on a daily basis, up to the Buyer's asset limit of $2.4 billion. Under the terms
of this sale agreement, we retain the servicing rights on the mortgage loans
sold to the Buyer and provide the Buyer with options to sell or securitize the
mortgage loans into the secondary market. At December 31, 1998, we were
servicing approximately $2.0 billion of mortgage loans owned by the Buyer.


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PHH debt is issued without recourse to the parent company. PHH subsidiary
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. 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. Depending upon asset growth and financial market
conditions, our PHH subsidiary utilizes the United States, European and Canadian
commercial paper markets, as well as other cost-effective short-term
instruments. In addition, our PHH subsidiary will continue to utilize the public
and private debt markets as sources of financing. Augmenting these sources, our
PHH subsidiary will continue to manage outstanding debt with the potential sale
or transfer of managed assets to third parties while retaining fee-related
servicing responsibility. PHH's aggregate borrowings at December 31, 1998 and
1997 were as follows:

        (IN BILLIONS)                         1998           1997
                                           -----------   -----------
        Commercial paper                   $       2.5   $       2.6
        Medium-term notes                          2.3           2.7
        Securitized obligations                    1.9           -
        Other                                      0.2           0.3
                                           -----------   -----------
                                           $       6.9   $       5.6
                                           ===========   ===========

PHH filed a shelf registration statement with the SEC, effective March 2, 1998,
for the aggregate issuance of up to $3.0 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. As of December
31, 1998, PHH had approximately $1.6 billion of medium-term notes outstanding
under this shelf registration statement. Proceeds from future offerings will
continue to be used to finance assets PHH manages for its clients and for
general corporate purposes.

SECURITIZED OBLIGATIONS

Our PHH subsidiary maintains four separate financing facilities, the outstanding
borrowings of which are securitized by corresponding assets under management and
mortgage programs. The collective weighted average interest rate on such
facilities was 5.8% at December 31, 1998. Such securitized obligations are
described below.

Mortgage Facility. In December 1998, our PHH subsidiary entered into a 364 day
financing agreement to sell mortgage loans under an agreement to repurchase such
mortgages. The agreement is collateralized by the underlying mortgage loans held
in safekeeping by the custodian to the agreement. The total commitment under
this agreement is $500.0 million and is renewable on an annual basis at the
discretion of the lender in accordance with the securitization agreement.
Mortgage loans financed under this agreement at December 31, 1998 totaled $378.0
million.

Relocation Facilities. Our PHH subsidiary entered into a 364-day asset
securitization agreement effective December 1998 under which an unaffiliated
buyer has committed to purchase an interest in the rights to payment related to
certain relocation receivables of PHH. The revolving purchase commitment
provides for funding up to a limit of $325.0 million and is renewable on an
annual basis at the discretion of the lender in accordance with the
securitization agreement. Under the terms of this agreement, our PHH subsidiary
retains the servicing rights related to the relocation receivables. At December
31, 1998, our PHH subsidiary was servicing $248.0 million of assets which were
funded under this agreement.

Our PHH subsidiary also maintains an asset securitization agreement, with a
separate unaffiliated buyer, which has a purchase commitment up to a limit of
$350.0 million. The terms of this agreement are similar to the aforementioned
facility, with PHH retaining the servicing rights on the right of payment
related to certain relocation receivables of PHH. At December 31, 1998, our PHH
subsidiary was servicing $171.0 million of assets eligible for purchase under
this agreement. This facility matured and approximately $85.0 million was repaid
on October 5, 1999.

We are currently in the process of creating a new securitization facility to
purchase interests in the rights to payment related to our relocation
receivables, which will replace the existing securitizations. Although no
assurances can be given, we expect that such facility will be in place prior to
December 31, 1999.


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Fleet Facilities. In December 1998, our PHH subsidiary entered into two secured
financing transactions through its two wholly-owned subsidiaries, TRAC Funding
and TRAC Funding II. Secured leased assets (specified beneficial interests in a
trust which owns the leased vehicles and the leases) totaling $600.0 million and
$725.3 million, respectively, were contributed to the subsidiaries by PHH. Loans
to TRAC Funding and TRAC Funding II, were funded by commercial paper conduits in
the amounts of $500.0 million and $604.0 million, respectively, and were secured
by the specified beneficial interests. At June 30, 1999, the outstanding
balances under the securitized fleet financing facilities were repaid and such
securitized facilities were retired coincident with the fleet segment
disposition.

OTHER

To provide additional financial flexibility, PHH's current policy is to ensure
that minimum committed facilities aggregate 100 percent of the average amount of
outstanding commercial paper. This policy will continue to be maintained
subsequent to the divestiture of the fleet businesses. PHH maintains $2.65
billion of unsecured committed credit facilities, which are backed by domestic
and foreign banks. The facilities are comprised of $1.25 billion of syndicated
lines of credit maturing in March 2000 and $1.25 billion of syndicated lines of
credit maturing in the year 2002. In addition, PHH has a $150.0 million
revolving credit facility, which matures in December 1999, and other uncommitted
lines of credit with various financial institutions, which were unused at
December 31, 1998. Our 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 December 31, 1998
was undrawn and available. Our management believes that our 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.

In the event that the public debt market is unable to meet PHH's funding needs,
we believe that PHH has appropriate alternative sources to provide adequate
liquidity, including current and potential future securitized obligations and
its $2.65 billion of revolving credit 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 PHH's
policy of limiting the payment of dividends and the outstanding principal
balance of loans to us 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 us if upon giving effect
to such dividends 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.

LITIGATION

Since the April 15, 1998 announcement of the discovery of accounting
irregularities in the former business units of CUC and prior to the date of the
Annual Report on Form 10K/A, 70 lawsuits claiming to be class actions, two
lawsuits claiming to be brought derivatively on our behalf and several
individual lawsuits and arbitration proceedings have been commenced in various
courts and other forums against us and other defendants by or on behalf of
persons claiming to have purchased or otherwise acquired securities or options
issued by CUC or us between May 1995 and August 1998. The Court has ordered
consolidation of many of the actions.

In addition, in October 1998, an action claiming to be a class action was filed
against us and four of our former officers and directors by persons claiming to
have purchased American Bankers' stock between January and October 1998. The
complaint claimed that we made false and misleading public announcements and
filings with the SEC in connection with our proposed acquisition of American
Bankers allegedly in violation of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, as amended, and that the plaintiff and the alleged class
members purchased American Bankers' securities in reliance on these public
announcements and filings at inflated prices. On April 30, 1999, the United
States District Court for New Jersey found that the class action failed to state
a claim upon which relief could be granted and, accordingly, dismissed the
complaint. The plaintiff has appealed the


                                       75


District Court's findings to the U.S. Court of Appeals for the Third Circuit as
such appeal is pending.

As previously disclosed, we reached an agreement with plaintiffs' counsel
representing the class of holders of our PRIDES securities who purchased their
securities on or prior to April 15, 1998 to settle their class action lawsuit
against us through the issuance of a new "Right" for each PRIDES security held.
See "Liquidity and Capital Resources - FELINE PRIDES and Trust Preferred
Securities" for a more detailed description of the settlement.

The SEC and the United States Attorney for the District of New Jersey are
conducting investigations relating to the matters referenced above. The SEC
advised us that its inquiry should not be construed as an indication by the SEC
or its staff that any violations of law have occurred. As a result of the
findings from the investigations, we made all adjustments considered necessary
which are reflected in our restated financial statements. Although we can
provide no assurances that additional adjustments will not be necessary as a
result of these government investigations, we do not expect that additional
adjustments will be necessary.

Other than the PRIDES class action litigation, we do 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 us or
settlements and could require substantial payments by us. In addition, the
timing of the final resolution of the proceedings or investigations is
uncertain. We believe that material adverse outcomes with respect to such
proceedings or investigations could have a material impact on our financial
position, results of operations or cash flows.

CREDIT RATINGS

In October 1998, Duff & Phelps Credit Rating Co. ("DCR"), Standard & Poor's
Corporation ("S&P"), and Moody's Investors Service Inc. ("Moody's") reduced our
long-term debt credit rating to A- from A, BBB from A, and Baa1 from A3,
respectively.

Following the execution of our agreement to dispose of our fleet segment, Fitch
IBCA lowered PHH's long-term debt rating from A+ to A and affirmed PHH's
short-term debt rating at F1, and S&P affirmed PHH's long-term and short-term
debt ratings at A-/A2. Also, in connection with the closing of the transaction,
DCR lowered PHH's long-term debt rating from A+ to A and PHH's short-term debt
rating was reaffirmed at D1. Moody's lowered PHH's long-term debt rating from A3
to Baa1 and affirmed PHH's short-term debt rating at P2. (A security rating is
not a recommendation to buy, sell or hold securities and is subject to revision
or withdrawal at any time.)

REPRICING OF STOCK OPTIONS

On September 23, 1998, the Compensation Committee of our Board of Directors
approved a program to effectively reprice certain Company stock options granted
to our middle management during December 1997 and the first quarter of 1998.
Such options were effectively repriced on October 14, 1998 at $9.8125 per share
(the "New Price"), which was the fair market value (as defined in the option
plans) on the date of such repricing. On September 23, 1998, the Compensation
Committee also modified the terms of certain options held by certain of our
executive officers and senior managers 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 our common stock at various levels commensurate with their
respective compensation levels. The option modifications were accomplished by
canceling existing options and issuing a lesser amount of new options at the New
Price and, with respect to certain options of executive officers and senior
managers, at prices above the New Price.

COMMON SHARE REPURCHASES

Our Board of Directors authorized a common share repurchase program pursuant to
which the aggregate authorized amount that can be repurchased under the program
has been incrementally increased to $1.8 billion. We have executed this program
through open-market purchases or privately negotiated transactions. As of
September 30, 1999,


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we repurchased approximately $1.8 billion (93.6 million shares) of our common
stock under the program. Subject to bank credit facility covenants, certain
rating agency constraints and authorization from our Board of Directors, we
anticipate expanding the program, although we can give no assurance with respect
to the timing, likelihood or amount of future repurchases under the program.

In July 1999, pursuant to a Dutch Auction self tender offer to our shareholders,
we purchased 50 million shares of our common stock through our wholly-owned
subsidiary Cendant Stock Corporation at a price of $22.25 per share. Under the
terms of the offer, which commenced June 16, 1999 and expired July 15, 1999, we
had invited shareholders to tender their shares of our common stock at prices
between $19.75 and $22.50 per share. We financed the purchase of shares costing
$1.11 billion with proceeds received from our June 30, 1999 disposition of our
fleet segment. Since the inception of our share repurchase program, inclusive of
the self-tender offer and the 7.1 million shares of our common stock received as
partial consideration in connection with the sale of our Hebdo Mag subsidiary,
we have reduced our shares outstanding by approximately 18%.

CASH FLOWS (1998 VS. 1997)

We generated $808.0 million of cash flows from operations in 1998 representing a
$405.0 million decrease from 1997. The decrease in cash flows from operations
was primarily due to a $391.7 million net increase in mortgage loans held for
sale due to increased mortgage loan origination volume.

We used $4.4 billion of cash flows for investing activities in 1998, principally
consisting of a $1.5 billion net investment in assets under management and
mortgage programs and $2.9 billion of acquisitions and acquisition related
payments, which included the acquisitions of NPC and Jackson Hewitt. In 1997, we
used $2.3 billion for investing activities including a $1.5 billion net
investment in assets under management and mortgage programs and $568.2 million
of acquisitions and acquisition related payments. In 1998, cash flows from
financing activities of approximately $4.7 billion included $1.55 billion of
proceeds from public offerings of senior debt, $3.25 billion of term loan
borrowings and $1.4 billion of proceeds from the issuance of FELINE PRIDES and
Trust Preferred Securities. Gross cash flows from financing activities were
partially offset by $2.0 billion of term loan repayments, $257.7 million of our
common stock purchases, and principal repayments of $150.0 million and $144.5
million pertaining to the outstanding 5 7/8% Senior Notes and the 4 3/4% Notes,
respectively. Additionally, in 1998 management and mortgage program financing
consisted of $1.1 billion of net borrowings which funded our investments in
assets under management and mortgage programs. In 1997, cash flows from
financing activities of $900.1 million primarily consisted of net borrowings
totaling $435.9 million including net proceeds of $543.2 million from the
issuance of the 3% Convertible Subordinated Notes in February 1997 and $509.9
million of net borrowings which funded purchases of assets under management and
mortgage programs.

CAPITAL EXPENDITURES

In 1998, $355.2 million was invested in property and equipment to support
operational growth and enhance marketing opportunities. In addition,
technological improvements were made to improve operating efficiencies. Capital
spending in 1998 included the development of integrated business systems within
the Relocation segment as well as investments in systems and office expansion to
support growth in the Mortgage segment. We expect to reduce our level of capital
spending by approximately 25% in 1999.

YEAR 2000 COMPLIANCE

The following disclosure also constitutes a Year 2000 readiness disclosure
statement pursuant to the Year 2000 Readiness and Disclosure Act.

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 our
business systems and applications, we are continually identifying, evaluating,
implementing and testing changes to our computer systems, applications and
software necessary to achieve Year 2000 compliance. We implemented a Year


                                       77


2000 initiative in March 1996 that has now been adopted by all of our business
units. As part of such initiative, we have selected a team of managers to
identify, evaluate and implement a plan to bring all of our 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"). We have
substantially completed the Identification and Assessment Phases and have
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 us and our customers;
and (v) embedded systems, such as phone switches, check writers and alarm
systems. Although no assurances can be made, we believe that we have identified
substantially all of our systems, applications and related software that are
subject to Year 2000 compliance risk and have either implemented or initiated
the implementation of a plan to correct such systems that are not Year 2000
compliant. In addition, as part of our assessment process we are developing
contingency plans as necessary. Substantially all of our mission critical
systems have been remediated during 1998. However, we cannot directly control
the timing of certain Year 2000 compliant vendor products and in certain
situations, exceptions to the December 1998 date have been authorized. We are
closely monitoring those situations and intend to complete testing efforts and
any contingency implementation efforts prior to December 31, 1999. Although we
have begun the Testing Phase, we do not anticipate completion of the Testing
Phase until sometime prior to December 1999.

We rely on third party service providers for services such as
telecommunications, internet service, utilities, components for our embedded and
other systems and other key services. Interruption of those services due to Year
2000 issues could have a material adverse impact on our operations. We have
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 total cost of our Year 2000 compliance plan is anticipated to be $55.0
million. Approximately $30.0 million of these costs had been incurred through
December 31, 1998, and we expect to incur the balance of such costs to complete
the compliance plan. We have 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 our future results of
operations are not anticipated to be material in any given year. However, if
Year 2000 modifications and conversions are not made including modifications by
our third party service providers, or are not completed in time, the Year 2000
problem could have a material impact on our operations, cash flows and financial
condition. At this time we believe the most likely "worst case" scenario
involves potential disruptions in our operations as a result of the failure of
services provided by third parties.

The estimates and conclusions herein are forward-looking statements and are
based on our 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 which could have a serious impact on
certain operations and the ability of our service providers to bring their
systems into Year 2000 compliance.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 requires us to record all
derivatives in the consolidated balance sheet as either assets or liabilities
measured at fair value. If the derivative does not qualify as a hedging
instrument, the change in the derivative fair values will be immediately
recognized as gain or loss in earnings. If the derivative does qualify as a
hedging instrument, the gain or loss on the change in the derivative fair values
will either be recognized (i) in earnings as offsets to the changes in the fair
value of the related item being hedged or (ii) be deferred and recorded as a
component of other comprehensive


                                       78


income and reclassified to earnings in the same period during which the hedged
transactions occur. We have not yet determined what impact the adoption of SFAS
No. 133 will have on our financial statements. Implementation of this standard
has recently been delayed by the FASB for a 12-month period. We will now adopt
SFAS No. 133 as required for our first quarterly filing of fiscal year 2001.

In October 1998, the FASB issued SFAS No. 134 "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise", effective for the first fiscal quarter after
December 15, 1998. We adopted SFAS No. 134 effective January 1, 1999. SFAS No.
134 requires that after the securitization of mortgage loans, an entity engaged
in mortgage banking activities classify the resulting mortgage-backed securities
or other interests based on its ability and intent to sell or hold those
investments. On the date SFAS No. 134 was initially applied, we reclassified
mortgage-backed securities and other interests retained after the securitization
of mortgage loans from the trading to the available for sale category.
Subsequent accounting that results from implementing SFAS No. 134 shall be
accounted for in accordance with SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities".

FORWARD LOOKING STATEMENTS

We make statements about our future results in this Annual Report that may
constitute "forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are based on our
current expectations and the current economic environment. We caution you that
these statements are not guarantees of future performance. They involve a number
of risks and uncertainties that are difficult to predict. Our actual results
could differ materially from those expressed our implied in the forward-looking
statements. Important assumptions and other important factors that could cause
our actual results to differ materially from those in the forward-looking
statements, include, but are not limited to:

     o   the resolution or outcome of the pending litigation and government
         investigations relating to the previously announced accounting
         irregularities;

     o   uncertainty as to our future profitability and our ability to integrate
         and operate successfully acquired businesses and the risks associated
         with such businesses, including the merger that created Cendant and the
         National Parking Corporation acquisition;

     o   our ability to successfully divest our remaining non-core businesses
         and assets and implement our plan to create a tracking stock for our
         new real estate portal;

     o   our ability to develop and implement operational and financial systems
         to manage rapidly growing operations;

     o   competition in our existing and potential future lines of business;

     o   our ability to obtain financing on acceptable terms to finance our
         growth strategy and for us to operate within the limitations imposed by
         financing arrangements; and

     o   our ability and our vendors; franchisees' and customers' ability to
         complete the necessary actions to achieve a Year 2000 conversion for
         computer systems and applications.

We derived the forward-looking statements in this Annual Report from the
foregoing factors and from other factors and assumptions, and the failure of
such assumptions to be realized as well as other factors may also cause actual
results to differ materially from those projected. We assume no obligation to
publicly correct or update these forward-looking statements to reflect actual
results, changes in assumptions or changes in other factors affecting such
forward-looking statements or if we later become aware that they are not likely
to be achieved.


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ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In recurring operations, we 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.

We use various financial instruments, particularly interest rate and currency
swaps and currency forwards, to manage our respective interest rate and currency
risks. We are exclusively an end user of these instruments, which are commonly
referred to as derivatives. We do 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. More detailed information about
these financial instruments, as well as the strategies and policies for their
use, is provided in Notes 15 and 16 to the financial statements.

The SEC 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 to 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 a decrease would not adversely impact our
         1999 net earnings based on year-end 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.
         Year-end 1998 consolidated currency exposures, including financial
         instruments designated and effective as hedges, were analyzed to
         identify our 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 our 1999 net earnings based on year-end 1998 positions.

The categories of primary market risk exposure to us 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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Financial Statements and Financial Statement Schedule Index commencing
on page F-1 hereof.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     The information required herein has been previously reported on our Form
10-K/A for the year ended December 31, 1997.



                                       80


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information contained in the Company's Proxy Statement under the
sections titled "Proposal 1: Election of Directors" and "Executive Officers" is
incorporated herein by reference in response to this item.

ITEM 11. EXECUTIVE COMPENSATION

     The information contained in the Company's Proxy Statement under the
section titled "Executive Compensation and Other Information" is incorporated
herein by reference in response to this item, except that the information
contained in the Proxy Statement under the sub-headings "Pre-Merger Compensation
Committee Report on Executive Compensation" and "Performance Graph" is not
incorporated herein by reference and is not to be deemed "filed" as part of this
filing.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information contained in the Company's Proxy Statement under the
section titled "Security Ownership of Certain Beneficial Owners and Management"
is incorporated herein by reference in response to this item.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information contained in the Company's Proxy Statement under the
section titled "Certain Relationships and Related Transactions" is incorporated
herein by reference in response to this item.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

ITEM 14(A)(1) FINANCIAL STATEMENTS

      See Financial Statements and Financial Statements Index commencing on page
F-1 hereof.

ITEM 14(A)(3) EXHIBITS

     See Exhibit Index commencing on page E-1 hereof.

ITEM 14(B) REPORTS ON FORM 8K

     On October 5, 1998, we filed a current report on Form 8-K to report under
Item 5 the termination of our agreement to purchase Providian Auto and Home
Insurance Company.

     On October 14, 1998, we filed a current report on Form 8-K to report under
Item 5 its intention to file financial statements of NPC.

     On October 14, 1998, we filed a current report on Form 8-K to report under
Item 5 the termination of its agreement to purchase American Bankers Insurance
Group, Inc. and its intention to repurchase up to $1 billion of common stock.


                                       81


     On October 21, 1998, we filed a current report on Form 8-K to report under
Item 5 the filing of financial schedules summarizing restated revenue and EDITDA
by business segment for all four quarters of 1997 and the first and second
quarters of 1998.

     On November 4, 1998, we filed a current report on Form 8-K to report the
unaudited pro forma financial statements of the Company giving effect to the
acquisition of NPC for the year ended December 31, 1997 and for the six months
ended June 30, 1998. We also filed the consolidated financial statements of NPC
for the 52-week period ended March 27, 1998.

     On November 6, 1998, we filed a current report on Form 8-K to report its
third quarter results for the quarter ending September 30, 1998. The Company
also reported the execution of certain amendments to its credit facilities.

     On November 16, 1998, we filed a current report on Form 8-K to file the
unaudited pro forma financial statements of the Company giving effect to the
acquisition of NPC for the year ended December 31, 1997 and the nine months
ended September 30, 1998.

     On November 24, 1998, we filed a current report on Form 8-K announcing the
execution of a definitive agreement to sell the Company's consumer software
division for $800 million in cash plus potential future cash payments of up to
approximately $200 million.

     On December 4, 1998, we filed a current report on Form 8-K to file certain
required opinions and consents in connection with the sale of the Company's 7
1/2% Notes due 2000 and its 7 3/4% Notes due 2003.


                                       82


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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/ James E. Buckman
                                               ------------------------

                                               James E. Buckman
                                               Vice Chairman and General Counsel
                                               Date: October 8, 1999

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.




SIGNATURE                       TITLE                                    DATE
- ---------                       -----                                    ----
                                                                   
/s/ Henry R. Silverman          Chairman of the Board, President,       October 8, 1999
    ------------------          Chief Executive Officer and Director
(Henry R. Silverman)


/s/ James E. Buckman            Vice Chairman, General Counsel and       October 8, 1999
    ----------------            Director
(James E. Buckman)


/s/ Stephen P. Holmes           Vice Chairman and Director               October 8, 1999
    -----------------
(Stephen P. Holmes)


/s/ Michael P. Monaco           Vice Chairman and Director               October 8, 1999
    -----------------
(Michael P. Monaco)


/s/ David M. Johnson            Senior Executive Vice President and      October 8, 1999
    ----------------            Chief Financial Officer (Principal
(David M. Johnson)              Financial Officer)

/s/ Jon F. Danski               Executive Vice President and Chief       October 8, 1999
- -----------------               Accounting Officer (Principal
(Jon F. Danksi)                 Accounting Officer)

/s/ Robert D. Kunisch           Director                                 October 8, 1999
- ---------------------
(Robert D. Kunisch)



                                       83


/s/ John D. Snodgrass           Director                                 October 8, 1999
    -----------------
(John D. Snodgrass)

/s/ Leonard S. Coleman
______________________          Director                                 October 8, 1999
(Leonard S. Coleman)

/s/ Martin L. Edelman           Director                                 October 8, 1999
    -----------------
(Martin L. Edelman)

/s/ Carole G. Hankin            Director                                 October 8, 1999
    ----------------
Dr. Carole G. Hankin)
_________________               Director                                 October 8, 1999
(The Rt. Hon. Brian Mulroney,
 P.C., LL.D)

/s/ Robert W. Pittman           Director                                 October 8, 1999
    -----------------
(Robert W. Pittman)


                                Director                                 October 8, 1999
/s/ Leonard Schutzman
(Leonard Schutzman)

                                Director                                 October 8, 1999
/s/ Robert F. Smith
(Robert F. Smith)

                                Director                                 October 8, 1999
/s/ Robert E. Nederlander
(Robert E. Nederlander)




                                       84


EXHIBITS:

  EXHIBIT NO.                           DESCRIPTION
  -----------                           -----------

      2.1        Agreement and Plan of Merger, dated March 23, 1998 among the
                 Company, Season Acquisition Corp. and American Bankers
                 Insurance Group, Inc. (incorporated by reference to Exhibit C2
                 to the Schedule 14D-1 (Amendment 31), dated March 23, 1998,
                 filed by the Company and Season Acquisition Corp.)*
      3.1        Amended and Restated Certificate of Incorporation of the
                 Company (incorporated by reference to Exhibit 4.1 to the
                 Company's Post Effective Amendment No. 2 on Form S-8 to the
                 Registration Statement on Form S-4, No. 333-34517, dated
                 December 17, 1997)*
      3.2        Amended and Restated ByLaws of the Company (incorporated by
                 reference to Exhibit 3.1 to the Company's Current Report on
                 Form 8-K dated August 4, 1998)*
      4.1        Form of Stock Certificate (filed as Exhibit 4.1 to the
                 Company's Registration Statement, No. 33-44453, on Form S-4
                 dated December 19, 1991)*
      4.2        Indenture dated as of February 11, 1997, between CUC
                 International Inc. and Marine Midland Bank, as trustee (filed
                 as Exhibit 4(a) to the Company's Report on Form 8-K filed
                 February 13, 1997)*
      4.3        Indenture between HFS Incorporated and Continental Bank,
                 National Association, as trustee (Incorporated by reference to
                 HFS Incorporated's Registration Statement on Form S-1
                 (Registration No. 33-71736), Exhibit No. 4.1)*
      4.4        Indenture dated as of February 28, 1996 between HFS
                 Incorporated and First Trust of Illinois, National Association,
                 as trustee (Incorporated by reference to HFS Incorporated's
                 Current Report on Form 8-K dated March 8, 1996, Exhibit 4.01)*
      4.5        Supplemental Indenture No. 1 dated as of February 28, 1996
                 between HFS Incorporated and First Trust of Illinois, National
                 Association, as trustee (Incorporated by reference to HFS
                 Incorporated's Current Report on Form 8-K dated March 8, 1996,
                 Exhibit 4.02)*
      4.6        Indenture, dated as of February 24, 1998, between the Company
                 and The Bank of Novia Scotia Trust Company of New York, as
                 Trustee (Incorporated by reference to Exhibit 4.4 to the
                 Company's Current Report on Form 8-K dated March 6, 1998)*
      4.7        First Supplemental Indenture dated February 24, 1998, between
                 the Company and The Bank of Novia Scotia Trust Company of New
                 York, as Trustee (Incorporated by reference to Exhibit 4.5 to
                 the Company's Current Report on Form 8-K, dated March 6, 1998)*
      4.8        Amended and Restated Declaration of Trust of Cendant Capital I.
                 (Incorporated by reference to Exhibit 4.1 to the Company's
                 Current Report on Form 8-K dated March 6, 1998)*
      4.9        Preferred Securities Guarantee Agreement dated March 2, 1998,
                 between by Cendant Corporation and Wilmington Trust Company.
                 (Incorporated by reference to Exhibit 4.2 to the Company's
                 Current Report on Form 8-K dated March 6, 1998)*
      4.10       Purchase Contract Agreement (including as Exhibit A the form of
                 the Income PRIDES and as Exhibit B the form of the Growth
                 PRIDES), dated March 2, 1998, between Cendant Corporation and
                 The First National Bank of Chicago (Incorporated by reference
                 to Exhibit 4.3 to the Company's Current Report on Form 8-K
                 dated March 6, 1998)*
   10.1-10.38    Material Contracts, Management Contracts, Compensatory Plans
                 and Arrangements **
    10.1(a)      Agreement with Henry R. Silverman, dated June 30, 1996 and as
                 amended through December 17, 1997 (filed as Exhibit 10.6 to the
                 Company's Registration Statement on Form S-4, Registration No.
                 333-34571)*
    10.1(b)      Amendment to Agreement with Henry R. Silverman, dated December
                 31, 1998. **
    10.2(a)      Agreement with Stephen P. Holmes, dated September 12, 1997
                 (filed as Exhibit 10.7 to the Company's Registration Statement
                 on Form S-4, Registration No. 333-34571)*
    10.2(b)      Amendment to Agreement with Stephen P. Holmes, dated January
                 11, 1999. **


                                       85


  EXHIBIT NO.                           DESCRIPTION
  -----------                           -----------

    10.3(a)      Agreement with Michael P. Monaco, dated September 12, 1997
                 (filed as Exhibit 10.8 to the Company's Registration Statement
                 on Form S-4, Registration No. 333-34571)*
    10.3(b)      Amendment to Agreement with Michael Monaco, dated December 23,
                 1998. **
    10.4(a)      Agreement with James E. Buckman, dated September 12, 1997
                 (filed as Exhibit 10.9 to the Company's Registration Statement
                 on Form S-4, Registration No. 333-34571)*
    10.4(b)      Amendment to Agreement with James E. Buckman, dated January 11,
                 1999. **
      10.5       1987 Stock Option Plan, as amended (filed as Exhibit 10.16 to
                 the Company's Form 10-Q for the period ended October 31, 1996)*
      10.6       1990 Directors Stock Option Plan, as amended (filed as Exhibit
                 10.17 to the Company's Form 10-Q for the period ended October
                 31, 1996)*
      10.7       1992 Directors Stock Option Plan, as amended (filed as Exhibit
                 10.18 to the Company's Form 10-Q for the period ended October
                 31, 1996)*
      10.8       1994 Directors Stock Option Plan, as amended (filed as Exhibit
                 10.19 to the Company's Form 10-Q for the period ended October
                 31, 1996)*
      10.9       1997 Stock Option Plan (filed as Exhibit 10.23 to the Company's
                 Form 10-Q for the period ended April 30, 1997)*
     10.10       1997 Stock Incentive Plan (filed as Appendix E to the Joint
                 Proxy Statement/ Prospectus included as part of the Company's
                 Registration Statement, No. 333-34517, on Form S-4 dated August
                 28, 1997)*
     10.11       HFS Incorporated's Amended and Restated 1993 Stock Option Plan
                 (Incorporated by reference to HFS Incorporated's Registration
                 Statement on Form S-8 (Registration No. 33-83956), Exhibit
                 4.1)*
    10.12(a)     First Amendment to the Amended and Restated 1993 Stock Option
                 Plan dated May 5, 1995. (Incorporated by reference to HFS
                 Incorporated's Registration Statement on Form S-8 (Registration
                 No. 33-094756), Exhibit 4.1)*
    10.12(b)     Second Amendment to the Amended and Restated 1993 Stock Option
                 Plan dated January 22, 1996. (Incorporated by reference to the
                 HFS Incorporated's Annual Report on Form 10-K for fiscal year
                 ended December 31, 1995, Exhibit 10.21(b))*
    10.12(c)     Third Amendment to the Amended and Restated 1993 Stock Option
                 Plan dated January 22, 1996. (Incorporated by reference to the
                 HFS Incorporated's Annual Report on Form 10-K for fiscal year
                 ended December 31, 1995, Exhibit 10.21(c))*
    10.12(d)     Fourth Amendment to the Amended and Restated 1993 Stock Option
                 Plan dated May 20, 1996. (Incorporated by reference to HFS
                 Incorporated's Registration Statement on Form S-8 (Registration
                 No. 333-06733), Exhibit 4.5)*
    10.12(e)     Fifth Amendment to the Amended and Restated 1993 Stock Option
                 Plan dated July 24, 1996 (Incorporated by reference to the HFS
                 Incorporated's Annual Report on Form 10-K for fiscal year ended
                 December 31, 1995, Exhibit 10.21(e))*
    10.12(f)     Sixth Amendment to the Amended and Restated 1993 Stock Option
                 Plan dated September 24, 1996 (Incorporated by reference to the
                 HFS Incorporated's Annual Report on Form 10-K for fiscal year
                 ended December 31, 1995, Exhibit 10.21(e))*



                                       86


  EXHIBIT NO.                           DESCRIPTION
  -----------                           -----------

    10.12(g)     Seventh Amendment to the Amended and Restated 1993 Stock Option
                 Plan dated as of April 30, 1997 (Incorporated by reference to
                 the Company's Annual Report on Form 10-K for the fiscal year
                 ended December 31, 1999, Exhibit 10.17(g))*
    10.12(h)     Eighth Amendment to the Amended and Restated 1993 Stock Option
                 Plan dated as of May 27, 1997 (Incorporated by reference to the
                 Company's Annual Report on Form 10-K for the fiscal year ended
                 December 31, 1997, Exhibit 10.17(h))*
     10.13       HFS Incorporated's 1992 Incentive Stock Option Plan and Form of
                 Stock Option Agreement. (Incorporated by reference to HFS
                 Incorporated's Registration Statement on Form S-1 (Registration
                 No. 33-51422), Exhibit No. 10.6)*
     10.14       Cendant Corporation 1992 Employee Stock Plan (Incorporated by
                 reference to Exhibit 4.1 of the Company's Registration
                 Statement on Form S-8 dated January 29, 1998 (Registration No.
                 333-45183))*
     10.15       Cendant Corporation Deferred Compensation Plan **
     10.16       Agreement and Plan of Merger, by and among HFS Incorporated, HJ
                 Acquisition Corp. and Jackson Hewitt, Inc., dated as of
                 November 19, 1997. (Incorporated by reference to Exhibit 10.1
                 to HFS Incorporated's Current Report on Form 8-K dated August
                 14, 1997, File No.
                 111402)*
     10.17       Form of Underwriting Agreement for Debt Securities
                 (Incorporated by reference to Exhibit 1.1 to the Company's
                 Registration Statement on Form S-3, Registration No.
                 333-45227)*
     10.18       Underwriting Agreement dated February 24, 1998 among the
                 Company, Cendant Capital I, Merrill Lynch & Co., Merrill Lynch,
                 Pierce, Fenner & Smith Incorporated and Chase Securities Inc.
                 (Incorporated by reference to the Company's Form 8-K dated
                 March 6, 1998, Exhibit 1.1)*
     10.19       Registration Rights Agreement dated as of February 11, 1997,
                 between CUC International Inc. and Goldman, Sachs & Co. (for
                 itself and on behalf of the other purchasers party
                 thereto)(filed as Exhibit 4(b) to the Company's Report on Form
                 8-K filed February 13, 1997)*
     10.20       Agreement and Plan of Merger between CUC International Inc. and
                 HFS Incorporated, dated as of May 27, 1997 (filed as Exhibit
                 2.1 to the Company's Report on Form 8-K filed on May 29, 1997)*
    10.21(a)     $750,000,000 Five Year Revolving Credit and Competitive Advance
                 Facility Agreement, dated as of October 2, 1996, among the
                 Company, the several banks and other financial institutions
                 from time to time parties thereto and The Chase Manhattan Bank,
                 as Administrative Agent and CAF Agent (Incorporated by
                 reference to Exhibit (b)(1) to the Schedule 14-D1 filed by the
                 Company on January 27, 1998, File No. 531838)*
    10.21(b)     Amendment, dated as of October 30, 1998, to the Five Year
                 Competitive Advance and Revolving Credit Agreement, dated as of
                 October 2, 1998, by and among the Company, the general
                 institutions, parties thereto and The Chase Manhattan Bank, as
                 Administrative Agent (Incorporated by reference to Exhibit 10.2
                 to the Company's Form 8-K dated February 10, 1999)*
    10.22(a)     $1,250,000 364-Day Revolving Credit and Competitive Advance
                 Facility Agreement, dated October 2, 1996, as amended and
                 restated through October 30, 1998, among the Company, the
                 several banks and other financial institutions from time to
                 time parties thereto, and The Chase Manhattan Bank, as
                 Administrative Agent and as Lead Manager (Incorporated by
                 reference to Exhibit 10.1 to the Company's Form 8-K dated
                 November 5, 1998).*



                                       87


  EXHIBIT NO.                           DESCRIPTION
  -----------                           -----------

    10.22(b)     Amendment, dated as of February 4, 1999, to the Five-Year
                 Competitive Advance and Revolving Credit Agreement and the
                 364-Day Competitive Advance and Revolving Credit Agreement
                 among the Company, the lenders therein and The Chase Manhattan
                 Bank, as Administrative Agent (Incorporated by reference to
                 Exhibit 99.2 to the Company's Form 8-K dated February 16,
                 1999)*.
     10.23       Distribution Agreement, dated March 5, 1998, among the Company,
                 Bear, Stearns & Co., Inc., Chase Securities Inc., Lehman
                 Brothers and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
                 & Smith Incorporated (Incorporated by reference to the
                 Company's Current Report on Form 8-K, dated March 10, 1998)*
    10.24(a)     364-Day Credit Agreement Among PHH Corporation, PHH Vehicle
                 Management Services, Inc., the Lenders, the Chase Manhattan
                 Bank, as Administrative Agent and the Chase Manhattan Bank of
                 Canada, as Canadian Agent, Dated March 5, 1999. **
    10.24(b)     Five-year Credit Agreement ("PHH Five-year Credit Agreement")
                 among PHH Corporation, the Lenders, and Chase Manhattan Bank,
                 as Administrative Agent, dated March 4, 1997 (Incorporated by
                 reference from Exhibit 10.2 to Registration Statement
                 333-27715)*
    10.24(c)     Second Amendment to PHH Credit Agreements (Incorporated by
                 reference to PHH Incorporated's Quarterly Report on Form 10-Q
                 for the quarterly period ended September 30, 1997, Exhibit
                 10.1)*
    10.24(d)     Third Amendment to PHH Credit Agreements (Incorporated by
                 reference to PHH Incorporated's Quarterly Report on Form 10-Q
                 for the quarterly period ended September 30, 1997, Exhibit
                 10.1)*
    10.24(e)     Fourth Amendment dated as of November 2, 1998, to PHH Five-Year
                 Credit Agreement. **
     10.25       Indenture between the Company and Bank of New York, Trustee,
                 dated as of May 1, 1992 (Incorporated by reference from Exhibit
                 4(a)(iii) to Registration Statement 33-48125)*
     10.26       Indenture between the Company and First National Bank of
                 Chicago, Trustee, dated as of March 1, 1993 (Incorporated by
                 reference from Exhibit 4(a)(i) to Registration Statement
                 33-59376)*
     10.27       Indenture between the Company and First National Bank of
                 Chicago, Trustee, dated as of June 5, 1997 (Incorporated by
                 reference from Exhibit 4(a) to Registration Statement
                 333-27715)*
     10.28       Indenture between the Company and Bank of New York, Trustee
                 dated as of June 5, 1997 (Incorporated by reference from
                 Exhibit 4(a)(11) to Registration Statement 333-27715)*
     10.29       Distribution Agreement between the Company and CS First Boston
                 Corporation; Goldman, Sachs & Co.; Merrill Lynch & Co.; Merrill
                 Lynch, Pierce, Fenner & Smith, Incorporated; and J.P. Morgan
                 Securities, Inc. dated November 9, 1995 (Incorporated by
                 reference from Exhibit 1 to Registration Statement 33-63627)*
     10.30       Distribution Agreement between the Company and Credit Suisse;
                 First Boston Corporation; Goldman Sachs & Co. and Merrill Lynch
                 & Co., dated June 5, 1997 filed as Exhibit 1 to Registration
                 Statement 333-27715*
     10.31       Distribution Agreement, dated March 2, 1998, among PHH
                 Corporation, Credit Suisse First Boston Corporation, Goldman
                 Sachs & Co., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
                 & Smith, Incorporated and J.P. Morgan Securities, Inc., filed
                 as Exhibit 1 to Form 8-K dated March 3, 1998, File No. 107797*
     10.32       Registration Rights Agreement, dated as of November 12, 1996,
                 by and between HFS Incorporated and Ms. Christel DeHaan
                 (Incorporated by reference to HFS Incorporated's Registration
                 Statement on Form S-3 (Registration No. 333-17371), Exhibit
                 2.2)*




                                       88


  EXHIBIT NO.                           DESCRIPTION
  -----------                           -----------

     10.33       License Agreement dated as of September 18, 1989 amended and
                 restated as of July 15, 1991 between Franchise System Holdings,
                 Inc. and Ramada Franchise Systems, Inc. (Incorporated by
                 reference to HFS Incorporated's Registration Statement on Form
                 S-1 (Registration No.
                 33-51422), Exhibit No. 10.2)*
     10.34       Restructuring Agreement dated as of July 15, 1991 by and among
                 New World Development Co., Ltd., Ramada International Hotels &
                 Resorts, Inc. Ramada Inc., Franchise System Holdings, Inc., HFS
                 Incorporated and Ramada Franchise Systems, Inc. (Incorporated
                 by reference to HFS Incorporated's Registration Statement on
                 Form S-1 (Registration No. 33-51422), Exhibit No.
                 10.3)*
     10.35       License Agreement dated as of November 1, 1991 between
                 Franchise Systems Holdings, Inc. and Ramada Franchise Systems,
                 Inc. (Incorporated by reference to HFS Incorporated's
                 Registration Statement on Form S-1 (Registration No. 33-51422),
                 Exhibit No. 10.4)*
     10.36       Amendment to License Agreement, Restructuring Agreement and
                 Certain Other Restructuring Documents dated as of November 1,
                 1991 by and among New World Development Co., Ltd., Ramada
                 International Hotels & Resorts, Inc., Ramada Inc., Franchise
                 System Holdings, Inc., HFS Incorporated and Ramada Franchise
                 Systems, Inc. (Incorporated by reference to HFS Incorporated's
                 Registration Statement on Form S-1 (Registration No. 33-51422),
                 Exhibit No.
                 10.5)*
     10.37       Master License Agreement dated July 30, 1997, among HFS Car
                 Rental, Inc., Avis Rent A Car System, Inc. and Wizard Co.
                 (Incorporated by reference to HFS Incorporated Form 10-Q for
                 the quarter ended June 30, 1997, Exhibit 10.1)*
     10.38       Term Loan Agreement, dated as of February 9, 1999, among
                 Cendant Corporation, as Borrower , the Lenders referred
                 therein, Bank of America NT & SA, as Syndication Agent,
                 Barclays Bank, PLC, The Bank of Nova Scotia, Credit Lyonnais
                 New York Branch, as CoDocumentation Agents, First Union
                 National Bank, and The Industrial Bank of Japan, Limited, New
                 York Branch, as Managing Agents, Credit Suisse First Boston,
                 The Sumitomo Bank, Limited, New York Branch, Banque Paribas, as
                 CoAgents and The Chase Manhattan Bank, as Administrative Agent
                 (incorporated by reference to Cendant Corporation's Form 8-K
                 dated February 16, 1999 (File No. 110308)). *
       12        Statement Re: Computation of Consolidated Ratio to Earnings to
                 Combined Fixed Charges and Preferred Stock Dividends
      16.1       Letter re: change in certifying accountant (Incorporated by
                 reference to the Company's Form 8-K dated January 27, 1998)*
      16.2       Letter re: change in certifying accountant of a significant
                 subsidiary (Incorporated by reference to the Company's Form 8-K
                 dated May 18, 1998)*
       21        Subsidiaries of Registrant **
      23.1       Consent of Deloitte & Touche LLP related to the financial
                 statements of Cendant Corporation.
      23.2       Consent of KPMG LLP relating to the financial statements of
                 PHH Corporation
      27         Financial data schedule

- ---------------
*     Incorporated by reference
**    Previously included in the Annual Report on Form 10-K/A of Cendant
      Corporation for the year ended December 31, 1998, filed with the
      Securities and Exchange Commission May 13, 1999.



                                       89


                          INDEX TO FINANCIAL STATEMENTS

                                                                           PAGE
                                                                           ----

Independent Auditors' Reports                                              F-2

Consolidated Statements of Operations for the years ended
   December 31, 1998, 1997 and 1996                                        F-4

Consolidated Balance Sheets as of December 31, 1998 and 1997               F-5

Consolidated Statements of Shareholders' Equity for the years
   ended December 31, 1998, 1997 and 1996                                  F-7

Consolidated Statements of Cash Flows for the years ended
   December 31, 1998, 1997 and 1996                                        F-10

Notes to Consolidated Financial Statements                                 F-12


                                      F-1


                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders of
Cendant Corporation

We have audited the consolidated balance sheets of Cendant Corporation and
subsidiaries (the "Company") as of December 31, 1998 and 1997 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits. We did not audit the statements of
income, shareholders' equity, and cash flows of PHH Corporation (a consolidated
subsidiary of Cendant Corporation) for the year ended December 31, 1996 which
statements reflect net income of $87.7 million. Those statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for PHH Corporation, is based solely on
the report of such other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Cendant Corporation and
subsidiaries at December 31, 1998 and 1997 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles.

As discussed in Note 18 to the consolidated financial statements, the Company is
involved in certain litigation related to the discovery of accounting
irregularities in certain former CUC International Inc. business units.
Additionally, as discussed in Note 2, effective January 1, 1997 the Company
changed its method of recognizing revenue and membership solicitation costs for
its individual membership business.

/s/ Deloitte & Touche LLP
Parsippany, New Jersey
October 8, 1999

                                      F-2


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
PHH Corporation

We have audited the consolidated statement of income, shareholder's equity and
cash flows of PHH Corporation and subsidiaries (the "Company") for the year
ended December 31, 1996, before the restatement related to the merger of Cendant
Corporation's relocation business with the Company and reclassifications to
conform to the presentation used by Cendant Corporation, not presented
separately herein. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements (before restatement and
reclassifications) referred to above present fairly, in all material respects,
the results of operations of PHH Corporation and subsidiaries and their cash
flows for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.

/s/ KPMG LLP
 Baltimore, Maryland
 April 30, 1997

                                      F-3

                      CENDANT CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN MILLIONS, EXCEPT PER SHARE DATA)



                                                                       YEAR ENDED DECEMBER 31,
                                                                -------------------------------------
                                                                    1998         1997         1996
                                                                -----------  -----------  -----------
                                                                                 
REVENUES
  Membership and service fees, net                              $   5,080.7  $   4,083.4  $   3,147.0
  Fleet leasing (net of depreciation and interest costs of
    $1,279.4, $1,205.2 and $1,132.4)                                   88.7         59.5         56.7
  Other                                                               114.4         97.1         34.0
                                                                -----------  -----------  -----------
Net revenues                                                        5,283.8      4,240.0      3,237.7
                                                                -----------  -----------  -----------
EXPENSES
  Operating                                                         1,869.1      1,322.3      1,183.2
  Marketing and reservation                                         1,158.5      1,031.8        910.8
  General and administrative                                          666.3        636.2        341.0
  Depreciation and amortization                                       322.7        237.7        145.5
  Other charges
    Litigation settlement                                             351.0           --           --
    Termination of proposed acquisitions                              433.5           --           --
    Executive terminations                                             52.5           --           --
    Investigation-related costs                                        33.4           --           --
    Merger-related costs and other unusual charges (credits)          (67.2)       704.1        109.4
    Financing costs                                                    35.1           --           --
  Interest, net                                                       113.9         50.6         14.3
                                                                -----------  -----------  -----------
Total expenses                                                      4,968.8      3,982.7      2,704.2
                                                                -----------  -----------  -----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES,
  MINORITY INTEREST, EXTRAORDINARY GAIN AND CUMULATIVE EFFECT
  OF ACCOUNTING CHANGE                                                315.0        257.3        533.5
Provision for income taxes                                            104.5        191.0        220.2
Minority interest, net of tax                                          50.6           --           --
                                                                -----------  -----------  -----------
INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY GAIN
  AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE                          159.9         66.3        313.3
Income (loss) from discontinued operations, net of tax                (25.0)       (26.8)        16.7
Gain on sale of discontinued operations, net of tax                   404.7           --           --
                                                                -----------  -----------  -----------
INCOME BEFORE EXTRAORDINARY GAIN AND CUMULATIVE EFFECT
  OF ACCOUNTING CHANGE                                                539.6         39.5        330.0
Extraordinary gain, net of tax                                           --         26.4           --
                                                                -----------  -----------  -----------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE                  539.6         65.9        330.0
Cumulative effect of accounting change, net of tax                       --       (283.1)          --
                                                                -----------  -----------  -----------
NET INCOME (LOSS)                                               $     539.6  $    (217.2) $     330.0
                                                                ===========  ===========  ===========

INCOME (LOSS) PER SHARE
  BASIC
    Income from continuing operations before extraordinary
      gain and cumulative effect of accounting change           $      0.19  $      0.08 $       0.41
    Income (loss) from discontinued operations                        (0.03)       (0.03)        0.03
    Gain on sale of discontinued operations                            0.48          --            --
    Extraordinary gain                                                   --         0.03           --
    Cumulative effect of accounting change                               --        (0.35)          --
                                                                -----------  -----------  -----------
    NET INCOME (LOSS)                                           $      0.64  $     (0.27)  $     0.44
                                                                ===========  ===========  ===========
  DILUTED
    Income from continuing operations before extraordinary
      gain and cumulative effect of accounting change           $      0.18  $      0.08 $       0.39
    Income (loss) from discontinued operations                        (0.03)       (0.03)        0.02
    Gain on sale of discontinued operations                            0.46          --            --
    Extraordinary gain                                                   --         0.03           --
    Cumulative effect of accounting change                               --        (0.35)          --
                                                                -----------  -----------  -----------
    NET INCOME (LOSS)                                           $      0.61  $     (0.27) $      0.41
                                                                ===========  ===========  ===========


                 See accompanying notes to consolidated financial statements.

                                      F-4

                      CENDANT CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                  (IN MILLIONS)



                                                                          DECEMBER 31,
                                                                 ---------------------------
                                                                     1998            1997
                                                                 -----------    ------------
                                                                          
ASSETS
Current assets
  Cash and cash equivalents                                      $   1,008.7    $      67.0
  Receivables (net of allowance for doubtful accounts
    of $123.3 and $61.5)                                             1,536.4        1,170.7
  Deferred membership commission costs                                 253.0          169.5
  Deferred income taxes                                                466.6          311.9
  Other current assets                                                 908.6          641.2
  Net assets of discontinued operations                                373.6          273.3
                                                                 -----------    -----------

Total current assets                                                 4,546.9        2,633.6
                                                                 -----------    -----------

  Property and equipment, net                                        1,432.8          544.7
  Franchise agreements, net                                          1,363.2        1,079.6
  Goodwill, net                                                      3,923.1        2,148.2
  Other intangibles, net                                               757.1          624.3
  Other assets                                                         681.5          599.3
                                                                 -----------    -----------

Total assets exclusive of assets under programs                     12,704.6        7,629.7
                                                                 -----------    -----------

Assets under management and mortgage programs
  Net investment in leases and leased vehicles                       3,801.1        3,659.1
  Relocation receivables                                               659.1          775.3
  Mortgage loans held for sale                                       2,416.0        1,636.3
  Mortgage servicing rights                                            635.7          373.0
                                                                 -----------    -----------

                                                                     7,511.9        6,443.7
                                                                 -----------    -----------

TOTAL ASSETS                                                     $  20,216.5    $  14,073.4
                                                                 ===========    ===========


                 See accompanying notes to consolidated financial statements.

                                      F-5


                      CENDANT CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (IN MILLIONS, EXCEPT SHARE DATA)



                                                                             DECEMBER 31,
                                                                    -------------------------------
                                                                        1998                1997
                                                                    -----------          ----------
                                                                                   
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Accounts payable and other current liabilities                    $   1,517.5          $ 1,492.4
  Deferred income                                                       1,354.2            1,042.0
                                                                    -----------          ----------

Total current liabilities                                               2,871.7            2,534.4
                                                                    -----------          ----------

  Deferred income                                                         233.9              292.1
  Long-term debt                                                        3,362.9            1,246.0
  Deferred income taxes                                                    77.2               70.9
  Other non-current liabilities                                           125.3              110.3
                                                                    -----------          ----------

Total liabilities exclusive of liabilities under programs               6,671.0            4,253.7
                                                                    -----------          ----------

Liabilities under management and mortgage programs
  Debt                                                                  6,896.8            5,602.6
                                                                    -----------          ----------
  Deferred income taxes                                                   341.0              295.7
                                                                    -----------          ----------

Mandatorily redeemable preferred securities issued by subsidiary        1,472.1             --
                                                                    -----------          ----------
Commitments and contingencies (Note 18)

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 860,551,783 and 838,333,800 shares                               8.6                8.4
Additional paid-in capital                                              3,863.4            3,085.0
  Retained earnings                                                     1,480.2              940.6
  Accumulated other comprehensive loss                                    (49.4)             (38.2)
  Treasury stock, at cost, 27,270,708 and 6,545,362 shares               (467.2)             (74.4)
                                                                    -----------          ----------

Total shareholders' equity                                              4,835.6            3,921.4
                                                                    -----------          ----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                          $  20,216.5          $14,073.4
                                                                    ===========          ==========


          See accompanying notes to consolidated financial statements.

                                      F-6

                      CENDANT CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                  (IN MILLIONS)



                                                                                ACCUMULATED
                                COMMON STOCK       ADDITIONAL                      OTHER                      TOTAL
                             -----------------      PAID-IN      RETAINED      COMPREHENSIVE    TREASURY  SHAREHOLDERS'
                             SHARES     AMOUNT      CAPITAL      EARNINGS      INCOME (LOSS)     STOCK       EQUITY
                             ------     ------      -------      --------      -------------     -----       ------
                                                                                       
BALANCE AT
JANUARY 1, 1996               725.2   $   7.3     $ 1,041.9       $ 905.1         $ (25.1)     $ (31.0)     $ 1,898.2
COMPREHENSIVE INCOME:
  Net income                     --        --            --         330.0              --           --
  Currency translation
    adjustment                   --        --            --            --            12.2           --
  Net unrealized gain
    on marketable
    securities                   --        --            --            --             6.5           --
TOTAL COMPREHENSIVE
  INCOME                         --        --            --            --              --           --
                                                                                                                348.7
Issuance of common
  stock                        63.3        .6       1,627.9            --              --           --        1,628.5
Exercise of stock
  options by payment
    of cash and
  common stock                 14.0        .1          74.6            --              --        (25.5)          49.2
Restricted stock
  issuance                      1.4                      --            --              --           --
Amortization of
  restricted stock               --        --           2.3            --              --           --            2.3
Tax benefit from
  exercise of stock
  options                        --        --          78.9            --              --           --           78.9
Cash dividends
  declared and other
  equity distributions           --        --            --         (41.3)             --           --          (41.3)
Adjustment to reflect
  change in fiscal
  years of pooled
  entities                       --        --           (.6)         (7.1)             --           --           (7.7)
Conversion of convertible
  notes                         3.8        .1          18.0            --              --           --           18.1
Purchase of common
  stock                          --        --            --            --              --        (19.2)         (19.2)
                            -------   -------      --------      --------          ------      -------      ---------
BALANCE AT
DECEMBER 31, 1996             807.7   $   8.1      $2,843.0      $1,186.7          $ (6.4)     $ (75.7)     $ 3,955.7



                   See accompanying notes to consolidated financial statements.

                                      F-7

                      CENDANT CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
                                  (IN MILLIONS)



                                                                                ACCUMULATED
                                COMMON STOCK       ADDITIONAL                      OTHER                      TOTAL
                             -----------------      PAID-IN      RETAINED      COMPREHENSIVE    TREASURY  SHAREHOLDERS'
                             SHARES     AMOUNT      CAPITAL      EARNINGS      INCOME (LOSS)     STOCK       EQUITY
                             ------     ------      -------      --------      -------------     -----       ------
                                                                                      
BALANCE AT
JANUARY 1, 1997              807.7      $ 8.1     $ 2,843.0      $ 1,186.7      $ (6.4)         $ (75.7)   $ 3,955.7
COMPREHENSIVE LOSS:
  Net loss                      --         --            --         (217.2)         --               --
  Currency translation
    adjustment                  --         --            --             --       (27.6)              --
  Net unrealized loss
    on marketable
    securities                  --         --            --             --        (4.2)              --
TOTAL COMPREHENSIVE
  LOSS                          --         --            --             --          --               --       (249.0)
Issuance of
  common stock                 6.2         --          46.3             --          --               --          46.3
Exercise of stock options
  by payment of cash
  and common stock            11.4         .1         132.8             --          --            (17.8)        115.1
Restricted stock
  issuance                      .2                       --             --          --               --
Amortization of
  restricted stock              --         --          28.5             --          --               --          28.5
Tax benefit from exercise
  of stock options              --         --          93.5             --          --               --          93.5
Cash dividends declared         --         --            --           (6.6)         --               --          (6.6)
Adjustment to reflect
  change in fiscal  year
  from Cendant Merger           --         --            --          (22.3)         --               --          (22.3)
Conversion of
  convertible notes           20.2         .2         150.9             --          --               --          151.1
Purchase of
  common stock                  --         --            --             --          --           (171.3)       (171.3)
Retirement of treasury
    stock                     (7.4)        --        (190.4)            --          --            190.4            --
Other                                      --         (19.6)            --          --               --         (19.6)
                           --------   --------     --------        --------   --------          --------     --------
BALANCE AT
DECEMBER 31, 1997            838.3      $ 8.4     $ 3,085.0        $ 940.6      $(38.2)         $ (74.4)     $ 3,921.4



          See accompanying notes to consolidated financial statements.

                                      F-8


                      CENDANT CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
                                  (IN MILLIONS)



                                                                                ACCUMULATED
                                COMMON STOCK       ADDITIONAL                      OTHER                      TOTAL
                             -----------------      PAID-IN      RETAINED      COMPREHENSIVE    TREASURY  SHAREHOLDERS'
                             SHARES     AMOUNT      CAPITAL      EARNINGS      INCOME (LOSS)     STOCK       EQUITY
                             ------     ------      -------      --------      -------------     -----       ------
                                                                                        
BALANCE AT
JANUARY 1, 1998              838.3      $ 8.4     $ 3,085.0      $ 940.6         $ (38.2)      $ (74.4)      $3,921.4
COMPREHENSIVE INCOME:
  Net income                    --         --            --        539.6              --            --
  Currency translation
    adjustment                  --         --            --           --           (11.2)           --
TOTAL COMPREHENSIVE
  INCOME                        --         --            --           --              --            --          528.4
Exercise of stock options
  by payment of cash and
  common stock                16.4         .1         168.4           --              --          (.2)          168.3
Amortization of
  restricted stock              --         --            .7           --              --            --             .7
Tax benefit from exercise
  of stock options              --         --         147.3           --              --            --          147.3
Conversion of convertible
  notes                        5.9         .1         113.7           --              --            --          113.8
Purchase of common
  stock                         --         --            --           --              --        (257.7)        (257.7)
Mandatorily redeemable
  preferred securities
  issued by subsidiary          --         --         (65.7)          --              --            --          (65.7)
Common stock received as
    consideration in sale
    of discontinued
    operations                  --         --            --           --              --        (134.9)        (134.9)
Rights issuable                 --         --         350.0           --              --            --          350.0
Other                           --         --          64.0           --              --            --           64.0
                           -------      -----     ---------    ---------         --------      -------      ---------
BALANCE AT
DECEMBER 31, 1998            860.6      $ 8.6     $ 3,863.4    $ 1,480.2         $ (49.4)      $(467.2)     $ 4,835.6
                           =======      =====     =========    =========         ========      =======      =========


          See accompanying notes to consolidated financial statements.

                                      F-9

                      CENDANT CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (IN MILLIONS)



                                                                         YEAR ENDED DECEMBER 31,
                                                                   -----------------------------------
                                                                       1998        1997         1996
                                                                   -----------  -----------  ----------
                                                                                    
OPERATING ACTIVITIES
Net income (loss)                                                  $     539.6  $    (217.2) $    330.0
Adjustments to reconcile net income (loss) to net cash
   provided by operating activities from continuing operations:
(Income) loss from discontinued operations, net of tax                    25.0         26.8       (16.7)
Gain on sale of discontinued operations, net of tax                     (404.7)      --          --
Non cash charges:
   Litigation settlement                                                 351.0       --          --
   Extraordinary gain on sale of subsidiary, net of tax                 --            (26.4)     --
   Cumulative effect of accounting change, net of tax                   --            283.1      --
   Asset impairments and termination benefits                             62.5       --          --
   Merger-related costs and other unusual charges (credits)              (67.2)       704.1       109.4
Payments of merger-related costs and other unusual
  charge liabilities                                                    (158.2)      (317.7)      (61.3)
Depreciation and amortization                                            322.7        237.7       145.5
Membership acquisition costs                                            --           --          (512.1)
Amortization of membership costs                                        --           --           492.3
Proceeds from sales of trading securities                                136.1       --          --
Purchases of trading securities                                         (181.6)      --          --
Deferred income taxes                                                   (110.8)       (23.8)       68.8
Net change in assets and liabilities from continuing operations:
  Receivables                                                           (126.0)       (95.6)     (122.1)
  Deferred membership commission costs                                   (86.8)      --          --
  Income taxes receivable                                                (97.9)       (84.0)      (18.3)
  Accounts payable and other current liabilities                          95.9        (87.0)       14.3
  Deferred income                                                         82.3        134.0        43.9
  Other, net                                                             (54.1)       (54.9)       71.2
                                                                   -----------  -----------  ----------
NET CASH PROVIDED BY CONTINUING OPERATIONS EXCLUSIVE OF
  MANAGEMENT AND MORTGAGE PROGRAMS                                       327.8        479.1       544.9
                                                                   -----------  -----------  ----------

Management and mortgage programs:
  Depreciation and amortization                                        1,259.9      1,121.9     1,021.8
  Origination of mortgage loans                                      (26,571.6)   (12,216.5)   (8,292.6)
  Proceeds on sale and payments from mortgage loans
    held for sale                                                     25,791.9     11,828.5     8,219.3
                                                                   -----------  -----------  ----------
                                                                         480.2        733.9       948.5
                                                                   -----------  -----------  ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES OF
  CONTINUING OPERATIONS                                                  808.0      1,213.0     1,493.4
                                                                   -----------  -----------  ----------

INVESTING ACTIVITIES
Property and equipment additions                                        (355.2)      (154.5)     (101.2)
Proceeds from sales of marketable securities                            --            506.1        72.4
Purchases of marketable securities                                      --           (458.1)     (125.6)
Investments                                                              (24.4)      (272.5)      (12.7)
Net assets acquired (net of cash acquired) and
  acquisition-related payments                                        (2,852.0)      (568.2)   (1,608.6)
Net proceeds from sale of subsidiary                                     314.8        224.0      --
Other, net                                                               106.5       (108.7)      (56.2)
                                                                   -----------  -----------  ----------

NET CASH USED IN INVESTING ACTIVITIES OF CONTINUING OPERATIONS
  EXCLUSIVE OF MANAGEMENT AND MORTGAGE PROGRAMS                       (2,810.3)      (831.9)   (1,831.9)
                                                                   -----------  -----------  ----------


                    See accompanying notes to consolidated financial statements.

                                      F-10


                      CENDANT CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                  (IN MILLIONS)



                                                                        YEAR ENDED DECEMBER 31,
                                                                    ----------------------------------
                                                                       1998        1997        1996
                                                                    ----------  ----------  ----------
                                                                                   
Management and mortgage programs:
  Investment in leases and leased vehicles                          $ (2,446.6) $ (2,068.8) $ (1,901.2)
  Payments received on investment in leases and leased vehicles          987.0       589.0       595.9
  Proceeds from sales and transfers of leases and leased vehicles
    to third parties                                                     182.7       186.4       162.8
  Equity advances on homes under management                           (6,484.1)   (6,844.5)   (4,308.0)
  Repayment on advances on homes under management                      6,624.9     6,862.6     4,348.9
  Additions to mortgage servicing rights                                (524.4)     (270.4)     (164.4)
  Proceeds from sales of mortgage servicing rights                       119.0        49.0         7.1
                                                                    ----------  ----------  ----------
                                                                      (1,541.5)   (1,496.7)   (1,258.9)
                                                                    ----------  ----------  ----------
NET CASH USED IN INVESTING ACTIVITIES OF CONTINUING OPERATIONS        (4,351.8)   (2,328.6)   (3,090.8)
                                                                    ----------  ----------  ----------

FINANCING ACTIVITIES
Proceeds from borrowings                                               4,808.3        66.7       459.1
Principal payments on borrowings                                      (2,595.9)     (174.0)       (3.5)
Issuance of convertible debt                                            --           543.2      --
Issuance of common stock                                                 171.0       132.2     1,223.8
Purchases of common stock                                               (257.7)     (171.3)      (19.2)
Proceeds from mandatorily redeemable preferred securities
  issued by subsidiary, net                                            1,446.7      --          --
Other, net                                                              --            (6.6)     (121.3)
                                                                    ----------  ----------  ----------

NET CASH PROVIDED BY FINANCING ACTIVITIES OF CONTINUING
  OPERATIONS EXCLUSIVE OF MANAGEMENT AND MORTGAGE PROGRAMS             3,572.4       390.2     1,538.9
                                                                    ----------  ----------  ----------

Management and mortgage programs:
  Proceeds from debt issuance or borrowings                            4,300.0     2,816.3     1,656.0
  Principal payments on borrowings                                    (3,089.7)   (1,692.9)   (1,645.9)
  Net change in short-term borrowings                                    (93.1)     (613.5)      231.8
                                                                    ----------  ----------  ----------

                                                                       1,117.2       509.9       241.9
                                                                    ----------  ----------  ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES OF CONTINUING
  OPERATIONS                                                           4,689.6       900.1     1,780.8
                                                                    ----------  ----------  ----------

Effect of changes in exchange rates on cash and cash
  equivalents                                                            (16.4)       15.4       (46.2)

Cash provided by (used in) discontinued operations                      (187.7)     (181.0)       85.8
                                                                    ----------  ----------  ----------

Net increase (decrease) in cash and cash equivalents                     941.7      (381.1)      223.0

Cash and cash equivalents, beginning of period                            67.0       448.1       225.1
                                                                    ----------  ----------  ----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                            $  1,008.7  $     67.0  $    448.1
                                                                    ==========  ==========  ==========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Interest payments                                                 $    623.6  $    374.9  $    291.7
                                                                    ==========  ==========  ==========

  Income tax payments, net                                          $    (23.0) $    264.5  $     89.4
                                                                    ==========  ==========  ==========

                 See accompanying notes to consolidated financial statements.

                                      F-11

                      CENDANT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BACKGROUND

   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,
   which was accounted for as a pooling of interests. Prior to the Cendant
   Merger, both HFS and CUC had grown significantly through mergers and
   acquisitions accounted for under both the pooling of interests method (the
   most significant being the merger of HFS with PHH Corporation ("PHH") in
   April 1997 (the "PHH Merger")) and purchase method of accounting (See Note
   4). The accompanying consolidated financial statements and notes hereto are
   presented as if all mergers and acquisitions accounted for as poolings of
   interests have operated as one entity since inception. The accompanying
   consolidated financial statements and notes set forth herein have been
   amended to reverse the classification of Entertainment Publications, Inc.
   ("EPub"), a company subsidiary, as a discontinued operation. In September
   1999, the Company entered into a definitive agreement to sell EPub. However,
   the transaction was structured in a manner that precluded EPub from being
   classified as a discontinued operation (See Note 27 "Subsequent Events -
   Dispositions of Businesses Entertainment Publications, Inc."). Accordingly,
   the operating results of EPub have been reclassified from discontinued
   operations to continuing operations for all reporting periods presented. The
   amended consolidated financial statements presented herein are the Company's
   historical financial statements for the periods presented.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   PRINCIPLES OF CONSOLIDATION
   The accompanying consolidated financial statements include the accounts and
   transactions of the Company together with its wholly owned subsidiaries. All
   intercompany balances and transactions have been eliminated in consolidation.

   USE OF ESTIMATES
   The preparation of financial statements in conformity with generally accepted
   accounting principles requires management to make estimates and assumptions
   that affect reported amounts and related disclosures. Actual results could
   differ from those estimates.

   CASH AND CASH EQUIVALENTS
   The Company considers highly liquid investments purchased with an original
   maturity of three months or less to be cash equivalents.

   MARKETABLE SECURITIES
   The Company determines the appropriate classification of marketable
   securities at the time of purchase and re-evaluates such determination as of
   each balance sheet date. Marketable securities classified as available for
   sale are carried at fair value with unrealized gains and losses included in
   the determination of comprehensive income and reported as a component of
   shareholders' equity. Marketable securities classified as trading securities
   are reported at fair value with unrealized gains and losses recognized in
   earnings. Securities that are bought and held principally for the purpose of
   selling them in the near term are classified as trading securities. During
   1998, unrealized holding gains on trading securities of approximately $16.0
   million were included in other revenue in the consolidated statements of
   operations. Marketable securities consist principally of mutual funds,
   corporate bonds and other debt securities. The cost of marketable securities
   sold is determined on the specific identification method.

                                      F-12


   PROPERTY AND EQUIPMENT
   Property and equipment is stated at cost less accumulated depreciation and
   amortization. Depreciation is computed by the straight-line method over the
   estimated useful lives of the related assets. Amortization of leasehold
   improvements is computed by the straight-line method over the estimated
   useful lives of the related assets or the lease term, if shorter.

   FRANCHISE AGREEMENTS
   Franchise agreements are recorded at their acquired fair values and are
   amortized on a straight-line basis over the estimated periods to be
   benefited, ranging from 12 to 40 years. At December 31, 1998 and 1997,
   accumulated amortization amounted to $169.1 million and $126.4 million,
   respectively.

   GOODWILL
   Goodwill, which represents the excess of cost over fair value of net assets
   acquired, is amortized on a straight-line basis over the estimated useful
   lives, substantially ranging from 25 to 40 years. At December 31, 1998 and
   1997, accumulated amortization amounted to $248.3 million and $177.2 million,
   respectively.

   ASSET IMPAIRMENTS
   The Company periodically evaluates the recoverability of its investments,
   intangible assets and long-lived assets, comparing the respective carrying
   values to the current and expected future cash flows, on an undiscounted
   basis, to be generated from such assets. Property and equipment is evaluated
   separately within each business. The recoverability of goodwill and franchise
   agreements is evaluated on a separate basis for each acquisition and
   franchise brand, respectively.

   Based on an evaluation of its intangible assets and in connection with the
   Company's regular forecasting processes, the Company determined that $37.0
   million of goodwill associated with a Company subsidiary, National Library of
   Poetry, was permanently impaired. In addition, the Company had equity
   investments in interactive businesses, 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 $13.0 million of such
   investments. The aforementioned impairments impacted the Company's Other
   services segment and are classified as operating expenses in the consolidated
   statements of operations.

   REVENUE RECOGNITION AND BUSINESS OPERATIONS
   Franchising. Franchise revenue principally consists of royalties as well as
   marketing and reservation fees, which are based on a percentage of franchisee
   revenue. Royalty, marketing and reservation fees are accrued as the
   underlying franchisee revenue is earned. Franchise revenue also includes
   initial franchise fees, which are recognized as revenue when all material
   services or conditions relating to the sale have been substantially performed
   which is generally when a franchised unit is opened.

   Timeshare. Timeshare revenue principally consists of exchange fees and
   subscription revenue. Exchange fees are recognized as revenue when the
   exchange request has been confirmed to the subscriber. Subscription revenue,
   net of related procurement costs, is deferred upon receipt and recognized as
   revenue over the subscription period during which delivery of publications
   and other services are provided to subscribers.

   Individual Membership. Membership revenue is generally recognized upon the
   expiration of the membership period. Memberships are generally cancelable for
   a full refund of the membership fee during the entire membership period,
   generally one year.

   In August 1998, the Securities and Exchange Commission ("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

                                      F-13


   policies for its membership businesses.

   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 SEC's conclusion was 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. The Company agreed to adopt such accounting policies effective
   January 1, 1997 and accordingly, recorded a non-cash after-tax charge on such
   date of $283.1 million to account for the cumulative effect of the accounting
   change.

   Insurance/Wholesale. Commissions received from the sale of third party
   accidental death and dismemberment insurance are recognized over the
   underlying policy period. The Company also receives a profit commission based
   on premiums less claims and certain other expenses (including the above
   commissions). Such profit commissions are accrued based on claims experience
   to date, including an estimate of claims incurred but not reported.

   Relocation. Relocation services provided by the Company include facilitating
   the purchase and resale of the transferee's residence, providing equity
   advances on the transferee's residence and home management services. The home
   is purchased under a contract of sale and the Company obtains a deed to the
   property; however, it does not generally record the deed or transfer title.
   Transferring employees are provided equity advances on their home based on an
   appraised value generally determined by independent appraisers, after
   deducting any outstanding mortgages. The mortgage is generally retired
   concurrently with the advance of the equity and the purchase of the home.
   Based on its client agreements, the Company is given parameters under which
   it negotiates for the ultimate sale of the home. The gain or loss on resale
   is generally borne by the client corporation. In certain transactions, the
   Company will assume the risk of loss on the sale of homes; however, in such
   transactions, the Company will control all facets of the resale process,
   thereby, limiting its exposure.

   While homes are held for resale, the amount funded for such homes carry an
   interest charge computed at a floating rate based on various indices. Direct
   costs of managing the home during the period the home is held for resale,
   including property taxes and repairs and maintenance, are generally borne by
   the client corporation. The client corporation normally advances funds to
   cover a portion of such carrying costs. When the home is sold, a settlement
   is made with the client corporation netting actual costs with any advanced
   funding.

   Revenues and related costs associated with the purchase and resale of a
   residence are recognized over the period in which services are provided.
   Relocation services revenue is recorded net of costs reimbursed by client
   corporations and interest expenses incurred to fund the purchase of a
   transferee's residence. Under the terms of contracts with client
   corporations, the Company is generally protected against losses from changes
   in real estate market conditions. The Company also offers fee-based programs
   such as home marketing assistance, household goods moves and destination
   services. Revenues from these fee-based services are taken into income over
   the periods in which the services are provided and the related expenses are
   incurred.

   Fleet. The Company primarily leases its vehicles under three standard
   arrangements: open-end operating leases, closed-end operating leases or
   open-end finance leases (direct financing leases). See Note 10 -- Net
   Investment in Leases and Leased Vehicles. Each lease is either classified as
   an operating lease or direct financing lease, as defined. Lease revenues are
   recognized based on rentals. Revenues from fleet management

                                      F-14


   services other than leasing are recognized over the period in which services
   are provided and the related expenses are incurred.

   Mortgage. Loan origination fees, commitment fees paid in connection with the
   sale of loans, and direct loan origination costs associated with loans is
   deferred until such loans are sold. Mortgage loans are recorded at the lower
   of cost or market value on an aggregate basis. Sales of mortgage loans are
   generally recorded on the date a loan is delivered to an investor. Gains or
   losses on sales of mortgage loans are recognized based upon the difference
   between the selling price and the carrying value of the related mortgage
   loans sold. See Note 11 -- Mortgage Loans Held For Sale.

   Fees received for servicing loans owned by investors are based on the
   difference between the weighted average yield received on the mortgages and
   the amount paid to the investor, or on a stipulated percentage of the
   outstanding monthly principal balance on such loans. Servicing fees are
   credited to income when received. Costs associated with loan servicing are
   charged to expense as incurred.

   The Company recognizes as separate assets the rights to service mortgage
   loans for others by allocating total costs incurred between the loan and the
   servicing rights retained based on their relative fair values. The carrying
   value of mortgage servicing rights ("MSRs") is amortized over the estimated
   life of the related loan portfolio in proportion to projected net servicing
   revenues. Such amortization is recorded as a reduction of loan servicing fees
   in the consolidated statements of operations. Projected net servicing income
   is in turn determined on the basis of the estimated future balance of the
   underlying mortgage loan portfolio, which declines over time from prepayments
   and scheduled loan amortization. The Company estimates future prepayment
   rates based on current interest rate levels, other economic conditions and
   market forecasts, as well as relevant characteristics of the servicing
   portfolio, such as loan types, interest rate stratification and recent
   prepayment experience. MSRs are periodically assessed for impairment, which
   is recognized in the consolidated statements of operations during the period
   in which impairment occurs as an adjustment to the corresponding valuation
   allowance. Gains or losses on the sale of MSRs are recognized when title and
   all risks and rewards have irrevocably passed to the buyer and there are no
   significant unresolved contingencies. See Note 12 -- Mortgage Servicing
   Rights.

   ADVERTISING EXPENSES
   Advertising costs, including direct response advertising (subsequent to
   January 1, 1997), are generally expensed in the period incurred. Advertising
   expenses for the years ended December 31, 1998, 1997 and 1996 were $684.7
   million, $574.4 million and $503.8 million, respectively.

   INCOME TAXES
   The provision for income taxes includes deferred income taxes resulting from
   items reported in different periods for income tax and financial statement
   purposes. Deferred tax assets and liabilities represent the expected future
   tax consequences of the differences between the financial statement carrying
   amounts of existing assets and liabilities and their respective tax bases.
   The effects of changes in tax rates on deferred tax assets and liabilities
   are recognized in the period that includes the enactment date. No provision
   has been made for U.S. income taxes on approximately $312.3 million of
   cumulative undistributed earnings of foreign subsidiaries at December 31,
   1998 since it is the present intention of management to reinvest the
   undistributed earnings indefinitely in foreign operations. The determination
   of unrecognized deferred U.S. tax liability for unremitted earnings is not
   practicable.

   TRANSLATION OF FOREIGN CURRENCIES
   Assets and liabilities of foreign subsidiaries are translated at the exchange
   rates in effect as of the balance sheet dates. Equity accounts are translated
   at historical exchange rates and revenues, expenses and cash flows are
   translated at the average exchange rates for the periods presented.
   Translation gains and losses are included as a component of comprehensive
   income (loss) in the consolidated statements of shareholders' equity.

                                      F-15


   NEW ACCOUNTING STANDARD
   In June 1998, the Financial Accounting Standards Board ("FASB") issued
   Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
   Derivative Instruments and Hedging Activities". SFAS No. 133 requires the
   Company to record all derivatives in the consolidated balance sheet as either
   assets or liabilities measured at fair value. If the derivative does not
   qualify as a hedging instrument, the change in the derivative fair values
   will be immediately recognized as a gain or loss in earnings. If the
   derivative does qualify as a hedging instrument, the gain or loss on the
   change in the derivative fair values will either be recognized (i) in
   earnings as offsets to the changes in the fair value of the related item
   being hedged or (ii) be deferred and recorded as a component of other
   comprehensive income and reclassified to earnings in the same period during
   which the hedged transactions occur. The Company has not yet determined what
   impact the adoption of SFAS No. 133 will have on its financial statements.
   Implementation of this standard has recently been delayed by the FASB for a
   12-month period. The Company will now adopt SFAS No. 133 as required for its
   first quarterly filing of fiscal year 2001.

   RECLASSIFICATIONS
   Certain reclassifications have been made to prior years' financial statements
   to conform to the presentation used in 1998.

3. EARNINGS PER SHARE

   Basic earnings per share ("EPS") are computed based solely on the weighted
   average number of common shares outstanding during the period. Diluted EPS
   reflects all potential dilution of common stock, including the assumed
   exercise of stock options using the treasury method and convertible debt. At
   December 31, 1998, 38.0 million stock options outstanding with a weighted
   average exercise price of $29.58 per option were excluded from the
   computation of diluted EPS because the options' exercise prices were greater
   than the average market price of the Company's common stock and therefore
   would be antidilutive. In addition, at December 31, 1998, the Company's 3%
   Convertible Subordinated Notes, convertible into 18.0 million shares of
   Company common stock were antidilutive and, therefore, excluded from the
   computation of diluted EPS. Basic and diluted EPS from continuing operations
   is calculated as follows:



                                                                    YEAR ENDED DECEMBER 31,
                                                             -------------------------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)                          1998         1997         1996
                                                             ---------     ---------     ---------
                                                                                
Income from continuing operations before extraordinary
  gain and cumulative effect of accounting change            $   159.9     $    66.3     $   313.3
Convertible debt interest - net of tax                          --            --               5.8
                                                             ---------     ---------     ---------
Income from continuing operations before extraordinary
   gain and cumulative effect of accounting change, as
   adjusted                                                  $   159.9     $    66.3     $   319.1
                                                             =========     =========     =========

Weighted average shares
  Basic                                                          848.4         811.2         757.4
  Potential dilution of common stock:
   Stock options                                                  32.0          40.5          40.1
   Convertible debt                                             --            --              24.1
                                                             ---------     ---------     ---------
  Diluted                                                        880.4         851.7         821.6
                                                             =========     =========     =========

EPS - continuing operations before extraordinary gain
   and cumulative effect of accounting change
  Basic                                                      $    0.19     $    0.08     $    0.41
                                                             =========     =========     =========
  Diluted                                                    $    0.18     $    0.08     $    0.39
                                                             =========     =========     =========



                                      F-16


4. PURCHASE METHOD 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. The excess of purchase price over
   the fair value of the underlying net assets acquired is allocated to
   goodwill. The operating results of such acquired companies are included in
   the Company's consolidated statements of operations since the respective
   dates of acquisition.

   The following tables present information about the Company's acquisitions
   consummated and other acquisition-related payments made during each of the
   years in the three-year period ended December 31, 1998.



                                                                     1998
                                          ----------------------------------------------------------
                                                                           JACKSON
 (IN MILLIONS)                                NPC            HARPUR         HEWITT          OTHER
                                          ----------       ---------       ---------       ---------
                                                                               
  Cash paid                               $  1,637.7       $   206.1       $   476.3       $   563.9

  Fair value of identifiable net
   assets acquired (1)                         590.2            51.3            99.2           218.4
                                          ----------       ---------       ---------       ---------
  Goodwill                                $  1,047.5       $   154.8       $   377.1       $   345.5
                                          ==========       =========       =========       =========
  Goodwill benefit period (years)                40               40              40        25 to 40
                                          ==========       =========       =========       =========


                                                                     1996
                                         ------------------------------------------------------------------
  (IN MILLIONS)                                                                     COLDWELL
                                             1997           RCI          AVIS        BANKER       OTHER
                                         ----------     ---------     ---------     ---------     ---------
  Cash paid                              $    267.9     $   412.1     $   367.2     $   745.0     $   224.0
  Common stock issued                          21.6          75.0         338.4            --          52.5
  Notes issued                                  --            --          100.9            --          5.0
                                         ----------     ---------     ---------     ---------     ---------
  Total consideration                         289.5         487.1         806.5         745.0         281.5
  Fair value of identifiable net
   assets acquired (1)                        116.9           9.4         472.5         393.2          42.8
                                         ----------     ---------     ---------     ---------     ---------
  Goodwill                               $    172.6     $   477.7     $   334.0     $   351.8     $   238.7
                                         ==========     =========     =========     =========     =========
  Goodwill benefit period (years)          25 to 40            40            40            40      25 to 40
                                         ==========     =========     =========     =========     =========
  Number of shares issued as
   consideration                                0.9           2.4          11.1        --               2.5
                                         ==========     =========     =========     =========     =========


- ---------------
(1) Cash acquired in connection with  acquisitions  during 1998, 1997 and 1996
    was $57.6 million, $2.6 million, and $135.0 million, respectively.

   1998 ACQUISITIONS
   National Parking Corporation. On April 27, 1998, the Company completed the
   acquisition of National Parking Corporation Limited ("NPC") for $1.6 billion,
   substantially in cash, which included the repayment of approximately $227.0
   million of outstanding NPC debt. NPC was substantially comprised of two
   operating subsidiaries: National Car Parks and Green Flag. National Car Parks
   is the largest private (non-municipal) 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 $206.1 million in cash plus contingent
   payments of up to $20.0 million over two years.


                                      F-17


   Jackson Hewitt. On January 7, 1998, the Company completed the acquisition of
   Jackson Hewitt Inc. ("Jackson Hewitt"), for approximately $476.3 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 $463.9 million in cash during the year ended December 31, 1998.
   Additionally, the Company made a $100.0 million cash payment to the seller of
   Resort Condominiums International, Inc. ("RCI") in satisfaction of a
   contingent purchase liability, which was accounted for as additional
   goodwill.

   PRO FORMA INFORMATION (UNAUDITED)
   The following table reflects the operating results of the Company for the
   years ended December 31, 1998 and 1997 on a pro forma basis, which gives
   effect to the acquisition of NPC. The remaining acquisitions completed during
   1998 and 1997 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 acquisition 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
   related income tax effects.



                                                           YEAR ENDED DECEMBER 31,
                                                     --------------------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)                  1998               1997
                                                     -----------          -----------
                                                                     
Net revenues                                         $   5,485.3          $   4,837.4
Income from continuing operations
  before extraordinary gain and
  cumulative effect of accounting change                   157.3                 57.7
Net income (loss) (1)                                      537.0               (225.8)(2)

Per share information:
Basic
 Income from continuing operations
   before extraordinary gain and
   cumulative effect of accounting change            $      0.19         $       0.07
  Net income (loss) (1)                              $      0.63         $      (0.28)
  Weighted average shares                                  848.4                811.2
Diluted
  Income from continuing operations
    before extraordinary gain and
    cumulative effect of accounting change           $      0.18         $       0.07
  Net income (loss) (1)                              $      0.61         $      (0.28)
  Weighted average shares                                  880.4                851.7


- ----------
(1)   Includes gain on sale of discontinued operations, net of tax, of $404.7
million ($0.46 per diluted share) in 1998 and loss from discontinued operations,
net of tax, of $25.0 million ($0.03 diluted share) and $26.8 million ($0.03 per
diluted share), in 1998 and 1997, respectively.
(2)  Includes an extraordinary gain, net of tax, of $26.4 million ($0.03 per
diluted share) and the cumulative effect of a change in accounting, net of tax,
of $283.1 million ($0.35 per diluted share).

1996 ACQUISITIONS

Resort Condominiums International, Inc. In November 1996, the Company completed
the acquisition of all the outstanding capital stock of RCI for $487.1 million.
The purchase agreement provides for contingent payments of up to $200.0 million
over a five year period which are based on components which measure RCI's future
performance, including EBITDA, net revenues and number of members, as defined.


                                      F-18


   Avis, Inc. In October 1996, the Company completed the acquisition of all of
   the outstanding capital stock of Avis, Inc. ("Avis"), including payments
   under certain employee stock plans of Avis and the redemption of certain
   series of preferred stock of Avis for an aggregate $806.5 million.
   Subsequently, the Company made contingent cash payments of $26.0 million in
   1996 and $60.8 million in 1997. The contingent payments made in 1997
   represented the incremental amount of value attributable to Company common
   stock as of the stock purchase agreement date in excess of the proceeds
   realized upon the subsequent sale of such Company common stock. See Note
   23-Related Party Transactions-Avis-for a discussion of the Company's executed
   business plan regarding Avis.

   Coldwell Banker Corporation. In May 1996, the Company acquired by merger
   Coldwell Banker Corporation ("Coldwell Banker"), the largest gross revenue
   producing residential real estate company in North America and a leading
   provider of corporate relocation services. The Company paid $640.0 million in
   cash for all of the outstanding capital stock of Coldwell Banker and repaid
   $105.0 million of Coldwell Banker indebtedness. The aggregate purchase price
   for the transaction was financed through the May 1996 sale of an aggregate
   46.6 million shares of Company common stock pursuant to a public offering.

5. DISCONTINUED OPERATIONS

   On August 12, 1998, the Company announced that the Executive Committee of its
   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 ("CDS"),
   two wholly owned subsidiaries of the Company. Hebdo Mag is a publisher and
   distributor of classified advertising information and CDS is a developer,
   publisher and distributor of educational and entertainment software.

   On December 15, 1998, the Company completed the sale of Hebdo Mag to its
   former 50% owners for $449.7 million. The Company received $314.8 million in
   cash and 7.1 million shares of Company common stock valued at $134.9 million
   on the date of sale. The Company recognized a gain on the sale of Hebdo Mag
   of $206.9 million, including a tax benefit of $52.1 million, which is
   included in the gain on sale of discontinued operations in the consolidated
   statements of operations.

   On January 12, 1999, the Company completed the sale of CDS for approximately
   $800.0 million in cash. The Company realized an after tax net gain on sale of
   $371.9 million. The Company recognized $197.8 million of such gain in 1998
   substantially in the form of a tax benefit and corresponding deferred tax
   asset. The Company recognized this deferred tax asset upon executing the
   definitive agreement to sell CDS, which was when it became apparent to the
   Company that the deferred tax asset would be realized. The recognized gain is
   included in the gain on sale of discontinued operations in the consolidated
   statements of operations.

   Summarized financial data of discontinued operations are as follows:



   STATEMENT OF OPERATIONS DATA:
                                                               SOFTWARE
                                                  ----------------------------------
   (IN MILLIONS)                                        YEAR ENDED DECEMBER 31,
                                                  ----------------------------------
                                                    1998         1997        1996
                                                  ---------   ---------    ---------
                                                                  
   Net revenues                                   $   345.8   $   433.7    $   384.5
                                                  ---------   ---------    ---------

   Income (loss) before income taxes                  (57.3)       (5.9)        42.0
   Provision for (benefit from) income taxes          (22.9)        2.4         27.3
                                                  ----------  ---------    ---------
   Net income (loss)                              $   (34.4)  $    (8.3)   $    14.7
                                                  ==========  ==========   =========



                                      F-19




                                                        CLASSIFIED ADVERTISING
                                                  --------------------------------
                                                        YEAR ENDED DECEMBER 31,
                                                  --------------------------------
                                                    1998         1997        1996
                                                  ---------   ---------    ---------
                                                                  
   Net revenues                                   $   202.4   $   208.5    $   126.4
                                                  ---------   ---------    ---------
   Income (loss) before income taxes
     and extraordinary loss                            16.9        (4.5)         3.7
   Provision for (benefit from) income taxes            7.5        (1.2)         1.7

   Extraordinary loss from early extinguishment of
     debt, net of a $4.9 million tax benefit              -       (15.2)           -
                                                  ---------   ----------   ---------
   Net income (loss)                              $     9.4   $   (18.5)   $     2.0
                                                  =========   ==========   =========



   The Company allocated $19.9 million and $5.0 million of interest expense to
   discontinued operations for the years ended December 31, 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:



                                                 SOFTWARE         CLASSIFIED ADVERTISING
                                           ---------------------    ---------------------
                                                DECEMBER 31,           DECEMBER 31,
   (IN MILLIONS)                              1998         1997              1997
                                           ----------   ---------   ---------------------
                                                               
   Current assets                          $    284.9   $    209.1      $    58.6
   Goodwill                                     105.7         42.2          181.5
   Other assets                                  88.2         49.2           33.2
   Total liabilities                           (105.2)      (127.0)        (173.5)
                                          -----------  -----------     ----------
   Net assets of discontinued operations  $     373.6  $     173.5     $     99.8
                                          ===========  ===========     ==========



6. OTHER CHARGES

   LITIGATION SETTLEMENT
   On March 17, 1999, the Company reached a final agreement to settle the class
   action lawsuit that was brought on behalf of the holders of Income or Growth
   FELINE PRIDES ("PRIDES") securities who purchased their securities on or
   prior to April 15, 1998, the date on which the Company announced the
   discovery of accounting irregularities in the former business units of CUC
   (see Note 17 -- Mandatorily Redeemable Trust Preferred Securities Issued by
   Subsidiary). Under the terms of the agreement only holders who owned PRIDES
   at the close of business on April 15, 1998 will be eligible to receive a new
   additional "Right" for each PRIDES security held. Right holders may (i) sell
   them or (ii) exercise them by delivering to the Company, three Rights
   together with two PRIDES in exchange for two New PRIDES (the "New PRIDES"),
   for a period beginning upon distribution of the Rights and concluding upon
   expiration of the Rights (February 2001).

   The terms of the New PRIDES will be the same as the original PRIDES except
   that the conversion rate will be revised so that, at the time the Rights are
   distributed, each New PRIDES will have a value equal to $17.57 more than each
   original PRIDES, or, in the aggregate, approximately $351.0 million.
   Accordingly, the Company recorded a non-cash charge of $351.0 million in the
   fourth quarter of 1998 with an increase in additional paid-in capital and
   accrued liabilities of $350.0 million and $1.0 million, respectively, based
   on the prospective issuance of the Rights. The final agreement also requires
   the Company to offer to sell four million additional PRIDES (having identical
   terms to currently outstanding PRIDES) to holders of Rights for cash, at a
   value which will be based on the valuation model that was utilized to set the
   conversion rate of the New PRIDES. The offering of additional PRIDES will be
   made only pursuant to a prospectus filed with the SEC. The arrangement to
   offer additional PRIDES is designed to enhance the trading value of the
   Rights by removing up to six million Rights from circulation via exchanges
   associated with the offering and to enhance the open market liquidity of New


                                      F-20


   PRIDES by creating four million New PRIDES via exchanges associated with the
   offering. If holders of Rights do not acquire all such PRIDES, they will be
   offered to the public. Under the settlement agreement, the Company also
   agreed to file a shelf registration statement for an additional 15 million
   special PRIDES, which could be issued by the Company at any time for cash.
   However, during the last 30 days prior to the expiration of the Rights in
   February 2001, the Company will be required to make these additional PRIDES
   available to holders of Rights at a price in cash equal to 105% of their
   theoretical value. The special PRIDES, if issued, would have the same terms
   as the currently outstanding PRIDES and could be used to exercise Rights.
   Based on an average market price of $17.53 per share of Company common stock
   (calculated based on the average closing price per share of Company common
   stock for the consecutive five-day period ended September 30, 1999), the
   effect of the issuance of the New PRIDES will be to distribute approximately
   19 million more shares of Company common stock when the mandatory purchase of
   Company common stock associated with the PRIDES occurs in February 2001.

   On June 15, 1999, the United States District Court for the District of New
   Jersey entered an order and judgment approving the settlement described above
   and awarding fees to counsel to the class. One objector, who objected to a
   portion of the settlement notice concerning fees to be sought by counsel to
   the class has filed an appeal to the U.S. Court of Appeals for the Third
   Circuit from the District Court order approving the settlement and awarding
   fees to counsel to the class. Although under the settlement the Rights are
   required to be distributed following the conclusion of court proceedings,
   including appeals, the Company believes that the appeal is without merit. As
   a result, the Company presently intends to distribute the Rights in October
   1999 after the effectiveness of the registration statement filed with the SEC
   covering the New PRIDES.

   TERMINATION OF PROPOSED ACQUISITIONS
   On October 13, 1998, the Company and American Bankers Insurance Group, Inc.
   ("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 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
   $400.0 million cash payment to American Bankers and wrote off $32.3 million
   of costs, primarily professional fees.

   On October 5, 1998, the Company announced the termination of an agreement to
   acquire, for $219.0 million in cash, Providian Auto and Home Insurance
   Company ("Providian"). Certain representations and covenants in such
   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.
   In connection with the termination of the Company's proposed acquisition of
   Providian, the Company wrote off $1.2 million of costs.

   EXECUTIVE TERMINATIONS
   The Company incurred $52.5 million of costs in 1998 related to the
   termination of certain former executives of the Company, principally Walter
   A. Forbes, who resigned as Chairman of the Company and as a member of the
   Board of Directors. The severance agreement reached with Mr. Forbes entitled
   him to 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 given to Mr. Forbes resulted in a charge of
   $50.9 million comprised of $38.4 million in cash payments and 1.3 million
   Company stock options, with a Black-Scholes value of $12.5 million. Such
   options were immediately vested and expire on July 28, 2008.

   INVESTIGATION-RELATED COSTS
   The Company incurred $33.4 million of professional fees, public relations
   costs and other miscellaneous expenses in connection with accounting
   irregularities and resulting investigations into such matters.


                                      F-21



   FINANCING COSTS
   In connection with the Company's discovery and announcement of accounting
   irregularities on April 15, 1998 and the corresponding lack of audited
   financial statements, the Company was temporarily prohibited from accessing
   public debt markets. As a result, the Company paid $27.9 million in fees
   associated with waivers and various financing arrangements. Additionally,
   during 1998, the Company exercised its option to redeem its 4-3/4%
   Convertible Senior Notes (the "4-3/4% Notes") (see Note 13 -- Long-Term Debt
   - 4-3/4% Convertible Senior Notes). At such time, 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. However, at the time of redemption, holders of the
   4-3/4% Notes elected not to convert the 4-3/4% Notes to Company common stock
   and as a result, the Company redeemed such notes at a premium. Accordingly,
   the Company recorded a $7.2 million loss on early extinguishment of debt.

   1997 MERGER-RELATED COSTS AND OTHER UNUSUAL CHARGES (CREDITS) 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 the Cendant Merger (the "Fourth Quarter 1997 Charge") and the
   PHH Merger (the "Second Quarter 1997 Charge"). Liabilities associated with
   Unusual Charges are classified as a component of accounts payable and other
   current liabilities. The reduction of such liabilities from inception is
   summarized by category of expenditure and by charge as follows:



                                                                                    1998 ACTIVITY
                                NET 1997                    BALANCE AT   ------------------------------------   BALANCE AT
                                UNUSUAL         1997        DECEMBER 31,   CASH           NON                  DECEMBER 31,
(IN MILLIONS)                   CHARGES      REDUCTIONS        1997       PAYMENTS        CASH     ADJUSTMENTS    1998
                               ---------      --------      ---------    ---------     ---------    -------    ---------
                                                                                          
Professional fees              $   123.3     $   (72.6)     $    50.7    $   (38.2)    $      --    $ (10.9)   $     1.6
Personnel related                  324.8        (156.3)         168.5        (75.3)           --      (23.0)        70.2
Business terminations              133.9        (130.0)           3.9         (1.2)          6.1       (7.1)         1.7
Facility related and other         156.0        (105.6)          50.4        (15.7)          2.1      (26.7)        10.1
                               ---------      --------      ---------    ---------     ---------    -------    ---------
Total Unusual Charges          $   738.0      $ (464.5)     $   273.5    $  (130.4)    $     8.2    $ (67.7)   $    83.6


Reclassification for
 discontinued operations           (33.9)         33.9             --           --            --         --           --
                               ---------      --------      ---------    ---------     ---------    -------    ---------
Total Unusual Charges
 related to continuing
 operations                    $   704.1      $  430.6      $  273.5     $  (130.4)    $     8.2    $ (67.7)   $    83.6
                               =========      ========      =========    =========     =========    =======    =========


                                                                                    1998 ACTIVITY
                                NET 1997                    BALANCE AT   ------------------------------------   BALANCE AT
                                UNUSUAL         1997        DECEMBER 31,   CASH           NON                  DECEMBER 31,
(IN MILLIONS)                   CHARGES      REDUCTIONS        1997       PAYMENTS        CASH     ADJUSTMENTS    1998
                               ---------      --------      ---------    ---------     ---------    -------    ---------
                                                                                          
Fourth Quarter 1997
  Charge                       $   454.9     $  (257.5)     $   197.4    $  (102.6)    $     0.5    $ (28.1)   $    67.2
Second Quarter 1997
  Charge                           283.1        (207.0)          76.1        (27.8)          7.7      (39.6)        16.4
                               ---------      --------      ---------    ---------     ---------    -------    ---------
Total Unusual Charges          $   738.0      $ (464.5)     $   273.5    $  (130.4)    $     8.2    $ (67.7)   $    83.6

Reclassification for
  discontinued operations          (33.9)         33.9             --           --            --         --           --
                               ---------      --------      ---------    ---------     ---------    -------    ---------
Total Unusual Charges
  related to continuing
  operations                   $   704.1      $ (430.6)     $   273.5    $  (130.4)    $     8.2    $ (67.7)   $    83.6
                               =========      ========      =========    =========     =========    =======    =========



   Fourth Quarter 1997 Charge. The Company incurred Unusual Charges in the
   fourth quarter of 1997 totaling $454.9 million substantially associated with
   the Cendant Merger and the merger in October 1997 with Hebdo Mag.
   Reorganization plans were formulated prior to and implemented as a result of
   the mergers. The Company determined to streamline its corporate organization
   functions and eliminate several office locations in overlapping markets.
   Management's plan included the consolidation of European call centers in
   Cork, Ireland and terminations of franchised hotel properties.

                                      F-22


Unusual Charges included $93.0 million of professional fees primarily consisting
of investment banking, legal and accounting fees incurred in connection with the
mergers. The Company also incurred $170.7 million of personnel-related costs
including $73.3 million of retirement and employee benefit plan costs, $23.7
million of restricted stock compensation, $61.4 million of severance resulting
from consolidations of European call centers and certain corporate functions and
$12.3 million of other personnel-related costs. The Company provided for 474
employees to be terminated, the majority of which have been severed as of
December 31, 1998. Unusual Charges included $78.3 million of business
termination costs which consisted of a $48.3 million impairment write down of
hotel franchise agreement assets associated with a quality upgrade program and
$30.0 million of costs incurred to terminate a contract which may have
restricted the Company from maximizing opportunities afforded by the Cendant
Merger. Facility-related and other unusual charges of $112.9 million included
$70.0 million of irrevocable contributions to independent technology trusts for
the direct benefit of lodging and real estate franchisees, $16.4 million of
building lease termination costs and a $22.0 million reduction in intangible
assets associated with the Company's wholesale annuity business for which
impairment was determined in 1997. During the year ended December 31, 1998, the
Company recorded a net credit of $28.1 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 Company incurred $295.4 million of Unusual
Charges in the second quarter of 1997 primarily associated with the PHH Merger.
During the fourth quarter of 1997, as a result of changes in estimates, the
Company adjusted certain merger-related liabilities, which resulted in a $12.3
million credit to Unusual Charges. Reorganization plans were formulated in
connection with the PHH Merger and were implemented upon consummation. The PHH
Merger afforded the combined company, at such time, an opportunity to
rationalize its combined corporate, real estate and travel related businesses,
and enabled the corresponding support and service functions to gain
organizational efficiencies and maximize profits. Management initiated a plan
just prior to the PHH Merger to close hotel reservation call centers, combine
travel agency operations and continue the downsizing of fleet operations by
reducing headcount and eliminating unprofitable products. In addition,
management initiated plans to integrate its relocation, real estate franchise
and mortgage origination businesses to capture additional revenue through the
referral of one business unit's customers to another. Management also formalized
a plan to centralize the management and headquarters functions of the world's
largest, second largest and other company-owned corporate relocation business
unit subsidiaries. Such initiatives resulted in write-offs of abandoned systems
and leasehold assets commencing in the second quarter 1997. The aforementioned
reorganization plans provided for 560 job reductions, which included the
elimination of PHH Corporate functions and facilities in Hunt Valley, Maryland.

Unusual Charges included $154.1 million of personnel-related costs associated
with employee reductions necessitated by the planned and announced consolidation
of the Company's corporate relocation service businesses worldwide as well as
the consolidation of corporate activities. Personnel-related charges also
included termination benefits such as severance, medical and other benefits and
provided for retirement benefits pursuant to pre-existing contracts resulting
from a change in control. Unusual Charges also included professional fees of
$30.3 million, primarily comprised of investment banking, accounting and legal
fees incurred in connection with the PHH Merger. The Company incurred business
termination charges of $55.6 million, which were comprised of $38.8 million of
costs to exit certain activities primarily within the Company's fleet management
business (including $35.7 million of asset write-offs associated with exiting
certain activities), a $7.3 million termination fee associated with a joint
venture that competed with the PHH Mortgage Services business (now Cendant
Mortgage Corporation) and $9.6 million of costs to terminate a marketing
agreement with a third party in order to replace the function with internal
resources. Facility-related and other charges totaling $43.1 million included
costs associated with contract and lease terminations, asset disposals and other
charges incurred in connection with the consolidation and closure of excess
office space.

The Company had substantially completed the aforementioned restructuring
activities at December 31, 1998. During the year ended December 31, 1998, the
Company recorded a net credit of $39.6 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.

                                      F-23


1996 MERGER-RELATED COSTS AND OTHER UNUSUAL CHARGES
 In connection with and coincident to Company mergers accounted for as poolings
of interests during 1996, the Company incurred Unusual Charges of approximately
$134.3 million in 1996, of which $109.4 million was related to continuing
operations (substantially related to the Company's merger with Ideon Group, Inc.
("Ideon")) and $24.9 million was associated with consumer software businesses
that are discontinued. The collective Unusual Charges recorded during 1996
related to Company mergers and the utilization of such liabilities is summarized
below:




                               1996                            BALANCE AT                           BALANCE AT
                              UNUSUAL           1997           DECEMBER 31,          1998          DECEMBER 31,
    (IN MILLIONS)             CHARGES        REDUCTIONS            1997            REDUCTIONS         1998
                           -----------     --------------     -------------      -------------    -------------
                                                                                     
Professional fees           $   27.5           $ (27.5)          $    --          $    --           $    --
Personnel related                7.5              (7.5)               --               --                --
Facility related                12.4             (10.4)              2.0             (2.0)               --
Litigation related              80.4             (14.4)             66.0            (25.0)             41.0
Other                            6.5              (6.2)               .3             (0.3)               --
                            --------           -------           -------          -------           -------
Total Unusual Charges          134.3             (66.0)             68.3            (27.3)             41.0
Reclassification for
  discontinued operations      (24.9)             24.9                --               --                --
                            --------           -------           -------          -------           -------
Total Unusual Charges
  related to continuing
  operations                $  109.4           $ (41.1)          $  68.3          $ (27.3)          $  41.0
                            --------           -------           -------          -------           -------



Costs associated with the discontinued operations were comprised primarily of
professional fees incurred in connection with the Company's mergers with
consumer software businesses. Costs associated with the Company's merger with
Ideon were non-recurring and included transaction and exit costs as well as a
provision relating to certain litigation matters giving consideration to the
Company's intended approach to these matters. The Company has since settled all
outstanding litigation matters. The remaining $41.0 million of
litigation-related liabilities at December 31, 1998 consists of the present
value of settlement payments to be made in annual installments to the co-founder
of SafeCard Services, Inc. 1998 reductions include $27.8 million of cash
payments and a $0.5 million charge to Unusual Charges as a result of a change in
the original estimate of costs to be incurred.

The 1996 Unusual Charges also provided for costs to be incurred in connection
with the Company's consolidation efforts, including severance costs to be
accrued resulting from the Ideon merger and costs relating to the expected
obligations for certain third-party contracts (existing leases and vendor
agreements) to which Ideon is a party and which are neither terminable at will
nor automatically terminate upon a change-in-control of Ideon. In addition, the
Company incurred certain exit costs in transferring and consolidating Ideon's
credit card registration and enhancement services into the Company's credit card
registration and enhancement services business. As a result of the Ideon merger,
120 employees were terminated.

7. PROPERTY AND EQUIPMENT - NET

Property and equipment - net consisted of:



                                                    ESTIMATED              DECEMBER 31,
                                                   USEFUL LIVES  -------------------------
(IN MILLIONS)                                       IN YEARS         1998          1997
                                                   -----------   -----------    ----------
                                                                       
Land                                                    -        $     153.4    $       8.4
Building and leasehold improvements                   5 - 50           751.9          224.4
Furniture, fixtures and equipment                     3 - 10         1,018.1          632.1
                                                                 -----------    -----------
                                                                     1,923.4          864.9
Less accumulated depreciation and amortization                         490.6          320.2
                                                                 -----------    -----------

                                                                 $   1,432.8    $     544.7
                                                                 ===========    ===========


                                      F-24





8. OTHER INTANGIBLES - NET

   Other intangibles - net consisted of:



                                                 ESTIMATED             DECEMBER 31,
                                              BENEFIT PERIODS -------------------------
   (IN MILLIONS)                                 IN YEARS         1998          1997
                                                -----------   -----------    ----------
                                                                   
   Avis trademark                                      40     $     402.0    $     402.0
   Other trademarks                                    40           170.9           72.5
   Customer lists                                    3-10           162.7          116.8
   Other                                             2-16           138.6          123.6
                                                              -----------    -----------
                                                                    874.2          714.9
   Less accumulated amortization                                    117.1           90.6
                                                              -----------    -----------
                                                              $     757.1    $     624.3
                                                              ===========    ===========


   Other intangibles are recorded at their estimated fair values at the dates
   acquired and are amortized on a straight-line basis over the periods to be
   benefited.

9. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES

   Accounts payable and other current liabilities consisted of:

                                                               DECEMBER 31,
                                                     -------------------------
   (IN MILLIONS)                                         1998          1997
                                                     -----------    ----------
   Accounts payable                                  $     456.0    $     479.5
   Merger and acquisition obligations                      152.7          359.0
   Accrued payroll and related                             208.0          187.3
   Advances from relocation clients                         60.3           57.2
   Other                                                   640.5          409.4
                                                     -----------    -----------
                                                     $   1,517.5    $   1,492.4
                                                     ===========    ===========

10. NET INVESTMENT IN LEASES AND LEASED VEHICLES

    Net investment in leases and leased vehicles consisted of:

                                                             DECEMBER 31,
                                                      -------------------------
    (IN MILLIONS)                                         1998          1997
                                                      -----------    ----------
    Vehicles under open-end operating leases          $   2,725.6    $   2,640.1
    Vehicles under closed-end operating leases              822.1          577.2
    Direct financing leases                                 252.4          440.8
    Accrued interest on leases                                1.0            1.0
                                                      -----------    -----------
                                                      $   3,801.1    $   3,659.1
                                                      ===========    ===========

   The Company records the cost of leased vehicles as "net investment in leases
   and leased vehicles." The vehicles are leased primarily to corporate fleet
   users for initial periods of twelve months or more under either operating or
   direct financing lease agreements. Vehicles under operating leases are
   amortized using the straight-line method over the expected lease term. The
   Company's experience indicates that the full term of the leases may vary
   considerably due to extensions beyond the minimum lease term. Lessee
   repayments of investment in leases and leased vehicles were $1.9 billion and
   $1.6 billion in 1998 and 1997, respectively, and the ratio of such repayments
   to the average net investment in leases and leased vehicles was 50.7% and
   46.8% in 1998 and 1997, respectively.

   The Company has two types of operating leases. Under one type, open-end
   operating leases, resale of the vehicles upon termination of the lease is
   generally for the account of the lessee except for a minimum residual value
   which the Company has guaranteed. The Company's experience has been that
   vehicles under this type of lease agreement have generally been sold for
   amounts exceeding the residual value guarantees. Maintenance and repairs of
   vehicles under these agreements are the responsibility of the lessee. The
   original cost and accumulated depreciation of vehicles under this type of
   operating lease was $5.3 billion and $2.6 billion, respectively, at December
   31, 1998 and $5.0 billion and $2.4 billion, respectively, at December 31,
   1997.
                                      F-25


    Under the second type of operating lease, closed-end operating leases,
    resale of the vehicles on termination of the lease is for the account of the
    Company. The lessee generally pays for or provides maintenance, vehicle
    licenses and servicing. The original cost and accumulated depreciation of
    vehicles under these agreements were $1.0 billion and $190.5 million,
    respectively, at December 31, 1998 and $754.4 million and $177.2 million,
    respectively, at December 31, 1997. The Company, based on historical
    experience and a current assessment of the used vehicle market, established
    an allowance in the amount of $14.2 million and $11.7 million for potential
    losses on residual values on vehicles under these leases at December 31,
    1998 and 1997, respectively.

    Under the direct financing lease agreements, the minimum lease term is 12
    months with a month to month renewal thereafter. In addition, resale of the
    vehicles upon termination of the lease is for the account for the lessee.
    Maintenance and repairs of these vehicles are the responsibility of the
    lessee.

    Open-end operating leases and direct financing leases generally have a
    minimum lease term of 12 months with monthly renewal options thereafter.
    Closed-end operating leases typically have a longer term, usually 24 months
    or more, but are cancelable under certain conditions.

    Gross leasing revenues, which are included in fleet leasing in the
    consolidated statements of operations, consist of:

                                                      YEAR ENDED DECEMBER 31,
                                                --------------------------------
   (IN MILLIONS)                                  1998         1997      1996
                                                ---------   ---------  ---------
   Operating leases                             $ 1,330.3   $ 1,222.9  $ 1,145.8
   Direct financing leases, primarily interest       37.8        41.8       43.3
                                                ---------   ---------  ---------
                                                $ 1,368.1   $ 1,264.7  $ 1,189.1
                                                =========   =========  =========

    In June 1998, the Company entered into an agreement with an independent
    third party to sell and leaseback vehicles subject to operating leases. The
    net carrying value of the vehicles sold was $100.6 million. Since the net
    carrying value of these vehicles was equal to their sales price, there was
    no gain or loss recognized on the sale. The lease agreement entered into
    between the Company and the counterparty was for a minimum lease term of 12
    months with three one-year renewal options. For the year ended December 31,
    1998, the total rental expense incurred by the Company under this lease was
    $17.7 million.

    The Company has transferred existing managed vehicles and related leases to
    unrelated investors and has retained servicing responsibility. Credit risk
    for such agreements is retained by the Company to a maximum extent in one of
    two forms: excess assets transferred, which were $9.4 million and $7.6
    million at December 31, 1998 and 1997, respectively; or guarantees to a
    maximum extent. There were no guarantees to a maximum extent at December 31,
    1998 or 1997. All such credit risk has been included in the Company's
    consideration of related allowances. The outstanding balances under such
    agreements aggregated $259.1 million and $224.6 million at December 31, 1998
    and 1997, respectively.

    Other managed vehicles with balances aggregating $221.8 million and $157.9
    million at December 31, 1998 and 1997, respectively, are included in special
    purpose entities which are not owned by the Company. These entities do not
    require consolidation as they are not controlled by the Company and all
    risks and rewards rest with the owners. Additionally, managed vehicles
    totaling approximately $81.9 million and $69.6 million at December 31, 1998
    and 1997, respectively, are owned by special purpose entities which are
    owned by the Company. However, such assets and related liabilities have been
    netted in the consolidated balance sheet since there is a two-party
    agreement with determinable accounts, a legal right of offset exists and the
    Company exercises its right of offset in settlement with client
    corporations.

11. MORTGAGE LOANS HELD FOR SALE

    Mortgage loans held for sale represent mortgage loans originated by the
    Company and held pending sale to permanent investors. The Company sells
    loans insured or guaranteed by various government sponsored entities and
    private insurance agencies. The insurance or guaranty is provided primarily
    on a non-recourse basis to the

                                      F-26


    Company, except where limited by the Federal Housing Administration and
    Veterans Administration and their respective loan programs. As of December
    31, 1998 and 1997, mortgage loans sold with recourse amounted to
    approximately $58.3 million and $58.5 million, respectively. The Company
    believes adequate allowances are maintained to cover any potential losses.

    The Company entered into a three year agreement effective May 1998 and
    expanded in December 1998 under which an unaffiliated Buyer (the "Buyer")
    committed to purchase, at the Company's option, mortgage loans originated by
    the Company on a daily basis, up to the Buyer's asset limit of $2.4 billion.
    Under the terms of this sale agreement, the Company retains the servicing
    rights on the mortgage loans sold to the Buyer and provides the Buyer with
    opportunities to sell or securitize the mortgage loans into the secondary
    market. At December 31, 1998, the Company was servicing approximately $2.0
    billion of mortgage loans owned by the Buyer.

12. MORTGAGE SERVICING RIGHTS

    Capitalized mortgage servicing rights ("MSRs") activity was as follows:




    (IN MILLIONS)                                    MSRS       ALLOWANCE       TOTAL
                                                   ----------  ---------    ----------
                                                                   
    BALANCE, JANUARY 1, 1996                       $   192.8   $    (1.4)   $   191.4
    Less:  PHH activity for January 1996
      to reflect change in PHH fiscal year             (14.0)         .2        (13.8)
    Additions to MSRs                                  164.4           -        164.4
    Amortization                                       (51.8)          -        (51.8)
    Write-down/provision                                   -          .6           .6
    Sales                                               (1.9)          -         (1.9)
                                                   ----------  ---------    ----------

    BALANCE, DECEMBER 31, 1996                         289.5         (.6)       288.9
    Additions to MSRs                                  251.8           -        251.8
    Amortization                                       (95.6)          -        (95.6)
    Write-down/provision                                   -        (4.1)        (4.1)
    Sales                                              (33.1)          -        (33.1)
    Deferred hedge, net                                 18.6           -         18.6
    Reclassification of mortgage-related securities    (53.5)          -        (53.5)
    BALANCE, DECEMBER 31, 1997                         377.7        (4.7)       373.0
    Additions to MSRs                                  475.2           -        475.2
    Additions to hedge                                  49.2           -         49.2
    Amortization                                       (82.5)          -        (82.5)
    Write-down/provision                                 -           4.7          4.7
    Sales                                              (99.1)          -        (99.1)
    Deferred hedge, net                                (84.8)          -        (84.8)
                                                   ----------  ---------    ----------
    BALANCE, DECEMBER 31, 1998                     $   635.7   $       -    $   635.7
                                                   =========   =========    =========



    The value of the Company's MSRs is sensitive to changes in interest rates.
    The Company uses a hedge program to manage the associated financial risks of
    loan prepayments. Commencing in 1997, the Company used certain derivative
    financial instruments, primarily interest rate floors, interest rate swaps,
    principal only swaps, futures and options on futures to administer its hedge
    program. Premiums paid/received on the acquired derivatives instruments are
    capitalized and amortized over the life of the contracts. Gains and losses
    associated with the hedge instruments are deferred and recorded as
    adjustments to the basis of the MSRs. In the event the performance of the
    hedge instruments do not meet the requirements of the hedge program, changes
    in the fair value of the hedge instruments will be reflected in the income
    statement in the current period. Deferrals under the hedge programs are
    allocated to each applicable stratum of MSRs based upon its original
    designation and included in the impairment measurement.
    For purposes of performing its impairment evaluation, the Company stratifies
    its portfolio on the basis of interest rates of the underlying mortgage
    loans. The Company measures impairment for each stratum by comparing
    estimated fair value to the recorded book value. The Company records
    amortization expense in proportion to and over the period of the projected
    net servicing income. Temporary impairment is recorded

                                      F-27


    through a valuation allowance in the period of occurrence.

13. LONG-TERM DEBT

     Long-term debt consisted of:
                                                    DECEMBER 31,
                                             --------------------------
     (IN MILLIONS)                               1998          1997
                                             -----------    -----------
     Term Loan Facility                      $   1,250.0     $      -
     Revolving Credit Facilities                     -            276.0
     7 1/2% Senior Notes                           399.7            -
     7 3/4% Senior Notes                         1,148.0            -
     3% Convertible Subordinated Notes             545.4          543.2
     4 3/4% Convertible Senior Notes                 -            240.0
     Other                                          24.9           39.2
                                              -----------    -----------
                                                 3,368.0        1,248.3
     Less current portion                            5.1            2.3
                                              -----------    -----------
                                              $  3,362.9     $  1,246.0
                                              ===========    ===========

    TERM LOAN FACILITIES
    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,
    incurred interest based on the London Interbank Offered Rate ("LIBOR") a
    margin of approximately 87.5 basis points. The weighted average interest
    rate on the Term Loan Facility was 6.2% at December 31, 1998.

    At December 31, 1998, borrowings under the Term Loan Facility of $1.25
    billion were classified as long-term based on the Company's intent and
    ability to refinance such borrowings on a long-term basis. On February 9,
    1999, the Company replaced the Term Loan Facility with a new two year term
    loan facility (the "New Facility") which provides for borrowings of $1.25
    billion. The Company used $1.25 billion of the proceeds from the New
    Facility to refinance the majority of the outstanding borrowings under the
    Term Loan Facility. The New Facility bears interest at a rate of LIBOR plus
    a margin of approximately 100 basis points and is payable in five
    consecutive quarterly installments beginning on the first anniversary of the
    closing date. The New Facility contains certain restrictive covenants, which
    are substantially similar to and consistent with the covenants in effect for
    the Company's existing revolving credit agreements.

    CREDIT FACILITIES
    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 75 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.
    Letters of credit of $45.0 million were outstanding under the Five-Year
    Revolving Credit Facility at December 31, 1998. 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 0.5:1 maximum debt-to-capitalization
    ratio.

                                      F-28


    7 1/2% AND 7 3/4% SENIOR NOTES

    The Company filed a shelf registration statement with the SEC, effective
    November 1998, which provided for the aggregate issuance of up to $3.0
    billion of debt and equity securities. Pursuant to such registration
    statement, the Company issued $1.55 billion of Senior Notes (the "Notes") in
    two traunches consisting of $400.0 million principal amount of 7 1/2% Senior
    Notes due December 1, 2000 and $1.15 billion principal amount of 7 3/4%
    Senior Notes due December 1, 2003. Interest on the Notes will be payable on
    June 1 and December 1 each year, beginning on June 1, 1999. The Notes may be
    redeemed, in whole or in part, at any time at the option of the Company at a
    redemption price plus accrued interest to the date of redemption. The
    redemption price is equal to the greater of (i) the face value of the notes
    or (ii) the sum of the present values of the remaining scheduled payments
    discounted at the treasury rate plus a spread defined in the indenture. Net
    proceeds from the offering were used to repay a portion of the Company's
    Term Loan Facility and for general corporate purposes, which included the
    repurchase of Company common stock.

    3% CONVERTIBLE SUBORDINATED NOTES
    In February 1997, the Company completed a public offering of $550.0 million
    3% Convertible Subordinated Notes (the "3% Notes") due 2002. Each $1,000
    principal amount of 3% Notes is convertible into 32.6531 shares of Company
    common stock subject to adjustment in certain events. The 3% Notes may be
    redeemed at the option of the Company at any time on or after February 15,
    2000, in whole or in part, at the appropriate redemption prices (as defined
    in the indenture governing the 3% Notes) plus accrued interest to the
    redemption date. The 3% Notes will be subordinated in right of payment to
    all existing and future Senior Debt (as defined in the indenture governing
    the 3% Notes) of the Company.

    5 7/8% SENIOR NOTES
    On December 15, 1998, the Company repaid the $150.0 million principal amount
    of 5 7/8% Senior Notes outstanding in accordance with the provisions of the
    indenture agreement.

    4 3/4% CONVERTIBLE SENIOR NOTES
    In February 1996, the Company completed a public offering of $240.0 million
    unsecured 4 3/4% Convertible Senior Notes due 2003, which were convertible
    at the option of the holder at any time prior to maturity into 36.030 shares
    of Company common stock per $1,000 principal amount of the 4 3/4% Notes,
    representing a conversion price of $27.76 per share. On May 4, 1998, the
    Company redeemed all of the outstanding ($144.5 million principal amount) 4
    3/4% Notes at a price of 103.393% of the principal amount, together with
    interest accrued to the redemption date (see Note 6 -- Other Charges --
    Financing Costs). 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.

    DEBT MATURITIES
    Aggregate maturities of debt for each of the next five years commencing in
    1999 are as follows:

      (IN MILLIONS)
      YEAR                                              AMOUNT
      ----                                            ---------
      1999                                            $     5.1
      2000                                                403.3
      2001                                              1,250.3
      2002                                                545.4
      2003                                              1,148.0
      Thereafter                                           15.9
                                                      ---------
                                                      $ 3,368.0
                                                      =========
                                      F-29


14. LIABILITIES UNDER MANAGEMENT AND MORTGAGE PROGRAMS

    Borrowings to fund assets under management and mortgage programs consisted
    of:

                                                            DECEMBER 31,
                                                   -------------------------
    (IN MILLIONS)                                      1998          1997
                                                   -----------    ----------
    Commercial paper                               $   2,484.4    $   2,577.5
    Medium-term notes                                  2,337.9        2,747.8
    Securitized obligations                            1,901.5            -
    Other                                                173.0          277.3
                                                   -----------    -----------
                                                   $   6,896.8    $   5,602.6
                                                   ===========    ===========

    COMMERCIAL PAPER
    Commercial paper, which matures within 180 days, is supported by committed
    revolving credit agreements described below and short-term lines of credit.
    The weighted average interest rates on the Company's outstanding commercial
    paper were 6.1% and 5.9% at December 31, 1998 and 1997, respectively.

    MEDIUM-TERM NOTES
    Medium-term notes of $2.3 billion primarily represent unsecured loans, which
    mature through 2002. The weighted average interest rates on such medium-term
    notes were 5.6% and 5.9% at December 31, 1998 and 1997, respectively.

    SECURITIZED OBLIGATIONS
    The Company maintains four separate financing facilities, the outstanding
    borrowings under which are securitized by corresponding assets under
    management and mortgage programs. The collective weighted average interest
    rate on such facilities was 5.8% at December 31, 1998. Such securitized
    obligations are described below.

    Mortgage Facility. In December 1998, the Company entered into a 364 day
    financing agreement to sell mortgage loans under an agreement to repurchase
    such mortgages (the "Agreement"). The Agreement is collateralized by the
    underlying mortgage loans held in safekeeping by the custodian to the
    Agreement. The total commitment under this Agreement is $500.0 million and
    is renewable on an annual basis at the discretion of the lender in
    accordance with the securitization agreement. Mortgage loans financed under
    this Agreement at December 31, 1998 totaled $378.0 million and are included
    in mortgage loans held for sale on the consolidated balance sheet.

    Relocation Facilities. The Company entered into a 364-day asset
    securitization agreement effective December 1998 under which an unaffiliated
    buyer has committed to purchase an interest in the right to payments related
    to certain Company relocation receivables. The revolving purchase commitment
    provides for funding up to a limit of $325.0 million and is renewable on an
    annual basis at the discretion of the lender in accordance with the
    securitization agreement. Under the terms of this agreement, the Company
    retains the servicing rights related to the relocation receivables. At
    December 31, 1998, the Company was servicing $248.0 million of assets, which
    were funded under this agreement.

    The Company also maintains an asset securitization agreement with a separate
    unaffiliated buyer, which has a purchase commitment up to a limit of $350.0
    million. The terms of this agreement are similar to the aforementioned
    facility with the Company retaining the servicing rights on the right of
    payment. At December 31, 1998, the Company was servicing $171.0 million of
    assets eligible for purchase under this agreement. This facility matured and
    approximately $85.0 million was repaid on October 5, 1999.

    Fleet Facilities. In December 1998, the Company entered into two secured
    financing transactions each expiring five years from the effective agreement
    date through its two wholly-owned subsidiaries, TRAC Funding and TRAC
    Funding II. Secured leased assets (specified beneficial interests in a trust
    which owns the

                                      F-30


    leased vehicles and the leases) totaling $600.0 million and $725.3 million,
    respectively, were contributed to the subsidiaries by the Company. Loans to
    TRAC Funding and TRAC Funding II were funded by commercial paper conduits in
    the amounts of $500.0 million and $604.0 million, respectively, and were
    secured by the specified beneficial interests. Monthly loan repayments
    conform to the amortization of the leased vehicles with the repayment of the
    outstanding loan balance required at time of disposition of the vehicles.
    Interest on the loans is based upon the conduit commercial paper issuance
    cost and committed bank lines priced on a LIBOR basis. Repayments of loans
    are limited to the cash flows generated from the leases represented by the
    specified beneficial interests.

    Other. Other liabilities under management and mortgage programs are
    principally comprised of unsecured borrowings under uncommitted short-term
    lines of credit and other bank facilities, all of which matures in 1999. The
    weighted average interest rate on such debt was 5.5% and 6.7% at December
    31, 1998 and 1997, respectively. Interest expense is incurred on
    indebtedness, which is used to finance fleet leasing, relocation and
    mortgage servicing activities. Interest incurred on borrowings used to
    finance fleet leasing activities was $177.3 million, $177.0 million and
    $161.8 million for the years ended December 31, 1998, 1997, and 1996,
    respectively, and is included net within fleet leasing revenues in the
    consolidated statements of operations. Interest related to equity advances
    on homes was $26.9 million, $32.0 million and $35.0 million for the years
    ended December 31, 1998, 1997 and 1996, respectively. Interest related to
    origination and mortgage servicing activities was $138.9 million, $77.6
    million and $63.4 million for the years ended December 31, 1998, 1997 and
    1996, respectively. Interest expense incurred on borrowings used to finance
    both equity advances on homes and mortgage servicing activities are recorded
    net within membership and service fee revenues in the consolidated
    statements of operations.

    To provide additional financial flexibility, the Company's current policy is
    to ensure that minimum committed facilities aggregate 100 percent of the
    average amount of outstanding commercial paper. As of December 31, 1998, the
    Company maintained $2.75 billion in committed and unsecured credit
    facilities, which were backed by a consortium of domestic and foreign banks.
    The facilities were comprised of $1.25 billion in 364 day credit lines
    maturing in March 1999, a $250.0 million (changed to $150.0 million in March
    1999) revolving credit facility maturing December 1999 and a five year $1.25
    billion credit line maturing in the year 2002. Under such credit facilities,
    the Company paid annual commitment fees of $1.9 million, $1.7 million and
    $2.4 million for the years ended December 31, 1998, 1997 and 1996,
    respectively. In March 1999, the Company extended the $1.25 billion in 364
    day credit lines to March 2000. In addition, the Company has other
    uncommitted lines of credit with various banks of which $5.1 million was
    unused at December 31, 1998. The full amount of the Company's committed
    facility was undrawn and available at December 31, 1998 and 1997.

    Although the period of service for a vehicle is at the lessee's option, and
    the period a home is held for resale varies, management estimates, by using
    historical information, the rate at which vehicles will be disposed and the
    rate at which homes will be resold. Projections of estimated liquidations of
    assets under management and mortgage programs and the related estimated
    repayments of liabilities under management and mortgage programs as of
    December 31, 1998, are set forth as follows:





      (IN MILLIONS)                 ASSETS UNDER MANAGEMENT        LIABILITIES UNDER MANAGEMENT
      YEARS                          AND MORTGAGE PROGRAMS         AND MORTGAGE PROGRAMS (1)
      -----                     -----------------------------   ------------------------------
                                                                  
      1999                             $   4,882.0                       $   4,451.7
      2000                                 1,355.9                           1,342.2
      2001                                   668.6                             659.0
      2002                                   289.0                             263.1
      2003                                   168.3                             142.0
      2004-2008                              148.1                              38.8
                                       -----------                       -----------
                                       $   7,511.9                       $   6,896.8
                                       ===========                       ===========


                                      F-31



- ----------
(1) The projected repayments of liabilities under management and mortgage
    programs are different than required by contractual maturities.

15. DERIVATIVE FINANCIAL INSTRUMENTS

    The Company uses derivative financial instruments as part of its overall
    strategy to manage its exposure to market risks associated with fluctuations
    in interest rates, foreign currency exchange rates, prices of mortgage loans
    held for sale and anticipated mortgage loan closings arising from
    commitments issued. The Company performs analyses on an on-going basis to
    determine that a high correlation exists between the characteristics of
    derivative instruments and the assets or transactions being hedged. As a
    matter of policy, the Company does not engage in derivative activities for
    trading or speculative purposes. The Company is exposed to credit-related
    losses in the event of non-performance by counterparties to certain
    derivative financial instruments. The Company manages such risk by
    periodically evaluating the financial position of counterparties and
    spreading its positions among multiple counterparties. The Company presently
    does not expect non-performance by any of the counterparties.

    INTEREST RATE SWAPS

    The Company enters into interest rate swap agreements to match the interest
    characteristics of the assets being funded and to modify the contractual
    costs of debt financing. The swap agreements correlate the terms of the
    assets to the maturity and rollover of the debt by effectively matching a
    fixed or floating interest rate with the stipulated revenue stream generated
    from the portfolio of assets being funded. Amounts to be paid or received
    under interest rate swap agreements are accrued as interest rates change and
    are recognized over the life of the swap agreements as an adjustment to
    interest expense. For the years ended December 31, 1998, 1997 and 1996, the
    Company's hedging activities increased interest expense $2.1 million, $4.0
    million and $4.1 million, respectively, and had no effect on its weighted
    average borrowing rate. The fair value of the swap agreements is not
    recognized in the consolidated financial statements since they are accounted
    for as matched swaps.

    The following table summarizes the maturity and weighted average rates of
    the Company's interest rate swaps.



      1998
                                                                                  WEIGHTED
                                         NOTIONAL           WEIGHTED AVERAGE     AVERAGE              SWAP
      (DOLLARS IN MILLIONS)               AMOUNT             RECEIVE RATE        PAY RATE          MATURITIES
                                        ----------         -------------------  -----------       --------------
                                                                                         
      Commercial paper                  $    355.2               4.92%              5.84%            1999-2006
      Medium-term notes                      931.0               5.27%              5.04%            1999-2000
      Canada commercial paper                 89.8               5.52%              5.27%            1999-2002
      Sterling liabilities                   662.3               6.26%              6.62%            1999-2002
      Deutsche mark liabilities               31.9               3.24%              4.28%            1999-2001
                                        ----------
                                        $  2,070.2
                                        ==========



      1997
                                                                                  WEIGHTED
                                         NOTIONAL           WEIGHTED AVERAGE     AVERAGE              SWAP
      (DOLLARS IN MILLIONS)               AMOUNT             RECEIVE RATE        PAY RATE          MATURITIES
                                        ----------         -------------------  -----------       --------------
                                                                                          
      Commercial paper                  $    355.7               5.68%              6.26%             1999-2004
      Medium-term notes                    1,551.0               5.93%              5.73%             1999-2000
      Canada commercial paper                142.8               4.93%              4.95%             1999-2002
      Sterling liabilities                   491.5               7.21%              7.69%             1999-2002
      Deutsche mark liabilities                9.1               3.76%              5.34%             1999-2001
                                        ----------
                                        $  2,550.1
                                        ==========



      ---------------
      (1)  The projected repayments of liabilities under management and mortgage
           programs are different than required by contractual maturities.

                                      F-32


    FOREIGN EXCHANGE CONTRACTS

    In order to manage its exposure to fluctuations in foreign currency exchange
    rates, on a selective basis, the Company enters into foreign exchange
    contracts. Such contracts are primarily utilized to hedge intercompany loans
    to foreign subsidiaries and certain monetary assets and liabilities
    denominated in currencies other than the U.S. dollar. The Company may also
    hedge currency exposures that are directly related to anticipated, but not
    yet committed transactions expected to be denominated in foreign currencies.
    The principal currencies hedged are the British pound and the German mark.
    Market value gains and losses on foreign currency hedges related to
    intercompany loans are deferred and recognized upon maturity of the
    underlying loan. Market value gains and losses on foreign currency hedges of
    anticipated transactions are recognized in the statement of operations as
    exchange rates change. However, fluctuations in exchange rates are generally
    offset by the anticipated exposures being hedged. Historically, foreign
    exchange contracts have been short-term in nature.

    OTHER FINANCIAL INSTRUMENTS
    With respect to both mortgage loans held for sale and anticipated mortgage
    loan closings arising from commitments issued, the Company is exposed to the
    risk of adverse price fluctuations primarily due to changes in interest
    rates. The Company uses forward delivery contracts, financial futures and
    option contracts to reduce such risk. Market value gains and losses on such
    positions used as hedges are deferred and considered in the valuation of
    cost or market value of mortgage loans held for sale.

    With respect to the mortgage servicing portfolio, the Company acquired
    certain derivative financial instruments, primarily interest rate floors,
    interest rate swaps, principal only swaps, futures and options on futures to
    manage the associated financial impact of interest rate movements.

16. FAIR VALUE OF FINANCIAL INSTRUMENTS AND SERVICING RIGHTS

    The following methods and assumptions were used by the Company in estimating
    its fair value disclosures for material financial instruments. The fair
    values of the financial instruments presented may not be indicative of their
    future values.

    MARKETABLE SECURITIES
    Fair value is based upon quoted market prices or investment advisor
    estimates.

    MORTGAGE LOANS HELD FOR SALE
    Fair value is estimated using the quoted market prices for securities backed
    by similar types of loans and current dealer commitments to purchase loans
    net of mortgage-related positions. The value of embedded MSRs has been
    considered in determining fair value.

    MORTGAGE SERVICING RIGHTS
    Fair value is estimated by discounting future net servicing cash flows
    associated with the underlying securities using discount rates that
    approximate current market rates and externally published prepayment rates,
    adjusted, if appropriate, for individual portfolio characteristics.

    DEBT
    The fair values of the Company's Senior Notes, Convertible Notes and
    Medium-term Notes are estimated based on quoted market prices or market
    comparables.

    MANDATORILY REDEEMABLE PREFERRED SECURITIES ISSUED BY SUBSIDIARY
    Fair value is estimated based on quoted market prices and incorporates the
    settlement of litigation and the resulting modification of terms (see Note 6
    -- Other Charges -- Litigation Settlement).

                                      F-33


     INTEREST RATE SWAPS, FOREIGN EXCHANGE CONTRACTS, OTHER MORTGAGE-RELATED
     POSITIONS

     The fair values of these instruments are estimated, using dealer quotes,
     as the amount that the Company would receive or pay to execute a new
     agreement with terms identical to those remaining on the current
     agreement, considering interest rates at the reporting date.

The carrying amounts and fair values of the Company's financial instruments at
December 31, 1998 and 1997 are as follows:



                                                       1998                                     1997
                                 -------------------------------------------   -----------------------------------------
                                     NOTIONAL/                    ESTIMATED     NOTIONAL/     ESTIMATED
                                     CONTRACT      CARRYING         FAIR         CONTRACT     CARRYING         FAIR
(IN MILLIONS)                         AMOUNT        AMOUNT          VALUE         AMOUNT       AMOUNT          VALUE
ASSETS

                                                                                            
    Marketable securities             $   --     $  220.8         $ 220.8         $   --       $  65.2        $  65.2
    Investment in mortgage
      securities                          --         46.2            46.2             --          48.0           48.0
- -------------------------------------------------------------------------------------------------------------------------
ASSETS UNDER MANAGEMENT AND
MORTGAGE PROGRAMS
  Relocation receivables                  --        659.1           659.1             --         775.3          775.3
  Mortgage loans held for sale            --      2,416.0         2,462.7             --       1,636.3        1,668.1
  Mortgage servicing rights               --        635.7           787.7             --         373.0          394.6
- -------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT                            --      3,362.9         3,351.1             --       1,246.0        1,468.3
- -------------------------------------------------------------------------------------------------------------------------
OFF BALANCE SHEET DERIVATIVES
RELATING TO LONG-TERM DEBT
  Foreign exchange forwards              1.1           --              --            5.5            --             --
OTHER OFF BALANCE SHEET DERIVATIVES
  Foreign exchange forwards             47.6           --              --          102.7            --             --
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES UNDER MANAGEMENT
AND MORTGAGE PROGRAMS
  Debt                                    --      6,896.8         6,895.0             --       5,602.6        5,604.2
- -------------------------------------------------------------------------------------------------------------------------
MANDATORILY REDEEMABLE PREFERRED
SECURITIES ISSUED BY SUBSIDIARY           --      1,472.1         1,333.2             --            --             --
- -------------------------------------------------------------------------------------------------------------------------
OFF BALANCE SHEET DERIVATIVES
RELATING TO LIABILITIES UNDER
MANAGEMENT AND MORTGAGE
PROGRAMS
  Interest rate swaps                2,070.2           --              --        2,550.1            --            --
   in a gain position                                  --             7.8                           --           5.6
   in a loss position                                  --           (11.5)                          --          (3.9)
  Foreign exchange forwards            349.3           --             0.1          409.8            --           2.5
- -------------------------------------------------------------------------------------------------------------------------
MORTGAGE-RELATED POSITIONS
  Forward delivery
    commitments (a)                  5,057.0          2.9            (3.5)       2,582.5          19.4         (16.2)
  Option contracts to sell (a)         700.8          8.5             3.7          290.0            .5            --
  Option contracts to buy (a)          948.0          5.0             1.0          705.0           1.1           4.4
  Commitments to fund
   mortgages                         3,154.6           --            35.0        1,861.7            --          19.7
  Constant maturity treasury
    floors (b)                       3,670.0         43.8            84.0          825.0          12.5          17.1
  Interest rate swaps (b)              775.0                                       175.0
   in a gain position                                  --            34.6                           --           1.3
   in a loss position                                  --            (1.2)                          --            --
  Treasury futures (b)                 151.0           --            (0.7)         331.5            --           4.8
  Principal only swaps (b)              66.3           --             3.1             --            --            --



                                      F-34


- ----------------
(a)   Carrying amounts and gains (losses) on these mortgage-related positions
      are already included in the determination of respective carrying amounts
      and fair values of mortgage loans held for sale. Forward delivery
      commitments are used to manage price risk on sale of all mortgage loans to
      end investors including loans held by an unaffiliated buyer as described
      in Note 11. (a)

(b)   Carrying amounts on these mortgage-related positions are capitalized and
      recorded as a component of MSRs. Gains (losses) on such positions are
      included in the determination of the respective carrying amounts and fair
      value of MSRs.

17. MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES ISSUED BY SUBSIDIARY

    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 (Income PRIDES and
    Growth PRIDES hereinafter referred to as "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 stand alone 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% 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%. Payments under
    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%. 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 the Company's 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 the
    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 has reached an agreement to settle a class action lawsuit that
    was brought on behalf of holders of PRIDES securities who purchased their
    securities on or prior to April 15, 1998 (see Note 6 -- Other Charges --
    Litigation Settlement).

18. COMMITMENTS AND CONTINGENCIES

    LEASES
    The Company has noncancelable operating leases covering various facilities
    and equipment, which primarily expire through the year 2004. Rental expense
    for the years ended December 31, 1998, 1997 and 1996 was $177.9 million,
    $91.3 million and $75.3 million, respectively. The Company incurred
    contingent rental expenses in 1998 of $44.1 million, which is included in
    total rental expense, principally based on rental volume or profitability at
    certain NPC parking facilities. The Company has been granted rent abatements
    for varying periods on certain of its facilities. Deferred rent relating to
    those abatements is being amortized on a straight-line basis over the
    applicable lease terms. Commitments under capital leases are not
    significant.

                                      F-35


    Future minimum lease payments required under noncancelable operating leases
    as of December 31, 1998 are as follows:


      (IN MILLIONS)
      YEAR                                           AMOUNT
      ----                                         -----------
      1999                                         $     122.9
      2000                                               109.3
      2001                                                93.6
      2002                                                69.5
      2003                                                55.5
      Thereafter                                         139.4
                                                   -----------
                                                   $     590.2
                                                   ===========

    LITIGATION
    Accounting Irregularities. On April 15, 1998, the Company publicly announced
    that it discovered accounting irregularities in the former business units of
    CUC. Such discovery prompted investigations into such matters by the Company
    and the Audit Committee of the Company's Board of Directors. As a result of
    the findings from the investigations, the Company restated its previously
    reported financial results for 1997, 1996 and 1995. Since the April 15, 1998
    announcement, 70 lawsuits claiming to be class actions, two lawsuits
    claiming to be brought derivatively on the Company's behalf and several
    individual lawsuits and arbitration proceedings have been commenced in
    various courts and other forums against the Company and other defendants by
    or on behalf of persons claiming to have purchased or otherwise acquired
    securities or options issued by CUC or the Company between May 1995 and
    August 1998. The Court has ordered consolidation of many of the actions.

    In addition, in October 1998, an action claiming to be a class action was
    filed against the Company and four of the Company's former officers and
    directors by persons claiming to have purchased American Bankers' stock
    between January and October 1998. The complaint claimed that the Company
    made false and misleading public announcements and filings with the SEC in
    connection with the Company's proposed acquisition of American Bankers
    allegedly in violation of Sections 10(b) and 20(a) of the Securities
    Exchange Act of 1934, as amended, and that the plaintiff and the alleged
    class members purchased American Bankers' securities in reliance on these
    public announcements and filings at inflated prices. On April 30, 1999, the
    United States District Court for New Jersey found that the class action
    failed to state a claim upon which relief could be granted and, accordingly,
    dismissed the complaint. The plaintiff has appealed the District Court's
    findings to the U.S. Court of Appeals for the Third Circuit as such appeal
    is pending.

    As previously disclosed, the Company reached a final agreement with
    plaintiff's counsel representing the class of holders of its PRIDES
    securities who purchased their securities on or prior to April 15, 1998 to
    settle their class action lawsuit against the Company through the issuance
    of a new "Right" for each PRIDES security held. (See Note 6 -- Other Charges
    for a more detailed description of the settlement).

    The SEC and the United States Attorney for the District of New Jersey are
    conducting investigations relating to the matters referenced above. The SEC
    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.
    As a result of the findings from the investigations, the Company made all
    adjustments considered necessary which are reflected in its restated
    financial statements. Although the Company can provide no assurances that
    additional adjustments will not be necessary as a result of these government
    investigations, the Company does not expect that additional adjustments will
    be necessary.

    Other than with respect to the PRIDES class action litigation, the Company
    does not believe it is feasible to predict or determine the final outcome or
    resolution of these proceedings or to estimate the amounts or potential
    range of loss with respect to these proceedings and investigations. In
    addition, the timing of the final resolution of these proceedings and
    investigations is uncertain. The possible outcomes or resolutions of these
    proceedings and investigations could include judgements against the Company
    or settlements and could require substantial

                                      F-36


    payments by the Company. Management believes that material adverse outcomes
    with respect to such proceedings and investigations could have a material
    adverse impact on the Company's financial condition, results of operations
    and cash flows.

    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 other litigation will not have a material adverse effect on
    the Company's consolidated financial position, results of operations or cash
    flows.

19.   INCOME TAXES

      The income tax provision consists of:
                                                 YEAR ENDED DECEMBER 31,
                                            ----------------------------------
      (IN MILLIONS)                           1998         1997        1996
                                            ---------   ---------    ---------
      Current
        Federal                             $  (159.4)  $   155.1    $   101.1
        State                                     0.7        24.4         13.3
        Foreign                                  56.5        28.5         18.1
                                            ---------   ---------    ---------
                                               (102.2)      208.0        132.5
                                            ----------  ---------    ---------
      Deferred
        Federal                                 176.1       (16.8)        70.4
        State                                    29.5        (3.4)        16.5
        Foreign                                   1.1         3.2          0.8
                                            ---------   ---------    ---------
                                                206.7       (17.0)        87.7
                                            ---------   ----------   ---------
      Provision for income taxes            $   104.5   $   191.0    $   220.2
                                            =========   =========    =========

      Net deferred income tax assets and liabilities are comprised of the
following:

                                                            DECEMBER 31,
                                                       ----------------------
      (IN MILLIONS)                                       1998        1997
                                                       ---------    ---------
      CURRENT NET DEFERRED INCOME TAXES
        Merger and acquisition-related liabilities     $    52.8    $   102.9
        Accrued liabilities and deferred income            323.1        225.8
        Excess tax basis on assets held for sale           190.0          -
        Insurance retention refund                         (21.2)       (19.3)
        Provision for doubtful accounts                     13.8          4.0
        Franchise acquisition costs                         (6.9)        (2.6)
        Deferred membership acquisition costs                2.6          8.6
        Other                                              (87.6)        (7.5)
                                                       ----------   ----------
      Current net deferred tax asset                   $   466.6    $   311.9
                                                       =========    =========

                                                            DECEMBER 31,
                                                       -----------------------
      (IN MILLIONS)                                       1998        1997
                                                       ---------    ---------
      NON-CURRENT NET DEFERRED INCOME TAXES
        Depreciation and amortization                  $  (296.7)   $  (277.1)
        Deductible goodwill - taxable poolings              49.3         44.2
        Merger and acquisition-related liabilities          25.8         35.0
        Accrued liabilities and deferred income             63.9         66.9
        Acquired net operating loss carryforward            83.5         59.9
        Other                                               (3.0)         0.2
                                                       ----------   ---------
      Non-current net deferred tax liability           $   (77.2)   $   (70.9)
                                                       ==========   ==========


                                F-37






                                                                      DECEMBER 31,
                                                                 ----------------------
      (IN MILLIONS)                                                 1998        1997
                                                                 ---------    ---------
                                                                        
      MANAGEMENT AND MORTGAGE PROGRAM DEFERRED INCOME TAXES
        Depreciation                                             $  (121.3)   $  (233.1)
        Unamortized mortgage servicing rights                       (248.0)       (74.6)
        Accrued liabilities                                           25.8          9.5
        Alternative minimum tax carryforwards                          2.5          2.5
                                                                 ---------    ---------
        Net deferred tax liabilities under management and
         mortgage programs                                       $  (341.0)   $  (295.7)
                                                                 ==========   ==========



    Net operating loss carryforwards at December 31, 1998 acquired in connection
    with the acquisition of Avis expire as follows: 2001, $8.2 million; 2002,
    $89.6 million; 2005, $7.2 million; 2009, $17.7 million; and 2010, $116.0
    million. Certain state net operating loss carryforwards of $43.9 million are
    not expected to be realized; therefore, a valuation allowance of $43.9
    million was established in 1998.

    The Company's effective income tax rate for continuing operations differs
    from the federal statutory rate as follows:




                                                                  YEAR ENDED DECEMBER 31,
                                                            -------------------------------
                                                               1998       1997      1996
                                                            ---------  ---------  ---------
                                                                          
      Federal statutory rate                                   35.0%    35.0%      35.0%
      State income taxes net of federal benefit                 6.2%     5.3%       3.6%
      Non-deductible merger-related costs                        -      29.1%         -
      Amortization of non-deductible goodwill                   5.9%     4.3%       1.5%
      Foreign taxes differential                               (8.0%)     .3%        .5%
      Recognition of excess tax basis on assets
          held for sale                                        (2.7%)      -          -
      Other                                                    (3.2%)     .3%        .6%
                                                            ---------  ---------  ---------
                                                               33.2%    74.3%      41.2%
                                                            =========  =========  =========


20. STOCK OPTION PLANS

    On December 12, 1998, the Company adopted the 1999 Broad-Based Employee
    Stock Option Plan (the "Broad-Based Plan"). The Broad-Based Plan authorizes
    the granting of up to 16 million shares of Company common stock through
    awards of nonqualified stock options (stock options which do not qualify as
    incentive stock options as defined under the Internal Revenue Service Code).
    Certain officers and all employees and independent contractors of the
    Company are eligible to receive awards under the Broad-Based Plan. Options
    granted under the plan generally have a ten year term and are exercisable at
    20% per year commencing one year from the date of grant.

    In connection with the Cendant Merger, the Company adopted the 1997 Stock
    Incentive Plan (the "Incentive Plan"). The Incentive Plan authorizes the
    granting of up to 25 million shares of Company common stock through awards
    of stock options (which may include incentive stock options and/or
    nonqualified stock options), stock appreciation rights and shares of
    restricted Company common stock. All directors, officers and employees of
    the Company and its affiliates are eligible to receive awards under the
    Incentive Plan. Options granted under the Incentive Plan generally have a
    ten year term and are exercisable at 20% per year commencing one year from
    the date of grant. During 1997, the Company also adopted two other stock
    plans: the 1997 Employee Stock Plan (the "1997 Employee Plan") and the 1997
    Stock Option Plan (the "1997 SOP"). The 1997 Employee Plan authorizes the
    granting of up to 25 million shares of Company common stock through awards
    of nonqualified stock options, stock appreciation rights and shares of
    restricted Company common stock to employees of the Company and its
    affiliates. The 1997 SOP provides for the granting of up to 10 million
    shares of Company common stock to key employees (including employees who are
    directors and officers) of the Company and its subsidiaries through awards
    of incentive and/or nonqualified stock options. Options granted under the
    1997 Employee Plan and the 1997 SOP generally have ten-year terms and are
    exercisable at 20% per year commencing one year from the date of grant.

                                      F-38


    The Company also grants options to employees pursuant to three additional
    stock option plans under which the Company may grant options to purchase in
    the aggregate up to 70.8 million shares of Company common stock. Annual
    vesting periods under these plans range from 20% to 33%, all commencing
    one-year from the respective grant dates. At December 31, 1998 and 1997,
    there were 38.6 million and 49.3 million shares available for grant under
    the Company's stock option plans. On September 23, 1998, the Compensation
    Committee of the Board of Directors approved a program to effectively
    reprice certain Company stock options granted to middle management employees
    during December 1997 and the first quarter of 1998. Such options were
    effectively repriced on October 14, 1998 at $9.8125 per share (the "New
    Price"), which was the fair market value (as defined in the option plans) on
    the date of such repricing. On September 23, 1998, the Compensation
    Committee also modified the terms of certain options held by 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 option modifications were accomplished by canceling
    existing options and issuing a lesser amount of new options at the New Price
    and, with respect to certain options of executive officers and senior
    managers, at prices above the New Price.

    The table below summarizes the annual activity of the Company's stock option
    plans:

                                                                    WEIGHTED
                                                      OPTIONS    AVG. EXERCISE
    (Shares in millions)                            OUTSTANDING     PRICE
                                                    -----------  -----------
    BALANCE AT DECEMBER 31, 1995                         98.7    $     7.21
      Granted                                            36.1         22.14
      Canceled                                           (2.8)        18.48
      Exercised                                         (14.0)         5.77
                                                    ----------

    BALANCE AT DECEMBER 31, 1996                        118.0         11.68
      Granted                                            78.8         27.94
      Canceled                                           (6.4)        27.29
      Exercised                                         (14.0)         7.20
      PHH conversion (1)                                 (4.4)            -
                                                    ----------

    BALANCE AT DECEMBER 31, 1997                        172.0         18.66
      Granted
       Equal to fair market value                        83.8         19.16
       Greater than fair market value                    20.8         17.13
      Canceled                                          (81.8)        29.36
      Exercised                                         (17.0)        10.01
                                                    ----------
    BALANCE AT DECEMBER 31, 1998                         177.8        14.64
                                                    ==========

    ------------
    (1) In connection with the PHH Merger, all unexercised PHH stock options
        were canceled and converted into 1.8 million shares of Company common
        stock.

    The Company utilizes the disclosure-only provisions of SFAS No. 123
    "Accounting for Stock-Based Compensation" and applies Accounting Principles
    Board ("APB") Opinion No. 25 and related interpretations in accounting for
    its stock option plans. Under APB No. 25, because the exercise prices of the
    Company's employee stock options are equal to or greater than the market
    prices of the underlying Company stock on the date of grant, no compensation
    expense is recognized.

    Had the Company elected to recognize compensation cost for its stock option
    plans based on the calculated fair value at the grant dates for awards under
    such plans, consistent with the method prescribed by SFAS No.123, net income
    (loss) per share would have reflected the pro forma amounts indicated below:

                                     F-39



                                                    YEAR ENDED DECEMBER 31,
                                             ----------------------------------
    (IN MILLIONS, EXCEPT PER SHARE DATA)      1998         1997          1996
                                             -------     --------      --------
      Net income (loss)
        as reported                          $ 539.6     $ (217.2)     $ 330.0
        pro forma                              392.9       (663.9)(2)    245.1
      Net income (loss) per share:
      Basic
        as reported                          $   .64     $   (.27)     $   .44
        pro forma (1)                            .46         (.82)(2)      .32
      Diluted
        as reported                              .61         (.27)         .41
        pro forma (1)                            .46         (.82)(2)      .31

- -----------
(1)  The effect of applying SFAS No. 123 on the pro forma net income per share
     disclosures is not indicative of future amounts because it does not take
     into consideration option grants made prior to 1995 or in future years.

(2)  Includes incremental compensation expense of $335.4 million ($204.9
     million, after tax) or $.25 per basic and diluted share as a result of the
     immediate vesting of HFS options upon consummation of the Cendant Merger.

     The fair values of the stock options are estimated on the dates of grant
     using the Black-Scholes option-pricing model with the following weighted
     average assumptions for options granted in 1998, 1997 and 1996:




                                                             CUC       HFS        PHH
                                                            PLANS     PLANS      PLANS
                                      1998       1997       -----     1996       -----
                                    --------   ---------    --------------------------
                                                                
      Dividend yield                   -          -          -         -          2.8%
      Expected volatility             55.0%      32.5%      28.0%     37.5%      21.5%
      Risk-free interest rate          4.9%       5.6%       6.3%      6.4%       6.5%
      Expected holding period       6.3 years  7.8 years  5.0 years  9.1 years  7.5 years


      The weighted average fair values of Company stock options granted during
      the year ended December 31, 1998, which were repriced with exercise prices
      equal to and higher than the underlying stock price at the date of grant,
      were 19.69 and 18.10, respectively. The weighted average fair value of the
      stock options granted during the year ended December 31, 1998, which were
      not repriced was $10.16. The weighted average fair value of stock options
      granted during the year ended December 31, 1997 was $13.71. The weighted
      average fair value of stock options granted under the former CUC plans
      (inclusive of plans acquired) during the year ended December 31, 1996 was
      $7.51. The weighted average fair value of stock options granted under the
      former HFS plans (inclusive of the PHH plans) during the year ended
      December 31, 1996 was $10.96.

      The tables below summarize information regarding Company stock options
      outstanding and exercisable as of December 31, 1998:





                                        OPTIONS OUTSTANDING               OPTIONS EXERCISABLE
                                 -----------------------------------    ------------------------
                                            WEIGHTED AVG.  WEIGHTED                    WEIGHTED
                                             REMAINING     AVERAGE                     AVERAGE
                                            CONTRACTUAL    EXERCISE                    EXERCISE
      RANGE OF EXERCISE PRICES    SHARES       LIFE         PRICE        SHARES          PRICE
      ------------------------   --------   -----------    ---------    ---------      ---------
                                                                   
      $.01 to $10.00                89.6          6.8      $   7.40        50.5        $   5.56
      $10.01 to $20.00              38.6          7.5         15.44        17.3           14.52
      $20.01 to $30.00              27.3          7.9         23.02        20.8           23.09
      $30.01 to $40.00              22.3          8.8         32.03        14.8           31.83
                                 -------                                ---------
                                   177.8          7.4         14.64       103.4           14.34
                                 =======                                =========





                                      F-40





21.   SHAREHOLDERS' EQUITY

      On December 1, 1998, the Company's Board of Directors amended and restated
      the 1998 Employee Stock Purchase Plan (the "Plan"). The Company reserved
      2.5 million shares of Company common stock in connection with the Plan,
      which enables eligible employees to purchase shares of common stock from
      the Company at 85% of the fair market value on the first business day of
      each calendar quarter (the "Offering Date"). Eligible employees may
      authorize the Company to withhold up to 10% of their compensation from
      each paycheck during any calendar quarter, in an amount not to exceed a
      total of $25,000 of Company common stock (at fair market value as of the
      Offering Date) during any calendar year.

      In November 1998, the Board of Directors authorized a $1.0 billion common
      share repurchase program. As of December 31, 1998, the Company had
      repurchased 13.4 million shares costing $257.7 million. The Company has
      executed this program through open market purchases or privately
      negotiated transactions, subject to bank credit facility covenants and
      certain rating agency constraints. See Note 27 - Subsequent Events Share
      Repurchases.

22.   EMPLOYEE BENEFIT PLANS

      The Company sponsors several defined contribution plans that provide
      certain eligible employees of the Company an opportunity to accumulate
      funds for their retirement. The Company matches the contributions of
      participating employees on the basis of the percentages specified in the
      plans. The Company's cost for contributions to these plans was $23.6
      million, $15.9 million and $10.3 million for the years ended December 31,
      1998, 1997 and 1996, respectively.

      The Company's PHH subsidiary has a domestic non-contributory defined
      benefit pension plan covering substantially all domestic employees of PHH
      and its subsidiaries employed prior to July 1, 1997. Additionally, the
      Company has contributory defined benefit pension plans in certain United
      Kingdom subsidiaries with participation in the plans at the employees'
      option. Under both the domestic and foreign plans, benefits are based on
      an employee's years of credited service and a percentage of final average
      compensation.

      The Company's policy for all plans is to contribute amounts sufficient to
      meet the minimum requirements plus other amounts as deemed appropriate.
      The projected benefit obligations of the funded plans were $196.3 million
      and $108.1 million and funded assets, at fair value, were $162.2 million
      and $102.7 million at December 31, 1998 and 1997, respectively. The net
      pension cost and the recorded liability were not material to the
      accompanying consolidated financial statements.

23.   RELATED PARTY TRANSACTIONS

      NRT
      During 1997, the Company executed agreements with NRT Incorporated
      ("NRT"), a corporation created to acquire residential real estate
      brokerage firms. In 1997, NRT acquired the real estate brokerage business
      and operations of National Realty Trust ("the Trust"). The Trust was an
      independent trust to which the Company contributed the brokerage offices,
      which were owned by Coldwell Banker at the time of the Company's
      acquisition of Coldwell Banker in 1996. Since inception, NRT acquired
      other local and regional real estate brokerage businesses. NRT is the
      largest residential brokerage firm in the United States. Certain officers
      of the Company serve on the Board of Directors of NRT. NRT is party to
      various agreements and arrangements with the Company and its subsidiaries.
      Under these agreements, the Company acquired $182.0 million of NRT
      preferred stock (and may be required to acquire up to an additional $81.3
      million of NRT preferred stock). The Company received preferred dividend
      payments of $15.4 million and $5.2 million during the



                                      F-41





      years ended 1998 and 1997, respectively which are included in other
      revenue in the consolidated statements of operations. NRT is the largest
      franchisee, based on gross commission income, of the Company's three real
      estate franchise systems. During 1998, 1997 and 1996, NRT and its
      predecessors paid an aggregate $121.5 million, $60.5 million and $24.0
      million, respectively, in franchise royalties to the Company. On February
      9, 1999, the Company executed new agreements with NRT, which among other
      things, increased the term of each of the three franchise agreements under
      which NRT operates from 40 years to 50 years.

      In connection with the aforementioned agreements, the Company at its
      election, will participate in NRT's acquisitions by acquiring up to an
      aggregate $946.3 million (plus an additional $500.0 million if certain
      conditions are met) of intangible assets, and in some cases mortgage
      operations, of real estate brokerage firms acquired by NRT. Through
      December 31, 1998, the Company acquired $445.7 million of such mortgage
      operations and intangible assets, primarily franchise agreements
      associated with real estate brokerage companies acquired by NRT, which
      brokerage companies will become subject to the NRT 50-year franchise
      agreements. In February 1999, NRT and the Company entered into an
      agreement whereby the Company made an upfront payment of $30.0 million to
      NRT for services to be provided by NRT to the Company related to the
      identification of potential acquisition candidates, the negotiation of
      agreements and other services in connection with future brokerage
      acquisitions by NRT. Such fee is refundable in the event the services are
      not provided.

      AVIS, INC.
      Upon entering into the definitive merger agreement to acquire Avis, the
      Company announced its strategy to dilute its interest in the subsidiary of
      Avis which controlled the car rental operations of Avis ("ARAC") while
      retaining assets associated with the franchise business, including
      trademarks, reservation system assets and franchise agreements with ARAC
      and other licensees. Since the Company's control was planned to be
      temporary, the Company accounted for its 100% investment in ARAC under the
      equity method. The Company's equity interest was diluted to 27.5% pursuant
      to an Initial Public Offering ("IPO") by ARAC in September 1997. Net
      proceeds from the IPO of $359.3 million were retained by ARAC. In March
      1998, the Company sold one million shares of Avis common stock and
      recognized a pre-tax gain of approximately $17.7 million, which is
      included in other revenue in the consolidated statements of operations. At
      December 31, 1998, the Company's interest in ARAC was approximately 22.6%.
      The Company recorded its equity in the earnings of ARAC, which amounted to
      $13.5 million, $51.3 million and $1.2 million for the years ended December
      31, 1998, 1997 and 1996, respectively, as a component of other revenue in
      the consolidated statements of operations. In January 1999, the Company's
      equity interest was further diluted to 19.4% as a result of the Company's
      sale of 1.3 million shares of Avis common stock.

      The Company licenses the Avis trademark to ARAC pursuant to a 50-year
      master license agreement and receives royalty fees based upon 4% of ARAC
      revenue, escalating to 4.5% of ARAC revenue over a 5-year period. During
      1998 and 1997, total franchise royalties paid to the Company from ARAC
      were $91.9 million and $81.7 million, respectively. In addition, the
      Company operates the telecommunications and computer processing system,
      which services ARAC for reservations, rental agreement processing,
      accounting and fleet control for which the Company charges ARAC at cost.
      Certain officers of the Company serve on the Board of Directors of ARAC.

24.   DIVESTITURE

      On December 17, 1997, as directed by the Federal Trade Commission in
      connection with the Cendant Merger, CUC sold immediately preceding the
      Cendant Merger all of the outstanding shares of its timeshare exchange
      businesses, Interval International Inc. ("Interval"), for net proceeds of
      $240.0 million less transaction related costs amortized as services are
      provided. The Company recognized a gain on the sale of Interval of $76.6
      million ($26.4 million, after tax), which has been reflected as an
      extraordinary gain in the consolidated statements of operations.



                                      F-42











25.   FRANCHISING AND MARKETING/RESERVATION ACTIVITIES

      Revenue from franchising activities includes initial franchise fees
      charged to lodging properties, car rental locations, tax preparation
      offices and real estate brokerage offices upon execution of a franchise
      contract. Initial franchise fees amounted to $44.7 million, $26.0 million
      and $24.2 million for the years ended December 31, 1998, 1997 and 1996,
      respectively.

      Franchising information at December 31 is as follows:

                                           1998 (1)        1997         1996
                                        ------------   -----------   -----------

      Franchised Units in Operation        22,471         18,876       18,535
      Backlog (Franchised units sold
       but not yet opened)                  2,063          1,547        1,061

      ----------
     (1)  1998 franchised units were acquired in connection with the acquisition
          of Jackson Hewitt.

      The Company receives marketing and reservation fees from several of its
      lodging and real estate franchisees. Marketing and reservation fees
      related to the Company's lodging brands' franchisees are calculated based
      on a specified percentage of gross room revenues. Marketing fees received
      from the Company's real estate brands' franchisees are based on a
      specified percentage of gross closed commissions earned on the sale of
      real estate. As provided in the franchise agreements, at the Company's
      discretion, all of these fees are to be expended for marketing purposes
      and the operation of a centralized brand-specific reservation system for
      the respective franchisees and are controlled by the Company until
      disbursement. Membership and service fee revenues included marketing and
      reservation fees of $222.4 million, $215.4 million and $157.6 million for
      the years ended December 31, 1998, 1997 and 1996, respectively.

26.   SEGMENT INFORMATION

      Effective December 31, 1998, the Company adopted SFAS No. 131,
      "Disclosures about Segments of an Enterprise and Related Information". The
      provisions of SFAS No. 131 established revised standards for public
      companies relating to reporting information about operating segments in
      annual financial statements and requires selected information about
      operating segments in interim financial reports. It also established
      standards for related disclosures about products and services, and
      geographic areas. The adoption of SFAS No. 131 did not affect the
      Company's primary financial statements, but did affect the disclosure of
      segment information. The segment information for 1997 and 1996 has been
      restated from the prior years' presentation in order to conform to the
      requirements of SFAS No. 131.

      Management evaluates each segment's performance on a stand-alone basis
      based on a modification of earnings before interest, income taxes,
      depreciation and amortization. For this purpose, Adjusted EBITDA is
      defined as earnings before non-operating interest, income taxes,
      depreciation and amortization, adjusted for other charges which are of a
      non-recurring or unusual nature, which are not measured in assessing
      segment performance or are not segment specific. The Company determined
      that it has eight reportable operating segments based primarily on the
      types of services it provides, the consumer base to which marketing
      efforts are directed and the methods used to sell services. Inter-segment
      net revenues were not significant to the net revenues of any one segment
      or the consolidated net revenues of the Company. A description of the
      services provided within each of the Company's reportable operating
      segments is as follows:


                                      F-43





      TRAVEL
      Travel services include the franchising of lodging properties and car
      rental locations, as well as vacation/timeshare exchange services. As a
      franchiser of guest lodging facilities and car rental agency locations,
      the Company licenses the independent owners and operators of hotels and
      car rental agencies to use its brand names. Operation and administrative
      services are provided to franchisees, which include access to a national
      reservation system, national advertising and promotional campaigns,
      co-marketing programs and volume purchasing discounts. As a provider of
      vacation and timeshare exchange services, the Company enters into
      affiliation agreements with resort property owners/developers (the
      developers) to allow owners of weekly timeshare intervals (the
      subscribers) to trade their owned weeks with other subscribers. In
      addition, the Company provides publications and other travel-related
      services to both developers and subscribers.

      INDIVIDUAL MEMBERSHIP
      Individual membership provides customers with access to a variety of
      services and discounted products in such areas as retail shopping, travel,
      auto, dining, home improvement, credit information and special interest
      outdoor and gaming clubs. The Company affiliates with business partners
      such as leading financial institutions and retailers to offer membership
      as an enhancement to their credit card customers. Individual memberships
      are marketed primarily using direct marketing techniques. Through the
      Company's membership based online consumer sites, similar products and
      services are offered over the internet.

      INSURANCE/WHOLESALE
      Insurance/Wholesale markets and administers competitively priced insurance
      products, primarily accidental death and dismemberment insurance and term
      life insurance. The Company 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. The Company affiliates with financial institutions,
      including credit unions and banks, to offer their respective customer
      bases such products and services.

      RELOCATION
      Relocation services are provided to client corporations for the transfer
      of their employees. Such services include appraisal, inspection and
      selling of transferees' homes, providing equity advances to transferees
      (generally guaranteed by the corporate customer), purchase of a
      transferee's home which is sold within a specified time period for a price
      which is at least equivalent to the appraised value, certain home
      management services, assistance in locating a new home at the transferee's
      destination, consulting services and other related services.

      REAL ESTATE FRANCHISE
      The Company licenses the owners and operators of independent real estate
      brokerage businesses to use its brand names. Operational and
      administrative services are provided to franchisees, which are designed to
      increase franchisee revenue and profitability. Such services include
      advertising and promotions, referrals, training and volume purchasing
      discounts.

      FLEET
      Fleet services primarily consist of the management, purchasing, leasing,
      and resale of vehicles for corporate clients and government agencies.
      These services also include fuel, maintenance, safety and accident
      management programs and other fee-based services for clients' vehicle
      fleets. The Company leases vehicles primarily to corporate fleet users
      under operating and direct financing lease arrangements.

      MORTGAGE
      Mortgage services primarily include the origination, sale and servicing of
      residential mortgage loans. Revenues are earned from the sale of mortgage
      loans to investors as well as from fees earned on the servicing of loans
      for investors. The Company markets a variety of mortgage products to
      consumers through relationships with



                                      F-44




      corporations, affinity groups, financial institutions, real estate
      brokerage firms and other mortgage banks.

      The Company customarily sells all mortgages it originates to investors
      (which include a variety of institutional investors) either as individual
      loans, as mortgage-backed securities or as participation certificates
      issued or guaranteed by Fannie Mae, the Federal Home Loan Mortgage
      Corporation or the Government National Mortgage Association while
      generally retaining mortgage servicing rights. Mortgage servicing consists
      of collecting loan payments, remitting principal and interest payments to
      investors, holding escrow funds for payment of mortgage-related expenses
      such as taxes and insurance, and otherwise administering the Company's
      mortgage loan servicing portfolio.

      OTHER SERVICES
      In addition to the previously described business segments, the Company
      also derives revenues from providing a variety of other consumer and
      business products and services which include the Company's tax preparation
      services franchise, information technology services, car park facility
      services, vehicle emergency support and rescue services, discount coupon
      books, credit information services, financial products, published
      products, welcoming packages to new homeowners, value added-tax refund
      services to travelers and other consumer-related services.



                                      F-45






SEGMENT INFORMATION (1)
(In millions)

YEAR ENDED DECEMBER 31, 1998



                                                                INDIVIDUAL      INSURANCE/
                                        TOTAL     TRAVEL (2)    MEMBERSHIP      WHOLESALE      RELOCATION
                                     ----------   ----------    ----------      ----------     ----------
                                                                               
    Net revenues                     $ 5,283.8    $ 1,063.3     $    929.1      $   544.0      $    444.0
    Adjusted EBITDA                    1,589.9        542.5          (57.8)         137.8           124.5
    Depreciation and amortization        322.7         88.3           23.7           14.0            16.7
    Segment assets                    19,842.9      2,761.6          839.0          371.5         1,130.3
    Capital expenditures                 355.2         79.0           28.4           16.6            69.6




                                     REAL ESTATE
                                      FRANCHISE     FLEET    MORTGAGE    OTHER SERVICES
                                     -----------   -------   ---------   --------------
                                                             
    Net revenues                     $    455.8    $ 387.4   $  353.4     $  1,106.8
    Adjusted EBITDA                       348.6      173.8      187.6          132.9
    Depreciation and amortization          53.2       22.2        8.8           95.8
    Segment assets                      2,014.3    4,697.2    3,504.0        4,525.0
    Capital expenditures                    5.8       57.7       36.4           61.7


- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997


                                                                  INDIVIDUAL     INSURANCE/
                                           TOTAL     TRAVEL (2)   MEMBERSHIP     WHOLESALE     RELOCATION
                                        ---------    ---------    ----------     ----------    ----------
                                                                               
    Net revenues                        $ 4,240.0    $  971.6     $    778.7     $   482.7     $   401.6
    Adjusted EBITDA                       1,249.7       467.3            5.3         111.0          92.6
    Depreciation and amortization           237.7        81.9           17.8          11.0           8.1
    Segment assets                       13,800.1     2,601.5          840.6         357.0       1,008.7
    Capital expenditures                    154.5        36.5           12.1           5.6          23.0




                                     REAL ESTATE
                                      FRANCHISE     FLEET     MORTGAGE   OTHER SERVICES
                                     -----------   -------    --------   --------------
                                                             
    Net revenues                     $   334.6     $ 324.1    $  179.2    $    767.5
    Adjusted EBITDA                      226.9       120.5        74.8         151.3
    Depreciation and amortization         43.6        16.3         5.1          53.9
    Segment assets                     1,827.1     4,125.8     2,233.3         806.1
    Capital expenditures                  12.6        24.3        16.2          24.2


- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996


                                                             INDIVIDUAL    INSURANCE/
                                      TOTAL     TRAVEL (2)   MEMBERSHIP    WHOLESALE    RELOCATION
                                   ---------    ----------   ----------    ----------   ----------
                                                                        
    Net revenues                   $ 3,237.7    $  429.2     $    745.9    $  448.0     $    344.9
    Adjusted EBITDA                    802.7       189.5           43.2        99.0           65.5
    Depreciation and amortization      145.5        36.9           12.8        12.8           11.2
    Segment assets                  12,642.4     2,686.2          882.7       297.1        1,086.4
    Capital expenditures               101.2        20.8            8.9         5.2            9.1




                                     REAL ESTATE
                                      FRANCHISE      FLEET      MORTGAGE   OTHER SERVICES
                                     -----------   ---------    --------   --------------
                                                               
    Net revenues                     $    236.3    $  293.5     $  127.7   $    612.2
    Adjusted EBITDA                       137.8        99.0         45.7        123.0
    Depreciation and amortization          27.3        17.6          4.4         22.5
    Segment assets                      1,295.5     3,991.1      1,742.4        661.0
    Capital expenditures                    9.9        15.3          9.9         22.1


- ------------
     (1)  Segment data includes the financial results associated with
          acquisitions accounted for under the purchase method of accounting
          since the respective dates of acquisition as follows:



                                      F-46





                                                              ACQUISITION
                   SEGMENT                 ACQUISITION             DATE
                --------------           -----------------    -------------
                Travel                   Avis                 October 1996
                                         RCI                  November 1996
                Real Estate franchise    Coldwell Banker      May 1996
                Other                    NPC                  April 1998
                                         Jackson Hewitt       January 1998

     (2)  Net revenues and Adjusted EBITDA include the equity in earnings from
          the Company's investment in ARAC of $13.5 million, $51.3 million and
          $1.2 million in 1998, 1997 and 1996, respectively. 1998 net revenues
          and Adjusted EBITDA include a pre-tax gain of $17.7 million as a
          result of a 1998 sale of a portion of the Company's equity interest.
          Total assets include such equity method investment in the amount of
          $139.1 million, $123.8 million and $76.5 million at December 31, 1998,
          1997 and 1996, respectively.

      Provided below is a reconciliation of total Adjusted EBITDA and total
      assets for reportable segments to the consolidated amounts.



                                                                         YEAR ENDED DECEMBER 31,
                                                                 -------------------------------------
      (In millions)                                                  1998         1997         1996
                                                                 -----------    ---------   ----------
                                                                                 
      Adjusted EBITDA for reportable segments                    $   1,589.9    $ 1,249.7   $   802.7
      Other charges
        Litigation settlement                                          351.0          -           -
        Termination of proposed acquisitions                           433.5          -           -
        Executive terminations                                          52.5          -           -
        Merger-related costs and other unusual charges (credits)       (67.2)       704.1       109.4
        Investigation-related costs                                     33.4          -           -
        Financing costs                                                 35.1          -           -
      Depreciation and amortization                                    322.7        237.7       145.5
      Interest, net                                                    113.9         50.6        14.3
                                                                 -----------    ---------   ----------
      Consolidated income from continuing operations before
        income taxes, minority interest, extraordinary gain and
        cumulative effect of accounting change                   $     315.0    $   257.3   $   533.5
                                                                 ===========    =========   ==========


                                                                          YEAR ENDED DECEMBER 31,
                                                                 -------------------------------------
                                                                     1998         1997         1996
                                                                 -----------   -----------  ----------
      Total assets for reportable segments                       $  19,842.9   $ 13,800.1   $ 12,642.4
      Net assets of discontinued operations                            373.6        273.3        120.1
                                                                 -----------    ---------   ----------
      Consolidated total assets                                  $  20,216.5   $ 14,073.4   $ 12,762.5
                                                                 ===========    =========   ==========




      GEOGRAPHIC SEGMENT INFORMATION

      (In millions)                                           UNITED          UNITED         ALL OTHER
                                                 TOTAL        STATES          KINGDOM        COUNTRIES
                                             -----------    -----------     ----------      ----------
                                                                               
      1998
      Net revenues                           $   5,283.8    $   4,277.5     $    695.5      $   310.8
      Assets                                    20,216.5       16,251.0        3,706.5          259.0
      Long-lived assets                          1,432.8          645.9          767.8(1)        19.1
      1997
      Net revenues                           $   4,240.0    $   3,669.1     $    231.8      $   339.1
      Assets                                    14,073.4       12,749.2        1,014.7          309.5
      Long-lived assets                            544.7          477.6           49.1           18.0
      1996
      Net revenues                           $   3,237.7    $   2,947.3     $    133.7      $   156.7
      Assets                                    12,762.5       11,566.6          830.7          365.2
      Long-lived assets                            523.9          444.4           65.9           13.6


      ----------
     (1)  Includes $691.0 million of property and equipment acquired in
          connection with the NPC acquisition.

     Geographic segment information is classified based on the geographic
     location of the subsidiary. Long-lived assets are comprised of property and
     equipment.



                                      S-47




27.   SUBSEQUENT EVENTS

      A.  DISPOSITIONS OF BUSINESSES

         Pending disposition of Green Flag. On October 8, 1999, the Company
         entered into a definitive agreement to dispose of its Green Flag
         business unit for approximately $410 million in cash. The transaction,
         subject to customary regulatory approval in the United Kingdom ("UK"),
         is expected to be consummated in the fourth quarter of 1999. Green Flag
         is a roadside assistance organization based in the UK, which provides a
         wide range of emergency support and rescue services.

         North American Outdoor Group. On October 8, 1999, the Company completed
         the disposition of 94% of its North American Outdoor Group ("NAOG")
         business unit for approximately $140.0 million in cash and will retain
         approximately 6% of NAOG's equity in connection with the transaction.
         The sale of NAOG is expected to generate a pre-tax gain of
         approximately $107.0 million. Subsequent to consummation, the Company
         will account for its investment in NAOG using the cost method.

         Entertainment Publications, Inc. On April 21, 1999, (the "Measurement
         Date"), the Company announced that its Board of Directors approved
         management's plan to pursue the sale of its EPub business unit, a
         wholly-owned subsidiary of the Company. At such time, the Company had
         reclassified EPub to discontinued operations for all prior-reporting
         periods.

         On September 14, 1999, the Company entered into a definitive agreement
         to sell 84% of EPub for $325.0 million in cash and will retain
         approximately 16% of EPub's equity in connection with the transaction.
         In addition, the Company will have a designee on EPub's Board of
         Directors. The Company's original intention was to dispose of 100% of
         EPub. The transaction is subject to customary regulatory approvals and
         customary conditions and is expected to be consummated in the fourth
         quarter of 1999. The sale of EPub is expected to generate an after-tax
         gain of approximately $140.0 million.

         In connection with the Company's agreement to retain a minority voting
         interest in EPub and as a result of the Company's ability to exert
         significant influence over the operating and financial policies of
         EPub, the classification of EPub as a discontinued operation was
         reversed and, accordingly, EPub's operating results for all
         prior-reporting periods have been reclassified back to continuing
         operations. In addition, subsequent to the consummation of the
         transaction, the Company will account for its investment in EPub using
         the equity method.

         Global Refund Group. On August 24, 1999, the Company completed the sale
         of its Global Refund Group subsidiary ("Global Refund") for
         approximately $160.0 million in cash. Global Refund, formerly known as
         Europe Tax Free Shopping, is the world's largest value-added tax refund
         services company.

         Fleet. On June 30, 1999, the Company completed the disposition of its
         fleet business segment ("fleet segment" or "fleet businesses"), which
         included PHH Vehicle Management Services Corporation, Wright Express
         Corporation, The Harpur Group, Ltd., and other subsidiaries pursuant to
         an agreement between PHH Corporation ("PHH"), a wholly-owned subsidiary
         of the Company, and Avis Rent A Car, Inc. ("ARAC"). Pursuant to the
         agreement, ARAC acquired net assets of the fleet businesses through the
         assumption and subsequent repayment of $1.44 billion of intercompany
         debt and the issuance of $360.0 million of convertible preferred stock
         of Avis Fleet Leasing and Management Corporation ("Avis Fleet"), a
         wholly-owned subsidiary of ARAC. The transaction followed a competitive
         bidding process. Coincident to the closing of the transaction, ARAC
         refinanced the assumed debt under management programs which




                                      F-48




         was payable to the Company.

         The convertible preferred stock of Avis Fleet is convertible into
         common stock of ARAC at the Company's option upon the satisfaction of
         certain conditions, including the per share price of ARAC Class A
         common stock equaling or exceeding $50 per share and the fleet segment
         attaining certain EBITDA (earnings before interest, taxes, depreciation
         and amortization) thresholds, as defined. There are additional
         circumstances upon which the shares of Avis Fleet convertible preferred
         stock are automatically or mandatorily convertible into ARAC common
         stock. At June 30, 1999, the Company beneficially owned approximately
         19% of the outstanding Class A common stock of ARAC. If all of the Avis
         Fleet convertible preferred stock was converted into common stock of
         ARAC, as of the closing date, the Company would have owned
         approximately 34% of ARAC's outstanding common equity (although the
         voting interest would be limited, in most instances to 20%).

         The Company realized a net gain on the disposition of $881.4 million
         ($865.7 million, after tax. The realized gain is net of approximately
         $90.0 million of transaction costs. The Company deferred the portion of
         the realized net gain which was equivalent to its common equity
         ownership percentage in ARAC at the time of closing. The fleet segment
         disposition was structured in accordance with applicable tax law to be
         treated as a tax-free reorganization and, accordingly, no tax provision
         has been recorded on a majority of the gain. Should the transaction be
         deemed taxable, the resultant tax liability could be material.

         Other Businesses. During 1999, the Company completed the dispositions
         of certain other businesses, including Central Credit, Inc., Spark
         Services, Inc., Match.com, National Leisure Group, National Library of
         Poetry and Essex Corporation. Aggregate consideration received on the
         dispositions of such businesses was comprised of $110.3 million in cash
         and $43.3 million of common stock. The Company realized a net gain of
         $47.5 million ($27.2 million, after tax) on the dispositions of such
         businesses.

    B.   INVESTMENT IN NETMARKET, INC.

         On September 15, 1999, Netmarket, Inc. ("NGI") began operations as an
         independent company that will pursue the development of interactive
         businesses formerly within the Company's direct marketing division. NGI
         will own, operate, develop and expand the on-line membership
         businesses, which collectively have 1.3 million on-line members. Prior
         to September 15, 1999, the Company's ownership of NGI was restructured
         into common stock and preferred stock interests. On September 15, 1999,
         the Company donated NGI's outstanding common stock to a charitable
         trust, and NGI issued additional shares of its common stock to certain
         of its marketing partners. Accordingly, as a result of the change in
         ownership of NGI's common stock from the Company to independent third
         parties, NGI's operating results will no longer be included in the
         Company's consolidated financial statements. The Company retained an
         ownership of convertible preferred stock of NGI, which is ultimately
         exchangeable, at the Company's option, into 78% of NGI's diluted common
         shares. Subsequent to the Company's contribution of NGI's common stock
         to the trust, the Company provided a development advance of $77.0
         million to NGI which is contingently repayable to the Company if
         certain financial targets related to NGI are achieved. The Company
         recorded a charge, inclusive of transaction costs, of $85.0 million
         ($48.0 million, after tax), during the third quarter of 1999, in
         connection with the donation of NGI shares to the charitable trust and
         the subsequent development advance.

    C.   COMMON SHARE REPURCHASES

         During 1999, the Company's Board of Directors authorized an additional
         $800.0 million of Company common stock to be repurchased under the
         common share repurchase program, increasing the total authorized amount
         to be repurchased under the program to $1.8 billion. As of September
         30, 1999, the Company repurchased $1.8 billion (93.6 million shares)
         under the program. Additionally, in July 1999 pursuant to a Dutch
         Auction self tender-offer to its shareholders, the Company purchased 50
         million shares of Company common stock through its wholly-owned
         subsidiary Cendant Stock Corporation at a price of




                                      F-49





         $22.25 per share. Under the terms of the offer, which commenced June
         16, 1999 and expired July 15, 1999, the Company had invited
         shareholders to tender their shares at prices of Company common stock
         between $19.75 and $22.50 per share.

      D.  TERMINATION OF PROPOSED ACQUISITION

         On February 4, 1999, the Company announced its intention not to proceed
         with the acquisition of RAC Motoring Services ("RACMS") due to certain
         conditions imposed by the UK Secretary of State of Trade and Industry
         that the Company determined to be not commercially feasible and
         therefore unacceptable. The Company originally announced on May 21,
         1998 its definitive agreement with the Board of Directors of Royal
         Automobile Club Limited to acquire RACMS for approximately $735.0
         million in cash. The Company wrote-off $7.0 million of deferred
         acquisition costs in the first quarter of 1999 in connection with the
         termination of the proposed acquisition of RACMS.

28.   SELECTED QUARTERLY FINANCIAL DATA - (UNAUDITED)

      Provided below is the selected unaudited quarterly financial data for 1998
      and 1997. The underlying per share information is calculated from the
      weighted average shares outstanding during each quarter, which may
      fluctuate based on quarterly income levels. Therefore, the sum of the
      quarters may not equal the total year amounts.



                                                                                  1998
                                                      -------------------------------------------------------------
      (IN MILLIONS, EXCEPT PER SHARE DATA)              FIRST      SECOND (1)   THIRD (2)   FOURTH (3)   TOTAL YEAR
                                                      --------     ----------   --------    ----------   ----------
                                                                                         
      Net revenues                                    $1,129.4     $1,277.9     $1,457.8     $1,418.7    $  5,283.8
                                                      --------     --------     --------     --------    ----------

      Income (loss) from continuing operations           183.9       154.9         123.1       (302.0)        159.9
      Income (loss) from discontinued
        operations, net of tax                           (11.0)        (1.9)       (12.1)           -         (25.0)
      Gain on sale of discontinued operations,
        net of tax                                           -           -             -        404.7(4)      404.7
                                                      --------     --------     --------     --------    ----------
      Net income                                      $  172.9     $  153.0     $  111.0      $ 102.7    $    539.6
                                                      ========     ========     ========     ========    ==========
      Per share information:
        Basic
         Income (loss) from continuing
          operations                                  $   0.22     $   0.18     $   0.14      $ (0.36)   $     0.19
         Net income                                   $   0.21     $   0.18     $   0.13      $  0.12    $     0.64
         Weighted average shares                         838.7         850.8       850.8        850.0         848.4
        Diluted
         Income (loss) from continuing
          operations                                  $   0.21     $   0.18     $   0.14      $ (0.36)   $     0.18
         Net income                                   $   0.20     $   0.18     $   0.13      $  0.12    $     0.61
         Weighted average shares                         908.5        900.9        877.4        850.0         880.4
      Common Stock Market Prices:
        High                                              41         41 3/8      22 7/16       20 5/8
        Low                                            32 7/16       18 9/16     10 7/16        7 1/2




                                             F-50







                                                                                1997
                                                  -----------------------------------------------------------------
                                                   FIRST       SECOND (5)       THIRD      FOURTH (6)    TOTAL YEAR
                                                  --------     ----------     ---------    ----------    ----------
                                                                                         
      Net revenues                                $  953.7     $  999.6       $ 1,186.5    $ 1,100.2     $ 4,240.0
                                                  --------     ----------     ---------    ----------    ----------
      Income (loss) from continuing operations
        before extraordinary gain and
        cumulative effect of accounting
        change                                       113.8        (69.4)          203.0       (181.1)         66.3
      Income (loss) from discontinued
        operations, net of tax                         2.8        (14.6)           (0.4)       (14.6)        (26.8)
      Extraordinary gain, net of tax                     -            -               -         26.4 (8)      26.4
      Cumulative effect of accounting
        change, net of tax                          (283.1)(7)        -               -            -        (283.1)
                                                  --------     ----------     ---------    ----------    ----------
      Net income (loss)                           $ (166.5)    $  (84.0)      $   202.6     $  169.3)    $  (217.2)
                                                  ========     ==========     =========    ==========    ==========
      Per share information:
        Basic
         Income (loss) from continuing
         operations before extraordinary
         gain and cumulative
         effect of accounting change              $   0.14     $  (0.09)      $    0.25     $  (0.22)    $    0.08
         Net income (loss)                        $  (0.21)    $  (0.11)      $    0.25     $  (0.20)    $   (0.27)
         Weighted average shares                     799.4        804.2           805.9        828.4         811.2
        Diluted
         Income (loss) from continuing
         operations before extraordinary
         gain and cumulative
         effect of accounting change              $   0.13     $  (0.09)      $    0.23     $  (0.22)    $    0.08
         Net income (loss)                        $  (0.19)    $  (0.11)      $    0.23     $  (0.20)    $   (0.27)
         Weighted average shares                     877.1        804.2           889.0        828.4         851.7
      Common Stock Market Prices:
        High                                        26 7/8       26 3/4          31 3/4       31 3/8
        Low                                         22 1/2         20          23 11/16     26 15/16


      ------------------
     (1)  Includes charges of $32.2 million ($20.4 million, after tax or $0.02
          per diluted share) comprised of the costs of the investigations into
          previously discovered accounting irregularities at the former CUC
          business units, including incremental financing costs. Such charges
          were partially offset by a credit of $27.5 million ($18.6 million,
          after tax of $0.02 per diluted share) associated with changes to the
          original estimate of costs to be incurred in connection with the 1997
          Unusual Charges.

     (2)  Includes charges of: (i) $76.4 million ($49.2 million, after tax or
          $0.06 per share) comprised of costs associated with the investigations
          into previously discovered accounting irregularities at the former CUC
          business units, including incremental financing costs and separation
          payments, principally to the Company's former chairman; and (ii) a
          $50.0 million ($32.2 million, after-tax or $0.04 per diluted share)
          non-cash write off of certain equity investments in interactive
          membership businesses and impaired goodwill associated with the
          National Library of Poetry, a Company subsidiary.

     (3)  Includes charges of: (i) $433.5 million ($281.7 million, after tax or
          $0.33 per diluted share) for the costs of terminating the proposed
          acquisitions of American Bankers and Providian; (ii) $351.0 million
          ($228.2 million, after tax or $0.27 per diluted share) of costs
          associated with an agreement to settle the PRIDES securities class
          action suit, and (iii) $12.4 million (9.9 million, after tax or $0.01
          per diluted share) comprised of the costs of the investigations into
          previously discovered accounting irregularities at the former CUC
          business units, including incremental financing costs and separation
          payments. Such charges were partially offset by a credit of $42.8
          million ($27.5 million, after tax or $0.03 per diluted share)
          associated with changes to the original estimate of costs to be
          incurred in connection with the 1997 Unusual Charges.

     (4)  Represents gains associated with the sales of Hebdo Mag and CDS (see
          Note 5 - Discontinued Operations).

     (5)  Includes Unusual Charges of $295.4 million primarily associated with
          the PHH Merger. Unusual Charges of $278.9 million ($208.4 million,
          after-tax or $.24 per diluted share) pertained to continuing
          operations and $16.5 million were associated with discontinued
          operations.

     (6)  Includes Unusual Charges in the net amount of $442.6 million
          substantially associated with the Cendant Merger and Hebdo Mag merger.
          Net Unusual Charges of $425.2 million ($296.3 million, after-tax or
          $.34 per diluted share) pertained to continuing operations and $17.4
          million were associated with discontinued operations.

     (7)  Represents a non-cash after-tax charge of $0.35 per diluted share to
          account for the cumulative effect of a change in accounting, effective
          January 1, 1997, related to revenue and expenses recognition for
          memberships.

     (8)  Represents the gain on the sale of Interval, which was sold coincident
          to the Cendant Merger in consideration of Federal Trade Commission
          anti-trust concerns within the timeshare industry.



                                      F-51