<PAGE>
 
                                 UNITED STATES
                      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 September 30, 1998

_____  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)

       533 South Fremont Avenue              
        Los Angeles, California                             90071-1712
   (Address of principal executive offices)                 (Zip Code)

           (213) 613 - 3123                           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 October 31, 1998 was 21,075,034.

                                       1
<PAGE>
 
               CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

                                   FORM 10-Q

                              SEPTEMBER 30, 1998

                               TABLE OF CONTENTS


<TABLE> 
<CAPTION> 
PART I - FINANCIAL INFORMATION                                                                                PAGE
                                                                                                              ----
<S>                                                                                                           <C>
Item 1.   Consolidated Condensed Financial Statements
 
          Consolidated Balance Sheets as of September 30, 1998 (Unaudited) and December 31, 1997.........       3
                                                                                                                
          Unaudited Consolidated Statements of Operations for the three months ended                            
          September 30, 1998 and 1997 and for the nine months ended September 30, 1998 and 1997..........       4
                                                                                                                
          Unaudited Consolidated Condensed Statements of Cash Flows for the nine months                         
          ended September 30, 1998 and 1997..............................................................       5
                                                                                                                
          Notes to Consolidated Condensed Financial Statements...........................................       6
                                                                                                                
Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations..........      13
                                                                                                                
Item 3.   Quantitative and Qualitative Disclosures About Market Risk.....................................      26

 
PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K................................................................      27

Signatures...............................................................................................      28
</TABLE> 

                                       2
<PAGE>
 
               CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                 (Dollars in thousands except per share data)

<TABLE>
<CAPTION>
                                                                              September 30,   December 31,
                                                                                   1998           1997
                                                                              --------------  -------------
                                                                               (Unaudited)
<S>                                                                           <C>             <C>
                  ASSETS
Current Assets:
 Cash and cash equivalents..................................................      $  23,437      $  47,181
 Receivables, less allowance of $11,670 and $8,427 for doubtful accounts
  at September 30, 1998 and December 31, 1997, respectively.................        119,971         77,658
 Deferred taxes.............................................................          3,036          2,890
 Prepaid expenses...........................................................         14,028          9,142
 Other assets...............................................................         17,329          8,419
                                                                                  ---------      ---------
  Total current assets......................................................        177,801        145,290
Property and equipment, net.................................................         62,588         50,309
Goodwill, net of accumulated amortization of $21,324 and $13,561 at
 September 30, 1998 and December 31, 1997, respectively.....................        415,497        196,358
Other intangible assets, net of accumulated amortization of $265,699 and
 $261,519 at September 30, 1998 and December 31, 1997, respectively.........         58,432         43,026
Prepaid pension expenses....................................................         26,720              -
Inventoried property........................................................          7,355          7,355
Deferred taxes..............................................................         25,188         34,967
Other assets, net...........................................................         32,805         22,795
                                                                                  ---------      ---------
  Total assets..............................................................      $ 806,386      $ 500,100
                                                                                  =========      =========
         LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
 Compensation and employee benefits.........................................      $  51,432         55,712
 Accounts payable and accrued expenses......................................         87,141         57,032
 Reserve for bonus and profit sharing.......................................         27,766         33,538
 Current maturities of long-term debt.......................................          9,089          4,679
 Current portion of capital lease obligations...............................          3,305          1,655
                                                                                  ---------      ---------
  Total current liabilities.................................................        178,733        152,616
                                                                                  ---------      ---------
Long-term debt, less current maturities:
 Senior term loans..........................................................        196,502        136,551
 Senior subordinated notes, less unamortized discount of $2,148 at
  September 30, 1998........................................................        172,852              -
 Other long-term debt.......................................................         21,146          9,722
                                                                                  ---------      ---------
  Total long-term debt......................................................        390,500        146,273
                                                                                  ---------      ---------
Other long-term liabilities.................................................         54,365         35,768
                                                                                  ---------      ---------
  Total liabilities.........................................................        623,598        334,657
                                                                                  ---------      ---------
Minority interest...........................................................          5,752          7,672

Commitments and contingencies

Stockholders' Equity:
 Preferred stock, $0.01 par value, 4,000,000 shares outstanding as of
  December 31, 1997.........................................................              -             40
 Common stock, $0.01 par value, 20,718,899 and 18,768,200 shares
  outstanding as of September 30, 1998 and December 31, 1997, respectively..            207            188
 Additional paid-in capital.................................................        339,373        333,981
 Notes receivable from sale of stock........................................         (5,832)        (5,956)
 Currency translation adjustment............................................          2,846           (158)
 Accumulated deficit........................................................       (159,558)      (170,324)
                                                                                  ---------      ---------
  Total stockholders' equity................................................        177,036        157,771
                                                                                  ---------      ---------
  Total liabilities and stockholders' equity................................      $ 806,386      $ 500,100
                                                                                  =========      =========
</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           Nine Months Ended
                                                                  September 30,               September 30, 
                                                               -------------------         --------------------           
                                                                1998         1997           1998          1997     
                                                               ------       ------         ------        ------       
<S>                                                        <C>          <C>           <C>           <C>
Revenue..................................................  $   273,803  $   177,520   $   704,214   $   469,542
 
Costs and Expenses:
   Commissions, fees and other incentives................      113,559       87,588       310,641       237,716
   Operating, administrative and other...................      124,309       69,046       314,330       185,642
   Merger-related and other nonrecurring charges.........            -       12,924        16,585        12,924
   Depreciation and amortization.........................        9,337        6,098        22,086        12,272
                                                           -----------  -----------   -----------   -----------
Operating income.........................................       26,598        1,864        40,572        20,988
Interest income..........................................          703          740         1,968         1,959
Interest expense.........................................        9,628        4,158        21,359        12,007
                                                           -----------  -----------   -----------   -----------
 
Income (loss) before provision (benefit) for income tax
   and extraordinary items...............................       17,673       (1,554)       21,181        10,940
 
Provision (benefit) for income tax.......................        7,534         (569)       10,257         4,786
                                                           -----------  -----------   -----------   -----------
 
Income (loss) before extraordinary items.................       10,139         (985)       10,924         6,154
 
Extraordinary items, net.................................            -          951             -           951
                                                           -----------  -----------   -----------   -----------
 
Net income (loss)........................................  $    10,139  $    (1,936)  $    10,924   $     5,203
                                                           ===========  ===========   ===========   ===========
 
Preferred stock dividend.................................  $         -  $     1,000   $         -   $     3,000
 
Deemed dividend on preferred stock.......................  $         -  $         -   $    32,273   $         -
                                                           -----------  -----------   -----------   -----------
 
Net income (loss) applicable to common stockholders......  $    10,139  $    (2,936)  $   (21,349)  $     2,203
                                                           ===========  ===========   ===========   ===========
 
Basic earnings (loss) per share..........................  $      0.49  $     (0.19)  $     (1.07)  $     $0.16
                                                           ===========  ===========   ===========   ===========
 
Weighted average shares outstanding for basic earnings
 per share...............................................   20,692,573   15,419,930    19,917,773    14,011,922
                                                           ===========  ===========   ===========   ===========
 
Diluted earnings (loss) per share........................  $      0.48  $     (0.19)  $     (1.07)  $      0.15
                                                           ===========  ===========   ===========   ===========
 
Weighted average shares outstanding for diluted
 earnings per share......................................   21,101,324   15,419,930    19,917,773    14,662,536
                                                           ===========  ===========   ===========   ===========
</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>
                                                                                                    Nine Months Ended
                                                                                                      September 30,
                                                                                                  --------------------
                                                                                                     1998       1997
                                                                                                    ------     -------
<S>                                                                                               <C>          <C>
Cash flows from operating activities:
 Net income..................................................................................     $  10,924     $  5,203   
 Adjustments to reconcile net income to net cash provided by                                                               
 operating activities:                                                                                                     
  Depreciation and amortization..............................................................        22,086       12,272   
  Deferred compensation......................................................................        11,375        4,170   
  Deferred taxes.............................................................................         5,706        4,067   
 (Increase) decrease in receivables..........................................................       (15,605)       7,523   
 Decrease in compensation and employee benefits payable......................................       (22,637)     (13,541)  
 Increase in accounts payable and accrued expenses...........................................        10,945        3,593   
 Net change in other operating assets and liabilities........................................         3,726        2,493   
                                                                                                  ---------     --------   
   Net cash provided by operating activities.................................................        26,520       25,780   
                                                                                                  ---------     --------   
Cash flows from investing activities:                                                                                      
 Purchases of property and equipment.........................................................       (18,040)      (3,890)  
 Increase in intangible assets and goodwill..................................................       (14,603)      (7,360)  
 Increase in short term investments..........................................................             -       (5,000)  
 Acquisition of businesses including net assets acquired, intangibles                                                      
  and goodwill...............................................................................      (159,822)       3,216   
 Decrease (increase) in investments in/advances to unconsolidated                                                          
  subsidiaries...............................................................................        (8,461)         369   
 Other investing activities, net.............................................................         1,130        2,349   
                                                                                                  ---------     --------   
   Net cash used in investing activities.....................................................      (199,796)     (10,316)  
                                                                                                  ---------     --------   
Cash flows from financing activities:                                                                                      
 Proceeds from senior revolving credit line..................................................             -       16,000   
 Repayment of senior revolving credit line...................................................             -      (16,000)  
 Proceeds from senior term loan..............................................................       268,000      155,000   
 Repayment of senior term loans..............................................................      (208,000)     (55,415)  
 Proceeds from senior subordinated notes.....................................................       172,804            -   
 Repayment of senior subordinated term loans.................................................             -      (65,872)  
 Proceeds from other loans...................................................................             -          125   
 Repayment of other loans....................................................................        (8,130)     (52,213)  
 Payment of dividends payable................................................................        (5,000)           -   
 Repurchase of preferred stock...............................................................       (72,418)           -   
 Repayment of capital leases.................................................................        (1,354)      (2,131)  
 Other financing activities, net.............................................................         3,474         (663)  
                                                                                                  ---------     --------   
   Net cash provided (used in) by financing activities.......................................       149,376      (21,169)  
                                                                                                  ---------     --------   
Net decrease in cash and cash equivalents....................................................       (23,900)      (5,705)  
Cash and cash equivalents, at beginning of period............................................        47,181       49,328   
Effect of exchange rate changes on cash......................................................           156            -   
                                                                                                  ---------     --------   
Cash and cash equivalents, at end of period..................................................     $  23,437     $ 43,623   
                                                                                                  =========     ========   
Supplemental disclosure of cash flow information:                                                                          
 Cash paid (received) during the period for:                                                                               
  Interest (none capitalized)................................................................     $  13,522     $ 10,919   
  Income taxes (refunds).....................................................................          (435)       1,934   
Non-cash investing and financing activities:                                                                               
 Equipment acquired under capital leases.....................................................             -          822    
</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., REI Limited ("REI," the United Kingdom
holding company, now known as CB Commercial Limited, 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 215 offices in 29 countries including the United States,
Canada, United Kingdom, Netherlands, France, Spain, Brazil, Australia, New
Zealand, Hong Kong (including Taiwan and the People's Republic of China) and
Singapore.  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 services ("Management 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 substantial component of the Company's revenues is transactional in
nature and as a result is subject to seasonality. Historically, the Company's
revenues and particularly net income in the first two calendar quarters have
been generally lower than in the third and fourth calendar quarters due to
seasonal fluctuations, which is consistent with the industry generally. However,
approximately 45.0% to 50.0% of the Company's expenses are made up of
commissions which are variable and directly correlated to revenues. In the first
quarter of any calendar year, the Company has historically sustained a loss or
marginal income. The Company's non-variable operating expenses, which are
treated as expenses when incurred during the year, are relatively constant in
total dollars on a quarterly basis. As a consequence of the seasonality of
revenues and the relatively constant level of quarterly expenses, a substantial
majority of the Company's operating income and net income has historically been
realized in the third and fourth calendar quarters.

     ACQUISITIONS.  Refer to the Company's financial statements included in the
Annual Report on Form 10-K for the year ended December 31, 1997 for a discussion
of the Company's acquisitions prior to 1998.

     On January 31, 1998 the Company, through L.J. Melody, acquired certain
assets of North Coast Mortgage Company, a regional mortgage banking firm for
cash payments of approximately $3.0 million, contingent notes of approximately
$0.3 million bearing interest at 6.5% with principal payments starting in
February 1999 and approximately $0.6 million in deferred cash compensation to
certain key executives and producers payable in three annual installments
beginning in February 1999. The acquisition was accounted for as a purchase. The
purchase price has largely been allocated to intangibles and goodwill, which
will be amortized on a straight line basis over their estimated useful lives of
7 and 30 years, respectively. The $0.6 million of deferred cash compensation
will be accounted for as compensation over the term of the agreements as the
payment of the compensation is contingent upon certain key executives' and
producers' continued employment with the Company.

     On February 1, 1998 the Company, through L.J. Melody, acquired all of the
issued and outstanding stock of Cauble and Company of Carolina, a regional
mortgage banking firm for approximately $2.2 million, including cash payments of
approximately $1.8 million and a note payable of approximately $0.4 million
bearing interest at 9.0% with quarterly principal payments starting in April
1998.  The acquisition was accounted for as a purchase.  The purchase price has
largely been allocated to intangibles and goodwill, which will be amortized on a
straight line basis over their estimated useful lives of 7 and 30 years,
respectively.

                                       6
<PAGE>
 
               CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)


     On April 17, 1998 the Company purchased all of the outstanding shares of
REI, an international commercial real estate services firm operating under the
name Richard Ellis in major commercial real estate markets worldwide (excluding
the United Kingdom). The acquisition was accounted for as a purchase. On a
preliminary basis, the purchase price has largely been allocated to goodwill,
which will be amortized on a straight line basis over an estimated useful life
of 30 years. The purchase price for REI was approximately $103.0 million of
which approximately $52.7 million was paid in cash and notes and approximately
$50.3 million was paid in shares of the Company's Common Stock. In addition, the
Company assumed approximately $14.4 million of long-term debt and minority
interest. The Company incurred a one-time charge of $8.6 million associated with
the acquisition and integration of REI including costs associated with the
Company's name change which impacted the Company's results of operations for the
quarter ended June 30, 1998. For the year ended December 31, 1997, REI had
revenues of approximately $118.0 million.

     On May 1, 1998 the Company, through L.J. Melody, acquired Shoptaw-James,
Inc., a regional mortgage banking firm for approximately $6.3 million in cash
and approximately $2.7 million in contingent notes bearing interest at 9.0% with
three annual payments beginning May 1999. The acquisition was accounted for as a
purchase. The $2.7 million in notes will be accounted for as compensation over
their term as payment is contingent upon certain key executives' and producers'
continued employment with the Company. The purchase price has largely been
allocated to intangibles and goodwill which will be amortized on a straight line
basis over their estimated useful lives of 7 and 30 years, respectively.

     On May 31, 1998 the Company acquired Mathews Click and Associates, a
property sales, leasing, and management firm, for approximately $10.0 million in
cash and a potential supplemental payment of $1.9 million payable to the sellers
over a period of two years. The acquisition was accounted for as a purchase. The
purchase price and supplemental payment, which is contingent upon operating
results, will be allocated to intangibles and goodwill which will be amortized
on a straight line basis over their estimated useful lives of 7 and 30 years,
respectively.

     On July 1, 1998 the Company increased its ownership percentage in CB
Commercial/Arnheim & Neely, an existing partnership formed in September 1996,
which then combined with the Galbreath Company Mid-Atlantic to form CB Richard
Ellis/Pittsburgh, LP. The purchase price of the Company's interest in the
combined enterprise was $5.7 million.

     On July 7, 1998 the Company acquired the business of Hillier Parker May and
Rowden ("Hillier Parker"), a commercial property services partnership operating
in the United Kingdom.  The acquisition was accounted for as a purchase.  The
purchase price for Hillier Parker included approximately $63.9 million in cash
and $7.1 million in shares of the Company's Common Stock.  In addition, the
Company adopted a special incentive compensation plan for senior Hillier Parker
employees with a potential payout over three years of approximately $12.5
million and assumed various annuity obligations of approximately $15.0 million.
On a preliminary basis, the purchase price has largely been allocated to
goodwill which will be amortized on a straight line basis over its estimated
useful life of 30 years.

     On September 22, 1998 the Company purchased the approximately 73.0%
interest that it did not already own in CB Commercial Real Estate Group of
Canada, Inc. The Company acquired the remaining interest for approximately $14.3
million in cash. The acquisition was accounted for as a purchase. The purchase
price will largely be allocated to intangibles and goodwill which will be
amortized on a straight line basis over their estimated useful lives of 5 and 30
years, respectively.

                                       7
<PAGE>
 
               CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)


     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 September 30, 1998.  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 September 30, 1997 and
1998, and the nine months ended September 30, 1997 and 1998, assuming the Koll
Real Estate Services ("Koll") and REI acquisitions, which constitute the
Company's only material acquisitions, had occurred on January 1, 1997, would
have been as follows (amounts in thousands except per share data):

<TABLE>
<CAPTION>
                                                         Three Months Ended    Nine Months Ended      
                                                             September 30,        September 30,        
                                                         --------------------  --------------------    
                                                            1998       1997       1998       1997      
                                                         --------   --------   -------     --------    
                                                              (Unaudited)             (Unaudited)      
<S>                                                      <C>        <C>        <C>         <C>          
     Revenue                                             $273,803   $225,525   $720,528    $636,251
     Net income (loss).......................              10,139    (20,215)     1,953     (20,047)
     Net income (loss) applicable to common
      stockholders...........................              10,139    (21,215)   (30,320)    (23,047)
     Income (loss) per share 
        Basic................................                0.49      (0.97)     (1.48)      (1.12)
        Diluted..............................                0.48      (0.97)     (1.48)      (1.12)
</TABLE>

     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, Koll
historical results for the first eight months of 1997 and 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.  Effective June 30, 1998, the Company wrote down the carrying value
of the Company's headquarters' building to its estimated fair market value.  The
write-down of $8.0 million was triggered by the Company's decision to sell its
building and relocate its headquarters.

     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 September 30, 1998 consisted of $396.6 million related to the
1995 through 1998 acquisitions which is being amortized over an estimated useful
life of 30 years and $19.8 million related to the Company's original acquisition
in 1989 which is being amortized over an estimated useful life of 40 years.

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

       NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)


     Other intangible assets at September 30, 1998 included approximately $8.2
million of deferred financing costs and $50.2 million of intangibles stemming
from the 1995 through 1998 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 accrues at a rate of interest determined in accordance
with the DCP and 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 nine months ended September 30,
1998, approximately $7.4 million and $3.9 million were deferred in cash
(including interest) and stock, respectively.  The accumulated deferrals as of
September 30, 1998, were approximately $14.1 million in cash (including
interest) and $8.5 million in stock for a total of $22.6 million, all of which
was charged to expense in the period of deferral.

     During 1998, the Company granted stock options in connection with its
various stock option plans with exercise prices equal to fair market value at
date of grant ranging from $14.95 to $38.50 per share. The vesting periods for
these options range from approximately three to five years, expiring in 2008.

     In June 1998, under the 1996 Equity Incentive Plan, a key employee
purchased 25,000 shares of common stock at fair market value by delivery of a
full recourse promissory note.

     In June 1998, the Company issued 75,064 shares of its common stock with a
fair value at date of issuance of approximately $2,890,000 pursuant to the
Company's Capital Accumulation Plan for the year ended December 31, 1997.

     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.  As of September 30, 1998, DBP plan assets exceed DBP
plan liabilities by approximately $26.7 million and the net prepaid pension
asset is reflected in the accompanying balance sheet.


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 $180.0 million as of September 30, 1998 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 September 30, 1998 was 7.35%.

     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.


6.   INCOME TAXES

     The provisions for income taxes for the nine month periods ended September
30, 1998 and 1997 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.  The Company anticipates that the
amortization of goodwill will provide a tax benefit to offset any actual or
deemed distributions of earnings from its foreign subsidiaries.  In addition,
the foreign 

                                       9
<PAGE>
 
               CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED CONDENNSED FINANCIAL STATEMENTS (CONTINUED)

subsidiaries have invested or will invest indefinitely any earnings not so
distributed in accordance with paragraph 12 of APB opinion No. 23. As a result,
no U.S. taxes have been provided on earnings of foreign subsidiaries. Reference
is made to Note 9 to the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 for a
discussion of the Company's deferred taxes including net operating loss
carryforwards.


7.   COMMITMENTS AND CONTINGENCIES

     In August 1993, a former commissioned salesperson of the Company filed a
lawsuit against the Company in the Superior Court of New Jersey, Bergin 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 and an appellate ruling is
expected in late 1998 or early 1999.  The Company has established reserves for
this case, and management believes the reserves are adequate as of September 30,
1998.  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.


8.   STOCKHOLDERS' EQUITY

     On January 27, 1998 the Company purchased all 4.0 million of its existing
convertible preferred shares which could have been converted into approximately
2.56 million common shares, based on the Company's prevailing stock price on
that date. The preferred shares carried a dividend requirement of $.25 per share
per quarter. The total cost to purchase the preferred shares was $77.4 million,
including $5.0 million of previously accrued dividends and certain stock
options. The shares were originally issued in conjunction with the Company's
acquisition by management in 1989.


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
nine months ended September 30, 1998, total comprehensive income was $13.7
million which includes foreign currency translation income of $2.8 million.


10.  PER SHARE INFORMATION

     Basic earnings (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. The computation of
diluted earnings (loss) per share further assumes the dilutive effect of stock
options, stock warrants and, during periods when preferred stock was outstanding
and was dilutive, the conversion of the preferred stock. When the Company is in
a net loss position for a particular reporting period, the stock options and
warrants outstanding are excluded as they are anti-dilutive.

                                       10
<PAGE>
 
               CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED CONDENNSED FINANCIAL STATEMENTS (CONTINUED)


   The following is a calculation of earnings (loss) per share (in thousands,
except share and per share data):

<TABLE>
<CAPTION>
                                                              Quarter Ended September 30,
                                          -------------------------------------------------------------------
                                                        1998                               1997
                                          ---------------------------------  --------------------------------
                                           Income                Per-Share                         Per-Share
                                           (Loss)      Shares      Amount     Income     Shares      Amount
                                          ---------  ----------  ----------  --------  ----------  ----------
<S>                                       <C>        <C>         <C>         <C>       <C>         <C>
BASIC EARNINGS (LOSS) PER SHARE
 Net income (loss)......................  $ 10,139   20,692,573              $(1,936)  15,419,930
 Preferred stock dividend...............         -                            (1,000)
                                          --------                           -------
 Income (loss) applicable to common
  stockholders..........................  $ 10,139                  $ 0.49   $(2,936)                 $(0.19)
                                          ========                  ======   =======               =========
 
DILUTED EARNINGS (LOSS) PER SHARE
 Income (loss) applicable to common
  stockholders..........................  $ 10,139   20,692,573              $(2,936)  15,419,930
 Diluted effect of exercise of options
  outstanding...........................                408,751                                 -
                                          --------   ----------              -------   ----------
 Income (loss) applicable to common
  stockholders..........................  $ 10,139   21,101,324     $ 0.48   $(2,936)  15,419,930     $(0.19)
                                          ========   ==========     ======   =======   ==========  =========
  
<CAPTION> 
                                                            Nine Months Ended September 30,
                                          ------------------------------------------------------------------
                                                         1998                              1997
                                          --------------------------------   -------------------------------
                                           Income                Per-Share                         Per-Share
                                           (Loss)      Shares     Amount     Income      Shares     Amount
                                          --------   ----------  ---------   -------   ----------  ---------
<S>                                       <C>        <C>         <C>         <C>       <C>         <C>                       
BASIC EARNINGS (LOSS) PER SHARE
 Net income.............................  $ 10,924   19,917,773              $ 5,203   14,011,922
 Deemed dividend on preferred stock
  repurchase............................   (32,273)                                -
 Preferred stock dividend...............         -                            (3,000)
                                          --------                           -------
 Income (loss) applicable to common
  stockholders..........................  $(21,349)                 $(1.07)  $ 2,203                  $ 0.16
                                          ========                  ======   =======               =========
 
DILUTED EARNINGS (LOSS) PER SHARE
 Income (loss) applicable to common
  stockholders..........................  $(21,349)  19,917,773              $ 2,203   14,011,922
 Diluted effect of exercise of options
  outstanding...........................                      -                           650,614
                                          --------   ----------              -------   ----------
 Income (loss) applicable to common
  stockholders..........................  $(21,349)  19,917,773     $(1.07)  $ 2,203   14,662,536     $ 0.15
                                          ========   ==========     ======   =======   ==========  =========
</TABLE>

                                       11
<PAGE>
 
               CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED CONDENNSED FINANCIAL STATEMENTS (CONTINUED)


   The following items were not included in the computation of diluted earnings
per share because their effect was anti-dilutive:

<TABLE>
<CAPTION>
                                                  Quarter Ended September 30,       Nine Months Ended September 30,
                                              ------------------------------------  -------------------------------
                                                     1998               1997               1998            1997
                                              ------------------  ----------------  ------------------  -----------
<S>                                           <C>                 <C>               <C>                 <C>
 Stock options
   Outstanding.....................                    1,574,676         1,892,928           2,993,477      250,000
   Price ranges....................             $   31.00-$38.50  $    0.38-$36.75    $    0.38-$38.50   $    36.75
   Expiration ranges...............              4/21/07-7/22/08   4/18/99-4/21/07     4/18/99-7/22/08      4/21/07
 
 Stock warrants
   Outstanding.....................                      599,967           599,967             599,967      599,967
   Price...........................             $          30.00  $          30.00    $          30.00   $    30.00
   Expiration......................                      8/28/04           8/28/04             8/28/04      8/28/04
 
 Convertible preferred shares
   Number of common shares at the
     applicable conversion ratio...                            -         2,400,000                   -    2,400,000
 
</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
September 1998 presentation.


12.  SUBSEQUENT EVENTS

     On October 1, 1998 the Company increased borrowings under the amended
revolving credit facility by $20.0 million to purchase the remaining ownership
interests that it did not already own in the Richard Ellis Australia and New
Zealand businesses (Victoria, Queensland, Sydney, Auckland and Wellington).  On
a preliminary basis, the purchase price will largely be allocated to goodwill
which will be amortized over its estimated useful life of 30 years.

     On October 15, 1998 the Company announced that its board of directors had
approved a repurchase program under which it will begin purchasing up to $10.0
million of its common stock.  As of November 10, 1998 the Company had purchased
approximately 338,900 shares at a weighted average price of $19.01 per share.

     On October 20, 1998 the Company, through L.J. Melody, purchased Carey,
Brumbaugh, Starman, Phillips, and Associates, Inc., a regional mortgage banking
firm, for approximately $5.6 million in cash, a note payable of $2.2 million
bearing interest at 9.0% with three annual payments beginning October 1999, and
$0.2 million of deferred cash compensation to certain key executives.  The
acquisition was accounted for as a purchase.  The purchase price will largely be
allocated to intangibles and goodwill which will be amortized over their
estimated useful lives of 7 and 30 years, respectively.

     In October 1998 the Company offered all employees under the 1990 Stock
Option Plan who hold options that expire in April 1999 a loan equal to 100% of
the total exercise price plus 40% of the difference between the current market
value of the shares and the exercise price. Loan proceeds were applied towards
the total exercise price and payroll withholding taxes. The loans are evidenced
by full recourse promissory notes having a maturity of five years at an interest
rate of 6.0%. Interest is due annually, while the principal is due the earlier
of five years or the sale of the shares. The shares issued under this offering
may not be sold until after 18 months from the date of issuance. A total of
405,000 shares were issued under this offering for a total loan amount of $5.3
million.

                                       12
<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
215 offices worldwide.  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 real estate broker to being
a diversified 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 services ("Management 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 the United States and in the aggregate
accounted for more than $306.7 million in 1997 revenue.  The Company's core
brokerage business, commercial property sales and leasing ("Brokerage Services")
accounted for approximately $423.5 million in 1997 revenue and is one of the
largest such businesses in the United States.

   As part of its strategic emphasis in developing its business worldwide and
tactical emphasis in enhancing geographic market penetration, the Company has,
since the beginning of 1995, completed 13 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 (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 55.0% and 60.0% of the
costs and expenses associated with Brokerage Services and the investment
properties component of Financial Services are directly correlated to revenue
while approximately 30.0% of the costs and expenses of Corporate Services,
Management Services and Financial Services, excluding investment properties, are
directly correlated to revenue.

   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.

                                       13
<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.

<TABLE>
<CAPTION>
                                               Quarter Ended September 30,         Nine Months Ended September 30,
                                             --------------------------------   -----------------------------------
                                                   1998            1997               1998               1997
                                             --------------  ----------------   ----------------    ---------------
                                                                      (Dollars in thousands)
<S>                                        <C>       <C>     <C>        <C>     <C>       <C>     <C>       <C>
   Revenue...............................  $273,803  100.0%  $177,520   100.0%  $704,214  100.0%  $469,542  100.0%
   Costs and expenses:
          Commissions, fees and other
             incentives..................   113,559   41.5     87,588    49.3    310,641   44.1    237,716   50.6
          Operating, administrative
             and other...................   124,309   45.4     69,046    38.9    314,330   44.6    185,642   39.5
          Merger-related and other
             nonrecurring costs..........         -      -     12,924     7.3     16,585    2.4     12,924    2.8
          Depreciation and amortization..     9,337    3.4      6,098     3.4     22,086    3.1     12,272    2.6
                                           --------  -----   --------   -----   --------  -----   --------  -----
 
   Operating income......................    26,598    9.7      1,864     1.1     40,572    5.8     20,988    4.5
   Interest income.......................       703    0.3        740     0.4      1,968    0.3      1,959    0.4
   Interest expense......................     9,628    3.5      4,158     2.3     21,359    3.0     12,007    2.6
                                           --------  -----   --------   -----   --------  -----   --------  -----
 
   Income (loss) before provision
       (benefit) for income tax and
       extraordinary items...............    17,673    6.5     (1,554)   (0.8)    21,181    3.1     10,940    2.3
 
   Provision (benefit) for income tax....     7,534    2.8       (569)   (0.2)    10,257    1.5      4,786    1.0
                                           --------  -----   --------   -----   --------  -----   --------  -----
 
   Income (loss) before extraordinary
       items.............................    10,139    3.7       (985)   (0.6)    10,924    1.6      6,154    1.3
 
   Extraordinary items, net..............         -      -        951     0.5          -      -        951    0.2
                                           --------  -----   --------   -----   --------  -----   --------  -----
 
   Net income (loss).....................  $ 10,139    3.7%  $ (1,936)  (1.1)%  $ 10,924    1.6%  $  5,203    1.1%
                                           ========  =====   ========   =====   ========  =====   ========  =====
 
   EBITDA excluding merger-related
       and other nonrecurring costs......  $ 35,935   13.1%  $ 20,886    11.8%  $ 79,243   11.3%  $ 46,184    9.9%
                                           ========  =====   ========   =====   ========  =====   ========  =====
</TABLE> 
 

QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1997

     The Company reported CONSOLIDATED NET INCOME of $10.1 million for the
quarter ended September 30, 1998, on revenues of $273.8 million. The net income
applicable to common stockholders was $10.1 million, or $0.48 diluted earnings
per share for the quarter ended September 30, 1998.

     REVENUES on a consolidated basis were $273.8 million, an increase of $96.3
million or 54.2% for the quarter ended September 30, 1998, compared to the
quarter ended September 30, 1997.  The overall increase reflected a continued
improvement in the commercial real estate markets across the U.S. and the full
contribution from Koll Real Estate Services ("Koll"), REI Limited ("REI") and
Hillier Parker ("HP").  This improvement reflected both the Company's position
and increasing consumer confidence in the U.S. economy and, in particular, real
estate assets and improving real estate market liquidity.  However, during the
month of September 1998, the Company experienced a slowdown in investment sales
which it believes is attributable to the perceived crisis in global financial
markets.  The Company believes that investment sales could be adversely impacted
in the fourth quarter of 1998 if the financial markets continue  to be in
disarray and that mortgage originations in the conduit markets, which are a part
of the global financial markets, could also be adversely affected in the fourth
quarter.

                                       14
<PAGE>
 
         CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)


   COMMISSIONS, FEES AND OTHER INCENTIVES on a consolidated basis were $113.6
million, an increase of $26.0 million or 29.7% for the quarter ended September
30, 1998, compared to the quarter ended September 30, 1997.  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 41.5% for the quarter
ended September 30, 1998, compared to 49.3% for the quarter ended September 30,
1997.  The decrease in commissions, fees and other incentives as a percentage of
revenue is primarily due to the acquisition of Koll which has a higher
percentage of base management fee revenue which has no related commission
expense and REI and HP which generally do not operate under a commission based
program.

   OPERATING, ADMINISTRATIVE AND OTHER on a consolidated basis was $124.3
million, an increase of $55.3 million or 80.0% for the quarter ended September
30, 1998, compared to the quarter ended September 30, 1997.  As a percentage of
revenue, operating, administrative and other were 45.4% for the quarter ended
September 30, 1998 compared to 38.9% for the quarter ended September 30, 1997.
The increase in amount and percentage is primarily due to increased operating
activity and the acquisition of Koll, REI and HP, which have higher fixed
operating expenses.  Due to the integration of Koll, 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.

   CONSOLIDATED INTEREST INCOME was $0.7 million for the quarters ended
September 30, 1998 and 1997.  CONSOLIDATED INTEREST EXPENSE was $9.6 million, an
increase of $5.5 million or 131.6% for the quarter ended September 30, 1998, as
compared to the quarter ended September 30, 1997.  The increase in interest
expense resulted from the issuance of senior subordinated notes and increased
revolving credit facility borrowings which were used for the repurchase of the
Company's preferred stock, to acquire businesses, and for payments on other
indebtedness.

   PROVISION FOR INCOME TAX on a consolidated basis was $7.5 million, an
increase of $8.1 million for the quarter ended September 30, 1998, as compared
to the quarter ended September 30, 1997.  The increase in tax expense is
attributable to increased earnings which include international earnings from
various foreign jurisdictions.  In early 1998 the Company repurchased its
outstanding preferred stock which triggered a limitation on the annual amount of
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, EXCLUDING MERGER-RELATED AND OTHER NONRECURRING COSTS was $35.9
million for the quarter ended September 30, 1998, as compared to $20.9 million
for the quarter ended September 30, 1997.  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.


NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997

   The Company reported CONSOLIDATED NET INCOME of $10.9 million for the nine
months ended September 30, 1998, on revenues of $704.2 million.  The net loss
applicable to common stockholders, including the deemed dividend resulting from
the accounting treatment of the preferred stock repurchase, was $21.3 million,
or $1.07 diluted loss per share for the nine months ended September 30, 1998.
Excluding the deemed dividend and merger-related and other nonrecurring charges
of $16.6 million, and related tax effect, diluted earnings would have been $0.96
per share.

   REVENUES on a consolidated basis were $704.2 million, an increase of $234.7
million or 50.0% for the nine months ended September 30, 1998, compared to the
nine months ended September 30, 1997.  The overall increase reflected a
continued improvement in the commercial real estate markets across the U.S., a
full contribution from Koll and a partial contribution from REI and HP.  This
improvement reflected both the Company's position and increasing consumer
confidence in the U.S. economy and, in particular, real estate assets and
improving real estate market liquidity.

                                       15
<PAGE>
 
         CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)


   COMMISSIONS, FEES AND OTHER INCENTIVES on a consolidated basis were $310.6
million, an increase of $72.9 million or 30.7% for the nine months ended
September 30, 1998, compared to the nine months ended September 30, 1997.  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 44.1% for the
nine months ended September 30, 1998, compared to 50.6% for the nine months
ended September 30, 1997.  The decrease in commissions, fees and other
incentives as a percentage of revenue is primarily due to the acquisition of
Koll, which has a higher percentage of base management fee revenue which has no
related commission expense and REI which generally does not operate under a
commission based program.

   OPERATING, ADMINISTRATIVE AND OTHER on a consolidated basis was $314.3
million, an increase of $128.7 million or 69.3% for the nine months ended
September 30, 1998, compared to the nine months ended September 30, 1997.  As a
percentage of revenue, operating, administrative and other were 44.6% for the
nine months ended September 30, 1998 compared to 39.5% for the nine months ended
September 30, 1997.  The increase in amount and percentage is primarily due to
increased operating activity and the acquisition of Koll and REI which have
higher fixed operating expenses.  Due to the integration of Koll and the partial
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.

   MERGER-RELATED AND OTHER NONRECURRING CHARGES were $16.6 million for the nine
months ended September 30, 1998.  These charges represent $3.8 million of costs
associated with the REI acquisition and integration, $4.8 million related to
name change costs, and $8.0 million related to the write down in the carrying
value of the Company headquarters' building to its estimated fair market value.
The Company intends to sell and relocate from its current headquarters'
building.

   CONSOLIDATED INTEREST INCOME was $2.0 million for the nine months ended
September 30, 1998 and 1997.  CONSOLIDATED INTEREST EXPENSE was $21.4 million,
an increase of $9.4 million or 77.9% for the nine months ended September 30,
1998, as compared to the nine months ended September 30, 1997.  The increase
resulted from the issuance of senior subordinated notes and increased revolving
credit facility borrowings which were used for the repurchase of the Company's
preferred stock, to acquire businesses, and for payments on other indebtedness.

   PROVISION FOR INCOME TAX on a consolidated basis was $10.3 million, an
increase of $5.5 million or 114.3% for the nine months ended September 30, 1998,
as compared to the nine months ended September 30, 1997.  The increase in tax
expense is attributable to increased earnings which include international
earnings from various foreign jurisdictions.  In early 1998 the Company
repurchased its outstanding preferred stock which triggered a limitation on the
annual amount of 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, EXCLUDING MERGER-RELATED AND OTHER NONRECURRING COSTS was $79.2
million for the nine months ended September 30, 1998, as compared to $46.2
million for the nine months ended September 30, 1997.  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.

                                       16
<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,
Management Services and Financial Services.  Brokerage Services consists of
commercial property sales and leasing.  Corporate Services consists of
outsourcing, transaction management, advisory services and facilities
management.  Management Services consists of property management.  Financial
Services consists of mortgage loan origination and servicing, appraisal,
investment property, realty advisory and capital markets businesses.  The
following tables summarize the revenue, costs and expenses, and operating income
(loss) by operating segment for the quarters ended September 30, 1998 and 1997
and the nine months ended September 30, 1998 and 1997.

<TABLE>
<CAPTION>
                                                     Quarter Ended September 30,               Nine Months Ended September 30,
                                               --------------------------------------   -------------------------------------------
                                                      1998                  1997               1998                     1997
                                               -------------------  -----------------   --------------------  ---------------------
                                                                           (Dollars in thousands)
<S>                                            <C>       <C>       <C>         <C>      <C>        <C>        <C>          <C>
BROKERAGE SERVICES
 Revenue.....................................  $136,435    100.0%    $102,676   100.0%  $372,014      100.0%     $281,858     100.0%

 Costs and expenses:
   Commissions, fees and other incentives....    71,469     52.4       57,280    55.8    196,229       52.8       157,977      56.0
   Operating, administrative and other.......    50,697     37.1       33,007    32.2    131,878       35.4        95,539      33.9
   Depreciation and amortization.............     3,228      2.4        3,633     3.5      7,254        1.9         6,548       2.3
                                               --------   ------     --------  ------   --------     ------      --------     -----
 Operating income............................  $ 11,041      8.1%    $  8,756     8.5%  $ 36,653        9.9%     $ 21,794       7.8%
                                               ========   ======     ========  ======   ========     ======      ========     =====
 EBITDA......................................  $ 14,269     10.5%    $ 12,389    12.1%  $ 43,907       11.8%     $ 28,342      10.1%
                                               ========   ======     ========  ======   ========     ======      ========     =====
CORPORATE SERVICES
 Revenue.....................................  $ 20,330    100.0%    $ 10,300   100.0%  $ 50,104      100.0%     $ 22,554     100.0%

 Costs and expenses:
   Commissions, fees and other incentives....     6,326     31.1        5,016    48.7     18,069       36.1        11,895      52.8
   Operating, administrative and other.......    11,049     54.4        4,880    47.4     30,697       61.2        10,047      44.5
   Depreciation and amortization.............       626      3.0          179     1.7      1,743        3.5           305       1.3
                                               --------   ------     --------  ------   --------     ------      --------     -----
 Operating income (loss).....................  $  2,329     11.5%    $    225     2.2%  $   (405)      (0.8)     $    307       1.4%
                                               ========   ======     ========  ======   ========     ======      ========     =====
 EBITDA......................................  $  2,955     14.5%    $    404     3.9%  $  1,338        2.7%     $    612       2.7%
                                               ========   ======     ========  ======   ========     ======      ========     =====
MANAGEMENT SERVICES
 Revenue.....................................  $ 34,163    100.0%    $ 16,133   100.0%  $ 85,641      100.0%     $ 38,017     100.0%

 Costs and expenses:
   Commissions, fees and other incentives....     5,951     17.4        4,642    28.8     19,301       22.6        13,758      36.2
   Operating, administrative and other.......    22,869     67.0       10,175    63.0     57,151       66.7        21,052      55.4
   Depreciation and amortization.............     1,908      5.6          670     4.2      4,478        5.2           986       2.6
                                               --------   ------     --------  ------   --------     ------      --------     -----
 Operating income............................  $  3,435     10.0%    $    646     4.0%  $  4,711        5.5%     $  2,221       5.8%
                                               ========   ======     ========  ======   ========     ======      ========     =====
 EBITDA......................................  $  5,343     15.6%    $  1,316     8.2%  $  9,189       10.7%     $  3,207       8.4%
                                               ========   ======     ========  ======   ========     ======      ========     =====
FINANCIAL SERVICES
 Revenue.....................................  $ 82,875    100.0%    $ 48,411   100.0%  $196,455      100.0%     $127,113     100.0%

 Costs and expenses:
   Commissions, fees and other incentives....    29,813     36.0       20,650    42.7     77,042       39.2        54,086      42.6
   Operating, administrative and other.......    39,694     47.9       20,984    43.3     94,604       48.2        59,004      46.4
   Depreciation and amortization.............     3,575      4.3        1,616     3.3      8,611        4.4         4,433       3.5
                                               --------   ------     --------  ------   --------     ------      --------     -----
 Operating income............................  $  9,793     11.8%    $  5,161    10.7%  $ 16,198        8.2%     $  9,590       7.5%
                                               ========   ======     ========  ======   ========     ======      ========     =====
 EBITDA......................................  $ 13,368     16.1%    $  6,777    14.0%  $ 24,809       12.6%     $ 14,023      11.0%
                                               ========   ======     ========  ======   ========     ======      ========     =====
MERGER-RELATED AND OTHER NONRECURRING COSTS..  $      -              $ 12,924           $ 16,585                 $ 12,924
                                               ========              ========           ========                 ========
TOTAL OPERATING INCOME.......................  $ 26,598              $  1,864           $ 40,572                 $ 20,988
                                               ========              ========           ========                 ========
TOTAL EBITDA EXCLUDING MERGER-RELATED AND
 OTHER NONRECURRING COSTS....................  $ 35,935              $ 20,886           $ 79,243                 $ 46,184
                                               ========              ========           ========                 ========
</TABLE>

   Segment operating income (loss) excludes interest income, interest expense,
merger-related and other nonrecurring costs and provision for income taxes.

                                       17
<PAGE>
 
         CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)

QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO THE QUARTER ENDED SEPTEMBER 30,
1997

BROKERAGE SERVICES

   Revenue increased by $33.8 million or 32.9% for the quarter ended September
30, 1998, compared to the quarter ended September 30, 1997, due to the continued
improvement of the real estate market and the contributions from REI and HP.
The strong market resulted in higher property values, higher rental rates and
increased activity, which translated to increases in both the total number and
size of brokerage sales and lease transactions closed for the quarter ended
September 30, 1998, as compared to the quarter ended September 30, 1997.
Commissions, fees and other incentives increased by $14.2 million or 24.8% for
the quarter ended September 30, 1998, compared to the quarter ended September
30, 1997, 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 52.4% for the quarter ended
September 30, 1998 compared to 55.8% for the quarter ended September 30, 1997.
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 $17.7 million or 53.6% for the quarter ended September 30, 1998,
compared to the quarter ended September 30, 1997.  The increase in the amount is
primarily a result of business promotion expenses, additional personnel
requirements and office operations expenses, which contributed to the increase
in revenue, the integration of REI and HP including salaries related to revenue
generation and incentive compensation based on increased operating results.
Depreciation and amortization decreased by $0.4 million or 11.1% for the quarter
ended September 30, 1998, as compared to the quarter ended September 30, 1997,
primarily as a result of the write-off of Langdon Rieder acquisition goodwill of
$2.1 million in 1997 offset in part by 1998 additional investments in hardware
and software to support the increase in new business and the acquisition
goodwill of REI and HP.

CORPORATE SERVICES

   Revenue increased by $10.0 million or 97.4% for the quarter ended September
30, 1998, compared to the quarter ended September 30, 1997, primarily due to the
contribution from Koll, REI and HP as well as an increase in the total number
and size of corporate services sales and lease transactions closed for the
quarter ended September 30, 1998, compared to the quarter ended September 30,
1997.  Commissions, fees and other incentives increased by $1.3 million or 26.1%
for the quarter ended September 30, 1998 compared to the quarter ended September
30, 1997, but decreased as a percentage of revenue from 48.7% to 31.1% primarily
because the base contract management fee revenues, which increased as a result
of the acquisition of Koll, REI and HP, do not have corresponding commission
expenses.  Operating, administrative, and other increased $6.2 million or 126.4%
for the quarter ended September 30, 1998, compared to the quarter ended
September 30, 1997, primarily related to the acquisition of Koll, REI and HP
which have higher fixed operating expenses, additional personnel requirements
and business promotion expenses.  In addition, the Company made ongoing
infrastructure investments to expand the corporate services business with the
combination of REI and HP.  As a percentage of revenue, operating,
administrative and other were 54.3% for the quarter ended September 30, 1998
compared to 47.4% for the quarter ended September 30, 1997.  The increase in
operating, administrative and other as a percentage of revenue is primarily due
to the integration of Koll, REI and HP.  Depreciation and amortization increased
by $0.4 million or 249.7% for the quarter ended September 30, 1998, as compared
to the quarter ended September 30, 1997, primarily related to the acquisition of
Koll, REI and HP.

MANAGEMENT SERVICES

   Revenue increased by $18.0 million or 111.8% for the quarter ended September
30, 1998, compared to the quarter ended September 30, 1997 primarily due to the
contribution from Koll, REI and HP.  Commissions, fees and other incentives
increased by $1.3 million or 28.2% for the quarter ended September 30, 1998,
compared to the quarter ended September 30, 1997, but decreased as a percentage
of revenue from 28.8% to 17.4% primarily because the base contract management
fee revenues, which increased as a result of the acquisitions of Koll, REI and
HP, do not have corresponding commission expenses.  Operating, administrative,
and other increased $12.7 million or 124.8% for the quarter ended September 30,
1998, compared to the quarter ended September 30, 1997.  As a percentage of
revenue, operating, administrative and other were 66.9% for the quarter ended
September 30, 1998 compared to 63.0% for the quarter ended September 30, 1997.
The increase in amount and percentage is primarily due to the integration of
Koll, REI and HP.  Depreciation and amortization increased by $1.2 million or
184.8% for the quarter ended September 30, 1998 compared to the quarter ended
September 30, 1997, primarily related to the acquisition of Koll, REI and HP.

                                       18
<PAGE>
 
         CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)

FINANCIAL SERVICES

   Revenue increased by $34.5 million or 71.2% for the quarter ended September
30, 1998, compared to the quarter ended September 30, 1997.  The increase in
revenue is primarily due to an increase in the total number and size of
investment properties and mortgage banking transactions closed for the quarter
ended September 30, 1998, compared to the quarter ended September 30, 1997, an
increase in valuation and appraisal services revenue related to heightened real
estate market liquidity and the full contribution from Koll, REI and HP.
Commissions, fees and other incentives increased by $9.2 million or 44.4% for
the quarter ended September 30, 1998, compared to the quarter ended September
30, 1997.  The increase is primarily a result of the revenue increase and the
resulting higher commission eligibility levels in investment properties,
mortgage banking and valuation and appraisal services.  As a percentage of
revenue, commissions, fees and other incentives were 36.0% for the quarter ended
September 30, 1998 compared to 42.7% for the quarter ended September 30, 1997.
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 $18.7 million or 89.2% for the quarter ended September 30, 1998, compared to
the quarter ended September 30, 1997, primarily as a result of business
promotion expenses and additional personnel requirements, which contributed to
the increase in revenue, and the integration of Koll and REI.  Depreciation and
amortization increased by $2.0 million or 121.2% for the quarter ended September
30, 1998, as compared to the quarter ended September 30, 1997, primarily related
to the additional investment in hardware and software to support the increase in
new business and the acquisition of Koll, REI and HP.


NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1997

BROKERAGE SERVICES

   Revenue increased by $90.2 million or 32.0% for the nine months ended
September 30, 1998, compared to the nine months ended September 30, 1997, due to
the continued improvement of the real estate market and the partial contribution
from REI and HP.  The strong market resulted in higher property values, higher
rental rates and increased activity, which translated to increases in both the
total number and size of brokerage sales and lease transactions closed for the
nine months ended September 30, 1998, as compared to the nine months ended
September 30, 1997.  Commissions, fees and other incentives increased by $38.3
million or 24.2% for the nine months ended September 30, 1998, compared to the
nine months ended September 30, 1997, 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 52.8%
for the nine months ended September 30, 1998 compared to 56.0% for the quarter
ended September 30, 1997.  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 $36.3 million or 38.0% for the
nine months ended September 30, 1998, compared to the nine months ended
September 30, 1997.  The increase in the amount is primarily a result of
additional personnel requirements and business promotion and office operations
expenses, which contributed to the increase in revenue, the integration of REI
and incentive compensation based on increased operating results.  Depreciation
and amortization increased by $0.7 million or 10.8% for the nine months ended
September 30, 1998, as compared to the nine months ended September 30, 1997,
primarily as a result of additional investments in hardware and software to
support the increase in new business and the acquisition of REI and HP, offset
in part by the write-off of Langdon Rieder acquisition goodwill of $2.1 million
in 1997.

CORPORATE SERVICES

   Revenue increased by $27.6 million or 122.2% for the nine months ended
September 30, 1998, compared to the nine months ended September 30, 1997,
primarily due to the contribution from Koll and an increase in the total number
and size of corporate services sales and lease transactions closed for the nine
months ended September 30, 1998, compared to the nine months ended September 30,
1997.  Commissions, fees and other incentives increased by $6.2 million or 51.9%
for the nine months ended September 30, 1998 compared to the nine months ended
September 30, 1997, but decreased as a percentage of revenue from 52.7% to 36.1%
primarily because the base contract management fee revenues, which increased as
a result of the acquisition of Koll, do not have corresponding commission
expenses.  Operating, administrative, and other increased $20.7 million or
205.5% for the nine months ended September 30, 1998, compared to the nine months
ended September 30, 1997, primarily related to the acquisition of Koll, which
has higher fixed operating expenses, additional personnel requirements, business
promotion expenses and the investment made in infrastructure to expand corporate
services business from the combination with REI.  As a percentage of revenue,

                                       19
<PAGE>
 
         CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)

operating, administrative and other were 61.2% for the nine months ended
September 30, 1998 compared to 44.5% for the nine months ended September 30,
1997.  The increase in operating, administrative and other as a percentage of
revenue is primarily due to the full integration of Koll and the partial
integration of REI and HP.  Depreciation and amortization increased by $1.4
million or 471.5% for the nine months ended September 30, 1998, as compared to
the nine months ended September 30, 1997, primarily related to the acquisition
of Koll, REI and HP.

MANAGEMENT SERVICES

   Revenue increased by $47.6 million or 125.3% for the nine months ended
September 30, 1998, compared to the nine months ended September 30, 1997
primarily due to the contribution from Koll.  Commissions, fees and other
incentives increased by $5.5 million or 40.3% for the nine months ended
September 30, 1998, compared to the nine months ended September 30, 1997, but
decreased as a percentage of revenue from 36.2% to 22.6% primarily because the
base contract management fee revenues, which increased as a result of the
acquisition of Koll, do not have corresponding commission expenses.  Operating,
administrative, and other increased $36.1 million or 171.5% for the nine months
ended September 30, 1998, compared to the nine months ended September 30, 1997.
As a percentage of revenue, operating, administrative and other were 66.7% for
the nine months ended September 30, 1998 compared to 55.4% for the nine months
ended September 30, 1997.  The increase in amount and percentage is primarily
due to the full integration of Koll and the partial integration of REI and HP.
Depreciation and amortization increased by $3.5 million or 354.2% for the nine
months ended September 30, 1998 compared to the nine months ended September 30,
1997, primarily related to the acquisition of Koll and REI.

FINANCIAL SERVICES

   Revenue increased by $69.3 million or 54.6% for the nine months ended
September 30, 1998, compared to the nine months ended September 30, 1997.  The
increase in revenue is primarily due to an increase in the total number and size
of investment properties and mortgage banking transactions closed for the nine
months ended September 30, 1998, compared to the nine months ended September 30,
1997, an increase in valuation and appraisal services revenue related to
heightened real estate market liquidity and the full contribution of Koll and
the partial contribution of REI and HP.  Commissions, fees and other incentives
increased by $23.0 million or 42.4% for the nine months ended September 30,
1998, compared to the nine months ended September 30, 1997.  The increase is
primarily a result of the revenue increase and the resulting higher commission
eligibility levels in investment properties, mortgage banking and valuation and
appraisal services.  Operating, administrative, and other increased by $35.6
million or 60.3% for the nine months ended September 30, 1998, compared to the
nine months ended September 30, 1997, primarily as a result of business
promotion expenses and additional personnel requirements, which contributed to
the increase in revenue, and the full integration of Koll and the partial
integration of REI and HP.  Depreciation and amortization increased by $4.2
million or 94.2% for the nine months ended September 30, 1998, as compared to
the nine months ended September 30, 1997, primarily related to the additional
investment in hardware and software to support the increase in new business and
the acquisition of Koll, 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 the preferred
stock repurchase, business acquisitions and other working capital requirements,
the Company borrowed approximately $172.8 million through the issuance of senior
subordinated notes and had additional net borrowings of $60.0 million under the
revolving credit facility, during the nine months ended September 30, 1998.  The
Company's EBITDA, excluding merger-related and other nonrecurring costs, was
$79.2 million and $46.2 million for the nine months ended September 30, 1998 and
1997, respectively.  The improvement in EBITDA reflects the overall period to
period revenue growth discussed in Results of Operations.

   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

                                       20
<PAGE>
 
         CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)

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.

   Net cash provided by operating activities was $26.5 million for the nine
months ended September 30, 1998, compared to $25.8 million for the nine months
ended September 30, 1997.  The change is primarily due to higher incentive
payments resulting from improved operating performances in 1997 and changes in
components of operating assets and liabilities.

   Net cash used in investing activities was $199.8 million for the nine months
ended September 30, 1998, compared to $10.3 million for the nine months ended
September 30, 1997.  The increase primarily resulted from the acquisitions of
businesses including REI and HP, an increase in purchases of property and
equipment and additional supplemental purchase price payments in connection with
a 1995 acquisition.

   Net cash provided by financing activities was $149.4 million for the nine
months ended September 30, 1998, compared to cash used in financing activities
of $21.2 million for the nine months ended September 30, 1997.  The increase
primarily resulted from an increase in borrowings from the revolving credit
facility and issuance of the senior subordinated notes offset in part by the
payment for the repurchase of the Company's preferred stock and periodic
repayments of the revolving credit facility.

   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 $180.0 million as of September 30, 1998.  Interest rate alternatives include
Bank of America's reference rate plus 0.50% and LIBOR plus 1.50%.  The weighted
average rate on amounts outstanding at September 30, 1998 was 7.35%.

   In May 1998, the Company sold $175.0 million of 8.875% Senior Subordinated
Notes due on September 1, 2006.  The Senior Subordinated Notes are redeemable in
whole or in part after September 1, 2002.  On or before September 1, 2001, 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.

   Effective October 1996, a dividend on the Company's preferred stock was
reinstated and a conversion feature was added.  The $0.25 per share quarterly
dividend on the Company's preferred stock accrued from October 1, 1996 through
December 31, 1997, and resulted in a cost of $1.0 million per quarter.  In
January 1998 the Company purchased all 4.0 million shares of its preferred
stock.  The total cost to purchase the preferred shares was $77.4 million,
including $5.0 million of previously accrued dividends and certain stock
options.  This transaction reduced income available to common stockholders in
the first quarter of 1998 by $32.3 million, which represents the excess of the
redemption price over book value and is considered, in accordance with GAAP, a
dividend to preferred stockholders for the purpose of calculating earnings per
share.

   The Company expects to have capital expenditures ranging from $20.0 million
to $25.0 million in 1998.  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 revolving credit facility or
any replacement credit facilities.  Material future acquisitions 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.

   On October 15, 1998 the Company announced that its board of directors had
approved a repurchase program under which it will begin purchasing up to $10.0
million of its common stock.  As of November 10, 1998 the Company had purchased
approximately 338,900 shares at a weighted average price of $19.01 per share.

                                       21
<PAGE>
 
         CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)

YEAR 2000 ISSUES

   The Company has assessed and continues to assess the impact of the Year 2000
("Y2K") on its information technology (IT) and non-IT systems and is in the
process of replacing or upgrading the affected hardware and software. Y2K
problems exist 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 IT systems and embedded (elevator, HVAC, and
other non-IT) systems are all potentially subject to problems relating to the
inability of such systems to appropriately interpret the upcoming calendar year
"2000" and beyond.

   Some of the Company's systems include hardware and packaged software recently
purchased from vendors who have represented that these systems are Y2K
compliant. The Company has created an integration team to test 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, including those in Canada and Australia, are more serious than Y2K
issues in the United States and Europe. The local management and the integration
team are developing compliance plans for these acquired business locations.  The
Company has completed installation of certain of its client accounting systems
and expects to complete installation of compliant proprietary accounting systems
by the end of 1999. Although there are no assurances any of the systems will be
compliant by the end of 1999, the Company believes that its proprietary
accounting systems, information technology and embedded systems will be Y2K
compliant by the end of 1999. The Company, like many other companies, will incur
expenditures over this time to address this issue, and cost specifically
associated with modifying internal-use software for Y2K compliance will be
expensed as incurred. To date, the Company estimates that it has spent
approximately $4.0 million to address the Y2K issue which includes replacing and
upgrading the affected hardware and software.  The Company estimates
approximately $7.0 million of remaining costs to fully address the Y2K issue.

   The Company relies on a number of vendors and suppliers, including banks,
telecommunication providers, and other providers of goods and services. The
inability of these third parties to conduct their business for a significant
period of time due to the Year 2000 issue could have a material adverse impact
on the Company's operations. The Company's reliance on single vendor source
suppliers, however, is minimal.  An assessment to determine whether all of its
vendors and suppliers are Y2K compliant is scheduled to be complete by the end
of 1998.  In addition, certain of the Company's clients, particularly many of
its management services clients, require the Company to utilize client provided
IT systems in connection with the Company's provision of services. An assessment
to determine whether these clients' systems are Y2K compliant, and if not, a
development of a compliance plan, is currently underway.

   The Company is continuing to assess potential Y2K risks associated with each
of its systems. A project team working with each system is responsible for
development of contingency plans that will address these risks. At this time,
the Company believes costs incurred in responding to other parties' Y2K computer
system deficiencies, together with the cost of any required modifications to the
Company's systems, will not have a material impact on the Company's results of
operations or financial condition.  However, the Company believes that a failure
to correct a material Y2K problem could result in an interruption of, or a
failure of, certain normal business activities or operations. Such failures
could materially and adversely affect the Company's results of operations,
liquidity and financial condition.  Due to the uncertainty inherent in the Y2K
risks and the Company's incomplete assessment of the risks, particularly with
respect to third-party suppliers and clients, the Company is unable to determine
at this time whether the consequences of Y2K compliance failures will have a
material adverse impact on the Company's results of operations, liquidity or
financial condition.


ACQUISITIONS

   On October 20, 1998 the Company, through L.J. Melody, purchased Carey,
Brumbaugh, Starman, Phillips, and Associates, Inc., a regional mortgage banking
firm, for approximately $5.6 million in cash, a note payable of $2.2 million
bearing interest at 9.0% with three annual payments beginning October 1999, and
$0.2 million of deferred cash compensation to certain key executives.  The
acquisition was accounted for as a purchase.  The purchase price will largely be
allocated to intangibles and goodwill which will be amortized over their
estimated useful lives of 7 and 30 years, respectively.

   On October 1, 1998 the Company purchased the remaining ownership interests
that it did not already own in the 

                                       22
<PAGE>
 
         CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)


Richard Ellis Australia and New Zealand businesses (Victoria, Queensland,
Sydney, Auckland and Wellington). The costs for the remaining interest was $20.0
million in cash. On a preliminary basis, the purchase price will largely be
allocated to goodwill which will be amortized over its estimated useful life of
30 years.

   On September 22, 1998 the Company purchased the approximately 73.0% interest
that it did not already own in CB Commercial Real Estate Group of Canada, Inc.
The Company acquired the remaining interest for approximately $14.3 million in
cash.  The acquisition was accounted for as a purchase.  The purchase price will
largely be allocated to intangibles and goodwill which will be amortized on a
straight line basis over their estimated useful lives of 5 and 30 years,
respectively.

   On July 7, 1998 the Company acquired the business of Hillier Parker, a
commercial property services partnership operating in the United Kingdom.  The
acquisition was accounted for as a purchase.  The purchase price for Hillier
Parker included approximately $63.9 million in cash and $7.1 million in shares
of the Company's Common Stock.  In addition, the Company adopted a special
incentive compensation plan for senior Hillier Parker employees with a potential
payout over three years of approximately $12.5 million and assumed various
annuity obligations of approximately $15.0 million. On a preliminary basis, the
purchase price has largely been allocated to goodwill which will be amortized on
a straight line basis over its estimated useful life of 30 years.

   On July 1, 1998 the Company increased its ownership percentage in CB
Commercial/Arnheim & Neely, an existing partnership formed in September 1996,
which combined with the Galbreath Company Mid-Atlantic to form CB Richard
Ellis/Pittsburgh, LP.  The total purchase price of the Company's interest in the
combined enterprise was $5.7 million.

   On May 31, 1998 the Company acquired Mathews Click and Associates, a property
sales, leasing, and management firm, for approximately $10.0 million in cash and
a potential supplemental payment of $1.9 million payable to the sellers over a
period of two years.  The acquisition was accounted for as a purchase.  The
purchase price and supplemental payment, which is contingent upon operating
results, will be allocated to intangibles and goodwill which will be amortized
on a straight line basis over their estimated useful lives of 7 and 30 years,
respectively.

   On May 1, 1998 the Company, through L.J. Melody, acquired Shoptaw-James,
Inc., a regional mortgage banking firm for approximately $6.3 million in cash
and approximately $2.7 million in contingent notes bearing interest at 9.0% with
three annual payments beginning May 1999.  The acquisition was accounted for as
a purchase.  The $2.7 million notes will be accounted for as compensation over
the term of the notes as the payment of these notes are contingent upon certain
key executives' and producers' continued employment with the Company.  The
purchase price has largely been allocated to intangibles and goodwill which will
be amortized on a straight line basis over their useful lives of 7 and 30 years,
respectively.

   On April 17, 1998 the Company purchased all of the outstanding shares of REI,
an international commercial real estate services firm operating under the name
Richard Ellis in major commercial real estate markets worldwide (excluding the
United Kingdom).  The acquisition was accounted for as a purchase.  On a
preliminary basis, the purchase price has largely been allocated to goodwill,
which will be amortized on a straight line basis over an estimated useful life
of 30 years.  The purchase price for REI was approximately $103.0 million of
which approximately $52.7 million was paid in cash and notes and approximately
$50.3 million was paid in shares of the Company's Common Stock.  In addition,
the Company assumed approximately $14.4 million of long-term debt and minority
interest.  The Company incurred a one-time charge of $8.6 million associated
with the acquisition and integration of REI including costs associated with the
Company's name change.  For the year ended December 31, 1997, REI had revenues
and EBITDA of approximately $118.0 million and $11.7 million, respectively.

   On February 1, 1998 the Company, through L.J. Melody, acquired all of the
issued and outstanding stock of Cauble and Company of Carolina, a regional
mortgage banking firm for approximately $2.2 million, including cash payments of
approximately $1.8 million and a note payable of approximately $0.4 million
bearing interest at 9.0% with principal payments starting in April 1998.  The
acquisition was accounted for as a purchase.  The purchase price has been
allocated to intangibles and goodwill, which will be amortized on a straight
line basis over their estimated useful lives of 7 and 30 years, respectively.

   On January 31, 1998 the Company, through L.J. Melody, acquired certain assets
of North Coast Mortgage Company, a regional mortgage banking firm for cash
payments of approximately $3.0 million, contingent notes of approximately $0.3
million bearing interest at 6.5% with principal payments starting in February
1999, and approximately 

                                       23
<PAGE>
 
         CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)


$0.6 million in deferred cash compensation to certain key executives and
producers payable in three annual installments beginning in February 1999. The
acquisition was accounted for as a purchase. The purchase price has largely been
allocated to intangibles and goodwill, which will be amortized on a straight
line basis over their estimated useful lives of 7 and 30 years, respectively.
The $0.6 million of deferred cash compensation will be accounted for as
compensation over the term of the agreements as the payment of the compensation
are contingent upon certain key executives' and producers' continued employment
with the Company.


RECENT LITIGATION

   In August 1993, a former commissioned salesperson of the Company filed a
lawsuit against the Company in the Superior Court of New Jersey, Bergin 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 and an appellate ruling is
expected in late 1998 or early 1999.  The Company has established reserves for
this case, and management believes the reserves are adequate as of September 30,
1998.  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.


NET OPERATING LOSSES

   The Company had U.S. federal income tax NOLs of approximately $133.6 million
as of December 31, 1997, corresponding to $46.8 million of the Company's $67.8
million in net deferred tax assets before valuation allowance, of which $29.9
has been reserved through valuation allowances.  The valuation allowances were
based on management's conclusion regarding the realizability of this deferred
tax asset on a more likely than not basis, as defined in Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.  In reaching
this conclusion, management considered the Company's past operating results, the
current year events and trends, including the impact, if any, of the
acquisitions that were concluded during the year and other factors.  Management
evaluates the appropriateness of all or part of these valuation allowances on a
periodic basis and if the Company concludes there is a change with respect to
realizability, any necessary adjustments are made at that time.

   The ability of the Company to utilize NOLs to offset income in the U.S. will
be limited in 1998 and subsequent years as a result of the Company's 1996 public
offering, the 1997 Koll acquisition and the 1998 repurchase of preferred stock
which cumulatively caused a more than 50.0% change of ownership within a three
year period.  As a result of the limitation, the Company will only be able to
use approximately $26.0 million of its U.S. NOL in 1998 and each subsequent
year.  The availability of NOLs is, in any event, subject to uncertainty since
their validity is not reviewed by the Internal Revenue Service until such time
as they are utilized to offset taxable income.


NEW ACCOUNTING PRONOUNCEMENTS

   The Company plans to adopt 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 is not expected to have a material impact on the
Company's financial statements.

   In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-up
Activities.  SOP 98-5, which is effective for financial statements for fiscal
years beginning after December 15, 1998, requires costs of start-up activities
and organization costs to be expensed as incurred. The adoption of this
statement is not expected to 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 

                                       24
<PAGE>
 
         CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)


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.

                                       25
<PAGE>
 
         CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The Company's exposure to market risks includes changes in the value of
certain investments, changes in interest rates on debt obligations and
fluctuations in rates of exchange relating to its business outside the U.S.  The
Company is an investment manager for and an investor in certain limited
partnerships.  The amount of exposure arising from capital at risk in these
investments is considered immaterial.  Interest rate risk is evaluated by
estimating the impact of possible interest rate changes on the results of
operations.  On that basis, the impact is considered to be immaterial.  While
the Company operates in 29 countries outside the U.S., exposure to changes in
foreign exchange rates is limited by the fact that the net monetary assets
subject to devaluation risk are not significant.  There were no material
derivatives outstanding at September 30, 1998.


REGARDING OUTLOOK AND OTHER FORWARD-LOOKING DATA

   Portions of the Quarterly Report, including Management's Discussion and
Analysis, are forward-looking and 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 the forward-looking statements in this report.  Such forward-
looking statements speak only as of the date of this report.  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; property values; rental rates; any general economic recession
domestically or internationally; and not successfully completing any capital
expenditure or acquisition.

                                       26
<PAGE>
 
               CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES

                          PART II. OTHER INFORMATION


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

    (A)   EXHIBITS

          The following are furnished as exhibits to this report:

          10.1  Amendment No. 1 to the Amended and Restated Credit Agreement
                dated May 20, 1998 among CB Richard Ellis Services, Inc.; Wells
                Fargo Bank, N.A.; The Bank of Nova Scotia; Credit Lyonnais Los
                Angeles Branch; Dresdner Bank AG, New York Branch; Keybank
                National Association; The Long-Term Credit Bank of Japan, Ltd.,
                Los Angeles Agency; and other financial institutions party to
                the agreement

          27    Financial Data Schedule (filed only with the SEC)

          99    Press release dated November 11, 1998 concerning the Company's
                results of operations for the quarter and nine months ended
                September 30, 1998

    (B)   REPORTS ON FORM 8-K

          (i)   Form 8-K dated July 1, 1998 filing the REI Limited financial
                statements for the year ended December 31, 1997 and for the
                quarter ended March 31, 1998.

          (ii)  Form 8-K dated July 7, 1998 announcing the completion of the
                Company's acquisition of Hillier Parker May & Rowden ("Hillier
                Parker"), a London-based commercial property services firm. The
                Company also disclosed the issuance of equity securities
                pursuant to Regulation S in connection with the acquisition of
                Hillier Parker.

          (iii) Form 8-K dated September 22, 1998 announcing the Company's
                acquisition of ownership interests in its businesses located in
                Canada, Australia and New Zealand which it did not already own.

                                       27
<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:  November 13, 1998                   /s/ Debra L. Morris
                                            -----------------------------------
                                                     Debra L. Morris
                                                  Senior Vice President,
                                              Global Chief Accounting Officer

                                       28
<PAGE>
 
                                 EXHIBIT INDEX

<TABLE> 
<CAPTION> 
       Exhibit
       Number                           Description of Exhibit
       ------            -----------------------------------------------------
       <S>               <C> 
        10.1             Amendment No. 1 to the Amended and Restated Credit
                         Agreement dated May 20, 1998 among CB Richard Ellis
                         Services, Inc.; Wells Fargo Bank, N.A.; The Bank of
                         Nova Scotia; Credit Lyonnais Los Angeles Branch;
                         Dresdner Bank AG, New York Branch; Keybank National
                         Association; The Long-Term Credit Bank of Japan, Ltd.,
                         Los Angeles Agency; and other financial institutions
                         party to the agreement

        27               Financial Data Schedule (filed only with the SEC)

        99               Press release dated November 11, 1998 concerning the
                         Company's results of operations for the quarter and
                         nine months ended September 30, 1998
</TABLE> 

                                       29