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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ____________TO ____________

COMMISSION FILE NUMBER 1-13719

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

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

755 CROSSOVER LANE
MEMPHIS, TENNESSEE 38117
(Address of principal executive offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (901) 374-5000
---------------------

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

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------

Common Capital Stock, Par Value $0.01 per share* NEW YORK STOCK EXCHANGE
CHICAGO STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
PHILADELPHIA STOCK EXCHANGE

* Common Capital Stock also has special stock purchase rights listed on each of
the same exchanges

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None

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

Indicate 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 or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the closing price of $48.375 for the Common Stock as
reported on the New York Stock Exchange Composite Tape on March 16, 1998, is
$3,890,436,261.

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of March 16, 1998.

Common Capital Stock........................................ 86,890,233 Shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Proxy Statement, prepared and mailed to
stockholders in accordance with Section 14 of the Securities Exchange Act of
1934 (the Exchange Act) and the rules and regulations of the Securities and
Exchange Commission (the Commission) thereunder, for the Annual Meeting of
Stockholders of the Company to be held on May 1, 1998 (the Proxy Statement), are
incorporated by reference in Part III hereof.
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2

PART I

ITEMS 1 AND 2. BUSINESS AND PROPERTIES.

On December 19, 1997, Doubletree Corporation (Doubletree) and Promus Hotel
Corporation (PHC) merged in accordance with the Agreement and Plan of Merger
(the Merger Agreement) by and among Doubletree, PHC and Parent Holding Corp., a
newly formed corporation jointly owned by Doubletree and PHC (the Merger).
Concurrent with the Merger, PHC was renamed Promus Operating Company, Inc (POC)
and Parent Holding Corp. was renamed Promus Hotel Corporation (Promus or the
Company).

The principal assets of Promus are the shares of Doubletree and POC, whose
principal asset is the stock of Promus Hotels, Inc. (PHI). Doubletree and PHI
directly or indirectly through their subsidiaries, hold substantially all of the
assets of the Company's businesses. The principal corporate offices of Promus
are located at 755 Crossover Lane, Memphis, Tennessee 38117, telephone (901)
374-5000.

Operating data for the three most recent years, together with interest
expense, dividend income, and interest and other income, including information
as to assets is set forth herein.

For information on operating results and a discussion of those results, see
"Performance Statistics", "Management's Discussion and Analysis", and the
consolidated financial statements herein.

GENERAL

Through its wholly-owned subsidiaries, the Company franchises and manages
hotels with the following brands: Club Hotel by Doubletree, Doubletree,
Doubletree Guest Suites, Embassy Suites, Hampton Inn, Hampton Inn & Suites, and
Homewood Suites. Promus may also own all or a portion of these hotels or lease
these hotels from others. In addition, Promus leases and manages some hotels
that are not Promus-branded. As of December 31, 1997, Promus franchised 866
hotels and operated 333 hotels, of which 172 hotels were managed, 53 hotels were
wholly-owned, 22 were partially-owned through joint ventures and 86 were leased
from third parties. These 1,199 hotels include almost 179,000 rooms and are
located in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin
Islands and six foreign countries. The Company also operates and licenses
vacation interval ownership systems under the Embassy Vacation Resort and
Hampton Vacation Resort names.

The Company's primary focus is to develop, grow and support its franchise
and management business for all brands. The Company's main sources of revenues
are from the operations of owned and leased hotels, franchise royalty fees and
management fees.

Club Hotel by Doubletree hotels are moderately-priced hotels with food and
beverage facilities primarily targeted at individual business travelers. There
were 22 Club Hotels in operation as of December 31, 1997.

Doubletree hotels are upscale full service hotels targeted toward business
and leisure travelers. There were 105 Doubletree hotels in operation as of
December 31, 1997.

Doubletree Guest Suites hotels, of which there were 42 in operation as of
December 31, 1997, are full service all-suite hotels geared toward business
travelers, group meetings and leisure travelers who have a need or desire for
greater space than what is typically provided at traditional upscale hotels.

Embassy Suites hotels, of which there were 141 hotels in operation as of
December 31, 1997, appeal to the business and leisure traveler who has a need or
desire for greater space and more focused services than are available in
traditional upscale hotels.
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Hampton Inn hotels are moderately priced hotels designed to attract the
business and leisure traveler desiring quality accommodations at affordable
prices. There were 726 Hampton Inn hotels in operation as of December 31, 1997.

Hampton Inn & Suites hotels offer both traditional hotel room
accommodations and apartment-style suites within one property. There were 31
Hampton Inn & Suites hotels in operation as of December 31, 1997.

Homewood Suites hotels, of which there were 51 in operation on December 31,
1997, appeal to the upscale extended stay market and target the traveler who
stays five or more consecutive nights, as well as the traditional business and
leisure traveler.

The Company also operates 81 hotels that are non-Promus branded.

Promus vacation resort properties, of which there were six as of December
31, 1997, feature a high quality interval ownership system available to the
public.

All of the Company's hotel brands are managed by a single senior management
team. Although the Company's growth strategy emphasizes obtaining new franchise
or management contracts, the Company also constructs, owns and operates its own
hotels. Owned hotels are sold from time to time to realize the value of the
underlying assets and to increase the Company's return on investment. Following
such sales, the hotels typically are either operated by the Company under
management contracts and/or franchise licenses or by their purchasers under
franchise licenses from the Company.

Each of the Company's hotel brands currently use an integrated computerized
system that includes centralized reservations and marketing systems, along with
local property management and revenue management systems. The Company is in the
process of implementing System 21, its proprietary, fully integrated
windows-based system, to all its hotel brands. System 21 is a sophisticated
business system which provides seamless, integrated property management, revenue
maximization, marketing, decision support and reservations systems linked to the
Promus network, a communications network which will connect all Promus hotels to
the Company's reservation offices and more than 300,000 travel agents worldwide.
All of the Company's brands' reservation modules will receive reservation
requests entered on terminals located at all of their respective hotels,
interval ownership properties and reservation centers, major domestic and
international airlines via their global distribution systems, and direct from
consumers via computer access to each brand's Internet website and various third
party travel services websites. The systems immediately confirm reservations or
indicate accommodations available at alternate Promus properties. Reservations
are transmitted automatically to the property for which the reservation is made.
The Company's data centers that house all of the satellite and reservation,
marketing and revenue management computers are located in Memphis, Tennessee.
The Company operates three central reservations offices, located in Memphis,
Tennessee, Tampa, Florida, and Vancouver, Washington. See "Management's
Discussion and Analysis, Capital Spending - Investment in Franchise System."

A major element of the Company's business strategy and culture is an
unconditional 100% guarantee of service satisfaction. This guarantee, which is
currently utilized by the Embassy Suites, Hampton Inn, Hampton Inn & Suites and
Homewood Suites brands, will be implemented in the Club Hotel by Doubletree,
Doubletree and Doubletree Guest Suites brands over the next six to eighteen
months. If guests are not satisfied with their stay, they are not expected to
pay. All of the Company's hotel brands offer suites/rooms exclusively for
non-smoking guests.

HOTEL OPERATIONS

Licensing

The Company's revenues from licensing operations for all Club Hotel by
Doubletree, Doubletree, Doubletree Guest Suites, Embassy Suites, Hampton Inn,
Hampton Inn & Suites, and Homewood Suites hotels consist of initial license
application fees and continuing royalties. The license agreements generally
provide for a four percent royalty based upon gross rooms revenues and also
provide for a separate marketing and reservation contribution.

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The Company earns license fees for the vacation resort brands based on a
percentage of net interval sales and gross rental pool revenues, including
additional fees for revenues booked through central reservations.

In screening applicants for license agreements, the Company evaluates the
character, operations ability, experience and financial responsibility of each
applicant or its principals; the Company's prior business dealings, if any, with
the applicant; suitability of the proposed hotel location and other factors. The
license agreement establishes requirements for service and quality of
accommodations. The Company provides certain training for licensee management
and makes regular inspections of all hotels.

License agreements for new hotels generally have a 20-year term. The
Company may terminate a license agreement if the licensee fails to cure a breach
of the license agreement in a timely manner. In certain instances, a license
agreement may be terminated by the licensee, but such termination generally
requires a payment to the Company.

Management Contracts

The Company's revenues from management contracts consist primarily of
management fees which are based on a percentage of gross revenues, operating
profits, cash flow, or a combination thereof. The contract terms governing
management fees vary depending on the size and location of the hotel and other
factors relative to such hotel property.

Under the Company's management contracts, the Company, as the manager,
operates or supervises all aspects of a hotel's operations. The owner of the
hotel property is generally responsible for all costs, expenses and liabilities
incurred in connection with operating the hotel, including the expenses and
salaries of all hotel employees. The Company either requires each such owner to
enter into a separate license agreement and pay the royalty, marketing and
reservation contributions as provided in the license agreement or includes such
payments in the management contract. In addition, the hotel owner is often
required to set aside a certain percentage of hotel revenues for capital
replacement. The Company's form of management contract typically has a term of
ten years, although, many contracts acquired in the past have substantially
longer terms, and most give the Company specified renewal rights. The management
contract may be terminated by either party due to an uncured default by the
other party. Management contracts may contain termination provisions upon a sale
of the hotel, but in such cases generally require a payment to the Company.

The Company also acts as the manager for three of its vacation resort
properties pursuant to management contracts with generally similar terms and
responsibilities as its hotel management contracts. Fees for the management of
vacation resort properties consist of a percentage of rental pool revenue and
homeowner assessments.

See "Franchise and Management Fees" within the Consolidated Statement of
Operations, for revenues from licensing and management contract operations.

Owned Hotels

As of December 31, 1997, the Company owned 53 hotels, representing 10,076
rooms, all of which it manages. The Company is responsible for all aspects of
these hotels, including, without limitation, all of the costs associated with
their operation. The Company also receives substantially all of the revenues
generated by its owned hotels.

The Company is subject to varying degrees of risk generally related to
owning real estate. In addition to general risks related to the lodging
industry, these risks include, among others, changes in national, regional and
local economic conditions, inflation and its effect on operating costs, local
real estate market conditions, changes in interest rates and in the
availability, cost and terms of financing, the potential for uninsured casualty
and other losses, the impact of present or future labor and environmental
legislation and compliance with labor and environmental laws, and adverse
changes in zoning laws and other regulations, many of which are beyond the
control of the Company. Moreover, real estate investments are relatively
illiquid, which means that the ability of the Company to vary its portfolio of
hotels in response to changes in economic and other conditions may be limited.
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5

Promus' primary focus is to grow its franchise and management businesses,
while limiting its ownership of real estate. It is the Company's goal not to be
a long-term owner of real estate. The Company owns a mix of Promus-brand hotels
that can enhance its role as manager and franchisor for its brands, but
periodically sells hotels as opportunities arise to realize a hotel's
appreciated value.

Leases

As of December 31, 1997, the Company leased 86 hotels with 14,408 rooms.
Under the Company's leases, the Company leases the hotel from its owner and is
responsible for all aspects of the hotel's operations, including guest services,
staffing at the hotel, sales and marketing, accounting functions, purchasing and
budgeting. As the lessee of a hotel, the Company recognizes all revenues and
substantially all expenses associated with the hotel's operations. Typically,
other than real estate taxes, casualty insurance costs, maintenance of
underground utilities, structural elements costs, and other capital improvements
costs, each of which are the landlord's obligation, the Company is required to
pay all of the costs associated with operating the hotel, including rent,
personal property taxes, utility costs, employee liability costs, liability
insurance costs and the like. Although, in general, furniture, fixtures and
equipment replacement is the landlord's responsibility, certain leases obligate
the Company to maintain and replace these items. The Company is entitled to
retain all revenues derived from the operation of a leased hotel, subject to the
payment of its obligations under the lease, including rent. Lease terms
typically require the payment of a fixed monthly base rent regardless of the
performance of the hotel leased and a variable rent based on a percentage of
revenues. There can be no assurance that any particular lease will be profitable
for the Company after the payment of its obligations under the lease.

In addition, most of the Company's leases typically provide that the
Company indemnify its landlord against certain liabilities resulting from the
leasing, operation or use of the hotel. Examples of these liabilities may
include (i) injury to persons or property at the hotel, (ii) environmental
liability caused by the Company and (iii) liability resulting from the sale of,
or consumption of alcoholic beverages at the hotel.

As of December 31, 1997, the Company leased 61 hotels, representing 8,706
rooms, pursuant to substantially similar leases (the Percentage Leases) with RFS
Hotel Investors, Inc., a real estate investment trust (RHI). Four of the hotels
leased pursuant to Percentage Leases are managed by third parties. The
Percentage Leases generally have an initial term of not less than 15 years from
the date of inception (with expiration dates ranging from 2003 to 2015), are
subject to early termination upon the occurrence of certain contingencies and
require the monthly payment of base rent and the quarterly payment of percentage
rent.

During 1997, the base rent component of the Percentage Leases was
approximately 43.0% of total Percentage Leases expense. Top percentage rents
ranged from 50.0% to 76.5% of incremental room revenue. For the year ended
December 31, 1997, room revenue for each of the hotels subject to the Percentage
Leases exceeded the amount required to trigger the top tier of percentage rent.
If RHI enters into an agreement to sell a hotel, it may terminate a Percentage
Lease and either (i) pay the Company the fair market value of Promus' leasehold
interest or (ii) offer to lease to the Company a substitute hotel on terms that
would create an equivalent value. The Percentage Leases provide that RHI may
terminate the Percentage Leases upon certain events of default defined in the
Percentage Leases.

As of December 31, 1997, the Company leased 17 hotels, representing 3,987
rooms, pursuant to a long-term lease with RLH Partnership (the Partnership
Lease), which was entered into in 1995. The initial term of the Partnership
Lease expires in 2010, subject to earlier termination by the partnership upon
the occurrence of one or more Events of Default (as defined in the Partnership
Lease). In addition, the Company has the option to extend the Partnership Lease
on a hotel-by-hotel basis for five additional five year periods on the same
terms. Rental payments under the Partnership Lease consist of base rent, payable
quarterly, and additional rent payable annually, if applicable. The base rent
for all of the hotels is $15.0 million per year. The additional rent for the
hotels is equal to 7.5% of the amount, if any, by which the aggregate Operating
Revenues (as defined in the Partnership Lease) for all of the hotels for the
given year exceeds the aggregate Operating Revenues for all such hotels for the
twelve month period ended September 30, 1996 (the Base Year). This

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long-term arrangement allows the Company to retain all of the benefit from any
increase in operating income from these properties during the term of the
Partnership Lease, subject to the payment of Additional Rent.

As of December 31, 1997, the Company leased eight hotels, pursuant to
leases other than the Percentage Leases and the Partnership Lease. Such leases
contain varying terms, but are generally "triple net" leases, the terms of which
are in substantial conformity to the general description above in "Hotel
Operations - Leases".

Joint Ventures

The Company participates in various non-controlling joint ventures with
ownership ranging from less than 1% to 50%. In addition, the Company has a
controlling interest in joint ventures which own six hotels with 1,936 rooms.

In addition to its ownership interest in the joint ventures, the Company is
responsible for the day-to-day operations of the hotels owned by the joint
ventures and receives management fees for operating the hotels. Under each joint
venture agreement or separate management contract with respect to a hotel, the
Company's compensation is comprised of either an annual base management fee, an
annual incentive management fee (based on a percentage of cash flow or operating
profit) or both. The Company has made significant advances to certain of the
joint ventures. Repayment of these advances receives priority distribution from
the cash flow distributable to the joint venture's partners.

HOTEL AND VACATION RESORT BRANDS

Club Hotel by Doubletree Hotels

Club Hotels are moderately-priced hotels primarily targeted at individual
business travelers. Club Hotels have an average of 203 rooms and are located in
13 states. Club Hotels typically include a conference area, a library or reading
area, desk with telephone, a business center and food service facilities.

The Company plans to grow the Club Hotel by Doubletree brand through the
acquisition of management contracts of unaffiliated underperforming hotels, a
focused franchising program and ground-up construction. As of December 31, 1997,
22 Club Hotels were in operation and eight were under construction or
conversion.

See "Performance Statistics" for information regarding number of rooms,
number of hotels, occupancy percentage, average daily rate per occupied room
(ADR) and revenue per available room (RevPAR) for Doubletree hotels, which
includes Club Hotels by Doubletree.

Doubletree Hotels

Doubletree hotels are full-service hotels targeted at business travelers,
group meetings and leisure travelers. Doubletree hotels are located in 31
states, the District of Columbia, U.S. Virgin Islands and Mexico and have an
average of 294 rooms. As of December 31, 1997, eight Doubletree hotels were
under construction or conversion. These hotels typically include a swimming
pool, gift shop, meeting and banquet facilities, at least one restaurant and
cocktail lounge, room service, parking facilities and other services.

See "Performance Statistics" for information regarding number of rooms,
number of hotels, occupancy percentage, ADR and RevPAR for Doubletree hotels.

Doubletree Guest Suites Hotels

Doubletree Guest Suites all-suite hotels are targeted at business travelers
and families who have a need or desire for greater space than typically is
provided at most traditional upscale hotels. Each guest suite has a separate
living room and dining/work area, with a color television, refrigerator and wet
bar. Guest Suites hotels have an average of 214 rooms and are located in 21
states and the District of Columbia. As of December 31, 1997, there was one
Doubletree Guest Suites hotel under conversion.

See "Performance Statistics" for information regarding number of rooms,
number of hotels, occupancy percentage, ADR and RevPAR for Doubletree hotels,
which includes Doubletree Guest Suite Hotels.

5
7

Embassy Suites Hotels

Embassy Suites hotels are located in 35 states, the District of Columbia,
Thailand, Canada and Latin America and have an average of 242 suites per hotel.
As of December 31, 1997, nine Embassy Suites hotels were under construction,
eight of which will be licensee operated. Each guest suite has a separate living
room and dining/work area, with a console television, sofa-sleeper, refrigerator
and wet bar, as well as a traditional bedroom (with a king size bed or two
double beds). Most Embassy Suites hotels are built around a landscaped atrium.
All hotels offer a free, cooked-to-order breakfast and, where local law allows,
complimentary evening cocktails.

See "Performance Statistics" for information regarding number of rooms,
number of hotels, occupancy percentage, ADR and RevPAR for Embassy Suite hotels.

Hampton Inn Hotels

Hampton Inn hotels are currently located in 48 states, as well as Canada,
Thailand, Puerto Rico and Latin America. An average Hampton Inn hotel has 107
rooms. On December 31, 1997, 100 Hampton Inn hotels were under construction, all
of which will be licensee operated. The Hampton Inn hotel's standardized concept
provides for a guest room featuring a color television, free in-room movies,
free local telephone calls and complimentary continental breakfast. Unlike
full-service hotels, Hampton Inn hotels do not feature restaurants, lounges or
large public spaces.

See "Performance Statistics" for information regarding number of rooms,
number of hotels, occupancy percentage, ADR and RevPAR for Hampton Inn hotels.

Hampton Inn & Suites

Hampton Inn & Suites have an average of 111 rooms and suites and are
currently located in 16 states and Canada. As of December 31, 1997, 20 Hampton
Inn & Suites hotels were under construction, all of which will be licensee
operated. These hotels combine standard guest rooms with a significant block of
two-room suites in a single property. Development of this product is targeted
for commercial and suburban markets, as well as destination and resort markets.
Each property contains a centrally located, expanded lobby and complimentary
services area and includes an exercise room, convenience shop,
meeting/hospitality room and guest laundry. An expanded complimentary
continental breakfast buffet is offered.

See "Performance Statistics" for information regarding number of rooms and
number of hotels for Hampton Inn & Suite hotels. The first Hampton Inn & Suites
hotel opened in June, 1995. Accordingly, revenue statistics for Hampton Inn &
Suite hotels have not been provided, as there were no Hampton Inn & Suite hotels
open for the entire three year reporting period.

Homewood Suites Hotels

Homewood Suites hotels, which have an average of 103 suites, are currently
located in 25 states. On December 31, 1997, 28 Homewood Suites hotels were under
construction, 21 of which will be licensee operated. Homewood Suites hotels
feature residential-style accommodations, which include a living room area (some
with fireplaces), separate bedroom (with a king size bed or two double beds) and
a separate bathroom, and a fully-equipped kitchen. The hotel is centered around
a central community building called the Lodge which affords guests a high level
of social interaction. Amenities include a complimentary breakfast and an
evening social hour, a convenience store, grocery shopping, business center,
outdoor pool, exercise center and limited meeting facilities.

See "Performance Statistics" for information regarding number of rooms,
number of hotels, occupancy percentage, ADR and RevPAR for Homewood Suite
hotels.

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Non-Promus Brand Hotels

In addition to the Promus brand hotels, the Company operates 81 hotels (49
of which are leased) which are not Promus branded. These hotels have an average
of 168 rooms. See "Performance Statistics" for information regarding number of
rooms, number of hotels, occupancy percentage, ADR and RevPAR for non-branded
Promus hotels.

Promus Vacation Resort Properties

The Promus Vacation Resort is a premium interval ownership concept that
provides consumers the opportunity to purchase use of a one, two or three
bedroom condominium-style unit for one or more weeks annually in a prime leisure
location, for an initial investment plus a reasonable annual maintenance fee.
Each Promus Vacation Resort property offers a quality, fully furnished product
(consisting of an inside living area, full kitchen, bathroom(s), bedroom(s), and
outside patio/entertainment area) coupled with added value facilities like
swimming pool, exercise room, hot tub, tennis courts, volleyball, and kids club.
Beach, boating, snow/water skiing facilities may be available depending on
location. For a separate annual fee (the initial year fee is paid as part of the
purchase price), plus a per exchange service fee, each owner has the opportunity
to exchange his interest for the use of similar facilities at another Embassy
Vacation Resort property or a third party participating resort property.

Promus has entered into license agreements with Signature Resorts, Inc. for
Embassy Vacation Resorts at Orlando, Florida; Lake Tahoe, California; Porpu
Point, Hawaii; and Maui, Hawaii. Additionally, the Company entered into a joint
venture with Vistana Development, Inc. for the purpose of developing multiple,
future interval resorts. As part of this agreement, the Company agreed to
franchise two resort projects under the Company's brands, one of which will also
be managed by the Company.

See "Performance Statistics" for information regarding number of units,
number of resorts, number of available timeshare intervals, and number of
intervals sold for Promus Vacation Resorts.

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PERFORMANCE STATISTICS

COMPOUND COMPOUND
NUMBER OF HOTELS ANNUAL NUMBER OF ROOMS ANNUAL
-------------------- GROWTH --------------------------- GROWTH
1995 1996 1997 RATE 1995 1996 1997 RATE
---- ----- ----- -------- ------- ------- ------- --------

Doubletree Hotels
Company owned............................. 1 1 16 300% 238 239 4,749 347%
Leased(a)................................. 2 7 18 200% 594 1,748 4,805 184%
Joint venture(b).......................... -- -- 3 n/a -- -- 812 n/a
Management contract....................... 72 65 83 7% 21,028 18,240 23,466 6%
Franchised................................ 30 37 49 28% 6,641 8,469 10,980 29%
--- ----- ----- ------- ------- -------
105 110 169 27% 28,501 28,696 44,812 25%
=== ===== ===== ======= ======= =======
Embassy Suites
Company owned............................. 9 9 6 (18)% 2,025 2,025 1,299 (20)%
Joint venture(b).......................... 23 22 19 (9)% 5,901 5,578 4,946 (8)%
Management contract....................... 27 47 53 40% 6,280 11,461 13,020 44%
Franchised................................ 55 58 63 7% 12,529 13,583 14,826 9%
--- ----- ----- ------- ------- -------
114 136 141 11% 26,735 32,647 34,091 13%
=== ===== ===== ======= ======= =======
Hampton Inn
Company owned............................. 14 12 11 (11)% 1,916 1,654 1,506 (11)%
Leased(a)................................. -- 17 19 n/a -- 2,202 2,359 n/a
Joint venture(b).......................... 19 19 -- (100)% 2,376 2,376 -- (100)%
Management contract....................... 4 5 7 32% 464 678 929 41%
Franchised................................ 483 567 689 19% 52,958 60,628 72,793 17%
--- ----- ----- ------- ------- -------
520 620 726 18% 57,714 67,538 77,587 16%
=== ===== ===== ======= ======= =======
Hampton Inn & Suites
Management contract....................... -- 1 2 n/a -- 127 287 n/a
Franchised................................ 5 15 29 141% 573 1,719 3,167 135%
--- ----- ----- ------- ------- -------
5 16 31 149% 573 1,846 3,454 146%
=== ===== ===== ======= ======= =======
Homewood Suites
Company owned............................. 9 7 11 11% 1,024 800 1,202 8%
Leased(a)................................. -- 1 -- n/a -- 98 -- n/a
Management contract....................... -- 4 4 n/a -- 471 471 n/a
Franchised................................ 21 25 36 31% 2,071 2,530 3,590 32%
--- ----- ----- ------- ------- -------
30 37 51 30% 3,095 3,899 5,263 30%
=== ===== ===== ======= ======= =======
Other Hotels
Company owned............................. -- 22 9 n/a -- 5,548 1,320 n/a
Leased(a)................................. 2 57 49 395% 185 9,855 7,244 526%
Joint venture(b).......................... 3 3 -- (100)% 812 812 -- (100)%
Management contract....................... 6 31 23 96% 1,117 8,824 5,031 112%
--- ----- ----- ------- ------- -------
11 113 81 171% 2,114 25,039 13,595 154%
=== ===== ===== ======= ======= =======
Total System
Company owned............................. 33 51 53 27% 5,203 10,266 10,076 39%
Leased(a)................................. 4 82 86 364% 779 13,903 14,408 330%
Joint venture(b).......................... 45 44 22 (30)% 9,089 8,766 5,758 (20)%
Management contract....................... 109 153 172 26% 28,889 39,801 43,204 22%
Franchised................................ 594 702 866 21% 74,772 86,929 105,356 19%
--- ----- ----- ------- ------- -------
785 1,032 1,199 24% 118,732 159,665 178,802 23%
=== ===== ===== ======= ======= =======

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

(a) In February 1996, the Company acquired RFS, Inc., with 49 leased hotels, in
a transaction accounted for as a pooling-of-interests. 1995 statistical
results, as presented above, do not reflect this acquisition.
(b) For statistical purposes only, the Company classifies unconsolidated joint
ventures in which it holds less than a 20% interest as management contracts
and consolidated joint ventures as Company owned.

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MANAGED FRANCHISED TOTAL
-------------- --------------- ---------------
1996 1997 1996 1997 1996 1997 INCREASE
----- ------ ------ ------ ------ ------ --------

Promus Vacation Resorts(a)
Resort properties..................... 2 3 1 3 3 6 100%
Timeshare units....................... 164 228 207 818 371 1,046 182%
Timeshare intervals available......... 8,364 11,628 10,557 41,718 18,921 53,346 182%
Timeshare intervals sold(b)........... 3,098 6,227 1,426 4,077 4,524 10,304 128%

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

(a) 1997 statistics do not include 40 non-branded resort units managed by
Promus.
(b) Includes pre-sales for resorts under construction but not yet open.

YEARS ENDED DECEMBER 31,(A)
---------------------------
1995 1996 1997
------- ------- -------

Doubletree Hotels(b)
Occupancy................................................. 71.6% 73.7% 74.0%
ADR....................................................... $ 90.67 $ 97.96 $108.27
RevPAR.................................................... $ 64.97 $ 72.22 $ 80.09
Red Lion Hotels converted to Doubletree Hotels(c)
Occupancy................................................. N/A N/A 70.4%
ADR....................................................... N/A N/A $ 89.07
RevPAR.................................................... N/A N/A $ 62.73
Embassy Suites
Occupancy................................................. 74.5% 75.1% 75.2%
ADR....................................................... $102.00 $107.97 $113.84
RevPAR.................................................... $ 75.95 $ 81.08 $ 85.58
Hampton Inn
Occupancy................................................. 74.7% 73.6% 72.1%
ADR....................................................... $ 57.04 $ 60.94 $ 64.39
RevPAR.................................................... $ 42.62 $ 44.88 $ 46.45
Homewood Suites
Occupancy................................................. 78.2% 76.9% 78.8%
ADR....................................................... $ 83.17 $ 89.31 $ 92.27
RevPAR.................................................... $ 65.00 $ 68.70 $ 72.71
Other Hotels(d)
Occupancy................................................. 74.2% 74.5% 72.0%
ADR....................................................... $ 70.83 $ 75.22 $ 80.10
RevPAR.................................................... $ 52.57 $ 56.02 $ 57.69

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

(a) Revenue statistics are for comparable hotels, and include information only
for those hotels in the system as of December 31, 1997 and managed or
franchised by PHC or managed by Doubletree since January 1, 1995. Doubletree
franchised hotels are not included in the statistical information.
(b) Includes Club Hotels by Doubletree and Doubletree Guest Suites hotels.
(c) Revenue statistics for the Red Lion hotels converted to the Doubletree brand
are included only for the period from the initial date of conversion (Phase
I -- 4 hotels on April 1, 1997; Phase II -- 36 hotels on July 1, 1997)
through December 31, 1997.
(d) Includes results for the 16 Red Lion hotels that have not been converted to
the Doubletree brand as well as the results for comparable hotels managed
under other franchisors' brands or as independent hotels.

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11

HOTELS BY GEOGRAPHIC REGION

The following tables present certain hotel information with respect to the
Company's hotels in all of North America and in each of eight geographic
regions: New England (Maine, New Hampshire, Vermont, Massachusetts, Rhode Island
and Connecticut). Middle Atlantic (New York, New Jersey, Pennsylvania, Delaware,
Maryland, District of Columbia, Virginia and West Virginia), Mountain (Montana,
Idaho, Wyoming, Colorado, Utah and Nevada), Pacific (Washington, Oregon,
California, Alaska and Hawaii), Midwest (Ohio, Indiana, Illinois, Michigan and
Wisconsin), Plains (Minnesota, Iowa, Missouri, North Dakota, South Dakota,
Nebraska and Kansas), Southeast (North Carolina, South Carolina, Georgia,
Florida, Kentucky, Tennessee, Alabama, Mississippi, Arkansas and Louisiana) and
Southwest (Oklahoma, Texas, New Mexico and Arizona).

Total Hotel Portfolio

AS OF
DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1997(A)
--------------------- ------------------------------------------
NUMBER OF NUMBER OF OCCUPANCY AVERAGE DAILY
HOTELS ROOMS PERCENTAGE RATE REVPAR(C)
--------- --------- ---------- ------------- ---------

Club Hotel by Doubletree........... 22 4,470 67.7%(d) $ 70.73(d) $47.85(d)
Doubletree(b)...................... 105 31,362 70.9 93.84 66.56
Doubletree Guest Suites............ 42 8,980 76.6 124.73 95.60
Embassy Suites..................... 141 34,091 75.1 113.29 85.04
Hampton Inn........................ 726 77,587 72.4 64.09 46.42
Hampton Inn & Suites............... 31 3,454 72.4 71.73 51.92
Homewood Suites.................... 51 5,263 78.9 92.13 72.71
Non-Promus Brand Hotels............ 81 13,595 71.8 81.24 58.35
----- -------
Total Hotel
Portfolio(e)........... 1,199 178,802
===== =======

New England(f)

AS OF
DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1997(A)
--------------------- --------------------------------------
NUMBER OF NUMBER OF OCCUPANCY AVERAGE DAILY
HOTELS ROOMS PERCENTAGE RATE REVPAR(C)
--------- --------- ---------- ------------- ---------

Club Hotel by Doubletree............... 1 239 --(a) --(a) --(a)
Doubletree............................. 3 602 62.5% $146.49 $91.62
Doubletree Guest Suites................ 2 585 77.5 143.95 111.54
Embassy Suites......................... 2 348 79.8 107.93 86.15
Hampton Inn............................ 15 1,912 70.8 68.56 48.56
Hampton Inn & Suites................... -- -- -- -- --
Homewood Suites........................ 1 132 79.4 90.18 71.60
Non-Promus Brand Hotels................ 8 922 80.1 200.32 160.47
----- -------
Total Hotel Portfolio(e)..... 32 4,740
===== =======

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12

Middle Atlantic (f)

Club Hotel by Doubletree............... 4 755 --(a) --(a) --(a)
Doubletree............................. 10 3,661 69.8% $ 98.67 $68.91
Doubletree Guest Suites................ 7 1,541 82.6 156.09 128.89
Embassy Suites......................... 15 3,686 76.6 123.76 94.81
Hampton Inn............................ 110 12,622 73.7 68.35 50.39
Hampton Inn & Suites................... 5 547 87.1 66.76 58.18
Homewood Suites........................ 5 451 75.3 88.12 66.34
Non-Promus Brand Hotels................ 6 1,173 72.9 78.60 57.29
----- -------
Total Hotel Portfolio(e)..... 162 24,436
===== =======

Mountain (f)

Club Hotel by Doubletree............... 1 158 67.9%(d) $ 70.16(d) $47.61(d)
Doubletree(b).......................... 10 2,869 76.4 85.35 65.22
Doubletree Guest Suites................ -- -- -- -- --
Embassy Suites......................... 7 1,510 74.2 109.31 81.10
Hampton Inn............................ 27 3,213 74.5 59.99 44.72
Hampton Inn & Suites................... 1 81 --(a) --(a) --(a)
Homewood Suites........................ 2 210 80.4 113.89 91.53
Non-Promus Brand Hotels................ 3 274 57.5 54.09 31.10
----- -------
Total Hotel Portfolio(e)..... 51 8,315
===== =======

Pacific(f)

Club Hotel by Doubletree............... 4 765 --(a) --(a) --(a)
Doubletree (b)......................... 42 12,303 70.6% $ 92.03 $65.00
Doubletree Guest Suites................ 3 674 78.0 119.24 92.97
Embassy Suites......................... 33 8,340 73.5 120.42 88.53
Hampton Inn............................ 23 2,679 72.7 63.99 46.49
Hampton Inn & Suites................... -- -- -- -- --
Homewood Suites........................ 3 350 83.6 109.16 91.27
Non-Promus Brand Hotels................ 19 3,527 68.3 74.78 51.07
----- -------
Total Hotel Portfolio(e)..... 127 28,638
===== =======

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13

Midwest(f)

Club Hotel by Doubletree............... 1 242 --(a) --(a) --(a)
Doubletree............................. 4 1,111 --(a) --(a) --(a)
Doubletree Guest Suites................ 9 1,939 73.6% $113.78 $83.71
Embassy Suites......................... 13 3,240 74.6 120.78 90.10
Hampton Inn............................ 111 11,381 71.3 64.29 45.85
Hampton Inn & Suites................... 6 619 --(a) --(a) --(a)
Homewood Suites........................ 9 831 79.2 82.05 64.97
Non-Promus Brand Hotels................ 9 1,146 75.1 75.49 56.68
----- -------
Total Hotel Portfolio(e)..... 162 20,509
===== =======

Plains (f)

Club Hotel by Doubletree............... 1 181 --(a) --(a) --(a)
Doubletree(b).......................... 6 2,000 73.8% $ 90.18 $66.60
Doubletree Guest Suites................ 3 638 --(a) --(a) --(a)
Embassy Suites......................... 10 2,377 72.9 103.34 75.38
Hampton Inn............................ 46 5,353 67.4 63.45 42.77
Hampton Inn & Suites................... -- -- -- -- --
Homewood Suites........................ 3 319 67.4 73.66 49.65
Non-Promus Brand Hotels................ 3 493 74.3 77.87 57.84
----- -------
Total Hotel Portfolio(e)..... 72 11,361
===== =======

Southeast(f)

Club Hotel by Doubletree............... 7 1,576 67.5%(d) $ 71.28(d) $48.08(d)
Doubletree............................. 13 3,552 70.5 90.88 64.12
Doubletree Guest Suites................ 14 2,467 72.2 106.54 76.93
Embassy Suites......................... 31 7,800 76.5 113.15 86.51
Hampton Inn............................ 310 31,248 73.5 62.84 46.21
Hampton Inn & Suites................... 15 1,704 64.3 78.91 50.77
Homewood Suites........................ 16 1,651 80.2 91.94 73.76
Non-Promus Brand Hotels................ 23 4,121 72.2 70.21 50.72
----- -------
Total Hotel Portfolio(e)..... 429 54,119
===== =======

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14

Southwest(f)

Club Hotel by Doubletree............... 3 554 --(a) --(a) --(a)
Doubletree(b).......................... 14 4,709 70.4% $ 95.59 $67.28
Doubletree Guest Suites................ 4 1,136 82.4 114.20 94.10
Embassy Suites......................... 24 5,350 74.8 100.94 75.48
Hampton Inn............................ 74 7,896 68.7 62.28 42.81
Hampton Inn & Suites................... 3 399 73.0 67.21 49.09
Homewood Suites........................ 12 1,319 77.1 99.48 76.75
Non-Promus Brand Hotels................ 10 1,939 72.3 75.59 54.68
----- -------
Total Hotel Portfolio(e)..... 144 23,302
===== =======

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

(a) Revenue statistics are for comparable hotels, which include only those
hotels in the system for the entire period from January 1, 1996 through
December 31, 1997. Club Hotel by Doubletree, Doubletree and Doubletree Guest
Suites' revenues statistics exclude franchised hotels. Embassy Suites,
Hampton Inn, Hampton Inn & Suites and Homewood Suites' revenue statistics
exclude hotels that had room additions.
(b) During 1997, 40 Red Lion hotels were converted to Doubletree hotels. The
converted hotels are included in the number of Doubletree hotels and rooms
as of December 31, 1997. Revenue statistics for the converted hotels are
included in the Doubletree hotel statistics for the period from the
conversion date through December 31, 1997.
(c) Revenue per available room is the product of the occupancy percentage times
the average daily rate.
(d) Includes one property in the Mountain Region and one property in the
Southeast Region.
(e) Excludes three vacation interval resorts operated by the Company.
(f) The geographical regional data presented above excludes 20 hotels, with an
aggregate of 3,382 rooms located outside the United States.

AUDUBON WOODS BUSINESS CAMPUS

The Company's corporate headquarters, located in Memphis, Tennessee,
consists of four office buildings acquired in 1995 containing approximately
360,000 square feet of office space on 31 acres of land. The Company currently
occupies 50% of the office space and as a result of the merger, is expanding
into an additional 25%. The remaining space is leased.

TRADEMARKS

The following trademarks used herein are owned by the Company: Club Hotel
by Doubletree(R); Doubletree(R); Doubletree Guest Suites(R); Embassy Suites(R);
Embassy Vacation Resort(R); Hampton Inn(R); Hampton Inn & Suites(R), Hampton
Vacation Resort(SM); Homewood Suites(R); Promus(R); Red Lion Hotels and Inns(R)
and System 21(TM). The names "Club Hotels by Doubletree," "Doubletree,"
"Doubletree Guest Suites," "Embassy Suites," "Embassy Vacation Resort," "Hampton
Inn," "Hampton Inn & Suites," and "Homewood Suites" are registered as service
marks in the United States and in certain foreign countries. The Company
considers all of these marks, and the associated name recognition, to be
valuable to its business.

COMPETITION

The Company encounters strong competition as a manager, franchisor, and
hotel owner with other related companies in the lodging industry. As of December
31, 1997, there were more than 174 hotel brands (chains with more than one
hotel). Although most of these companies are privately owned firms, several
large national chains own and operate their own hotels and also franchise their
brands. There is no single competitor which is dominant in the industry.

Affiliation with a national or regional brand is a major trend in the U.S.
lodging industry. In 1997 68% of U.S. hotel rooms were brand-affiliated,
compared to 62% in 1989. Most of the branded properties are

13
15

franchises, under which the operator pays the franchisor a fee for use of its
systems, brand identification and reservation system.

The Company believes that its brands are attractive to hotel owners seeking
franchise affiliation or a management company because its hotels typically
generate higher occupancies and revenue per available room (RevPAR) than direct
competitors in most market areas. The Company attributes this performance
premium to its success in achieving and maintaining strong customer preference.
The Company's brands are also designed to be attractive to leisure guests and
generate weekend demand. Repeat guest business is enhanced by the Company's
unconditional guest satisfaction guarantee, which is a significant component of
the Company's operating strategy. Customer preference for the Company's brands
means the Company neither needs nor desires to incur the significant cost of
frequent stay programs.

The lodging industry in general, including the Company's brands, may be
adversely affected by national and regional economic conditions and government
regulations. The demand for accommodations at a particular hotel may be
adversely affected by many factors including changes in travel patterns, local
and regional economic conditions and the degree of competition with other hotels
in the area.

GOVERNMENTAL REGULATION

A number of states regulate the licensing of hotels and restaurants and the
granting of liquor licenses by requiring registration, disclosure statements and
compliance with specific standards of conduct. Various federal and state
regulations mandate certain disclosures and other practices with respect to the
sales of license agreements and the licensor/licensee relationship. In addition,
there is considerable state regulation of the vacation interval industry. The
Company's operations have not been materially affected by such legislation and
regulations, but the Company cannot predict the effect of future legislation.

EMPLOYEE RELATIONS

Promus, through its subsidiaries, has approximately 41,000 employees.
Promus' subsidiaries have collective bargaining agreements at six of the
Company's managed locations. The Company considers its relations with employees
to be very good.

ITEM 3. LEGAL PROCEEDINGS.

Actions for negligence or other tort claims occur routinely in the ordinary
course of the Company's business, but none of these proceedings involves a claim
for damages (in excess of applicable excess umbrella insurance coverages)
involving more than 10% of current assets of the Company. The Company does not
anticipate any amounts which it may be required to pay as a result of an adverse
determination of such legal proceedings, individually or in the aggregate, or
any other relief granted by reason thereof, will have a material adverse effect
on the Company's financial position or results of operation.

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

A Special Meeting of the Stockholders of PHC was held on December 18, 1997.
Matters voted upon at the meeting were (a) to consider and vote upon a proposal
to approve and adopt the Merger Agreement pursuant to which, among other things,
(i) PHC and Doubletree would become wholly-owned subsidiaries of the Company;
(ii) each outstanding share of common stock of PHC would be converted into the
right to receive .925 of a share of common stock of the Company; and (iii) each
outstanding share of common stock of Doubletree would be converted into the
right to receive one share of common stock of the Company; and (b) to consider
and vote on a proposal to approve and adopt the 1997 Equity Participation Plan
of the Company (1997 Plan).

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16

The results of the voting were as follows:

FOR AGAINST ABSTAIN
---------- --------- -------

Approval of Merger Agreement.......................... 41,330,357 139,697 57,263
Approval of the 1997 Plan............................. 34,303,359 7,116,581 107,317

A Special Meeting of the Stockholders of Doubletree was held on December
18, 1997. Matters voted upon at the meeting were (a) to consider and vote upon a
proposal to approve and adopt the Merger pursuant to which, among other things,
(i) PHC and Doubletree would become wholly-owned subsidiaries of the Company;
(ii) each outstanding share of common stock of PHC would be converted into the
right to receive .925 of a share of common stock of the Company; and (iii) each
outstanding share of common stock of Doubletree would be converted into the
right to receive one share of common stock of the Company; and (b) to consider
and vote on a proposal to approve and adopt the 1997 Plan.

The results of the voting were as follows:

FOR AGAINST ABSTAIN
---------- --------- -------

Approval of Merger Agreement........................... 34,988,277 4,081 7,155
Approval of the 1997 Plan.............................. 33,905,504 1,084,442 9,567

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17

EXECUTIVE OFFICERS OF THE REGISTRANT

POSITIONS AND OFFICES HELD AND PRINCIPAL
NAME AND AGE OCCUPATIONS OR EMPLOYMENT DURING PAST 5 YEARS
- - ------------ ---------------------------------------------

Raymond E. Schultz(64)................. Chairman of the Board and Chief Executive Officer of
Parent Holding Corp., predecessor of the Company, since
August 1997 and of Promus since December 1997. Director,
President and Chief Executive Officer of PHC
(1995-1997). President and Chief Executive Officer of
the Hotel Division of The Promus Companies Incorporated
("PCI") (1993-1995). President and Chief Executive
Officer of Hampton Inn/Homewood Suites Hotel Division of
PCI (1991-1993). President and Chief Executive Officer
of Hampton Inn Hotel Division of PCI (1983-1991).
Richard M. Kelleher(48)................ Director, President and Chief Operating Officer of Parent
Holding Corp., predecessor of the Company, since August
1997 and of Promus since December 1997. Director,
President and Chief Executive Officer of Doubletree
Corporation (1996-1997). President of Doubletree Hotels
Corporation (1993-1996). Chief Executive Officer and
President of Guest Quarters Hotel Partnership (April
1993-December 1993). President of Guest Quarters Suite
Hotels (1989-1993).
Thomas L. Keltner(51).................. Executive Vice President and Chief Development Officer of
Promus since December, 1997. Senior Vice President,
Development of PHC (1995-1997). Senior Vice President,
Development of the Hotel Division of PCI (1993-1995).
President, Golf Training Systems, Inc., (1991-1993).
Senior Vice President and Chief Operating Officer,
Franchise Division of Holiday Inn Worldwide (1990).
President and Managing Director, Holiday Inns
International (1988-1990).
Ralph B. Lake(53)...................... Executive Vice President, General Counsel and Secretary of
Promus since December, 1997. Senior Vice President,
General Counsel and Secretary of PHC (1995-1997). Vice
President and General Counsel of Gaming Development of
PCI (1992-1995). Associate General Counsel-International
of PCI (1991-1992). Vice President and General Counsel
of Homewood Suites Hotel Division of PCI (1988-1991).
William L. Perocchi(40)................ Executive Vice President and Chief Financial Officer of
Promus since December, 1997. Executive Vice President and
Chief Financial Officer of Doubletree Corporation
(1993-1997). Executive Vice President and Chief
Financial Officer of Guest Quarters Hotel Partnership
(1992-1993).
M. Ann Rhoades(53)..................... Executive Vice President, Human Resources & Corporation
Communications of Promus since December 1997. Executive
Vice President, Human Resources of Doubletree Hotels
Corporation (1996-1997). Senior Vice President, Human
Resources of Doubletree Hotels Corporation (1995-1996).
Vice President, People Department of Southwest Airlines
(1989-1995).
Thomas W. Storey(41)................... Executive Vice President, Marketing of Promus since
December, 1997. Executive Vice President, Sales and
Marketing of Doubletree Hotels Corporation (1994-1997).
Executive Vice President, Sales and Marketing of
Radisson Hotels International (1989-1994).
James T. Harvey(39).................... Senior Vice President and Chief Information Officer of
Promus since December, 1997. Vice President, Information
Technology of PHC (1995-1997). Corporate Director, Hotel
and Corporate Information Systems of PCI (1994-1995).
Director, Information Systems of PCI (1993-1994).

16
18

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

The Company's Common Stock is listed on the New York Stock Exchange and
traded under the ticker symbol "PRH". The stock is also listed on the Chicago
Stock Exchange, the Pacific Stock Exchange and the Philadelphia Stock Exchange.

The following table sets forth the high and low price per share of the
Company's Common Stock for 1997:

DOUBLETREE PHC PROMUS
--------------- --------------- ---------------
1997 HIGH LOW HIGH LOW HIGH LOW
---- ------ ------ ------ ------ ------ ------

Fourth Quarter (December 19-31, 1997)............ N/A N/A N/A N/A $43.13 $36.50
Fourth Quarter (through December 18, 1997)....... $49.38 $37.75 $45.38 $35.75 N/A N/A
Third Quarter.................................... 50.75 41.38 46.88 38.00 N/A N/A
Second Quarter................................... 49.00 30.25 39.25 30.50 N/A N/A
First Quarter.................................... 45.25 35.00 36.38 28.25 N/A N/A

The approximate number of holders of record of the Company's Common Stock
as of March 16, 1998 is as follows:

APPROXIMATE NUMBER
TITLE OF CLASS OF HOLDERS OF RECORD
- - -------------- --------------------

Common Stock, Par Value $0.01 per share..................... 11,500

The Company has not paid and does not presently intend to declare cash
dividends. See "Management's Discussion and Analysis -- Liquidity and Capital
Resources". The payment of dividends in the future will be at the discretion of
the Board of Directors of the Company and will be dependent on the Company's
results of operations, financial condition, cash requirements, future prospects
and other factors deemed relevant by the Board of Directors.

ITEM 6. SELECTED FINANCIAL DATA.

COMPOUND
PRO FORMA ANNUAL
1993 1994 1995 1996(B) 1996(A) 1997(B) GROWTH RATE
-------- -------- -------- ---------- --------- ---------- -----------
(IN THOUSANDS)

Operating Results
Revenues........... $252,571 $326,655 $421,829 $ 560,213 $890,552 $1,038,011 42.4%
Operating income... 70,377 109,698 123,854 165,356 230,445 183,902 27.1%
Net income......... 21,859 49,554 64,370 90,658 105,984 95,436 44.6%
Diluted earning per
share........... N/A 0.73 0.92 1.23 1.21 1.09 --(c)
EBITDA(d).......... 92,293 129,330 148,690 213,933 310,788 312,279 35.6%
Financial Position
Total assets....... 527,088 548,009 682,916 2,362,914 N/A 2,379,046 45.8%
Notes payable
(long-term)..... 197,326 188,725 229,479 789,174 N/A 671,978 35.8%
Total equity....... 193,083 234,595 281,753 1,049,619 N/A 1,095,735 54.3%

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

(a) 1996 pro forma results of operations reflect the acquisition of Red Lion as
if it had occurred on January 1, 1996.
(b) 1997 includes certain unusual items, including $115.0 million of business
combination expenses, a $10.9 million breakup fee received in connection
with the terminated Renaissance Hotel Group transaction, $43.3 million of
gains on the sale of real estate and securities, and other net gains of $0.9
million. In 1996, unusual items included gains of $4.4 million on the sale
of real estate and securities. Excluding the effect of these transactions,
1997 and 1996 net income would have been $143.8 million and $103.4 million,
respectively. Diluted earnings per share for 1997 and 1996, excluding the
effect of these transactions, would have been $1.64 and $1.18 per share,
respectively.

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19

(c) For periods prior to PHC's June 30, 1995 spin-off by its former parent,
weighted average shares outstanding are assumed to be equal to the actual
shares outstanding at the spin-off. For the period January 1, 1994 through
June 30, 1994 (Doubletree's initial public offering), shares outstanding
were assumed to be equal to the shares issued on June 30, 1994. For periods
prior to January 1, 1994, there were no shares assumed outstanding for
Doubletree. Excluding unusual items in 1997 and 1996, diluted earnings per
share would have been $1.64 and $1.18, respectively, resulting in a 40.0%
three year compound growth rate.
(d) EBITDA, consisting of income before extraordinary items plus interest
expense, income tax expense, depreciation and amortization and cash
distributions from nonconsolidated affiliates less earnings from
nonconsolidated affiliates, is a supplemental financial measurement used by
management, as well as by industry analysts, to evaluate Promus' operations.
However, EBITDA should not be construed as an alternative to operating
income (as an indicator of operating performance) or to cash flows from
operating activities (as a measure of liquidity) as determined in accordance
with generally accepted accounting principles.

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

As a result of the Merger Agreement, (i)Doubletree and PHC became
wholly-owned subsidiaries of Promus; (ii) each outstanding share of common stock
of Doubletree was converted into one share of common stock of Promus; and (iii)
each outstanding share of PHC common stock was converted into 0.925 of a share
of common stock of Promus. The Merger qualified as a tax free exchange and was
accounted for as a pooling-of-interests; accordingly, the accompanying
consolidated financial statements and financial information contained herein
have been restated to combine the historical results of both Doubletree and PHC
for all periods presented.

As of December 31, 1997, the Promus hotel system contained 1,199 hotels,
representing almost 179,000 hotel rooms, in all 50 states, the District of
Columbia, Puerto Rico, the U.S. Virgin Islands and six foreign countries. Promus
brands include some of America's premier hotel products, including Club Hotels
by Doubletree, Doubletree Hotels, Doubletree Guest Suites, Embassy Suites,
Hampton Inn, Hampton Inn & Suites, and Homewood Suites. The Promus system also
includes certain properties that are not Promus-branded.

Of these 1,199 hotels, 866 are owned and operated by franchisees, and 333
are operated by the Company. Depending on the hotel brand, Promus charges each
franchisee royalty fees of up to four percent of suite or room revenues in
exchange for the use of one of its brand names and franchise-related services.
Company operated properties include 53 wholly-owned hotels, 86 leased hotels, 22
hotels partially-owned through joint ventures and 172 hotels managed for third
parties. As a manager of hotels, Promus is typically responsible for supervising
or operating the hotel in exchange for fees based on a percentage of the hotel's
gross revenues, operating profits, cash flow, or a combination thereof. The
Company's results of operations for owned and leased hotels reflect the revenues
and expenses of these hotel operations.

Promus also licenses six vacation interval ownership properties under the
Embassy Vacation Resort and Hampton Vacation Resort brand names, for which the
Company earns franchise fees on net interval sales and on revenues related to
the rental of interval units.

Promus' primary focus is to grow its franchise and management businesses,
while limiting its ownership of real estate. The Company owns a mix of
Promus-brand hotels that can enhance its role as manager and franchisor for its
brands, but periodically sells hotels as opportunities arise to realize a
hotel's appreciated value.

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20

RESULTS OF OPERATIONS

The principal factors which affect Promus' results are: continued growth in
the number of system hotels; occupancy and room rates achieved by hotels; the
relative mix of owned, leased, managed and franchised hotels; and Promus'
ability to manage costs. The number of rooms at franchised and managed
properties and revenue per available room (RevPAR) significantly affect Promus'
results because franchise royalty and management fees are generally based upon a
percentage of room revenues. Increases in franchise royalty and management fee
revenues have a favorable impact on Promus' operating margin due to minimal
incremental costs associated with this type of revenue.

Summarized operating results for the three years ended December 31, 1997
are as follows:

PERCENTAGE
YEARS ENDED DECEMBER 31, INCREASE (DECREASE)
-------------------------- -----------------------
1995 1996 1997 '96 VS '95 '97 VS '96
------ ------ -------- ---------- ----------
(IN MILLIONS, EXCEPT PERCENTAGES AND PER SHARE DATA)

Revenues................................ $421.8 $560.2 $1,038.0 32.8% 85.3%
Operating income........................ 123.9 165.4 183.9 33.5% 11.2%
Net income.............................. 64.4 90.7 95.4 40.8% 5.2%
Basic earnings per share................ 0.93 1.25 1.10 34.4% (12.0)%
Diluted earnings per share.............. 0.92 1.23 1.09 33.7% (11.4)%

Comparisons of the actual financial results presented above are difficult
as a result of recent acquisition activity and unusual items, including business
combination expenses, experienced in 1997 and 1996. The Company's November 8,
1996 acquisition of Red Lion Hotels, Inc. (Red Lion) was accounted for under the
purchase method of accounting and, accordingly, Red Lion's operating results
prior to the acquisition are not included in the Company's reported results. The
following table sets forth the actual results of operations for the year ended
December 31, 1997, as compared to the pro forma results of operations for the
years ended December 31, 1996 and 1995, assuming that the November 8, 1996
acquisition of Red Lion and related transactions had occurred as of January 1,
1995. The Company believes that this information provides a more meaningful
basis for comparison than the historical results of the Company and includes all
necessary adjustments for a fair presentation of such pro forma information. The
pro forma results of operations are not necessarily indicative of the results of
operations as they might have been had the Red Lion transaction been consummated
at the beginning of 1995.

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YEARS ENDED DECEMBER 31,
------------------------------------
PRO FORMA PRO FORMA
1995(A)(B) 1996(A)(B) 1997(B)
---------- ---------- ----------
(IN THOUSANDS, UNAUDITED)

Revenues:
Franchise and management fees............................. $121,439 $151,488 $ 185,546
Owned hotel revenues...................................... 349,648 362,905 368,012
Leased hotel revenues..................................... 274,154 326,594 410,526
Purchasing and service fees............................... 11,715 14,947 19,304
Other fees and income..................................... 29,974 34,618 54,623
-------- -------- ----------
Total revenues.................................... 786,930 890,552 1,038,011
Operating Costs and Expenses:
General and administrative expenses....................... 66,985 72,274 79,249
Owned hotel expenses...................................... 224,506 227,633 224,052
Leased hotel expenses..................................... 242,394 287,584 362,681
Depreciation and amortization............................. 70,228 72,616 73,127
Business combination expenses............................. -- -- 115,000
-------- -------- ----------
Total operating costs and expenses................ 604,113 660,107 854,109
-------- -------- ----------
Operating income............................................ 182,817 230,445 183,902
Interest and dividend income.............................. 12,621 22,727 22,982
Interest expense.......................................... (77,600) (75,178) (72,027)
Gain on sale of real estate and securities................ 2,334 4,439 43,330
-------- -------- ----------
Income before income taxes and minority interest............ 120,172 182,433 178,187
Minority interest share of net income..................... (842) (1,892) (3,087)
-------- -------- ----------
Income before income taxes and extraordinary items.......... 119,330 180,541 175,100
Income tax expense........................................ (51,245) (74,557) (79,664)
-------- -------- ----------
Income before extraordinary items........................... 68,085 105,984 95,436
Extraordinary items, net of income tax.................... 2,819 -- --
-------- -------- ----------
Net income.................................................. $ 70,904 $105,984 $ 95,436
-------- -------- ----------
Basic earnings per share.................................... $ 0.83 $ 1.22 $ 1.10
======== ======== ==========
Diluted earnings per share.................................. $ 0.82 $ 1.21 $ 1.09
======== ======== ==========
Basic weighted average shares outstanding................... 85,801 86,649 86,573
======== ======== ==========
Diluted weighted average shares outstanding................. 86,370 87,647 87,904
======== ======== ==========

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

(a) 1996 and 1995 results are presented on a pro forma basis to give effect to
the November 8, 1996 acquisition of Red Lion and related transactions, as if
they had occurred on January 1, 1995.
(b) 1997 results of operations include certain unusual items, including a
provision for business combination expenses of $115.0 million, a $10.9
million break-up fee received in connection with the terminated Renaissance
Hotel Group transaction, $43.3 million of gains on the sale of real estate
and securities, and other net gains of $0.9 million. In 1996 and 1995,
unusual items include gains of $4.4 million and $2.3 million, respectively,
on the sale of real estate and securities. Excluding the effects of these
transactions, net income would have been $69.6 million, $103.4 million and
$143.8 million and diluted earnings per share would have been $0.81, $1.18
and $1.64, for 1995, 1996 and 1997, respectively.

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Though its revenues come from various sources, nearly all components of
Promus' revenues are favorably impacted by system-wide increases in RevPAR. On a
comparable hotel basis, RevPAR increases were as follows:

REVENUE PER AVAILABLE ROOM

Comparable Hotels(a)

YEARS ENDED DECEMBER 31, INCREASE
------------------------ -------------------
1995 1996 1997 95 VS 96 96 VS 97
------ ------ ------ -------- --------

Doubletree Hotels.................................... $64.97 $72.22 $80.09 11.2% 10.9%
Red Lion hotels converted to Doubletree Hotels(b).... N/A N/A 62.73 N/A N/A
Embassy Suites....................................... 75.95 81.08 85.58 6.8% 5.6%
Hampton Inn.......................................... 42.62 44.88 46.45 5.3% 3.5%
Homewood Suites...................................... 65.00 68.70 72.71 5.7% 5.8%
Other hotels(c)...................................... 52.57 56.02 57.69 6.6% 3.0%

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

(a) Revenue statistics are for comparable hotels, and include information only
for those hotels in the system as of December 31, 1997 and managed or
franchised by PHC or managed by Doubletree since January 1, 1995. Doubletree
franchised hotels are not included in the statistical information.
(b) Revenue statistics for the Red Lion hotels converted to the Doubletree brand
are included only for the period from the initial date of conversion (Phase
I -- 4 hotels on April 1, 1997; Phase II -- 36 hotels on July 1, 1997)
through December 31, 1997.
(c) Includes results for the 16 Red Lion hotels that have not been converted to
the Doubletree brand as well as the results for comparable hotels managed
under other franchisors' brands or as independent hotels.

Year Ended December 31, 1997 (Actual) Compared with Year Ended December 31,
1996 (Pro Forma)

1997 revenues increased 16.6%, or $147.5 million, over 1996 pro forma
revenues, to $1,038.0 million.

Revenues from franchise and management fees increased $34.1 million, or
22.5%, due to growth in the number of franchised and managed properties as well
as improved performance at existing franchised and managed properties. The
number of franchised properties increased by 164 properties, or 23.4%, to 866
hotels at December 31, 1997. The Company added 19 new management contracts, net
of terminations, during 1997. New contracts represented 59.0% of the increase in
franchise and management fees for the year. Incentive management fees increased
32.0% in 1997 to approximately $23.0 million.

Owned hotel revenues for the year increased 1.4% from the prior year.
Revenues from newly opened or acquired hotels, and higher revenues from
comparable hotels, were offset by the effects of hotel sales during the year.
Despite the inclusion of $2.0 million in preopening expenses for new hotels,
owned hotel expenses actually decreased by 1.6% in 1997 as compared to 1996, as
a result of both hotel sales during the year and cost containment measures at
same store hotels. These measures helped to increase operating margins from
37.3% in 1996 to 39.1% in 1997.

Leased hotel revenues for 1997 increased $83.9 million, or 25.7% from the
prior year, due to the net addition of four leased properties during 1997,
property performance improvements, and the impact of a full year of operations
for 1996 additions. Leased hotel expenses increased 26.1% from the prior year,
also primarily due to the increase in the number of leased properties. The
operating margin on leased hotels decreased slightly from 11.9% in 1996 to 11.7%
in 1997.

Purchasing and service fees increased 29.1%, or $4.4 million, over 1996
levels, due to an increase in the number of preferred vendor programs, whereby
the Company earns an administrative fee as opposed to purchasing and reselling
goods, combined with improvements related to the integration of the Doubletree
and Red Lion purchasing programs.

Other fees and income increased $20.0 million, or 57.8%. During 1997, the
Company realized unusual items totaling $17.3 million compared to $1.5 million
in 1996. 1997 unusual items include a break-up fee of

21
23

$10.9 million (net of expenses) resulting from the terminated Renaissance
transaction, a gain of $3.0 million from the sale of the Company's management
rights for a planned hotel in Atlantic City and $3.4 million in gains from the
sale of joint venture hotels. 1996 included $1.5 million in gains from joint
venture asset sales. The remainder of the increase is primarily due to increases
in earnings from unconsolidated joint ventures.

General and administrative expenses increased 9.7%, or $7.0 million, in
1997. This increase is the result of overall corporate growth to support the
Company's expanding hotel system, combined with the inclusion in first quarter
1997 of a $5.5 million charge related to the establishment of certain long-term
executive compensation programs. Depreciation and amortization was virtually
flat in 1997 as compared to 1996, as depreciation expense on new hotels was
offset by the impact of hotel sales.

The Company recorded a $115.0 million provision for Merger-related business
combination expenses in the fourth quarter of 1997. These expenses include $40.3
million of transaction costs and $74.7 million of severance and exit costs
related to the consolidation of administrative functions and asset write-offs.
After the integration of Doubletree and PHC is complete, the Company expects to
realize annual savings of $15.0-$20.0 million in general and administrative
costs. Additionally, the Company anticipates as much as $5.0 million in 1998
interest savings.

Interest and dividend income increased slightly in 1997, with higher
interest income earned on loans to hotel owners partially offset by lower
dividend income due to sales during the year of portions of the Company's common
stock investments. Interest expense decreased 4.2% in 1997 as compared to 1996,
as the Company maintained a lower average outstanding debt balance during 1997
due to increased operating cash flow.

1997 operating results include $43.3 million in pre-tax gains on the sale
of real estate and common stock investments. During 1997, Promus sold five
hotels and recognized a net $30.3 million gain. Promus continues to manage four
of the five hotels under long-term management contracts. In 1996 in connection
with strategic alliances with three publicly traded real estate investment
trusts (REITs), Promus purchased common stock and limited partnership interests
in these REITs. During 1997, Promus sold portions of its common stock holdings
in two of these REITs for $57.4 million, recognizing a gain of $13.0 million.

1997 operating results reflect an overall tax rate of 45.5%, compared with
an overall rate of 41.3% for the 1996 period. The increase in the overall rate
is primarily due to the nondeductibility of certain business combination costs,
which increased the effective tax rate by 6.6%.

The increase of $1.2 million in the minority interest share of net income
reflects the profits allocable to third party owners of consolidated joint
venture hotels.

Net income and earnings per diluted share for the year ended December 31,
1997 were $95.4 million and $1.09, respectively, compared to $106.0 million and
$1.21 for 1996. Excluding the effect of the unusual items described above, net
income and earnings per diluted share for 1997 would have been $143.8 million
and $1.64, respectively, compared to $103.4 million and $1.18, respectively, in
1996.

Year Ended December 31, 1996 (Pro Forma) Compared with Year Ended December 31,
1995 (Pro Forma)

1996 pro forma revenues increased $103.6 million, or 13.2%, to $890.6
million, compared to $786.9 million for the 1995 pro forma period.

Revenues from franchise and management fees increased $30.0 million, or
24.7%, due to growth in the number of franchised properties, an increase in the
number of managed hotels and improved performance at existing properties. The
number of franchised properties increased 18.2%, from 594 at December 31, 1995
to 702 at December 31, 1996. In addition, the Company added 44 new management
contracts, net of terminations, between December 31, 1995 and December 31, 1996,
a 40.4% increase. Incentive management fees also increased as a result of
improved performance at managed hotels.

Owned hotel revenues increased $13.3 million, or 3.8%, for the year, while
owned hotel expenses increased only 1.4% for the period, resulting in a $10.1
million increase in owned hotel margin to 37.3%. This

22
24

is due primarily to increases in RevPAR, coupled with continued cost
containment. The 1996 sale of three owned hotels partially offset the
year-over-year performance increase.

Leased hotel revenues increased $52.4 million, or 19.1%, principally due to
an increase in the size of the Company's leased hotel portfolio in 1996 as
compared to 1995, coupled with improved RevPAR. The increased number of leased
hotels is also reflected in the 18.6% increase in leased hotel expenses.

Purchasing and service fees increased $3.2 million, or 27.6%, primarily due
to the growth in the number and size of preferred vendor programs, from which
the Company earns administrative fees. Other fees and income increased $4.6
million, or 15.5%, due primarily to higher income from nonconsolidated joint
venture partnerships.

General and administrative expenses increased $5.3 million, or 7.9%, due
primarily to higher corporate costs incurred to support the growing franchise
and management systems.

Interest and dividend income increased $10.1 million, or 80.1%, due to
higher dividend income from Promus' investments in the stocks of four REITs and
higher interest income on loans to hotel owners and Promus' investment in its
franchise system.

Interest expense decreased slightly in 1996 from the 1995 period, due to
the combined effects of lower interest expense from joint ventures and a lower
corporate borrowing rate.

The increase in gains on the sale of real estate and stock investments
during 1996 is due to the sale of three hotels during 1996 as opposed to a
single hotel in 1995.

The increase of $1.1 million in the minority interest share of net income
reflects the profits allocable to third party owners of certain consolidated
joint ventures.

The 1996 effective tax rate of 41.3% improved over the 1995 effective rate
of 42.9% due to effective management of the Company's tax liabilities, but
remained higher than the federal statutory rate due primarily to state income
taxes.

Net income and earnings per diluted share were $90.7 million and $1.23,
respectively for 1996, and $64.4 million and $0.92, respectively, for 1995. Pro
forma net income and diluted earnings per share for 1996 were $106.0 million and
$1.21, respectively, compared to $70.9 million and $0.82, respectively, in 1995.
Excluding the effect of 1995 and 1996 unusual items, net income and diluted
earnings per share would have been $69.6 million or $0.81 per share,
respectively, in 1995, and $103.4 million, or $1.18 per share, in 1996.

Year Ended December 31, 1997 (Actual) Compared with Year Ended December 31,
1996 (Actual)

1997 revenues increased $477.8 million, or 85.3%, due in large measure to
the full year effect of the November 8, 1996 acquisition of Red Lion. Red Lion's
1996 results were only included for the period subsequent to the acquisition.
Also contributing to the revenue growth were increases in the number of hotels
in the system, improved hotel performance and growth in the Company's preferred
vendor programs. Other fees and income increased $23.1 million primarily due to
the $10.9 million (net of expenses) Renaissance break-up fee, the $3.0 million
gain on the sale of the Company's management rights for a hotel under
development and $3.4 million in gains from the sale of joint venture
investments.

Operating costs increased $459.3 million, or 116.3%, primarily due to the
full year impact of the Red Lion acquisition, expenses related to the merger of
Doubletree and PHC, and costs resulting from growth in the Company's hotel
system.

Interest and dividend income increased $5.8 million, or 33.8%, due to
increases in interest earned on loans to hotel owners and dividends on REIT
stock.

Interest expense increased $35.4 million, or 96.5%, percent primarily due
to higher borrowings resulting from the Red Lion acquisition.

23
25

Gains on the sale of real estate and securities increased $38.9 million.
The Company realized $30.3 million of gains from the sale of five hotels and
$13.0 million from the sale of a portion of its investments in the common stock
of two REITs.

The increase in minority interest share of net income reflects the increase
in the number of consolidated joint ventures resulting from the Red Lion
acquisition.

Net income and diluted earnings per share, excluding the effect of unusual
items, were $143.8 million and $1.64, respectively. Net income for 1997 was
$95.4 million, or $1.09, per diluted share. Net income for 1996 was $90.7
million, or $1.23, per diluted share.

OVERALL

Excluding unusual items, Promus' operating income has increased each year
over prior year levels. Though these increases are in part due to the revenue
growth discussed above, growth has also come from the changing mix of Promus'
business. Due to the size and strength of Promus' infrastructure and systems,
openings of additional franchised or managed properties require fewer
incremental costs, and the growth which has occurred in the Promus system over
the past several years has served to improve overall operating margins. Promus'
pro forma overall operating margin increased from 23.2% in 1995 to 25.9% in
1996; the 1997 operating margin (excluding unusual items) increased to 28.1%.
Due to the continuing growth of Promus' franchise and management businesses and
the sale of five owned hotels in 1997, growth in fee revenues has outpaced
growth in operating expenses, resulting in higher operating margins. This trend
of margin improvement has continued over the past several years, as Promus'
franchising and management businesses have grown.

HOTEL DEVELOPMENT

Overview

Promus continues to be an industry leader in hotel development. During
1997, the Company added 19,137 net rooms to its hotel system, increasing its
system size by 12% during the year. This compares to the addition of 40,933 net
rooms during 1996. Net room additions, by brand, are as follows:

NET ROOMS ADDED
----------------
1996 1997
------ -------

Doubletree Hotels........................................... 195 16,116
Hampton Inn................................................. 9,824 10,049
Hampton Inn & Suites........................................ 1,273 1,608
Embassy Suites.............................................. 5,912 1,444
Homewood Suites............................................. 804 1,364
Other....................................................... 22,925 (11,444)
------ -------
40,933 19,137
====== =======

1997's dramatic increase in Doubletree rooms and corresponding decrease in
Other hotel rooms, is due to the conversion during 1997 of 40 Red Lion hotels,
containing almost 12,000 rooms, to the Doubletree brand. 1996 room increases
reflect the impact of the RFS (7,000 rooms) and Red Lion (13,000 rooms)
acquisitions, the conversion of 16 Crown Sterling hotels (4,000 rooms) to the
Embassy Suites brand, as well as strong Hampton Inn unit growth. Promus will
continue growing the Hampton Inn brand as demand from franchisees and guests
remains strong. However, the Company has seen a slight decline in Hampton Inn
approvals, in part because of the supply growth over the past several years in
Hampton Inn's mid-price market segment.

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26

Promus' current development pipeline contains an increasing number of
projects within its hotel brands. Promus' hotel development pipeline as of
December 31, 1997 contained 412 properties that were either in the design or
construction phase, as follows:

UNDER
CONSTRUCTION/ IN
CONVERSION DESIGN TOTAL
------------- ------ -----

Hampton Inn................................................. 100 128 228
Hampton Inn & Suites........................................ 20 35 55
Homewood Suites............................................. 28 20 48
Embassy Suites.............................................. 9 22 31
Club Hotels by Doubletree................................... 8 15 23
Doubletree Hotels........................................... 8 11 19
Doubletree Guest Suites..................................... 1 4 5
Other....................................................... 3 -- 3
--- --- ---
177 235 412
=== === ===

When completed, the 177 properties under construction or conversion will
add over 20,000 rooms to the Promus hotel system. The remaining 235 hotels in
the design phase, if completed, will add almost 30,000 additional rooms.
Twenty-four of the properties within the pipeline are being developed by the
Company to be sold to strategic alliance partners or for operation as Company
owned hotels; the remainder are being developed by franchisees.

Promus plans to actively pursue development opportunities for all its
brands. Though this development will most likely come through franchising these
brands, growth plans could include ground-up construction of new hotels, either
for sale to strategic partners or for operation as company owned properties. In
addition, Promus is assessing the market position of individual
properties/markets, and could reposition itself by rebranding existing
properties or acquiring or selling selected properties.

STRATEGIC ALLIANCES AND JOINT VENTURES

Over the past several years, Promus has entered into several strategic
alliances designed to grow its hotel brands. In September 1997, Promus and
Strategic Hotel Capital, Inc. (SHC) entered into a development agreement, under
which SHC committed to invest up to $200.0 million in the development of at
least ten Embassy Suites hotel properties. Under the agreement, Promus will fund
the construction of the hotels and, upon completion, SHC will purchase the hotel
properties at Promus' cost. Promus will retain management and franchise
agreements with twenty year terms. Promus expects to begin funding these
projects in 1998, and the first property is expected to open in 1999.

Promus has entered into a strategic alliance with FelCor Suite Hotels, Inc.
and FelCor Suites Limited Partnership (collectively, FelCor), under which FelCor
has committed to invest up to $100.0 million in Embassy Suites developments.
Promus will construct at least five Embassy properties and, upon completion,
will sell a 90% interest in each property to FelCor at Promus' cost. These
hotels will operate under Promus management contracts and franchise agreements
with fifteen and twenty year terms, respectively. As with the SHC developments,
Promus will begin funding the projects in 1998, and the first hotel under this
alliance is expected to open in 1999.

During 1995, Promus entered into development agreements with FelCor in
which Promus invested $75.0 million in FelCor limited partnership interests and
common stock and guaranteed repayment of up to $25.0 million of a third party
loan advanced to FelCor. Subject to some restrictions, the limited partnership
interests are convertible to common stock, which may be sold on the open market.
During 1997, Promus sold approximately 51% of its FelCor investment for $50.1
million, resulting in pre-tax gains of $11.2 million. The proceeds from these
sales will be used to promote further growth of the Embassy Suites brand,
including the development of new Embassy Suites properties pursuant to the
FelCor alliance discussed above. Based on the market value of its remaining
FelCor common stock as of December 31, 1997, Promus has recorded an

25
27

unrealized gain on marketable equity securities of $14.2 million (pre-tax). This
amount will fluctuate based on the market value of FelCor stock, but no earnings
impact will be realized until the stock is actually sold.

As of December 31, 1997, FelCor owned or had an interest in 64 Promus brand
hotels, which represents 5% and 8% of all Promus hotels and hotel rooms,
respectively. Promus owns a 50% interest in 12 of the 64 hotels. These 64 hotels
contributed approximately 13% of the Company's franchise and management fee
revenue in 1997.

In 1996, Promus entered into an agreement with Remington Hotel Corporation
(Remington) and Nomura Asset Capital Corporation in which Remington will develop
ten Embassy Suites hotels that will incorporate a new, smaller 150-suite
prototype design. This will allow Embassy Suites properties to be built in
somewhat smaller or suburban markets. Promus will provide a portion of each
project's capital through mezzanine financing. Through December 31, 1997, Promus
had invested $2.0 million in one project, four properties were under
construction and another six were in the development pipeline. The first
150-suite Embassy Suites hotel opened in January 1998.

At December 31, 1997, the Company owned approximately 27% of the
outstanding common stock (16% assuming conversion of outstanding preferred
stock) of Candlewood Hotel Company, L.L.C. (Candlewood). In connection with the
November 1996 initial public offering of Candlewood, the Company's contribution
in excess of $0.2 million and its preferred return were converted to an interest
bearing note receivable in the amount of $12.1 million. As a result of
subsequent borrowings, the note receivable balance at December 31, 1997 is $14.6
million. The Company's remaining investment consists of 2,587,500 shares of
Candlewood's common stock, the fair value of which was $22.6 million at December
31, 1997.

During 1996, Promus entered into strategic development alliances with
Equity Inns, Inc. (Equity) and Winston Hotels, Inc. (Winston), two REITs,
whereby Promus agreed to invest up to $15.0 million in the common stock of both
REITs in connection with their purchase of hotels from the Company. Through
December 31, 1997, Promus has invested $7.1 million and $1.5 million in Equity
and Winston, respectively, and Equity and Winston have purchased four hotels and
one hotel, respectively. During the fourth quarter of 1997, Promus sold
approximately 78% of its Equity stock for $7.3 million, recognizing a pre-tax
gain of $1.8 million. Under the terms of these alliances, Promus may offer
additional properties for sale to Equity and Winston at Promus' cost of
development. Promus will receive 20-year franchise agreements and 10-year
management contracts for all hotels developed and purchased by the REITs
pursuant to these alliances.

In February 1996, the Company purchased RFS, Inc. (RFS Management), a
privately-held hotel operator, for approximately $72.0 million. RFS Management
leased and/or managed 49 hotels owned by RFS Hotel Investors, Inc. (RHI), a
publicly-traded REIT. In a separate transaction, the Company purchased $18.5
million of convertible preferred stock in RHI and obtained a 10-year right of
first refusal to manage or lease future hotels acquired or developed by RHI. At
December 31, 1997, RFS Management leased and/or managed 61 hotels from RHI.

ACQUISITIONS AND INVESTMENTS

In early January 1998, Promus announced its acquisition of Harrison
Conference Associates, Inc. (Harrison) for $60.2 million in cash. Harrison is a
leading conference center operator with over 1,200 rooms under management,
including two owned and seven managed properties.

During 1997, Promus purchased two Homewood Suites hotels, in Salt Lake
City, Utah and Plano, Texas, for $15.4 million, and an Embassy Suites hotel in
Portland, Oregon, for $45.3 million. All three properties are being operated as
company owned hotels.

DEVELOPMENT FINANCING

The Company recognizes the challenges faced by some prospective owners in
obtaining conventional financing for projects. As a result, Promus has initiated
programs designed to grow the Promus hotel system by providing alternative
capital sources to owners.

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28

In 1997 the Company announced the formation of Promus Acceptance Corp.
(ProMAC). ProMAC provides conservatively underwritten first mortgage
construction financing to Promus franchisees for select Homewood Suites, Hampton
Inn & Suites and Hampton Inn hotels by issuing up to $120.0 million in
commercial paper that is backed by a liquidity facility from participating
financial institutions. The terms generally provide for favorably priced
floating and fixed rate loans ranging from $3.5 million to $8.0 million with
six-year terms and 20-year amortization schedules. Promus has provided a
guarantee up to $36.0 million on loans outstanding under the program and has
also provided a $1.0 million working capital guarantee to ProMAC. In June 1997,
Promus loaned $2.0 million to ProMAC in the form of a start-up loan. This loan,
which bears interest at Prime, matures in April 2005. As of December 31, 1997,
ProMAC had committed and funded $50.4 million and $6.5 million, respectively, in
hotel financing.

Under its mezzanine financing program, Promus provides conservatively
underwritten secondary financing to franchisees. A minimum of 20% equity is
required by the borrower, and the investment must meet certain defined
underwriting criteria. The terms of the first mortgage and the mezzanine
financing must be acceptable to Promus and the first mortgage lender, with whom
Promus will enter into an inter-creditor agreement. During 1997, Promus provided
$8.2 million in mezzanine loans, and $6.8 million in such loans were repaid
during the year. Outstanding loans bear interest at rates ranging from 10.0% to
10.5%.

The Company provides credit support for a loan facility utilized by
Candlewood to provide construction and permanent financing to Candlewood and its
franchisees on terms that, in most cases, are more attractive than those which
could otherwise be obtained. The Company's maximum exposure on any individual
loan will range from $0.9 million to $1.9 million per hotel, with the aggregate
amount of exposure for all such credit support capped at $30.0 million. As of
December 31, 1997, the Company has guaranteed $22.8 million in such financing.

VACATION RESORT DEVELOPMENT

Promus Vacation Resorts (PVR) allows the Company to expand upon its
reputation and expertise in the lodging industry, by extending that knowledge to
the vacation interval ownership business. Development of PVR properties consists
of the construction or acquisition of resort-quality accommodations in
destination locations throughout the United States. These accommodations consist
of full-featured one, two and three bedroom units, which are sold in one week
intervals as an alternative to renting. Each unit contains 51 sellable weekly
intervals, with one week reserved for annual maintenance. By purchasing an
interval, owners are entitled to a one week stay during each year. Owners have
several options with an interval purchase, including splitting their week,
spending their week at other timeshare resorts (by trading with other interval
owners), or renting the unit to others during their interval in any year. Units
containing unsold intervals are also rented on a daily basis.

The Company has two licensed PVR products: Embassy Vacation Resorts and
Hampton Vacation Resorts. Promus receives a one-time franchise licensing fee
upon the sale of an interval; the Company then receives ongoing franchise
royalty fees from interval owners, as well as royalty fees for hotel revenues
earned from any interval rentals. For properties which Promus manages, the
Company will also earn a management fee from the operation of the facility. To
facilitate growth and development of PVR properties, Promus has entered into
alliances with Signature Resorts (Signature) and Vistana Development Ltd.
(Vistana).

Promus has licensed four Embassy Vacation Resorts to Signature. The latest
Signature agreement, announced in October 1997, calls for the conversion, by
Signature, of the Embassy Suites hotel in Maui, Hawaii, to an Embassy Vacation
Resort. The resort will feature over 400 units, 157 of which will be initially
converted to interval ownership units. Plans for additional Embassy Vacation
Resort properties to be developed or acquired by Signature and licensed by the
Company are being discussed.

In 1996, Promus entered into a five-year joint venture development
agreement with Vistana to acquire, develop, manage and market vacation ownership
resorts in North America under Promus brand names. Vistana will serve as
managing partner and project developer and will market the timeshare units.
Promus will serve as franchisor and manager of these joint venture properties
and will own a 50% interest in certain projects developed pursuant to this
agreement. In addition to the proposed joint venture developments,
27
29

Vistana has licensed three other PVR properties. The latest of these, announced
in October 1997, calls for the development by Vistana of a 150-unit Embassy
Vacation Resort in Scottsdale, Arizona which will be managed by Promus. In May
1997, Vistana opened the first Hampton Vacation Resort in Kissimmee, Florida.
This resort is managed by Vistana. An Embassy Vacation Resort in Myrtle Beach,
South Carolina, which will be managed by Promus, is currently under
construction.

As of December 31, Promus Vacation Resort statistics were as follows:

DECEMBER 31,
---------------
1996 1997
------ ------

Total vacation resorts open................................. 3 6
Total available timeshare units............................. 371 1,046
Total available timeshare intervals......................... 18,921 53,346
Total timeshare intervals sold*............................. 4,524 10,304

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

* Includes presold intervals for resorts under construction.

Promus Vacation Resorts also manages a non-branded resort property in
Miami, Florida.

OTHER

In addition to ground-up development of hotels, strategic alliances with
others, and incentives provided to hotel owners as a means of obtaining
franchise and management contracts, the Company pursues other means of system
growth, including strategic hotel acquisitions. The hotel industry is in an
intense period of consolidation, which is expected to continue for several more
years. Promus is well positioned to take advantage of these unique market
conditions and may, from time to time, pursue such opportunities as they become
available.

CAPITAL SPENDING

Investment in Franchise System

Promus' net investment in its franchise system infrastructure at December
31, 1997 increased slightly from December 31, 1996. The Company expects its
investment in the franchise system to decrease slightly in 1998, as
reimbursements from hotel assessments outpace additional spending on system
enhancements.

Other

In order to maintain Promus' quality standards, ongoing refurbishment of
existing company owned and leased hotel properties will continue in 1998 at an
estimated annual cost of approximately $39.0 million. During 1997, the Company
spent a similar amount on hotel refurbishment and conversions. 1997 spending
increased significantly over prior year levels due to the November 1996
acquisition of Red Lion, in which the Company obtained 34 owned and leased
hotels.

In April 1997, PHC's Board of Directors authorized the Company to
repurchase up to $150.0 million of its common stock for general corporate
purposes and future strategic investments. PHC repurchased 1,573,800 shares of
its common stock at a cost of $60.0 million. Repurchases of these shares were
funded primarily through operating cash flows. As a result of the Merger of PHC
into Promus, the Company terminated this share repurchase program.

Promus' capital expenditures totaled $240.6 million for the twelve months
ended December 31, 1997. The Company currently expects to spend between $250.0
million and $300.0 million during 1998 to fund hotel and resort development,
refurbish existing facilities, support its hotel management and business
systems, loan funds to hotel owners, invest in joint ventures and pursue other
corporate related projects. If the Company identifies other significant
acquisition and/or investment opportunities, 1998 capital spending could
increase from these planned levels.

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30

Cash necessary to finance projects currently identified, as well as
additional projects to be pursued by Promus, will be made available from
operating cash flows, the revolving credit facility, joint venture partners,
specific project financing, sales of existing hotel assets and/or investments
and, if necessary, Promus debt and/or equity offerings.

LIQUIDITY AND CAPITAL RESOURCES

1997 operating cash flow increased $62.6 million from 1996 levels. This
increase is due in part to higher income levels and the full year effect of the
Red Lion acquisition, combined with the noncash impact of unusual items
including business combination expenses. The increase in 1996 operating cash
flow over 1995 is also due primarily to net income growth, which increased $26.3
million to $90.7 million in 1996.

Cash flows used in investing activities decreased substantially in 1997
from 1996 levels, due to the 1996 purchase of Red Lion. 1997 capital spending
was also partially offset by proceeds from the sales of real estate, securities
and investments. The increase in cash used for investing activities during 1996
as compared to 1995 was attributable to the Red Lion purchase noted above.

Cash flows used in financing activities during 1997 include approximately
$60.0 million used by PHC to repurchase common stock and approximately $77.4
million used by the Company to retire debt. 1996 included $866.3 million in cash
received from debt and equity offerings that was used to purchase Red Lion.

On December 31, 1997, the Company had a working capital deficit of $120.7
million, compared to a $49.0 million deficit that existed at December 31, 1996.
This increase is primarily the result of accrued business combination expenses
and an increase in the current portion of notes payable related to a
consolidated joint venture hotel mortgage. Cash needed to fund business
combination expenses will be made available from operations or borrowings under
the Promus Facility. The hotel mortgage which matures during 1998 is currently
being refinanced.

The Company's cash management program uses all excess cash to pay down
amounts outstanding under the Promus Facility. Promus does not believe that the
current ratio is an appropriate measure of its short-term liquidity without
considering the aggregate availability of its capital resources. Promus believes
that these resources, consisting of strong operating cash flow, available
borrowings under the Promus Facility, and Promus' ability to obtain additional
financing through various financial markets, are sufficient to meet its
liquidity needs.

Promus Facility and Other Indebtedness

Concurrent with the Merger, Promus entered into a new unsecured revolving
credit arrangement (the Promus Facility), which consists of two separate
agreements, the significant terms of which are as follows:

TOTAL MATURITY INTEREST FACILITY
FACILITY DATE RATE FEES
------------ ----------------- ------------- ------------------

Five-Year Revolver... $750,000,000 December 19, 2002 Base Rate, as 0.125% of the
defined or total facility
LIBOR +25.0
basis
points
Extendible Base Rate, as 0.105% of the
Revolver........... $250,000,000 December 18, 1998 defined, or total facility
LIBOR +27.0
basis
points

Promus borrowed $592.0 million under the Promus Facility on December 19,
1997, which was used to repay the existing indebtedness of Doubletree and PHC.
Previously capitalized financing costs were written off

29
31

and costs incurred to obtain the Promus Facility were capitalized and are being
amortized over the term of the Promus Facility.

The Extendible Revolver is a 364-day facility with annual renewals and may
be converted into a four-year term loan with equal quarterly amortizing
payments. The Five-Year Revolver includes a sublimit for letters of credit of
$100.0 million. At December 31, 1997, approximately $16.0 million in letters of
credit were outstanding under this agreement (related primarily to the Company's
self-insurance reserves). Promus Facility availability at December 31, 1997, was
$376.9 million. The remaining borrowing capacity is available for working
capital, hotel development and other general corporate purposes.

Facility fees and interest on Base Rate loans are paid quarterly. The
agreements contain a tiered scale for facility fees and the applicable LIBOR
spread that, subsequent to June 1998, is based on the more favorable of Promus'
current credit rating or the leverage ratio, as defined. Based on the terms of
the Promus Facility, Promus' current fee structure (reflected in the previous
page's table) is fixed for the first six months, but will begin to follow the
tiered scale thereafter. Had the tiered scale been in effect at December 31,
1997, Promus' borrowing rate, based on its current credit rating (BBB+ per
Standard & Poor's) would have been five basis points lower, for a combined fee
of LIBOR plus 32.5 basis points.

Both the Extendible Revolver and the Five-Year Revolver contain provisions
that allow Promus to request increases in total capacity of $50.0 million and
$200.0 million, respectively. Though all the banks which currently participate
in the Promus Facility are not obligated to provide this additional capacity,
Promus can approach banks outside the current facility. The Promus Facility also
contains provisions that restrict certain investments, limit the Company's
ability to dispose of property, and require that certain performance ratios be
maintained. As of December 31, 1997, Promus was in compliance with all such
covenants.

In addition to the Promus Facility, the Company has other notes payable,
which are primarily mortgage financing on consolidated joint venture hotel
properties. One such note matures in June 1998, and Promus, in conjunction with
its partner, is currently in negotiations to refinance this debt.

During the fourth quarter of 1997, Promus obtained a $20.0 million
five-year convertible rate unsecured term loan, the proceeds from which were
used to retire a portion of PHC's previous credit facility. This loan bears
interest for two years at the three-month LIBOR rate minus 15 basis points (5.7%
at December 31, 1997). At the beginning of the third year, the rate changes to a
fixed rate of 6.7%. The bank may elect to convert this fixed rate to the
three-month LIBOR rate plus 32.5 basis points, under a conversion option that is
exercisable annually beginning on October 28, 1999.

As of December 31, 1997, Promus was a party to several interest rate swap
agreements, bearing a total notional amount of $389.8 million, which serve to
convert a portion of the Company's variable rate debt to a fixed rate of
interest. The weighted average fixed rate pursuant to the agreements, which
expire between December 1998 and January 2002, was approximately 6.1% at
December 31, 1997, resulting in a weighted average effective rate (including the
applicable spreads) of approximately 6.7%.

YEAR 2000

With the approach of the year 2000, there has been concern over the impact
of this event on computer systems worldwide. Promus has assessed the impact of
the year 2000 on its business, and does not believe this event will materially
or adversely affect its future operations, financial results or financial
position.

SEASONALITY

The operating results of hotels are affected by seasonality. Though the
Company's hotels are geographically dispersed, revenues and profits are
typically higher in summer periods than winter periods.

INFLATION

Although operations of the Company can be impacted by inflation, Promus has
not typically experienced a significant negative effect on its hotels and food
and beverage operations as a result of inflation. To date, the

30
32

Company has been able to increase rates and prices and thereby pass on the
effects of inflationary cost increases. Although competitive conditions may
limit the industry's future ability to raise room rates at the rate of inflation
and although inflation can also impact the travel patterns of guests, management
believes that each of its hotel brands has rate growth potential in excess of
the inflation rate. Promus will continue to emphasize cost containment and
productivity improvement programs. Inflation tends to increase the underlying
value of Promus' real estate and management and franchise contracts.

NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board has issued several Statements of
Financial Accounting Standards (SFAS) in recent months. SFAS No. 130, "Reporting
Comprehensive Income," establishes standards for the reporting and display of
comprehensive income and its components within the financial statements. SFAS
No. 130 is effective for annual periods beginning after December 15, 1997, but
summary disclosure will be required in Promus' first quarter 1998 Form 10-Q.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," may require additional financial and descriptive disclosure
regarding Promus' operating segments, and is effective for the year ended
December 31, 1998.

FORWARD LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. Certain information included in this
document and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contains statements based on management's beliefs and assumptions, which are
based on information currently available to management. Forward looking
statements include information relating to, and may be impacted by changes in,
the following activities, among others: (A) operations of existing hotel
properties, including the effects of competition and customer demand, which can
impact future performance; (B) changes in the size of Promus' hotel system,
including anticipated scope and opening dates of new developments and planned
future capital spending; (C) relationships with third parties, including
franchisees, lessors, hotel owners, lenders and others; (D) litigation or other
judicial actions; (E) changes in the economy; and (F) adverse changes in
interest rates for both Promus and its franchisees and business partners. These
activities involve important factors, some of which are beyond Promus' ability
to control and predict, that could cause actual results to differ materially
from those expressed in any forward looking statements made by or on behalf of
the Company. Any forward looking statements are made pursuant to the Private
Securities Litigation Reform Act of 1995 and, as such, speak only as of the date
made.

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33

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

PROMUS HOTEL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

PAGE
----

Management's Report on Financial Statements................. 32
Independent Auditors' Report................................ 33
Consolidated Financial Statements:
Balance Sheets as of December 31, 1996 and 1997........... 34
Statements of Operations for the years ended December 31,
1995, 1996 and 1997.................................... 35
Statements of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997....................... 36
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.................................... 37
Notes to Consolidated Financial Statements.................. 38

Financial Statement Schedules

All financial statement schedules have been omitted as the information is
either included in the consolidated financial statements and notes thereto, is
not applicable or is not required.

MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS

Promus is responsible for preparing the financial statements and related
information appearing in this report. Management believes that the financial
statements present fairly its financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. In preparing
its financial statements, Promus is required to include amounts based on
estimates and judgments which it believes are reasonable under the
circumstances.

Promus maintains accounting and other control systems designed to provide
reasonable assurance that financial records are reliable for purposes of
preparing financial statements and that assets are properly accounted for and
safeguarded. Compliance with these systems and controls is reviewed through a
program of audits by an internal auditing staff. Limitations exist in any
internal control system, recognizing that the system's cost should not exceed
the benefits derived.

The Board of Directors pursues its responsibility for Promus' financial
statements through its Audit Committee, which is composed solely of directors
who are not officers or employees of Promus. The Audit Committee meets from time
to time with the independent public accountants, management and the internal
auditors. Promus' internal auditors report directly to, and the independent
public accountants have access to, the Audit Committee, with and without the
presence of management representatives.

Raymond E. Schultz William L. Perocchi
Chairman of the Board & Executive Vice President &
Chief Executive Officer Chief Financial Officer

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34

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
Promus Hotel Corporation:

We have audited the accompanying consolidated balance sheets of Promus
Hotel Corporation (a Delaware corporation) and subsidiaries (Promus) as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years
ended December 31, 1997. These financial statements are the responsibility of
Promus' management. Our responsibility is to express an opinion on these
financial statements based on our audits. These financial statements include the
financial position and results of operations of Doubletree Corporation
(Doubletree), pursuant to a merger of Doubletree and Promus effective December
19, 1997. As discussed in Note 1, this merger was accounted for as a
pooling-of-interests, and the financial position and results of operations for
Promus and Doubletree have been combined for all periods presented. We have not
audited the financial statements of Doubletree for the two years ended December
31, 1996. Those statements were audited by other auditors whose report, dated
March 17, 1997, was furnished to us and our opinion, insofar as it relates to
amounts included for Doubletree, is based solely upon the report of the other
auditors. The financial statements of Doubletree for the two years ended
December 31, 1996, audited by other auditors, represent 73 percent of total
consolidated assets as of December 31, 1996, and 52 percent and 44 percent of
total consolidated revenues for the years ended December 31, 1996 and 1995,
respectively.

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 financial statements referred to above present fairly, in all material
respects, the financial position of Promus Hotel Corporation and subsidiaries as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years ended December 31, 1997, in conformity with
generally accepted accounting principles.

Memphis, Tennessee,
February 4, 1998.

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35

PROMUS HOTEL CORPORATION

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,

1996 1997
---------- ----------
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)

ASSETS
Cash and cash equivalents................................... $ 29,288 $ 24,066
Accounts receivable, net.................................... 69,246 78,941
Other....................................................... 19,693 43,222
---------- ----------
Total current assets.............................. 118,227 146,229
---------- ----------
Property and equipment, net................................. 955,886 960,231
Investments................................................. 264,442 250,688
Management and franchise contracts, net..................... 468,301 440,568
Goodwill, net............................................... 378,326 374,500
Notes receivable............................................ 85,629 89,452
Investment in franchise system.............................. 48,750 50,421
Deferred costs and other assets............................. 43,353 66,957
---------- ----------
$2,362,914 $2,379,046
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses....................... $ 161,435 $ 220,924
Current portion of notes payable............................ 5,778 46,020
---------- ----------
Total current liabilities......................... 167,213 266,944
---------- ----------
Deferred income taxes....................................... 279,805 264,859
Notes payable............................................... 789,174 671,978
Other long-term obligations................................. 77,103 79,530
---------- ----------
1,313,295 1,283,311
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value. Authorized 500,000,000
shares; 87,114,511 and 86,118,141 shares issued and
outstanding............................................ 871 861
Additional paid-in capital................................ 902,451 856,008
Unrealized gain on marketable equity securities........... 17,137 13,601
Unearned employee compensation............................ (739) (70)
Retained earnings......................................... 129,899 225,335
---------- ----------
1,049,619 1,095,735
---------- ----------
$2,362,914 $2,379,046
========== ==========

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

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36

PROMUS HOTEL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,

1995 1996 1997
-------- -------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)

Revenues:
Franchise and management fees............................. $110,350 $140,768 $ 185,546
Owned hotel revenues...................................... 137,160 172,893 368,012
Leased hotel revenues..................................... 141,942 205,163 410,526
Purchasing and service fees............................... 6,112 9,867 19,304
Other fees and income..................................... 26,265 31,522 54,623
-------- -------- ----------
Total revenues.................................... 421,829 560,213 1,038,011
-------- -------- ----------
Operating costs and expenses:
General and administrative expenses....................... 52,952 62,638 79,249
Owned hotel expenses...................................... 82,055 105,146 224,052
Leased hotel expenses..................................... 132,644 190,797 362,681
Depreciation and amortization............................. 27,759 36,276 73,127
Business combination expenses............................. 2,565 -- 115,000
-------- -------- ----------
Total operating costs and expenses................ 297,975 394,857 854,109
-------- -------- ----------
Operating income.................................. 123,854 165,356 183,902
Interest and dividend income.............................. 7,551 17,175 22,982
Interest expense, net..................................... (31,818) (36,647) (72,027)
Gain on sale of real estate and securities................ 2,334 4,439 43,330
-------- -------- ----------
Income before income taxes, minority interest and
extraordinary items............................. 101,921 150,323 178,187
Minority interest share of net income....................... (83) (539) (3,087)
-------- -------- ----------
Income before income taxes and extraordinary
items........................................... 101,838 149,784 175,100
Income tax expense.......................................... (40,287) (59,126) (79,664)
-------- -------- ----------
Income before extraordinary items................. 61,551 90,658 95,436
Extraordinary items, net of tax of $1,635................... 2,819 -- --
-------- -------- ----------
Net income........................................ $ 64,370 $ 90,658 $ 95,436
======== ======== ==========
Basic earnings per share
Income before extraordinary items................. $ 0.89 $ 1.25 $ 1.10
======== ======== ==========
Net income........................................ $ 0.93 $ 1.25 $ 1.10
======== ======== ==========
Diluted earnings per share
Income before extraordinary items................. $ 0.88 $ 1.23 $ 1.09
======== ======== ==========
Net income........................................ $ 0.92 $ 1.23 $ 1.09
======== ======== ==========

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

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37

PROMUS HOTEL CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

UNREALIZED
GAIN ON
ADDITIONAL MARKETABLE UNEARNED PARENT
COMMON PAID-IN EQUITY EMPLOYEE RETAINED COMPANY
STOCK CAPITAL SECURITIES COMPENSATION EARNINGS INVESTMENT TOTAL
------ ---------- ---------- ------------ -------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

Balance -- December 31,
1994........................ $216 $ 93,215 $ -- $ -- $ (1,844) $143,008 $ 234,595
Proceeds from sale of 400,000
shares of common stock to
the public, net of offering
costs of $980............... 4 6,616 -- -- -- -- 6,620
PHC intercompany activity with
Parent -- January 1, 1995
through June 30, 1995....... -- -- -- -- -- (24,656) (24,656)
Spin-off of PHC............... 475 140,461 -- (1,354) -- (139,582) --
Net shares issued under
incentive compensation plan,
including income tax benefit
of $159..................... 1 889 -- 145 -- -- 1,035
Unrealized gain on equity
securities, net of deferred
income taxes................ -- -- 1,844 -- -- -- 1,844
Distributions to
stockholders................ -- -- -- -- (2,055) -- (2,055)
Net income.................... -- -- -- -- 43,140 21,230 64,370
---- -------- ------- ------- -------- -------- ----------
Balance -- December 31,
1995........................ 696 241,181 1,844 (1,209) 39,241 -- 281,753
Proceeds from sale of 952,300
shares of common stock to
the public, net of offering
costs of $1,045............. 10 27,362 -- -- -- -- 27,372
Proceeds from sale of
9,067,534 shares of common
stock, net of offering costs
of $1,500................... 91 340,681 -- -- -- -- 340,772
Issuance of 7,381,588 shares
to the shareholders of Red
Lion........................ 74 291,499 -- -- -- -- 291,573
Net shares issued under
incentive compensation
plans, including income tax
benefit of $584............. -- 1,728 -- 470 -- -- 2,198
Change in unrealized gain on
equity securities, net of
deferred income taxes....... -- -- 15,293 -- -- -- 15,293
Net income.................... -- -- -- -- 90,658 -- 90,658
---- -------- ------- ------- -------- -------- ----------
Balance -- December 31,
1996........................ 871 902,451 17,137 (739) 129,899 -- 1,049,619
Net shares issued under
incentive compensation
plans, including income tax
benefit of $4,136........... 5 13,534 -- 669 -- -- 14,208
Purchases of treasury
shares...................... (15) (59,977) -- -- -- -- (59,992)
Change in unrealized gain on
equity securities, net of
realized gains and deferred
income taxes................ -- -- (3,536) -- -- -- (3,536)
Net income.................... -- -- -- -- 95,436 -- 95,436
---- -------- ------- ------- -------- -------- ----------
Balance -- December 31,
1997........................ $861 $856,008 $13,601 $ (70) $225,335 $ -- $1,095,735
==== ======== ======= ======= ======== ======== ==========

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

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38

PROMUS HOTEL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,

1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................................. $ 64,370 $ 90,658 $ 95,436
Adjustments to reconcile net income to net cash provided
by operations:
Extraordinary items.................................... (4,454) -- --
Provision for business combination expenses, net of
payments............................................. -- -- 93,591
Depreciation and amortization.......................... 27,759 36,276 73,127
Other noncash expenses................................. (1,064) (3,578) 11,742
Equity in earnings of nonconsolidated affiliates....... (2,784) (7,677) (10,722)
Loss (gain) on sale of investments in partnerships and
affiliates........................................... 175 1,160 (3,445)
Gain on sale of real estate and securities............. (2,334) (4,439) (43,330)
Changes in assets and liabilities:
Increase in accounts receivable, net................... (9,393) (9,363) (9,882)
Increase in other current assets....................... (1,047) (5,766) (3,243)
Increase in accounts payable and accrued expenses...... 22,774 10,506 1,452
Increase in deferred costs and other assets............ (2,551) (3,275) (16,313)
Increase (decrease) in other long-term obligations and
deferred income taxes................................ 7,972 11,812 (14,520)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES......... 99,423 116,314 173,893
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Red Lion and related costs................. -- (819,025) (20,607)
Purchases of property and equipment.................... (58,580) (60,277) (155,988)
Proceeds from sale of property and equipment........... 7,843 43,709 128,156
Investments in and advances to partnerships and
affiliates........................................... (50,363) (112,203) (47,285)
Distributions from partnerships and affiliates......... 3,411 11,104 16,004
Net investment in management and franchise contracts... (6,369) (1,284) (372)
Escrow deposits held for future development............ -- -- (22,053)
Proceeds from sale of investments...................... -- 2,224 62,530
Loans to owners of managed and franchised hotels....... (15,266) (26,941) (18,818)
Collections of loans to owners of managed and
franchised hotels.................................... 1,500 2,750 15,553
Net investment in franchise system..................... 138 (10,817) (3,257)
Other.................................................. (1,231) 4,210 (943)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES............. (118,917) (966,550) (47,080)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock............. 6,620 368,144 --
Proceeds from exercise of common stock options......... 305 1,219 6,817
Purchases of treasury stock............................ -- -- (59,992)
Net activity under revolving credit facilities......... 10,600 14,500 383,950
Proceeds from notes payable............................ -- 498,200 40,000
Principal payments on notes payable.................... (1,123) (37,596) (501,351)
Advances from Parent................................... 14,840 -- --
Other.................................................. (1,818) (263) (1,459)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES...................................... 29,424 844,204 (132,035)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 9,930 (6,032) (5,222)
Cash and cash equivalents, beginning of period.............. 25,390 35,320 29,288
--------- --------- ---------
Cash and cash equivalents, end of period.................... $ 35,320 $ 29,288 $ 24,066
========= ========= =========

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

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39

PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997

NOTE 1. SUMMARY OF ORGANIZATION AND BUSINESS OPERATIONS

COMPANY HISTORY

On December 19, 1997, Doubletree Corporation (Doubletree) and Promus Hotel
Corporation (PHC) merged in accordance with the Agreement and Plan of Merger
(the Merger Agreement or the Merger) by and among Doubletree, PHC and Parent
Holding Corp., a newly-formed corporation jointly owned by Doubletree and PHC.
This transaction has been accounted for as a pooling-of-interests. Accordingly,
the accompanying consolidated financial statements have been restated to combine
the historical results of both Doubletree and PHC for all periods presented.
Concurrent with consummation of the Merger, PHC was renamed Promus Operating
Company, Inc. and Parent Holding Corp. was renamed Promus Hotel Corporation.
Promus Hotel Corporation and subsidiaries are collectively referred to herein as
Promus or the Company.

On November 8, 1996, the Company acquired Red Lion Hotels, Inc. (Red Lion)
in a business combination accounted for as a purchase. Accordingly, the
financial results of Red Lion and its subsidiaries are included since November
8, 1996.

On February 27, 1996, the Company acquired RFS, Inc. (RFS Management) in a
transaction accounted for as a pooling-of-interests. Accordingly, the
accompanying consolidated financial statements have been restated to include the
historical results of RFS Management for all periods presented.

On June 30, 1995, PHC was created when The Promus Companies Incorporated
(Parent) completed the transfer of the operations, assets and liabilities of its
hotel business to PHC, a new publicly-traded entity. Parent spun-off PHC and
distributed its stock to Parent's stockholders on a one-for-two basis effective
June 30, 1995 (the Spin-off). The 1995 financial statements include a portion of
Parent's historical revenues and expenses for periods before the Spin-off.

DESCRIPTION OF BUSINESS

Through its wholly-owned subsidiaries, Promus franchises and manages hotels
with the following brands: Club Hotel by Doubletree, Doubletree Hotels,
Doubletree Guest Suites, Embassy Suites, Hampton Inn, Hampton Inn & Suites and
Homewood Suites. Promus may also own all or a portion of these hotels or lease
these hotels from others. In addition, Promus leases and manages hotels that are
not Promus-branded. At December 31, 1997, Promus franchises 866 hotels and
operates 333 hotels, of which 53 hotels are wholly-owned, 22 are partially-owned
through joint ventures, 86 are leased from third parties and 172 are managed for
third parties. These hotels are located in all 50 states, the District of
Columbia, Puerto Rico, the U.S. Virgin Islands and six foreign countries. The
Company also operates and licenses vacation interval ownership systems under the
Embassy Vacation Resort and Hampton Vacation Resort names.

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

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. The preparation of financial
statements in accordance with generally accepted accounting principles requires

38
40
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues, and expenses and the disclosure of contingent
assets and liabilities. While management endeavors to make accurate estimates,
actual results could differ from these estimates. Certain financial statement
items from prior years have been reclassified to achieve consistency in
presentation between Doubletree and PHC.

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, cash equivalents are highly
liquid investments with an original maturity of three months or less.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Improvements that extend the
life of the asset are capitalized. Maintenance and repairs are expensed as
incurred. Interest expense is capitalized on constructed assets at Promus'
overall weighted average borrowing rate. The Company capitalized interest of
$1.4 million, $1.6 million and $2.3 million in 1995, 1996 and 1997,
respectively. Depreciation expense is calculated using the straight-line method
over the shorter of the estimated useful life of the assets or over the related
lease term, as follows:

Land improvements.......................................... 12 to 15 years
Buildings and improvements................................. 10 to 40 years
Furniture, fixtures and equipment.......................... 2 to 15 years

INVESTMENTS

Investments in partnerships and ventures are accounted for using the equity
method of accounting when the Company has a general partnership interest or its
limited partnership interest exceeds 5% and the Company does not exercise
control over the venture. Profits and losses are allocated in accordance with
the partnership or joint venture agreements. The Company's share of the income
or losses before interest expense and extraordinary items is included in other
fees and income in the accompanying consolidated statements of operations.
Promus' proportionate share of interest expense and extraordinary items of such
joint ventures is included in interest expense and extraordinary items,
respectively, in the accompanying consolidated statements of operations. The
Company's proportionate share of interest expense totaled $13.4 million, $12.2
million and $13.3 million for the years ended December 31, 1995, 1996 and 1997,
respectively. During 1995, the Company realized its proportionate share of
extraordinary gains of $2.8 million (net of tax) related to the early payoff and
forgiveness of a portion of debt on two joint venture hotels. All other
investments are accounted for using the cost method.

MANAGEMENT AND FRANCHISE CONTRACTS

Management and franchise contracts acquired in acquisitions that were
accounted for as purchases are recorded at the estimated present value of net
cash flows expected to be received over the lives of the contracts. This value
is amortized using the straight-line method over the estimated weighted average
contract life, which ranges from 25 years to 41 years. Costs incurred to acquire
individual management and franchise contracts are amortized using the
straight-line method over the life of the respective contract. Management and
franchise contracts are carried net of accumulated amortization of $17.5 million
and $31.9 million at December 31, 1996 and 1997, respectively.

39
41
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

GOODWILL

Goodwill arose in connection with purchase acquisitions and is amortized
using the straight-line method over 40 years. Goodwill is carried net of
accumulated amortization of $2.6 million and $12.1 million at December 31, 1996
and 1997, respectively.

NOTES RECEIVABLE

Notes receivable consist primarily of loans to owners of managed and
franchised hotels. Management considers a note to be impaired when it is
probable that the Company will be unable to collect all amounts due according to
the contractual terms of the note. When a loan is considered to be impaired, the
amount of the impairment is measured based on the present value of expected
future cash flows discounted at the note's effective interest rate. Impairment
losses are charged to expense. Generally, cash receipts will first be applied to
reduce accrued interest and then to reduce principal.

INVESTMENT IN FRANCHISE SYSTEM

Promus' investment in its franchise system includes the costs for computer
systems to operate the centralized marketing and reservation centers and a
property management system that interacts with several operational software
packages which are available to each Promus franchised hotel. Promus is
reimbursed for these costs by its system funds over their estimated useful
lives. In addition to computer system costs, these funds reimburse Promus for
related personnel and fringe benefit, advertising, promotional fees and other
reservation costs. The owner of each hotel, including Promus' company owned
hotels, contributes a percentage of room revenues to its brand's fund.

DEFERRED COSTS AND OTHER ASSETS

Deferred costs and other assets include escrow deposits, debt issuance
costs, franchise application fees paid and cash surrender value of insurance
policies. Escrow deposits represent proceeds received from 1997 hotel sales
which are expected to be used in 1998 to purchase replacement property, in order
for the sales to qualify as like-kind exchanges for income tax purposes. Costs
related to the issuance of debt are capitalized and amortized to interest
expense over the lives of the related debt.

REVENUE RECOGNITION

Franchise and management fees, hotel revenues and purchasing and service
fees are recognized when earned. Owned hotel revenues and leased hotel revenues
represent revenue derived primarily from the rental of rooms and suites and food
and beverage sales for hotels owned or leased by the Company.

EARNINGS PER SHARE

As of December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standard (SFAS) No. 128, "Earnings per Share." In adopting
this pronouncement, the Company restated prior period earnings per share data
for all periods presented in the accompanying consolidated financial statements.
For Promus, basic earnings per share is determined by dividing net income by the
weighted average number of common shares outstanding during the year. Diluted
earnings per share is computed by dividing net income by the weighted average
number of common and common equivalent shares outstanding during the year.
Common equivalent shares include employee stock options, restricted stock and
warrants deemed exercisable for the purpose of computing diluted earnings per
share. The Company has no other potentially dilutive securities.

40
42
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INCOME TAXES

Under the asset and liability method of accounting for income taxes,
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets, including net operating loss carryforwards,
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period when the new rate is enacted.

LONG-LIVED ASSETS

The recoverability of hotel real estate, investments, management contracts
and goodwill are periodically evaluated to determine whether such costs will be
recovered from future operations. Evaluations are based on projected cash flows
on an undiscounted basis. If the undiscounted cash flows are insufficient to
recover the recorded assets, then the projected cash flows are discounted and an
impairment loss is recognized for the difference.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of notes receivable,
marketable equity securities, notes payable and interest rate swap agreements.
The carrying amounts of financial instruments other than notes receivable and
interest rate swap agreements approximate fair value due to the short maturity
of those instruments, interest terms or, in the case of marketable equity
securities, they are carried at their estimated fair value. The Company has
determined that the fair value of its notes receivable approximates carrying
value based on interest rate and payment terms the Company would currently offer
on notes with similar security to borrowers of similar creditworthiness.

RECENT PRONOUNCEMENTS

In 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which are effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components within the
financial statements. SFAS No. 131 established standards requiring public
companies to report information about operating segments within the financial
statements. Promus will adopt both SFAS No. 130 and SFAS No. 131 in 1998, and
these adoptions are not expected to materially impact the Company's financial
statements.

NOTE 3. BUSINESS COMBINATIONS

DOUBLETREE/PROMUS MERGER

The Company was formed on December 19, 1997, as a result of the Merger of
Doubletree and PHC. As a result of the Merger Agreement, (i) Doubletree and PHC
became wholly-owned subsidiaries of Promus; (ii) each outstanding share of
common stock of Doubletree was converted into one share of common stock of
Promus; and (iii) each outstanding share of PHC common stock was converted into
0.925 of a share of common stock of Promus. The Merger qualified as a tax free
exchange and was accounted for as a pooling-of-interests. Historical financial
results of Doubletree and PHC have been combined for all periods presented.

41
43
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The results of operations for the separate companies and the pro forma
combined results presented in the accompanying consolidated financial statements
are as follows:

(UNAUDITED)
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- -----------------
1995 1996 1997
-------- -------- -----------------
(IN THOUSANDS)

Revenues:
Doubletree..................................... $185,278 $292,710 $570,446
PHC............................................ 236,551 267,503 223,820
-------- -------- --------
Combined....................................... 421,829 560,213 794,266
======== ======== ========
Net Income:
Doubletree..................................... $ 17,791 $ 25,934 $ 55,518
PHC............................................ 46,579 64,724 87,017
-------- -------- --------
Combined....................................... 64,370 90,658 142,535
======== ======== ========

In connection with the Merger, the Company recorded a $115.0 million
provision for business combination expenses, including both transaction costs
and restructuring costs. Transaction costs of approximately $40.3 million
consist primarily of fees for investment bankers, attorneys, accountants,
financial printing and other related charges. Restructuring costs of
approximately $74.7 million include severance costs, exit costs related to the
consolidation of administrative functions, and the write off of certain assets
whose benefits will not be realized after the Merger. At December 31, 1997,
$70.9 million relating to these obligations was classified within current
liabilities.

ACQUISITION OF RED LION HOTELS, INC.

On November 8, 1996, the Company acquired all of the outstanding common
stock of Red Lion in a transaction valued at approximately $1.2 billion. The
Company paid $695.0 million in cash, repaid $124.0 million of existing Red Lion
indebtedness, issued 7.4 million shares of common stock to the shareholders of
Red Lion with a fair value at the date of closing of $291.5 million and assumed
net liabilities of $90.0 million. The acquisition has been accounted for as a
purchase and the results of operations of Red Lion have been included in the
consolidated financial statements since November 8, 1996. The purchase price was
allocated to the net assets acquired based upon their estimated fair market
values. The excess of the purchase price over the estimated fair value of the
net assets acquired of $365.0 million was recorded as goodwill and is being
amortized over a 40 year life. During 1997, the Company finalized the purchase
price allocation which resulted in an increase in goodwill of $7.3 million. This
increase primarily related to the write-down of certain management contracts
terminated since the acquisition date and acquisition-related costs in excess of
the original estimates, net of the write-up of a partnership investment to its
fair value at acquisition.

42
44
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following unaudited pro forma summary financial data presents the
consolidated results of operations of the Company as if Red Lion had been
acquired at the beginning of 1995 with pro forma adjustments to give effect to
(a) amortization of goodwill, (b) additional depreciation expense as a result of
a step-up in the basis of properties and equipment and investments in
unconsolidated joint ventures, (c) increased interest expense on acquisition
debt (d) the operating results of three hotels acquired in 1996 and (e) related
income tax effects. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
that would actually have resulted had the combination been in effect on the date
indicated:

YEARS ENDED
DECEMBER 31,
-------------------
1995 1996
-------- --------
(UNAUDITED)(IN
THOUSANDS, EXCEPT
PER SHARE AMOUNTS)

Revenues.................................................... $786,930 $890,552
Operating income............................................ 182,817 230,445
Income before taxes and extraordinary items................. 119,330 180,541
Net income.................................................. 70,904 105,984
Basic earnings per share.................................... $ 0.83 $ 1.22
Diluted earnings per share.................................. $ 0.82 $ 1.21

ACQUISITION OF RFS, INC.

In February 1996, the Company issued 2.7 million shares of common stock in
exchange for all of the outstanding stock of RFS Management in a transaction
accounted for as a pooling-of-interests. Accordingly, the accompanying
consolidated financial statements were restated to include the results of RFS
Management for all periods presented.

ACQUISITION OF HARRISON CONFERENCE ASSOCIATES, INC.

In January 1998, the Company acquired Harrison Conference Associates, Inc.
(Harrison) for approximately $60.2 million cash in a transaction accounted for
as a purchase. Harrison is a leading conference center operator with over 1,200
rooms under management, including two owned and seven managed properties.

NOTE 4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

DECEMBER 31,
-----------------------
1996 1997
---------- ----------
(IN THOUSANDS)

Land and improvements....................................... $ 147,394 $ 140,826
Buildings and improvements.................................. 683,698 682,113
Furniture, fixtures and equipment........................... 215,253 207,422
Construction in progress.................................... 36,120 55,878
---------- ----------
1,082,465 1,086,239
Accumulated depreciation.................................... (126,579) (126,008)
---------- ----------
$ 955,886 $ 960,231
========== ==========

43
45
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5. NOTES RECEIVABLE

Notes receivable consist of the following:

DECEMBER 31,
-----------------
1996 1997
------- -------
(IN THOUSANDS)

Secured:
Due from Red Lion MLP....................................... $24,405 $23,133
Secured notes, with interest at rates varying from
8.0%-11.5%, maturing through 2016......................... 34,161 38,241
------- -------
58,566 61,374
Unsecured:
Candlewood $15.0 million credit facility, with interest at
rates varying from 7.0%-10.0%, maturing in 2001........... 12,065 14,608
Unsecured notes, with interest at rates varying from
5.8%-15.0%, maturing through 2007......................... 15,590 14,541
------- -------
86,221 90,523
Less current portion...................................... (592) (1,071)
------- -------
$85,629 $89,452
======= =======

Interest is generally received monthly with principal due upon the earlier
of termination of the management contract or sale of the hotel. Certain of the
notes receivable bear a variable interest rate based on Prime or LIBOR. At
December 31, 1997, the variable interest rates ranged from Prime minus 1.5%
(7.0% at December 31, 1997) to Prime plus 2% (10.5% at December 31, 1997). At
December 31, 1997, management does not consider any of its notes receivable to
be impaired. The Company is the 1.99% general partner of Red Lion Inns Limited
Partnership, a publicly-traded master limited partnership (Red Lion MLP). Red
Lion MLP owns 10 hotels which are also managed by the Company under a long-term
management agreement. In connection with its responsibilities as general
partner, the Company advanced funds for capital improvements and other operating
needs. These advances generally bear interest at Prime plus 0.5% (9.0% at
December 31, 1997). Advances include approximately $5.3 million at December 31,
1997 which are noninterest bearing and represent the funding of partnership
distributions and the deferral of incentive management fees due to insufficient
Cash Flow, as defined. On December 30, 1997, Red Lion MLP agreed to a proposed
merger transaction with a third party which, subject to approval by the
unitholders, is expected to close in the second quarter of 1998. This proposed
merger will result in the Company being paid in full for these advances upon
closing.

NOTE 6. INVESTMENTS

Investments consist of the following:

DECEMBER 31,
-------------------
1996 1997
-------- --------
(IN THOUSANDS)

Hotel partnerships.......................................... $132,550 $168,884
Investments in common stock (at market)..................... 113,392 63,304
Convertible preferred stock................................. 18,500 18,500
-------- --------
$264,442 $250,688
======== ========

The Company's noncontrolling general and/or limited partnership interests
in hotel partnerships range from less than 1.0% to 50.0%. Investments in common
stock are carried at market value and include investments in FelCor Suite
Hotels, Inc. and FelCor Limited Partnership (collectively, FelCor), Equity Inns,

44
46
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Inc. (Equity), Winston Hotels, Inc. (Winston) and RFS Hotel Investors, Inc.
(RHI). Promus' cost of these investments at December 31, 1996 and 1997 was
approximately $84.3 million and $40.1 million, respectively.

In 1995, Promus entered into two agreements with FelCor. Under these
agreements, the Company purchased $25.0 million of FelCor limited partnership
interests and $50.0 million of FelCor common stock. FelCor used the proceeds to
help acquire all-suites upscale hotels that it converted to the Embassy Suites
brand, including the acquisition of Crown Sterling Suite Hotels. The limited
partnership interests may be converted to shares of FelCor common stock on a
one-for-one basis and the common stock may be sold on the open market. During
1997, Promus sold approximately $38.9 million of its original investment in
FelCor stock, resulting in a pre-tax gain of approximately $11.2 million.

During 1996, Promus entered into agreements with Equity and Winston whereby
Promus would invest up to $15.0 million in the common stock of both Equity and
Winston in conjunction with their purchase of hotels from the Company. During
1996, Promus invested $7.1 million and $1.5 million in the common stock of
Equity and Winston, respectively, in exchange for their purchase of four hotels
and one hotel, respectively. During 1997, Promus sold approximately $5.5 million
of its original Equity stock, resulting in a pre-tax gain of $1.8 million.

In 1996, the Company, through RFS Management, purchased 973,684 shares of
convertible preferred stock of RHI for $19 per share, or approximately $18.5
million. This investment is recorded at cost as there is no ready market for
these securities. The convertible preferred stock pays a fixed annual dividend
of $1.45 per share and is convertible on a one-for-one basis at the end of seven
years. RHI also owns a partnership in which the Company has an investment. This
partnership investment is convertible into common stock of RHI. RHI granted the
Company a 10- year first right of refusal to manage and lease future hotels
acquired or developed by RHI. The Company has committed to RHI to maintain $15.0
million of net worth in RFS Management.

NOTE 7. LEASES

The Company leases hotel properties, land and administrative office space.
All such leases are operating leases. As of December 31, 1995, 1996 and 1997,
the Company leased 53, 82 and 86 hotels, respectively. As of December 31, 1997,
61 of these hotels are leased from RHI. All of the Company's hotel leases
require the payment of rent equal to the greater of fixed base rent or
percentage rent based on a percentage of gross room revenue, beverage revenue
and food revenue (if the hotel offers food and beverage service) and expire
beginning December 1999 through July 2015, with varying renewal options.
Substantially all of the hotels leased from RHI are cross-defaulted with one
another. Promus' land leases represent ground leases for certain owned hotels
and, in addition to minimum base rental payments, may require the payment of
percentage rents based on hotel revenues, a share of maintenance expenses and/or
real estate taxes.

Total rent expense incurred under the Company's leases was as follows:

YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
------- ------- --------

Hotel and ground leases:
Base rent.............................................. $31,331 $35,776 $ 63,994
Percentage rent........................................ 26,106 40,121 57,786
Other Leases............................................. 2,460 2,814 3,412
------- ------- --------
Total.......................................... $59,897 $78,711 $125,192
======= ======= ========

45
47
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a schedule of future minimum rental payments required
under Promus' noncancelable operating leases for years ending December 31, as
follows:

(IN THOUSANDS)

1998........................................................ $ 64,430
1999........................................................ 63,930
2000........................................................ 58,721
2001........................................................ 57,673
2002........................................................ 57,443
Thereafter.................................................. 271,769
--------
Total future minimum lease payments $573,966
========

NOTE 8. NOTES PAYABLE

Promus' indebtedness consists of the following:

DECEMBER 31,
-------------------
1996 1997
-------- --------
(IN THOUSANDS)

Promus Facility............................................. $243,100 $607,050
Term loans repaid in December 1997.......................... 461,600 --
Mortgages, LIBOR plus 1.5% -- 8.6%, maturities through
2005...................................................... 84,500 85,037
Convertible rate term loan.................................. -- 20,000
Notes payable and other unsecured debt, 8.7%-13.0%,
maturities through 2022................................... 5,752 5,911
-------- --------
794,952 717,998
Current portion of notes payable............................ (5,778) (46,020)
-------- --------
$789,174 $671,978
======== ========

Annual maturities of long-term debt are: 1998, $46.0 million; 1999, $0.8
million; 2000, $0.9 million; 2001, $0.9 million; 2002, $663.7 million and $5.6
million, thereafter.

PROMUS FACILITY

Concurrent with the Merger, Promus entered into a $1.0 billion revolving
credit facility (the Promus Facility), under which it borrowed $592.0 million on
December 19, 1997. These funds were used to repay the existing bank facilities
of both Doubletree and PHC. The Promus Facility consists of a $750.0 million
revolving credit facility which matures on December 19, 2002 (the Five-Year
Revolver) and a $250.0 million annually extendible revolving credit facility
(the Extendible Revolver) which matures on December 18, 1998. The Extendible
Revolver is convertible into a four-year term loan with equal amortizing
payments over the four-year period. Interest on the drawn portion of the Promus
Facility is, at the Company's option, equal to either (i) the base rate, as
defined, or (ii) LIBOR plus the applicable spread. Both agreements incorporate a
tiered scale that defines the applicable LIBOR spread and a facility fee based
upon the more favorable of the Company's current debt rating or leverage ratio,
as defined. At December 31, 1997, the LIBOR spread on the Five-Year Revolver and
the Extendible Revolver was 0.25% and 0.27%, respectively, and the facility fee
required on the total amount of the Five-Year Revolver and the Extendible
Revolver was 0.125% and 0.105%, respectively. At December 31, 1997, the weighted
average interest rate on outstanding Promus Facility borrowings, including the
applicable LIBOR spread, was 6.6%. Both the Five-Year Revolver and the
Extendible Revolver are unsecured. The Promus Facility contains provisions that
restrict certain investments, limit the Company's ability to dispose of property
and require that certain performance ratios be maintained. As of December 31,
1997, Promus was in compliance with all such covenants.

46
48
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Five-Year Revolver also provides a sublimit for letters of credit of
$100.0 million. At December 31, 1997, approximately $16.0 million in letters of
credit were outstanding under this agreement.

CONVERTIBLE RATE TERM LOAN

In the fourth quarter of 1997, the Company obtained a $20.0 million
five-year convertible rate unsecured term loan, the proceeds of which were used
to retire a portion of PHC's previous credit facility. This loan bears interest
for two years at the three-month LIBOR rate minus 15 basis points (5.7% at
December 31, 1997). At the beginning of the third year, the rate changes to a
fixed rate of 6.7%. The bank may elect to convert this fixed rate to the
three-month LIBOR rate plus 32.5 basis points, under a conversion option that is
exercisable annually beginning on October 28, 1999.

DERIVATIVE FINANCIAL INSTRUMENTS

Promus' use of derivative financial instruments is limited to the
management of its interest rate exposure. The Company maintains interest rate
swap agreements which exchange floating interest payments for fixed interest
payments over the life of the agreements. Existing swap agreements, with an
aggregate notional amount of $389.8 million, expire between December 1998 and
January 2002, and as of December 31, 1997 carried a weighted average fixed rate
of approximately 6.1% and a weighted average effective rate of 6.7% (including
the applicable spreads). The differential to be paid or received is accrued as
interest rates change and is recognized as an adjustment to interest expense. At
December 31, 1997, the fair value of the swap agreements, which Promus would
have been required to pay to terminate them, was approximately $2.1 million.

These agreements contain a credit risk that the counterparties may be
unable to meet the terms of the agreements. Promus minimizes that risk by
evaluating the creditworthiness of its counterparties, which are limited to
major banks and financial institutions, and does not anticipate nonperformance
by the counterparties.

NOTE 9. STOCKHOLDERS' EQUITY

One special right (Right) is attached to each outstanding share of common
stock. These Rights entitle the holders to purchase, under certain conditions,
units consisting of fractional shares of preferred stock at an exercise price to
be determined by Promus' Board of Directors. Under certain conditions, the
rights also entitle the holders to purchase, at the Rights' then exercise price,
new shares of common stock having a market value of twice the Rights' exercise
price. These Rights expire on December 17, 2007, unless Promus decides to redeem
them earlier at $0.01 per Right or upon the occurrence of certain other events.

In April 1997, PHC's Board of Directors authorized PHC to repurchase, in
open market, negotiated or block transactions, up to $150.0 million of its
common stock for general corporate purposes and future strategic investments.
PHC repurchased 1,573,800 shares of its common stock at a cost of $60.0 million.
Repurchases of these shares were funded primarily through operating cash flows.
All shares repurchased have been retired and are not available for reissuance.
As a result of the Merger of PHC into Promus, the Company terminated this share
repurchase program.

In addition to its common stock, the Company has 10,000,000 shares of
authorized but unissued preferred stock, with a $0.01 par value.

47
49
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10. EARNINGS PER SHARE

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

YEARS ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)

Basic weighted average shares outstanding................. 69,351 72,581 86,573
Effect of dilutive securities:
Restricted stock..................................... 38 14 15
Stock options and warrants........................... 531 984 1,316
------- ------- -------
Diluted weighted average shares outstanding............... 69,920 73,579 87,904
======= ======= =======

Options to purchase approximately 1,078,000, 792,000 and 54,000 shares of
common stock were outstanding at December 31, 1995, 1996 and 1997, respectively,
but were not included in the above computations of diluted weighted average
outstanding shares because the options' exercise prices were greater than the
average market price of the common shares.

NOTE 11. TRANSACTIONS WITH RELATED PARTIES

Revenues and expenses include amounts derived from or paid to entities in
which affiliates of the Company own interests and, in general, exercise
operational control. A summary of these transactions is as follows:

YEARS ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)

Revenues
Franchise and management fees........................... $11,962 $11,198 $12,925
Interest income......................................... 898 881 1,192
Purchasing and service fees............................. 71 279 383
Expenses
Hotel rent.............................................. 2,031 4,123 5,407

Amounts due from affiliates included in accounts receivable at December 31,
1996 and 1997 are $5.3 million and $4.1 million, respectively. Notes receivable
include amounts due from affiliates at December 31, 1996 and 1997 of $5.9
million and $6.0 million, respectively.

NOTE 12. COMMITMENTS AND CONTINGENCIES

Promus is liable under certain lease agreements pursuant to which it has
assigned the direct obligation to third party interests. Additionally, Promus
manages certain hotels for others under agreements that provide for payments or
loans to the hotel owners if stipulated levels of financial performance are not
maintained. The Company has also provided guarantees for certain loans and
leases related to joint venture investments. Management believes the likelihood
is remote that material payments will be required under these agreements.
Promus' estimated maximum exposure under such agreements is approximately $38.0
million over the next 30 years. Promus also has construction commitments
pursuant to development agreements, other than those specifically discussed
below, of approximately $18.0 million.

FELCOR AGREEMENTS

In connection with its FelCor agreements, Promus has guaranteed repayment
of a third party loan to FelCor of up to $25.0 million. During 1997, Promus
announced the formation of a new strategic alliance with FelCor, under which
Promus committed to construct at least five Embassy Suites hotel properties.
Upon

48
50
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

completion of these developments, FelCor will purchase a 90% interest in the
properties. As part of this new alliance, Promus sold two company owned Embassy
Suites hotels to FelCor for approximately $46.7 million. Promus will receive
20-year license agreements and 15-year management contracts for all hotels
developed pursuant to this agreement. In 1997, FelCor also purchased two Embassy
Suites hotels from a joint venture in which Promus owned a 50% interest.

FelCor owns or has an interest in 64 Promus hotels as of December 31, 1997,
which represents 5% and 8% of all Promus brand hotels and hotel rooms,
respectively. These hotels contributed approximately 13% of the Company's
franchise and management fee revenue for 1997. Of these 64 hotels, the Company
owns a 50% interest in 12 hotels.

SHC AGREEMENTS

During 1997, Promus announced the formation of a strategic alliance with
Strategic Hotel Capital, Inc. (SHC), under which Promus committed to construct
at least ten Embassy Suites hotel properties. Upon completion of these
developments. SHC will purchase these hotel properties at Promus' cost. As part
of this new alliance, Promus sold two of its owned Embassy Suites hotels to SHC
for approximately $65.0 million. Promus will receive 20-year license agreements
and management contracts for all hotels developed pursuant to this agreement. In
1997, SHC also purchased two Embassy Suites hotels from a joint venture in which
Promus owned a minority interest.

PROMUS ACCEPTANCE CORP.

In 1997 the Company announced the formation of Promus Acceptance Corp.
(ProMAC). ProMAC provides first mortgage financing to Promus franchisees for
newly constructed Hampton Inn, Hampton Inn & Suites and Homewood Suites hotels.
ProMAC will issue up to $120.0 million in commercial paper backed by a liquidity
facility from participating financial institutions. The terms generally provide
for favorably priced floating and fixed rate loans ranging from $3.5 million to
$8.0 million with six-year terms and 20-year amortization schedules. Promus has
provided a guarantee up to $36.0 million on loans outstanding under the program,
and has also provided a $1.0 million working capital guarantee to ProMAC.
Additionally, Promus has provided a $2.0 million start-up loan to ProMAC, which
earns interest at Prime and matures in April 2005.

CANDLEWOOD

A subsidiary of the Company has committed to provide credit support for a
loan facility utilized by Candlewood to provide construction and permanent
financing to Candlewood and its franchisees on terms that, in most cases, are
more attractive than those which could otherwise be obtained. The Company's
maximum exposure on any individual loan will range from $0.9 million to $1.9
million per hotel, with the aggregate amount of exposure for all such credit
support capped at $30.0 million. As of December 31, 1997, the Company has
guaranteed $22.8 million in such financing.

LITIGATION

The Company is party to various inquiries, administrative proceedings and
litigation relating to contracts, sales of property and other matters arising in
the normal course of business. While any proceeding or litigation has an element
of uncertainty, management believes that the final outcome of these matters will
not have a material impact on Promus' consolidated financial position or its
results of operations.

49
51
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SELF-INSURANCE RESERVES

Promus self-insures various levels of general liability, workers'
compensation and employee medical coverage. All self-insurance reserves include
accruals of estimated settlements for known claims, as well as accruals of
actuarial estimates of incurred but not reported claims. These estimates are
based on historical information along with certain assumptions about future
events. Though changes in assumptions for such things as medical costs and legal
expenses, as well as changes in actual experience, could cause these estimates
to change significantly in the near term, the Company maintains stop-loss
insurance to minimize the effect of large claims on its financial results.

NOTE 13. EMPLOYEE BENEFIT PLANS

RETIREMENT SAVINGS PLANS

Promus and its subsidiaries maintain three defined contribution savings and
retirement plans. Employees who are over 21 years of age and have completed one
year of service are eligible to participate in the plans. Depending on the plan,
participating employees may elect to make pre-tax and after-tax contributions of
up to 16 percent of their eligible earnings and the Company matches employee
contributions up to 6% of an employee's eligible compensation. Amounts
contributed to the plans are invested in one or more investment funds, at the
participant's option.

The Company also has two nonqualified supplemental employee retirement
plans (SERP). One SERP was designed to supplement key employees whose benefits
would otherwise be reduced or lost due to the statutory limits of 401(k) plans.
This plan is fully funded. The second plan was designed to supplement retirement
income for certain executive officers of the Company. The liability under this
plan at December 31, 1997 was $3.8 million.

The aggregate expense to the Company under all retirement savings plans
amounted to $1.0 million, $2.0 million and $4.5 million for the years ended
December 31, 1995, 1996 and 1997, respectively.

DEFERRED COMPENSATION PLANS

Promus has deferred compensation plans under which certain employees may
defer a portion of their compensation. Amounts deposited into these plans are
unsecured and earn interest at rates approved by the Human Resources Committee
of the Board of Directors. In connection with the administration of the deferred
compensation plans, company-owned life insurance policies have been purchased.
As of December 31, 1996 and 1997, the total liability under these plans was
$11.2 million and $14.5 million, respectively, and the related value of life
insurance policies and other investments was $12.1 million and $18.0 million,
respectively.

NOTE 14. STOCK OPTIONS

The 1997 Equity Participation Plan (the Plan) is a new stock option plan,
approved in conjunction with the Merger, in which options may be granted to key
personnel to purchase shares of the Company's stock at a price not less than the
current market price at the date of grant. The options vest annually and ratably
over a four year period from the date of grant and expire ten years after the
grant date. An aggregate of 10,000,000 shares have been authorized for issuance.
The Plan also provides for the issuance of stock appreciation rights, restricted
stock or other awards.

Additionally, both PHC and Doubletree had stock option plans prior to the
Merger date. Concurrent with the Merger, options were issued by Promus to
replace PHC options and Doubletree options which were outstanding under the
prior plans. The replacement options were issued with identical remaining terms
and conditions, except such options were immediately vested, in accordance with
the terms of the prior plans.

50
52
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Promus applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
stock option plans. Accordingly, no compensation cost has been recognized in the
consolidated statements of operations for these plans. In accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company has estimated
the fair value of each option grant using the Black-Scholes option-pricing
model. Had compensation cost for awards under the Plan and each predecessor plan
been determined based on the fair value at the grant dates, Promus' net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:

1995 1996 1997
------- ------- -------
(IN THOUSANDS,
EXCEPT EARNINGS PER SHARE)

Net income
As reported............................................. $64,370 $90,658 $95,436
Pro forma............................................... 60,144 85,184 86,544
Basic earnings per share
As reported............................................. $ 0.93 $ 1.25 $ 1.10
Pro forma............................................... 0.87 1.17 1.00
Diluted earnings per share
As reported............................................. $ 0.92 $ 1.23 $ 1.09
Pro forma............................................... 0.86 1.16 0.98

A summary of Promus stock option transactions, from January 1, 1995 through
December 31, 1997, are as follows:

OPTIONS OUTSTANDING
--------------------
WEIGHTED COMMON
AVERAGE STOCK
EXERCISE AVAILABLE
PRICE NUMBER FOR GRANT
-------- --------- ----------

Balance -- January 1, 1995.......................... $13.69 967,500 2,332,500
Granted............................................. 24.97 850,814 (850,814)
Approval of new options............................. -- -- 3,330,000
Replacement options granted at Spin-Off............. 18.18 1,145,926 (1,145,926)
Exercised........................................... 9.61 (32,106) --
Canceled............................................ 17.88 (59,983) 59,983
--------- ----------
Balance -- December 31, 1995........................ 18.78 2,872,151 3,725,743
Granted............................................. 34.27 2,333,230 (2,333,230)
Exercised........................................... 13.83 (89,206) --
Canceled............................................ 22.91 (167,386) 167,386
--------- ----------
Balance -- December 31, 1996........................ 26.03 4,948,789 1,559,899
Approval of new options............................. -- -- 11,200,000
Granted............................................. 39.91 4,503,369 (4,503,369)
Exercised........................................... 16.52 (410,851) --
Canceled............................................ 27.02 (160,334) (1,769,530)
--------- ----------
Balance -- December 31, 1997........................ $33.49 8,880,973 6,487,000
========= ==========
Options exercisable at December 31,
1996.............................................. $13.09 985,921
1997.............................................. 29.44 5,367,973

The weighted average fair value of options granted by Promus based on the
Black-Scholes option-pricing model for the options granted during 1995, 1996 and
1997 are $10.75, $10.71 and $19.47, respectively.

51
53
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Assumptions included risk-free interest rates ranging from 5.9% to 6.2%,
expected lives of 4.0 years to 6.0 years, volatility factors of 30% to 40%, and
no dividends.

The following table summarizes information about options outstanding at
December 31, 1997:

OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED -------------------------
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1997 LIFE PRICE 1997 PRICE
- - ------------------------ -------------- ----------- -------- -------------- --------

$2.61 to $25.50....................... 1,415,124 6.08 $14.35 1,415,124 $14.35
$26.55 to $34.73...................... 2,158,335 8.04 29.76 2,158,335 29.76
$34.75 to $39.69...................... 3,541,825 9.96 39.67 28,825 37.38
$40.13 to $46.50...................... 1,765,689 9.10 41.01 1,765,689 41.01
--------- ---- ------ --------- ------
8,880,973 8.86 $33.49 5,367,973 $29.44
========= ==== ====== ========= ======

NOTE 15. INCOME TAXES

Income tax expense attributable to income before extraordinary items
consisted of the following:

1995 1996 1997
------- ------- --------
(IN THOUSANDS)

Current
Federal................................................ $25,813 $40,535 $ 79,559
State.................................................. 4,421 9,085 16,843
Deferred
Federal................................................ 5,836 8,612 (13,410)
State.................................................. 4,217 894 (3,328)
------- ------- --------
$40,287 $59,126 $ 79,664
======= ======= ========

The differences between the statutory federal income tax rate and the
effective tax rate expressed as a percentage of income before income taxes and
extraordinary items were as follows:

1995 1996 1997
---- ---- ----

Income tax expense at federal statutory rate................ 35.0% 35.0% 35.0%
Business combination expenses............................... -- -- 6.6
State taxes, net of federal tax benefit..................... 5.6 4.0 4.3
Goodwill and other permanent differences.................... 0.2 0.6 2.2
Tax reserve reduction....................................... (1.3) (1.7) (2.8)
Other....................................................... 0.1 1.6 0.2
---- ---- ----
39.6% 39.5% 45.5%
==== ==== ====

As a result of the acquisition of the common stock of Red Lion, the
allocation of the purchase price to the assets and liabilities for financial
reporting purposes significantly exceeds the tax basis carried over from Red
Lion. Accordingly, the acquisition created nondeductible goodwill and
substantial temporary differences. The

52
54
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

tax effects of temporary differences that give rise to significant portions of
the deferred tax assets and liabilities are as follows:

1996 1997
--------- ---------
(IN THOUSANDS)

Deferred tax assets:
Net operating loss carryforwards.......................... $ 7,351 $ 4,181
Compensation.............................................. 5,777 22,280
Deferred income........................................... 4,300 3,102
Business combination expenses............................. 973 11,287
Reserves.................................................. 13,194 7,137
Other..................................................... 601 1,210
Valuation allowance....................................... (5,434) (3,781)
--------- ---------
Total deferred tax assets......................... 26,762 45,416
--------- ---------
Deferred tax liabilities:
Basis difference in other assets.......................... (178,370) (167,637)
Property and equipment.................................... (90,706) (101,736)
Investments............................................... (34,638) (29,313)
Franchise system fund prepayments......................... (1,921) (3,338)
--------- ---------
Total deferred tax liabilities.................... (305,635) (302,024)
--------- ---------
Net deferred tax liability.................................. $(278,873) $(256,608)
========= =========

The Company estimates that, more likely than not, it will not realize a
portion of the benefits of its deferred tax assets. Accordingly, it has
established a valuation allowance to reflect this uncertainty. The valuation
allowance was established as a result of deferred tax assets created by previous
business combinations in accordance with purchase accounting methodology and, to
the extent the tax benefits to which this allowance relates are recognized, the
reduction in the valuation allowance will be applied to reduce goodwill. During
1995, 1996 and 1997, $1.5 million, $0.5 million and $1.6 million was used and
credited to goodwill, respectively.

The Company's federal net operating loss carryforwards (NOLs) of $10.8
million expire as follows:

YEAR OF EXPIRATION AMOUNT OF FEDERAL NOLS
- - ------------------ ----------------------
(IN THOUSANDS)

2005................................................ $9,827
2008................................................ 968

Total NOLs for state income tax purposes are less than the amounts stated
above due primarily to shorter carryforward periods.

TAX SHARING AGREEMENT

In connection with the Spin-Off, PHC and Parent entered into a tax sharing
agreement that defines each company's rights and obligations with respect to
deficiencies and refunds of federal, state and other income or franchise taxes
relating to Promus' business for tax years prior to the Spin-off and with
respect to certain tax attributes of Promus after the Spin-off. Promus will
reimburse Parent for the portion of subsequent tax liability redeterminations
relating to the Parent's hotel operations.

53
55
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS

Other current assets consist of the following:

1996 1997
------- -------
(IN THOUSANDS)

Federal and state income tax receivables.................... $ 5,120 $17,361
Prepayments................................................. 7,019 9,507
Deferred tax assets......................................... 932 8,251
Other....................................................... 6,622 8,103
------- -------
$19,693 $43,222
======= =======

Accounts payable and accrued expenses consist of the following:

1996 1997
-------- --------
(IN THOUSANDS)

Business combination accruals............................... $ 21,791 $ 70,879
Self-insurance reserves..................................... 23,845 31,654
Accounts payable............................................ 31,966 31,404
Accrued payroll and other compensation...................... 39,163 31,275
Operating leases payable.................................... 8,305 12,146
Refundable deposits and customer funds...................... 6,288 10,845
Taxes payable, other than income taxes...................... 10,547 10,495
Other....................................................... 19,530 22,226
-------- --------
$161,435 $220,924
======== ========

NOTE 17. SUPPLEMENTAL CASH FLOW INFORMATION

The historical assets and liabilities of the hotel business, transferred to
PHC by its Parent, and the issuance of PHC common stock were completed in
connection with the Spin-off in 1995. These noncash transactions have been
excluded from the consolidated statements of cash flows.

Cash paid for interest, net of interest capitalized, amounted to $17.7
million, $22.9 million, and $56.2 million for the years ended December 31, 1995,
1996 and 1997, respectively. Cash paid for income taxes amounted to $19.7
million, $62.0 million and $100.5 million for the years ended December 31, 1995,
1996 and 1997, respectively.

54
56
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 18. SUMMARIZED FINANCIAL INFORMATION

Promus Hotels, Inc. (PHI) is a wholly-owned subsidiary of PHC and an entity
through which a significant portion of the operations of Promus are conducted.
Among other things, PHI holds the franchise license for many of the Company's
franchised hotels. Summarized financial information for PHI, prepared on the
same basis as Promus, as of and for the years ended December 31, is as follows:

1995 1996 1997
-------- -------- --------
(IN THOUSANDS)

ASSETS
Current assets......................................... $ 29,397 $ 38,491
Property and equipment, net............................ 320,413 336,553
Other assets........................................... 276,876 271,516
-------- --------
$626,686 $646,560
-------- --------

LIABILITIES
Current liabilities.................................... $ 50,561 $ 70,843
Notes payable.......................................... 243,682 212,233
Other long-term obligations............................ 81,621 91,476
-------- --------
375,864 374,552
-------- --------
Net assets................................... $250,822 $272,008
======== ========
Revenues............................................... $236,513 $266,625 $289,905
======== ======== ========
Operating income....................................... $104,137 $129,496 $104,079
======== ======== ========
Net income............................................. $ 46,895 $ 65,124 $ 73,698
======== ======== ========

55
57
PROMUS HOTEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 19. QUARTERLY RESULTS OF OPERATIONS

FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1997 ACTUAL
Revenues.............................................. $259,486 $260,065 $274,715 $243,745
Operating income (loss)............................... 74,821 70,121 89,358 (50,398)
Net income (loss)..................................... 38,902 47,376 56,257 (47,099)
Basic earnings (loss) per share(a).................... $ 0.45 $ 0.55 $ 0.65 $ (0.55)
Basic weighted average shares outstanding............. 87,097 86,916 86,206 86,050
Diluted earnings (loss) per share (a)................. $ 0.44 $ 0.54 $ 0.64 $ (0.54)
Diluted weighted average shares outstanding........... 88,420 88,225 87,939 87,620
1996 ACTUAL
Revenues.............................................. $113,787 $129,994 $138,921 $177,511
Operating income...................................... 33,768 42,388 48,201 40,999
Net income............................................ 17,627 25,685 27,712 19,634
Basic earnings per share(a)........................... $ 0.25 $ 0.37 $ 0.39 $ 0.25
Basic weighted average shares outstanding ............ 69,581 70,087 70,588 80,086
Diluted earnings per share(a)......................... $ 0.25 $ 0.36 $ 0.39 $ 0.24
Diluted weighted average shares outstanding........... 70,293 70,982 71,713 81,412
1996 PRO FORMA(B)
Revenues.............................................. $200,941 $228,558 $239,438 $221,615
Operating income...................................... 44,570 62,203 72,040 51,632
Net income............................................ 17,475 30,659 34,927 22,923
Basic earnings per share(a)........................... $ 0.20 $ 0.35 $ 0.40 $ 0.26
Basic weighted average shares outstanding ............ 86,031 86,537 87,038 87,059
Diluted earnings per share(a)......................... $ 0.20 $ 0.35 $ 0.40 $ 0.26
Diluted weighted average shares outstanding........... 86,743 87,432 88,163 88,385

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

(a) The sum of the quarterly per share amounts may not equal the annual amount
reported, as per share amounts are computed independently for each quarter
while the full year is based on the annual weighted average shares
outstanding.
(b) Pro forma information is presented to give effect to the acquisition of Red
Lion and related transactions as if they had occurred on January 1, 1996.

56
58

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

Not Applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.

DIRECTORS

See the information regarding the names, ages, positions and prior business
experience of the directors of the Company set forth on pages 6 through 8 of the
Proxy Statement, which pages are incorporated herein by reference.

EXECUTIVE OFFICERS OF THE REGISTRANT

See "Executive Officers of the Registrant" on page 16 in Part I hereof.

ITEM 11. EXECUTIVE COMPENSATION.

See the information set forth in the Proxy Statement on pages 8 and 9
thereof entitled "Compensation of Directors" and the information on pages 17
through 22 thereof. The information on pages 8 and 9 of the Proxy Statement
entitled "Compensation of Directors" and the information on pages 17 through 22
of the Proxy Statement entitled "Summary Compensation Table," "Options Granted
in 1997," "Aggregated Option Exercises in 1997 and December 31, 1997, Option
Values," and "Certain Employment Arrangements" is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

See the information set forth in the Proxy Statement on pages 4 through 6
thereof entitled "Ownership of the Capital Stock of the Company" which
information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

See the information set forth in the Proxy Statement entitled "Certain
Transactions" on pages 24 through 26 thereof, which information is incorporated
herein by reference.

57
59

PART IV

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

(a) Financial Statements

1. The financial statements contained in the accompanying Index to
Consolidated Financial Statements covered by the Independent Auditors' Report
are filed as part of this Report (see page 32).

2. Financial Statement Schedules

None

3. Exhibits

The list of exhibits contained in the Index to Exhibits are filed as part
of this Report (see page 61).

(b) Reports on Form 8-K

One report on Form 8-K was filed by the Company during the fourth quarter
of 1997. This report was filed on December 22, 1997 and reported the Merger
under Item 2, the adoption of a stockholder rights agreement under Item 5, and
financial information under Item 7. No financial statements were included in
this Form 8-K; however, financial statements of PHC and Doubletree, together
with proforma financial information, were incorporated by reference in this Form
8-K.

58
60

SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

PROMUS HOTEL CORPORATION

By: /s/ RAYMOND E. SCHULTZ
------------------------------------
Raymond E. Schultz,
Chairman

Dated: March 24, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ RICHARD J. FERRIS Director March 24, 1998
- - -----------------------------------------------------
Richard J. Ferris

/s/ PRISCILLA FLORENCE Director March 24, 1998
- - -----------------------------------------------------
Priscilla Florence

/s/ DALE F. FREY Director March 24, 1998
- - -----------------------------------------------------
Dale F. Frey

/s/ CHRISTOPHER W. HART Director March 24, 1998
- - -----------------------------------------------------
Christopher W. Hart

/s/ RICHARD M. KELLEHER Director March 24, 1998
- - -----------------------------------------------------
Richard M. Kelleher

/s/ MICHAEL W. MICHELSON Director March 24, 1998
- - -----------------------------------------------------
Michael W. Michelson

/s/ JOHN H. MYERS Director March 24, 1998
- - -----------------------------------------------------
John H. Myers

/s/ C. WARREN NEEL Director March 24, 1998
- - -----------------------------------------------------
C. Warren Neel

/s/ MICHAEL D. ROSE Director March 24, 1998
- - -----------------------------------------------------
Michael D. Rose

/s/ MICHAEL I. ROTH Director March 24, 1998
- - -----------------------------------------------------
Michael I. Roth

/s/ RAYMOND E. SCHULTZ Chairman of the Board March 24, 1998
- - ----------------------------------------------------- and Chief Executive Officer
Raymond E. Schultz (Principal Executive Officer)

59
61

SIGNATURE TITLE DATE
--------- ----- ----

/s/ JAY STEIN Director March 24, 1998
- - -----------------------------------------------------
Jay Stein

/s/ RONALD TERRY Director March 24, 1998
- - -----------------------------------------------------
Ronald Terry

/s/ PETER V. UEBERROTH Director March 24, 1998
- - -----------------------------------------------------
Peter V. Ueberroth

/s/ WILLIAM L. PEROCCHI Executive Vice President and March 24, 1998
- - ----------------------------------------------------- Chief Financial Officer
William L. Perocchi (Principal Financial Officer)

/s/ RICHARD L. TRUEBLOOD Senior Vice President, March 24, 1998
- - ----------------------------------------------------- Controller
Richard L. Trueblood and Chief Accounting Officer
(Principal Accounting Officer)

60
62

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------

2.1 -- Agreement and Plan of Merger, dated September 1, 1997, by
and among Doubletree Corporation ("Doubletree"), Promus
Hotel Corporation ("Promus") and the Registrant(1)
2.2 -- Amendment Agreement, dated October 1, 1997, by and among
Doubletree Acquisition Corp. and Promus Acquisition
Corp.(2)
3.1 -- Form of Restated Certificate of Incorporation of the
Registrant(2)
3.2 -- Form of Amended and Restated Bylaws of the Registrant(2)
4.1 -- Rights Agreement between the Registrant and First Union
National Bank(21)
4.2 -- Form of Registration Rights Agreement to be entered by the
Registrant and certain Stockholders of the Registrant(2)
+10.1 -- Form of Employment Agreement of Raymond E. Schultz(2)
+10.2 -- Form of Employment Agreement of Richard M. Kelleher(2)
+10.3 -- Form of Employment Agreement of Thomas L. Keltner(2)
+10.4 -- Form of Employment Agreement of William L. Perocchi(2)
+10.5 -- Form of Severance Agreement of Raymond E. Schultz(2)
+10.6 -- Form of Severance Agreement of Richard M. Kelleher(2)
+10.7 -- Form of Severance Agreement of Thomas L. Keltner(2)
+10.8 -- Form of Severance Agreement of William L. Perocchi(2)
+10.9 -- Form of Severance Agreement for Tier I employees of
Doubletree(2)
+10.10 -- Form of Severance Agreement for Tier I employees of
Promus(2)
+10.11 -- Form of Severance Agreement for Tier II employees of
Doubletree and Promus
+10.12 -- Form of Severance Agreement for Tier III employees of
Doubletree(2)
+10.13 -- Form of Severance Plan for Regional Offices Directors and
Managers of Promus(2)
+10.14 -- Form of Severance Plan for Corporate Headquarters and
Regional Offices Administrative
Staff of Doubletree and Promus(2)
+10.15 -- Form of Indemnification Agreement for directors and
executive officers of the Registrant(2)
+10.16 -- New Promus 1997 Equity Participation Plan(2)
+10.17 -- Promus Hotel Corporation 1995 Stock Option Plan(3)
+10.18 -- Form of Amendment to the 1995 Promus Hotel Corporation Stock
Option Plan, dated as of November 13, 1996(4)
+10.19 -- Promus Hotel Corporation 1995 Restricted Stock Plan(5)
+10.20 -- Form of Amendment to the 1995 Restricted Stock Plan dated as
of November 13, 1996(4)
+10.21 -- Promus Hotel Corporation Non-Management Directors Stock
Incentive Plan(6)
+10.22 -- Form of Amendment to the Promus Hotel Corporation 1996
Non-Management Directors Stock Incentive Plan dated as of
December 23, 1996(4)
+10.23 -- 1997 Amended and Restated Equity Participation Plan, adopted
by Doubletree Corporation on May 2, 1997(7)
+10.24 -- Promus Hotel Corporation Key Executive Officer Annual
Incentive Plan(8)
+10.25 -- Promus Hotel Corporation Executive Deferred Compensation
Plan(9)
+10.26 -- Promus Hotel Corporation Deferred Compensation Plan(9)
+10.27 -- Promus Hotel Corporation Bonus Replacement Options Plan(10)

61
63

EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------

+10.28 -- Administrative Regulations, Long Term Compensation Plan
(Restricted Stock Plan and Stock Option Plan), dated as of
January 1, 1992, adopted by Promus Hotel Corporation on
April 5, 1995(11)
+10.29 -- The Restatement of the Promus Hotel Corporation Savings and
Retirement Plan A, dated as of June 30, 1995(12)
+10.30 -- Amendment to the Promus Hotel Corporation Savings and
Retirement Plan A, dated as of June 30, 1995(12)
+10.31 -- The Restatement of the Promus Hotel Corporation Savings and
Retirement Plan B, dated as of June 30, 1995(12)
+10.32 -- Amendment to the Promus Hotel Corporation Savings and
Retirement Plan B, dated as of June 30, 1995(12)
+10.33 -- Promus Hotel Corporation Savings and Retirement Plan Trust
Agreement, dated as of May 26, 1995, among Promus Hotel
Corporation and Robert S. Davis, Donald H. Dempsey,
Patricia R. Ferguson, Jeffery M. Jarvis, Kelly R. Jenkins,
Frederick G. Schultz and Mark C. Wells, as trustees(9)
+10.34 -- Financial Counseling Plan of The Promus Companies
Incorporated as amended February 25, 1993, as adopted by
Promus Hotel Corporation on April 5, 1995(13)
+10.35 -- Summary Plan Description of Executive Term Life Insurance
Plan adopted by Promus Hotel Corporation on April 5,
1995(14)
+10.36 -- Red Lion Supplemental Employee Retirement Plan(15)
+10.37 -- Plan of Reorganization and Distribution Agreement, dated as
of June 30, 1995, between The Promus Companies
Incorporated and Promus Hotel Corporation(16)
+10.38 -- Employee Benefits and Other Employment Matters Allocation
Agreement, dated as of June 30, 1995, between The Promus
Companies Incorporated and Promus(16)
10.39 -- Risk Management Allocation Agreement, dated as of June 30,
1995, between The Promus Companies Incorporated and
Promus(16)
10.40 -- Tax Sharing Agreement, dated as of June 30, 1995, between
The Promus Companies Incorporated and Promus(16)
10.41 -- Form of Guarantee Agreement, dated February 5, 1996, among
Promus, Promus Hotels, Inc., Canadian Imperial Bank of
Commerce, as agent for the Lenders, FelCor Suites Limited
Partnership, FelCor/CSS Holdings, L.P., and FelCor Suite
Hotels, Inc.(18)
10.42 -- Form of Stock Purchase Agreement between Promus Hotels, Inc.
and Winston Hotels, Inc. dated as of April 24, 1996(4)
10.43 -- Form of Amendment No. 1 to Stock Purchase Agreement between
Promus Hotels, Inc. and Winston Hotels, Inc. dated as of
August 7, 1996(4)
10.44 -- Form of Stock Purchase Agreement between Promus Hotels, Inc.
and Equity Inns, Inc. and Equity Inns Partnership, L.P.
dated as of May 31, 1996(4)
10.45 -- Stockholders Agreement dated as of September 30, 1996
between Doubletree, Jack DeBoer, the Alexander John DeBoer
Trust dated March 14, 1995, the Christopher Scott DeBoer
Trust dated March 14, 1995 and the Warren D. Fix Family
Partnership, L.P.(15)
10.46 -- Securities Purchase Agreement dated as of October 31, 1996
by and between Doubletree and the Trustees of General
Electric Pension Trust(19)
10.47 -- Partnership Services Agreement dated as of November 8, 1996
by and among Doubletree, Red Lion Hotels, Inc., Red Lion,
a California Limited Partnership and the affiliates
thereof identified therein(19)

62
64

EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------

10.48 -- Master Agreement, dated as of February 1, 1996, by and among
RFS Partnership, L.P., Doubletree, RFS Hotel Investors,
Inc., Seedling Merger Subsidiary, Inc. and RFS, Inc.(20)
10.49 -- First Amendment to Master Agreement by and among RFS
Partnership, L.P., Doubletree, RFS Hotel Investors, Inc.,
Seedling Merger Subsidiary, Inc. and RFS, Inc. dated
November 21, 1996(15)
10.50 -- Master Lease dated August 1, 1995 between RLH Partnership,
L.P. and Red Lion Hotels, Inc.(19)
10.51 -- Assignment and Assumption Agreement dated August 1, 1995
between Red Lion, a California Limited Partnership and Red
Lion Hotels, Inc.(19)
10.52 -- Consolidated Lease Amendment, dated as of February 27, 1996,
by and between RFS, Inc. and RFS Partnership, L.P.(20)
10.53 -- Guaranty of Lease Obligations dated as of November 8, 1996
by and among Doubletree, Red Lion Hotels, Inc. and RLH
Partnership, L.P.(19)
10.54 -- Guaranty Agreement, dated December 31, 1996, by Doubletree
in favor of GMAC Commercial Mortgage Corporation(15)
10.55 -- Form of Aircraft Agreement, dated August 4, 1995, between
Promus Hotels, Inc., and Harrah's Operating Company,
Inc.(17)
+10.56 -- Employment Agreement of Richard M. Kelleher, dated as of
January 13, 1995(15)
*10.57 -- Form of Tranche A Credit Agreement among Doubletree
Corporation, Promus Hotels, Inc., Promus Hotel Corporation
(f/k/a Parent Holding Corp.), Promus Operating Company,
Inc. (f/k/a Promus Acquisition Corp. f/k/a Promus Hotel
Corporation), Bankers Trust Company, The Bank of Nova
Scotia, Canadian Imperial Bank of Commerce and
NationsBank, N.A.
*10.58 -- Form of Tranche B Credit Agreement among Doubletree
Corporation, Promus Hotels, Inc., Promus Hotel Corporation
(f/k/a Parent Holding Corp.), Promus Operating Company,
Inc. (f/k/a Promus Acquisition Corp. f/k/a Promus Hotel
Corporation), Bankers Trust Company, The Bank of Nova
Scotia, Canadian Imperial Bank of Commerce and
NationsBank, N.A.
*11.1 -- Computation of per share earnings.
*21.1 -- Subsidiaries of the Registrant.
*23.1 -- Consent of Arthur Andersen LLP.
*27.1 -- Financial Data Schedule -- Year ended December 31, 1997.
*27.2 -- Financial Data Schedule -- Year ended December 31, 1996.
*27.3 -- Financial Data Schedule -- Three months ended March 31,
1997.
*27.4 -- Financial Data Schedule -- Six months ended June 30, 1997.
*27.5 -- Financial Data Schedule -- Nine months ended September 30,
1997.
*27.6 -- Financial Data Schedule -- Three months ended March 31,
1996.
*27.7 -- Financial Data Schedule -- Six months ended June 30, 1996.
*27.8 -- Financial Data Schedule -- Nine months ended September 30,
1996.

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

* Included herewith.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form pursuant to Item 14(a)(3) of Form 10-K.
(1) Incorporated by reference from POC's Current Report on Form 8K, filed
September 5, 1997, File No. 1-11463.

63
65

(2) Incorporated by reference from the Company's registration statement on Form
S-4, filed November 11, 1997, File No. 333-40253.
(3) Incorporated by reference from the Proxy Statement of The Promus Companies
Incorporated ("PCI"), Annex III-A, dated April 25, 1995, File No. 1-10410.
(4) Incorporated by reference from POC's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, filed March 18, 1997, File No.
1-11463.
(5) Incorporated by reference from PCI's Proxy Statement, Annex III-B, dated
April 25, 1995, File No. 1-10410.
(6) Incorporated by reference from PCI's Proxy Statement, Annex VIII, dated
April 25, 1995, File No. 1-10410.
(7) Incorporated by reference from Doubletree's Proxy Statement, Appendix A,
dated March 28, 1997, File No. 0-24392.
(8) Incorporated by reference from PCI's Proxy Statement, Annex VII, dated
April 25, 1995, File No. 1-10410.
(9) Incorporated by reference from POC's Current Report on Form 8-K, filed June
14, 1995, File No. 1-11463.
(10) Incorporated by reference from POC's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, filed May 15, 1997, File No. 1-10410.
(11) Incorporated by reference from PCI's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992, filed May 13, 1992, File No. 1-10410.
(12) Incorporated by reference from POC's Registration Statement on Form S-3,
filed October 11, 1996, File No. 1-11463.
(13) Incorporated by reference from PCI's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993, filed May 13, 1993, File No. 1-10410.
(14) Incorporated by reference from PCI's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, filed March 17, 1993, File No.
1-10410.
(15) Incorporated by reference from Doubletree's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, filed March 28, 1997, File No.
0-24392.
(16) Incorporated by reference from POC's Quarterly Report on Form 10-Q, for the
quarter ended June 30, 1995, filed August 11, 1995, File No. 1-11463.
(17) Incorporated by reference from POC's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, filed March 12, 1996, File No.
1-11463.
(18) Incorporated by reference from POC's Quarterly Report on Form 10-Q, for the
quarter ended March 31, 1996, filed May 7, 1996, File No. 1-11463.
(19) Incorporated by reference from Doubletree's Current Report on Form 8-K
dated November 15, 1996, filed November 21, 1996, File No. 0-24392.
(20) Incorporated by reference from Doubletree's Current Report on Form 8-K,
dated February 27, 1996.
(21) Incorporated by reference from the Company's Form 8-A, filed December 17,
1997.