CB RICHARD ELLIS SERVICES INC, 10-Q, 1999-05-17

CB RICHARD ELLIS SERVICES INC
10-Q, 1999-05-17
REAL ESTATE

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 10-Q

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

For the quarterly period ended March 31, 1999

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

For the Transition Period from ____________ to ________________

Commission File Number 001 - 12231
----------------------------

CB RICHARD ELLIS SERVICES, INC.
(Exact name of registrant as specified in its charter)

Delaware 52-1616016
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)

200 North Sepulveda Boulevard
El Segundo, California 90245-4380
(Address of principal executive offices) (Zip Code)

(310) 563-8600 Not Applicable
(Registrant's telephone (Former name, former address and formal
number, including area code) fiscal year if changed since last report)

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

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 [_].

Number of shares of common stock outstanding at April 30, 1999 was
20,683,332.
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

FORM 10-Q

March 31, 1999

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Consolidated Condensed Financial Statements

Consolidated Balance Sheets as of March 31, 1999 (Unaudited) and December 31, 1998... 3

Unaudited Consolidated Statements of Operations for the three months ended

March 31, 1999 and 1998.............................................................. 4

Unaudited Consolidated Condensed Statements of Cash Flows for the three months

ended March 31, 1999 and 1998........................................................ 5

Notes to Consolidated Condensed Financial Statements................................. 6

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................ 11

Item 3. Quantitative and Qualitative Disclosures About Market Risk........................... 20

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K..................................................... 21

Signatures.................................................................................... 22

</TABLE>

2
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>

March 31, December 31,
1999 1998
----------- -------------
(Unaudited)
<S> <C> <C>
A S S E T S
-----------
Current Assets:
Cash and cash equivalents.......................................................... $ 17,425 $ 19,551
Receivables, less allowance of $12,065 and $13,348 for doubtful accounts
at March 31, 1999 and December 31, 1998, respectively............................. 122,294 131,512
Deferred taxes..................................................................... 3,533 3,529
Prepaid expenses................................................................... 10,262 13,459
Other assets....................................................................... 7,007 8,353
--------- ---------
Total current assets.............................................................. 160,521 176,404
Property and equipment, net......................................................... 58,715 58,366
Goodwill, net of accumulated amortization of $28,352 and $25,060 at
March 31, 1999 and December 31, 1998, respectively................................. 441,999 445,124
Other intangible assets, net of accumulated amortization of $275,566 and $268,497
at March 31, 1999 and December 31, 1998, respectively.............................. 55,488 63,913
Prepaid pension expenses............................................................ 27,203 28,241
Deferred taxes...................................................................... 20,381 23,100
Investment in and advances to unconsolidated subsidiaries........................... 37,881 31,633
Other assets, net................................................................... 22,569 30,111
--------- ---------
Total assets...................................................................... $ 824,757 $ 856,892
========= =========
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
-------------------------------------------------------------------
Current Liabilities:
Compensation and employee benefits................................................. $ 39,135 $ 66,245
Accounts payable and accrued expenses.............................................. 86,082 105,027
Reserve for bonus and profit sharing............................................... 7,358 39,270
Current maturities of long-term debt............................................... 4,993 12,343
Current portion of capital lease obligations....................................... 2,296 2,862
--------- ---------
Total current liabilities......................................................... 139,864 225,747
Long-term debt, less current maturities:
Senior term loans.................................................................. 242,502 183,502
Senior subordinated notes, less unamortized discount of $2,049 and $2,099 at
March 31, 1999 and December 31, 1998, respectively................................ 172,951 172,901
Other long-term debt............................................................... 15,682 17,288
--------- ---------
Total long-term debt.............................................................. 431,135 373,691
Other long-term liabilities......................................................... 63,708 60,737
--------- ---------
Total liabilities................................................................. 634,707 660,175
Minority interest................................................................... 4,791 5,875
Commitments and contingencies
Stockholders' Equity:
Common stock, $0.01 par value, 20,640,865 and 20,636,134 shares outstanding
as of March 31, 1999 and December 31, 1998, respectively.......................... 211 211
Additional paid-in capital......................................................... 350,069 349,796
Notes receivable from sale of stock................................................ (5,654) (5,654)
Accumulated deficit................................................................ (147,520) (145,767)
Accumulated other comprehensive income (loss)...................................... (2,964) 1,139
Treasury stock, 488,900 shares outstanding as of March 31, 1999 and
December 31, 1998................................................................. (8,883) (8,883)
--------- ---------
Total stockholders' equity........................................................ 185,259 190,842
--------- ---------
Total liabilities and stockholders' equity........................................ $ 824,757 $ 856,892
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

3
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1999 1998
------------ -----------
<S> <C> <C>

Revenue.............................................................. $ 233,201 $ 175,144
Costs and Expenses:
Commissions, fees and other incentives............................ 96,647 82,214
Operating, administrative and other............................... 121,484 80,458
Depreciation and amortization..................................... 9,994 5,322
----------- -----------
Operating income..................................................... 5,076 7,150
Interest income...................................................... 534 727
Interest expense..................................................... 9,173 4,321
----------- -----------
Income (loss) before provision (benefit) for income tax.............. (3,563) 3,556
Provision (benefit) for income tax................................... (1,810) 1,591
----------- -----------
Net income (loss).................................................... $ (1,753) $ 1,965
=========== ===========
Deemed dividend on preferred stock................................... $ - $ (32,273)
----------- -----------
Net loss applicable to common stockholders........................... $ (1,753) $ (30,308)
=========== ===========
Basic loss per share................................................. $(0.08) $(1.60)
=========== ===========
Weighted average shares outstanding for basic earnings per share..... 20,640,438 18,892,735
=========== ===========
Diluted loss per share............................................... $(0.08) $(1.60)
=========== ===========
Weighted average shares outstanding for diluted earnings per share... 20,640,438 18,892,735
=========== ===========
</TABLE>

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

4
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
--------- --------
<S> <C> <C>
Net income (loss)................................................................. $ (1,753) $ 1,965
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization excluding deferred financing costs................ 9,994 5,322
Deferred compensation........................................................... 2,654 5,450
Deferred taxes.................................................................. 795 743
Decrease in receivables........................................................... 6,158 7,937
Decrease in compensation and employee benefits payable............................ (55,318) (47,802)
Decrease in accounts payable and accrued expenses................................. (16,013) (6,285)
Net change in other operating assets and liabilities.............................. (864) (3,053)
-------- --------
Net cash used in operating activities........................................ (54,347) (35,723)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment............................................. (5,901) (5,458)
Sale of inventoried property.................................................... 7,355 -
Proceeds from collections on notes receivable................................... 50 100
Increase in intangible assets and goodwill...................................... (964) (8,303)
Acquisition of businesses including net assets acquired, intangibles
and goodwill................................................................... (1,224) (4,826)
Decrease (increase) in investments in/advances to unconsolidated subsidiaries... 1,499 (4,081)
Other investing activities, net................................................. 1,025 125
-------- --------
Net cash provided by (used in) investing activities.......................... 1,840 (22,443)
-------- --------
Cash flows from financing activities:
Proceeds from senior term loans................................................. 78,000 108,000
Repayment of senior term loans.................................................. (19,000) -
Repayment of inventoried property loan.......................................... (7,093) (377)
Repayment of other loans........................................................ (873) (900)
Payment of dividends payable.................................................... - (5,000)
Repurchase of preferred stock................................................... - (72,418)
Repayment of capital leases..................................................... (268) (520)
Other financing activities, net................................................. (726) 1,750
-------- --------
Net cash provided by financing activities.................................... 50,040 30,535
-------- --------
Net decrease in cash and cash equivalents......................................... (2,467) (27,631)
Cash and cash equivalents, at beginning of period................................. 19,551 47,181
Effect of exchange rate changes on cash........................................... 341 -
-------- --------
Cash and cash equivalents, at end of period....................................... $ 17,425 $ 19,550
======== ========

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (none capitalized).................................................... $ 5,390 $ 4,243
Income taxes, net of refunds................................................... $ 1,861 $ 1,191
</TABLE>

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

5
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1. Organization and Acquisitions

Organization. CB Richard Ellis Services, Inc. ("CB Richard Ellis") or (the
"Company") is a holding company that conducts its operations primarily through
its subsidiaries CB Richard Ellis, Inc., CB Commercial Limited (the United
Kingdom holding company, formerly known as REI Limited, "REI," for the various
Richard Ellis companies operating outside the United Kingdom and the United
States), L.J. Melody & Company ("L.J. Melody"), CB Richard Ellis Investors,
L.L.C. and CB Hillier Parker Limited, the United Kingdom holding company for
operations within the United Kingdom. On November 25, 1996, CB Richard Ellis
completed an initial public offering (the "Offering") of 4,347,000 shares of
common stock, par value $.01 per share (the "Common Stock"). The net proceeds
from the Offering of $79.5 million were used to repay a portion of CB Richard
Ellis' then outstanding senior secured indebtedness and senior subordinated
indebtedness.

Nature of Operations. The Company provides a full range of real estate
services worldwide to commercial real estate tenants, owners and investors
through approximately 230 offices worldwide including but not limited to the
United States, Argentina, Australia, Brazil, Belgium, Canada, France, Germany,
Hong Kong, India, Italy, the Netherlands, New Zealand, People's Republic of
China, Portugal, Singapore, Spain, Switzerland, Taiwan and the United Kingdom.
The Company's services include (i) brokerage services whereby the Company
facilitates the sale and lease of properties ("Brokerage Services"); (ii)
transaction management, advisory services and facilities management services to
corporate real estate users ("Corporate Services"); (iii) property management
and related services ("Asset Services"); and (iv) capital market activities,
including mortgage banking, brokerage and servicing, investment management and
advisory services, investment property transactions (including acquisitions and
sales on behalf of investors), real estate market research and valuation and
appraisal services (collectively, "Financial Services"). The Company's diverse
client base includes local, national and multinational corporations, financial
institutions, pension funds and other tax exempt entities, local, state and
national governmental entities, and individuals.

A significant portion of the Company's revenue is seasonal. Historically,
this seasonality has caused the Company's revenue, operating income and net
income to be lower in the first two calendar quarters and higher in the third
and fourth calendar quarters of each year. In addition, the Company's
operations are directly affected by actual and perceived trends in various
national and economic conditions, including interest rates, the availability of
credit to finance commercial real estate transactions and the impact of tax
laws. To date, the Company does not believe that general inflation has had a
material impact upon its operations. Revenues, commissions and other variable
costs related to revenues are primarily affected by real estate market supply
and demand rather than general inflation.

Acquisitions. Refer to the Company's financial statements included in the
Annual Report on Form 10-K for the year ended December 31, 1998 for a discussion
of the Company's acquisitions prior to 1999.

The assets and liabilities of certain acquired companies, along with the
related goodwill, intangibles and indebtedness, are reflected in the
accompanying consolidated financial statements as of March 31, 1999. The
results of operations of the acquired companies are included in the consolidated
results from the dates they were acquired. The unaudited pro forma results of
operations of the Company for the three months ended March 31, 1998, assuming
the REI acquisition, which constituted the Company's only material acquisition,
had occurred on January 1, 1998, would have been as follows (amounts in
thousands except per share data):

Revenue......................................... $191,458
Net loss........................................ (7,006)
Net loss applicable to common stockholders...... (39,279)
Loss per share
Basic......................................... (1.94)
Diluted....................................... (1.94)

6
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

The pro forma results do not necessarily represent results which would have
occurred if the acquisitions had taken place on the date assumed above, nor are
they indicative of the results of future combined operations. The amounts are
based upon certain assumptions and estimates, and do not reflect any benefit
from economies which might be achieved from combined operations. Further, REI
historical results for the first three months of 1998 include certain
nonrecurring adjustments.

2. Impairment of Long-Lived Assets

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of ("SFAS No. 121"), in March 1995. In
accordance with SFAS No. 121, long-lived assets and certain intangibles held and
used by the Company will be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Further, the Company periodically evaluates the recoverability of
the carrying amount of goodwill and other intangible assets in accordance with
SFAS No. 121. In this assessment, the Company considers macro market conditions
and trends in the Company's relative market position, its capital structure,
lender relationships and the estimated undiscounted future cash flows associated
with these assets. If any of the significant assumptions inherent in this
assessment materially change due to market, economic and/or other factors, the
recoverability is assessed based on the revised assumptions and resultant
undiscounted cash flows. If such analysis indicates impairment, it would be
recorded in the period such changes occur based on the fair value of the
goodwill and other intangible assets.

3. Goodwill and Other Intangible Assets

Goodwill at March 31, 1999 consisted of $422.5 million related to the 1995
through 1999 acquisitions which is being amortized over an estimated useful life
of 30 years and $19.5 million related to the Company's original acquisition in
1989 which is being amortized over an estimated useful life of 40 years.

Other intangible assets at March 31, 1999 included approximately $7.5 million
of deferred financing costs and $48.0 million of intangibles stemming from the
1995 through 1999 acquisitions.

4. Employee Benefit Plans

In 1994 the Company implemented the Deferred Compensation Plan ("DCP").
Under the DCP, a select group of management and highly compensated employees can
defer the payment of all or a portion of their compensation (including any
bonus). The DCP permits participating employees to make an irrevocable election
at the beginning of each year to receive amounts deferred at a future date
either in cash, which is an unsecured long term liability of the Company, or in
newly issued shares of Common Stock of the Company which elections are recorded
as additions to Stockholders' Equity. For the three months ended March 31,
1999, approximately $3.2 million was deferred in cash including interest. The
accumulated deferrals as of March 31, 1999, were approximately $20.1 million in
cash (including interest) and $10.0 million in stock for a total of $30.1
million, all of which was charged to expense in the period of deferral.

The Company, through the acquisition of Hillier Parker, maintains a
contributory defined benefit pension plan ("DBP") to provide retirement benefits
to former Hillier Parker employees participating in the plan. The Company's
funding policy for DBP is to make the minimum annual contributions required by
applicable regulations. Reference is made to Note 6 to the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 for further discussion. As of March 31, 1999,
DBP plan assets exceed DBP plan liabilities by approximately $27.2 million and
the net prepaid pension asset is reflected in the accompanying balance sheet.

7
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

5. Debt

In May 1998, the Company amended its revolving credit facility with a group
of banks to provide up to $400.0 million for five years, subject to mandatory
reductions of $40.0 million, $80.0 million and $80.0 million on December 31,
1999, 2000 and 2001, respectively. The amount outstanding under this facility
was $226.0 million as of March 31, 1999 which is included in the accompanying
balance sheet. Interest rate alternatives include Bank of America's reference
rate plus 0.50% and LIBOR plus 1.50%. The weighted average rate on the amounts
outstanding at March 31, 1999 was 6.94%.

The revolving credit facility contains numerous restrictive covenants that,
among other things, limit the Company's ability to incur or repay other
indebtedness, make advances or loans to subsidiaries and other entities, make
capital expenditures, incur liens, enter into mergers or effect other
fundamental corporate transactions, sell its assets, or declare dividends. In
addition, the Company is required to meet certain ratios relating to its
adjusted net worth, level of indebtedness, fixed charges and interest coverage.
An amendment to the revolving credit facility has been executed by the banks and
the Company which resolves various technical issues, e.g., extending from
December 31, 1998 to June 30, 1999 the date for resolving all Year 2000 issues.
The amendment is not effective until shares of certain foreign subsidiaries have
been pledged, a process that will not be completed until some time in June. As
a consequence, the amendment is not presently in effect and the Company may not
be in technical compliance with the credit facility although it does not believe
that the banks will or could successfully assert a default.

In May 1998, the Company sold $175.0 million of 8.875% Senior Subordinated
Notes ("Subordinated Notes") due on June 1, 2006. The Subordinated Notes are
redeemable in whole or in part after June 1, 2002 at 104.438% of par on that
date and at declining prices thereafter. On or before June 1, 2001, up to 35.0%
of the issued amount may be redeemed at 108.875% of par plus accrued interest
solely with the proceeds from an equity offering. The amount included in the
accompanying balance sheet for the Subordinated Notes less unamortized discount
was $173.0 million as of March 31, 1999.

6. Income Taxes

The provisions for income taxes for the three month periods ended March 31,
1999 and 1998 were computed in accordance with Interpretation No. 18 of APB
opinion No. 28 on reporting taxes for interim periods and were based on
projections of total year pre-tax income. In accordance with APB opinion No.
23, no U.S. taxes have been provided on earnings of foreign subsidiaries, it is
the intent of the Company to permanently re-invest the unremitted earnings of
foreign subsidiaries. Reference is made to Note 10 to the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 for a discussion of the Company's deferred
taxes including net operating loss carryforwards.

7. Commitments and Contingencies

In December 1996, GMH Associates, Inc. (''GMH'') filed a lawsuit against
Prudential Realty Group (''Prudential'') and the Company in Superior Court of
Pennsylvania, Franklin County, alleging various contractual and tort claims
against Prudential, the seller of a large office complex, and the Company, its
agent in the sale, contending that Prudential breached its agreement to sell the
property to GMH, breached its duty to negotiate in good faith, conspired with
the Company to conceal from GMH that Prudential was negotiating to sell the
property to another purchaser and that Prudential and the Company misrepresented
that there were no other negotiations for the sale of the property. Following a
non-jury trial, the court rendered a decision in favor of GMH and against
Prudential and the Company, awarding GMH $20.3 million in compensatory damages,
against Prudential and the Company jointly and severally, and $10.0 million in
punitive damages, allocating the punitive damage award $7.0 million as against
Prudential and $3.0 million as against the Company. Following the denial of
motions by Prudential and the Company for a new trial, a judgment was entered on
December 3, 1998. Prudential and the Company have filed an appeal of the
judgment. The Company believes that

8
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

it has adequate insurance coverage for the compensatory portion of the judgment
and adequate reserves for the punitive portion, as well as potential indemnity
claims from Prudential for the entire judgment.

In August 1993, a former commissioned sales person of the Company filed a
lawsuit against the Company in the Superior Court of New Jersey, Bergen County,
alleging gender discrimination and wrongful termination by the Company. On
November 20, 1996, a jury returned a verdict against the Company, awarding $6.5
million in general and punitive damages to the plaintiff. Subsequently, the
trial court awarded the plaintiff $638,000 in attorneys' fees and costs.
Following denial by the trial court of the Company's motions for new trial,
reversal of the verdict and reduction of damages, the Company filed an appeal of
the verdict and requested a reduction of damages. On March 9, 1999 the
appellate court ruled in the Company's favor, reversed the trial court decision
and ordered a new trial. Based on available reserves, cash and anticipated cash
flows, the Company believes that the ultimate outcome will not have an impact on
the Company's ability to carry on its operations.

The Company is a party to a number of pending or threatened lawsuits arising
out of, or incident to, its ordinary course of business. Based on available
cash and anticipated cash flows, the Company believes that the ultimate outcome
will not have an impact on the Company's ability to carry on its operations.
Management believes that any liability to the Company that may result from
disposition of these lawsuits will not have a material effect on the
consolidated financial position or results of operations of the Company.

Stockholders' Equity

The translation of foreign currencies into U.S. dollars is performed for
balance sheet accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using an average exchange rate
for the period. The cumulative gains or losses resulting from translations are
included in stockholders' equity.

9. Comprehensive Income

Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting of Comprehensive Income.
Comprehensive income is a measure of all changes in equity of the Company that
result from recognized transactions and other economic events of the period
excluding investments in or distributions from the Company. All components of
comprehensive income are reported under the provisions of SFAS No. 130. For the
three months ended March 31, 1999, total comprehensive loss was $5.9 million
which includes foreign currency translation loss of $4.1 million. For the three
months ended March 31, 1998, total comprehensive income was $1.9 million which
includes foreign currency translation loss of $33,000.

10. Per Share Information

Basic and diluted loss per share was computed by dividing net income (loss),
less preferred dividend requirements as applicable, by the weighted average
number of common shares outstanding during each period. When the Company has a
net loss applicable to common stockholders for a particular reporting period,
the stock options and warrants outstanding are excluded from the computation of
diluted loss per share as they are anti-dilutive.

9
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

The following is a calculation of basic and diluted loss per share for the
quarters ended March 31 (in thousands, except share and per share data):

1999 1998
---------------------------------- -----------------------------------
Per-Share Income Per-Share
Loss Shares Amount (Loss) Shares Amount
-------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic loss per share
Net income (loss)............................... $(1,753) $ 1,965
Deemed dividend on preferred stock repurchase... - (32,273)
------- --------
Net loss applicable to common stockholders...... $(1,753) 20,640,438 $(0.08) $(30,308) 18,892,735 $(1.60)
======= ========== ========= ======== ========== =========

Diluted loss per share
Net loss applicable to common stockholders...... $(1,753) 20,640,438 $(0.08) $(30,308) 18,892,735 $(1.60)
======= ========== ========= ======== ========== =========
</TABLE>

The following items were not included in the computation of diluted loss per
share because their effect was anti-dilutive for the quarters ended March 31:
<TABLE>
<CAPTION>

1999 1998
---------------- ---------------
<S> <C> <C>
Stock options
Outstanding......... 2,342,562 2,624,198
Price ranges........ $0.30-$37.31 $0.30-$38.50
Expiration ranges... 4/18/99-7/22/08 10/1/01-3/8/08

Stock warrants
Outstanding......... 599,967 599,967
Price............... $30.00 $30.00
Expiration.......... 8/28/04 8/28/04

Deferred stock
Outstanding......... 275,670 96,515
Price ranges........ $17.25-$37.94 $19.05-$37.94

</TABLE>

11. Reclassification

Certain reclassifications, which do not have any effect on net income, have
been made to certain prior period financial statements to conform to the March
1999 presentation.

10
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

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

Introduction -

CB Richard Ellis Services, Inc. through its direct and indirect subsidiaries
(collectively the "Company") provides real estate services through
approximately 230 offices worldwide including but not limited to the United
States, Argentina, Australia, Brazil, Belgium, Canada, France, Germany, Hong
Kong, India, Italy, the Netherlands, New Zealand, People's Republic of China,
Portugal, Singapore, Spain, Switzerland, Taiwan, and the United Kingdom. Over
the course of the last five years the Company, in recognition of a rapidly
changing structural and economic environment, has changed from being almost
exclusively a traditional U.S. real estate broker to being a diversified global
real estate services firm. Its outsourcing, transaction management, advisory
services and facilities management services to corporate real estate user
services (referred to as "Corporate Services"), property management and
related services ("Asset Services") and capital market activities, including
mortgage banking, brokerage and servicing, investment management and advisory
services, investment property transactions (including acquisitions and sales on
behalf of investors), real estate market research and valuation and appraisal
services (collectively "Financial Services") are either the largest or one of
the largest such businesses in both the world and the United States and in the
aggregate accounted for more than $488.1 million in 1998 revenue. The Company's
core brokerage business, commercial property sales and leasing ("Brokerage
Services") accounted for approximately $546.4 million in 1998 revenue and is
one of the largest such businesses in the United States.

As part of its strategic emphasis in developing a worldwide business, the
Company has, since the beginning of 1995, completed multiple acquisitions, an
$87.0 million public offering of common stock and a $175.0 million offering of
senior subordinated notes. The Company is continually assessing acquisition
opportunities as part of its growth strategy. Because of the substantial non-
cash goodwill and intangible amortization charges incurred by the Company in
connection with acquisitions subject to purchase accounting and because of
interest expense associated with acquisition financing, past acquisitions have
and future acquisitions may adversely affect net income. In addition, during the
first six months following an acquisition, the Company believes there are
generally significant one-time costs relating to integrating information
technology, accounting and management services and rationalizing personnel
levels (a portion of which the Company intends to reflect as a statement of
operations charge or as part of the purchase price at the time of the
acquisition as appropriate). Management's strategy is to pursue acquisitions
that are expected to be accretive to income before interest expense and
provision for amortization of goodwill and intangibles, if any, and to operating
cash flows (excluding the costs of integration).

Revenue from Brokerage Services and the investment properties component of
Financial Services, which constitutes a substantial majority of the Company's
revenue, is largely transactional in nature and subject to economic cycles.
However, the Company's significant size, geographic coverage, number of
transactions and large continuing client base tend to minimize the impact of
economic cycles on annual revenue and create what the Company believes is
equivalent to a recurring stream of revenue. Between 50.0% and 55.0% of the
costs and expenses associated with Brokerage Services and the investment
properties component of Financial Services are directly correlated to revenue
while approximately 25.0% of the costs and expenses of Corporate Services, Asset
Services and Financial Services, excluding investment properties, are directly
correlated to revenue.

11
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)

Results of Operations -

Since 1992, the Company's results have benefitted from its ability to take
advantage of a significant and ongoing recovery in U.S. commercial real estate
markets and the generally rising occupancy and rental levels, and, as a result,
property values as well as from significant expansion into international
markets. Since brokerage fees are typically based upon a percentage of
transaction value, and property management fees are typically based upon a
percentage of total rent collections, recent occupancy and rental rate increases
at the property level have generated an increase in brokerage and property
management fees to the Company. The following unaudited table sets forth items
derived from the Company's Consolidated Statements of Operations for each of the
periods presented in dollars and as a percentage of revenue.

Operating income................................ 5,076 2.2 7,150 4.1
Interest income................................. 534 0.2 727 0.4
Interest expense................................ 9,173 3.9 4,321 2.5
-------- ----- -------- -----

Income (loss) before provision for income tax... (3,563) (1.5) 3,556 2.0

Provision (benefit) for income tax.............. (1,810) (0.8) 1,591 0.9
-------- ----- -------- -----

Net income (loss)............................... $ (1,753) (0.7)% $ 1,965 1.1%
======== ===== ======== =====

EBITDA.......................................... $ 15,070 6.5% $ 12,472 7.1%
======== ===== ======== =====
</TABLE>

Quarter Ended March 31, 1999 Compared to Quarter Ended March 31, 1998

The Company reported a consolidated net loss of $1.8 million, or $0.08 diluted
loss per share for the quarter ended March 31, 1999 on revenues of $233.2
million compared to a consolidated net income of $2.0 million on revenues of
$175.1 million for the quarter ended March 31, 1998. The net loss applicable to
common stockholders, including the deemed dividend resulting from the accounting
treatment of the preferred stock repurchase, was $30.3 million, or $1.60 diluted
loss per share for the quarter ended March 31, 1998.

Revenues on a consolidated basis were $233.2 million, an increase of $58.1
million or 33.1% for the quarter ended March 31, 1999, compared to the quarter
ended March 31, 1998. The overall increase reflected the full contribution from
REI Limited ("REI") and Hillier Parker ("HP") and various other 1998
acquisitions. The Company continued to benefit from its global market presence
by leveraging the ability to deliver comprehensive real estate services into new
businesses. However, revenues for the first quarter of 1999 continue to be
affected by the liquidity problems which began in September of 1998 in the
global capital markets in general and the Commercial Mortgage-Backed Securities
("CMBS") market in particular.

Commissions, fees and other incentives on a consolidated basis were $96.6
million, an increase of $14.4 million or 17.6% for the quarter ended March 31,
1999, compared to the quarter ended March 31, 1998. The increase in these costs
is attributable to the increase in revenue since most of the Company's sales
professionals are compensated based on revenue. As a percentage of revenue,
commissions fees and other incentives were 41.4% for the quarter ended March 31,
1999, compared to 46.9% for the quarter ended March 31, 1998. The decrease as a
percentage of revenue is primarily due to the acquisition of REI and HP which
generally do not operate under a commission-based program.

12
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)

Operating, administrative and other on a consolidated basis was $121.5
million, an increase of $41.0 million or 51.0% for the quarter ended March 31,
1999, compared to the quarter ended March 31, 1998. As a percentage of revenue,
operating, administrative and other were 52.1% for the quarter ended March 31,
1999 compared to 46.0% for the quarter ended March 31, 1998. The increase in
amount and percentage is primarily due to the acquisitions of REI and HP, which
have higher fixed operating expenses. Due to the integration of REI and HP,
operating, administrative and other as a percentage of revenue has increased,
while commissions, fees and other incentives as a percentage of revenue has
decreased.

Operating income for the quarter ended March 31, 1999 includes $2.6 million
of income from incentive participations in opportunity funds for which there was
no comparable income in the prior year period. The Company anticipates that it
will have such income in future periods although it is unable to anticipate with
certainty the timing or amount of such income due to the nature of the
underlying transactions which give rise to such income.

Consolidated interest income was $0.5 million, a decrease of $0.2 million or
27.0% for the quarter ended March 31, 1999, as compared to the quarter ended
March 31, 1998.

Consolidated interest expense was $9.2 million, an increase of $4.9 million
or 112.3% for the quarter ended March 31, 1999, as compared to the quarter ended
March 31, 1998. The increase primarily resulted from the May 1998 issuance of
senior subordinated notes, which were used to finance business acquisitions.

Benefit for income tax on a consolidated basis was $1.8 million for the
quarter ended March 31, 1999, as compared to the provision for income tax of
$1.6 for the quarter ended March 31, 1998. The tax benefit is attributable to
operating losses realized in the first quarter which the Company expects to
utilize against future operating income in the current year. The effective tax
rate increased in 1999, primarily as a result of additional nonamortizable
goodwill from recent acquisitions and losses in certain foreign jurisdictions
for which no tax benefit is received. In early 1998 the Company repurchased its
outstanding preferred stock which triggered a limitation on the annual amount of
net operating loss ("NOL") it can use to offset future U.S. taxable income.
This limitation does not affect the way taxes are reported for financial
reporting purposes, but it will affect the timing of the actual amount of taxes
paid on an annual basis.

EBITDA was $15.1 million for the quarter ended March 31, 1999, as compared
to $12.5 million for the quarter ended March 31, 1998. EBITDA effectively
removes the impact of certain non-cash and nonrecurring charges on income such
as depreciation and the amortization of intangible assets relating to
acquisitions, merger-related and other nonrecurring charges, extraordinary
items, and income taxes. Management believes that the presentation of EBITDA
will enhance a reader's understanding of the Company's operating performance and
ability to service debt as it provides a measure of cash (subject to the payment
of interest and income taxes) generated that can be used by the Company to
service its debt and other required or discretionary purposes. Net cash that
will be available to the Company for discretionary purposes represents remaining
cash after debt service and other cash requirements, such as capital
expenditures, are deducted from EBITDA. EBITDA should not be considered as an
alternative to (i) operating income determined in accordance with GAAP or (ii)
operating cash flow determined in accordance with GAAP.

13
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)

Segment Operations

The Company provides integrated real estate services through four global
business units. The four units are Brokerage Services, Corporate Services, Asset
Services and Financial Services. The factors for determining the reportable
segments were based on the type of service and client. Each business segment
requires and is responsible for executing a unique marketing and business
strategy. Brokerage Services consists of commercial property sales and leasing
services. Corporate Services consists of outsourcing, transaction management,
advisory services and facilities management. Asset Services consists of
property management and related services. Financial Services consists of
investment property services (acquisitions and sales on behalf of investors),
mortgage loan origination and servicing through L.J. Melody, investment
management and advisory services through CB Richard Ellis Investors, L.L.C.
("CBRE Investors"), capital markets activities, valuation and appraisal
services and real estate market research. The following tables summarize the
revenue, cost and expenses, and operating income by operating segment for the
quarters ended March 31, 1999 and 1998.

<TABLE>
<CAPTION>
Quarter Ended March 31,
--------------------------------------
1999 1998
------------------ -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Brokerage Services
Revenue.................................... $119,526 100.0% $92,969 100.0%
Costs and expenses:
Commissions, fees and other incentives... 61,955 51.8 51,933 55.9
Operating, administrative and other...... 49,009 41.0 34,061 36.6
Depreciation and amortization............ 3,327 2.8 1,502 1.6
-------- ----- ------- -----
Operating income........................... $ 5,235 4.4% $ 5,473 5.9%
======== ===== ======= =====
EBITDA..................................... $ 8,562 7.2% $ 6,975 7.5%
======== ===== ======= =====
Corporate Services
Revenue.................................... $ 16,978 100.0% $12,480 100.0%
Costs and expenses:
Commissions, fees and other incentives... 4,441 26.2 4,925 39.5
Operating, administrative and other...... 13,358 78.6 8,267 66.2
Depreciation and amortization............ 723 4.3 506 4.1
-------- ----- ------- -----
Operating loss............................. $ (1,544) (9.1)% $(1,218) (9.8)%
======== ===== ======= =====
EBITDA..................................... $ (821) (4.8)% $ (712) (5.7)%
======== ===== ======= =====
Asset Services
Revenue.................................... $ 32,603 100.0% $22,461 100.0%
Costs and expenses:
Commissions, fees and other incentives... 6,732 20.6 4,902 21.8
Operating, administrative and other...... 23,136 71.0 15,570 69.3
Depreciation and amortization............ 1,893 5.8 1,201 5.4
-------- ----- ------- -----
Operating income........................... $ 842 2.6% $ 788 3.5%
======== ===== ======= =====
EBITDA..................................... $ 2,735 8.4% $ 1,989 8.9%
======== ===== ======= =====
Financial Services
Revenue.................................... $ 64,094 100.0% $47,234 100.0%
Costs and expenses:
Commissions, fees and other incentives... 23,519 36.7 20,454 43.3
Operating, administrative and other...... 35,981 56.1 22,560 47.8
Depreciation and amortization............ 4,051 6.4 2,113 4.5
-------- ----- ------- -----
Operating income........................... $ 543 0.8% $ 2,107 4.4%
======== ===== ======= =====
EBITDA..................................... $ 4,594 7.2% $ 4,220 8.9%
======== ===== ======= =====
Total operating income...................... $ 5,076 $ 7,150
======== =======
Total EBITDA................................ $ 15,070 $12,472
======== =======
</TABLE>

Segment operating income (loss) excludes interest income, interest expense
and provision for income taxes.

14
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)

Quarter ended March 31, 1999 Compared to the Quarter ended March 31, 1998

Brokerage Services

Revenue increased by $26.6 million or 28.6% for the quarter ended March 31,
1999, compared to the quarter ended March 31, 1998, due primarily to the
contributions from REI and HP. Commissions, fees and other incentives increased
by $10.0 million or 19.3% for the quarter ended March 31, 1999, compared to the
quarter ended March 31, 1998, primarily due to increased revenues, which
resulted in higher commission eligibility levels and, thus, higher commissions.
As a percentage of revenue, commissions, fees and other incentives were 51.8%
for the quarter ended March 31, 1999 compared to 55.9% for the quarter ended
March 31, 1998. The decrease in commissions, fees and other incentives as a
percentage of revenue is primarily due to the integration of REI and HP which
generally do not operate under a commission-based program. Operating,
administrative, and other increased by $14.9 million or 43.9% for the quarter
ended March 31, 1999, compared to the quarter ended March 31, 1998. The
increase in the amount is primarily a result of the integration of REI and HP
including incentive compensation based on increased operating results.
Depreciation and amortization increased by $1.8 million or 121.5% for the
quarter ended March 31, 1999, as compared to the quarter ended March 31, 1998,
primarily as a result of additional investments in hardware and software to
support the increase in new business and goodwill related to the acquisition of
REI and HP.

Corporate Services

Revenue increased by $4.5 million or 36.0% for the quarter ended March 31,
1999, compared to the quarter ended March 31, 1998, partially due to the
contribution from REI, HP and growth in the facilities management business.
Commissions, fees and other incentives decreased by $0.5 million or 9.8% for the
quarter ended March 31, 1999 compared to the quarter ended March 31, 1998. As a
percentage of revenue, commissions, fees and other incentives were 26.2% for the
quarter ended March 31, 1999 compared to 39.5% for the quarter ended March 31,
1998. The decrease in commissions, fees and other incentives as a percentage of
revenue is primarily a result of the REI, HP and the facilities management
revenue increases, the latter of which has no corresponding commission expenses.
Operating, administrative, and other increased $5.1 million or 61.6% for the
quarter ended March 31, 1999, compared to the quarter ended March 31, 1998,
primarily related to the acquisition of REI and HP which have higher fixed
operating expenses, additional personnel requirements and business promotion
expenses. As a percentage of revenue, operating, administrative and other were
78.6% for the quarter ended March 31, 1999 compared to 66.2% for the quarter
ended March 31, 1998. The increase in operating, administrative and other as a
percentage of revenue is primarily due to the integration of REI and HP and
continued building of the facilities management infrastructure in response to
the revenue growth. Depreciation and amortization increased by $0.2 million or
42.9% for the quarter ended March 31, 1999, as compared to the quarter ended
March 31, 1998, primarily related to the acquisition of REI and HP.

Asset Services

Revenue increased by $10.1 million or 45.2% for the quarter ended March 31,
1999, compared to the quarter ended March 31, 1998 primarily due to the
contribution from REI and HP. Commissions, fees and other incentives increased
by $1.8 million or 37.3% for the quarter ended March 31, 1999, compared to the
quarter ended March 31, 1998, but decreased as a percentage of revenue from
21.8% to 20.6% primarily due to the acquisitions of REI and HP which generally
do not operate under a commission-based program. Operating, administrative, and
other increased $7.6 million or 48.6% for the quarter ended March 31, 1999,
compared to the quarter ended March 31, 1998. As a percentage of revenue,
operating, administrative and other were 71.0% for the quarter ended March 31,
1999 compared to 69.3% for the quarter ended March 31, 1998. The increase in
amount and percentage is primarily due to the integration of REI and HP.
Depreciation and amortization increased by $0.7 million or 57.6% for the quarter
ended March 31, 1999 compared to the quarter ended March 31, 1998, primarily
related to the acquisitions of REI and HP.

Financial Services

Revenue increased by $16.9 million or 35.7% for the quarter ended March 31,
1999, compared to the quarter ended March 31, 1998. The increase in revenue is
primarily due to growth in the valuation and appraisal services revenue and the
full contribution from REI and HP. Commissions, fees and other incentives
increased by $3.1 million or 15.0% for the quarter ended March 31, 1999,
compared to the quarter ended March 31, 1998. The increase is primarily a
result of the revenue increase and the resulting higher commission eligibility
levels from the REI and HP

15
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)

contribution and valuation and appraisal services. As a percentage of revenue,
commissions, fees and other incentives were 36.7% for the quarter ended March
31, 1999 compared to 43.3% for the quarter ended March 31, 1998. The decrease in
commissions, fees and other incentives as a percentage of revenue is primarily
due to the integration of REI and HP which do not operate under commission-based
programs. Operating, administrative, and other increased by $13.4 million or
59.5% for the quarter ended March 31, 1999, compared to the quarter ended March
31, 1998, primarily as a result of business promotion expenses and additional
personnel requirements, and the integration of REI and HP. Depreciation and
amortization increased by $1.9 million or 91.7% for the quarter ended March 31,
1999, as compared to the quarter ended March 31, 1998, primarily related to the
additional investment in hardware and software to support the increase in new
business and the acquisition of REI and HP.

Liquidity and Capital Resources

The Company has historically financed its operations and non-acquisition
related capital expenditures primarily with internally generated funds and
borrowings under a revolving credit facility. In order to fund certain working
capital requirements, the Company had additional net borrowings of $59.0 million
under the revolving credit facility, during the first quarter of 1999. The
Company's EBITDA was $15.1 million and $12.5 million for the three months ended
March 31, 1999 and 1998, respectively. The improvement in EBITDA reflects the
overall period to period revenue growth discussed in Results of Operations.

Net cash used in operating activities was $54.3 million for the three months
ended March 31, 1999, compared to $35.7 million for the three months ended March
31, 1998. The change is primarily due to higher incentive payments resulting
from improved operating performances in 1998 and changes in components of
operating assets and liabilities.

Net cash provided by investing activities was $1.8 million for the three
months ended March 31, 1999, compared to net cash used in investing activities
of $22.4 million for the three months ended March 31, 1998. The change is
primarily due to a lower level of acquisition of businesses, the sale of the
inventoried property and the absence in 1999 of the supplemental purchase price
payments included in 1998 in connection with a 1995 acquisition.

Net cash provided by financing activities was $50.0 million for the three
months ended March 31, 1999, compared to $30.5 million for the three months
ended March 31, 1998. The increase primarily resulted from the absence in 1999
of a one-time repurchase of the Company's preferred stock in 1998 offset by the
repayment of the inventoried property loan and lower 1999 net borrowings from
the revolving credit facility.

The Company expects to have capital expenditures ranging from $25.0 million
to $30.0 million in 1999. The Company expects to use net cash provided by
operating activities for the next several years primarily to fund capital
expenditures for computer related purchases, acquisitions, including earnout
payments, and to make required principal payments under the Company's
outstanding indebtedness. The Company believes that it can satisfy its non-
acquisition obligations as well as working capital requirements from internally
generated cash flow, borrowings under the amended

16
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)

revolving credit facility or any replacement credit facilities. Material future
acquisitions, if any, that require cash will require new sources of capital such
as an expansion of the amended revolving credit facility and raising money by
issuing additional debt or equity. The Company anticipates that its existing
sources of liquidity, including cash flow from operations, will be sufficient to
meet the Company's anticipated non-acquisition cash requirements for the
foreseeable future and in any event for at least the next twelve months.

Year 2000 Issues Update

Introduction

The Year 2000 ("Y2K") issue exists because many computer systems and
applications currently use only two digits to designate a year, which may cause
date-sensitive systems to recognize the year 2000 as 1900 or not at all. The
Company's proprietary and client accounting systems, other information
technology ("IT") systems and embedded (elevator, HVAC, and other non-IT)
systems are all potentially subject to problems related to the inability of such
systems to appropriately interpret the upcoming calendar year "2000" and
beyond.

State of Readiness

The Company has assessed and continues to assess the impact of the Y2K on IT
and non-IT systems and is in the process of completing the replacement or
upgrade of the affected hardware and software. The Company has created an
integration team to facilitate testing all of its significant software and to
determine whether embedded technology is Y2K compliant. The Company believes
that Y2K issues for certain of its acquired businesses outside of the United
States, including those in Asia, are more serious than Y2K issues in the United
States and Europe but are not material. The local management and the
integration team are developing compliance plans for these acquired business
locations. Although there can be no assurances, the Company believes that its
proprietary accounting systems, information technology and embedded systems will
be Y2K compliant by the end of 1999.

Costs to Address the Year 2000 Issue

To date, the Company estimates that it has spent approximately $7.0 million
to address the Y2K issue which includes replacing and upgrading the affected
hardware and software. Costs incurred to replace systems will be capitalized.
The Company estimates approximately $4.0 million of additional costs to fully
address the Y2K issue. The Company does not track the cost and time that its
own internal employees spend on the Y2K project.

Risks Presented by the Year 2000 Issue

The Company relies on third parties for goods and services. The inability of
these third parties to conduct their business for a significant period of time
due to the Y2K issue could have a material adverse impact on the Company's
operations. In addition, certain of the Company's clients require the Company
to utilize client-provided IT systems in connection with the Company's provision
of services. Failure of any of these client-provided systems could disrupt the
Company's operations with respect to the clients involved. Due to the Company's
inability to complete an assessment of risk with respect to third-party
suppliers and clients, the Company cannot conclusively determine that their
occurrence will not have a material adverse impact on the Company's results of
operations, liquidity or financial condition. At this time, the Company
believes its most reasonably likely worst case scenarios include: temporary
failure of one or more infrastructure services provided by third-party suppliers
(including utilities and transportation); loss of real-time processing
capability by the Company's internal information systems; and interruption of
commerce with customers or suppliers that experience Y2K-related failures within
their businesses. In a worst case scenario such occurrences could materially
and adversely affect the Company's results of operations, liquidity and
financial condition.

Contingency Plans

The project teams working with each of the Company's systems are responsible
for developing two types of contingency plans to address these risks. One type
manages the risks of Y2K-related failure. This employs iterative planning that
identifies and quantifies risks and responds by altering the original plan to
avoid the risks or reduce their impact or their probability of occurring. The
other type of contingency plan manages recovery from a Y2K-related failure by
identifying the potential failures; assessing their impacts; evaluating and
selecting operational alternatives;

17
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)

planning the implementation of alternatives; and facilitating the eventual
restoration of normal operations. The Company has plans for temporary
alternatives in the event that its internal accounting systems fail and transfer
data and functionality of any failed client accounting systems to a working
backup system, but such plans will not be completed until the third quarter of
1999.

Euro Conversion Disclosure

The Company does not expect the introduction of the Euro to have a
significant impact on its market or the manner in which it conducts business,
and believes the related impact on the Company's financials is not material.
Approximately six percent of the Company's 1998 business was transacted in the
participating member countries. The Company is currently using the legacy
currencies to conduct business in these member countries.

The Company is in the process of replacing or upgrading the affected hardware
and software to allow for dual-currency reporting during the transition period,
and issues related but not limited to converting amounts and rounding. The
Company anticipates these system upgrades will be fully functional prior to the
end of the transition period.

Litigation

Net Operating Losses

The Company had U.S. federal income tax NOLs of approximately $70.8 million
as of December 31, 1998, corresponding to $24.8 million of the Company's $53.3
million in net deferred tax assets before valuation allowance.

The ability of the Company to utilize NOLs was limited in 1998 and will be in
subsequent years as a result of the Company's 1996 public offering, the 1997
Koll acquisition and the 1998 repurchase of preferred stock which

18
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)

cumulatively caused a more than 50.0% change of ownership within a three year
period. As a result of the limitation, the Company will be able to use
approximately $26.0 million of its NOL in 1998 and in each subsequent year. The
amount of NOLs is, in any event, subject to uncertainty until the statute of
limitations lapses after their utilization to offset taxable income.

New Accounting Pronouncements

The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information during the quarter ended December 31, 1998. SFAS 131
requires the use of the ''management approach'' for segment reporting, which is
based on the way the chief operating decision maker organizes segments within a
company for making operating decisions and assessing performance. The adoption
of this statement did not have a material impact on the Company's financial
statements.

In 1999, the Company adopted Statement of Position (''SOP'') 98-5, Reporting
on the Costs of Start-up Activities. SOP 98-5, which requires costs of start-up
activities and organization costs to be expensed as incurred. The adoption of
this statement did not have a material impact on the Company's financial
statements.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.

SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). SFAS No. 133 must be applied to (a) derivative instruments and (b)
certain derivative instruments embedded in hybrid contracts that were issued,
acquired, or substantively modified after December 31, 1997. The Company has not
yet quantified the impacts of adopting SFAS No. 133 on its financial statements
and has not determined the timing of or method of its adoption of SFAS No. 133.
Based on derivative instruments outstanding, SFAS No. 133 is not anticipated to
have a significant impact on earnings or other components of comprehensive
income.

19
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's exposure to market risk consists of foreign currency exchange
rate fluctuations related to international operations and changes in interest
rates on debt obligations.

Approximately 20.0% of the Company's business is transacted in local
currencies of foreign countries. The Company attempts to manage its exposure
primarily by balancing monetary assets and liabilities, and maintaining cash
positions only at levels necessary for operating purposes. While the Company's
international results of operations as measured in dollars are subject to
foreign exchange rate fluctuations, the related risk is not considered material.
The Company routinely monitors its transaction exposure to currency rate
changes, and enters into currency forward and option contracts to limit such
exposure, as appropriate. Gains and losses on contracts are deferred until the
transaction being hedged is finalized. At March 31, 1999, the Company had no
outstanding contracts. The Company does not engage in any speculative
activities.

The Company manages its interest expense by using a combination of fixed and
variable rate debt. The Company utilizes sensitivity analyses to assess the
potential effect of its variable rate debt. If interest rates were to increase
by 70 basis points (approximately 10.0% of the Company's weighted-average
variable rate at March 31, 1999) the net impact would not result in a material
change in the Company's interest expense or the fair value of the Company's debt
obligation.

REGARDING OUTLOOK AND OTHER FORWARD-LOOKING DATA

Portions of the Quarterly Report, including Management's Discussion and
Analysis, contain forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the Company's actual results and performance in
future periods to be materially different from any future results or performance
suggested in forward-looking statements in this release. Such forward-looking
statements speak only as of the date of this report and the Company expressly
disclaims any obligation to update or revise any forward-looking statements
found herein to reflect any changes in Company expectations or results or any
change in events. Factors that could cause results to differ materially include,
but are not limited to: commercial real estate vacancy levels; employment
conditions and their effect on vacancy rates; property values; rental rates; any
general economic recession domestically or internationally; and general
conditions of financial liquidity for real estate transactions.

20
<PAGE>

CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

27 Financial Data Schedule (filed only with the SEC)

(b) Reports on Form 8-K

(i) The registrant filed a Current Report on Form 8-K dated February
17, 1999 concerning the Company's press release announcing the
results of operations for the quarter and year ended December 31,
1998.

21
<PAGE>

SIGNATURES

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

CB RICHARD ELLIS SERVICES, INC.

Date: March 13, 1999
/s/ Debra L. Morris
------------------------------
Debra L. Morris
Executive Vice President,
Global Chief Accounting Officer

22
<PAGE>

EXHIBIT INDEX

Exhibit
Number Description of Exhibit
------ --------------------------------------------------

27 Financial Data Schedule (filed only with the SEC)

<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 17,425
<SECURITIES> 0
<RECEIVABLES> 134,359
<ALLOWANCES> 12,065
<INVENTORY> 0
<CURRENT-ASSETS> 160,521
<PP&E> 112,908
<DEPRECIATION> 54,193
<TOTAL-ASSETS> 824,757
<CURRENT-LIABILITIES> 139,864
<BONDS> 0
0
0
<COMMON> 211
<OTHER-SE> 185,048
<TOTAL-LIABILITY-AND-EQUITY> 824,757
<SALES> 233,201
<TOTAL-REVENUES> 233,201
<CGS> 0
<TOTAL-COSTS> 228,125
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,173
<INCOME-PRETAX> (3,563)
<INCOME-TAX> (1,810)
<INCOME-CONTINUING> (1,753)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,753)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)

</TABLE>