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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 June 30, 2001
/ /	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 (State or other jurisdiction of incorporation or organization)	52-1616016 (I.R.S. Employer Identification Number)
200 North Sepulveda Boulevard El Segundo, California (Address of principal executive offices)	90245-4380 (Zip Code)
(310) 563- 8611 (Registrant's telephone number, including area code)	Not Applicable (Former name, former address and formal 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 June 30, 2001 was 20,732,049

CB RICHARD ELLIS SERVICES, INC.

FORM 10-Q

June 30, 2001

TABLE OF CONTENTS

		PAGE
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
	Consolidated Balance Sheets at June 30, 2001 (Unaudited) and December 31, 2000	3
	Consolidated Statements of Operations for the three months ended June 30, 2001 and 2000 and for the six months ended June 30, 2001 and 2000 (Unaudited)	4
	Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000 (Unaudited)	5
	Notes to Consolidated Financial Statements (Unaudited)	6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3. Quantitative and Qualitative Disclosures About Market Risk		23
PART II—OTHER INFORMATION
Item 1. Legal Proceedings		24
Item 6. Exhibits and Reports on Form 8-K		25
Signatures		27

2

CB RICHARD ELLIS SERVICES, INC.

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

			June 30, 2001			December 31, 2000
			(Unaudited)
ASSETS
Current Assets:
	Cash and cash equivalents		$	18,548		$	20,854
	Receivables, less allowance for doubtful accounts of $11,993 and $12,631 at June 30, 2001 and December 31, 2000			149,811			176,908
	Prepaid expenses			9,693			8,017
	Deferred taxes, net			13,023			11,139
	Other current assets			9,132			6,127
		Total current assets		200,207			223,045
Property and equipment, net				77,590			75,992
Goodwill, net of accumulated amortization of $63,726 and $56,417 at June 30, 2001 and December 31, 2000				412,379			423,975
Other intangible assets, net of accumulated amortization of $293,670 and $289,038 at June 30, 2001 and December 31, 2000				42,526			46,432
Cash surrender value of insurance policies, deferred compensation plan				69,508			53,203
Investment in and advances to unconsolidated subsidiaries				43,064			41,325
Deferred taxes, net				35,305			32,327
Prepaid pension costs				24,089			25,235
Other assets				42,131			41,571
		Total assets	$	946,799		$	963,105
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
	Accounts payable and accrued expenses		$	68,929		$	83,673
	Compensation and employee benefits payable			64,291			79,801
	Accrued bonus and profit sharing			31,049			107,878
	Income taxes payable			6,377			28,260
	Short-term borrowings			12,017			9,215
	Current maturities of long-term debt			1,129			1,378
		Total current liabilities		183,792			310,205
Long-term debt:
	Senior subordinated notes, less unamortized discount of $1,542 and $1,664 at June 30, 2001 and December 31, 2000			173,458			173,336
	Revolving credit facility			225,000			110,000
	Other long-term debt			18,014			20,235
		Total long-term debt		416,472			303,571
Deferred compensation liability				87,680			80,503
Other liabilities				28,407			29,739
		Total liabilities		716,351			724,018
Minority interest				2,817			3,748
Commitments and contingencies
Stockholders' Equity:
	Preferred stock, $0.01 par value; 8,000,000 shares authorized; no shares issued or outstanding			—			—
	Common stock, $0.01 par value; 100,000,000 shares authorized; 20,732,049 and 20,605,023 shares outstanding at June 30, 2001 and December 31, 2000			218			217
	Additional paid-in capital			367,685			364,168
	Notes receivable from sale of stock			(11,636	)		(11,847	)
	Accumulated deficit			(93,464	)		(89,097	)
	Accumulated other comprehensive loss			(19,328	)		(12,258	)
	Treasury stock at cost, 1,072,155 shares at June 30, 2001 and December 31, 2000			(15,844	)		(15,844	)
		Total stockholders' equity		227,631			235,339
		Total liabilities and stockholders' equity	$	946,799		$	963,105

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

3

CB RICHARD ELLIS SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except share and per share data)

			Three Months Ended June 30					Six Months Ended June 30
			2001			2000		2001			2000
Revenue:
	Leases		$	112,980		$	140,451	$	216,146		$	240,204
	Sales			72,693			85,673		146,536			159,954
	Property and facilities management fees			28,501			25,640		56,373			50,925
	Consulting and referral fees			17,970			19,515		34,337			35,829
	Appraisal fees			19,709			19,082		38,545			35,366
	Loan origination and servicing fees			16,124			13,777		30,936			23,040
	Investment management fees			11,705			9,818		20,254			17,155
	Other			5,167			3,928		14,220			16,330
		Total revenue		284,849			317,884		557,347			578,803
Costs and Expenses:
	Commissions, fees and other incentives			134,805			153,852		259,203			267,815
	Operating, administrative and other			129,535			130,756		263,614			257,904
	Depreciation and amortization			11,446			10,731		23,142			21,300
	Merger-related and other nonrecurring charges			5,608			—		5,608			—
Operating income				3,455			22,545		5,780			31,784
Interest income				692			92		1,492			581
Interest expense				9,358			10,985		18,413			20,670
(Loss) income before (benefit) provision for income tax				(5,211	)		11,652		(11,141	)		11,695
(Benefit) provision for income tax				(3,690	)		6,175		(6,774	)		6,198
Net (loss) income			$	(1,521	)	$	5,477	$	(4,367	)	$	5,497
Basic (loss) earnings per share			$	(0.07	)	$	0.26	$	(0.20	)	$	0.26
Weighted average shares outstanding for basic (loss) earnings per share				21,328,247			20,879,218		21,318,949			20,849,244
Diluted (loss) earnings per share			$	(0.07	)	$	0.26	$	(0.20	)	$	0.26
Weighted average shares outstanding for diluted (loss) earnings per share				21,328,247			20,906,117		21,318,949			20,879,026

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

4

CB RICHARD ELLIS SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)

			Six Months Ended June 30
			2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net (loss) income		$	(4,367	)	$	5,497
	Adjustments to reconcile net (loss) income to net cash used in operating activities:
		Depreciation and amortization excluding deferred financing costs		23,142			21,300
		Gain on sale of properties, businesses and servicing rights		(9,728	)		(5,027	)
		Deferred compensation deferrals		15,127			13,999
	Decrease in receivables			20,254			20,661
Increase in cash surrender value of insurance policies, deferred compensation plan				(16,305	)		(17,240	)
Decrease in compensation and employee benefits payable and accrued bonus and profit sharing				(89,893	)		(62,448	)
Decrease in accounts payable and accrued expenses				(13,393	)		(16,644	)
Decrease in income taxes payable				(25,695	)		(10,245	)
Decrease in other liabilities				(6,732	)		(1,005	)
Other				336			135
	Net cash used in operating activities			(107,254	)		(51,017	)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment			(14,628	)		(11,451	)
	Proceeds from sale of properties, businesses and servicing rights			9,191			11,601
	Purchase of investments			(5,484	)		(11,311	)
	Other investing activities, net			353			(956	)
		Net cash used in investing activities		(10,568	)		(12,117	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from revolving credit facility			185,000			134,000
	Repayment of revolving credit facility			(70,000	)		(72,000	)
	Proceeds from (repayment of) senior notes and other loans, net			1,315			(3,499	)
	Other financing activities, net			602			(3,163	)
		Net cash provided by financing activities		116,917			55,338
Net decrease in cash and cash equivalents				(905	)		(7,796	)
Cash and cash equivalents, at beginning of period				20,854			27,844
Effect of exchange rate changes on cash				(1,401	)		(853	)
Cash and cash equivalents, at end of period			$	18,548		$	19,195
SUPPLEMENTAL DATA:
	Cash paid during the period for:
		Interest (none capitalized)	$	17,202		$	21,501
		Income taxes, net	$	18,719		$	15,441

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

5

CB RICHARD ELLIS SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization

    CB Richard Ellis Services, Inc. (the Company) is a holding company that conducts its worldwide operations through approximately 75 direct and indirect subsidiaries. Approximately 76.8% of the Company's revenues are from the United States (US) and 23.2% from the rest of the world. Effective July 20, 2001, the Company was acquired by CBRE Holding, Inc. (CB Holding) pursuant to an Amended and Restated Agreement and Plan of Merger with CB Holding and Blum CB Corporation, a wholly owned subsidiary of CB Holding. CB Holding is controlled by an affiliate of the Company's director Richard Blum. Additionally, other directors of the Company and certain of the Company's senior officers collectively have a significant interest in CB Holding. The merger was approved by the Company's stockholders on July 18, 2001.

2. Basis of Preparation

    The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and include all information and footnotes required for interim financial statement presentation. In the Company's opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with accounting principles generally accepted in the US requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ materially from those estimates. All significant intercompany transactions and balances have been eliminated and certain reclassifications have been made to prior periods' consolidated financial statements to conform to current period presentation. The results of operations for the six months ended June 30, 2001 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2001.

    The consolidated financial statements and notes to the consolidated financial statements, along with management's discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with the Company's recent filing on Form 10-K, which contains the latest available audited consolidated financial statements and notes thereto, as of and for the period ended December 31, 2000.

3. Investments in and Advances to Unconsolidated Subsidiaries

    Condensed Statement of Operations (unaudited) for the unconsolidated subsidiaries accounted for using the equity method is as follows (in thousands):

	Three Months Ended June 30						Six Months Ended June 30
	2001			2000			2001		2000
Revenues	$	66,380		$	60,800		$	136,029	$	109,295
Income from operations		10,187			5,584			22,876		18,803
Net (loss) income		(15	)		(599	)		7,831		8,358

6

4. Debt

    At June 30, 2001, the Company had a revolving credit facility of $270.0 million and outstanding Senior Subordinated Notes (Subordinated Notes) due on June 1, 2006. Effective July 20, 2001, the revolving credit facility and Subordinated Notes were paid off in their entirety.

    The Company has short-term borrowings of $12.0 million and $9.2 million with related weighted average interest rates of 6.4% and 7.3% as of June 30, 2001 and December 31, 2000, respectively.

    A subsidiary of the Company has a credit agreement with Residential Funding Corporation (RFC). The credit agreement provides for a revolving line of credit of up to $175.0 million, and bears interest at 1.00% per annum over LIBOR. The agreement expires on August 31, 2001. During the quarter, the Company had a maximum of $160.1 million revolving line of credit principal outstanding. At June 30, 2001, the Company had $1.4 million revolving line of credit principal outstanding, which is included in short-term borrowings in the accompanying Consolidated Balance Sheets.

5. Commitments and Contingencies

    Between November 12 and December 6, 2000, five putative class actions were filed in the Court of Chancery of the State of Delaware in and for New Castle County by various of the Company's stockholders against the Company, its directors and the buying group which has proposed to take the Company private. A similar action was also filed on November 17, 2000 in the Superior Court of the State of California in and for the County of Los Angeles. These actions all alleged that the offering price for the going private transaction was unfair and inadequate and sought injunctive relief or rescission of the transaction and, in the alternative, money damages.

    The five Delaware actions have been consolidated. As of February 23, 2001, the parties to the Delaware litigation entered into a memorandum of understanding in which they agreed in principle to a settlement. The memorandum provides, among other things:

•

that the defendants admit no liability or wrongdoing whatsoever;



•

that the members of the buying group acknowledge that the pendency and prosecution of the Delaware litigation were positive contributing factors to its decision to increase the merger consideration;



•

for the certification of a settlement class and the entry of a final judgment granting a full release of the defendants; and



•

for attorneys' fees in an amount not to exceed $380,000.

    There are numerous conditions to the settlement proposed by the memorandum including the closing of the merger.

    The merger closed on July 20, 2001 and the memorandum became final, subject to the approval of the Court.

7

    In December 1996, GMH Associates, Inc. (GMH) filed a lawsuit against Prudential Realty Group (Prudential) and the Company in the Superior Court of Pennsylvania, Franklin County, alleging various contractual and tort claims against Prudential, the seller of a large office complex, and the Company, its agent in the sale, contending that Prudential breached its agreement to sell the property to GMH, breached its duty to negotiate in good faith, conspired with the Company to conceal from GMH that Prudential was negotiating to sell the property to another purchaser and that Prudential and the Company misrepresented that there were no other negotiations for the sale of the property. Following a non-jury trial, the court rendered a decision in favor of GMH and against Prudential and the Company, awarding GMH $20.3 million in compensatory damages, against Prudential and the Company jointly and severally, and $10.0 million in punitive damages, allocating the punitive damage award $7.0 million as against Prudential and $3.0 million as against the Company. Following the denial of motions by Prudential and the Company for a new trial, a judgment was entered on December 3, 1998. Prudential and the Company filed an appeal of the judgment. On March 3, 2000, the appellate court in Pennsylvania reversed all of the trial courts' decisions finding that liability was not supported on any theory claimed by GMH and directed that a judgment be entered in favor of the defendants including the Company. The plaintiff filed an appeal with the Pennsylvania Supreme Court, which was denied. The plaintiff has exhausted all appeal possibilities and judgment has been entered in favor of all defendants.

    In August 1993, a former commissioned sales person of the Company filed a lawsuit against the Company in the Superior Court of New Jersey, Bergen County, alleging gender discrimination and wrongful termination by the Company. On November 20, 1996, a jury returned a verdict against the Company, awarding $1.5 million in general damages and $5.0 million in punitive damages to the plaintiff. Subsequently, the trial court awarded the plaintiff $0.6 million in attorneys' fees and costs. Following denial by the trial court of the Company's motions for new trial, reversal of the verdict and reduction of damages, the Company filed an appeal of the verdict and requested a reduction of damages. On March 9, 1999 the appellate court ruled in the Company's favor, reversed the trial court's decision and ordered a new trial. On February 16, 2000, the Supreme Court of New Jersey reversed the decision of the appellate court, concluded that the general damage award in the trial court should be sustained and returned the case to the appellate court for a determination as to whether a new trial should be ordered on the issue of punitive damages. In April 2000, the Company settled the compensatory damages claim, including interest, and all claims to date with respect to attorneys fees by paying to the plaintiff the sum of $2.75 million leaving only the punitive damage claim for resolution. The plaintiff also agreed with very limited exceptions, that no matter what the outcome of the punitive damage claim, the Company would not be responsible for more than 50% of the plaintiff's future attorney fees. In February 2001, the Company settled all remaining claims for the sum of $2.0 million and received a comprehensive release.

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

    An important part of the strategy for the Company's investment management business involves investing its own capital in certain real estate investments with its clients. As of June 30, 2001, the Company had committed $37.6 million to fund future co-investments.

8

6. Comprehensive Loss

    Comprehensive loss consists of net (loss) income and other comprehensive loss. Accumulated other comprehensive loss consists of foreign currency translation adjustments. For the six months ended June 30, 2001, total comprehensive loss was $11.4 million, which consists of foreign currency translation loss of $7.0 million and a net loss of $4.4 million. For the six months ended June 30, 2000, total comprehensive loss was $2.4 million, which consists of foreign currency translation loss of $7.9 million and net income of $5.5 million.

7. Per Share Information

    Basic (loss) earnings per share was computed by dividing net (loss) income by the weighted average number of common shares outstanding of 21,328,247 and 20,879,218 for the three months ended June 30, 2001 and 2000, respectively, and 21,318,949 and 20,849,244 for the six months ended June 30, 2001 and 2000, respectively. As a result of operating losses incurred for the three and six months ended June 30, 2001, diluted weighted average shares outstanding do not give effect to common stock equivalents, as to do so would be anti-dilutive. For the three and six months ended June 30, 2000, the computation of diluted earnings per share further assumes the dilutive effect of 26,899 and 29,782 common stock equivalents, respectively, which consisted principally of stock options.

8. Industry Segments

    The Company reports its operations through three business segments: Transaction Management, Financial Services and Management Services. The Company has a number of lines of business which are aggregated, reported and managed through these three segments. The Transaction Management segment is the Company's largest generator of revenue and includes Brokerage Services, Corporate Services and Investment Property activities. Brokerage Services includes activities that provide sales, leasing and consulting services in connection with commercial real estate and is the Company's primary revenue source. Corporate Services focuses on building relationships with large corporate clients which generate recurring revenue. Investment Property activities provide brokerage services for commercial real property marketed for sale to institutional and private investors. The current year results of the Transaction Management segment include merger-related and other nonrecurring charges of $1.8 million. The Financial Services segment provides commercial mortgage, valuation, investment management and consulting and research services. The current year results of Financial Services include a nonrecurring pre-tax gain of $5.6 million from the sale of mortgage fund management contracts and the current quarter includes a $3.3 million pre-tax gain on the sale of loan servicing rights. Also included in the current year results are merger-related and other nonrecurring charges of $3.3 million. The Management Services segment provides facility management services to corporate real estate users and property management and related services to owners. Current year results include merger-related and other nonrecurring charges of $0.5 million. Prior year results include a $4.7 million nonrecurring pre-tax gain on the sale of certain non-strategic assets. The following unaudited table

9

summarizes the revenue, cost and expenses, and operating income (loss) by operating segment for the periods ended June 30, 2001 and 2000:

			Three Months Ended June 30						Six Months Ended June 30
			2001			2000			2001			2000
			(Dollars in thousands)
Revenue
	Transaction Management		$	190,338		$	232,094		$	370,319		$	410,553
	Financial Services			57,111			49,503			113,030			90,900
	Management Services			37,400			36,287			73,998			77,350
			$	284,849		$	317,884		$	557,347		$	578,803
Operating income (loss)
	Transaction Management		$	1,519		$	18,344		$	(2,611	)	$	22,975
	Financial Services			1,087			4,578			7,936			5,383
	Management Services			849			(377	)		455			3,426
			$	3,455		$	22,545		$	5,780		$	31,784
Interest income				692			92			1,492			581
Interest expense				9,358			10,985			18,413			20,670
(Loss) income before (benefit) provision for income tax			$	(5,211	)	$	11,652		$	(11,141	)	$	11,695
Geographic Information
Revenue
	Americas
		United States	$	216,877		$	245,700		$	427,886		$	444,200
		Canada, South and Central America		9,037			11,061			20,541			20,260
				225,914			256,761			448,427			464,460
	Pacific			11,279			11,678			18,969			19,692
	Asia			10,128			10,141			19,143			19,874
	Europe, Middle East and Africa			37,528			39,304			70,808			74,777
			$	284,849		$	317,884		$	557,347		$	578,803

9. Nonrecurring Charges

    During the second quarter of 2001, the Company recorded merger-related and other nonrecurring pre-tax charges totaling $5.6 million. This included merger-related costs of $1.3 million, the write-off of an e-business investment of $2.9 million, as well as severance costs of $1.4 million related to the Company's cost reduction program instituted in May 2001.

10. Subsequent Events

    Effective July 20, 2001, the Company was acquired by CB Holding which is controlled by an affiliate of the Company's director Richard Blum. Additionally, other directors of the Company and certain of the Company's senior officers collectively have a significant interest in CB Holding. The merger was approved by the Company's stockholders on July 18, 2001. Pursuant to the merger, each share of the Company's common stock, other than those held by members of the buying group, has

10

been converted into the right to receive $16.00. As a result of the merger, the Company's shares are no longer listed on the New York Stock Exchange.

    The Company has also successfully completed a tender offer and consent solicitation for all of the outstanding principal amount of its 8⁷/8% Senior Subordinated Notes due 2006 (the Notes). The Notes were purchased at $1,079.14 for each $1,000 principal amount of Notes, which includes the consent payment of $30.00 per $1,000 principal amount of Notes. The Company also repaid the outstanding balance of its revolving credit facility.

    As part of the merger transaction, the Company assumed $229.0 million in aggregate principal amount of 11¹/4% Senior Subordinated Notes due 2011 for $225.6 million. The Company also entered into a senior credit facility with Credit Suisse First Boston (CSFB) and other lenders. This includes the Tranche A term facility of up to $50.0 million, maturing in 2007; the Tranche B term facility of up to $185.0 million, maturing in 2008; and the revolving line of credit of up to $90.0 million, including revolving credit loans, letters of credit and a swingline loan subsidiary, maturing in 2007. The Company had an outstanding balance on the revolving line of credit of $40.0 million at the close of the merger.

    Borrowings under the senior secured credit facilities will bear interest at varying rates based on the Company's option, on either LIBOR plus 3.25% or the alternate base rate plus 2.25%, in the case of Tranche A and the revolving facility, and LIBOR plus 3.75% or the alternate base rate plus 2.75%, in the case of Tranche B. The alternate base rate is the higher of (1) CSFB's prime rate or (2) the Federal Funds Effective Rate plus one-half of one percent. After delivery of the Company's consolidated financial statements for the year ending December 31, 2001, the amount added to the LIBOR rate or the alternate base rate under the Tranche A and revolving facility will vary, from 2.50% to 3.25% for LIBOR and from 1.50% to 2.25% for the alternate base rate, as determined by reference to the Company's ratios of total debt less available cash to EBITDA. EBITDA represents earnings before net interest expense, income taxes, depreciation and amortization and merger-related and other nonrecurring charges.

11

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

Introduction—

    Management's discussion and analysis of financial condition, results of operations, liquidity and capital resources contained within this report on Form 10-Q is more clearly understood when read in conjunction with the Notes to the Consolidated Financial Statements. The Notes to the Consolidated Financial Statements elaborate on certain terms that are used throughout this discussion and provide information about the Company and the basis of presentation used in this report on Form 10-Q.

Results of Operations

    The following unaudited table sets forth items derived from the Company's consolidated financial statements for the periods ended June 30, 2001 and 2000:

	Three Months Ended June 30						Six Months Ended June 30
	2001			2000			2001			2000
	(Dollars in thousands)
Revenue	$	284,849		$	317,884		$	557,347		$	578,803
EBITDA, excluding merger-related and other nonrecurring charges	$	20,509		$	33,276		$	34,530		$	53,084
Net (loss) income	$	(1,521	)	$	5,477		$	(4,367	)	$	5,497
Cash flow (used in) provided by operating activities	$	(2,991	)	$	16,505		$	(107,254	)	$	(51,017	)
Net income after tax before goodwill amortization	$	2,319		$	9,359		$	3,421		$	13,294
Cash flow (used in) provided by operating activities per share (diluted)	$	(0.14	)	$	0.79		$	(5.03	)	$	(2.44	)
Basic (loss) earnings per share	$	(0.07	)	$	0.26		$	(0.20	)	$	0.26
Diluted (loss) earnings per share	$	(0.07	)	$	0.26		$	(0.20	)	$	0.26
Debt/equity		1.89	x		2.03	x		1.89	x		2.03	x
EBITDA, excluding merger-related and other nonrecurring charges/net interest expense		2.37	x		3.05	x		2.04	x		2.64	x
Effective tax rate		70.8	%		53.0	%		60.8	%		53.0	%
Operating expense as a percentage of revenue		45.5	%		41.1	%		47.3	%		44.6	%
EBITDA, excluding merger-related and other nonrecurring charges as a percentage of revenue		7.2	%		10.5	%		6.2	%		9.2	%
Net (loss) income as a percentage of revenue		(0.5	)%		1.7	%		(0.8	)%		0.9	%
International revenue as a percentage of consolidated revenue		23.9	%		22.7	%		23.2	%		23.3	%

12

    EBITDA, excluding merger-related and other nonrecurring charges has been calculated as follows:

		Three Months Ended June 30				Six Months Ended June 30
		2001		2000		2001		2000
				(in thousands)
Operating Income		$	3,455	$	22,545	$	5,780	$	31,784
Add:
	Depreciation and amortization		11,446		10,731		23,142		21,300
	Merger-related and other nonrecurring charges		5,608		—		5,608		—
EBITDA, excluding merger-related and other nonrecurring charges		$	20,509	$	33,276	$	34,530	$	53,084

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000

    The Company reported a consolidated net loss of $1.5 million, or $0.07 diluted loss per share for the three months ended June 30, 2001 on revenues of $284.8 million compared to consolidated net income of $5.5 million or $0.26 diluted earnings per share on revenues of $317.9 million for the three months ended June 30, 2000.

    Revenues on a consolidated basis decreased by $33.0 million or 10.4% for the three months ended June 30, 2001, compared to the three months ended June 30, 2000. This was mainly driven by a $27.5 million decrease in lease revenue, as well as a $13.0 million decline in sales revenue. These decreases were primarily attributable to the Company's North American operation. The revenue declines were slightly offset by a rise in loan origination and servicing fees, as well as an 11.2% increase in property and facilities management fees.

    Commissions, fees and other incentives totaled $134.8 million on a consolidated basis, a 12.4% decrease from the second quarter of 2000. This decrease is primarily due to the lower lease and sales revenues within North America. The decline in revenues also resulted in lower variable commission expense within this division as compared to prior year quarter. This resulted in commissions as a percentage of revenues decreasing from 48.4% to 47.3% in the current quarter.

    Operating, administrative and other on a consolidated basis was $129.5 million, a decrease of $1.2 million or 0.9% as compared to the second quarter of 2000. This was primarily due to a decline in bonus incentives, as a result of the lower quarterly results.

    Merger-related and other nonrecurring charges were $5.6 million for the three months ended June 30, 2001, compared to no charges for the three months ended June 30, 2000. This included merger-related costs of $1.3 million, the write-off of an e-business investment of $2.9 million as well as severance costs of $1.4 million related to the Company's cost reduction program instituted in May 2001.

    Consolidated interest expense was $9.4 million, a decrease of $1.6 million or 14.8% for the quarter. This decrease was primarily a result of the revolving credit facility being renewed at a lower average interest rate during the current quarter as compared to the prior year quarter. In addition, the Company had lower average borrowing levels during the second quarter of 2001 due to the pay-down of the revolving credit facility during December 2000.

    The income tax benefit on a consolidated basis was $3.7 million for the three months ended June 30, 2001, as compared to a provision for income tax of $6.2 million for the three months ended June 30, 2000. The current quarter benefit was the result of the pre-tax loss. The effective tax rate was 70.8% for the three months ended June 30, 2001 as compared to 53.0% for the three months ended June 30, 2000. The Company calculates its effective tax rate based on an estimate of its annual earnings for the entire year.

13

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

    The Company reported consolidated net loss of $4.4 million, or $0.20 diluted loss per share for the six months ended June 30, 2001 on revenues of $557.3 million compared to consolidated net income of $5.5 million, or $0.26 diluted earnings per share, on revenues of $578.8 million for the six months ended June 30, 2000.

    Revenues on a consolidated basis decreased by $21.5 million or 3.7% for the current year, mainly due to decreased lease revenue of $24.1 million. Sales revenue also declined by $13.4 million during the current year. The lower revenues are primarily attributable to the Company's North American operation. However, the European and Asian operations also experienced lower sale and lease revenues. These decreases were slightly offset by a $7.9 million increase in loan origination and servicing fees, as well as a $5.4 million increase in property and facilities management fees.

    Commissions, fees and other incentives on a consolidated basis totaled $259.2 million, a decrease of $8.6 million or 3.2% from prior year. This decrease is primarily due to the lower sales and lease revenues within the North American operation. The decline in revenues also resulted in lower variable commission expense within this division as compared to prior year. These declines were slightly offset by higher insurance and benefit costs for producers in the US, which is included as a component of commission expense. In addition, producer compensation within the international operations is typically fixed in nature compared to the North American operations and did not decrease as a result of the lower revenues. As a result, commission as a percentage of revenue remained fairly constant at 46.5% for the current year, up slightly from 46.3% for prior year.

    Operating, administrative and other on a consolidated basis was $263.6 million, an increase of $5.7 million or 2.2%, compared to the six months ended June 30, 2000. The increase is attributable to increased compensation expense of $1.7 million related to the Company's Deferred Compensation Program (DCP), as well as lower earnings from unconsolidated subsidiaries during the current year. These increases were slightly offset by lower bonus incentives due to the lower results.

    Merger-related and other nonrecurring charges were $5.6 million for the six months ended June 30, 2001, with no charges incurred in the prior year. This included merger-related costs of $1.3 million, the write-off of an e-business investment of $2.9 million, as well as severance costs of $1.4 million related to the Company's cost reduction program instituted in May 2001.

    Consolidated interest expense was $18.4 million, a decrease of $2.3 million or 10.9% in the current year. This decrease was primarily a result of the revolving credit facility being renewed at a lower average borrowing rate during the current year as compared to the prior year. In addition, the Company had lower average borrowing levels during the current year due to the pay-down of the revolving credit facility during December 2000.

    The income tax benefit on a consolidated basis was $6.8 million for the six months ended June 30, 2001, as compared to a provision for income tax of $6.2 million for the six months ended June 30, 2000. The current year benefit was a result of the year-to-date pre-tax loss. The effective tax rate was 60.8% for the six months ended June 30, 2001 as compared to 53.0% for the six months ended June 30, 2000. The Company calculates its effective tax rate based on an estimate of its annual earnings for the entire year.

14

Segment Operations

    The Company provides integrated real estate services through three global business segments: Transaction Management, Financial Services and Management Services. The factors for determining the reportable segments were based on the type of service and client and the way the chief operating decision-makers organize segments internally for making operating decisions and assessing performance. Transaction Management consists of sales, leasing and consulting services in connection with commercial real estate, transaction management and advisory services with large corporate clients and investment property services (brokerage services for commercial real estate property marketed for sale to institutional and private investors). Financial Services consists of commercial loan origination and servicing through the Company's wholly-owned subsidiary, L.J. Melody & Company (L.J. Melody), investment management services through the Company's wholly-owned subsidiary, CB Richard Ellis Investors, L.L.C. (CBRE Investors) and valuation and appraisal services. The following unaudited table summarizes the Company's revenue, cost and expenses, and operating (loss) income by operating segment for the periods ended June 30, 2001 and 2000:

				Three Months Ended June 30								Six Months Ended June 30
				2001				2000				2001					2000
				(Dollars in thousands)
Transaction Management
	Revenue:
		Leases		$	106,589	56.0	%	$	132,921	57.3	%	$	203,804		55.0	%	$	227,225	55.3	%
		Sales			70,415	37.0			82,779	35.7			140,718		38.0			154,701	37.7
		Other consulting and referral fees (1)			13,334	7.0			16,394	7.0			25,797		7.0			28,627	7.0
			Total revenue		190,338	100.0	%		232,094	100.0	%		370,319		100.0	%		410,553	100.0	%
	Costs and expenses:
		Commissions, fees and other incentives			109,708	57.6			131,847	56.8			211,330		57.0			226,759	55.2
		Operating, administrative and other			72,401	38.0			76,866	33.1			148,743		40.2			150,831	36.8
		Depreciation and amortization			4,883	2.6			5,037	2.2			11,030		3.0			9,988	2.4
		Merger-related and other nonrecurring charges			1,827	1.0			—	—			1,827		0.5			—	—
	Operating income (loss)			$	1,519	0.8	%	$	18,344	7.9	%	$	(2,611	)	(0.7	)%	$	22,975	5.6	%
	EBITDA, excluding merger-related and other nonrecurring charges			$	8,229	4.3	%	$	23,381	10.1	%	$	10,246		2.8	%	$	32,963	8.0	%
Financial Services
	Revenue:
		Appraisal fees		$	19,411	34.0	%	$	18,677	37.7	%	$	37,779		33.4	%	$	34,618	38.1	%
		Loan origination and servicing fees			16,124	28.2			13,807	27.9			30,936		27.4			23,037	25.3
		Investment management fees			11,267	19.7			9,041	18.3			19,236		17.0			15,758	17.3
		Other (1)			10,309	18.1			7,978	16.1			25,079		22.2			17,487	19.3
			Total revenue		57,111	100.0	%		49,503	100.0	%		113,030		100.0	%		90,900	100.0	%
	Costs and expenses:
		Commissions, fees and other incentives			19,034	33.3			16,190	32.7			34,777		30.8			28,397	31.3
		Operating, administrative and other			30,471	53.4			25,690	51.9			60,552		53.6			51,095	56.2
		Depreciation and amortization			3,216	5.6			3,045	6.2			6,462		5.7			6,025	6.6
		Merger-related and other nonrecurring charges			3,303	5.8			—	—			3,303		2.9			—	—
	Operating income			$	1,087	1.9	%	$	4,578	9.2	%	$	7,936		7.0	%	$	5,383	5.9	%
	EBITDA, excluding merger-related and other nonrecurring charges			$	7,606	13.3	%	$	7,623	15.4	%	$	17,701		15.7	%	$	11,408	12.6	%

15

Management Services
	Revenue:
		Property management fees		$	19,571	52.3	%	$	20,388		56.2	%	$	39,908	53.9	%	$	39,622	51.2	%
		Facilities management fees			7,657	20.5			4,539		12.5			14,538	19.7			9,830	12.7
		Other (1)			10,172	27.2			11,360		31.3			19,552	26.4			27,898	36.1
			Total revenue		37,400	100.0	%		36,287		100.0	%		73,998	100.0	%		77,350	100.0	%
	Costs and expenses:
		Commissions, fees and other incentives			6,063	16.2			5,815		16.0			13,096	17.7			12,659	16.4
		Operating, administrative and other			26,663	71.3			28,200		77.7			54,319	73.4			55,978	72.4
		Depreciation and amortization			3,347	8.9			2,649		7.3			5,650	7.6			5,287	6.8
		Merger-related and other nonrecurring charges			478	1.3			—		—			478	0.7			—	—
	Operating income			$	849	2.3	%	$	(377	)	(1.0	)%	$	455	0.6	%	$	3,426	4.4	%
	EBITDA, excluding merger-related and other nonrecurring charges			$	4,674	12.5	%	$	2,272		6.3	%	$	6,583	8.9	%	$	8,713	11.3	%
Total operating income				$	3,455			$	22,545				$	5,780			$	31,784
Total EBITDA, excluding merger-related and other nonrecurring charges				$	20,509			$	33,276				$	34,530			$	53,084

(1)

Revenue is allocated by material line of business specific to each segment. "Other" includes types of revenue that have not been broken out separately due to their immaterial balances and/or nonrecurring nature within each segment. Certain revenue types disclosed on the Consolidated Statements of Operations may not be derived directly from amounts shown in this table.

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000

Transaction Management

Revenue decreased by $41.8 million or 18.0% for the three months ended June 30, 2001, compared to the three months ended June 30, 2000. This decrease was primarily due to lower lease revenue of $26.3 million and decreased sales revenue of $12.4 million primarily in North America. The Company's European operation also experienced lower sales and lease revenues. Commissions, fees and other incentives decreased by $22.1 million or 16.8% for the three months ended June 30, 2001, compared to the three months ended June 30, 2000, primarily due to the decline in lease and sales revenues within the North American operations. The decline in revenues also resulted in lower variable commission expense within this division as compared to prior year quarter. These decreases were offset by higher insurance and benefits for producers in the US, which are a component of commission expense. In addition, producer compensation within the international operations is typically fixed in nature and does not decrease as a result of lower revenues. These factors contributed to an increase in commissions as a percentage of revenues from 56.8% to 57.6% for the current quarter. Operating, administrative, and other decreased by $4.5 million or 5.8% for the three months ended June 30, 2001, compared to the three months ended June 30, 2000. This is primarily due to a decrease in bonus incentives.

Financial Services

Revenue increased by $7.6 million or 15.4% for the three months ended June 30, 2001, compared to the three months ended June 30, 2000. Loan origination and servicing fees increased by $2.3 million. Excluding any acquisitions, loan origination fees increased by $1.4 million or 12.0% over the quarter ended June 30, 2000, while loan servicing fees increased slightly compared to prior year quarter. Investment management fees increased by 24.6% as assets under management grew by $793.1 million compared to prior year quarter. Incentive fees also increased due to a higher number of sold properties during the current quarter. Other revenue increased by $2.3 million primarily due to the gain on the sale of loan servicing rights during the current quarter. Commissions, fees and other incentives increased

16

by $2.8 million or 17.6% for the three months ended June 30, 2001, compared to the three months ended June 30, 2000 attributable primarily to the higher loan commissions due to the increased revenue. Operating, administrative, and other increased by $4.8 million or 18.6% for the three months ended June 30, 2001, compared to the three months ended June 30, 2000. This increase is primarily due to the start-up of the investment management operations in Asia during 2000. The mortgage banking line of business had higher bonus and long-term incentive costs attributable to the more favorable current year results.

Management Services

Revenue increased by $1.1 million or 3.1% for the three months ended June 30, 2001, compared to the three months ended June 30, 2000 due to increased facility management fees primarily from property managed in the US. Operating, administrative, and other decreased by $1.5 million or 5.5% for the three months ended June 30, 2001, compared to the three months ended June 30, 2000 due mainly to lower personnel requirements.

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

Transaction Management

Revenue decreased by $40.2 million or 9.8% for the six months ended June 30, 2001, compared to the six months ended June 30, 2000. The decrease was primarily due to a $23.4 million decrease in lease revenues and a $14.0 million decline in sales revenues. The lower revenues are mainly attributable to the North American operations. Sales and lease revenues also decreased in the European operations. Commissions, fees and other incentives decreased by $15.4 million or 6.8% for the six months ended June 30, 2001, compared to the six months ended June 30, 2000, primarily due to the lower lease and sales revenues within North America. The decline in revenues also resulted in lower variable commission expense within this division as compared to prior year. These declines were offset by higher insurance and benefit costs for producers in the US, which is included as a component of commissions expense. In addition, producer compensation within the international operations is typically fixed in nature and does not decrease as a result of lower revenues. These factors contributed to an increase in commissions as a percentage of revenues from 55.2% to 57.1% for the current year. Operating, administrative, and other decreased by $2.1 million or 1.4% as a result of lower bonus incentives. Depreciation and amortization increased by $1.0 million or 10.4% in the current year, primarily as a result of additional investments in computer hardware and software.

Financial Services

Revenue increased by $22.1 million or 24.3% for the six months ended June 30, 2001, compared to the six months ended June 30, 2000. Loan origination and servicing fees increased by $7.9 million. Excluding any acquisitions, loan origination fees increased by $6.2 million or 33.0%, while loan servicing fees were up slightly compared to prior year. Investment management fees increased by $3.5 million due to higher average assets under management, as well as increased incentive fees resulting from a greater number of sold properties. Appraisal fees increased by 9.1% compared to prior year. Other revenues increased by $7.6 million due to the gain on the sale of mortgage fund management contracts and the gain on sale of loans servicing rights during the current year. Commissions, fees and other incentives increased by $6.4 million or 22.5% for the six months ended June 30, 2001, compared to the six months ended June 30, 2000. This increase is mainly due to the increase in loan and appraisal commissions. In addition, producer costs increased in the mortgage banking operations in order to handle the higher business volume. Operating, administrative, and other increased by $9.5 million or 18.5% for the six months ended June 30, 2001, compared to the six months ended June 30, 2000. This is due to the start-up of the investment management operations in Asia

17

during 2000. The mortgage banking line of business had higher bonus and long-term incentive costs attributable to the more favorable current year results.

Management Services

Revenue decreased by $3.4 million or 4.3% for the six months ended June 30, 2001, compared to the six months ended June 30, 2000. Other revenues decreased by $8.3 million primarily due to the gain on the sale of certain non-strategic assets in the prior year. Operating, administrative, and other decreased by $1.7 million or 3.0% for the six months ended June 30, 2001, compared to the six months ended June 30, 2000. The decrease is primarily due to lower personnel requirements, mainly in North America.

Liquidity and Capital Resources

    The Company finances its operations and non-acquisition related capital expenditures primarily with internally generated funds and borrowings under a revolving credit facility. The revolving credit facility contains numerous restrictive covenants that, among other things, limit the Company's ability to incur or repay other indebtedness, make advances or loans to subsidiaries and other entities, make capital expenditures, incur liens, enter into mergers or effect other fundamental corporate transactions, sell its assets, or declare dividends. In addition, the Company is required to meet certain financial ratios relating to its adjusted net worth, level of indebtedness, fixed charges and interest coverage. The revolving credit facility currently totals $270.0 million, with the Company being required to make a mandatory $70.0 million reduction by December 31, 2001. The amount outstanding under this facility was $225.0 million at June 30, 2001 and is included in the accompanying Consolidated Balance Sheets. This revolving credit facility matures May 20, 2003.

    The Company believes that it can satisfy its non-acquisition obligations as well as working capital requirements and funding of co-investments from internally generated cash flow, borrowings under the amended revolving credit facility or any replacement credit facilities. Material future acquisitions, if any, that require cash will require new sources of capital such as an expansion of the 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 its anticipated non-acquisition cash requirements for the foreseeable future and in any event for the next twelve months and thereafter.

    Effective July 20, 2001, the Company was acquired by CB Holding which is controlled by an affiliate of the Company's director Richard Blum. Additionally, other directors of the Company and certain of the Company's senior officers collectively have a significant interest in CB Holding. The merger was approved by the Company's stockholders on July 18, 2001. Pursuant to the merger, each share of the Company's common stock, other than those held by members of the buying group, has been converted into the right to receive $16.00. The Company has also successfully completed a tender offer and consent solicitation for all of the outstanding principal amount of its 8⁷/8% Senior Subordinated Notes due 2006 (the Notes). The Notes were purchased at $1,079.14 for each $1,000 principal amount of Notes, which includes the consent payment of $30.00 per $1,000 principal amount of Notes. The Company also repaid the outstanding balance of its revolving credit facility.

    As part of the merger transaction, the Company assumed $229.0 million in aggregate principal amount of 11¹/4% Senior Subordinated Notes due 2011 for $225.6 million. The Company also entered into a senior credit facility with Credit Suisse First Boston (CSFB) and other lenders. This includes the Tranche A term facility of up to $50.0 million, maturing in 2007; the Tranche B term facility of up to $185.0 million, maturing in 2008; and the revolving line of credit of up to $90.0 million, including revolving credit loans, letters of credit and a swingline loan subsidiary, maturing in 2007. The Company had an outstanding balance on the revolving line of credit of $40.0 million at the close of the merger.

18

    Borrowings under the senior secured credit facilities will bear interest at varying rates based on the Company's option, on either LIBOR plus 3.25% or the alternate base rate plus 2.25%, in the case of Tranche A and the revolving facility, and LIBOR plus 3.75% or the alternate base rate plus 2.75%, in the case of Tranche B. The alternate base rate is the higher of (1) CSFB's prime rate or (2) the Federal Funds Effective Rate plus one-half of one percent. After delivery of the Company's consolidated financial statements for the year ended December 31, 2001, the amount added to the LIBOR rate or the alternate base rate under the Tranche A and revolving facility will vary, from 2.50% to 3.25% for LIBOR and from 1.50% to 2.25% for the alternate base rate, as determined by reference to the Company's ratios of total debt less available cash to EBITDA.

    Net cash used in operating activities for the six months ended June 30, 2001 was $107.3 million, compared to $51.0 million for the six months ended June 30, 2000, mainly due to increased payments for the 2000 bonus and profit sharing, made in the current year. This increase is due to the better financial results for 2000 as compared to 1999. In addition, the Company had less cash from operations due to a net loss in the current year compared to net earnings in the prior year.

    The Company utilized $10.6 million for investing activities for the six months ended June 30, 2001, compared to $12.1 million for the six months ended June 30, 2000. Capital expenditures increased by $3.2 million over prior year. The Company expects to have a total of $20-25 million in capital spending during 2001.

    Net cash provided by financing activities was $116.9 million for the six months ended June 30, 2001, compared to $55.3 million for the six months ended June 30, 2000, and is mainly attributable to an increased balance in the revolving credit facility, used primarily to fund the payment of bonus and profit sharing, as well as working capital.

19

Litigation

    Between November 12 and December 6, 2000, five putative class actions were filed in the Court of Chancery of the State of Delaware in and for New Castle County by various of the Company's stockholders against the Company, its directors and the buying group which has proposed to take the Company private. A similar action was also filed on November 17, 2000 in the Superior Court of the State of California in and for the County of Los Angeles. These actions all alleged that the offering price for the going private transaction was unfair and inadequate and sought injunctive relief or rescission of the transaction and, in the alternative, money damages.

    The five Delaware actions have been consolidated. As of February 23, 2001, the parties to the Delaware litigation entered into a memorandum of understanding in which they agreed in principle to a settlement. The memorandum provides, among other things:

•

that the defendants admit no liability or wrongdoing whatsoever;



•

that the members of the buying group acknowledge that the pendency and prosecution of the Delaware litigation were positive contributing factors to its decision to increase the merger consideration;



•

for the certification of a settlement class and the entry of a final judgment granting a full release of the defendants; and



•

for attorneys' fees in an amount not to exceed $380,000.

    There are numerous conditions to the settlement proposed by the memorandum including the closing of the merger.

    The merger closed on July 20, 2001 and the memorandum became final, subject to the approval of the Court.

    In December 1996, GMH Associates, Inc. (GMH) filed a lawsuit against Prudential Realty Group (Prudential) and the Company in the Superior Court of Pennsylvania, Franklin County, alleging various contractual and tort claims against Prudential, the seller of a large office complex, and the Company, its agent in the sale, contending that Prudential breached its agreement to sell the property to GMH, breached its duty to negotiate in good faith, conspired with the Company to conceal from GMH that Prudential was negotiating to sell the property to another purchaser and that Prudential and the Company misrepresented that there were no other negotiations for the sale of the property. Following a non-jury trial, the court rendered a decision in favor of GMH and against Prudential and the Company, awarding GMH $20.3 million in compensatory damages, against Prudential and the Company jointly and severally, and $10.0 million in punitive damages, allocating the punitive damage award $7.0 million as against Prudential and $3.0 million as against the Company. Following the denial of motions by Prudential and the Company for a new trial, a judgment was entered on December 3, 1998. Prudential and the Company filed an appeal of the judgment. On March 3, 2000, the appellate court in Pennsylvania reversed all of the trial courts' decisions finding that liability was not supported on any theory claimed by GMH and directed that a judgment be entered in favor of the defendants including the Company. The plaintiff filed an appeal with the Pennsylvania Supreme Court, which was denied. The plaintiff has exhausted all appeal possibilities and judgment has been entered in favor of all defendants.

20

    In August 1993, a former commissioned sales person of the Company filed a lawsuit against the Company in the Superior Court of New Jersey, Bergen County, alleging gender discrimination and wrongful termination by the Company. On November 20, 1996, a jury returned a verdict against the Company, awarding $1.5 million in general damages and $5.0 million in punitive damages to the plaintiff. Subsequently, the trial court awarded the plaintiff $0.6 million in attorneys' fees and costs. Following denial by the trial court of the Company's motions for new trial, reversal of the verdict and reduction of damages, the Company filed an appeal of the verdict and requested a reduction of damages. On March 9, 1999 the appellate court ruled in the Company's favor, reversed the trial court's decision and ordered a new trial. On February 16, 2000, the Supreme Court of New Jersey reversed the decision of the appellate court, concluded that the general damage award in the trial court should be sustained and returned the case to the appellate court for a determination as to whether a new trial should be ordered on the issue of punitive damages. In April 2000, the Company settled the compensatory damages claim, including interest, and all claims to date with respect to attorneys fees by paying to the plaintiff the sum of $2.75 million leaving only the punitive damage claim for resolution. The plaintiff also agreed with very limited exceptions, that no matter what the outcome of the punitive damage claim, the Company would not be responsible for more than 50% of the plaintiff's future attorney fees. In February 2001, the Company settled all remaining claims for the sum of $2.0 million and received a comprehensive release.

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

Euro Conversion Disclosure

    A majority of the European Union member countries converted to a common currency, the "Euro," on January 1, 1999. The existing legacy currencies of the participating countries will continue to be accepted until January 1, 2002. The Company does not expect the introduction of the Euro to have a significant impact on its market or the manner in which it conducts business, and believes the related impact on its financial results will not be material. Approximately 4.2% of the Company's 2001 business was transacted in the participating member countries. The Company is currently using both the Euro and legacy currencies to conduct business in these member countries.

Net Operating Losses

    The Company had US federal income tax NOLs of approximately $16.3 million at both June 30, 2001 and December 31, 2000.

    The Company's ability to utilize NOLs has been limited by Section 382 of the Internal Revenue Code because in previous years it experienced an ownership change within the meaning of Section 382. The Company anticipates that the remaining $16.3 million of NOLs will be utilized before they expire.

New Accounting Pronouncements

    In September 2000, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral established by SFAS 125. In addition, this statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. This statement is also

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effective for all transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The adoption of SFAS 140 did not have a material impact on the Company's results of operations and financial position.

    In July 2001, the FASB issued SFAS No. 141, "Business Combinations", which supersedes APB Opinion No. 16, "Business Combinations" and SFAS No. 38, "Accounting for Pre-acquisition Contingencies of Purchased Enterprises." SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations and requires all business combinations to be accounted for by a single method—the purchase method. This statement is effective for all business combinations initiated after June 30, 2001. The Company is in the process of determining the impact of the adoption of this statement on its results of operations and financial position.

    In July 2001, the FASB also issued SFAS No. 142, "Goodwill and Other Intangible Assets", which supersedes APB Opinion No. 17, "Intangible Assets". Under SFAS 142, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill will be subject to at least an annual assessment for impairment applying a fair-value based test. Additionally, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer's intent to do so. This statement is effective for fiscal years beginning after December 15, 2001, although early application is permitted for entities with fiscal years beginning after March 15, 2001. The Company is in the process of determining the impact of the adoption of this statement on its results of operations and financial position.

Safe Harbor Statement Regarding Outlook and Other Forward-Looking Data

    Portions of this Form 10-Q, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results and performance in future periods to be materially different from any future results or performance suggested in forward-looking statements in this Form 10-Q. Any forward-looking statements speak only as of the date of this report and the Company expressly disclaims any obligation to update or revise any forward-looking statements found herein to reflect any changes in its expectations or results or any change in events. Factors that could cause results to differ materially include, but are not limited to: commercial real estate vacancy levels; employment conditions and their effect on vacancy rates; property values; rental rates; any general economic recession domestically or internationally; and general conditions of financial liquidity for real estate transactions.

Report of Management

    The Company's management is responsible for the integrity of the financial data reported by it and its subsidiaries. Fulfilling this responsibility requires the preparation and presentation of consolidated financial statements in accordance with accounting principles generally accepted in the US. Management uses internal accounting controls, corporate-wide policies and procedures and judgment so that these statements reflect fairly the consolidated financial position, results of operations and cash flows of the Company.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

    Approximately 23% of the Company's business is transacted in local currencies of foreign countries. The Company attempts to manage its exposure primarily by balancing monetary assets and liabilities, and maintaining cash positions only at levels necessary for operating purposes. While its international results of operations as measured in dollars are subject to foreign exchange rate fluctuations, the related risk is not considered material. The Company routinely monitors its transaction exposure to currency rate changes, and enters into currency forward and option contracts to limit its exposure, as appropriate. Gains and losses on contracts are recognized in accordance with the provisions of SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities—an Amendment of SFAS No. 133 and SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The Company does not engage in any speculative activities.

    The Company manages its interest expense by using a combination of fixed and variable rate debt. The Company utilizes sensitivity analyses to assess the potential effect of its variable rate debt. If interest rates were to increase by 60 basis points, approximately 10.0% of its weighted-average variable rate at June 30, 2001, the net impact would be an increase of $0.7 million in pre-tax loss and cash used in operating activities for the six months ended June 30, 2001.

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CB RICHARD ELLIS SERVICES, INC.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

    Between November 12 and December 6, 2000, five putative class actions were filed in the Court of Chancery of the State of Delaware in and for New Castle County by various of the Company's stockholders against the Company, its directors and the buying group which has proposed to take the Company private. A similar action was also filed on November 17, 2000 in the Superior Court of the State of California in and for the County of Los Angeles. These actions all alleged that the offering price for the going private transaction was unfair and inadequate and sought injunctive relief or rescission of the transaction and, in the alternative, money damages.

    The five Delaware actions have been consolidated. As of February 23, 2001, the parties to the Delaware litigation entered into a memorandum of understanding in which they agreed in principle to a settlement. The memorandum provides, among other things:

•

that the defendants admit no liability or wrongdoing whatsoever;



•

that the members of the buying group acknowledge that the pendency and prosecution of the Delaware litigation were positive contributing factors to its decision to increase the merger consideration;



•

for the certification of a settlement class and the entry of a final judgment granting a full release of the defendants; and



•

for attorneys' fees in an amount not to exceed $380,000.

    There are numerous conditions to the settlement proposed by the memorandum including the closing of the merger.

    The merger closed on July 20, 2001 and the memorandum became final, subject to the approval of the Court.

    In December 1996, GMH Associates, Inc. (GMH) filed a lawsuit against Prudential Realty Group (Prudential) and the Company in the Superior Court of Pennsylvania, Franklin County, alleging various contractual and tort claims against Prudential, the seller of a large office complex, and the Company, its agent in the sale, contending that Prudential breached its agreement to sell the property to GMH, breached its duty to negotiate in good faith, conspired with the Company to conceal from GMH that Prudential was negotiating to sell the property to another purchaser and that Prudential and the Company misrepresented that there were no other negotiations for the sale of the property. Following a non-jury trial, the court rendered a decision in favor of GMH and against Prudential and the Company, awarding GMH $20.3 million in compensatory damages, against Prudential and the Company jointly and severally, and $10.0 million in punitive damages, allocating the punitive damage award $7.0 million as against Prudential and $3.0 million as against the Company. Following the denial of motions by Prudential and the Company for a new trial, a judgment was entered on December 3, 1998. Prudential and the Company filed an appeal of the judgment. On March 3, 2000, the appellate court in Pennsylvania reversed all of the trial courts' decisions finding that liability was not supported on any theory claimed by GMH and directed that a judgment be entered in favor of the defendants including the Company. The plaintiff filed an appeal with the Pennsylvania Supreme Court, which was denied. The plaintiff has exhausted all appeal possibilities and judgment has been entered in favor of all defendants.

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    In August 1993, a former commissioned sales person of the Company filed a lawsuit against the Company in the Superior Court of New Jersey, Bergen County, alleging gender discrimination and wrongful termination by the Company. On November 20, 1996, a jury returned a verdict against the Company, awarding $1.5 million in general damages and $5.0 million in punitive damages to the plaintiff. Subsequently, the trial court awarded the plaintiff $0.6 million in attorneys' fees and costs. Following denial by the trial court of the Company's motions for new trial, reversal of the verdict and reduction of damages, the Company filed an appeal of the verdict and requested a reduction of damages. On March 9, 1999 the appellate court ruled in the Company's favor, reversed the trial court's decision and ordered a new trial. On February 16, 2000, the Supreme Court of New Jersey reversed the decision of

    the appellate court, concluded that the general damage award in the trial court should be sustained and returned the case to the appellate court for a determination as to whether a new trial should be ordered on the issue of punitive damages. In April 2000, the Company settled the compensatory damages claim, including interest, and all claims to date with respect to attorneys fees by paying to the plaintiff the sum of $2.75 million leaving only the punitive damage claim for resolution. The plaintiff also agreed with very limited exceptions, that no matter what the outcome of the punitive damage claim, the Company would not be responsible for more than 50% of the plaintiff's future attorney fees. In February 2001, the Company settled all remaining claims for the sum of $2.0 million and received a comprehensive release.

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

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibit

    None

(b) Reports on Form 8-K

    The registrant filed a Current Report on Form 8-K on August 3, 2001 dated July 20, 2001, announcing a change in control of the Company resulting from the merger of the Company with Blum CB Corporation, a wholly-owned subsidiary of CB Holding. The Company was the surviving corporation in the merger and became a wholly-owned subsidiary of CB Holding.

    The registrant filed a Current Report on Form 8-K on July 5, 2001 dated July 5, 2001, announcing that as a part of the financing of the proposed merger of the Company with Blum CB Corporation, CBRE Holding, Inc. has offered in a private placement $65,000,000 of its 16% Senior Notes due July 20, 2011 and 339,820 shares of its Class A common stock. The related Offering Circular includes a "Recent Developments" update with respect to the Company.

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    The registrant filed a Current Report on Form 8-K on June 7, 2001 dated May 31, 2001, announcing that the Company had entered into an Amended and Restated Agreement and Plan of Merger (the "Second Amended and Restated Merger Agreement"), amending provisions of the First Amended and Restated Merger Agreement regarding the capital structure of CB Holding, the post-merger capital structure of the Company and the financing to be used by Blum CB Corporation in connection with the merger, and otherwise substantially restating the provisions of the First Amended and Restated Merger Agreement.

    The registrant filed a Current Report on Form 8-K on June 7, 2001 dated May 9, 2001, with regard to two press releases issued on May 9, 2001, announcing 1) the Company's operating results for the first quarter of 2001, and 2) first quarter 2001 operating results for the Company's Europe, Asia, Middle East and Africa Division.

    The registrant filed a Current Report on Form 8-K on May 23, 2001 dated May 23, 2001 with regard to two press releases issued on May 23, 2001 announcing 1) the implementation of cost reduction programs, and 2) the intention of Blum CB Corporation to offer for sale $175 million of Senior Subordinated Notes in order to finance part of the proposed merger of Blum CB Corporation into the Company and related transactions.

    The registrant filed a Current Report on Form 8-K on May 3, 2001 dated April 24, 2001 announcing that the Company had entered into an Amended and Restated Agreement and Plan of Merger ("First Amended and Restated Merger Agreement"), amending provisions of the Original Merger Agreement regarding the treatment, in the Merger, of stock fund units under the Company's Deferred Compensation Plan and shares of common stock held in the Company's 401(k) plan, and otherwise substantially restating the provisions of the Original Merger Agreement in their entirety.

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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: August 14, 2001		/s/ JAMES H. LEONETTI James H. Leonetti Chief Financial Officer

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QuickLinks

FORM 10-Q
TABLE OF CONTENTS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES