** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.20549**

 

----

 

**FORM 10-Q**

 

**ý****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**For the quarterlyperiod ended March 31, 2003**

 

**OR**

 

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

** **

**For the transitionperiod from                   to                   **

 

**CommissionFile Number: 1-6862**

 

**Credit Suisse First Boston(USA), Inc.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                  |   | **13-1898818**                       |
|---------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction ofincorporation or organization) |   | (I.R.S. employer identification no.) |
|                                                          |   |                                 |
| **Eleven Madison Avenue  New York, N.Y.**                     |   | **10010**                            |
| (Address of principal executive offices)                      |   | (Zip Code)                           |
|                                                          |   |                                 |
| **(212) 325-2000**                                       |
| (Registrant’s telephone number, including area code)     |

 

**The Registrant meets the conditions set forth in GeneralInstruction H (1) (a) and (b) of Form 10-Q and istherefore filing this Form 10-Q with the reduced disclosure format.**

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past90 days: Yes ý  No o

 

Indicated by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).Yes o  No ý

 

Allof the outstanding shares of common stock of the registrant, $0.10 par value,are held by Credit Suisse First Boston, Inc.

 

 

----

 

**CREDIT SUISSE FIRST BOSTON (USA), INC.**

** **

**Quarterly Report on Form 10-Q for theQuarter Ended March 31, 2003**

** **
| **PART I**   | **FINANCIAL  INFORMATION** |
|--------------|----------------------------|
|         | ITEM 1:                    | Condensed Consolidated  Statements of Financial Condition as of March 31, 2003 (Unaudited) and  December 31, 2002 |
|         |                       | Condensed  Consolidated Statements of Income (Unaudited) for the three months ended  March 31, 2003 and 2002 |
|         |                       | Condensed  Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for  the three months ended March 31, 2003 and 2002 |
|         |                       | Condensed  Consolidated Statements of Cash Flows (Unaudited) for the three months ended  March 31, 2003 and 2002 |
|         |                       | Notes  to Condensed Consolidated Financial Statements (Unaudited) |
|         |                       | 1. Summary of Significant Accounting  Policies |
|         |                       | 2. Discontinued Operations |
|         |                       | 3. Merger-Related Costs |
|         |                       | 4. Related Party Transactions |
|         |                       | 5. Income Taxes |
|         |                       | 6. Transfers and Servicing of Financial  Assets |
|         |                       | 7. Borrowings |
|         |                       | 8. Private Equity and Other Long-Term  Investments |
|         |                       | 9. Net Capital |
|         |                       | 10. Cash and Securities Segregated Under  Federal and Other Regulations |
|         |                       | 11. Derivatives Contracts |
|         |                       | 12. Commitments |
|         |                       | 13. Guarantees |
|         |                       | 14. Industry Segment and Geographic Data |
|         |                       | 15. Legal Proceedings |
|         |                       | Independent  Accountants’ Review Report |
|         | ITEM  2:                   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|         | ITEM  3:                   | Quantitative  and Qualitative Disclosures About Market Risk |
|         | ITEM  4:                   | Controls  and Procedures |
|         |                       |   |
| **PART  II** | **OTHER  INFORMATION**     |
|         | ITEM 1:                    | Legal Proceedings |
|         | ITEM  5:                   | Other  Information |
|         | ITEM  6:                   | Exhibits  and Reports on Form 8-K |
|         | Signature                  |
|         | Certifications             |

 

**AVAILABLE INFORMATION**

 

We file annual, quarterly and current reports and other informationwith the Securities and Exchange Commission, or SEC.  Our SEC filings are available to the public over the internet onthe SEC’s website at www.sec.gov.  Youmay also view our SEC filings on our website at www.csfb.com as soon as isreasonably practicable after the report is electronically filed with, orfurnished to, the SEC.  The informationon our website is not incorporated by reference into this Quarterly Report.

 

1

----

 

**PART I**FINANCIAL INFORMATION

### **ITEM 1:  Financial Statements**

 

### **CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES**

**Condensed Consolidated Statements ofFinancial Condition**(Unaudited)

** **

**(In millions)**

 
|                                                                                                                 |   | **March 31,********2003** |    | **December 31,********2002** |   |
|----------------------------------------------------------------------------------------------------------------------|--------|---------------------------|---------|-----------------------------------|--------|
|                                                                                                                 |   |                      |    |                              |   |
| **ASSETS**                                                                                                           |   |                      |    |                              |   |
| Cash and cash equivalents                                                                                            |   | $                         | 499     |                              | $      | 480 |   |
| Collateralized short-term financings:                                                                                |   |                      |    |                              |   |
| Securities purchased under agreements to resell                                                                      |   | 55,910                    |    | 51,756                            |   |
| Securities borrowed                                                                                                  |   | 70,667                    |    | 71,296                            |   |
| Receivables:                                                                                                         |   |                      |    |                              |   |
| Customers                                                                                                            |   | 1,662                     |    | 829                               |   |
| Brokers, dealers and other                                                                                           |   | 8,016                     |    | 7,310                             |   |
| Financial instruments owned:                                                                                         |   |                      |    |                              |   |
| U.S. government and agencies (includes securities  pledged as collateral of  $30,192 and $26,360, respectively) |   | 37,513                    |    | 32,131                            |   |
| Corporate debt (includes securities pledged as  collateral of $5,327 and$9,938,  respectively)                       |   | 11,016                    |    | 12,174                            |   |
| Mortgage whole loans (includes loans pledged as  collateral of $9,111 and  $8,556, respectively)                |   | 9,811                     |    | 9,465                             |   |
| Equities (includes securities pledged as collateral  of $5,565 and $6,305,  respectively)                       |   | 7,873                     |    | 9,735                             |   |
| Commercial paper                                                                                                     |   | 872                       |    | 619                               |   |
| Private equity and other long-term investments                                                                       |   | 904                       |    | 956                               |   |
| Derivatives contracts                                                                                                |   | 4,213                     |    | 3,956                             |   |
| Other                                                                                                                |   | 3,974                     |    | 3,211                             |   |
| Net deferred tax asset                                                                                               |   | 1,556                     |    | 1,685                             |   |
| Office facilities at cost (net of accumulated  depreciation and amortization of$935 and $893, respectively)          |   | 458                       |    | 485                               |   |
| Goodwill and other intangible assets                                                                                 |   | 331                       |    | 329                               |   |
| Loans receivable from parent and affiliates                                                                          |   | 16,919                    |    | 16,412                            |   |
| Other assets and deferred amounts                                                                                    |   | 2,944                     |    | 2,492                             |   |
| Assets held for sale                                                                                                 |   | 13,773                    |    | 11,547                            |   |
| Total assets                                                                                                         |   | $                         | 248,911 |                              | $      | 236,868 |   |

 

See accompanying notes to condensedconsolidated financial statements (unaudited).

 

2

----

 

### **CREDIT SUISSE FIRST BOSTON (USA), INC.AND SUBSIDIARIES**

### **Condensed Consolidated Statements of FinancialCondition (Continued)(Unaudited)**

**(In millions, except sharedata)**

 
|                                                                                                                                                                                    |   | **March 31,********2003** |    | **December 31,  2002** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|---------|-----------------------------|--------|
|                                                                                                                                                                                    |   |                      |    |                        |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                          |   |                      |    |                        |   |
| Commercial paper and short-term borrowings                                                                                                                                              |   | $                         | 11,753  |                        | $      | 11,933 |   |
| Collateralized short-term financings:                                                                                                                                                   |   |                      |    |                        |   |
| Securities sold under agreements to repurchase                                                                                                                                          |   | 108,436                   |    | 107,896                     |   |
| Securities loaned                                                                                                                                                                       |   | 28,324                    |    | 24,178                      |   |
| Payables:                                                                                                                                                                               |   |                      |    |                        |   |
| Customers                                                                                                                                                                               |   | 3,886                     |    | 2,928                       |   |
| Brokers, dealers and other                                                                                                                                                              |   | 10,532                    |    | 8,689                       |   |
| Financial instruments sold not yet purchased:                                                                                                                                           |   |                      |    |                        |   |
| U.S. government and agencies                                                                                                                                                            |   | 23,736                    |    | 22,710                      |   |
| Corporate debt                                                                                                                                                                          |   | 3,474                     |    | 3,315                       |   |
| Equities                                                                                                                                                                                |   | 3,392                     |    | 3,240                       |   |
| Derivatives contracts                                                                                                                                                                   |   | 3,075                     |    | 2,849                       |   |
| Other                                                                                                                                                                                   |   | 304                       |    | 335                         |   |
| Obligation to return securities received as  collateral                                                                                                                                 |   | 874                       |    | 896                         |   |
| Accounts payable and accrued expenses                                                                                                                                                   |   | 2,186                     |    | 3,200                       |   |
| Other liabilities                                                                                                                                                                       |   | 3,374                     |    | 2,927                       |   |
| Long-term borrowings                                                                                                                                                                    |   | 24,458                    |    | 23,094                      |   |
| Liabilities held for sale                                                                                                                                                               |   | 13,128                    |    | 10,947                      |   |
| Total liabilities                                                                                                                                                                       |   | 240,932                   |    | 229,137                     |   |
|                                                                                                                                                                                    |   |                      |    |                        |   |
| Stockholders’ Equity:                                                                                                                                                              |   |                      |    |                        |   |
| Preferred stock, 50,000,000 shares  authorized:  Series B preferred stock, at $50.00 per share liquidation preference  (88,500 shares issued and outstanding at December 31, 2002) |   | —                    |    | 4                           |   |
| Common stock ($0.10 par value; 50,000 shares  authorized; 1,100 shares issued and outstanding)                                                                                          |   | —                    |    | —                      |   |
| Paid-in capital                                                                                                                                                                         |   | 7,448                     |    | 7,279                       |   |
| Retained earnings                                                                                                                                                                       |   | 687                       |    | 604                         |   |
| Accumulated other comprehensive loss                                                                                                                                                    |   | (156                      | )       | (156                        | )      |
| Total stockholders’ equity                                                                                                                                                         |   | 7,979                     |    | 7,731                       |   |
| Total liabilities and stockholders’ equity                                                                                                                                         |   | $                         | 248,911 |                        | $      | 236,868 |   |

 

See accompanying notes tocondensed consolidated financial statements (unaudited).

 

3

----

 

### **CREDIT SUISSE FIRST BOSTON (USA), INC.AND SUBSIDIARIES**

# **CondensedConsolidated Statements of Income**(Unaudited)

**(In millions)**

 
|                                                                                                  |   | **Three Months Ended  March 31,** |   |
|-------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                                  |   | **2003**                          |   | **2002** |   |
|                                                                                                  |   |                              |   |   |   |
| Revenues:                                                                                             |   |                              |   |   |   |
| Principal transactions-net                                                                            |   | $                                 | 3      |   | $ | 37 |   |
| Investment banking and advisory                                                                       |   | 438                               |   | 714 |   |
| Commissions                                                                                           |   | 245                               |   | 325 |   |
| Interest and dividends, net of interest expense of  $1,052 and $1,325, respectively                   |   | 493                               |   | 380 |   |
| Other                                                                                                 |   | 10                                |   | 523 |   |
| Total net revenues                                                                                    |   | 1,189                             |   | 1,979 |   |
| Expenses:                                                                                             |   |                              |   |   |   |
| Employee compensation and benefits                                                                    |   | 724                               |   | 949 |   |
| Occupancy and equipment rental                                                                        |   | 107                               |   | 110 |   |
| Brokerage, clearing and exchange fees                                                                 |   | 62                                |   | 72 |   |
| Communications                                                                                        |   | 46                                |   | 49 |   |
| Professional fees                                                                                     |   | 52                                |   | 58 |   |
| Merger-related costs                                                                                  |   | 62                                |   | 91 |   |
| Other operating expenses                                                                              |   | 46                                |   | 125 |   |
| Total expenses                                                                                        |   | 1,099                             |   | 1,454 |   |
| Income from continuing operations before provision  for income taxes and discontinued operations |   | 90                                |   | 525 |   |
| Provision for income taxes                                                                            |   | 31                                |   | 186 |   |
| Income from continuing operations before  discontinued operations                                     |   | 59                                |   | 339 |   |
| Discontinued operations:                                                                              |   |                              |   |   |   |
| Income from discontinued operations                                                                   |   | 37                                |   | 42 |   |
| Provision for income taxes                                                                            |   | 13                                |   | 15 |   |
| Income from discontinued operations, net of income  taxes                                             |   | 24                                |   | 27 |   |
| Net income                                                                                            |   | $                                 | 83     |   | $ | 366 |   |

 

See accompanying notes tocondensed consolidated financial statements (unaudited).

 

4

----

 

**CREDIT SUISSE FIRST BOSTON (USA), INC.AND SUBSIDIARIES**

**CondensedConsolidated Statements of Changes in Stockholders’ Equity****(Unaudited)**

**For the Three Months Ended March 31, 2003 andMarch 31, 2002**

**(In millions)**

 
|                                                            |   | **Preferred  Stock** |   | **CSFB********(USA)********Common********Stock** |   | **Paid-in********Capital** |   | **Retained  Earnings** |   | **Accumulated  Other  Comprehensive********Income (Loss)** |   | **Total** |   |
|-----------------------------------------------------------------|--------|----------------------|--------|--------------------------------------------------|--------|----------------------------|--------|------------------------|--------|------------------------------------------------------------|--------|-----------|--------|
|                                                            |   |                 |   |                                             |   |                       |   |                   |   |                                                       |   |      |   |
| Balances at  December 31, 2001                             |   | $                    | 5      |                                             | $      | —                     |   | $                      | 6,326  |                                                       | $      | 859       |   | $ | (72 | ) | $ | 7,118 |   |
| Net income                                                      |   | —               |   | —                                           |   | —                     |   | 366                    |   | —                                                     |   | 366       |   |
| Foreign currency translation adjustment                         |   | —               |   | —                                           |   | —                     |   | —                 |   | (1                                                         | )      | (1        | )      |
| Decrease in pension liability, net of income tax expense  of $3 |   | —               |   | —                                           |   | —                     |   | —                 |   | 5                                                          |   | 5         |   |
| Total comprehensive income                                      |   |                 |   |                                             |   |                       |   |                   |   |                                                       |   | 370       |   |
| CSG share plan activity                                         |   | —               |   | —                                           |   | 196                        |   | —                 |   | —                                                     |   | 196       |   |
| Balances at March 31, 2002                                 |   | $                    | 5      |                                             | $      | —                     |   | $                      | 6,522  |                                                       | $      | 1,225     |   | $ | (68 | ) | $ | 7,684 |   |
|                                                            |   |                 |   |                                             |   |                       |   |                   |   |                                                       |   |      |   |
| Balances at December 31, 2002                              |   | $                    | 4      |                                             | $      | —                     |   | $                      | 7,279  |                                                       | $      | 604       |   | $ | (156 | ) | $ | 7,731 |   |
| Net income                                                      |   | —               |   | —                                           |   | —                     |   | 83                     |   | —                                                     |   | 83        |   |
| Total comprehensive income                                      |   |                 |   |                                             |   |                       |   |                   |   |                                                       |   | 83        |   |
| Redemption of Series B preferred stock                          |   | (4                   | )      | —                                           |   | —                     |   | —                 |   | —                                                     |   | (4        | )      |
| Capital contribution by CSFBI                                   |   | —               |   | —                                           |   | 75                         |   | —                 |   | —                                                     |   | 75        |   |
| CSG share plan activity                                         |   | —               |   | —                                           |   | 94                         |   | —                 |   | —                                                     |   | 94        |   |
| Balances at March 31, 2003                                      |   | $                    | — |                                             | $      | —                     |   | $                      | 7,448  |                                                       | $      | 687       |   | $ | (156 | ) | $ | 7,979 |   |

 

See accompanying notes to condensed consolidated financial statements(unaudited).

 

5

----

 

**CREDIT SUISSE FIRST BOSTON (USA), INC.AND SUBSIDIARIES**

**CondensedConsolidated Statements of Cash Flows****(Unaudited)**

**(In millions)**

 
|                                                                                       |   | **Three  Months Ended  March 31,** |   |
|--------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                       |   | **2003**                           |   | **2002** |   |
| Cash flows from operating activities:                                                      |   |                               |   |   |   |
| Net income                                                                                 |   | $                                  | 83     |   | $ | 366 |   |
| Adjustments to reconcile net income to net cash provided by(used in) operating activities: |   |                               |   |   |   |
| Net pre-tax gain on sale of certain broker-dealer subsidiaries                             |   | —                             |   | (528 | ) |
| Depreciation and amortization                                                              |   | 44                                 |   | 51 |   |
| CSG share plan activity                                                                    |   | 94                                 |   | 196 |   |
| Deferred taxes                                                                             |   | 117                                |   | 47 |   |
| Other, net                                                                                 |   | —                             |   | 1 |   |
| (Increase) decrease in operating assets:                                                   |   |                               |   |   |   |
| Securities borrowed                                                                        |   | 598                                |   | (4,640 | ) |
| Receivables from customers                                                                 |   | (1,872                             | )      | (3,652 | ) |
| Receivables from brokers, dealers and other                                                |   | (2,126                             | )      | (3,581 | ) |
| Financial instruments owned                                                                |   | (3,894                             | )      | (447 | ) |
| Other assets and deferred amounts                                                          |   | (475                               | )      | (76 | ) |
| Increase (decrease) in operating liabilities:                                              |   |                               |   |   |   |
| Securities loaned                                                                          |   | 3,945                              |   | 1,304 |   |
| Payables to customers                                                                      |   | 1,988                              |   | (568 | ) |
| Payables to brokers, dealers and other                                                     |   | 3,006                              |   | (854 | ) |
| Financial instruments sold not yet purchased                                               |   | 1,594                              |   | 2,689 |   |
| Obligation to return securities received as collateral                                     |   | (22                                | )      | (348 | ) |
| Accounts payable and accrued expenses                                                      |   | (1,014                             | )      | (1,322 | ) |
| Other liabilities                                                                          |   | 675                                |   | (1,012 | ) |
| Net cash provided by (used in) operating activities                                        |   | $                                  | 2,741  |   | $ | (12,374 | ) |

 

Seeaccompanying notes to condensed consolidated financial statements (unaudited).

 

6

----

 
|                                                                                                    |   | **Three  Months Ended  March 31,** |   |
|---------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                                    |   | **2003**                           |   | **2002** |   |
| Cash flows from investing activities:                                                                   |   |                               |   |   |   |
| Net (payments for) proceeds from:                                                                       |   |                               |   |   |   |
| Loans receivable from parent and affiliates                                                             |   | $                                  | (507   | ) | $ | (4,803 | ) |
| Sale of broker-dealer subsidiaries                                                                      |   | —                             |   | 674 |   |
| Office facilities                                                                                       |   | (17                                | )      | 88 |   |
| Purchase of subsidiary                                                                                  |   | —                             |   | (70 | ) |
| Net cash (used in) investing activities                                                                 |   | (524                               | )      | (4,111 | ) |
|                                                                                                    |   |                               |   |   |   |
| Cash flows from financing activities:                                                                   |   |                               |   |   |   |
| Net proceeds from (payments for):                                                                       |   |                               |   |   |   |
| Short-term borrowings                                                                                   |   | (99                                | )      | 7,022 |   |
| Securities sold under agreements to repurchase, net  of securities purchased under agreements to resell |   | (3,268                             | )      | 5,445 |   |
| Capital contribution from CSFBI                                                                         |   | 75                                 |   | — |   |
| Redemption of Series B preferred stock                                                                  |   | (4                                 | )      | — |   |
| Issuances of long-term borrowings                                                                       |   | 1,896                              |   | 4,089 |   |
| Redemptions and maturities of long-term borrowings                                                      |   | (590                               | )      | (182 | ) |
| Net cash (used in) provided by financing activities                                                     |   | (1,990                             | )      | 16,374 |   |
|                                                                                                    |   |                               |   |   |   |
| (Increase) in cash and cash equivalents related to  discontinued operations                             |   | (208                               | )      | — |   |
|                                                                                                    |   |                               |   |   |   |
| Increase (decrease) in cash and cash equivalents                                                        |   | 19                                 |   | (111 | ) |
|                                                                                                    |   |                               |   |   |   |
| Cash and cash equivalents at beginning of period                                                        |   | 480                                |   | 1,752 |   |
| Cash and cash equivalents at end of period                                                              |   | $                                  | 499    |   | $ | 1,641 |   |

 

See accompanying notes tocondensed consolidated financial statements (unaudited).

 

7

----

 

**CREDIT SUISSE FIRST BOSTON (USA), INC.AND SUBSIDIARIES**

# **Notes toCondensed Consolidated Financial Statements (Unaudited)**

### **March 31, 2003**

### ** **

## **1. Summary of Significant AccountingPolicies**

 

**The Company**

** **

Credit Suisse First Boston (USA), Inc.,formerly known as Donaldson, Lufkin & Jenrette, Inc., and subsidiaries (the“Company”), is a leading integrated investment bank serving institutional,corporate, government and high-net worth individual clients. The Company providesclients with a broad range of products and services that includes securitiesunderwriting, sales and trading, investment banking, financial advisoryservices, private equity investments, full-service brokerage services,derivatives and risk management products and research.

 

**Basis ofPresentation**

** **

The condensed consolidated financialstatements include Credit Suisse First Boston (USA), Inc. and itssubsidiaries. All significant intercompany balances and transactions have beeneliminated. The Company is a wholly owned subsidiary of Credit Suisse FirstBoston, Inc. (“CSFBI”) and was acquired on November 3, 2000 (the“Acquisition”). No adjustments of the historical carrying values of theCompany’s assets and liabilities to reflect the Acquisition were recorded inthe Company’s historical consolidated financial statements.  Accordingly, although the Acquisition gaverise to goodwill, none of this goodwill was “pushed down” to the Company. Forfurther discussion of the Acquisition, see the Company’s Annual Report onForm 10-K for the year ended December 31, 2002.

 

Certain financial information that isnormally included in annual financial statements prepared in accordance withaccounting principles generally accepted in the United States but not requiredfor interim reporting purposes has been condensed or omitted. These condensedconsolidated financial statements reflect, in the opinion of management, alladjustments (consisting of normal, recurring accruals) that are necessary for afair presentation of the condensed consolidated statements of financialcondition and income for the interim periods presented.

 

The results of operations for interim periodsare not necessarily indicative of results for the entire year. These condensedconsolidated financial statements should be read in conjunction with theconsolidated financial statements and notes thereto included in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2002.

 

To prepare condensed consolidated financialstatements in accordance with accounting principles generally accepted in theUnited States, management must estimate certain amounts that affect thereported amounts of assets and liabilities, disclosure of contingent assets andliabilities, and reported amounts of revenues and expenses. Actual resultscould differ from those estimates.

 

Certain reclassifications have been made toprior year condensed consolidated financial statements to conform to the 2003presentation.

 

**New AccountingPronouncements**

** **

In August 2001, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards(“SFAS”) No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets”(“SFAS 144”), which replaces SFAS No. 121, “Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS 144requires that long-lived assets that are “held for sale” be measured at thelower of carrying amount or fair value less cost to sell. SFAS 144 alsobroadens the reporting requirements for discontinued operations. EffectiveJanuary 1, 2002, the Company adopted SFAS 144. See Note 2 for more informationon discontinued operations.

 

In June 2002, the FASB issued SFAS No. 146,“Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”),which requires companies to recognize costs associated with exit or disposalactivities when they are incurred rather than at the date of a commitment to anexit or disposal plan. Examples of costs covered by SFAS 146 include leasetermination costs and certain employee severance costs that are associated withrestructurings, discontinued operations or other exit or disposal activities.SFAS 146 is effective for exit or disposal activities initiated after December31, 2002.  The adoption of SFAS 146 didnot have a material impact on the Company’s condensed consolidated financialstatements as of and for the period ended March 31, 2003.

 

8

----

 

In November 2002, the FASB issued FASBInterpretation (“FIN”) No. 45, “Guarantor’s Accounting and DisclosureRequirements for Guarantees, Including Indirect Guarantees of Indebtedness ofOthers—an interpretation of FASB Statements No. 5, 57, and 107 and rescissionof FASB Interpretation No. 34” (“FIN 45”). FIN 45 requires additionaldisclosures by a guarantor in its financial statements about its obligationsunder certain of its guarantees. FIN 45 also requires a guarantor to recognize,at the inception of a guarantee, a liability for the fair value of theobligations it has undertaken in issuing such guarantees.  The disclosure requirements of FIN 45 areeffective for financial statements of interim or annual periods ending afterDecember 15, 2002. The recognition and initial measurement provisions are to beapplied only on a prospective basis to guarantees issued or modified afterDecember 31, 2002. The Company adopted the disclosure requirements of FIN 45for the financial statements as of December 31, 2002.  The Company adopted the recognition requirements of FIN 45 on January1, 2003.  The adoption of FIN 45 did nothave a material impact on the Company’s financial condition as of March 31,2003 or the results of operations for the three months ended March 31, 2003.See Note 13 for more information.

 

FIN No. 46, “Consolidation of VariableInterest Entities,” an interpretation of Accounting Research Bulletin No. 51,“Consolidated Financial Statements” (“FIN 46”), was issued on January 17, 2003.FIN 46 provides guidance for determining whether a company must consolidate entitieswhere a majority of voting equity is not adequate for making the determinationeither because voting equity does not exist or because the entity’s decisionsare so restricted that decisions are irrelevant. The FASB has named theseentities “variable interest entities,” or “VIEs.” The guidance in FIN 46 isapplicable for many special purpose entities and any other entity notexplicitly excluded from the scope that does not meet the criteria set out inFIN 46 for determining whether analysis based on a majority of voting equity isappropriate. Under FIN 46, a party must consolidate a VIE if it is the primarybeneficiary, defined as an entity that participates in the majority of expectedlosses or expected residual returns, or both. Generally, FIN 46 does notrequire consolidation of qualifying special purpose entities (“QSPEs”) thatmeet the requirements of SFAS No. 140, “Accounting for Transfers and Servicingof Financial Assets and Extinguishments of Liabilities” (“SFAS 140”). See Note6 for more information on the Company’s QSPEs.

 

The consolidation requirements of FIN 46 areapplicable to all VIEs created after January 31, 2003. For entities thatexisted before February 1, 2003, the Company must review them under FIN 46 byJuly 1, 2003. FIN 46 imposes immediate disclosure requirements for allfinancial statements issued after January 31, 2003. The most significant ofthese disclosures relate to VIEs for which the Company believes consolidationon July 1, 2003 is “reasonably possible.” See Note 6 for more information.

 

In April 2003, the FASB issued SFAS No. 149,“Amendment of Statement 133 on Derivative Instruments and Hedging Activities”(“SFAS 149”), which amends and clarifies accounting and reporting forderivative instruments and hedging activities under SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities” (“SFAS 133”).  The statement is effective for contractsentered into or modified after June 30, 2003. The Company is evaluating the impact of adopting SFAS 149.

 

**Recent Developments**

** **

On January 7, 2003, the Company entered intoa definitive agreement to sell its Pershing unit, which is part of theFinancial Services segment, to The Bank of New York Company, Inc. (“BONY”) for$2 billion in cash, the repayment of a $480 million subordinated loan and anadditional contingent payment of up to $50 million based on future performance.The transaction closed on May 1, 2003. In connection with the closing, the Company entered into an amendment tothe sale agreement that required it to deliver the Pershing unit with a totalequity value of $645 million, an increase of $45 million.  The Company expects to report in the secondquarter of 2003 a gain from the completion of the sale of the Pershing unit ofapproximately $1.3 billion pre-tax and approximately $850 millionafter-tax.  The Company has presentedthe assets and liabilities of its Pershing unit as “Assets held for sale” and“Liabilities held for sale” as of March 31, 2003 and December 31, 2002 in thecondensed consolidated statements of financial condition. The operating resultsof the Pershing unit have been presented as “Discontinued operations” for allperiods presented in the condensed consolidated statements of income. See Note2 for more information.

 

On January 17, 2003, the Company’s principalU.S. broker dealer, Credit Suisse First Boston Corporation, was converted tothe Delaware limited liability company Credit Suisse First Boston LLC (“CSFBLLC”). The sale of Pershing was structured as a sale of the Company’s U.S. brokerdealer, Donaldson, Lufkin, & Jenrette Securities Corporation (which wasconverted to the Delaware limited liability company Pershing LLC on January 17,2003), and certain other of the Company’s subsidiaries through which thePershing business has been conducted. In anticipation of the sale, thebusinesses of Pershing LLC that were not part of the Pershing business,principally the Private Client Services business, were transferred to CSFB LLCor other subsidiaries in the first quarter of 2003.

 

9

----

 

On February 28, 2003, theCompany redeemed the remaining 88,500 shares of its Fixed/Adjustable RateCumulative Preferred Stock, Series B (liquidation preference of $50.00 pershare) at par plus accrued and unpaid dividends.

 

On March 20, 2003, the Company’s immediateparent company, CSFBI, transferred Credit Suisse First Boston ManagementCorporation to the Company as a capital contribution, and on March 21, 2003,the company was converted to the Delaware limited liability company CreditSuisse First Boston Management LLC (“Management LLC”).  Management LLC engages in derivativestransactions and holds a portfolio of private equity, distressed assets andreal estate investments. The derivatives transactions entered into byManagement LLC have historically been designed to hedge certain trading andother positions held by CSFB LLC. Prior to the transfer of Management LLC tothe Company, the Company’s results of operations reflected only these tradingand other positions held by CSFB LLC without the offsetting effect of therelated hedges maintained by Management LLC. The Company believes the transferof Management LLC to the Company should reduce the Company’s earningsvolatility because its ongoing results of operations will reflect both thegains and losses from trading and the offsetting effect of the related hedges.The transfer also represents a further integration of the U.S. operations ofthe Credit Suisse First Boston business unit, of which the Company is a part,into the Company.

 

The transfer of Management LLC has beenaccounted for at historical cost in a manner similar to pooling-of-interestaccounting because Management LLC and the Company were under the common controlof CSFBI at the time of the transfer. Beginning with these condensedconsolidated financial statements, the Company has restated financialinformation to reflect the results of operations and financial position ofManagement LLC as if the Company had acquired it on November 3, 2000, the datethat the Company was acquired by CSFBI.

 

## **2. Discontinued Operations**

 

On May 1, 2003, the Company soldits Pershing unit to BONY.  SeeNote 1 for more information.

 

In accordance withSFAS 144, the Company presented the assets and liabilities of its Pershingunit as of March 31, 2003 and December 31, 2002 as “Assets held for sale”and “Liabilities held for sale” in the condensed consolidated statements offinancial condition. The operating results of the Pershing unit for all periodspresented were presented as “Discontinued operations” in the condensedconsolidated statements of income.

 

The following table summarizes the results ofoperations of Pershing for the three months ended March 31, 2003 and 2002. 

 
|                                                                   |   | **Three Months Ended March 31,** |   |
|------------------------------------------------------------------------|--------|-------------------------------------------------|--------|
|                                                                   |   | **2003**                                        |   | **2002** |   |
|                                                                   |   | **(In millions)**                               |   |
| Total net revenues                                                     |   | $                                               | 196    |   | $ | 245 |   |
| Total expenses                                                         |   | 159                                             |   | 203 |   |
| Income from discontinued  operations before provision for income taxes |   | $                                               | 37     |   | $ | 42 |   |

 

10

----

 

The followingtable presents Pershing’s “Assets held for sale” and “Liabilities held forsale” as of March 31, 2003 and December 31, 2002. 

 
|                                                                                                                                                |   | **March 31,  2003** |   | **December 31,  2002** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|------------------------|--------|
|                                                                                                                                                |   | **(In millions)**   |   |
| **ASSETS HELD FOR SALE**                                                                                                                            |   |                |   |                   |   |
| Cash and cash equivalents                                                                                                                           |   | $                   | 1,426  |                   | $      | 1, 218 |   |
| Collateralized short-term financings:                                                                                                               |   |                |   |                   |   |
| Securities purchased under agreements to  resell (includes $2,679 and $3,085, respectively, of securities  segregated for regulatory purposes) |   | 3,023               |   | 3,445                  |   |
| Securities borrowed                                                                                                                                 |   | 2,258               |   | 1,932                  |   |
| Receivables:                                                                                                                                        |   |                |   |                   |   |
| Customers                                                                                                                                           |   | 4,470               |   | 3,431                  |   |
| Brokers, dealers and other                                                                                                                          |   | 2,089               |   | 1,070                  |   |
| Financial instruments owned                                                                                                                         |   | 189                 |   | 172                    |   |
| Other assets and deferred amounts                                                                                                                   |   | 318                 |   | 279                    |   |
| Total assets held for sale                                                                                                                          |   | 13,773              |   | $                      | 11,547 |   |
|                                                                                                                                                |   |                |   |                   |   |
| **LIABILITIES HELD FOR SALE**                                                                                                                       |   |                |   |                   |   |
| Commercial paper and short-term borrowings                                                                                                          |   | $                   | 332    |                   | $      | 251 |   |
| Collateralized short-term financings:                                                                                                               |   |                |   |                   |   |
| Securities sold under agreements to  repurchase                                                                                                     |   | 215                 |   | 291                    |   |
| Securities loaned                                                                                                                                   |   | 445                 |   | 351                    |   |
| Payables:                                                                                                                                           |   |                |   |                   |   |
| Customers                                                                                                                                           |   | 7,999               |   | 6,969                  |   |
| Brokers, dealers and other                                                                                                                          |   | 2,262               |   | 1,100                  |   |
| Financial instruments sold not yet  purchased                                                                                                       |   | 94                  |   | 32                     |   |
| Other liabilities                                                                                                                                   |   | 1,301               |   | 1,473                  |   |
| Long-term borrowings                                                                                                                                |   | 480                 |   | 480                    |   |
| Total liabilities held for sale                                                                                                                     |   | $                   | 13,128 |                   | $      | 10,947 |   |

 

## **3. Merger-Related Costs**

## ** **

Merger-related costs represent retentionawards related to the Acquisition, which are being expensed over the vestingperiod. The vesting period is generally three years. The remaining retentionawards of $100 million as of March 31, 2003, of which approximately $60 millionis expected to be expensed in the second quarter of 2003, are expected to becharged against earnings in the following periods: 

 
|   |   | **Amounts to be  Charged** |   |
|--------|--------|--------------------------------------|--------|
|   |   | **(In millions)**               |   |
| 2003   |   | $                                    | 80     |   |
| 2004   |   | 20                                   |   |
| Total  |   | $                                    | 100    |   |

 

## **4. Related Party Transactions**

## ** **

Credit Suisse Group (“CSG”), through CSFBI,owns all of the Company’s outstanding voting common stock. The Company isinvolved in significant financing and other transactions, and has significantrelated party balances, with Credit Suisse First Boston, a Swiss banksubsidiary of CSG and an indirect parent of the Company, and certain of itssubsidiaries and

 

11

----

 

affiliates. The Company enters into these transactions in the ordinarycourse of business and believes that these transactions are generally on marketterms that could be obtained from unrelated third parties.

 

The following table sets forth related partyassets and liabilities. The Company has presented the assets and liabilities ofPershing as of March 31, 2003 and December 31, 2002 as “Assets held forsale” and “Liabilities held for sale” in the condensed consolidated statementsof financial condition and has excluded from the table below transactionsbetween Pershing and any CSG affiliate, including the Company, as of March 31,2003 and December 31, 2002. 

 
|                                                              |   | **March 31,  2003** |   | **December 31,  2002** |   |
|-------------------------------------------------------------------|--------|---------------------|--------|------------------------|--------|
|                                                              |   | **(In millions)**   |   |
|                                                              |   |                |   |                   |   |
| Securities  purchased under agreements to resell                  |   | $                   | 9,013  |                   | $      | 4,142 |   |
| Securities  borrowed                                              |   | 1,413               |   | 1,409                  |   |
| Receivables  from customers                                       |   | 404                 |   | 188                    |   |
| Receivables  from brokers, dealers and other                      |   | 1,306               |   | 408                    |   |
| Derivatives  contracts                                            |   | 2,276               |   | 2,254                  |   |
| Taxes  receivable (included in other assets and deferred amounts) |   | 1,222               |   | 868                    |   |
| Loans  receivable from parent and affiliates                      |   | 16,919              |   | 16,412                 |   |
| Total assets                                                      |   | $                   | 32,553 |                   | $      | 25,681 |   |
|                                                              |   |                |   |                   |   |
| Securities sold  under agreements to repurchase                   |   | $                   | 17,632 |                   | $      | 14,394 |   |
| Securities  loaned                                                |   | 13,181              |   | 11,503                 |   |
| Short-term  borrowings                                            |   | 10,575              |   | 9,775                  |   |
| Payables to  brokers, dealers and other                           |   | 1,018               |   | 363                    |   |
| Derivatives  contracts                                            |   | 1,413               |   | 1,212                  |   |
| Taxes payable  (included in other liabilities)                    |   | 1,064               |   | 771                    |   |
| Intercompany  payables (included in other liabilities)            |   | 738                 |   | 703                    |   |
| Total  liabilities                                                |   | $                   | 45,621 |                   | $      | 38,721 |   |

 

12

----

 

The following table sets forth the assets andliabilities of Pershing that are receivable from or payable to the Company atMarch 31, 2003 and December 31, 2002. The assets and liabilities ofPershing at March 31, 2003 and December 31, 2002, including amountsreceivable from or payable to the Company, are presented as “Assets held forsale” and “Liabilities held for sale” in the condensed consolidated statementsof financial condition. 

 
|                                            |   | **March 31, 2003** |   | **December 31,  2002** |   |
|-------------------------------------------------|--------|--------------------|--------|------------------------|--------|
|                                            |   | **(In millions)**  |   |
| Assets held for sale:                           |   |               |   |                   |   |
| Securities purchased under agreements to resell |   | $                  | 1,235  |                   | $      | 1,885 |   |
| Securities borrowed                             |   | 1,940              |   | 1,687                  |   |
| Brokers, dealers and other                      |   | 1                  |   | 1                      |   |
| Other assets                                    |   | 24                 |   | 18                     |   |
| Total assets                                    |   | $                  | 3,200  |                   | $      | 3,591 |   |
|                                            |   |               |   |                   |   |
| Liabilities held for sale:                      |   |               |   |                   |   |
| Securities sold under agreements to repurchase  |   | $                  | 54     |                   | $      | 74 |   |
| Securities loaned                               |   | 293                |   | 251                    |   |
| Brokers, dealers and other                      |   | 1                  |   | 1                      |   |
| Other liabilities                               |   | 1,025              |   | 1,412                  |   |
| Subordinated debt                               |   | 480                |   | 480                    |   |
| Total liabilities                               |   | $                  | 1,853  |                   | $      | 2,218 |   |

 

In addition, Pershing had total liabilitiesof $253 million and $34 million at March 31, 2003 and December 31,2002, respectively, with CSG, its subsidiaries and affiliates outside theCompany, which are included in “Liabilities held for sale” in the condensedconsolidated statements of financial condition.

 

Included in the condensedconsolidated statements of income are revenues and expenses resulting fromvarious securities trading, investment banking and financing activities withcertain affiliates, as well as fees for administrative services performed bythe Company under the terms of various service agreements. Service fees earnedare treated as a reduction of other operating expenses in the condensedconsolidated statements of income.

 

The followingtable sets forth the Company’s related party revenues and expenses, excludingtransactions with Pershing, for the three months ended March 31, 2003 and2002: 

 
|                                            |   | **Three Months Ended March 31,** |   |
|-------------------------------------------------|--------|----------------------------------|--------|
|                                            |   | **2003**                         |   | **2002** |   |
|                                            |   | **(In millions)**                |   |
|                                            |   |                             |   |   |   |
| Principal transactions (derivatives  contracts) |   | $                                | 149    |   | $ | 223 |   |
| Commissions                                     |   | (9                               | )      | (2 | ) |
| Net interest expense                            |   | (19                              | )      | (123 | ) |
| Total net revenues                              |   | $                                | 121    |   | $ | 98 |   |
|                                            |   |                             |   |   |   |
| Other operating expenses                        |   | $                                | (40    | ) | $ | (39 | ) |
| Total expenses                                  |   | $                                | (40    | ) | $ | (39 | ) |

 

13

----

 

The following table sets forth revenues andexpenses of Pershing earned from or charged to the Company for the three monthsended March 31, 2003 and 2002. The operating results of Pershing for theseperiods are presented as “Discontinued operations” in the condensedconsolidated statements of income. 

 
|                  |   | **Three Months  Ended March 31,** |   |
|-----------------------|--------|-----------------------------------|--------|
|                  |   | **2003**                          |   | **2002** |   |
|                  |   | **(In millions)**                 |   |
|                  |   |                              |   |   |   |
| Commissions           |   | $                                 | 2      |   | $ | 10 |   |
| Net interest revenues |   | —                            |   | 12 |   |
| Total net revenues    |   | $                                 | 2      |   | $ | 22 |   |

 

There were no revenues orexpenses of Pershing earned from or charged to CSG, its subsidiaries andaffiliates outside the Company for the three months ended March 31, 2003and 2002.

 

Pursuant to an agreement, theCompany sold at cost, without recourse, to CSFBI, the right, title and interestin certain assets with an aggregate value of $302 million and$214 million for the three months ended March 31, 2003 and 2002,respectively.

 

The CSG stock plan (the “Plan”)provides for equity-based awards to the Company’s employees based on CSGshares. Pursuant to the Plan, employees of the Company may be granted, ascompensation, stock or other equity-based awards. The provisions of the Planinclude a provision to deliver CSG shares to the employees as compensation forservices performed. CSFBI purchases the shares from CSG but CSFBI does notrequire reimbursement from the Company for these awards; therefore, amounts areconsidered a capital contribution to the Company and credited to paid-incapital. Amounts contributed by CSFBI relating to compensation expense for thethree months ended March 31, 2003 and 2002 were $94 million and$196 million, respectively.

 

Certain employees of the Company are grantedoptions on CSG stock as part of overall compensation.  In accordance with the intrinsic value method of APB No. 25, nocompensation expense was recognized by the Company for options during the threemonths ended March 31, 2003 and 2002 because they had no intrinsic value on thedate of grant.  Further, there are nocharges to earnings upon exercise of fixed stock options.  These options were purchased from CSG byCSFBI.  CSFBI does not requirereimbursement for the purchase of options; therefore, the Company had noobligation with respect to these options.

 

## **5. IncomeTaxes**

## ** **

The Company is included in a consolidatedfederal income tax return and combined New York State and New York City incometax returns filed by CSFBI. CSFBI allocates federal, state and local incometaxes to its subsidiaries on a separate return basis. Any resulting liabilityis paid currently to CSFBI. Any credits for losses are paid by CSFBI to theCompany to the extent that such credits are for tax benefits that have beenused in the consolidated federal or combined state and local income tax return.CSFBI allocated to the Company a current income tax benefit of $86 millionfor the three months ended March 31, 2003 and a current income tax expenseof $139 million for the three months ended March 31, 2002, related tocontinuing operations.

 

14

----

 

Provision(benefit) for income taxes from continuing operations included in the condensedconsolidated statements of income includes the following: 

 
|                                                  |   | **Three Months Ended  March 31,** |   |
|-------------------------------------------------------|--------|-----------------------------------|--------|
|                                                  |   | **2003**                          |   | **2002** |   |
|                                                  |   | **(In millions)**                 |   |
| Current:                                              |   |                              |   |   |   |
| U.S. federal                                          |   | $                                 | (88    | ) | $ | 136 |   |
| Foreign                                               |   | —                            |   | 1 |   |
| State and local                                       |   | 2                                 |   | 2 |   |
| Total current                                         |   | (86                               | )      | 139 |   |
|                                                  |   |                              |   |   |   |
| Deferred:                                             |   |                              |   |   |   |
| U.S. federal                                          |   | 117                               |   | 47 |   |
| Total deferred                                        |   | 117                               |   | 47 |   |
| Provision for income taxes from continuing operations |   | $                                 | 31     |   | $ | 186 |   |

 

Excluded from the table above is a provisionfor income taxes for the three months ended March 31, 2003 and 2002 of$13 million and $15 million, respectively, related to discontinuedoperations.

 

The following table summarizes the differencebetween the federal statutory tax rate and the effective tax rate for the threemonths ended March 31, 2003 and 2002: 

 
|                                                      |   | **Three Months Ended March 31,** |   |
|-----------------------------------------------------------|--------|----------------------------------|--------|
|                                                      |   | **2003**                         |   | **2002** |   |
|                                                      |   | **Amount**                       |   | **Percent of  Pre-tax Income** |   | **Amount** |   | **Percent  of  Pre-tax (Loss)** |   |
|                                                      |   | **(In millions)**           |   | **(In millions)** |   |
| Computed expected tax  provision                          |   | $                                | 31     |   | 35.0 | % | $ | 184 |   | 35.0 | % |
| Increase (decrease) due to:                               |   |                             |   |   |   |   |   |   |   |
| Dividend exclusion                                        |   | (8                               | )      | (8.7 | ) | (6 | ) | (1.2 | ) |
| Entertainment expense                                     |   | 1                                |   | 1.3 |   | 1 |   | 0.3 |   |
| Other                                                     |   | 6                                |   | 6.2 |   | 6 |   | 1.3 |   |
| State and local  taxes, net of federal income tax effects |   | 1                                |   | 1.2 |   | 1 |   | 0.2 |   |
| Provision for income taxes  from continuing operations    |   | $                                | 31     |   | 35.0 | % | $ | 186 |   | 35.6 | % |

 

15

----

 

Deferred tax assets and deferred taxliabilities are generated by the following temporary differences: 

 
|                                                                         |   | **March 31, 2003** |   | **December 31,  2002** |   |
|------------------------------------------------------------------------------|--------|--------------------|--------|------------------------|--------|
|                                                                         |   | **(In millions)**  |   |
| Deferred tax assets:                                                         |   |               |   |                   |   |
| Inventory                                                                    |   | $                  | 206    |                   | $      | 168 |   |
| Investments                                                                  |   | 258                |   | 259                    |   |
| Other liabilities and accrued expenses, primarily compensation and  benefits |   | 1,386              |   | 1,573                  |   |
| Office facilities                                                            |   | 18                 |   | 21                     |   |
| State and local taxes                                                        |   | 42                 |   | 46                     |   |
| Total deferred tax assets                                                    |   | $                  | 1,910  |                   | $      | 2,067 |   |
| Deferred tax liabilities:                                                    |   |               |   |                   |   |
| Inventory                                                                    |   | (52                | )      | (60                    | )      |
| Investments                                                                  |   | (182               | )      | (191                   | )      |
| Office facilities                                                            |   | (44                | )      | (44                    | )      |
| Other                                                                        |   | (34                | )      | (41                    | )      |
| Total deferred tax liabilities                                               |   | (312               | )      | (336                   | )      |
| Deferred tax assets net of deferred tax liabilities                          |   | 1,598              |   | 1,731                  |   |
| Valuation allowance for state and local taxes                                |   | (42                | )      | (46                    | )      |
| Net deferred tax asset                                                       |   | $                  | 1,556  |                   | $      | 1,685 |   |

 

Management has determined that therealization of the recognized gross deferred tax asset of $1.9 billion and$2.1 billion at March 31, 2003 and December 31, 2002, respectively,is more likely than not, based on anticipated future taxable income. Inaddition, for federal income tax purposes, the Company has planning strategiesavailable that may enhance its ability to utilize these tax benefits. However,if estimates of future taxable income are reduced, the amount of the deferredtax asset considered realizable could also be reduced. Further, due touncertainty concerning the Company’s ability to generate the necessary amountand mix of state and local taxable income in future periods, the Companycontinues to maintain a full valuation allowance against its deferred state andlocal tax asset, which amounted to $42 million and $46 million atMarch 31, 2003 and December 31, 2002, respectively.

 

## **6. Transfers and Servicing of FinancialAssets**

## ** **

As of March 31, 2003 and December 31,2002, the fair market value of assets that the Company pledged tocounterparties was $164.7 billion and $147.0 billion, respectively,of which $50.2 billion and $51.2 billion, respectively, are includedin financial instruments owned in the condensed consolidated statements offinancial condition. The Company has also received similar assets as collateralwhere it has the right to re-pledge or sell the assets.  The Company routinely re-pledges or lendsthese assets to third parties.  As of March 31,2003 and December 31, 2002, the fair market value of the assets pledged to theCompany was $150.7 billion and $140.3 billion, respectively.  At March 31, 2003 and December 31, 2002, thefair market value of the assets that the Company pledged to Pershing was $3.1billion and $3.5 billion, respectively. At March 31, 2003 and December 31, 2002, the fair market value of theassets that Pershing pledged to the Company was $346 million and $267 million,respectively.

 

**SecuritizationActivities**

** **

The Company originates and purchasescommercial mortgages and purchases residential mortgages for the purpose ofsecuritization. The Company sells these mortgage loans to a QSPE. The QSPEissues securities that pay amounts based upon the return on the assetstransferred to the QSPE. CSFB LLC is an underwriter of, and makes a market in,these securities. Investors typically have recourse to the assets in the QSPE.The investors and the QSPEs have no recourse to the Company.

 

The Company purchases loans andother debt obligations from clients for the purpose of securitization. Theloans and other debt obligations are transferred by the Company directly, orindirectly through affiliates, to QSPEs or other VIEs that issue collateralizeddebt obligations (“CDOs”).  CSFB LLCstructures, underwrites and makes a market in these CDOs. The Company believesit is reasonably possible that certain VIEs in which it holds the majority ofexpected losses or expected residual returns, or both, will be consolidatedupon adoption of FIN 46. The Company does not expect to consolidate other VIEsin which the Company has significant investments, including equity (less than amajority) and debt but less than the majority of expected losses

 

16

----

 

or expected residual returns, or both. TheCompany may retain interests in these CDO VIEs in connection with itsunderwriting and market-making activities.

 

The Company’s exposure islimited to its retained interests. Retained interests in securitized financialassets are included at fair value in financial instruments owned in thecondensed consolidated statements of financial condition. Any changes to thefair value of these retained interests are recognized in the condensedconsolidated statements of income. The fair values of retained interests aredetermined using present value of estimated future cash flows valuationtechniques that incorporate assumptions that market participants customarilyuse in their estimates of values.

 

The following table presents the proceeds andgain or loss related to the securitization of commercial mortgage loans,residential mortgage loans and other debt obligations for the three monthsended March 31, 2003 and 2002: 

 
|                               |   | **Three Months Ended March 31, 2003** |   | **Three Months Ended March 31, 2002** |   |
|------------------------------------|--------|---------------------------------------|--------|---------------------------------------|--------|
|                               |   | **Commercial  mortgage  loans**       |   | **Residential  mortgage  loans**      |   | **Collateralized  debt  obligations** |   | **Commercial  mortgage  loans** |   | **Residential  mortgage  loans** |   | **Collateralized  debt********obligations** |   |
|                               |   | **(In millions)**                |   |
| Proceeds from  new securitizations |   | $                                     | 618    |                                  | $      | 6,726 |   | $ | 1,718 |   | $ | 807 |   | $ | 6,689 |   | $ | 1,240 |   |
| Gain (loss) on  securitizations(1) |   | $                                     | 38     |                                  | $      | (18 | ) | $ | 15 |   | $ | 12 |   | $ | (17 | ) | $ | 19 |   |
|                                    |        |                                       |        |                                       |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)           Includes the effectsof hedging, underwriting and retained interest gains and losses and excludesall gains or losses, including net interest revenues, on assets prior tosecuritization.  The net revenues earnedwhile holding the residential mortgage assets prior to securitizationsignificantly exceeded the amount of the loan losses from securitization.

 

The following table sets forth the fair valueof retained interests from securitizations as of March 31, 2003, keyeconomic assumptions used to determine the fair value, and the sensitivity ofthe current fair value to immediate adverse changes in those assumptions: 

 
|                                                                               |   | **March 31, 2003**                              |   |
|------------------------------------------------------------------------------------|--------|-------------------------------------------------|--------|
|                                                                               |   | **Commercial  mortgage  loans**                 |   | **Residential  mortgage loans** |   | **Collateralized  debt  obligations** |   |
|                                                                               |   | **(In millions, except years and percentages)** |   |
| Carrying  amount/fair value of retained interests                                  |   | $                                               | 209    |   | $ | 265 |   | $ | 275 |   |
| Weighted-average  life (in years)                                                  |   | 0.2 to 9.9                                      |   | 1.4 to 19.0 |   | 0.1 to 10.9 |   |
| Weighted-average  dollar value change for one basis point movement (in yield) |   | $                                               | — |   | $ | — |   | $ | — |   |
| Prepayment  speed assumptions (“PSA”) (in rate per annum)(3)             |   | N/A                                             | (1)    | 200 PSA to 300 PSA |   | N/A | (2) |
| Impact on fair  value of 10% adverse change                                        |   | N/A                                             | (1)    | $ | — |   | N/A | (2) |
| Impact on fair  value of 20% adverse change                                        |   | N/A                                             | (1)    | $ | 1 |   | N/A | (2) |
| Cash flow  discount rate (in rate per annum)(4)                                    |   | 12.8                                            | %      | 37.5 | % | 4.4 | % |
| Impact on fair  value of 10% adverse change                                        |   | $                                               | 6      |   | $ | 8 |   | $ | 7 |   |
| Impact on fair  value of 20% adverse change                                        |   | $                                               | 12     |   | $ | 17 |   | $ | 14 |   |
| Expected credit  losses (in rate per annum)(5)                                     |   |                                            |   |   |   |   |   |
| Impact on fair  value of a 200 basis point increase in credit spread(6)            |   | $                                               | 1      |   | $ | 1 |   | $ | — |   |
| Impact on fair  value of a 500 basis point increase in credit spread(6)            |   | $                                               | 3      |   | $ | 2 |   | $ | — |   |

 

17

----

 

Key economic assumptions used in measuringthe fair value at the date of securitization of the retained interestsresulting from securitizations completed during the three months endedMarch 31, 2003 were as follows: 

 
|                                                      |   | **Commercial  mortgage  loans** |   | **Residential  mortgage  loans** |   | **Collateralized  debt  obligations** |   |
|-----------------------------------------------------------|--------|---------------------------------|--------|----------------------------------|--------|---------------------------------------|--------|
|                                                      |   |                            |   |                             |   |                                  |   |
| Weighted-average life (in years)                          |   | 0.2 to 9.9                      |   | 1.0 to 19.0                      |   | 0.1 to 10.9                           |   |
| Prepayment speed assumptions (PSA) (in rate per annum)(3) |   | N/A                             | (1)    | 200 PSA to 325 PSA     |   | N/A                                   | (2)    |
| Cash flow discount rate (in rate per annum)(4)            |   | 9.1 to 12.8                     | %      | 4.3 to 37.5                      | %      | 4.4 to 11.4                           | %      |
| Expected credit loss (in rate per annum)(5)               |   | N/A                             | (5)    | N/A                              | (5)    | N/A                                   | (5)    |

 

----

(1)           Todeter prepayment, commercial mortgage loans typically have prepayment protectionin the form of prepayment lockouts and yield maintenances.

 

(2)           CDOdeals are generally structured to be protected from prepayment risk.

 

(3)           PSAis an industry standard prepayment speed metric used for projecting prepaymentsover the life of a residential mortgage loan. PSA utilizes the ConstantPrepayment Rate (“CPR”) assumptions. A 100% prepayment assumption assumes aprepayment rate of 0.2% per annum of the outstanding principal balance ofmortgage loans in the first month. This increases by 0.2% thereafter during theterm of the mortgage loan, leveling off to a constant prepayment rate of 6.0%per annum beginning in the thirtieth month and each month thereafter during theterm of the mortgage loan. 100 PSA equals 6 CPR.

 

(4)           Therate is based on the weighted average yield on the retained interest of theportfolio.

 

(5)           Expectedcredit losses are not expected to be significant because substantially allbeneficial interests retained represent investment-grade interests.

 

(6)           Theimpact of adverse changes in credit spreads was calculated based on thenon-investment grade retained interests because the expected credit losses oninvestment grade retained interests were not considered material.

 

These sensitivities are hypothetical and donot reflect the benefits of hedging activities and therefore should be usedwith caution. Changes in fair value based on a 10% variation in assumptionsgenerally cannot be extrapolated because the relationship of the change inassumption to the change in fair value may not be linear. Also, the effect of avariation in a particular assumption on the fair value of the retainedinterests is calculated without changing any other assumption. Changes in oneassumption may result in changes in other assumptions (for example, increasesin market interest rates may result in lower prepayments and increased creditlosses), which might magnify or counteract the sensitivities.

 

**VariableInterest Entities**

** **

FIN 46, issued in January 2003, hastransitional guidance related to VIEs for which the Company believesconsolidation on July 1, 2003 is “reasonably possible.” Additionally,disclosure is required when the Company has significant interests in VIEs theCompany does not expect to consolidate upon adoption of FIN 46. The followingdisclosure is a result of the Company’s analysis to date. As implementationefforts proceed, the actual impact may differ from what is presented, includingidentification of additional entities as VIEs. FIN 46 exempts certain entitiesfrom its scope, including QSPEs compliant with SFAS 140.

 

The Company has variable interests in severalCDO entities that may be VIEs within the scope of FIN 46. The Company purchasesloans and other debt obligations from and on behalf of clients for the purposeof securitization. The assets are sold to and warehoused by affiliates duringthe warehousing period. At the end of the warehousing period, the assets aresold to QSPEs or VIEs for securitization. The CDO entities may have static orunmanaged (“closed”) portfolios or actively managed (“open”) portfolios. OpenCDOs are managed by collateral managers. CSFB LLC acts as structurer,underwriter and market-maker of these CDOs.

 

18

----

 

In connection with CSFB LLC’sunderwriting and market-making activities, the Company retains interests inseveral CDOs. The closed CDO transactions are structured to use QSPEs and aretherefore not consolidated into the Company’s financial statements. As of March31, 2003, the Company had $65 million of debt and equity in retained interestsin closed CDOs, carried at fair value in the condensed consolidated statementsof financial condition. Open CDOs do not qualify for QSPE status and are issuedthrough VIEs. The Company may retain interests in these VIEs that range fromsmall minority to majority debt and equity interests.

 

For CDO VIEs in which the Company retains amajority of the debt and equity interests, the Company believes that it isreasonably possible these CDO entities will be consolidated upon adoption ofFIN 46. The estimated impact of consolidation of these CDO entities at March31, 2003 is an increase in financial instruments owned of approximately$653 million, of which $3 million is retained interests and iscurrently included at fair value in financial instruments owned in thecondensed consolidated statements of financial condition.

 

The Company also has CDO VIEs in which theCompany retains significant debt and equity interests and which are notexpected to be consolidated upon adoption of FIN 46. The total assets in theseCDOs as of March 31, 2003 were approximately $2.1 billion. TheCompany’s maximum exposure to loss is $14 million, which is the amount ofthe Company’s retained interests in these CDOs. These interests are carried atfair value in financial instruments owned in the condensed consolidatedstatements of financial condition.

 

In addition, the Company retains small,minority equity and debt interests in VIEs that are also not expected to beconsolidated upon adoption of FIN 46. The carrying value of the retainedinterests at March 31, 2003 was $193 million. These interests are carried atfair value in financial instruments owned in the condensed consolidatedstatement of financial condition.

 

## **7. Borrowings**

## ** **

Short-termborrowings are generally demand obligations with interest approximating thefederal funds rate, LIBOR or other money market indices. Such borrowings aregenerally used to facilitate the securities settlement process, to financesecurities inventories and to finance securities purchased by customers onmargin. At March 31, 2003 and December 31, 2002, there were no short-termborrowings secured by Company-owned securities.

 

The Company had letters of credit of$342 million and $543 million at March 31, 2003 and December 31,2002, respectively, that the Company obtained to satisfy counterpartycollateral requirements.

 

The Company has two commercial paper programsexempt from registration under the Securities Act of 1933 that allow theCompany to issue up to $7.0 billion in commercial paper.  At March 31, 2003 and December 31, 2002,$1.1 billion and $2.1 billion, respectively, of commercial paper wasoutstanding under these programs.

 

The following table sets forth the Company’slong-term borrowings: 

 
|                                                                          |   | **March 31, 2003**     |   | **December 31, 2002** |   |
|-------------------------------------------------------------------------------|--------|------------------------|--------|-----------------------|--------|
|                                                                          |   | **(In millions)** |   |
|                                                                          |   |                   |   |                  |   |
| Senior notes  4.63%–8.00%, due various dates through 2032           |   | $                      | 14,894 |                  | $      | 14,735 |   |
| Medium-term  notes 1.25%–7.53%, due various dates through 2032      |   | 9,403                  |   | 8,185                 |   |
| Structured  borrowings, 7.06%–7.34%, due various dates through 2014 |   | 161                    |   | 174                   |   |
| Total long-term  borrowings                                                   |   | $                      | 24,458 |                  | $      | 23,094 |   |
| Current  maturities of long-term borrowings                                   |   | $                      | 3,629  |                  | $      | 3,589 |   |

 

19

----

 

For the three months endedMarch 31, 2003 and 2002, interest paid on all borrowings and financingarrangements relating to continuing operations was $1.3 billion and $1.4billion, respectively. For the three months ended March 31, 2003 and 2002,interest paid on all borrowings and financing arrangements relating todiscontinued operations was $37 million and $35 million,respectively. Long-term borrowings included unrealized appreciation ofapproximately $1.2 billion as of both March 31, 2003 and December 31,2002, associated with fair value hedges under SFAS 133.  At both March 31, 2003 and December 31,2002, the Company had entered into interest rate and currency swaps on$15 billion of its long-term borrowings. Substantially all of these swapsqualified as fair value hedges under SFAS 133. See Note 11 for moreinformation.

 

In April 2002, the Company filed withthe SEC a shelf registration statement that allows the Company to issue fromtime to time up to $10 billion of senior and subordinated debt securities,and warrants to purchase such securities. Under that shelf registrationstatement, the Company had, at May 12, 2003, approximately$6.5 billion available for issuance.

 

**2003Financings:**

** **

During the three months ended March 31,2003, the Company issued $525 million in medium-term notes under its shelfregistration statement and $1.3 billion in medium-term notes under a$5 billion Euromarket program established in July 2001.

 

During the three months ended March 31, 2003,approximately $590 million of medium-term notes were repaid.

 

## **8. Private Equity and Other Long-TermInvestments**

## ** **

Private equity and other long-terminvestments include direct investments and investments in investment vehiclesthat are generally structured as limited partnerships that in turn make privateequity and related investments in various portfolio companies and funds. TheCompany categorizes its private equity investments and other long-terminvestments into two categories, public securities and private securities.Private securities are further classified as CSFB-managed funds, directinvestments or third-party managed funds. These investments generallyhave no readily available market or may be otherwise restricted as to resaleunder the Securities Act of 1933; therefore, these investments are carried atestimated fair value.

 

The Company’s subsidiaries, generally actingas managing general partner, manage many private equity partnerships (the“Funds”). When the investment performance on CSFB-managed funds exceedsspecific thresholds, the Company and certain other general partners (the “GPs”)may be entitled to receive a carried interest distribution. Carried interestdistributions are based on the cumulative investment performance of each Fundat the time the distribution is made. As a result, the Company, in its capacityas a GP (or general partner or managing member of a GP), may be obligated toreturn to investors in the Funds all or a portion of the carried interestdistributions received by the GP if the GP is determined to have receivedexcess carried interest payments over the life of the Funds under the governingdocuments of the Funds. The amount of such contingent obligation is based uponthe performance of the Funds but cannot exceed the amount received by the GP.At March 31, 2003 and December 31, 2002, the maximum amount of suchcontingent obligation was $190 million and $155 million,respectively, assuming the Funds’ remaining investments were worthless.Assuming the Funds’ remaining investments were sold at their current carryingvalues at March 31, 2003 and December 31, 2002, the contingent obligation wouldhave been $38 million and $31 million, respectively. The Company recordedliabilities of $13 million at both March 31, 2003 and December 31,2002, related to this obligation.

 

In addition, pursuant to certain contractualarrangements, the Company is obligated to make cash payments to certaininvestors in certain Funds if specified performance thresholds are not met bysuch Funds. At March 31, 2003 and December 31, 2002, the maximum amount of suchcontingent obligation was $39 million and $37 million, respectively,assuming the Funds’ remaining investments were worthless. Assuming the Funds’remaining investments were sold at their current carrying values at bothMarch 31, 2003 and December 31, 2002, the contingent obligation wouldhave been $1 million.

 

At March 31, 2003 and December 31, 2002,the Company had investments in private equity and other long-term investmentsof $0.9 billion and $1.0 billion, respectively, and had commitments toinvest up to an additional $1.7 billion at both March 31, 2003 andDecember 31, 2002.  Changes in netunrealized appreciation/depreciation arising from changes in fair

 

20

----

 

value and the gain or loss realized upon sale are reflected in principaltransactions-net in the condensed consolidated statements of income.

 

## **9. NetCapital**

## ** **

The Company’s principal wholly ownedsubsidiary, CSFB LLC, is a registered broker-dealer, registered futurescommission merchant and member firm of the New York Stock Exchange Inc.(“NYSE”). As such, it is subject to the NYSE’s net capital rule, which conformsto the uniform net capital rule pursuant to Rule 15c3-1 of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”). Under the alternative methodpermitted by this rule, the required net capital may not be less than twopercent of aggregate debit balances arising from customer transactions or fourpercent of segregated funds, whichever is greater. If a member firm’s netcapital is less than four percent of aggregate debit balances, the NYSE mayrequire the firm to reduce its business. If a member firm’s net capital is lessthan five percent of aggregate debit balances, the NYSE may prevent the firmfrom expanding its business and declaring cash dividends. At March 31,2003, CSFB LLC’s net capital of approximately $2.2 billion was 46% ofaggregate debit balances and in excess of the minimum requirement byapproximately $1.9 billion. The Company’s over-the-counter (“OTC”)derivatives dealer subsidiary, Credit Suisse First Boston Capital LLC, is alsosubject to the uniform net capital rule, but calculates its net capitalrequirements under Appendix F of Rule 15c3-1.

 

Certain other subsidiaries are subject tocapital adequacy requirements. At March 31, 2003, the Company and itssubsidiaries complied with all applicable regulatory capital adequacyrequirements.

 

Our broker-dealer subsidiary, Pershing LLC,was sold to BONY in connection with the sale of the Company’s Pershing unit onMay 1, 2003.  See Note 1 for moreinformation.

## ** **

## **10. Cash and Securities Segregated UnderFederal and Other Regulations**

## ** **

In compliance with the Commodity ExchangeAct, the Company’s registered broker-dealers segregate funds deposited bycustomers and funds accruing to customers as a result of trades or contracts.As of March 31, 2003 and December 31, 2002, cash and securitiesaggregating $2.2 billion and $1.8 billion, respectively, weresegregated or secured in separate accounts exclusively for the benefit ofcustomers.

 

In accordance with the SEC’s no-action letterdated November 3, 1998, the Company’s registered broker-dealers computed areserve requirement for the proprietary accounts of introducing broker-dealers.As of March 31, 2003 and December 31, 2002, securities aggregating $561 millionand $324 million, respectively, were segregated on behalf of introducingbroker-dealers.  Of those amounts,Pershing LLC segregated $450 million and $283 million, respectively, onbehalf of introducing broker-dealers.

 

In addition, U.S. Treasury securities with amarket value of $6.0 billion and $5.2 billion as of March 31,2003 and December 31, 2002, respectively, were segregated in a special reservebank account exclusively for the benefit of customers as required by Rule 15c3-3of the Exchange Act. Of those amounts, Pershing LLC segregated$2.2 billion and $2.8 billion as of March 31, 2003 andDecember 31, 2002, respectively.

 

## **11. Derivatives Contracts**

## ** **

The Company uses derivatives contracts fortrading and hedging purposes and to meet client needs. These derivativesinclude options, forwards, futures and swaps.

 

**Non-tradingDerivatives**

** **

The Company manages its interest rateexposure on its fixed-rate debt by using interest rate swaps.  These swaps are considered hedginginstruments and qualify as fair value hedges under SFAS 133. Forqualifying fair value hedges, the changes in fair value of both the hedginginstrument and the underlying debt are included in other revenues in thecondensed consolidated statements of income.

 

The effectiveness of a qualifying hedgingrelationship is evaluated using quantitative measures of correlation. If ahedge relationship is not found to be highly effective, the hedge relationshipno longer qualifies for hedge accounting under SFAS 133.  As such, any subsequent gains or lossesattributable to the hedged item cease to be recognized, while the subsequent

 

21

----

 

changes in the derivative instrument’s fair value are recognized inearnings in each reporting period.  Inaddition, the fair value adjustment of the debt due to hedge accounting isamortized over the remaining life of the debt as a yield adjustment.

 

The gains and losses related to theineffective component of the fair value hedges were not material for the threemonths ended March 31, 2003 and 2002.

 

Other derivatives used for hedging purposesthat do not qualify as hedges under SFAS 133 are carried at fair valuewith changes in value included in principal transactions-net in the condensedconsolidated statements of income. For the three months ended March 31,2003 and 2002, the Company recognized a gain of $2 million and $24,000,respectively, for these derivatives.

 

**TradingDerivatives**

** **

The Company enters into various transactionsusing derivatives for trading purposes, hedging or to provide products to itsclients, including options, forwards, futures and swaps.

 

*Options*

* *

The Company writes option contractsspecifically designed to meet customer needs or for hedging purposes. Theoptions do not expose the Company to credit risk because the Company, not itscounterparty, is obligated to perform. At the beginning of the contract period,the Company receives a cash premium. During the contract period, the Companybears the risk of unfavorable changes in the value of the financial instrumentsunderlying the options. To manage this market risk, the Company purchases orsells cash or derivative financial instruments on a proprietary basis. Suchpurchases and sales may include debt and equity securities, forward and futurescontracts and options.

 

The Company also purchases options fortrading purposes. With purchased options, the Company gets the right, for afee, to buy or sell the underlying instrument at a fixed price on or before aspecified date. The underlying instruments for these options include fixedincome securities, equities, foreign currencies and interest rate instrumentsor indices. The counterparties to these option contracts are reviewed todetermine whether they are creditworthy.

 

*Forwards and futures*

* *

The Company enters into forward purchases andsales contracts for mortgage-backed securities and foreign currencies. Inaddition, the Company enters into futures contracts on equity-based indices andother financial instruments, as well as options on futures contracts.

 

For forward contracts, cash is generally notrequired at inception; cash equal to the contract value is required atsettlement. For futures contracts, the original margin is required generally incash at inception; cash equal to the change in market value is required daily.

 

Because forward contracts are subject to thefinancial reliability of the counterparty, the Company is exposed to creditrisk. To monitor this credit risk, the Company limits transactions withspecific counterparties, reviews credit limits and adheres to internallyestablished credit extension policies. For futures contracts and options onfutures contracts, the change in the market value is settled with a clearingbroker in cash each day. As a result, the credit risk with the clearing brokeris limited to the net positive change in the market value for a single day.

 

*Swaps*

* *

The Company’s swap agreements consistprimarily of interest rate and equity swaps. Interest rate swaps arecontractual agreements to exchange interest rate payments based on agreednotional amounts and maturity. Equity swaps are contractual agreements toreceive the appreciation or depreciation in value based on a specific strikeprice on an equity instrument in exchange for paying another rate, which isusually based on index or interest rate movements. Swaps are reported at fairvalue.

 

Trading derivative contracts are carried atfair value with changes in unrealized gains and losses and realized gains andlosses included in principal transactions-net in the condensed consolidatedstatements of income.

 

22

----

 

**QuantitativeDisclosures for All Derivatives**

** **

The fairvalues of all derivatives contracts outstanding at March 31, 2003 andDecember 31, 2002 were as follows: 

 
|              |   | **March 31, 2003** |   | **December 31, 2002** |   |
|-------------------|--------|--------------------|--------|-----------------------|--------|
|              |   | **Assets**         |   | **Liabilities**       |   | **Assets** |   | **Liabilities** |   |
|              |   | **(In millions)**  |   |
|              |   |               |   |                  |   |   |   |   |   |
| Options           |   | $                  | 870    |                  | $      | 1,126 |   | $ | 825 |   | $ | 1,094 |   |
| Forward contracts |   | 775                |   | 676                   |   | 719 |   | 655 |   |
| Futures contracts |   | 6                  |   | 9                     |   | 5 |   | 16 |   |
| Swaps             |   | 2,562              |   | 1,264                 |   | 2,407 |   | 1,084 |   |
| Total             |   | $                  | 4,213  |                  | $      | 3,075 |   | $ | 3,956 |   | $ | 2,849 |   |

 

These assets and liabilities areincluded as derivatives contracts in financial instruments owned/sold not yetpurchased, respectively, in the condensed consolidated statements of financialcondition.

 

**12. Commitments**

## ** **

The followingtable sets forth certain of the Company’s long-term commitments, including thecurrent portion, at March 31, 2003:

 
|                             |   | **Commitment Expiration Per Period** |   |           |   |
|----------------------------------|--------|--------------------------------------|--------|----------------|--------|
|                             |   | **Less than 1  year**                |   | **1-3  years** |   | **4-5  years** |   | **Over  5 years** |   | **Total  commitments** |   |
|                             |   | **(In millions)**                    |   |
|                             |   |                                 |   |           |   |   |   |   |   |   |   |
| Standby repurchase agreements(1) |   | $                                    | — |           | $      | 75 |   | $ | — |   | $ | — |   | $ | 75 |   |
| Operating leases(2)              |   | 200                                  |   | 351            |   | 333 |   | 1,607 |   | 2,491 |   |
| Private equity(3)                |   | 100                                  |   | 207            |   | 437 |   | 987 |   | 1,731 |   |
| Total commitments                |   | $                                    | 300    |           | $      | 633 |   | $ | 770 |   | $ | 2,594 |   | $ | 4,297 |   |

 

----

(1)           Inthe ordinary course of business, the Company maintains certain standbyrepurchase agreement facilities that commit the Company to enter into resaleagreements with customers at current market rates.

 

(2)           Excludessublease revenue of $499 million.

 

(3)           Representscommitments to invest in various partnerships that make private equity andrelated investments in various portfolio companies or other private equityfunds.

 

In addition at March 31, 2003, the Companyhad certain commitments that expire within one year, including commitments of$2.5 billion to enter into resale agreements.

 

The Company has contractualobligations related to certain information technology and mainframe systems. AtMarch 31, 2003, these obligations were not significant. The Company had nocapital lease obligations as of March 31, 2003. For certain of theCompany’s additional commitments, see Notes 7, 8 and 13.

 

## **13. Guarantees**

## ** **

In the ordinary course of business the Companyenters into guarantee contracts. On December 31, 2002, the Company adoptedthe new disclosure requirements for guarantees in accordance with FIN 45. OnJanuary 1, 2003, the Company adopted the recognition requirements of FIN45 whereby the Company will recognize a liability at the inception of certainguarantees for obligations it has undertaken in issuing the guarantee,including its ongoing obligation to stand ready to perform over the term of theguarantee in the event that certain events or conditions occur. With certainexceptions, these recognition requirements pertain to any new guaranteesentered into or current guarantees that are modified after December 31,2002.

 

23

----

 

The guarantees covered by FIN 45 may requirethe Company to make payments to the guaranteed party based on changes relatedto an asset, a liability or an equity security of the guaranteed party. TheCompany may also be contingently required to make payments to the guaranteedparty based on another entity’s failure to perform under an agreement, or theCompany may have an indirect guarantee of the indebtedness of others, eventhough the payment to the guaranteed party may not be based on changes relatedto an asset, liability or equity security of the guaranteed party.

 

In addition, FIN 45 coverscertain indemnification agreements that contingently require the Company tomake payments to the indemnified party based on changes related to an asset,liability or equity security of the indemnified party, such as an adversejudgment in a lawsuit or the imposition of additional taxes due to either achange in the tax law or an adverse interpretation of the tax law.

 

The following table sets forth the maximum contingent liabilityassociated with the Company’s guarantees at March 31, 2003 by maturity: 

 
|                     |   | **Guarantee of Commitment  Expiration Per Period** |   |           |   |
|--------------------------|--------|----------------------------------------------------|--------|----------------|--------|
|                     |   | **Less than 1  year**                              |   | **1-3  years** |   | **4-5  years** |   | **Over 5  years** |   | **Total  guarantees** |   |
|                     |   | **(In millions)**                                  |   |
|                     |   |                                               |   |           |   |   |   |   |   |   |   |
| Performance guarantees   |   | $                                                  | 4      |           | $      | — |   | $ | — |   | $ | 131 |   | $ | 135 |   |
| Market value guarantees  |   | 8,191                                              |   | 3,660          |   | 825 |   | 1,255 |   | 13,931 |   |
| Related party guarantees |   | 20                                                 |   | 21             |   | — |   | 1,500 |   | 1,541 |   |
| Total guarantees         |   | $                                                  | 8,215  |           | $      | 3,681 |   | $ | 825 |   | $ | 2,886 |   | $ | 15,607 |   |

 

The Company has certainguarantees for which its maximum contingent liability cannot be quantified.These guarantees are not reflected in the table above and are discussed below.

 

**PerformanceGuarantees**

** **

In the ordinary course ofbusiness, the Company enters into contracts that would require the Company, asthe guarantor, to make payments to the guaranteed party based on a thirdparty’s failure to perform under an agreement. At March 31, 2003, theCompany had a maximum contingent liability of $135 million underperformance guarantees.

 

**Market ValueGuarantees**

** **

In the ordinary course ofbusiness, the Company enters into OTC contracts that contingently require it,as the guarantor, to make payments based on changes in an underlying security.Included in this category are certain written OTC put option contracts,pursuant to which the counterparty can potentially force the Company to acquirethe underlying financial instrument or require the Company to make a cashpayment in an amount equal to the decline in value of the financial instrumentunderlying the OTC put option. Also included in this category are creditderivatives that may subject the Company to credit spread or issuer defaultrisk because the change in credit spreads or the credit quality of theunderlying financial instrument may obligate the Company to make a payment.

 

The Company seeks to managethese risks by engaging in various hedging strategies to reduce its exposuresuch as purchasing an option to sell the related security or entering intoother offsetting derivatives contracts.

 

At March 31, 2003, theCompany recorded $482 million in market value guarantees. These guaranteesare reflected as derivatives contracts in the condensed consolidated statementsof financial condition. The maximum gross contingent liability, excluding anypotential offset from hedging activities of these contracts, is$13.9 billion, of which $5.7 billion is with CSG affiliates, andrepresents the obligation of the Company in the event that all the underlyingsecurities are worthless, the likelihood of which the Company believes isremote.

 

24

----

 

**Related PartyGuarantees**

 

For purposes of FIN 45,intercompany guarantees refer to any guarantees issued by the Company forobligations of any company controlled by CSG, the Company’s ultimate parent(“affiliates”), unless it isone of the Company’s consolidated subsidiaries. Guarantees issued by theCompany for the obligations of its consolidated subsidiaries are excludedbecause they do not create any incremental liability.

 

The Company issues guarantees tocustomers with respect tocertain obligations of its affiliates in the ordinary course of business,including, but not limited to, certain derivatives transactions. Failure toperform by an affiliate would require the Company to perform under theguarantee. The maximum contingent liability of future payments of guaranteesissued to counterparties of affiliates as of March 31, 2003 was$1.5 billion. While the maximum contingent liability may be indicative ofthe extent to which such guarantees are used, the Company believes that thelikelihood of nonperformance by these affiliates is remote. Excluded from themaximum contingent liability above are certain guarantees for which an estimatecannot be made because the exposure is unlimited and therefore impossible toestimate.

 

**Indemnifications**

 

*Indemnifications issued in connection with asset sales*

 

In connection with sales of certain assets orbusinesses, the Company has provided purchasers customary indemnificationprovisions based on changes in an underlying asset or liability of theindemnified party. These indemnification provisions are negotiated with thepurchaser of the assets or businesses and vary in their scope and duration.These indemnification provisions generally shift the risk of certainunquantifiable and unknowable loss contingencies (e.g., relating to litigation,tax and intellectual property matters) from the purchaser to the seller, asknown or quantifiable loss contingencies generally are reflected in the valueof the assets or businesses being sold. The Company has determined that it isnot possible to make an estimate of the maximum amount that the Company couldbe obligated to pay under these indemnification provisions. To date, theCompany’s actual payments arising from these indemnification provisions havebeen in connection with litigation matters and have not been material.

 

*Private equity clawback arrangements*

 

Under certain circumstances, the Company hasprovided investors in private equity funds sponsored by the Company guaranteesof potential obligations of certain GPs to return amounts previously paid ascarried interest to those GPs. To manage its exposure, the Company generallywithholds a portion of carried interest distributions to cover any repaymentobligations.  The amounts of suchguarantees are included in the contingent obligations disclosed in Note 8.

 

*Tax gross-up arrangements*

 

The Company providesindemnifications to certain counterparties in connection with its normaloperating activities. The Company has determined that it is not possible tomake an estimate of the maximum amount it could be obligated to pay. As anormal part of issuing its own securities, the Company typically agrees toreimburse holders for additional tax withholding charges or assessmentsresulting from changes in applicable tax laws. Securities that include theseagreements to pay additional amounts generally also include a relatedredemption or call provision if the obligation to pay the additional amountsresults from a change in law or its interpretation and the obligation cannot beavoided by the issuer taking reasonable steps to avoid the payment ofadditional amounts. Since such potential obligations are dependent on futurechanges in tax laws, the related liabilities the Company may incur as a resultof such changes cannot be reasonably estimated. In light of the related callprovisions typically included, the Company does not expect any potentialliabilities to be material.

 

**OtherGuarantees**

 

The Company is a member ofnumerous securities exchanges and has contractual arrangements with certaindepositaries and clearing houses. It may be required to perform if anothermember is unable to do so or pursuant to its arrangements with the relevantdepositary or clearing house. The Company has determined that it is notpossible to estimate the maximum amount of these obligations.

 

25

----

 

## **14. Industry Segment and Geographic Data**

 

The Company operates and managesits businesses through two operating segments: the Institutional Securitiessegment, consisting of the Investment Banking, Equity and Fixed Income divisions, and the Financial Services segment.

 

The Company’s segments aremanaged based on types of products and services offered and their relatedclient bases. The Company evaluates the performance of its segments basedprimarily on income (loss) before income taxes, discontinued operations,extraordinary items and cumulative effect of a change in accounting principle.

 

In the Institutional Securities segment:

 

•      theInvestment Banking division raises and invests capital and provides financialadvice to companies throughout the United States and abroad. Through theInvestment Banking division, the Company manages and underwrites offerings ofsecurities, arranges private placements, provides client advisory and otherservices, pursues private equity and investments in a variety of areas, andprovides venture capital to companies;

 

•      the Equitydivision engages in sales and trading in equity and equity-related products,including listed and OTC derivatives and risk management products, securitieslending and borrowing and prime brokerage; and

 

•      the FixedIncome division is active in underwriting, trading and distributingfixed-income financial instruments and offers derivatives and risk managementproducts.

 

The Financial Services segmentprovides investment advisory services to individual and high-net-worthindividuals and the financial intermediaries that represent them. The range of servicesincludes single-stock brokerage, hedging and sales of restricted securities andinvestment management products, such as third-party managed accounts andalternative investments. The presentation of Pershing results as “Discontinuedoperations” for the periods presented resulted in a material decrease in theFinancial Services segment’s revenues as the Pershing business contributedmaterially to the net revenues of the Financial Services segment.

 

The Company allocates to its segments a prorata share of certain centrally managed costs, such as leased facilities andequipment costs, employee benefits and certain general overhead expenses basedupon specified amounts, usage criteria or agreed rates, and allocates interestexpense based upon the type of asset. The segmental allocation of some costs,such as incentive bonuses, has been estimated.

 

The Company has not allocated merger-relatedand certain other costs and charges to its segments because none of these costsrepresent normal operating costs. Instead, these costs are in theElimination & Other category in the table below.  The Company’s results from non-continuingprivate equity and distressed business are included in the Elimination &Other category in the table below.  Allother accounting policies of the segments are the same as those described inthe summary of significant accounting policies in the Company’s Annual Reporton Form 10-K for the year ended December 31, 2002.

 

26

----

 

The following table sets forth the netrevenues from external sources, net interest revenue (expense), total expensesand income (loss) from continuing operations of the Company’s segments andreconciles the Company’s segment totals to the Company’s condensed consolidatedresults.

 
|                                            |   | **Institutional  Securities** |   |       |       |              |       |                          |       |                    |       |                               |       |
|-------------------------------------------------|--------|-------------------------------|--------|------------|------------|-------------------|------------|-------------------------------|------------|-------------------------|------------|------------------------------------|------------|
|                                            |   | **Investment  Banking**       |   | **Equity** |       | **Fixed  Income** |       | **Institutional  Securities** |       | **Financial  Services** |       | **Total for   Reported  Segments** |       | **Elimination  & Other(2)** |   | **Total** |   |
|                                            |   | **(In  millions)**            |   |
| **Three Months Ended  March 31, 2003:**         |   |                          |   |       | ** ** |              | ** ** |                          | ** ** |                    | ** ** |                               | ** ** |   | ** ** |   | ** ** |
| Net revenues from external  sources             |   | $                             | 276    |       | $          | 258               |       | $                             | 129        |                    | $          | 663                                |       | $ | 54 |   | $ | 717 |   | $ | (21 | ) | $ | 696 |   |
| Net interest revenue (expense)                  |   | 3                             |   | 13         |       | 485               |       | 501                           |       | 1                       |       | 502                                |       | (9 | ) | 493 |   |
| Total net revenues                              |   | 279                           |   | 271        |       | 614               |       | 1,164                         |       | 55                      |       | 1,219                              |       | (30 | ) | 1,189 |   |
| Total expenses                                  |   | 309                           |   | 293        |       | 387               |       | 989                           |       | 70                      |       | 1,059                              |       | 40 |   | 1,099 |   |
| Income (loss)(1)                                |   | $                             | (30    | )          | $          | (22               | )          | $                             | 227        |                    | $          | 175                                |       | $ | (15 | ) | $ | 160 |   | $ | (70 | ) | $ | 90 |   |
| **Segment  assets at March 31, 2003** |   | $                             | 1,429  |       | $          | 56,487            |       | $                             | 176,808    |                    | $          | 234,724                            |       | $ | 43 |   | $ | 234,767 |   | $ | 14,144 |   | $ | 248,911 |   |

 
|                                               |   | **Institutional  Securities** |       |       |   |              |   |                          |    |                    |   |                              |   |
|----------------------------------------------------|--------|-------------------------------|------------|------------|--------|-------------------|--------|-------------------------------|---------|-------------------------|--------|-----------------------------------|--------|
|                                               |   | **Investment  Banking**       |       | **Equity** |   | **Fixed  Income** |   | **Institutional  Securities** |    | **Financial  Services** |   | **Total for  Reported  Segments** |   | **Elimination  & Other(2)** |   | **Total** |   |
|                                               |   | **(In  millions)**            | ** ** |
| **Three Months Ended March 31,  2002:**            |   |                          |       |       |   |              |   |                          |    |                    |   |                              |   |   |   |   |   |
| Net revenues from external  sources                |   | $                             | 447        |       | $      | 406               |   | $                             | 252     |                    | $      | 1,105                             |   | $ | 83 |   | $ | 1,188 |   | $ | 411 |   | $ | 1,599 |   |
| Net interest revenue (expense)                     |   | 5                             |       | 5          |   | 381               |   | 391                           |    | 4                       |   | 395                               |   | (15 | ) | 380 |   |
| Total net revenues                                 |   | 452                           |       | 411        |   | 633               |   | 1,496                         |    | 87                      |   | 1,583                             |   | 396 |   | 1,979 |   |
| Total expenses                                     |   | 416                           |       | 319        |   | 451               |   | 1,186                         |    | 98                      |   | 1,284                             |   | 170 |   | 1,454 |   |
| Income (loss)(1)                                   |   | $                             | 36         |       | $      | 92                |   | $                             | 182     |                    | $      | 310                               |   | $ | (11 | ) | $ | 299 |   | $ | 226 |   | $ | 525 |   |
| **Segment  assets at December 31, 2002** |   | $                             | 1,497      |       | $      | 53,053            |   | $                             | 170,354 |                    | $      | 224,904                           |   | $ | 92 |   | $ | 224,996 |   | $ | 11,872 |   | $ | 236,868 |   |

 

----

(1)           Income(loss) from continuing operations before provision (benefit) for income taxesand discontinued operations.

 

(2)           TheCompany has not allocated merger-related costs to reported segments becausenone of these costs represents normal operating costs. These costs are includedin the Elimination and Other category. Also included in this category are:

 

•      Intercompanyaccounts/intersegmental revenue charges that are eliminated in consolidationand other revenues and expenses that are not directly attributable to theCompany’s segments; and

 

•      The resultsfor the broker-dealers, CSFB*direct*LLC, DLJ*direct* Ltd. andAutranet, LLC up to the time of, and the gain resulting from, their sale in thefirst quarter of 2002.

 

The Company’s principal operations arelocated in the United States.  TheCompany maintains sales offices in Europe, Latin America and Asia.  The Company’s foreign revenues are notsignificant.

 

27

----

 

**15. LegalProceedings**

 

The Company is involved in a number ofjudicial, regulatory and arbitration proceedings concerning matters arising inconnection with the conduct of its businesses. These actions have been broughton behalf of various classes of claimants and, unless otherwise specified, seekdamages of material and/or indeterminate amounts. The Company believes, basedon currently available information and advice of counsel, that the results ofsuch proceedings, in the aggregate, will not have a material adverse effect onits financial condition but might be material to operating results for anyparticular period, depending, in part, upon the operating results for suchperiod.  For a discussion of theCompany’s legal proceedings, see “Legal Proceedings” in Part II, Item 1.

 

28

----

 

# **Independent Accountants’ Review Report**

 

The Board of Directors andStockholder

Credit Suisse First Boston(USA), Inc.:

 

We have reviewed the accompanying condensedconsolidated statement of financial condition of Credit Suisse First Boston(USA), Inc. and subsidiaries (formerly known as Donaldson, Lufkin &Jenrette, Inc. and subsidiaries) as of March 31, 2003, the related condensedconsolidated statements of income for the three-month periods ended March 31, 2003 and 2002, and therelated condensed consolidated statements of changes in stockholders’ equityand cash flows for the three-month periods ended March 31, 2003 and 2002. These condensed consolidated financial statements are the responsibilityof the Company’s management.

 

We conducted our reviews in accordance withstandards established by the American Institute of Certified PublicAccountants. A review of interim financial information consists principally ofapplying analytical procedures and making inquiries of persons responsible forfinancial and accounting matters.  It issubstantially less in scope than an audit conducted in accordance with auditingstandards generally accepted in the United States of America, the objective ofwhich is the expression of an opinion regarding the financial statements takenas a whole.  Accordingly, we do notexpress such an opinion.

 

Based on our reviews, we are not aware of anymaterial modifications that should be made to the condensed consolidatedfinancial statements referred to above for them to be in conformity withaccounting principles generally accepted in the United States of America.

 

We have previously audited, in accordancewith auditing standards generally accepted in the United States of America, theconsolidated statement of financial condition of Credit Suisse First Boston(USA), Inc. and subsidiaries as of December 31, 2002, and the relatedconsolidated statements of operations, changes in stockholders’ equity, andcash flows for the year then ended (not presented herein); and in our reportdated February 19, 2003, we expressed an unqualified opinion on thoseconsolidated financial statements.  Inour opinion, the information set forth in the accompanying condensedconsolidated statement of financial condition as of December 31, 2002 is fairlystated, in all material respects, in relation to the consolidated statement offinancial condition from which it has been derived.

 
| /s/ KPMG LLP        |   |
|---------------------|--------|
| New York,  New York |
| May 13, 2003        |

 

29

----

 

### **CREDIT SUISSE FIRST BOSTON (USA), INC.AND SUBSIDIARIES**

 

**ITEM 2:**  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations

 

We are a leading integrated investment bankserving institutional, corporate, government and individual clients. We arepart of the Credit Suisse First Boston business unit, which we call CSFB, ofCredit Suisse Group, or CSG, and our results do not necessarily reflect theoverall performance of CSFB or CSG. When we use the terms “we” and “our” and the “Company,” we mean CreditSuisse First Boston (USA), Inc., a Delaware corporation, and itsconsolidated subsidiaries.

 

The Company’s principal operations arelocated in the United States. The Company maintains sales offices in Europe,Latin America and Asia. The Company’s foreign revenues are not significant.

 

**BUSINESSENVIRONMENT**

 

Our principal business activities, investmentbanking and private equity, securities underwriting and sales and trading are,by their nature, highly competitive and subject to general market conditionsthat include volatile trading markets and fluctuations in the volume of marketactivity. Consequently, our results have been, and are likely to continue tobe, subject to wide fluctuations reflecting the impact of many factors beyondour control, including securities market conditions, the level and volatilityof interest rates, competitive conditions, the size and timing of transactionsand the geopolitical environment.

 

The poor global and U.S. economic conditionsthat existed in 2002 persisted through the first quarter of 2003.  Concerns over the pace of economic recoveryand the war in Iraq exacerbated the already adverse operating environment for financialservices companies.  With companies andinvestors focused on the war, equity markets were affected more by thedirection of the conflict than by the fundamental business outlook.  For the three months ended March 31, 2003,both the Dow Jones Industrial Average and the Standard & Poor’s 500were down 4% while the NASDAQ Composite Index recorded an increase of less thanhalf a percent. The adverse economic environment continues to have a negativeimpact on the Company.

 

The continued poor performance of the equitymarkets, low inflation and expectations that the Federal Reserve Board wouldcontinue to hold interest rates steadyincreased investor demand for fixed income products, most notably high-yielddebt.

 

The dollar value of U.S. equity and equity-relatedunderwriting for the three months ended March 31, 2003 declined 57% compared tothe same period of 2002.  There werefive U.S. initial public offerings, or IPOs, during the first quarter of 2003,the fewest in a quarter since 1990.  The dollar value of U.S. debt underwritingclimbed 3% compared to the first quarter of 2002 as companies continued to takeadvantage of the historically low interest rates by refinancing existingdebt.  Mergers and acquisitions activityin the United States decreased 25% compared to the first quarter of 2002, thelowest level since 1994.

 

**RECENTDEVELOPMENTS**

 

On January 7, 2003, we entered into adefinitive agreement to sell our Pershing unit, which was part of the FinancialServices segment,to The Bank of New York Company, Inc., or BONY, for $2 billion in cash, therepayment of a $480 million subordinated loan and an additional contingentpayment of up to $50 million based on future performance. The transactionclosed on May 1, 2003.  Inconnection with the closing, we entered into an amendment to the sale agreementthat required us to deliver the Pershing unit with a total equity value of $645million, an increase of $45 million.  Weexpect to report in the second quarter of 2003 a gain from the completion ofthe sale of the Pershing unit of approximately $1.3 billion pre-tax andapproximately $850 million after-tax. Thisis a result of the fact that approximately $500 million of goodwill and $900million of acquired intangibles related to the Pershing unit that resulted fromour acquisition by CSG and Credit Suisse First Boston were not recorded in ourfinancial statements but were recorded in the financial statements of CSG andCredit Suisse First Boston.  We havepresented the assets and liabilities of our Pershing unit as “Assets held forsale” and “Liabilities held for sale” as of March 31, 2003 and December 31,2002 in the condensed consolidated statements of financial condition. Theoperating results of the Pershing unit have been presented as “Discontinuedoperations” for all periods presented in the condensed consolidated statementsof income.

 

On January 17, 2003, our U.S. broker-dealer,Credit Suisse First Boston Corporation, was converted to the Delaware limitedliability companyCredit Suisse First Boston LLC, or CSFB LLC. The sale of Pershing wasstructured as a sale of the Company’s U.S. broker-dealer, Donaldson, Lufkin,& Jenrette Securities Corporation (which was converted to the Delawarelimited liability company Pershing LLC on January 17, 2003), and certain otherof the Company’s subsidiaries through which the Pershing business has beenconducted. In anticipation of the sale, the businesses of Pershing LLC thatwere not part of the

 

30

----

 

Pershing business, principallythe Private Client Services business, were transferred to CSFB LLC or othersubsidiaries in the first quarter of 2003.

 

On March 20, 2003, our immediate parentcompany, Credit Suisse First Boston, Inc., or CSFBI, transferred Credit SuisseFirst BostonManagement Corporation to us as a capital contribution, and on March 21, 2003,the company was converted to the Delaware limited liability company CreditSuisse First Boston Management LLC, or Management LLC. Management LLC engagesin derivatives transactions and holds a portfolio of private equity, distressedassets and real estate investments. The derivatives transactions entered intoby Management LLC have historically been designed to hedge certain trading andother positions held by CSFB LLC. Prior to the transfer of Management LLC tous, our results of operations reflected only these trading and other positionsheld by CSFB LLC without the offsetting effect of the related hedges maintainedby Management LLC. We believe the transfer of Management LLC to us shouldreduce our earnings volatility because our ongoing results of operations willreflect both the gains and losses from trading and the offsetting effect of therelated hedges. The transfer also represents a further integration of the CreditSuisse First Boston business unit’s U.S. operations into the Company.

 

The transfer of Management LLC was accountedfor at historical cost in a manner similar to pooling-of-interest accounting because Management LLC and we were under thecommon control of CSFBI at the time of the transfer. Beginning with thecondensed consolidated financial statements in Part I, Item 1, we have restatedfinancial information to reflect the results of operations and financialposition of Management LLC as if we had acquired it on November 3, 2000, thedate that we were acquired by CSFBI.

 

**CRITICALACCOUNTING POLICIES**

 

In order to prepare the condensedconsolidated financial statements in accordance with accounting principlesgenerally accepted in the United States of America, or U.S. GAAP, we must makeestimates and assumptions based on judgment and available information. Thereported amounts of assets and liabilities and revenues and expenses areaffected by these estimates and assumptions.

 

Our significant accounting policies aredisclosed in Note 1 of the consolidated financial statements inPart II, Item 8 in our Annual Report on Form 10-K for the year endedDecember 31, 2002. We believe that the critical accounting policies discussedbelow involve the most complex judgments andassessments. We believe that the estimates and assumptions used in thepreparation of the condensed consolidated financial statements are prudent andreasonable.

 

**Fair Value**

 

As is the normal practice in our industry,the values we report in the condensed consolidated financial statements withrespect to “Financial instruments owned” and “Financial instruments sold, notyet purchased” are in most cases based on fair value, with related unrealizedand realized gains or losses included in the condensed consolidated statementsof income. Commercial mortgage whole loans and certain residential mortgagewhole loans held for sale are carried at the lower of aggregate cost or fairvalue.

 

Fair value may be objective, as is the casefor exchange-traded instruments, for which quoted prices in price-efficient andliquid markets generally exist, or as is thecase where a financial instrument’s fair value is derived from actively quotedprices or pricing parameters. Fair value may also be subjective and dependenton varying degrees of judgment depending on liquidity, concentration,uncertainty of market factors and pricing assumptions and other risks affectingthe specific instrument. In addition, there are circumstances in whichfinancial instruments that are valued on quoted prices may be distorted intimes of market dislocation.

 

***Controls Over Fair Valuation Process***

 

Control processes are applied toensure that the fair values reported in our condensed consolidated financialstatements are appropriate and measured on a reliable basis. These controlprocesses include price verification procedures and reviews of models used toprice financial instruments by personnel with relevant expertise who areindependent of the trading and investment functions. For further discussion ofour risk management policies and procedures, see “Quantitative and QualitativeDisclosure About Market Risk” in our Annual Report on Form 10-K for the yearended December 31, 2002.

 

31

----

 

***Valuation***

 

The fair value of the vast majority of ourfinancial instruments owned and financial instruments sold, not yet purchasedis based on quoted market prices or observable market parameters or is derivedfrom such prices or parameters. The fair value of our cash positions in U.S.government and agency securities and corporate debt, equity and commercialpaper is based principally on observable market prices (*i.e.,* dealer quotes or exchange-tradedprices) or derived from observable market prices. For those cash positions incorporate debt and equity that are thinly traded or not quoted, more judgmentis required in the determination of fair value. Examples of cash products withno quoted prices or that are thinly traded are certain high-yield debt, certaincollateralized mortgage obligations, distressed debt securities and equitysecurities that are not publicly traded. Generally, the techniques used todetermine fair value for these positions are based on the type of product. Forcertain debt securities for which market prices are not available, value isbased on yields reflecting the perceived risk of the issuer or country ratingand the maturity of the security, which may involve some judgment. For otherthinly traded securities, including convertible securities and asset-backedsecurities, internal and external models are used that take into considerationthe underlying stock price, dividend rates, credit spreads, foreign exchangerates, prepayment rates and equity market volatility. For certain asset-backedsecurities, pricing models employing prepayment scenarios and Monte Carlosimulations are used.

 

Securities held in the distressed portfolioare typically issued by private companies under significant financial burdenand/or near bankruptcy. Due to the less liquid nature of these securities,valuation techniques often include earnings-multiple analyses, similar market transactions and default recovery analyses. Inaddition, liquidity and credit concerns are also considered in thedetermination of fair value. All of these factors contribute to significantsubjectivity in the valuation of these securities. As of March 31, 2003 andDecember 31, 2002, the fair value of our distressed securities was $276 millionand $208 million, respectively.

 

For residential mortgage loans,valuations are based on market information on similar loans trading in thecurrent market. Proprietary models employing prepayment scenarios and MonteCarlo simulations are also used. Commercial real estate loans are valued usingorigination spreads, loan-to-value ratios, debt service coverage ratios,geographic location, prepayment considerations and current yield curves. Inaddition, current written offers or contract prices are considered in thevaluation process.

 

Our derivatives portfolio includesboth exchange-traded and over-the-counter, or OTC, derivatives. The fair valueof exchange-traded derivatives is typically derived from the observableexchange price and/or observable market parameters. Our primary exchange-tradedderivatives include futures and certain option agreements. OTC derivativesinclude forwards, swaps and options on foreign exchange, interest rates,equities and credit products. Fair values for OTC derivatives are determined onthe basis of internally developed proprietary models using various inputparameters. The input parameters include those characteristics of thederivative that have a bearing on the economics of the instrument and marketparameters. In well-established derivatives markets, the use of a particular modelmay be widely accepted. For example, the Black-Scholes model is widely used tocalculate the fair value of many types of options. These models are used tocalculate the fair value of OTC derivatives and to facilitate the effectiverisk management of the portfolio. The determination of the fair value of manyderivatives involves only limited subjectivity because the required inputparameters are observable in the marketplace. The pricing of these instrumentsis referred to as “direct.” For other more complex derivatives, subjectivityrelating to the determination of input parameters reduces price transparency.The pricing of these instruments is referred to as “indirect.” Specific areasof subjectivity include long-dated volatilities on OTC option transactions andrecovery rate assumptions for credit derivative transactions. Uncertainty ofpricing assumptions and liquidity are also considered as part of the valuationprocess. As of March 31, 2003 and December 31, 2002, substantially all of thereplacement values reported in our consolidated statement of financialcondition were derived using direct pricing.

 

***Private Equity Investments***

 

Private equity and otherlong-term investments include direct investments and investments inpartnerships that make private equity and related investments in variousportfolio companies and funds. The Company categorizes its private equityinvestments and other long-term investments into two categories, publicsecurities and private securities. Private securities are further classified asCSFB-managed funds, direct investments or funds managed by third parties. Theseinvestments generally have no readily available market or may be otherwiserestricted as to resale; therefore, these investments are carried at estimatedfair value. Fair value for private equity and other long-term investments isbased upon a number of factors.

 

32

----

 

*                PublicSecurities*

 

Publicly traded investments arevalued based upon readily available market quotes with the appropriateadjustments for liquidity as a result of holding large blocks and/or havingtrading restrictions. As of March 31, 2003 and December 31, 2002, the fairvalue of public securities in our private equity portfolio was $50 million and$57 million, respectively.

 

*                PrivateSecurities*

 

*CSFB-Managed Funds.*  CSFB-managed funds are funds for which CSFBacts as fund advisor and makes investment decisions. The investments in thefunds are priced taking into account a number of factors, such as the mostrecent round of financing involving unrelated new investors, earnings multipleanalyses using comparable companies or discounted cash flow analysis. Theinvestments in fund of funds partnerships are valued based on periodicstatements received from the underlying fund manager. As of March 31, 2003 andDecember 31, 2002, the fair value of CSFB-managed funds was $456 million and$486 million, respectively.

 

*Direct Investments.*  Direct investments are generallyside-by-side investments in portfolio companies of CSFB-managed orthird-party-managed funds. The investments are priced in accordance with theprocedures for CSFB-managed or third-party-managed funds. As of March 31, 2003and December 31, 2002, the fair value of direct investments in our private equityportfolio was $276 million and $288 million, respectively.

 

*Funds Managed by Third Parties.*  Funds managed by third parties are limitedpartnership interests in a fund managed by an external fund manager. Thesefunds are valued based on periodic statements received from the general partnerof the fund. As of March 31, 2003 and December 31, 2002, the fair value offunds managed by third parties in our private equity portfolio was $122 millionand $125 million, respectively.

 

**Deferred TaxAssets**

 

Deferred tax assets andliabilities are recognized for the estimated future tax effects of operatingloss carry-forwards and temporary differences between the carryingamounts of existing assets and liabilities and their respective tax bases atthe balance sheet date.

 

The realization of deferred taxassets on temporary differences is dependent upon the generation of taxableincome during the periods in which those temporary differences becomedeductible. The realization of deferred tax assets on net operating losses isdependent upon the generation of taxable income during the periods prior totheir expiration, if any. Periodically, management evaluates whether deferredtax assets can be realized. If management considers it more likely than notthat all or a portion of a deferred tax asset will not be realized, acorresponding valuation allowance is established. In evaluating whetherdeferred tax assets can be realized, management considers projected futuretaxable income, the scheduled reversal of deferred tax liabilities and taxplanning strategies.

 

This evaluation requiressignificant management judgment, primarily with respect to projected taxableincome. The estimate of future taxable income can never be predicted withcertainty. It is derived from budgets and strategic business plans but isdependent on numerous factors, some of which are beyond our control.Substantial variance of actual results from estimated future taxable profits,or changes in our estimate of future taxable profits, could lead to changes indeferred tax assets being realizable or considered realizable, and wouldrequire a corresponding adjustment to the valuation allowance.

 

As of March 31, 2003, we haddeferred tax assets resulting from temporary differences that could reducetaxable income in future periods. The consolidated balance sheet as of March31, 2003 and December 31, 2002 includes deferred tax assets of $1.9 billion and$2.1 billion, respectively, and deferred tax liabilities of $312 millionand $336 million, respectively. Due to uncertainty concerning our ability togenerate the necessary amount and mix of state and local taxable income infuture periods, we maintain a valuation allowance against our state and localasset in the amount of $42 million and $46 million as of March 31, 2003 andDecember 31, 2002, respectively.  SeeNote 5 of the condensed consolidated financial statements in Part I, ItemI.

 

**LitigationContingencies**

 

From time to time, we areinvolved in a variety of legal, regulatory and arbitration matters in connectionwith the conduct of our business. It is inherently difficult to predict theoutcome of many of these matters, particularly those cases in which the mattersare brought on behalf of various classes of claimants, seek damages ofunspecified or indeterminate amounts or involve novel legal claims. Inpresenting the consolidated financial statements, management makes estimatesregarding the outcome of legal, regulatory and arbitration matters and takes acharge to income when losses with respect to such matters are probable and

 

33

----

 

can be reasonably estimated.Charges, other than those taken periodically for cost of defense, are notestablished for matters when losses cannot be reasonably estimated. Estimates, bytheir nature, are based on judgment and currently available information andinvolve a variety of factors, including, but not limited to, the type andnature of the litigation, claim or proceeding, the progress of the matter, theadvice of legal counsel and other advisers, our defenses and our experience insimilar cases or proceedings. See “Legal Proceedings” in Part II, Item 1.

 

**RESULTS OFOPERATIONS**

 

The assets and liabilities ofPershing as of March 31, 2003 and December 31, 2002 have been presented as“Assets held for sale” and “Liabilities held for sale,” respectively, in thecondensed consolidated statements of financial condition. The results ofoperations for Pershing for all periods presented have been presented as“Discontinued operations” in the condensed consolidated statements of income.The presentation of the Pershing results as “Discontinued operations” for theperiods presented results in a decrease in commission revenues and net interestand a material decrease in the Financial Services segment net revenues as thePershing business contributed materially to the net revenues of thatsegment.  We present the condensedconsolidated statements of cash flows as if the assets and liabilities ofPershing as of March 31, 2003 and December 31, 2002 were not presented as“Assets held for sale” and “Liabilities held for sale” in the condensedconsolidated statements of financial condition and the results of operations ofPershing were not presented as “Discontinued operations” in the condensed consolidatedstatements of income.

 

The following table sets forththe Company’s net revenues, total expenses, provision for income taxes andincome from continuing operations before discontinued operations and netincome:

 
|                                                                                               |   | **Three Months Ended   March 31,** |       |
|----------------------------------------------------------------------------------------------------|--------|------------------------------------|------------|
|                                                                                               |   | **2003**                           |       | **2002** |   |
|                                                                                               |   | **(In  millions)**                 | ** ** |
|                                                                                               |   |                               |       |   |   |
| Net revenues                                                                                       |   | $                                  | 1,189      |   | $ | 1,979 |   |
| Total expenses                                                                                     |   | 1,099                              |       | 1,454 |   |
| Income from  continuing operations, before provision for income taxes and discontinued  operations |   | 90                                 |       | 525 |   |
| Provision for  income taxes                                                                        |   | 31                                 |       | 186 |   |
| Income from  continuing operations before discontinued operations                                  |   | 59                                 |       | 339 |   |
| Income from  discontinued operations, net of income taxes                                          |   | 24                                 |       | 27 |   |
| Net income                                                                                         |   | $                                  | 83         |   | $ | 366 |   |

 

The Company’s businesses arematerially affected by conditions in the financial markets and economicconditions generally, including geopolitical events. Unpredictable or adversemarket and economic conditions have adversely affected and may in the futureadversely affect our results of operations. See “Business—Certain Factors ThatMay Affect Our Results of Operations” in the Company’s Annual Report on Form10-K for the year ended December 31, 2002.

 

**Three MonthsEnded March 31, 2003 Compared to Three Months Ended March 31, 2002**

 

The Company’s results (includingnon-continuing private equity and distressed business included in Eliminationand Other) and those of the Fixed Income business of the InstitutionalSecurities segment were impacted by the transfer of Management LLC to us as acapital contribution on March 20, 2003. See “—Recent Developments.”

 

The Company recorded net income of$83 million for the three months ended March 31, 2003 compared to netincome of $366 million in the same period in 2002, with both revenues andexpenses declining. The decrease in net income was due primarily to the pre-taxgain of $528 million from the sale of three of the Company’sbroker-dealers, CSFB*direct* LLC,DLJ*direct* Ltd. and Autranet,LLC, in the first quarter of 2002.

 

Net revenues decreased $790 million, or40%, to $1.2 billion for the three months ended March 31, 2003, asprincipal transactions, investment banking, commissions and other revenues alldeclined compared to the three months ended March 31, 2002.  The decline in principal transactions wasprimarily in fixed income products, with mortgages and investment-gradeproducts down compared to the three months ended March 31, 2002.  The decline in investment banking revenuesreflects the depressed market conditions and reduced mergers and acquisitions andequity new issuance activity.  Commissionsdeclined as

 

34

----

 

a result of lower volumes andcompetitive pricing pressure reflecting the weakness in the equitymarkets.  Net interest revenuesincreased, reflecting the favorable interest rate environment.  Other revenues decreased as a result of thegain on the sales of CSFB*direct*LLC, DLJ*direct* Ltd. andAutranet, LLC in the first quarter of 2002. Net revenues, excluding the $528 million gain on the sale of thebroker-dealers, declined 18% for the three months ended March 31, 2003 comparedto the three months ended March 31, 2002.

 

Expenses decreased for the three months endedMarch 31, 2003 from the same period in 2002, primarily as a result ofreduced headcount, continuing cost-reduction efforts and the impact from thesale of CSFB*direct* LLC*,* DLJ*direct* Ltd.and Autranet, LLC.  See “—Expenses.”

 

**Results bySegment**

 

The discussion of net revenues is presentedby segment. We operate and manage our business through two principal operatingsegments: the Institutional Securities segment and the Financial Servicessegment. The Institutional Securities segment consists of the InvestmentBanking, Equity and Fixed Income divisions. Our segments are managed based ontypes of products and services offered and their related client bases. Weevaluate the performance of our segments based primarily on income (loss) fromcontinuing operations before provision (benefit) for income taxes anddiscontinued operations.

 

For divisional reporting of net revenues andexpenses, equity capital market underwriting fees are shared between theInvestment Banking division and the Equity division and debt capital marketunderwriting fees are shared between the Investment Banking division and theFixed Income division.

 

The cost structure of each ofour segments is broadly similar to that of the Company as a whole, and,consequently, the discussion of expenses is presented on a company-wide basis.The Company allocates to its segments a pro rata share of certain centrallymanaged costs, such as leased facilities and equipment costs, employee benefitsand certain general overhead expenses based upon specified amounts, usagecriteria or agreed rates, and allocates interest expense based upon the type ofasset. The allocation of some costs, such as incentive bonuses, has beenestimated. The timing and magnitude of changes in our incentive bonus accrualcan have a significant effect on our operating results for a given period.

 

The following table sets forththe net revenues, total expenses and income (loss) from continuing operationsof the Company’s segments: 

 
|                                    |   | **Institutional Securities** |       |       |   |              |   |
|-----------------------------------------|--------|------------------------------|------------|------------|--------|-------------------|--------|
|                                    |   | **Investment  Banking**      |       | **Equity** |   | **Fixed  Income** |   | **Institutional  Securities** |   | **Financial  Services** |   |
|                                    |   | **(in  millions)**           | ** ** |
| **Three  Months Ended March 31, 2003:** |   |                         |       |       |   |              |   |   |   |   |   |
| Net revenues                            |   | $                            | 279        |       | $      | 271               |   | $ | 614 |   | $ | 1,164 |   | $ | 55 |   |
| Total expenses                          |   | 309                          |       | 293        |   | 387               |   | 989 |   | 70 |   |
|                                    |   |                         |       |       |   |              |   |   |   |   |   |
| Income  (loss)(1)                       |   | $                            | (30        | )          | $      | (22               | )      | $ | 227 |   | $ | 175 |   | $ | (15 | ) |
|                                    |   |                         |       |       |   |              |   |   |   |   |   |
| **Three  Months Ended March 31, 2002:** |   |                         |       |       |   |              |   |   |   |   |   |
| Net revenues                            |   | $                            | 452        |       | $      | 411               |   | $ | 633 |   | $ | 1,496 |   | $ | 87 |   |
| Total expenses                          |   | 416                          |       | 319        |   | 451               |   | 1,186 |   | 98 |   |
|                                    |   |                         |       |       |   |              |   |   |   |   |   |
| Income  (loss)(1)                       |   | $                            | 36         |       | $      | 92                |   | $ | 182 |   | $ | 310 |   | $ | (11 | ) |

 

----

(1)           Beforeprovision for income taxes and discontinued operations.

 

35

----

 

***Institutional Securities***

 

The Institutional Securities segment includesthe Investment Banking, Equity and Fixed Income divisions. The InvestmentBanking division raises and invests capital and provides financial advice tocompanies throughout the United States and abroad. Through the InvestmentBanking division, we manage and underwrite offerings of securities, arrangeprivate placements, provide financial advisory and other services, pursueprivate equity investments in a variety of areas and provide venture capital tocompanies. The Equity division trades, originates and distributes equitysecurities and equity-related derivatives. The Fixed Income division trades,originates and distributes fixed income securities and fixed income-relatedderivatives, and places private debt instruments.

 

*Three Months Ended March 31, 2003Compared to Three Months Ended March 31, 2002*

 

Net revenues for theInstitutional Securities segment were $1.2 billion and $1.5 billionfor the three months ended March 31, 2003 and 2002, respectively, adecrease of 22%, reflecting declines in Investment Banking, Equity and FixedIncome net revenues.

 

Investment Banking net revenuesdecreased 38% to $279 million, primarily due to the industry-wide slowdownin mergers and acquisitions and equity new issuance activities.  This decline was partially offset byimproved private equity net revenues as a result of the sales of certaininvestments.

 

Equity net revenues declined 34%to $271 million primarily due to lower commission revenue and new issuanceactivity. Commission revenues decreased primarily as a result of reducedcustomer trading of listed and OTC cash products and certain derivativesactivity.  Commissions from cashproducts also decreased due to competitive pricing pressure.  New issuance revenues from equity capitalmarkets activity declined, reflecting the overall weakness in the U.S. equitymarkets that discouraged new issuances.

 

Fixed Income net revenues decreased 3% to**$614 million, primarily due to lowernet revenues from investment-grade debt trading. Net revenues frominvestment-grade products were higher during the three months ended March 31,2002 due to the tightening of credit spreads and the movement to higher creditquality issuers in 2002 in the wake of the Enron and Worldcom scandals.

 

***Financial Services***

*** ***

The Financial Services segmentprovides investment advisory services to high-net-worth individual investorsand the financial intermediaries that represent them. The range of servicesincludes single-stock brokerage, hedging and sales of restricted securities andinvestment management products such as third-party managed accounts andalternative investments. The presentation of the Pershing results as“Discontinued operations” in the condensed consolidated statements of incomefor the periods presented results in a material decrease in the FinancialServices segment net revenues as the Pershing business contributed materiallyto the net revenues of that segment.

 

***Three Months Ended March 31, 2003Compared to Three Months Ended March 31, 2002***

*** ***

Net revenues for the FinancialServices segment were $55 million and $87 million for the threemonths ended March 31, 2003 and 2002, respectively, a decrease of 37%. Thedecrease reflects a weak equity market environment, which discouraged newequity issuances and reduced transaction flows.

 

36

----

 

**Expenses**

 

The normal operating cost structure of eachof our segments is broadly similar to that of the Company as a whole.Merger-related and certain other costs and charges, which can be significant,do not represent normal operating costs and are not allocated to the segments.For these reasons, the discussion of expenses is presented on a company-widebasis.

 

The following table sets forthemployee compensation and benefits expenses, other expenses and total expensesof the Company: 

 
|                                |   | **Three Months Ended   March 31** |   |
|-------------------------------------|--------|----------------------------------------|--------|
|                                |   | **2003**                               |   | **2002** |   |
|                                |   |                                   |   |   |   |
| Employee  compensation and benefits |   | $                                      | 724    |   | $ | 949 |   |
| Other expenses                      |   | 375                                    |   | 505 |   |
| Total expenses                      |   | $                                      | 1,099  |   | $ | 1,454 |   |

 

***Three Months Ended March 31, 2003Compared to Three Months Ended March 31, 2002***

 

Total expenses declined $355 million, or24%, to $1.1 billion for the three months ended March 31, 2003compared to $1.5 billion for the three months ended March 31, 2002. Thedecrease was principally due to CSFB’s continuing cost-reduction efforts andthe impact of the sale of the CSFB*direct*LLC*,* DLJ*direct* Ltd. and Autranet, LLCbusinesses in the first quarter of 2002.

 

Employee compensation andbenefits declined 24% in the first quarter of 2003 due to significant headcountreductions and lower bonus accruals.

 

Other expenses principallyconsist of occupancy and equipment rental; brokerage, clearing and exchangefees; communications; professional fees and merger-related costs. Otherexpenses declined 26% in the three months ended March 31, 2003 compared to thesame period in 2002, primarily as a result of reduced headcount, lower levelsof business, decreased discretionary spending, including advertising,communications, travel and entertainment and continuing cost-reductionefforts.   Included in other operatingexpenses in the condensed consolidated statements of income for the threemonths ended March 31, 2002 is approximately $70 million in expenses related tolease terminations and losses on subleases.

 

**Provision forTaxes**

 

***Three Months Ended March 31, 2003Compared to Three Months Ended March 31, 2002***

 

The provision for income taxesfrom continuing operations for the three months ended March 31, 2003 and2002 was $31 million and $186 million, respectively. Excluded fromthe provision for income taxes for the three months ended March 31, 2003and 2002 was a provision of $13 million and $15 million, respectively,from discontinued operations.

 

The effective tax rate forcontinuing operations changed from an expense of 35.6% in the first quarter of2002 to an expense of 35.0% in the first quarter of 2003.

 

**LIQUIDITY ANDCAPITAL RESOURCES**

 

**LiquidityManagement Oversight**

 

We believe that maintainingaccess to liquidity is fundamental for firms operating in the financialservices industry. We have therefore established a comprehensive process forthe management and oversight of our liquidity, funding and capital strategies.CSFB’s Capital Allocation and Risk Management Committee, or CARMC, has primaryoversight responsibility for these functional disciplines. CARMC periodicallyreviews and approves our liquidity management policies and targets and reviewsour liquidity position and other key risk indicators. The corporate treasurydepartment is responsible for the management of liquidity, long-term fundingand capital, as well as relationships with creditor banks and investors. Italso maintains regular contact with rating agencies and regulators on liquidityand capital issues.

 

See “Liquidity Risk” in“Business—Certain Factors That May Affect Our Results of Operations” in ourAnnual Report on Form 10-K for the year ended December 31, 2002.

 

37

----

 

**Balance Sheet**

 

Significant portions of ourassets are highly liquid, with the majority consisting of securitiesinventories and collateralized receivables, which fluctuate depending on thelevels of proprietary trading and customer business. Collateralized receivablesconsist primarily of securities purchased under agreements to resell andsecurities borrowed, both of which are primarily secured by U.S. government andagency securities and marketable corporate debt and equity securities. Inaddition, we have significant receivables from customers, brokers, dealers andothers, that turn over frequently. To meet client needs as a securities dealer,we carry significant levels of trading inventories.

 

In addition to these liquid assets,as part of our investment banking and fixed income markets activities we alsomaintain positions in less liquid assets, such as certain mortgage whole loans,distressed securities, high-yield debt securities, asset-backed securities andprivate equity investments. These assets may be relatively illiquid at times,especially during periods of market stress. We typically fund a significantportion of less liquid assets, such as private equity investments, withlong-term borrowings and stockholders’ equity. Mortgage whole loans, distressedsecurities, high-yield debt and asset-backed securities are generally financedwith short-term unsecured financing or repurchase agreements, as well aslong-term borrowings and stockholders’ equity.

 

Because of changes relating tocustomer needs, economic and market conditions and proprietary trading andother strategies, our total assets or the individual components of total assetsmay vary significantly from period to period. As of March 31, 2003 andDecember 31, 2002, our total assets were $248.9 billion and$236.9 billion, respectively.

 

Included below is a discussionof our long-term contractual obligations, off-balance sheet arrangements andless liquid assets.

 

**FundingSources and Strategy**

 

The majority of our assets arefunded by collateralized short-term borrowings, which include securities soldunder agreements to repurchase and securities loaned. Other significant fundingsources include commercial paper, short-term borrowings from affiliates,payables to customers, brokers, dealers and others, long-term borrowings andstockholders’ equity. Short-term funding is generally obtained at rates relatedto the federal funds rate, LIBOR or other money market indices, while long-termfunding is generally obtained at fixed and floating rates related to U.S.Treasury securities or LIBOR, depending upon prevailing market conditions. Wecontinually aim to broaden our funding base by geography, investor and fundinginstrument.

 

The majority of our unsecuredfunding originates largely from two sources: we borrow from affiliates(principally Credit Suisse First Boston, a Swiss bank and our indirect parent)and we issue debt securities directly to the market. We lend funds as needed toour operating subsidiaries and affiliates on both a senior and subordinatedbasis, the latter typically to meet capital requirements of regulatedsubsidiaries. We generally try to ensure that loans to our operatingsubsidiaries and affiliates have maturities equal to or shorter than thematurities of our market borrowings.

 

**LiquidityPlanning and Measurement**

 

We maintain a large secondarysource of liquidity, principally through our broker-dealers and various otheroperating subsidiaries. We have historically been able to access significantliquidity through the secured funding markets (securities sold under agreementsto repurchase, securities loaned and other collateralized financingarrangements), even in periods of market stress. We continually monitor overallliquidity by tracking the extent to which unencumbered marketable assets andother alternative unsecured funding sources exceed both contractual obligationsand anticipated contingent commitments.

 

The principal measure we use tomonitor our liquidity position is the “liquidity barometer,” which estimatesthe time period over which the adjusted market value of unencumbered assetsplus committed revolving credit facilities exceeds the aggregate value of ourmaturing unsecured liabilities plus anticipated contingent commitments. Theadjusted market value of unencumbered assets includes a reduction from marketvalue, or “haircut,” reflecting the amount that could be realized by pledgingan asset as collateral to a third-party lender in a secured fundingtransaction. Contingent commitments include such things as letters of credit,guarantees and collateralization requirements related to credit ratings. Ourobjective, as mandated by CARMC, is to ensure that the liquidity barometerequals or exceeds one year. We believe this will enable us to carry out ourbusiness plans during extended periods of market stress, while minimizing, tothe extent possible, disruptions to our business.

 

38

----

 

**ContractualObligations**

 

We have contractual obligationsto make future payments under long-term debt, long-term non-cancelable leaseagreements and other long-term obligations. The following table sets forthfuture cash payments on our contractual obligations pursuant to long-termborrowings and operating leases as of March 31, 2003: 

 
|                          |   | **Less than   1 year** |   | **1-3**

**years** |   | **4-5   years** |   | **Over   5 years** |   | **Total** |   |
|-------------------------------|--------|------------------------|--------|--------------------|--------|-----------------|--------|--------------------|--------|-----------|--------|
|                          |   | **(In millions)**      |   |
|                          |   |                   |   |               |   |            |   |               |   |      |   |
| Long-term borrowings          |   | $                      | 3,629  |               | $      | 4,800           |   | $                  | 6,864  |      | $      | 9,165 |   | $ | 24,458 |   |
| Operating leases              |   | 200                    |   | 351                |   | 333             |   | 1,607              |   | 2,491     |   |
| Total contractual obligations |   | $                      | 3,829  |               | $      | 5,151           |   | $                  | 7,197  |      | $      | 10,772 |   | $ | 26,949 |   |

 

Our long-term borrowings areunsecured. As of March 31, 2003, the weighted average maturity of ourlong-term borrowings was approximately 5.4 years. Our lease obligationsare primarily for our principal offices in New York City and other locations.Excluded from the table above are $157 million in operating leaseobligations associated with Pershing that have been transferred to BONY.

 

The Company has contractualobligations related to certain information technology, equipment leases andsoftware licenses. As of March 31, 2003, these obligations were notsignificant. The Company had no capital lease obligations as of March 31,2003.

 

For information on these andother material commitments, see Notes 7, 12 and 13 of the condensedconsolidated financial statements in Part I, Item 1.

 

The following table sets forthour short-term unsecured borrowings: 

 
|                      |   | **March 31, 2003** |       | **December 31, 2002** |       |
|---------------------------|--------|-------------------------|------------|-----------------------|------------|
|                      |   | **(In  millions)**      |       |
|                      |   |                    | ** ** |                  | ** ** |
| Bank loans                |   | $                       | 81         |                  | $          | 76 |   |
| Commercial  paper(1)      |   | 1,097                   |       | 2,082                 |       |
| Loans from  affiliates(2) |   | 10,575                  |       | 9,775                 |       |
| Total                     |   | $                       | 11,753     |                  | $          | 11,933 |   |

 

----

(1)           Reflects amounts outstanding underour $7.0 billion commercial paper programs.

 

(2)           We have significant financingtransactions with Credit Suisse First Boston and certain of its subsidiariesand affiliates. See “Related Party Transactions.”

 

**RevolvingCredit Facility**

 

We maintain a committed revolving creditfacility with various banks that, if drawn upon, would bear interest at short-termrates related to either the federal funds rate or LIBOR. In May 2002, wereplaced our $3.5 billion revolving credit facility with a 364-day$3.0 billion revolving facility available to the Company as borrower.Proceeds from borrowings under this facility can be used for general corporatepurposes, and this facility is guaranteed by CSG. The facility containscustomary covenants that we believe will not impair our ability to obtainfunding. As of March 31, 2003, no borrowings were outstanding under thisfacility. We expect to reduce the size of our revolving credit facility when wereplace it, on substantially similar terms, in May 2003.

 

39

----

 

**Long-termFunding**

 

We issue long-term debt through U.S. and Euromarketmedium-term note programs, as well as syndicated and privately placed offeringsaround the world.

 

Under the Company’s currentlyeffective $10 billion shelf registration statement on file with the SEC,which allows the Company to issue from time to time senior and subordinateddebt securities and warrants to purchase such securities, the Company had atMay 12, 2003 approximately $6.5 billion available for issuance.

 

For the three months ended March31, 2003, the Company issued $525 million in medium-term notes under this shelfregistration statement and $1.3 billion in medium-term notes under a$5 billion Euromarket program established in July 2001.

 

During the three months ended March 31, 2003,approximately $590 million of medium-term notes were repaid.

 

**Credit Ratings**

 

Our access to the debt capitalmarkets and our borrowing costs depend significantly on our credit ratings.These ratings are assigned by agencies, which may raise, lower or withdrawtheir ratings or place us on “creditwatch” with positive or negativeimplications at any time. Credit ratings are important to us when competing incertain markets and when seeking to engage in longer-term transactions,including OTC derivatives. We believe agencies consider several factors indetermining our credit ratings, including such things as earnings performance,business mix, market position, financial strategy, level of capital, riskmanagement policies and practices and management team, in addition to thebroader outlook for the financial services industry.

 

A reduction in our creditratings could limit our access to capital markets, increase our borrowingcosts, require us to provide additional collateral and allow counterparties toterminate transactions under certain of our trading and collateralizedfinancing contracts. This, in turn, could reduce our liquidity and negativelyimpact our operating results and financial position. Our liquidity planningtakes into consideration those contingent events associated with a reduction inour credit ratings.

 

At May 12, 2003, our ratings andratings outlooks were as follows: 

 
|                        |   | **Long-Term Debt** |   | **Commercial Paper** |   | **Outlook**      |   |
|-----------------------------|--------|--------------------|--------|----------------------|--------|------------------|--------|
|                        |   |               |   |                 |   |             |   |
| Fitch                       |   | AA-                |   | F-1+                 |   | Negative outlook |   |
| Moody’s                |   | Aa3                |   | P-1                  |   | Negative outlook |   |
| Standard &  Poor’s |   | A+                 |   | A-1                  |   | Stable           |   |

 

**CapitalResources**

 

Certain of our businesses are capitalintensive. In addition to normal operating requirements, capital is required tocover financing and regulatory capital charges on securities inventories,private equity investments and investments in fixed assets. Our overall capitalneeds are regularly reviewed to ensure that our capital base can appropriatelysupport the anticipated needs of our business and the capital requirements(regulatory and other) of our subsidiaries. Based upon these analyses, webelieve that our capitalization is adequate for current operating levels.

 

***Regulated Subsidiaries***

 

Our principal wholly owned subsidiary, CSFBLLC, is a registered broker-dealer, registered futures commission merchant andmember firm of the New York Stock Exchange Inc., or NYSE.  As such, it is subject to the NYSE’s netcapital rule, which conforms to the uniform net capital rule pursuant toRule 15c3-1 of the Securities Exchange Act of 1934, as amended. Under thealternative method permitted by this rule, the required net capital may not beless than two percent of aggregate debit balances arising from customertransactions or four percent of segregated funds, whichever is greater. If amember firm’s capital is less than four percent of aggregate debit balances,the NYSE may require the firm to reduce its business. If a member firm’s netcapital is less than five percent of aggregate debit balances, the NYSE mayprevent the firm from expanding its business and declaring cash dividends. Asof March 31, 2003, CSFB LLC’s net capital of approximately$2.2 billion was 46% of aggregate debit balances and in excess of theminimum requirement by approximately $1.9 billion. Our OTC derivativesdealer subsidiary, Credit Suisse First Boston Capital LLC, is also subject tothe uniform net capital rule, but calculates its net capital requirements underAppendix F to Rule 15c3-1.

 

40

----

 

Certain other of our subsidiaries are subjectto capital adequacy requirements. As of March 31, 2003, our subsidiariescomplied with all applicable regulatory capital adequacy requirements.

 

Our broker-dealer subsidiary, Pershing LLC,was sold to BONY in connection with the sale of our Pershing unit on May 1,2003.

 

**Cash Flows**

 

Our condensed consolidated statements of cashflows classify cash flow into three broad categories: cash flows from operatingactivities, investing activities and financing activities. These statementsshould be read in conjunction with “Related Party Transactions” as well asNotes 2 and 4 of the condensed consolidated financial statements inPart I, Item 1.

 

As permitted by generally accepted accountingprinciples, we present the condensed consolidated statements of cash flows asif the assets and liabilities of Pershing as of March 31, 2003 were notpresented as “Assets held for sale” and “Liabilities held for sale” in thecondensed consolidated statements of financial condition and the results ofoperations of Pershing were not presented as “Discontinued operations” in thecondensed consolidated statements of income.

 

***For the Three Months Ended March 31, 2003***

 

Cash and cash equivalentsincreased $19 million to $499 million as of March 31, 2003.  In accordance with generally acceptedaccounting principles, the condensed consolidated statement of cash flows forthe three months ended March 31, 2003 was presented as ifthe assets and liabilities of Pershing were not presented as “Assets held for sale” and “Liabilities held forsale” in the condensed consolidated statements of financial condition as ofMarch 31, 2003 and December 31, 2002. As a result of this presentation, cash and cash equivalents increased$227 million, of which $208 million was related to Pershing and $19 million wasrelated to our continuing operations. Cash provided by operating activities was $2.7 billion.  The change in cash provided by operatingactivities resulted primarily from net increases in operating assets of $7.8billion and net increases in operating liabilities of $10.2 billion, which occurredin the normal course of operations as a result of changes in customer needs,market conditions and proprietary trading and other strategies.

 

Cash of $524 million wasused in investing activities. Prior to the acquisition of the Company by CSFBI,CSFBI issued its own debt to fund its operating, investing and financingactivities. The Company is now providing most of this funding, resulting inincreases in receivables from affiliates of $507 million.

 

Cash used in financingactivities was $2.0 billion. The changes are due to increases in netpayments for collateralized financing arrangements of $3.3 billion and adecrease of $590 million used to repay long-term borrowings offset byincreases of $1.9 billion in long-term borrowings.

 

***For the Three Months Ended March 31,2002***

 

Cash and cash equivalentsdecreased by $111 million to $1.6 billion as of March 31, 2002.Cash used in operating activities was $12.4 billion. The change in cashused in operating activities is primarily due to changes in operating assetsand operating liabilities that occurred in the normal course of operations as aresult of changes in customer needs, market conditions and proprietary tradingand other strategies.

 

Cash of $4.1 billion wasused in investing activities, reflecting the fact that the Company is providingfunding to CSFBI, resulting in increases in receivables from affiliates of$4.8 billion. Prior to the acquisition of the Company by CSFBI, CSFBIissued its own debt to fund its operating, investing and financing activities.

 

Cash provided by financingactivities was $16.4 billion, reflecting increases in net proceeds fromfinancing arrangements of $5.5 billion and short-term borrowings of $7.0billion used primarily to fund operating activities.  In addition, the Company had increases of $4.1 billion oflong-term borrowings, which were used to fund its investing and otheractivities.

 

41

----

 

**OFF-BALANCESHEET ARRANGEMENTS**

 

We enter into off-balance sheetarrangements in the ordinary course of business. Off-balance sheet arrangementsare transactions, agreements or other contractual arrangements with or for thebenefit of an entity that is not consolidated with us, and which includeguarantees and similar arrangements, retained or contingent interests in assetstransferred to an unconsolidated entity, and obligations and liabilities(including contingent obligations and liabilities) under material variableinterests in unconsolidated entities for the purpose of providing financing,liquidity, market risk or credit risk support.

 

We have not entered into anyderivatives contracts indexed or linked to the stock of Credit Suisse Group.

 

**Guarantees**

 

In the course of our regularbusiness, we provide guarantees and indemnifications that contingently obligateus to make payments to the guaranteed or indemnified party based on changes inan asset, liability or equity security of the guaranteed or indemnified party.We may also be contingently obligated to make payments to a guaranteed partybased on another entity’s failure to perform, or we may have an indirectguarantee of the indebtedness of others. We have provided customaryindemnifications to purchasers in conjunction with the sale of assets orbusinesses, to investors in private equity funds sponsored by the firmregarding potential obligations of its employees to return amounts previouslypaid as carried interest and to investors in our securities and otherarrangements to provide “gross up” payments if there is a withholding or deductionbecause of a tax, assessment or other governmental charge. On December 31,2002, we adopted the new disclosure requirements for these guarantees inaccordance with the Financial Accounting Standards Board, or FASB,Interpretation, or FIN, No. 45, “Guarantor’s Accounting and DisclosureRequirements for Guarantees, Including Indirect Guarantees of Indebtedness ofOthers - an interpretation of FASB Statements No. 5, 57, and 107 andrescission of FASB Interpretation No. 34,” or FIN 45, which requires us todisclose our maximum potential payment obligations under these guarantees tothe extent it is possible to estimate them. From time to time we guarantee theobligations of subsidiaries of CSG that are not our consolidated subsidiaries,and these guarantees are included in the scope of the disclosure requirementsof FIN 45. On January 1, 2003, we adopted the new recognition requirements ofFIN 45 that require us to recognize a liability for the fair value of theguaranteed obligations for guarantees issued or amended after December 31,2002. The recognition of these liabilities did not have a material effect onour financial position or results of operations. See Notes 1 and 13 of thecondensed consolidated financial statements in Part I, Item 1.

 

**Retained orContingent Interests in Assets Transferred to Unconsolidated Entities**

 

We originate and purchasecommercial mortgages and purchase residential mortgages and sell these assetsdirectly or through affiliates to special purpose entities that are, in mostcases, qualified special purpose entities, or QSPEs. These QSPEs issuesecurities that are backed by the assets transferred to the QSPEs and pay areturn based on the returns on those assets. Investors in these mortgage-backedsecurities typically have recourse to the assets in the QSPE. The investors andthe QSPEs have no recourse to our assets.

 

These QSPEs are set up by oursubsidiaries. Our principal broker-dealer subsidiary, CSFB LLC, underwrites andmakes markets in these mortgage-backed securities. Under Statement of FinancialAccounting Standards, or SFAS, No. 140, “Accounting for Transfers andServicing of Financial Assets and Extinguishments of Liabilities, a replacementof FASB Statement No. 125,” or SFAS 140, a QSPE is not required to beconsolidated with the transferor. Our mortgage-backed securitization activitiesare generally structured to use QSPEs, and assets and liabilities transferredto QSPEs are not included in our financial statements.

 

We may retain interests in thesesecuritized assets if CSFB LLC holds the assets in connection with itsunderwriting or market-making activities. Retained interests in securitizedfinancial assets are included in the condensed consolidated statements offinancial condition at fair value. Any changes in fair value of these retainedinterests are recognized in the condensed consolidated statements of income. Weengage in these securitization activities to meet the needs of clients as partof our fixed income activities and to sell financial assets. These securitizationactivities do not provide a material source of our funding. See Note 6 ofthe condensed consolidated financial statements in Part I, Item 1.

 

42

----

 

**MaterialVariable Interests in Unconsolidated Entities**

 

We purchase loans and other debt obligationsfrom clients for the purpose of securitization. The loans and other debtobligations are transferred by us directly, or indirectly through affiliates,to QSPEs or to variable interest entities, or VIEs, that issue collateralizeddebt obligations, or CDOs. CSFB LLC structures, underwrites and makes a marketin these CDOs, and we may have retained interests in these CDOs in connectionwith CSFB LLC’s underwriting and market-making activities. We believe it is reasonablypossible that CDO VIEs in which we have a majority of the equity interests willbe consolidated upon adoption of FIN No. 46, “Consolidation of VariableEntities, an interpretation of Accounting Research Bulletin No. 51”, whichwas issued by the FASB in January 2003. The estimated impact ofconsolidation of these CDO VIEs as of March 31, 2003 is an increase infinancial instruments owned of approximately $653 million, of which$3 million, the amount of our retained interests, is reflected in the condensedconsolidated statements of financial condition.

 

We also have significant investments,including equity and debt, in CDO VIEs that we do not believe will beconsolidated.  The total assets in theseCDOs as of March 31, 2003 were approximately $2.1 billion.  The amount of our retained interests relatedto these investments in CDO VIEs was approximately $14 million as of March31, 2003. These interests are included in financial instruments owned at fairvalue. Our retained interests in these CDO assets are included in theSFAS 140 disclosures in Note 6 of the condensed consolidatedfinancial statements in Part I, Item 1.

 

We engage in these CDO transactions to meetthe needs of clients.  See Note 6 of the condensed consolidatedfinancial statements in Part I, Item 1.

 

**OTHERCOMMITMENTS**

 

We have commitments under avariety of commercial arrangements that are not recorded as liabilities in ourcondensed consolidated statements of financial condition. These commitments arein addition to guarantees and other arrangements discussed in “Off-BalanceSheet Arrangements.” These commitments include standby letters of credit,standby repurchase agreement facilities that commit us to enter into reverserepurchase agreements with customers at market rates, commitments to invest invarious partnerships that make private equity and related investments invarious portfolio companies and in other private equity funds and commitmentsto enter into resale agreements. See Note 12 of the condensed consolidatedfinancial statements in Part I, Item 1.

 

**RELATED PARTYTRANSACTIONS**

 

CSG, through CSFBI, owns all ofour outstanding voting common stock. We are involved in significant financingand other transactions, and have significant related party balances, withCredit Suisse First Boston and certain affiliates. We enter into thesetransactions in the ordinary course of business and believe that thesetransactions are on market terms that could be obtained from unrelated thirdparties. See “—Derivatives” and Notes 4 and 13 of the condensed consolidatedfinancial statements in Part I, Item 1 for more information.

 

Certain of our directors,officers and employees and those of our affiliates and their subsidiariesmaintain margin accounts with CSFB LLC and other affiliated broker-dealers inthe ordinary course of business. In addition, certain of such directors,officers and employees had investments or commitments to invest in variousprivate funds sponsored by us, pursuant to which we have made loans to suchdirectors, officers and employees, to the extent permitted by law. CSFB LLC andother affiliated broker-dealers, from time to time and in the ordinary courseof business, enter into, as principal, transactions involving the purchase orsale of securities from or to such directors, officers and employees andmembers of their immediate families.

 

**LESS LIQUIDASSETS**

 

Certain of our assets, includingprivate equity and other long-term investments, distressed securities,high-yield debt, mortgage whole loans and other non-investment-grade debt, arenot highly liquid.

 

**Private EquityActivities**

 

Our private equity and otherlong-term investment activities include direct investments and investments inpartnerships that make private equity and related investments in variousportfolio companies and funds. These investments are primarily in unlisted orilliquid equity or equity-related securities and are carried at estimated fairvalue based on a number of factors. See “Business—Products andServices—Investment Banking—Private Equity” in our Annual Report on Form 10-Kfor the year ended December 31, 2002 and “—Critical Accounting Policies—FairValue” in Part I, Item 2 for more information. As of March 31, 2003 andDecember 31, 2002, the Company had investments of $0.9 billion and $1.0 billion,respectively, and had commitments to invest up to an additional$1.7 billion at both March 31, 2003 and December 31, 2002.

 

43

----

 

**High-YieldDebt, Mortgage Whole Loans and Other Non-Investment-Grade Financial Instruments**

 

We underwrite, trade and holdhigh-yield debt, mortgage whole loans, loan participations and othernon-investment-grade financial instruments. Due to credit considerations, liquidity of secondary trading markets andvulnerability to general economic conditions, these financial instruments andloans generally involve greater risk than investment-grade financialinstruments. We record high-yield debt, residential mortgage whole loans andother non-investment-grade financial instruments at fair value, with theexception of certain residential mortgage whole loans that are held for saleand are carried at the lower of cost or market. We record commercial mortgagewhole loans held for sale and loan participations at the lower of cost or fairvalue.  Timing of the securitization ofour mortgage whole loan inventory will affect the size of our positions at anygiven time. The following table sets forth our positions in these instrumentsas of March 31, 2003 and December 31, 2002: 

 
|                                               |   | **March 31, 2003** |       | **December 31, 2002** |   |
|----------------------------------------------------|--------|--------------------|------------|-----------------------|--------|
|                                               |   | **Long**           |       | **Short**             |   | **Long** |   | **Short** |   |
|                                               |   | **(In  millions)** | ** ** |
|                                               |   |               |       |                  |   |   |   |   |   |
| High-yield debt                                    |   | $                  | 1,321      |                  | $      | 572 |   | $ | 1,699 |   | $ | 691 |   |
| Mortgage whole  loans                              |   | 9,811              |       | —                |   | 9,465 |   | — |   |
| Loan  participations                               |   | 140                |       | —                |   | 126 |   | — |   |
| Other  non-investment-grade financial instruments. |   | 101                |       | —                |   | 96 |   | — |   |
| Total                                              |   | $                  | 11,373     |                  | $      | 572 |   | $ | 11,386 |   | $ | 691 |   |

 

**DERIVATIVES**

 

We enter into varioustransactions involving derivatives. We use derivatives contracts for bothtrading and hedging purposes and to provide products for our clients. Thesederivatives include options, forwards, futures and swaps. In general,derivatives are contractual agreements that derive their values from theperformance of underlying assets, interest or currency exchange rates or avariety of indices. Most of our derivatives transactions are considered tradingpositions. See Note 11 of the condensed consolidated financial statementsin Part I, Item 1 for more information.

 

44

----

 

**Sources andMaturities of OTC Derivatives**

 

The following table sets forththe distributions, by maturity, of substantially all of our exposure withrespect to OTC derivatives as of March 31, 2003, after taking into accountthe effect of netting agreements. Fair values were determined on the basis ofpricing models and other valuation methods. See Note 11 of the condensed consolidated financial statements inPart I, Item 1 for more information.

 
|              |   | **Assets   Maturity Distribution as of March 31, 2003** |       |
|-------------------|--------|---------------------------------------------------------|------------|
|              |   | **Less than  1 year**                                   |       | **1-3 years** |   | **4-5 years** |   | **Over 5 years** |   | **Total fair   value** |   |
|              |   | **(In  millions)**                                      | ** ** |
|              |   |                                                    |       |   |   |   |   |   |   |   |   |
| Options           |   | $                                                       | 119        |   | $ | 244 |   | $ | 26 |   | $ | 24 |   | $ | 413 |   |
| Forward contracts |   | 775                                                     |       | — |   | — |   | — |   | 775 |   |
| Swaps             |   | 235                                                     |       | 555 |   | 320 |   | 1,452 |   | 2,562 |   |
| Total             |   | $                                                       | 1,129      |   | $ | 799 |   | $ | 346 |   | $ | 1,476 |   | $ | 3,750 |   |

 
|              |   | **Liabilities   Maturity Distribution as of March 31, 2003** |       |
|-------------------|--------|--------------------------------------------------------------|------------|
|              |   | **Less than   1 year**                                       |       | **1-3 years** |   | **4-5 years** |   | **Over 5 years** |   | **Total fair   value** |   |
|              |   | **(In millions)**                                            | ** ** |
|              |   |                                                         |       |   |   |   |   |   |   |   |   |
| Options           |   | $                                                            | 239        |   | $ | 262 |   | $ | 186 |   | $ | 23 |   | $ | 710 |   |
| Forward contracts |   | 673                                                          |       | 3 |   | — |   | — |   | 676 |   |
| Swaps             |   | 339                                                          |       | 401 |   | 67 |   | 457 |   | 1,264 |   |
| Total             |   | $                                                            | 1,251      |   | $ | 666 |   | $ | 253 |   | $ | 480 |   | $ | 2,650 |   |

 

The following table sets forth as ofMarch 31, 2003 substantially all of our exposure with respect to OTCderivatives, by counterparty credit rating and with affiliates, after takinginto account the effect of netting agreements.

 
| **Credit Rating(1)**         |   | **March 31, 2003** |   |
|------------------------------|--------|--------------------|--------|
|                         |   | **(In millions)**  |   |
|                         |   |               |   |
| AAA                          |   | $                  | 23     |   |
| AA+/AA                       |   | 147                |   |
| AA-                          |   | 478                |   |
| A+/A/A-                      |   | 276                |   |
| BBB+/BBB/BBB-                |   | 90                 |   |
| BB+ or lower                 |   | 166                |   |
| Unrated                      |   | 294                |   |
| Derivatives  with affiliates |   | 2,276              |   |
| Total                        |   | $                  | 3,750  |   |

 

----

(1)           Creditratings are determined by external rating agencies or by our Credit RiskManagement department.

 

45

----

 

**DerivativesWith Related Parties**

 

We enter into a substantialnumber of derivatives transactions with related parties. The following tablesets forth derivatives transactions with related parties consisting primarilyof interest rate swaps, foreign exchange forwards and credit default swaps. Thefair values of derivatives contracts outstanding with related parties as ofMarch 31, 2003 and December 31, 2002 were as follows: 

 
|               |   | **March 31, 2003** |       | **December 31, 2002** |   |
|--------------------|--------|--------------------|------------|-----------------------|--------|
|               |   | **Assets**         |       | **Liabilities**       |   | **Assets** |   | **Liabilities** |   |
|               |   | **(In  millions)** | ** ** |
|               |   |               |       |                  |   |   |   |   |   |
| Options            |   | $                  | 110        |                  | $      | 285 |   | $ | 125 |   | $ | 319 |   |
| Forward  contracts |   | 100                |       | 119                   |   | 171 |   | 74 |   |
| Swaps              |   | 2,066              |       | 1,009                 |   | 1,958 |   | 819 |   |
| Total              |   | $                  | 2,276      |                  | $      | 1,413 |   | $ | 2,254 |   | $ | 1,212 |   |

 

**ITEM 3**:  Quantitative and Qualitative DisclosuresAbout Market Risk

 

**RISK MANAGEMENTAND VALUE AT RISK**

 

For a description of the Company’s riskmanagement policies and procedures and value-at-risk, or VAR, model includingsuch model’s assumptions and limitations, see “Quantitative and QualitativeDisclosure About Market Risk” in Part II, Item 7A of the Company’s AnnualReport on Form 10-K for the year ended December 31, 2002.

 

**MARKET RISKEXPOSURE**

 

**TradingPortfolios**

 

The Company-wide trading portfolio VAR wasapproximately $43 million and $41 million at March 31, 2003 and December 31, 2002,respectively.

 

Due to the benefit of diversification, theCompany-wide VAR is less than the sum of the individual components. The twomain components of market risk, expressed in terms of theoretical fair values,had the following VAR:

 

**Company’s Market Risk Exposures inTrading Portfolios (Unaudited)**

 
|                       |   | **March 31, 2003** |   | **December 31, 2002** |   |
|----------------------------|--------|--------------------|--------|-----------------------|--------|
|                       |   | **(In millions)**  |   |
| 99%,  one-day VAR          |   |               |   |
| Interest rate risk         |   | $                  | 36     |                  | $      | 37 |   |
| Equity risk                |   | 22                 |   | 8                     |   |
| Benefit of diversification |   | (15                | )      | (4                    | )      |
| Total                      |   | $                  | 43     |                  | $      | 41 |   |

 

**Non-TradingPortfolios**

 

We measure equity risk onnon-trading positions using sensitivity analysis that estimates the potentialchange in the recorded value of the investments resulting from a 10% decline inthe equity markets of G-21 nations and a 20% decline in the equity markets ofnon-G-21 nations. Theestimated impact of equity risk on our non-trading financial instrumentsportfolio, which is mainly comprised of our private equity investments, was adecrease in the value of the non-trading portfolio of approximately $91 millionand $96 million at March 31, 2003 and December 31, 2002, respectively.

 

The interest rate risk onnon-trading positions is measured using sensitivity analysis that estimates thepotential change in the value of the non-trading portfolio resulting from a 100basis points decline in the interest rates of G-21 nations and a 200 basispoints decline in the interest rates of non-G-21 nations.  The estimated impact on pre-tax net income was an increase of approximately $18 million and $73 million at March31, 2003 and December 31, 2002, respectively.

 

We do not have material foreignexchange or commodity price risks on our trading and non-trading portfolios.

 

46

----

 

**ITEM 4:**  Controls and Procedures

 

Within 90 days prior to the filing of thisreport, an evaluation was carried out under the supervision and with theparticipation of our management, including our Chief Executive Officer andChief Financial and Accounting Officer, of the effectiveness of the design andoperation of our disclosure controls and procedures.  There are inherent limitations to the effectiveness of any systemof disclosure controls and procedures, including the possibility of human errorand the circumvention or overriding of the controls and procedures.Accordingly, even effective disclosure controls and procedures can only providereasonable assurance of achieving their control objectives.  Based upon and as of the date of theevaluation, our Chief Executive Officer and Chief Financial and AccountingOfficer concluded that the design and operation of these disclosure controlsand procedures were effective in all material respects to ensure thatinformation required to be disclosed in the reports we file and submit underthe Exchange Act is recorded, processed, summarized and reported as and whenrequired. There were no significant changes in our internal controls or inother factors that could significantly affect these controls subsequent to thedate of their evaluation.

 

47

----

 

**PART II**

**OTHER INFORMATION**

 

**ITEM 1:  Legal Proceeding*s***

 

Certain significant legal proceedings andmatters have been previously disclosed in the Company’s Annual Report on Form10-K for the year ended December 31, 2002. The following is an update of such proceedings.

 

**Litigation andInquiries Relating to Enron**

 

On April 12, 2003 an action was filed in theU.S. District Court for the Southern District of Texas against CSFB LLC andcertain CSFB affiliates and other entities by two purchasers of securitiesissued by Osprey Trust for alleged violations of state and federal securitieslaws, statutory and common law fraud, and negligence and professionalmalpractice.

 

**Governmental/RegulatoryInquiries Relating to IPO Allocation/Research-related Practices**

 

On April 28, 2003, CSFB and other Wall Streetfirms finalized a global settlement with a coalition of state and federalregulators and self-regulatory organizations to settle the pendinginvestigations into research analyst independence and certain IPO allocationpractices.  Consistent with theagreement in principle announced in December 2002, CSFB agreed, withoutadmitting or denying the allegations, findings or conclusions, to pay a totalof $200 million, consisting of (a) $150 million to settle the enforcementactions and (b) $50 million to fund third-party research to clients over fiveyears.  CSFB has also agreed toimplement significant, industry-wide procedural and structural reforms to itsbusiness practices relating to both research analyst independence and theallocation of shares in IPOs.

 

**LitigationRelating to IPO Allocation and Research**

 

***IPO Allocation-related Litigation***

 

In the action brought against CSFB LLC onbehalf of a putative class of issuers in IPOs in which CSFB LLC acted as leadmanager, no member of the putative class sought to substitute as the putativeclass representative by the court-imposed deadline of April 16, 2003, and thecourt directed that the case be dismissed without prejudice.

 

***Research-related Litigation***

 

In the wake of publicity surrounding variousgovernmental and regulatory investigations into the practices of equityresearch analysts, putative class action lawsuits were filed against CSFB LLCin the U.S. District Court for the Southern District of New York and the U.S.District Court for the District of Massachusetts in March and April 2003 onbehalf of purchasers of shares of Atmel Corporation and in the U.S. DistrictCourt for the Southern District of New York in April 2003 on behalf ofpurchasers of shares of Lantronix, Inc.

 

On February 6, 2003, the court granted CSFBLLC’s and its co-defendants’ motion to dismiss the consolidated actions broughton behalf of purchasers of Covad Communications Co. and allowed plaintiffs 60days to replead.  CSFB LLC subsequentlyreceived an amended complaint.

 

The actions brought on behalf of purchasersof Razorfish, Inc. have been consolidated in the U.S. District Court for theDistrict of Massachusetts.

 

**AmeriServeFood Distribution Inc. Litigation**

 

On March 21, 2003, in the matter filed by GSCRecovery, Inc., or GSC, in the Superior Court of New Jersey, against certainDLJ entities and certain officers, directors and other individuals andentities, the court denied GSC’s motion for reconsideration of the court’sorder dismissing GSC’s original complaint in part.

 

On April 17, 2003, in the matter filed in theCounty Court of Dallas, Texas by Ronald Rittenmeyer, in his capacity as planadministrator of the AFD Fund, the post-confirmation estate of the bankruptcycases of AmeriServe and its affiliates, the appellate court upheld the trialcourt’s decision to dismiss the two individual defendants, former DLJ employeeswho were AmeriServe board members, for lack of personal jurisdiction.

 

48

----

 

**IndependentEnergy Holdings PLC Litigation**

 

On April 3, 2003, the DLJ entities and leadplaintiffs executed a memorandum of understanding that, subject to theexecution of a stipulation of settlement and appropriate court approvals, willsettle all claims asserted against the DLJ entities in the matter.

 

We are involved in a number of judicial,regulatory and arbitration proceedings (including those described above andactions that have been separately described in previous filings) concerningmatters arising in connection with the conduct of our businesses.  Some of the actions have been brought onbehalf of various classes of claimants and, unless otherwise specified, seekdamages of material and/or indeterminate amounts.  We believe, based on currently available information and adviceof counsel, that the results of such proceedings, in the aggregate, will nothave a material adverse effect on our financial condition but might be materialto operating results for any particular period, depending in part upon theoperating results for such period.  Weintend to defend ourselves vigorously against all of the claims asserted inthese matters.

 

**ITEMS 2, 3 and4:**

 

Pursuant to General Instruction H ofForm 10-Q, the information required by Items 2, 3 and 4 is omitted.

 

**ITEM 5**:  Other Information

 

We have made in this Quarterly Report onForm 10-Q, including, without limitation, in “Legal Proceedings” inPart II, Item 1, and in “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” in Part I, Item 2, and from time totime may otherwise make in our public filings and press releases,forward-looking statements concerning our operations, economic performance andfinancial condition, as well as our future plans and strategic objectives. Suchforward-looking statements are subject to various risks and uncertainties, andwe claim the protection afforded by the safe harbor for forward-lookingstatements contained in the Private Securities Litigation Reform Act of 1995.Actual results could differ materially from those anticipated herein or in anysuch other filings, releases or statements because of a number of factors,including without limitation, those detailed in “Business—Certain Factors ThatMay Affect Our Results of Operations” in Part I, Item 1 of our AnnualReport on Form 10-K for the year ended December 31, 2002, thosediscussed elsewhere herein, and in other public filings and press releases.These forward-looking statements are not historical facts but instead representonly our belief regarding future events, many of which, by their nature, areinherently uncertain and beyond our control. Forward-looking statements aretypically identified by the use of future or conditional verbs such as “will,”“should,” “would” or “could,” and by words or phrases such as “believe,”“expect,” “intend,” “estimate” and similar expressions. By identifying thesestatements for you in this manner, we are alerting you to the possibility thatour actual results may differ, possibly materially, from the results indicatedin these forward-looking statements. We undertake no obligation to update orrevise any forward-looking statements except as otherwise required byapplicable law.

 

49

----

 

**ITEM 6**:  Exhibits and Reports on Form 8-K

** **

(a)           Exhibits

 

2              Amendmentdated as of April 30, 2003, to the Transaction Agreement between Credit SuisseFirst Boston (USA), Inc. and The Bank of New York, Inc. dated as of January 7,2003 (incorporated by reference to Exhibit 2.1 of the Registrant’s CurrentReport on Form 8-K dated May 1, 2003)

12            Statement re computation of ratio of earningsto fixed charges

15            Letter re unaudited interim financialinformation

99            Certification pursuant to 18 U.S.C. Section1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

(b)           Reports on Form 8-K

 

1.             Form 8-K dated January 8, 2003; Items 2 and 7

2.             Form 8-K dated January 21, 2003; Items 5 and 7

3.             Form 8-K dated February 19, 2003; Items 5 and7

4.             Form 8-K dated March 20, 2003; Item 5

5.             Form 8-K dated March 27, 2003; Items 5 and 7

6.             Form8-K dated April 25, 2003; Item 5

7.             Form8-K dated May 1, 2003; Items 2 and 7

 

50

----

 

**Signature**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the Registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 
|         | CREDIT  SUISSE FIRST BOSTON (USA), INC. |
|--------------|-----------------------------------------|
| May 13, 2003 | By:                                     | /s/   David C. Fisher |   |
|         |                                    | *Chief  Financial and Accounting Officer**(On behalf of the  Registrant and as**Principal  Financial Officer)* |

 

51

----

 

**Certification**

 

I, Brian D. Finn, certify that:

 

1.     I have reviewed this quarterly report onForm 10-Q of Credit Suisse First Boston (USA), Inc.;

 

2.     Based on my knowledge, this quarterlyreport does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.     Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

 

4.     The registrant’s other certifying officersand I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

a)     designed such disclosurecontrols and procedures to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b)    evaluated the effectivenessof the registrant’s disclosure controls and procedures as of a date within 90days prior to the filing date of this quarterly report (the “Evaluation Date”);and

 

c)     presented in this quarterlyreport our conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

 

5.     The registrant’s other certifying officersand I have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a)     all significant deficienciesin the design or operation of internal controls which could adversely affectthe registrant’s ability to record, process, summarize and report financialdata and have identified for the registrant’s auditors any material weaknessesin internal controls; and

 

b)    any fraud, whether or notmaterial, that involves management or other employees who have a significantrole in the registrant’s internal controls; and

 

6.     The registrant’s other certifying officersand I have indicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:  May 13, 2003 |   | /s/ Brian D. Finn                      |   |   |
|--------------------------|--------|----------------------------------------|--------|--------|
|                     | Name:  | Brian D. Finn                          |   |
|                     | Title: | President and Chief  Executive Officer |   |

 

52

----

 

### **Certification**

 

I, David C. Fisher, certify that:

 

1.     I have reviewed this quarterly report onForm 10-Q of Credit Suisse First Boston (USA), Inc.;

 

2.     Based on my knowledge, this quarterlyreport does not contain any untrue statement of a material fact or omit to statea material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.     Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

 

4.     The registrant’s other certifying officersand I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

a)     designed such disclosurecontrols and procedures to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b)    evaluated the effectivenessof the registrant’s disclosure controls and procedures as of a date within 90days prior to the filing date of this quarterly report (the “Evaluation Date”);and

 

c)     presented in this quarterlyreport our conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

 

5.     The registrant’s other certifying officersand I have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a)     all significant deficienciesin the design or operation of internal controls which could adversely affectthe registrant’s ability to record, process, summarize and report financialdata and have identified for the registrant’s auditors any material weaknessesin internal controls; and

 

b)    any fraud, whether or notmaterial, that involves management or other employees who have a significantrole in the registrant’s internal controls; and

 

6.     The registrant’s other certifying officersand I have indicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:  May 13, 2003 |   | /s/ David C. Fisher                     |   |   |
|--------------------------|--------|-----------------------------------------|--------|--------|
|                     | Name:  | David C. Fisher                         |   |
|                     | Title: | Chief Financial and Accounting  Officer |   |

 

53

----

 

### **INDEX TO EXHIBITS**

 
| **Exhibits No.** |   | **Description** |
|------------------|--------|-----------------|
|             |   |            |   |
|             | 2      |            | Amendment  dated as of April 30, 2003, to the Transaction Agreement between Credit  Suisse First Boston (USA), Inc. and The Bank of New York, Inc. dated as of  January 7, 2003 (incorporated by reference to Exhibit 2.1 of the Registrant’s  Current Report on Form 8-K dated May 1, 2003) |
|             | 12     |            | Statement re  computation of ratio of earnings to fixed charges |
|             | 15     |            | Letter re  unaudited interim financial information |
|             | 99     |            | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |

 

54

----