**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**Forthe quarterly period ended September 30, 2005**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**Forthe transition period from                    to                   **

**CommissionFile Number: 1-6862**

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

(Exact name ofregistrant as specified in its charter)

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

 

**TheRegistrant meets the conditions set forth in General Instruction H (1) (a) and(b) of Form 10-Q and is therefore filing this Form 10-Qwith the reduced disclosure format.**

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days: Yes x  No o

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

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

 

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**CREDITSUISSE FIRST BOSTON (USA), INC.**

**QuarterlyReport on Form 10-Q for the Quarter Ended September 30, 2005**
| **PART I**  | ** ** | **FINANCIAL  INFORMATION** |                                                                                                                                               |
|------------------|------------|----------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|             |       | ITEM 1:                    | Financial  Statements                                                                                                                              |   |   |   |
|             |       |                       | Condensed  Consolidated Statements of Financial Condition (Unaudited)  as of September 30, 2005 and December 31, 2004          |   | 2 |   |
|             |       |                       | Condensed  Consolidated Statements of Income (Unaudited) for the three and nine  months ended September 30, 2005 and 2004                |   | 4 |   |
|             |       |                       | Condensed  Consolidated Statements of Changes in Stockholder’s Equity (Unaudited) for  the nine months ended September 30, 2005 and 2004 |   | 5 |   |
|             |       |                       | Condensed  Consolidated Statements of Cash Flows (Unaudited) for the nine months  ended September 30, 2005 and 2004                      |   | 6 |   |
|             |       |                       | Notes  to Condensed Consolidated Financial Statements (Unaudited)                                                                                  |   | 7 |   |
|             |       |                       | 1.  Summary of Significant Accounting Policies                                                                                                     |   | 7 |   |
|             |       |                       | 2. Related  Party Transactions                                                                                                                     |   | 9 |   |
|             |       |                       | 3.  Transfers and Servicing of Financial Assets                                                                                                    |   | 12 |   |
|             |       |                       | 4.  Private Equity and Other Long-Term Investments                                                                                                 |   | 16 |   |
|             |       |                       | 5. Derivatives  Contracts                                                                                                                          |   | 17 |   |
|             |       |                       | 6. Borrowings                                                                                                                                      |   | 18 |   |
|             |       |                       | 7. Leases  and Commitments                                                                                                                         |   | 20 |   |
|             |       |                       | 8. Guarantees                                                                                                                                      |   | 21 |   |
|             |       |                       | 9. Net  Capital Requirements                                                                                                                       |   | 22 |   |
|             |       |                       |   10. Cash and Securities  Segregated Under Federal and Other Regulations                                                                |   | 23 |   |
|             |       |                       |   11. Share-Based Compensation                                                                                                           |   | 23 |   |
|             |       |                       |   12. Employee Benefit Plans                                                                                                             |   | 24 |   |
|             |       |                       |   13.  Legal Proceedings                                                                                                                 |   | 25 |   |
|             |       |                       |   14. Industry Segment and  Geographic Data                                                                                              |   | 26 |   |
|             |       |                       | Report  of Independent Registered Public Accounting Firm                                                                                           |   | 29 |   |
|             |       | ITEM  2:                   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                   |   | 30 |   |
|             |       | ITEM  3:                   | Quantitative  and Qualitative Disclosures About Market Risk                                                                                        |   | 61 |   |
|             |       | ITEM 4:                    | Controls  and Procedures                                                                                                                           |   | 64 |   |
| **PART II** | ** ** | **OTHER  INFORMATION**     |                                                                                                                                               |   |   |
|             |       | ITEM 1:                    | Legal  Proceedings                                                                                                                                 |   | 65 |   |
|             |       | ITEM 6:                    | Exhibits                                                                                                                                           |   | 67 |   |
|             |       | Signature                  |                                                                                                                                               | 68 |   |
|                  |            |                            |                                                                                                                                                    |  |  |  |  |

 

**AVAILABLE INFORMATION**

We file annual, quarterly and current reports andother information with the Securities and Exchange Commission, or SEC. Our SECfilings are available to the public over the internet on the SEC’s website at *www.sec.gov*. You may also view our annual,quarterly and current reports on our website at *www.csfb.com* (under “Company Information”) as soon as isreasonably practicable after the report is electronically filed with, orfurnished to, the SEC. The information on our website is not incorporated byreference into this Quarterly Report.

1

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**PART IFINANCIAL INFORMATION*Item1: Financial Statements***

**CREDIT SUISSE FIRST BOSTON (USA), INC. ANDSUBSIDIARIESCondensed ConsolidatedStatements of Financial Condition(Unaudited)(In millions)**

| ** **                                                                                                         | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                         |       |                         |       |                        |       |   |   |   |   |
| Cash and cash  equivalents                                                                                         |       |                         | $          | 623                         |       |   |   | $ | 727 |   |   |
| Collateralized  short-term financings:                                                                             |       |                         |       |                        |       |   |   |   |   |
| Securities purchased under agreements to resell                                                                    |       |                         | 52,067     |                        |       |   | 48,887 |   |   |
| Securities borrowed                                                                                                |       |                         | 95,822     |                        |       |   | 82,912 |   |   |
| Receivables:                                                                                                       |       |                         |       |                        |       |   |   |   |   |
| Customers                                                                                                          |       |                         | 2,893      |                        |       |   | 3,307 |   |   |
| Brokers, dealers and other                                                                                         |       |                         | 12,366     |                        |       |   | 11,094 |   |   |
| Financial instruments  owned (includes securities pledged as collateral of $70,605 and $54,663,  respectively):    |       |                         |       |                        |       |   |   |   |   |
| U.S. government and agencies                                                                                       |       |                         | 39,689     |                        |       |   | 32,841 |   |   |
| Corporate debt                                                                                                     |       |                         | 17,998     |                        |       |   | 14,721 |   |   |
| Mortgage whole loans                                                                                               |       |                         | 21,326     |                        |       |   | 14,987 |   |   |
| Equities                                                                                                           |       |                         | 29,701     |                        |       |   | 28,712 |   |   |
| Commercial paper                                                                                                   |       |                         | 2,882      |                        |       |   | 1,171 |   |   |
| Private equity and other long-term investments                                                                     |       |                         | 3,698      |                        |       |   | 3,127 |   |   |
| Derivatives contracts                                                                                              |       |                         | 5,278      |                        |       |   | 3,663 |   |   |
| Other                                                                                                              |       |                         | 3,135      |                        |       |   | 3,665 |   |   |
| Net deferred tax  asset                                                                                            |       |                         | 931        |                        |       |   | 1,103 |   |   |
| Office facilities  at cost (net of accumulated depreciation and amortization of $787 and  $913, respectively) |       |                         | 433        |                        |       |   | 420 |   |   |
| Goodwill                                                                                                           |       |                         | 529        |                        |       |   | 527 |   |   |
| Loans receivable  from parent and affiliates                                                                       |       |                         | 23,679     |                        |       |   | 22,692 |   |   |
| Other assets and  deferred amounts                                                                                 |       |                         | 1,658      |                        |       |   | 1,257 |   |   |
| Total assets                                                                                                       |       |                         | $          | 314,708                     |       |   |   | $ | 275,813 |   |   |

 

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

2

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**CREDIT SUISSE FIRST BOSTON(USA), INC. AND SUBSIDIARIESCondensed Consolidated Statements of Financial Condition (Continued)(Unaudited)(In millions, except share data)**

| ** **                                                                                           | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| **LIABILITIES AND STOCKHOLDER’S EQUITY**                                                        |       |                         |       |                        |       |   |   |   |   |
| Commercial paper  and short-term borrowings                                                          |       |                         | $          | 17,671                      |       |   |   | $ | 21,684 |   |   |
| Collateralized  short-term financings:                                                               |       |                         |       |                        |       |   |   |   |   |
| Securities sold under agreements to repurchase                                                       |       |                         | 124,945    |                        |       |   | 108,407 |   |   |
| Securities loaned                                                                                    |       |                         | 49,735     |                        |       |   | 45,148 |   |   |
| Payables:                                                                                            |       |                         |       |                        |       |   |   |   |   |
| Customers                                                                                            |       |                         | 10,439     |                        |       |   | 6,767 |   |   |
| Brokers, dealers and other                                                                           |       |                         | 6,107      |                        |       |   | 10,277 |   |   |
| Financial instruments  sold not yet purchased:                                                       |       |                         |       |                        |       |   |   |   |   |
| U.S. government and agencies                                                                         |       |                         | 24,053     |                        |       |   | 20,154 |   |   |
| Corporate debt                                                                                       |       |                         | 3,414      |                        |       |   | 2,842 |   |   |
| Equities                                                                                             |       |                         | 17,629     |                        |       |   | 5,245 |   |   |
| Derivatives contracts                                                                                |       |                         | 3,090      |                        |       |   | 2,295 |   |   |
| Other                                                                                                |       |                         | 279        |                        |       |   | 161 |   |   |
| Obligation to  return securities received as collateral                                              |       |                         | 4,995      |                        |       |   | 4,980 |   |   |
| Accounts payable  and accrued expenses                                                               |       |                         | 2,764      |                        |       |   | 3,327 |   |   |
| Other liabilities                                                                                    |       |                         | 5,825      |                        |       |   | 4,521 |   |   |
| Long-term  borrowings                                                                                |       |                         | 32,146     |                        |       |   | 28,941 |   |   |
| Total liabilities                                                                                    |       |                         | 303,092    |                        |       |   | 264,749 |   |   |
| Stockholder’s Equity:                                                                           |       |                         |       |                        |       |   |   |   |   |
| Common stock  ($0.10 par value; 50,000 shares authorized; 1,100 shares issued and  outstanding) |       |                         | —     |                        |       |   | — |   |   |
| Paid-in capital                                                                                      |       |                         | 8,967      |                        |       |   | 8,538 |   |   |
| Retained earnings                                                                                    |       |                         | 2,657      |                        |       |   | 2,534 |   |   |
| Accumulated other  comprehensive loss                                                                |       |                         | (8         | )                           |       |   | (8 | ) |   |
| Total stockholder’s equity                                                                      |       |                         | 11,616     |                        |       |   | 11,064 |   |   |
| Total liabilities  and stockholder’s equity                                                     |       |                         | $          | 314,708                     |       |   |   | $ | 275,813 |   |   |

 

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

3

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**CREDIT SUISSE FIRSTBOSTON (USA), INC. AND SUBSIDIARIESCondensed ConsolidatedStatements of Income(Unaudited)(In millions)**

| ** **                                                                                                                         | ** ** | **Three Months  Ended September 30,** | ** ** | **Nine Months  Ended September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                                         | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues:                                                                                                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Principal transactions-net                                                                                                         |       | $                                                    | 818        |                                                | $          | (174 | ) | $ | 1,379 |   | $ | 500 |   |
| Investment banking and advisory                                                                                                    |       | 503                                                  |       | 482                                                 |       | 1,231 |   | 1,346 |   |
| Commissions and fees                                                                                                               |       | 322                                                  |       | 304                                                 |       | 982 |   | 1,011 |   |
| Interest and dividends, net of interest expense of  $2,956, $1,512, $7,578 and $3,983, respectively                           |       | 418                                                  |       | 554                                                 |       | 1,504 |   | 1,825 |   |
| Other                                                                                                                              |       | 19                                                   |       | 17                                                  |       | 44 |   | 48 |   |
| Total net revenues                                                                                                                 |       | 2,080                                                |       | 1,183                                               |       | 5,140 |   | 4,730 |   |
| Expenses:                                                                                                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Employee compensation and benefits                                                                                                 |       | 959                                                  |       | 744                                                 |       | 2,644 |   | 2,532 |   |
| Occupancy and equipment rental                                                                                                     |       | 125                                                  |       | 123                                                 |       | 369 |   | 354 |   |
| Brokerage, clearing and exchange fees                                                                                              |       | 88                                                   |       | 88                                                  |       | 251 |   | 241 |   |
| Communications                                                                                                                     |       | 37                                                   |       | 32                                                  |       | 110 |   | 96 |   |
| Professional fees                                                                                                                  |       | 85                                                   |       | 74                                                  |       | 225 |   | 195 |   |
| Merger-related costs                                                                                                               |       | —                                               |       | —                                              |       | — |   | 8 |   |
| Other operating expenses                                                                                                           |       | (8                                                   | )          | 61                                                  |       | 736 |   | 111 |   |
| Total expenses                                                                                                                     |       | 1,286                                                |       | 1,122                                               |       | 4,335 |   | 3,537 |   |
| Income before provision  (benefit) for income taxes, minority interests and cumulative effect of a  change in accounting principle |       | 794                                                  |       | 61                                                  |       | 805 |   | 1,193 |   |
| Provision  (benefit) for income taxes                                                                                              |       | 196                                                  |       | (7                                                  | )          | 18 |   | 220 |   |
| Minority  interests                                                                                                                |       | 212                                                  |       | 49                                                  |       | 670 |   | 495 |   |
| Income before  cumulative effect of a change in accounting principle                                                               |       | 386                                                  |       | 19                                                  |       | 117 |   | 478 |   |
| Cumulative effect  of a change in accounting principle, net of income tax expense of $3                                            |       | —                                               |       | —                                              |       | 6 |   | — |   |
| Net income                                                                                                                         |       | $                                                    | 386        |                                                | $          | 19 |   | $ | 123 |   | $ | 478 |   |

 

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

4

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**CREDIT SUISSE FIRST BOSTON (USA), INC. ANDSUBSIDIARIESCondensed ConsolidatedStatements of Changes in Stockholder’s EquityFor the Nine Months Ended September 30, 2005 and 2004(Unaudited)(In millions)**

| ** **                                                  | ** ** | **Common  Stock** | ** ** | **Paid-in  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive   (Loss) Income** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|------------------------|------------|-----------------------------------------------------------------|------------|-----------|------------|
| Balances as of  December 31, 2003                      |       |              | $          | —               |       |                   | $          | 8,012                                                           |       |      | $          | 1,787 |   |   |   | $ | (158 | ) |   | $ | 9,641 |   |
| Net income                                                  |       |              | —     |                 |       | —                 |       |                                                            | 478        |      |       |   | — |   |   | 478 |   |
| Decrease in pension liability                               |       |              | —     |                 |       | —                 |       |                                                            | —     |      |       |   | 1 |   |   | 1 |   |
| Total comprehensive income                                  |       |              |       |                 |       |                   |       |                                                            |       |      |       |   |   |   |   | 479 |   |
| CSG share plan activity, including tax benefit of $99  |       |              | —     |                 |       | 354                    |       |                                                            | —     |      |       |   | — |   |   | 354 |   |
| Balances as of  September 30, 2004                     |       |              | $          | —               |       |                   | $          | 8,366                                                           |       |      | $          | 2,265 |   |   |   | $ | (157 | ) |   | $ | 10,474 |   |
| Balances as of December 31, 2004                       |       |              | $          | —               |       |                   | $          | 8,538                                                           |       |      | $          | 2,534 |   |   |   | $ | (8 | ) |   | $ | 11,064 |   |
| Net income                                                  |       |              | —     |                 |       | —                 |       |                                                            | 123        |      |       |   | — |   |   | 123 |   |
| Total comprehensive income                                  |       |              |       |                 |       |                   |       |                                                            |       |      |       |   |   |   |   | 123 |   |
| CSG share plan activity, including tax benefit of $101 |       |              | —     |                 |       | 429                    |       |                                                            | —     |      |       |   | — |   |   | 429 |   |
| Balances as of  September 30, 2005                     |       |              | $          | —               |       |                   | $          | 8,967                                                           |       |      | $          | 2,657 |   |   |   | $ | (8 | ) |   | $ | 11,616 |   |

 

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

5

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**CREDIT SUISSE FIRSTBOSTON (USA), INC. AND SUBSIDIARIESCondensed ConsolidatedStatements of Cash Flows(Unaudited)(In millions)**

| ** **                                                                                               | ** ** | **For the Nine Months  Ended September 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                                                               | ** ** | **2005**                                                              | ** ** | **2004** | ** ** |
| Cash flows from operating activities:                                                                    |       |                                                                  |       |   |   |
| Net income                                                                                               |       | $                                                                     | 123        |   | $ | 478 |   |
| Adjustments to reconcile net income to net cash used  in operating activities:                           |       |                                                                  |       |   |   |
| Depreciation and  amortization                                                                           |       | 130                                                                   |       | 133 |   |
| Non-cash CSG share plan  activity                                                                        |       | 386                                                                   |       | 277 |   |
| Tax benefit for CSG  share plan activity                                                                 |       | 101                                                                   |       | 99 |   |
| Deferred taxes                                                                                           |       | 158                                                                   |       | 26 |   |
| Change in operating assets and operating  liabilities:                                                   |       |                                                                  |       |   |   |
| Securities borrowed                                                                                      |       | (12,910                                                               | )          | (5,455 | ) |
| Receivables from  customers                                                                              |       | 414                                                                   |       | 1,468 |   |
| Receivables from  brokers, dealers and other                                                             |       | (1,272                                                                | )          | (2,532 | ) |
| Financial instruments  owned                                                                             |       | (18,782                                                               | )          | (19,045 | ) |
| Other assets and  deferred amounts and Other liabilities, net                                            |       | (1,533                                                                | )          | 61 |   |
| Securities loaned                                                                                        |       | 4,587                                                                 |       | 8,380 |   |
| Payables to customers                                                                                    |       | 3,672                                                                 |       | 1,130 |   |
| Payables to brokers,  dealers and other                                                                  |       | (4,170                                                                | )          | (371 | ) |
| Financial instruments  sold not yet purchased                                                            |       | 17,768                                                                |       | 8,107 |   |
| Obligation to return  securities received as collateral                                                  |       | 15                                                                    |       | 3,177 |   |
| Accounts payable and  accrued expenses                                                                   |       | (563                                                                  | )          | 62 |   |
| Net cash used in  operating activities                                                                   |       | (11,876                                                               | )          | (4,005 | ) |
| Cash flows from investing activities:                                                                    |       |                                                                  |       |   |   |
| Net payments for:                                                                                        |       |                                                                  |       |   |   |
| Loans receivable from  parent and affiliates                                                             |       | (987                                                                  | )          | (1,823 | ) |
| Office facilities, net                                                                                   |       | (130                                                                  | )          | (152 | ) |
| Net cash used in  investing activities                                                                   |       | (1,117                                                                | )          | (1,975 | ) |
| Cash flows from financing activities:                                                                    |       |                                                                  |       |   |   |
| Net proceeds from (payments for):                                                                        |       |                                                                  |       |   |   |
| Commercial paper and  short-term borrowings                                                              |       | (4,013                                                                | )          | 2,147 |   |
| Securities sold under  agreements to repurchase, net of securities purchased under agreements to  resell |       | 13,358                                                                |       | 2,029 |   |
| Issuances of long-term  borrowings                                                                       |       | 6,274                                                                 |       | 3,483 |   |
| Redemptions and maturities  of long-term borrowings                                                      |       | (2,672                                                                | )          | (1,618 | ) |
| Dividend equivalents on  CSG share plan activity                                                         |       | (58                                                                   | )          | (22 | ) |
| Net cash provided by  financing activities                                                               |       | 12,889                                                                |       | 6,019 |   |
| (Decrease) increase in  cash and cash equivalents                                                        |       | (104                                                                  | )          | 39 |   |
| Cash and cash equivalents  as of the beginning of period                                                 |       | 727                                                                   |       | 334 |   |
| Cash and cash  equivalents as of the end of period                                                       |       | $                                                                     | 623        |   | $ | 373 |   |
| SUPPLEMENTAL DISCLOSURES                                                                                 |       |                                                                  |       |   |   |
| Cash payments for  interest                                                                              |       | $                                                                     | 7,371      |   | $ | 3,929 |   |
| Cash payments for income taxes, net of refunds                                                           |       | $                                                                     | 26         |   | $ | 64 |   |

 

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

6

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 2005**

**1.**   Summary ofSignificant Accounting Policies

**The Company**

Credit Suisse First Boston(USA), Inc. and its subsidiaries (the “Company”) is a leading integratedinvestment bank serving institutional, corporate, government and high-net-worthindividual clients. The Company’s products and services include securitiesunderwriting, sales and trading, financial advisory services, private equityinvestments, full service brokerage services, derivatives and risk managementproducts, asset management and investment research.

**Basis of Presentation**

The condensed consolidated financial statementsinclude Credit Suisse First Boston (USA), Inc. and its subsidiaries. Allsignificant intercompany balances and transactions have been eliminated. TheCompany is a wholly owned subsidiary of Credit Suisse First Boston, Inc. (“CSFBI”).

Certain financial information that is normallyincluded in annual financial statements prepared in accordance with accountingprinciples generally accepted in the United States of America 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 periods are notnecessarily 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 31,2004.

To prepare condensed consolidated financial statementsin accordance with accounting principles generally accepted in the UnitedStates of America, management must make estimates and assumptions. The reportedamounts of assets and liabilities and revenues and expenses are affected bythese estimates and assumptions, the most significant of which are discussed inthe notes to the condensed consolidated financial statements. Estimates, bytheir nature, are based on judgment and available information. Therefore,actual results could differ materially from these estimates. For a descriptionof the Company’s significant accounting policies, see Note 1 of theconsolidated financial statements in Part II, Item 8 in the Company’sAnnual Report on Form 10-K for the year ended December 31,2004.

Certain reclassificationshave been made to prior year condensed consolidated financial statements toconform to the 2005 presentation.

**New Accounting Pronouncements**

*Recently AdoptedStandards*

In August 2003, theCompany adopted the fair value recognition provisions of Statement of FinancialAccounting Standards (“SFAS”) No. 123, “Accounting for Stock-BasedCompensation,” as amended by SFAS No. 148, “Accounting for Stock-BasedCompensation—Transition and Disclosure,” (“SFAS 123”) using the prospectivemethod. Under the prospective method, the Company recognizes compensationexpense over the vesting period for all share option and share awards grantedunder the Plan for services 

7

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**1.**   Summary of Significant Accounting Policies (Continued)

providedafter January 1, 2003. Effective January 1, 2005, the Company earlyadopted the fair value recognition provisions of SFAS No. 123 (Revised2004) “Share-Based Payment” (“SFAS 123R”) using the modified prospective methodand recorded an after-tax gain of $6 million in the condensed consolidatedstatement of income as a cumulative effect of a change in accounting principleto reverse the expense previously recognized on all outstanding unvested awardsthat are expected to be forfeited.

*Standards to beAdopted in Future Periods*

In May 2005, the Financial Accounting StandardsBoard (“FASB”) issued SFAS No. 154, “Accounting Changes and ErrorCorrections, a replacement of Accounting Principles Board (“APB”) OpinionNo. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS 154 requires,among other things, retrospective application, unless impracticable, to priorperiod financial statements for voluntary changes in accounting principles andchanges required by an accounting pronouncement in the unusual circumstances inwhich the pronouncement does not include specific transition provisions. SFAS154 also requires that a change in depreciation, amortization or depletionmethod for long-lived, nonfinancial assets should be accounted for as a changein accounting estimate effected by a change in accounting principle. Theguidance for reporting the correction of an error in previously issuedfinancial statements and the change of an accounting estimate will not changefrom APB Opinion No. 20.SFAS 154 is effective for accounting changes and corrections of errors made infiscal years beginning after December 15, 2005. The impact of adoptingSFAS 154 on the Company’s financial condition, results of operations or cashflows will depend on what accounting changes are made in future periods.

In June 2005, the FASB ratified Emerging IssuesTask Force (“EITF”) 04-5, “Determining Whether a General Partner, or theGeneral Partners as a Group, Controls a Limited Partnership or Similar EntityWhen the Limited Partners Have Certain Rights” (“EITF 04-5”). EITF 04-5provides that the general partner (or general partners, for partnerships withmore than one general partner) is generally presumed to maintain control over alimited partnership and should therefore consolidate such a partnershipregardless of the level of its ownership interest, unless the presumption ofcontrol can be overcome. EITF 04-5 states that the presumption ofgeneral partner control would be overcome only when the limited partners haveeither substantive kick-out rights or substantive participating rights.Substantive kick-out rights comprise rights allowing the limited partners todissolve or liquidate the partnership or otherwise remove the general partner withoutcause. Substantive participating rights include those rights which would allowthe limited partners to participate in significant decisions made in theordinary course of the partnership business.

Further, as a result of the ratification of EITF 04-5,EITF Issue No. 96-16, “Investor’s Accounting for an Investee Whenthe Investor Has a Majority of the Voting Interest but the Minority Shareholderor Shareholders Have Certain Approval or Veto Rights,” (“EITF 96-16”) wasupdated to conform to the guidance of EITF 04-5 and FASB Staff Position (“FSP”)No. SOP 78-9-1, “Interaction of AICPA Statement of Position 78-9,Accounting for Investments in Real Estate Ventures*,*and EITF Issue No. 04-5, Investor’s Accountingfor an Investment in a Limited Partnership When the Investor Is the SoleGeneral Partner and the Limited Partners Have Certain Rights” (“FSP SOP 78-9-1”)was issued to amend guidance regarding the consolidation of limitedpartnerships under AICPA Statement of Position No. SOP 78-9. Theguidance of EITF 04-5 and FSP SOP 78-9-1 and the changes toEITF 96-16 are effective immediately 

8

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**1.**   Summary of Significant Accounting Policies (Continued)

for all newly-formedlimited partnerships and for any existing limited partnerships agreements thatare modified. Theimplementation of EITF 04-5 has not significantly impacted the Companywith respect to new partnerships formed or partnership agreements modifiedsince June 2005. The Company is still evaluating the impact of EITF 04-5with respect to partnerships which existed prior to June 2005, but whichhave not been modified since June 2005.

In August 2005, theFASB issued three exposure drafts that address accounting for transfers offinancial instruments. These proposals would, among other things, amend SFAS No. 140,“Accounting for Transfers and Servicing of Financial Assets and Extinguishmentof Liabilities, a replacement of FASB Statement No. 125”. The proposedguidance from the FASB or future guidance from either the FASB or otherstandard setters may change the current interpretation of the criteria for whatis considered a qualifying special-purpose entity (“QSPE”) and requirecompanies to account for transactions as secured financings that currently areaccounted for as sales. The proposals have effective dates potentially as earlyas January 1, 2006. The requirements of the proposed amendments will bere-deliberated by the FASB and, therefore, are subject to change. We cannotpredict what the final amendments will provide.

**2.**   Related PartyTransactions

Credit Suisse Group (“CSG”), through CSFBI, owns allof the Company’s outstanding voting common stock. The Company is involved insignificant financing and other transactions, and has significant related partybalances with CSG affiliates, primarily Credit Suisse, a Swiss bank subsidiaryof CSG and an indirect parent of the Company, and certain of its subsidiariesand affiliates. The Company generally enters into these transactions in theordinary course of business and believes that these transactions are generallyon market terms that could be obtained from unrelated third parties.

9

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**2.**   Related Party Transactions (Continued)

The following table setsforth the Company’s related party assets and liabilities as of September 30,2005 and December 31, 2004:

| ** **                                              | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                              | ** ** | **(In millions)**       | ** ** |
| **ASSETS**                                              |       |                         |       |                        |       |   |   |   |   |
| Securities  purchased under agreements to resell        |       |                         | $          | 5,126                       |       |   |   | $ | 6,685 |   |   |
| Securities  borrowed                                    |       |                         | 5,672      |                        |       |   | 1,861 |   |   |
| Receivables from  customers                             |       |                         | —     |                        |       |   | 379 |   |   |
| Receivables from  brokers, dealers and other            |       |                         | 4,425      |                        |       |   | 1,893 |   |   |
| Derivatives  contracts                                  |       |                         | 1,425      |                        |       |   | 1,400 |   |   |
| Net deferred tax  asset                                 |       |                         | 931        |                        |       |   | 1,103 |   |   |
| Loans receivable  from parent and affiliates            |       |                         | 23,679     |                        |       |   | 22,692 |   |   |
| Total assets                                            |       |                         | $          | 41,258                      |       |   |   | $ | 36,013 |   |   |
| **LIABILITIES**                                         |       |                         |       |                        |       |   |   |   |   |
| Short-term  borrowings                                  |       |                         | $          | 16,091                      |       |   |   | $ | 20,085 |   |   |
| Securities sold  under agreements to repurchase         |       |                         | 25,328     |                        |       |   | 22,317 |   |   |
| Securities loaned                                       |       |                         | 36,842     |                        |       |   | 34,056 |   |   |
| Payables to  customers                                  |       |                         | 1,884      |                        |       |   | 1,054 |   |   |
| Payables to  brokers, dealers and other                 |       |                         | 3,710      |                        |       |   | 1,300 |   |   |
| Derivatives  contracts                                  |       |                         | 900        |                        |       |   | 695 |   |   |
| Obligation to  return securities received as collateral |       |                         | 1,878      |                        |       |   | 1,252 |   |   |
| Taxes payable  (included in Other liabilities)          |       |                         | 202        |                        |       |   | 484 |   |   |
| Intercompany  payables (included in Other liabilities)  |       |                         | 229        |                        |       |   | 191 |   |   |
| Total liabilities                                       |       |                         | $          | 87,064                      |       |   |   | $ | 81,434 |   |   |

 

Included in the condensed consolidated statements ofincome are revenues and expenses resulting from various securities trading andfinancing activities with certain affiliates, as well as fees foradministrative services performed by the Company under the terms of variousagreements. The Company incurs commission expenses during the normal course ofbusiness for securities transactions conducted with affiliates. Other operatingexpenses include affiliate service fees that are treated as a reduction inother operating expenses in the condensed consolidated statements of income.These fees include compensation and benefits expense relating to businessactivities conducted by Company employees on behalf of CSG affiliates outsidethe Company.

10

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**2.**   Related Party Transactions (Continued)

The following table setsforth the Company’s related party revenues and expenses for the three and ninemonths ended September 30, 2005 and 2004:

| ** **                                          | ** ** | **For the Three  Months Ended  September 30,** | ** ** | **For the Nine  Months Ended  September 30,** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                          | ** ** | **2005**                                                           | ** ** | **2004**                                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                          | ** ** | **(In millions)**                                             | ** ** |
| Principal  transactions-net (derivatives contracts) |       | $                                                                  | 776        |                                                              | $          | (124 | ) | $ | 1,288 |   | $ | 406 |   |
| Commissions and  fees                               |       | (17                                                                | )          | 10                                                                |       | (37 | ) | 29 |   |
| Net interest  expense                               |       | (300                                                               | )          | (119                                                              | )          | (759 | ) | (262 | ) |
| Total net revenues                                  |       | $                                                                  | 459        |                                                              | $          | (233 | ) | $ | 492 |   | $ | 173 |   |
| Other operating expenses                            |       | $                                                                  | (82        | )                                                                 | $          | (88 | ) | (235 | ) | (212 | ) |
| Total expenses                                      |       | $                                                                  | (82        | )                                                                 | $          | (88 | ) | $ | (235 | ) | $ | (212 | ) |

 

From time to time the Company sells at cost to CSFBIthe right, title and interest in certain assets. For the three and nine monthsended September 30, 2005, the value of the assets sold was notsignificant.

As of September 30, 2005, certain private equityfunds of funds and certain hedge funds of funds and variable interest entities(“VIEs”) that issue collateralized debt obligations (“CDOs”), with aggregateassets under management of approximately $18.6 billion, of CSFB AlternativeCapital, Inc., an indirect wholly owned subsidiary of CSFBI, are managedby the Company’s Alternative Capital division. CSFB Alternative Capital, Inc.reimburses the Alternative Capital division for all expenses incurred by theCompany in connection with managing these assets which the Company treats as areduction in other operating expenses in the condensed consolidated statementsof income.

Beginning in April 2004, the Company entered intoeconomic hedging arrangements with respect to deferred compensation obligationspayable to its employees and to employees of affiliates, whose deferredcompensation is not recorded in the Company’s condensed consolidated financialstatements. These hedging arrangements will result in the Company recognizinggains or losses with respect to the hedge of the deferred compensationobligation of such affiliates. For the three months ended September 30,2005 and 2004, the impact from the economic hedging arrangements with respectto these affiliate obligations was a gain of $1 million and for the ninemonths ended September 30, 2005 and 2004, the impact was a gain of$2 million.

The Credit Suisse Group International Share Planprovides for the grant of equity-based awards to Company employees based on CSGshares pursuant to which employees of the Company may be granted, ascompensation, shares or other equity-based awards as compensation for servicesperformed. CSFBI purchases shares from CSG to satisfy these awards, but CSFBIdoes not require reimbursement from the Company; therefore, amounts associatedwith these awards are considered a capital contribution to the Company andcredited to paid-in-capital. Amounts contributed by CSFBI relating tocompensation expense for the three months ended September 30, 2005 and2004 were $236 million and $180 million, respectively, and for the ninemonths ended September 30, 2005 and 2004 were $429 million and $354million, respectively. See Note 11 for further information on the Company’sshare-based compensation.

11

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**2.**   Related Party Transactions (Continued)

Certain of the Company’s directors, officers andemployees and those of its affiliates and their subsidiaries maintain marginaccounts with Credit Suisse First Boston LLC (“CSFB LLC”) and other affiliatedbroker-dealers in the ordinary course of business. In addition, certainof such directors, officers and employees have investments or commitments toinvest in various private equity funds. The Company makes loans to directorsand executive officers on the same terms as are generally available to thirdparties or otherwise pursuant to widely available employee benefit plans. CSFB LLCand other affiliated broker-dealers, from time to time and in theordinary course of business, enter into, as principal, transactions involvingthe purchase or sale of securities from or to such directors, officers andemployees and members of their immediate families.

The Company issues guarantees to customers withrespect to certain obligations of its affiliates in the ordinary course ofbusiness, including, but not limited to, certain derivatives transactions.Failure to perform by an affiliate would require the Company to perform underthe guarantee. See Note 8 for more information.

The Company is included inthe consolidated federal income tax return and certain state and local incometax returns filed by CSFBI.

**3.**   Transfers andServicing of Financial Assets

As part of the Company’s financing and securitiessettlement activities, the Company uses securities as collateral to supportvarious secured financing sources. If the counterparty does not meet itscontractual obligation to return securities used as collateral, the Company maybe exposed to the risk of reacquiring the securities at prevailing marketprices to satisfy its obligations. The Company controls this risk by monitoringthe market value of financial instruments pledged each day and by requiringcollateral levels to be adjusted in the event of excess market exposure.

As of September 30, 2005 and December 31,2004, the fair value of assets that the Company pledged to counterparties was$226.1 billion and $199.3 billion, respectively, of which$70.6 billion and $54.7 billion, respectively, was included infinancial instruments owned in the condensed consolidated statements offinancial condition.

The Company has alsoreceived similar assets as collateral that the Company has the right to re-pledgeor sell. The Company routinely re-pledges or sells these assets to thirdparties. As of September 30, 2005 and December 31, 2004, the fairvalue of the assets pledged to the Company was $207.3 billion and$182.3 billion, respectively, of which $198.4 billion and$180.6 billion, respectively, was re-pledged or sold.

**Securitization Activities**

The Company originates and purchases residentialmortgages and originates commercial loans for the purpose of securitization.The Company sells these mortgage loans to QSPEs or VIEs. The 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 the Company’s assets. CSFB LLC is an underwriterof, and makes a market in, these securities.

12

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**3.**   Transfers and Servicing of Financial Assets(Continued)

The Company purchases loans and other debt obligationsfrom and on behalf of clients for the purpose of securitization. The loans andother debt obligations are sold by the Company directly, or indirectly throughaffiliates, to QSPEs or VIEs that issue CDOs. CSFB LLC structures, underwritesand makes a market in these CDOs. CDOs are securities backed by the assetstransferred to the CDO VIEs and pay a return based on the returns on thoseassets. Investors typically have recourse to the assets in the CDO VIEs. Theinvestors and the CDO VIEs have no recourse to the Company’s assets.

Thefollowing table presents the proceeds and gains (losses) related to thesecuritization of commercial mortgage loans, residential mortgage loans, CDOsand other asset-backed loans for the nine months ended September 30, 2005and 2004: 

| ** **                                                     | ** ** | **Commercial  mortgage  loans** | ** ** | **Residential  mortgage  loans** | ** ** | **Collateralized  debt  obligations** | ** ** | **Other  asset-backed loans**(1) | ** ** |
|----------------------------------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| ** **                                                     | ** ** | **(In millions)**          | ** ** |
| **For the  Nine Months Ended****September 30, 2005** |       |                            |       |                             |       |                                  |       |                                  |       |   |   |   |   |   |   |   |   |
| Proceeds from new  securitizations                             |       |                            | $          | 7,659                            |       |                                  |       | $                                     | 40,693     |   |   |   | $ | 4,067 |   |   |   | $ | 6,590 |   |   |
| Gain on  securitizations(2)                                    |       |                            | $          | 147                              |       |                                  |       | $                                     | 31         |   |   |   | $ | 44 |   |   |   | $ | 17 |   |   |
| **For the  Nine Months Ended****September 30, 2004** |       |                            |       |                             |       |                                  |       |                                  |       |   |   |   |   |   |   |   |   |
| Proceeds from new  securitizations                             |       |                            | $          | 5,287                            |       |                                  |       | $                                     | 32,626     |   |   |   | $ | 3,729 |   |   |   | $ | 5,079 |   |   |
| Gain (loss) on  securitizations(2)                             |       |                            | $          | 185                              |       |                                  |       | $                                     | 26         |   |   |   | $ | 44 |   |   |   | $ | (1 | ) |   |

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(1)          Primarily home equityloans.

(2)          Includes underwritingrevenues, but excludes all gains or losses, including net interest revenues, onassets prior to securitization and deferred origination fees.

The Company may retain interests in these securitizedassets in connection with its underwriting and market-making activities. TheCompany’s exposure in its securitization activities is limited to its retainedinterests. Retained interests in securitized financial assets are included atfair value in financial instruments owned in the condensed consolidatedstatements of financial condition. Any changes in the fair value of theseretained interests are recognized in the condensed consolidated statements ofincome. The fair values of retained interests are determined using presentvalue of estimated future cash flows valuation techniques that incorporateassumptions that market participants customarily use in their estimates ofvalues. As of September 30, 2005 and December 31, 2004, the fairvalue of the interests retained by the Company was $4.2 billion and$2.0 billion, respectively.

13

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**3.**   Transfers and Servicing of Financial Assets (Continued)

Key economic assumptionsused in measuring, at the date of securitization, the fair value of theretained interests resulting from securitizations completed during the ninemonths ended September 30, 2005 were as follows:

| ** **                                            | ** ** | **For the Nine Months Ended September 30, 2005** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                                            | ** ** | **Commercial  mortgage  loans**(1)                                                  | ** ** | **Residential  mortgage  loans** | ** ** | **Collateralized  debt  obligations**(2) | ** ** | **Other  asset-backed loans** | ** ** |
| Weighted-average  life (in years)                     |       |                                                                                | 0.7        |   |   |   | 5.3 |   |   |   | 8.4 |   |   |   | 5.1 |   |   |
| Prepayment rate  (in rate per annum)(3)               |       |                                                                                | N/A        |   |   |   | 0%-42.8 | % |   |   | N/A |   |   |   | 25 | % |   |
| Cash flow  discount rate (in rate per annum)(4)  |       |                                                                                |       | (5)  |   |   | 0%-39.5 | % |   |   | 9.2%-14.1 | % |   |   | 3.6%-16.6 | % |   |
| Expected credit losses  (in rate per annum)           |       |                                                                                |       | (5)  |   |   | 0%-35.3 | % |   |   | 5.1%-10.2 | % |   |   | 0.7%-12.3 | % |   |

 

Thefollowing table sets forth the fair value of retained interests fromsecuritizations as of September 30, 2005, key economic assumptions used todetermine the fair value and the sensitivity of the fair value to immediateadverse changes in those assumptions:

| ** **                                        | ** ** | **As of September 30, 2005** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                        | ** ** | **Commercial  mortgage  loans**(1)               | ** ** | **Residential  mortgage  loans** | ** ** | **Collateralized  debt  obligations**(2) | ** ** | **Other   asset-backed loans** | ** ** |
| ** **                                        | ** ** | **(Dollars in millions)**              | ** ** |
| Carrying  amount/fair value of retained interests |       |                                             | $          | 43 |   |   | $ | 3,889 |   |   | $ | 185 |   |   |   | $ | 71 |   |   |
| Weighted-average  life (in years)                 |       |                                             | 0.6        |   |   | 3.9 |   |   | 10.2 |   |   |   | 5.9 |   |   |
| Prepayment rate  (in rate per annum)(3)           |       |                                             | N/A        |   |   | 1.5%-69.1 | % |   | N/A |   |   |   | 22.0%-50.4 | % |   |
| Impact on fair value of 10% adverse change        |       |                                             | N/A        |   |   | $ | (13 | ) |   | N/A |   |   |   | $ | — |   |   |
| Impact on fair value of 20% adverse change        |       |                                             | N/A        |   |   | $ | (20 | ) |   | N/A |   |   |   | $ | — |   |   |
| Cash flow  discount rate (in rate per annum)(4)   |       |                                             |       | (5)  |   | 5.9 | % |   | 11.9 | % |   |   | 17.1 | % |   |
| Impact on fair value of 10% adverse change        |       |                                             |       | (5)  |   | $ | (65 | ) |   | $ | (9 | ) |   |   | $ | — |   |   |
| Impact on fair value of 20% adverse change        |       |                                             |       | (5)  |   | $ | (130 | ) |   | $ | (18 | ) |   |   | $ | (1 | ) |   |
| Expected credit  losses (in rate per annum)       |       |                                             |       | (5)  |   | 1.7 | % |   | 7.8 | % |   |   | 12.7 | % |   |
| Impact on fair value of 10% adverse change        |       |                                             |       | (5)  |   | $ | (16 | ) |   | $ | (6 | ) |   |   | $ | (3 | ) |   |
| Impact on fair  value of 20% adverse change       |       |                                             |       | (5)  |   | $ | (32 | ) |   | $ | (12 | ) |   |   | $ | (6 | ) |   |

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(1)          To deter prepayment,commercial mortgage loans typically have prepayment protection in the form ofprepayment lockouts and yield maintenances.

(2)          CDO deals are generallystructured to be protected from prepayment risk.

(3)          The Company utilizes theConstant Prepayment Rate assumptions.

(4)          The rate is based on theweighted average yield on the retained interest.

(5)          Due to the shortestimated life and the nature of the asset, the cash flow discount rate and theexpected credit losses are not meaningful.

14

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**3.**   Transfers and Servicingof Financial Assets (Continued)

These sensitivities arehypothetical and do not reflect the benefits of hedging activities andtherefore should be used with caution. Changes in fair value based on a 10% or20% variation in assumptions generally cannot be extrapolated because therelationship of the change in assumption to the change in fair value may not belinear. Also, the effect of a variation in a particular assumption on the fairvalue of the retained interests is calculated without changing any otherassumption. In practice, changes in one assumption may result in changes inother assumptions (for example, increases in market interest rates may resultin lower prepayments and increased credit losses), which may magnify or counteractthe sensitivities.

**Variable Interest Entities**

The Company has variable interests in several CDOVIEs. As described under “—Securitization Activities,” in the normal course ofits business, the Company purchases loans and other debt obligations from andon behalf of clients primarily for the purpose of securitization. These assetsare sold to and warehoused by affiliates and, at the end of a warehousingperiod, the assets are sold to CDO VIEs or QSPEs for securitization. TheCompany engages in these transactions to meet the needs of clients, to earnfees and to sell financial assets. The purpose of these CDO VIEs and QSPEs isto provide investors a return based on the underlying debt instruments of theCDO VIEs and QSPEs. In connection with its underwriting and market-makingactivities, the Company may retain interests in the CDO VIEs and QSPEs. The CDOentities may have actively managed (“open”) portfolios or static or unmanaged (“closed”)portfolios. The closed CDO transactions are typically structured to use QSPEs,which are not consolidated in the Company’s financial statements.

The Company has consolidated all CDO VIEs for which itis the primary beneficiary. As of September 30, 2005 and December 31,2004, the Company recorded $347 million and $291 million, respectively,representing the carrying amount of the consolidated assets of these CDO VIEsthat are collateral for the VIE obligations. The beneficial interests of theseconsolidated CDO VIEs are payable solely from the cash flows of the related collateral,and the creditors of these CDO VIEs do not have recourse to the Company in theevent of default.

The Company retains significant debt and equityinterests in CDO VIEs that are not consolidated because the Company is not theprimary beneficiary. The total assets in these CDO VIEs as of September 30,2005 and December 31, 2004 were $5.0 billion and $4.5 billion,respectively. The Company’s maximum exposure to loss on significant debt andequity interests in CDO VIEs as of September 30, 2005 and December 31,2004 was $91 million and $62 million, respectively, which was theamount of its retained interests, carried at fair value, in financialinstruments owned.

Certain of the Company’sprivate equity funds are subject to FASB Interpretation (“FIN”) No. 46, “Consolidationof Variable Interest Entities” (“FIN 46”) and the subsequent modifications ofFIN 46 (“FIN 46R”). In the normal course of its private equity activities, theCompany is typically the general partner and investment adviser to private equityfunds. Limited partners of these funds typically have recourse to the fund’sassets but have no recourse to the Company’s assets. Beginning in 2004, theCompany consolidated certain private equity funds that are managed by theCompany. The following table presents the impact on the condensed consolidatedstatements of financial condition of the Company’s 

15

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**3.**   Transfers and Servicing of Financial Assets (Continued)

consolidation of private equity funds and otherlong-term investments primarily under FIN 46R as of September 30,2005 and December 31, 2004:

| ** **                                                 | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                 | ** ** | **(In millions)**       | ** ** |
| Private equity  and other long-term investments            |       |                         | $          | 2,444                       |       |   |   | $ | 1,947 |   |   |
| All other assets,  net                                     |       |                         | 23         |                        |       |   | 2 |   |   |
| Total assets                                               |       |                         | $          | 2,467                       |       |   |   | $ | 1,949 |   |   |
| Minority interests (included in other liabilities)         |       |                         | $          | 2,185                       |       |   |   | $ | 1,978 |   |   |
| All other  liabilities, net (excluding minority interests) |       |                         | 282        |                        |       |   | (29 | ) |   |
| Total liabilities                                          |       |                         | $          | 2,467                       |       |   |   | $ | 1,949 |   |   |

 

The following table presents the impact on thecondensed consolidated statements of income of the Company’s consolidationof private equity funds and other long-term investments primarily underFIN 46R, for the three and nine months ended September 30, 2005 and2004:

| ** **         | ** ** | **For the Three  Months Ended  September 30,** | ** ** | **For the Nine  Months Ended  September 30,** | ** ** |
|--------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **         | ** ** | **2005**                                                           | ** ** | **2004**                                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **         | ** ** | **(In millions)**                                             | ** ** |
| Net revenues       |       | $                                                                  | 214        |                                                              |       | $ | 55 |   |   | $ | 675 |   | $ | 501 |   |
| Expenses           |       | 2                                                                  |       |                                                              | 6          |   |   | 5 |   | 6 |   |
| Minority interests |       | $                                                                  | 212        |                                                              |       | $ | 49 |   |   | $ | 670 |   | $ | 495 |   |

 

**4.**   Private Equity andOther Long-Term Investments

Private equity and other long-term investments includedirect investments and investments in partnerships that make private equity andrelated investments in various portfolio companies and funds. The Companycategorizes its private equity and other long-term investments into threecategories: CSFB-managed funds, which include funds consolidatedprimarily under FIN 46R, funds managed by third parties and direct investments.These investments generally have no readily available market or may beotherwise restricted as to resale under the Securities Act of 1933 (the “SecuritiesAct”); therefore, these investments are carried at amounts which approximatefair value.

As of September 30, 2005 and December 31,2004, the Company had investments in private equity and other long-terminvestments of $3.7 billion and $3.1 billion, respectively, including$2.4 billion and $1.9 billion, respectively, in private equityinvestments consolidated primarily under FIN 46R. Changes in net unrealizedappreciation/depreciation arising from changes in fair value and the gain orloss realized upon sale are reflected in principal transactions-net in thecondensed consolidated statements of income. See Note 3 for more information.The cost of these investments, excluding the private equity investmentsconsolidated primarily under FIN 46R, was $1.4 billion as of September 30,2005 and $1.5 billion as of December 31, 2004. As of September 30,2005 the Company had commitments to invest up to an 

16

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**4.**   Private Equity andOther Long-Term Investments (Continued)

additional $713 million innon-consolidated private equity funds and $1.1 billion in consolidated privateequity funds.

The Company’s subsidiaries managemany private equity partnerships (the “Funds”). When the investment performanceon CSFB-managed Funds exceeds specific thresholds, the Company and certainother partners, most of which are current and former employees of the Company(collectively the “GPs”), may be entitled to receive a carried interestdistribution under the governing documents of the Funds. Carried interestdistributions are based on the cumulative investment performance of each Fundat the time the distribution is made. As a result, the Company may be obligatedto return to investors in the Funds all or a portion of the carried interestdistributed to the GPs. The amount of such contingent obligations is based uponthe performance of the Funds but cannot exceed the amount of carried interestreceived by the GPs. As of September 30, 2005 and December 31, 2004,the maximum amount of such contingent obligations was $592 million and$439 million, respectively, assuming the Funds’ remaining investments wereworthless. Assuming the Funds’ remaining investments were sold at their currentcarrying values as of September 30, 2005 and December 31, 2004, thecontingent obligations would have been $3 million and $9 million,respectively. As of September 30, 2005 and December 31, 2004, theCompany withheld cash from distributions on prior realizations to the partners,and recorded corresponding liabilities of $110 million and$75 million, respectively, in connection with the Company’s guarantee toreturn prior carried interest distributions to third party investors in theFunds.

In addition, pursuant tocertain contractual arrangements, the Company is obligated to make cashpayments to certain investors in certain Funds if specified performancethresholds are not met. As of September 30, 2005 and December 31,2004, the maximum amount of such contingent obligations was $61 million and$65 million, respectively, assuming the Funds’ remaining investments wereworthless. Assuming the Funds’ remaining investments were sold at their currentcarrying values as of September 30, 2005 and December 31, 2004, therewould have been no contingent obligation.

**5.**   DerivativesContracts

The Company uses derivatives contracts for trading andhedging purposes and to provide products for clients. These derivatives includeoptions, forwards, futures and swaps. For more information on the Company’sderivatives, see Note 6 of the consolidated financial statements in Part II,Item 8 in the Company’s Annual Report on Form 10-K for the yearended December 31, 2004.

The fair values of allderivatives contracts outstanding as of September 30, 2005 and December 31,2004 were as follows:

| ** **        | ** ** | **September 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|-------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **        | ** ** | **Assets**                       | ** ** | **Liabilities**                 | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **        | ** ** | **(In millions)**           | ** ** |
| Options           |       | $                                | 1,103      |                            |       | $ | 760 |   |   | $ | 1,001 |   |   | $ | 879 |   |   |
| Forward contracts |       | 2,548                            |       |                            | 1,081      |   |   | 1,206 |   |   | 355 |   |   |
| Swaps             |       | 1,627                            |       |                            | 1,249      |   |   | 1,456 |   |   | 1,061 |   |   |
| Total             |       | $                                | 5,278      |                            |       | $ | 3,090 |   |   | $ | 3,663 |   |   | $ | 2,295 |   |   |

 

17

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**5.**   Derivatives Contracts (Continued)

These assets and liabilitiesare included as derivatives contracts in financial instruments owned/sold notyet purchased, respectively, in the condensed consolidated statements offinancial condition.

**6.**   Borrowings

Short-termborrowings are generally demand obligations with interest approximating thefederal funds rate, the London Interbank Offered Rate (“LIBOR”) or other moneymarket indices. Such borrowings are generally used to facilitate the securitiessettlement process, finance financial instruments owned and finance securitiespurchased by customers on margin. As of September 30, 2005 and December 31,2004, there were no short-term borrowings secured by Company-owned securities.

Thefollowing table sets forth the Company’s short-term borrowings and theirweighted average interest rates:

| ** **                                     | ** ** | **Short-term borrowings**           | ** ** | **Weighted average interest rates** | ** ** |
|------------------------------------------------|------------|------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                     | ** ** | **As of  September 30,  2005** | ** ** | **As of  December 31,  2004**            | ** ** | **As of  September 30,  2005** | ** ** | **As of  December 31,  2004** | ** ** |
| ** **                                     | ** ** | **(In millions)**                   | ** ** |
| Bank loans, including loans from affiliates(1) |       |                                     | $          | 16,380                                             |       |   |   | $ | 20,435 |   |   |   | 3.98 | % |   |   | 2.65 | % |   |
| Commercial paper                               |       |                                     | 1,291      |                                               |       |   | 1,249 |   |   |   | 3.72 | % |   |   | 2.11 | % |   |
| Total short-term  borrowings                   |       |                                     | $          | 17,671                                             |       |   |   | $ | 21,684 |   |   |   |   |   |   |   |   |   |   |

----

(1)          Includes$16.1 billion and $20.1 billion in loans from affiliates as of September 30,2005 and December 31, 2004, respectively.

The Company has a commercial paper program exempt fromregistration under the Securities Act that allows the Company to issue up to$5.0 billion in commercial paper. As of September 30, 2005 and December 31,2004, $1.3 billion and $1.2 billion, respectively, of commercialpaper was outstanding under this program. The Company terminated one of itsexempt commercial paper programs in the third quarter of 2005.

In June 2004, the Company filed with theSecurities and Exchange Commission (“SEC”) a shelf registration statement thatallows the Company to issue from time to time up to $15.0 billion ofsenior and subordinated debt securities, and warrants to purchase suchsecurities. Under that shelf registration statement, the Company had, as ofNovember 7, 2005, approximately $5.2 billion available for issuance.

In July 2001, the Company established a Euromedium-term note program that allows the Company to issue up to$5.0 billion of notes. Under this program, the Company had, as ofNovember 7, 2005, approximately $1.2 billion available for issuance.

18

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**6.   Borrowings(Continued)**

Thefollowing table sets forth the Company’s long-term borrowings as of September 30,2005 and December 31, 2004:

| ** **                                                                      | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                      | ** ** | **(In millions)**       | ** ** |
| Senior notes 3.84-6.88%,  due various dates through 2032                   |       |                         | $          | 25,584                      |       |   |   | $ | 22,485 |   |   |
| Medium-term notes  2.59-7.53%, due various dates through 2032              |       |                         | 6,489      |                        |       |   | 6,387 |   |   |
| Structured  borrowings 7.5-16.06%,(1) due  various dates through 2009 |       |                         | 73         |                        |       |   | 69 |   |   |
| Total long-term borrowings                                                      |       |                         | $          | 32,146                      |       |   |   | $ | 28,941 |   |   |
| Current maturities of  long-term borrowings                                     |       |                         | $          | 4,192                       |       |   |   | $ | 3,137 |   |   |

----

(1)          Excluded from the range of interest rates onstructured borrowings are notes that do not have a stated interest rate butinstead pay a return based on the performance of certain equity securities.

As of September 30, 2005 and December 31,2004, long-term borrowings included upward fair value adjustments ofapproximately $224 million and $624 million, respectively, associatedwith fair value hedges under SFAS No. 133 “Accounting For Derivative Instrumentsand Hedging Activities (“SFAS 133”). As of September 30, 2005 and December 31,2004, the Company had entered into interest rate swaps, with a notional amountof $24.1 billion and $21.8 billion, respectively, on the Company’slong-term borrowings for hedging purposes. Substantially all of these swapsqualified as fair value hedges under SFAS 133. See Note 5 for moreinformation.

Thefollowing table sets forth scheduled maturities of all long-term borrowings asof September 30, 2005:

| ** ** | ** ** | **Twelve Months Ending  September 30,** | ** ** |
|------------|------------|--------------------------------------------------------|------------|
| ** ** | ** ** | **(In millions)**                                 | ** ** |
| 2006       |       |                                                   | $          | 4,192 |   |   |
| 2007       |       |                                                   | 2,764      |   |   |
| 2008       |       |                                                   | 5,801      |   |   |
| 2009       |       |                                                   | 2,341      |   |   |
| 2010       |       |                                                   | 3,721      |   |   |
| 2011-2032  |       |                                                   | 13,327     |   |   |
| Total      |       |                                                   | $          | 32,146 |   |   |

 

19

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**6.**   Borrowings(Continued)

The following table setsforth scheduled maturities of the current portion of long-term borrowings as ofSeptember 30, 2005:

| ** **               | ** ** | **Three Months Ending,** | ** ** |
|--------------------------|------------|------------------------------------|------------|
| ** **               | ** ** | **(In millions)**             | ** ** |
| December 31,  2005  |       |                               | $          | 500 |   |   |
| March 31,  2006     |       |                               | 93         |   |   |
| June 30,  2006      |       |                               | 1,360      |   |   |
| September 30,  2006 |       |                               | 2,239      |   |   |
| Total                    |       |                               | $          | 4,192 |   |   |

 

As of September 30,2005, CSFB LLC maintained with third parties five 364-day committedsecured revolving credit facilities totaling $2.2 billion, with one facilityfor $500 million maturing in November 2005 (which the Company expectsto renew through November 2006), one facility for $500 million maturing inFebruary 2006, one facility for $500 million maturing in March 2006,one facility for $500 million maturing in July 2006 and one facilityfor $200 million maturing in August 2006. These facilities require CSFBLLC to pledge unencumbered marketable securities to secure any borrowings.Borrowings under each facility would bear interest at short-term rates relatedto either the federal funds rate or LIBOR and can be used for general corporatepurposes. The facilities contain customary covenants that the Company believeswill not impair its ability to obtain funding. As of September 30, 2005,no borrowings were outstanding under any of the facilities.

**2005 Financings**

During the nine monthsended September 30, 2005, the Company issued $2.3 billion inmedium-term notes, $4.0 billion in senior notes and $38 million instructured notes and repaid $2.1 billion of medium-term notes, $500million of senior notes and $56 million of structured notes.

**7.   Leases andCommitments**

The following table setsforth the Company’s minimum operating lease commitments as of September 30,2005:

| ** ** | ** ** | **Twelve Months Ending  September 30,** | ** ** |
|------------|------------|--------------------------------------------------------|------------|
| ** ** | ** ** | **(In millions)**                                 | ** ** |
| 2006       |       |                                                   | $          | 149 |   |   |
| 2007       |       |                                                   | 148        |   |   |
| 2008       |       |                                                   | 143        |   |   |
| 2009       |       |                                                   | 138        |   |   |
| 2010       |       |                                                   | 134        |   |   |
| 2011-2025  |       |                                                   | 1,015      |   |   |
| Total(1)   |       |                                                   | $          | 1,727 |   |   |

----

(1)          Excludes subleaserevenue of $321 million and executory costs such as insurance, maintenanceand taxes of $552 million.

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**7.**   Leases and Commitments (Continued)

The following table setsforth the Company’s commitments, including the current portion as of September 30,2005:

| ** **                          | ** ** | **Commitment Expiration Per Period** | ** ** |
|-------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                          | ** ** | **Less than 1  year**                     | ** ** | **1-3  years** | ** ** | **4-5  years** | ** ** | **Over  5 years** | ** ** | **Total  commitments** | ** ** |
| ** **                          | ** ** | **(In millions)**                              | ** ** |
| Standby resale agreements(1)        |       |                                                | $          | — |   |   | $ | 100 |   | $ | — |   |   | $ | — |   |   |   | $ | 100 |   |   |
| Private equity(2)                   |       |                                                | 165        |   |   | 89 |   | 58 |   |   | 401 |   |   |   | 713 |   |   |
| Forward agreements(3)               |       |                                                | 6,634      |   |   | — |   | — |   |   | — |   |   |   | 6,634 |   |   |
| Unfunded lending commitments(4)     |       |                                                | —     |   |   | 77 |   | 189 |   |   | 312 |   |   |   | 578 |   |   |
| Unfunded warehousing commitments(5) |       |                                                | 1,210      |   |   | — |   | — |   |   | — |   |   |   | 1,210 |   |   |
| Total commitments                   |       |                                                | $          | 8,009 |   |   | $ | 266 |   | $ | 247 |   |   | $ | 713 |   |   |   | $ | 9,235 |   |   |

----

(1)          In the ordinary courseof business, the Company maintains certain standby resale agreement facilitiesthat commit the Company to enter into securities purchased under agreements toresell with customers at current market rates.

(2)          As of September 30,2005 the Company had commitments to invest up to an additional $713 million innon-consolidated private equity funds and $1.1 billion in consolidated privateequity funds.

(3)          Represents commitmentsto enter into securities purchased under agreements to resell and agreements toborrow securities.

(4)          The Company enters intocommitments to extend credit in connection with certain premium finance activities.

(5)          The Company enters intocommitments to warehouse commercial mortgage whole loans.

Excluded from the table above are certain commitmentsto originate, purchase and sell mortgage whole loans that qualify asderivatives. These commitments are reflected in derivatives contracts in thecondensed consolidated statements of financial condition. For more informationon the Company’s derivatives contracts see Note 5.

As of September 30, 2005, the Company used$45 million in outstanding standby letters of credit to satisfycounterparty collateral requirements.

The Company had no capitallease obligations as of September 30, 2005. For information about certainof the Company’s additional commitments, see Notes 4 and 8.

**8.   Guarantees**

In the ordinary course of business, the Company entersinto guarantee contracts as guarantor. FIN No. 45, “Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others” (“FIN 45”), requires disclosure by aguarantor of its maximum potential payment obligations under certain of itsguarantees to the extent that it is possible to estimate them. FIN 45 alsorequires a guarantor to recognize, at the inception of a guarantee, a liabilityfor the fair value of the obligations undertaken in issuing such guarantee,including its ongoing obligation to stand 

21

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**8.**   Guarantees (Continued)

ready to perform over theterm of the guarantee in the event that certain events or conditions occur.With certain exceptions, these liability recognition requirements apply to anyguarantees entered into or modified after December 31, 2002.

The guarantees covered by FIN 45 may require theCompany to make payments to the guaranteed party based on changes related to anasset, a liability or an equity security of the guaranteed party. The Companymay also be contingently required to make payments to the guaranteed partybased on another entity’s failure to perform under an agreement, or the Companymay have an indirect guarantee of the indebtedness of others, even though thepayment to the guaranteed party may not be based on changes related to anasset, liability or equity security of the guaranteed party.

In addition, FIN 45 covers certain indemnificationagreements that contingently require the Company to make payments to theindemnified party based on changes related to an asset, liability or equitysecurity of the indemnified party, such as an adverse judgment in a lawsuit orthe imposition of additional taxes due to either a change in, or an adverseinterpretation of, the tax law.

The following table setsforth the maximum quantifiable contingent liabilities and carrying amountsassociated with guarantees covered by FIN 45 as of September 30, 2005, bymaturity.

| ** **                | ** ** | **Amount of Guarantee Expiration Per Period** | ** ** | ** **     | ** ** |
|---------------------------|------------|------------------------------------------------------------------------|------------|----------------|------------|
| ** **                | ** ** | **Less than 1  year**                                        | ** ** | **1-3  years** | ** ** | **4-5  years** | ** ** | **Over 5  years** | ** ** | **Total  guarantees** | ** ** | **Carrying  amounts** | ** ** |
| ** **                | ** ** | **(In millions)**                                                 | ** ** |
| Credit guarantees         |       |                                                                   | $          | 13             |       |   | $ | 10 |   | $ | 52 |   |   | $ | 383 |   |   |   | $ | 458 |   |   |   | $ | 8 |   |   |
| Performance  guarantees   |       |                                                                   | 76         |           |       | 407 |   | — |   |   | — |   |   |   | 483 |   |   |   | 9 |   |   |
| Derivatives               |       |                                                                   | 1,116      |           |       | 2,050 |   | 169 |   |   | 183 |   |   |   | 3,518 |   |   |   | 107 |   |   |
| Related party  guarantees |       |                                                                   | —     |           |       | — |   | — |   |   | 1 |   |   |   | 1 |   |   |   | — |   |   |
| Indemnifications          |       |                                                                   | —     |           |       | — |   | — |   |   | 6 |   |   |   | 6 |   |   |   | — |   |   |
| Total guarantees          |       |                                                                   | $          | 1,205          |       |   | $ | 2,467 |   | $ | 221 |   |   | $ | 573 |   |   |   | $ | 4,466 |   |   |   | $ | 124 |   |   |

 

For more information onthe Company’s guarantees, including guarantees for which the maximum contingentliability cannot be quantified, see Note 10 of the consolidated financialstatements in Part II, Item 8 in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2004.

**9.   NetCapital Requirements**

The Company’s principalwholly owned subsidiary, CSFB LLC, is a registered broker-dealer,registered futures commission merchant and member firm of the New York StockExchange, Inc. (“NYSE”). Accordingly, the Company is subject to theminimum net capital requirements of the SEC and the Commodities Futures TradingCommission (“CFTC”).  Under thealternative method permitted by Rule 15c3-1 under the SecuritiesExchange Act of 1934 (the “Exchange Act”), the required net capital may not beless than the greater of 2% of aggregate debit balances arising from customertransactions or 4% of the funds required to be segregated pursuant to theCommodity Exchange Act less the market value of certain commodity options, allas defined. Under CFTC Regulation 1.17, the required minimum net capitalrequirement is 8% of the total risk margin requirement (as defined) for allpositions carried in customer accounts plus 4% of the total risk marginrequirement (as defined) for all positions carried in 

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**9.**   Net Capital Requirements (Continued)

non-customer accounts. Asof September 30, 2005, CSFB LLC’s net capital of approximately$4.3 billion was 55.2% of aggregate debit balances and in excess of theminimum requirement by approximately $4.1 billion. During the thirdquarter of 2005, the Company made $2.0 billion in regulatory capitalcontributions to CSFB LLC in the form of subordinated debt.

The Company’s over-the-counter (“OTC”) derivativesdealer subsidiary, Credit Suisse First Boston Capital LLC (“CSFB Capital LLC”),is also subject to the uniform net capital rule, but computes its net capitalbased on value at risk under Appendix F of Rule 15c3-1 underthe Exchange Act. As of September 30, 2005, CSFB Capital LLC’s net capitalof $619 million, allowing for market and credit risk exposure of$68 million and $141 million, respectively, was in excess of theminimum net capital requirement by $599 million. CSFB Capital LLC is incompliance with the exemptive provisions of Rule 15c3-3 under theExchange Act because the Company does not carry securities accounts forcustomers or perform custodial functions relating to customer securities. On July 20,2005, the Company made a $400 million capital contribution to CSFB Capital LLC.

As of September 30,2005, the Company and its subsidiaries complied with all applicable regulatorycapital adequacy requirements.

**10.**   Cashand Securities Segregated Under Federal and Other Regulations

In compliance with the Commodity Exchange Act, CSFBLLC segregates funds deposited by customers and funds accruing to customers asa result of trades or contracts. As of September 30, 2005 and December 31,2004, cash and securities aggregating $2.6 billion and $3.1 billion,respectively, were segregated or secured by CSFB LLC in separate accountsexclusively for the benefit of customers.

In accordance with the SEC’s no-action letter dated November 3,1998, CSFB LLC computed a reserve requirement for the proprietary accounts ofintroducing broker-dealers. As of September 30, 2005 and December 31,2004, CSFB LLC segregated securities aggregating $1.6 billion and$1.5 billion, respectively, on behalf of introducing broker-dealers.

In addition, CSFB LLCsegregated U.S. Treasury securities with a market value of $6.3 billionand $4.4 billion as of September 30, 2005 and December 31, 2004,respectively, in a special reserve bank account exclusively for the benefit ofcustomers as required by Rule 15c3-3 of the Exchange Act.

**11.   Share-BasedCompensation**

The Company participates in the Credit Suisse GroupInternational Share Plan (the “Plan”). The Plan provides for share option andshare awards to be granted to certain employees based on the fair market valueof CSG shares at the time of grant. In August 2003, the Company adoptedthe fair value recognition provisions of SFAS No. 123, “Accounting forStock-Based Compensation,” as amended by SFAS No. 148, “Accounting forStock-Based Compensation—Transition and Disclosure,” (“SFAS 123”) usingthe prospective method. Under the prospective method, the Company recognizescompensation expense over the vesting period for all share option and shareawards granted under the Plan for services provided after January 1, 2003.Effective January 1, 2005, the Company early adopted the fair valuerecognition provisions of SFAS No. 123 (Revised 2004) “Share-Based Payment”(“SFAS 123R”) using the modified prospective method and recorded an after-taxgain of $6 million in the condensed consolidated statement 

23

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**11.**   Share-Based Compensation (Continued)

of income as a cumulativeeffect of a change in accounting principle to reverse the expense previouslyrecognized on all outstanding unvested awards that are expected to beforfeited. For more on the Company’s adoption of SFAS 123R, see Part I,Item 1 in the Company’s Quarterly Report on Form 10-Q for the threemonths ended March 31, 2005.

Share option awards granted in or before January 2003for services provided before January 1, 2003, if not subsequently modified,were previously accounted for under the recognition and measurement provisionsof APB Opinion No. 25, “Accounting for Stock Issued to Employees.”  Upon adoption of SFAS 123R, compensationexpense for these options that have future vesting requirements was recognizedin the condensed consolidated statements of income.

If the Company had applied the fair-value based methodunder SFAS 123 to recognize expense over the relevant serviceperiod for share options that had future vesting requirements granted in orbefore January 2003, net income would have decreased for the three andnine months ended September 30, 2004. Forthe three and nine months ended September 30, 2005, there was no *pro forma* impact as compensation expenseincludes the fair value as of the grant date of all outstanding unvested shareoption awards granted. The following table reflects the *proforma* effect for the three and nine months ended September 30,2004:

| ** **                                                                                                                                             | ** ** | **For the Three  Months Ended  September 30, 2004** | ** ** | **For the Nine  Months Ended  September 30, 2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|
| ** **                                                                                                                                             | ** ** | **(In millions)**                                                       | ** ** |
| Net income, as  reported                                                                                                                               |       |                                                                         | $          | 19                                                                          |       |   |   | $ | 478 |   |   |
| Add: Share-based  employee compensation expense, net of related tax effects, included in  reported net income                                     |       |                                                                         | 57         |                                                                        |       |   | 175 |   |   |
| Deduct: Share-based  employee compensation expense, net of related tax effects, determined  under the fair-value based method for all awards |       |                                                                         | 58         |                                                                        |       |   | 180 |   |   |
| *Pro  forma* net income                                                                                                                                |       |                                                                         | $          | 18                                                                          |       |   |   | $ | 473 |   |   |

 

**12.   EmployeeBenefit Plans**

The Company provides retirement and post-retirementbenefits to its U.S. and certain non-U.S. employees through participation indefined benefit pension plans (which include a qualified plan and asupplemental plan), a defined contribution plan and other post-retirementplans. The Company’s measurement date is September 30 for its pension and otherplans. For more information on the Company’s employee benefit plans, see Note16 of the consolidated financial statements in Part II, Item 8 in theCompany’s Annual Report on Form 10-K for the year ended December 31,2004.

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**12.**   Employee Benefit Plans (Continued)

The following tablepresents the pension expense by component for the Company’s defined benefit pensionplans and other post-retirement plans for the three and nine monthsended September 30, 2005 and 2004:

| ** **                                    | ** ** | **For the Three  Months Ended  September 30,** | ** ** | **For the Nine  Months Ended  September 30,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **2005**                                                           | ** ** | **2004**                                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                    | ** ** | **(In millions)**                                             | ** ** |
| **Components of Net Periodic  Benefit Cost:** |       |                                                               |       |                                                              |       |   |   |   |   |
| Service cost                                  |       | $                                                                  | 6          |                                                              | $          | 4 |   | $ | 19 |   | $ | 16 |   |
| Interest cost                                 |       | 15                                                                 |       | 9                                                                 |       | 37 |   | 27 |   |
| Expected return  on plan assets               |       | (14                                                                | )          | (12                                                               | )          | (42 | ) | (34 | ) |
| Amortization of  loss                         |       | 6                                                                  |       | 3                                                                 |       | 16 |   | 13 |   |
| Recognized net  actuarial loss                |       | —                                                             |       | —                                                            |       | — |   | (1 | ) |
| Net periodic  benefit cost                    |       | $                                                                  | 13         |                                                              | $          | 4 |   | $ | 30 |   | $ | 21 |   |

 

The Company made paymentsto participants in the supplemental plan and the other post-retirement plansduring the nine months ended September 30, 2005 totaling $4 millionand expects to pay a total of $1 million during the remainder of the yearending December 31, 2005.

**13.   LegalProceedings**

The Company is involved in a number of judicial,regulatory and arbitration proceedings concerning matters arising in connectionwith the conduct of its businesses. The Company believes, based on currentlyavailable information and advice of counsel, that the results of suchproceedings, in the aggregate, will not have a material adverse effect on itsfinancial condition but might be material to operating results for anyparticular period, depending, in part, upon the operating results for suchperiod. The Company intends to defend itself vigorously in these matters,litigating or settling when determined by management to be in the bestinterests of the Company.

In accordance with SFAS No. 5,“Accounting for Contingencies,” the Company recorded in the second quarter of2005 a $750 million litigation charge to increase the reserve for privatelitigation involving Enron, certain IPO allocation practices, research analystindependence and other related litigation. This charge, coupled with the chargerecorded in 2002, brings the Company’s reserves for these private litigationmatters to $1.1 billion after the application of settlements. It is inherentlydifficult to predict the outcome of many of these matters. In presenting theconsolidated financial statements, management makes estimates regarding theoutcome of these matters and records a reserve and takes a charge to incomewhen losses with respect to such matters are probable and can be reasonablyestimated. Estimates, by their nature, are based on judgment and currently availableinformation and involve a variety of factors, including, but not limited to,the type and nature of the litigation, claim or proceeding, the progress of thematter, the advice of legal counsel, the Company’s defenses and its experiencein similar cases or proceedings as well as its assessment of matters, includingsettlements, involving other defendants in similar or related cases orproceedings. Further litigation charges or releases of litigation reserves maybe necessary in the future as developments in such cases or proceedingswarrant.

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**14.   IndustrySegment and Geographic Data**

The Company operates and manages its businessesthrough two operating segments: the Institutional Securities segment,consisting primarily of Investment Banking, Trading and certain separatelymanaged private equity and distressed assets; and the Wealth & AssetManagement segment, consisting of Alternative Capital, which includes theresults of the private equity and private funds businesses, and Private ClientServices. For further information on thesegments, see Note 19 of the consolidated financial statements in Part II,Item 8 in the Company’s Annual Report on Form 10-K for the yearended December 31, 2004.

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**14.**   Industry Segment and Geographic Data (Continued)

The following table setsforth the net revenues excluding net interest, net interest and dividendsrevenue, total net revenues, total expenses and income before provision(benefit) for income taxes and cumulative effect of a change in accountingprinciple before and after minority interests and assets of the Company’ssegments.

| ** **                                               | ** ** | **Institutional  Securities** | ** ** | **Wealth & Asset  Management** | ** ** | **Total  Segments** | ** ** |
|----------------------------------------------------------|------------|-------------------------------|------------|----------------------------------------------|------------|---------------------|------------|
| ** **                                               | ** ** | **(In millions)**        | ** ** |
| **For the three months ended  September 30, 2005:** |       |                          |       | ** **                                   |       |                | ** ** | ** ** |   | ** ** | ** ** |   |
| Net revenues excluding  net interest                     |       |                          | $          | 1,288                                        |       |                |       | $ | 374 |   |   | $ | 1,662 |   |   |
| Net interest and  dividends revenue                      |       |                          | 408        |                                         |       |                | 10         |   |   | 418 |   |   |
| Total net revenues(1)                                    |       |                          | 1,696      |                                         |       |                | 384        |   |   | 2,080 |   |   |
| Total expenses                                           |       |                          | 1,126      |                                         |       |                | 160        |   |   | 1,286 |   |   |
| Income(2)                                                |       |                          | 570        |                                         |       |                | 224        |   |   | 794 |   |   |
| Minority interests(3)                                    |       |                          | 58         |                                         |       |                | 154        |   |   | 212 | ** ** |   |
| Income after  minority interests(4)                      |       |                          | $          | 512                                          |       |                |       | $ | 70 |   |   | $ | 582 |   |   |
| **For the  three months ended September 30, 2004:** |       |                          |       |                                         |       |                |       |   |   |   |   |   |
| Net revenues excluding  net interest                     |       |                          | $          | 426                                          |       |                |       | $ | 203 |   |   | $ | 629 |   |   |
| Net interest and dividends  revenue                      |       |                          | 560        |                                         |       |                | (6         | ) |   | 554 |   |   |
| Total net revenues(1)                                    |       |                          | 986        |                                         |       |                | 197        |   |   | 1,183 |   |   |
| Total expenses                                           |       |                          | 984        |                                         |       |                | 138        |   |   | 1,122 |   |   |
| Income(2)                                                |       |                          | 2          |                                         |       |                | 59         |   |   | 61 |   |   |
| Minority interests(3)                                    | ** ** | ** **                    | 8          |                                         |       |                | 41         |   |   | 49 |   |   |
| (Loss) income  after minority interests(4)               |       |                          | $          | (6                                           | )          |                |       | $ | 18 |   |   | $ | 12 |   |   |
| **For the  nine months ended September 30, 2005:**  | ** ** | ** **                    |       |                                         |       |                |       |   |   |   | ** ** |   |
| Net revenues excluding  net interest                     |       |                          | $          | 2,455                                        |       |                |       | $ | 1,181 |   |   | $ | 3,636 |   |   |
| Net interest and  dividends revenue                      |       |                          | 1,483      |                                         |       |                | 21         |   |   | 1,504 |   |   |
| Total net revenues(1)                                    |       |                          | 3,938      |                                         |       |                | 1,202      |   |   | 5,140 |   |   |
| Total expenses                                           |       |                          | 3,886      |                                         |       |                | 449        |   |   | 4,335 |   |   |
| Income(2)                                                |       |                          | 52         |                                         |       |                | 753        |   |   | 805 |   |   |
| Minority interests(3)                                    |       |                          | 173        |                                         |       |                | 497        |   |   | 670 | ** ** |   |
| (Loss) income  after minority interests(4)               |       |                          | $          | (121                                         | )          |                |       | $ | 256 |   |   | $ | 135 |   |   |
| **Segment  assets as of September 30, 2005****(5)** | ** ** | ** **                    | $          | 309,486                                      |       |                |       | $ | 5,222 |   |   | $ | 314,708 |   |   |
| **For the  nine months ended September 30, 2004:**  |       |                          |       |                                         |       |                |       |   |   |   |   |   |
| Net revenues excluding  net interest                     |       |                          | $          | 1,805                                        |       |                |       | $ | 1,100 |   |   | $ | 2,905 |   |   |
| Net interest and  dividends revenue                      |       |                          | 1,790      |                                         |       |                | 35         |   |   | 1,825 |   |   |
| Total net revenues(1)                                    |       |                          | 3,595      |                                         |       |                | 1,135      |   |   | 4,730 |   |   |
| Total expenses                                           |       |                          | 3,103      |                                         |       |                | 434        |   |   | 3,537 |   |   |
| Income(2)                                                |       |                          | 492        |                                         |       |                | 701        |   |   | 1,193 |   |   |
| Minority interests(3)                                    |       |                          | 70         |                                         |       |                | 425        |   |   | 495 |   |   |
| Income after  minority interests(4)                      |       |                          | $          | 422                                          |       |                |       | $ | 276 |   |   | $ | 698 |   |   |
| **Segment assets as of December 31, 2004****(5)**   | ** ** | ** **                    | $          | 271,203                                      |       |                |       | $ | 4,610 |   |   | $ | 275,813 |   |   |

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(1)    Interestincome and expense is accrued at the stated coupon rate for coupon-bearingfinancial instruments, and for non-coupon-bearing financial instruments,interest income is recognized by accreting the discount over the life of theinstrument. For coupon-bearing financial instruments purchased at a discount orpremium, the difference between interest income and expense accrued at thestated coupon rate and interest income and 

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) September 30, 2005**

**14.**   Industry Segment and Geographic Data (Continued)

expense determined on aneffective yield basis, which could be significant, is included in principaltransactions-net instead of interest and dividends, net, in the Company’scondensed consolidated statements of income and in net revenues excluding netinterest above.

(2)    Incomebefore provision (benefit) for income taxes, minority interests and cumulativeeffect of a change in accounting principle.

(3)    Relatedto the Company’s consolidation of certain private equity funds. See Note 3 formore information.

(4)    Income(loss) before provision (benefit) for income taxes and cumulative effect of achange in accounting principle.

(5)    TheInstitutional Securities and Wealth & Asset Management segment assetsinclude $584 million and $1.9 billion, respectively, as of September 30,2005 and $494 million and $1.5 billion, respectively, as of December 31,2004, related to the Company’s consolidation of certain private equity funds.

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**Report of Independent Registered Public AccountingFirm**

The Board of Directors and StockholderCredit Suisse First Boston (USA), Inc.

We have reviewed the accompanying condensedconsolidated statement of financial condition of Credit Suisse First Boston (USA), Inc.and subsidiaries (the “Company”) as of September 30, 2005, the relatedcondensed consolidated statements of income for the three and nine-monthperiods ended September 30, 2005 and 2004, and the related condensedconsolidated statements of changes in stockholder’s equity and cash flows forthe nine-month periods ended September 30, 2005 and 2004. These condensedconsolidated financial statements are the responsibility of the Company’smanagement.

We conducted our reviews in accordance with the standardsof the Public Company Accounting Oversight Board (United States). A review ofinterim financial information consists principally of applying analyticalprocedures and making inquiries of persons responsible for financial andaccounting matters. It is substantially less in scope than an audit conductedin accordance with the standards of the Public Company Accounting OversightBoard (United States), the objective of which is the expression of an opinionregarding the financial statements taken as a whole. Accordingly, we do notexpress such an opinion.

Based on our reviews, we are not aware of any materialmodifications that should be made to the condensed consolidated financialstatements referred to above for them to be in conformity with U.S. generallyaccepted accounting principles.

We have previously audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theconsolidated statement of financial condition of Credit Suisse First Boston(USA), Inc. and subsidiaries as of December 31, 2004, and the relatedconsolidated statements of income, changes in stockholder’s equity, and cashflows for the year then ended (not presented herein); and in our report dated March 17,2005, we expressed an unqualified opinion on those consolidated financialstatements. In our opinion, the information set forth in the accompanyingcondensed consolidated statement of financial condition as of December 31,2004 is fairly stated, in all material respects, in relation to theconsolidated statement of financial condition from which it has been derived.

As discussed in Note 1 tothe condensed consolidated financial statements, in 2005 the Company changedits method of accounting for share-based compensation.
| /s/ KPMG LLP           |   |   |
|------------------------|--------|--------|
| New York, New  York    |   |
| November 8,  2005 |   |

 

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**Item 2:**                       Management’sDiscussion and Analysis of Financial Condition and Results of Operations

We serve institutional, corporate, government andhigh-net-worth individual clients. Our businesses include securitiesunderwriting, sales and trading, financial advisory services, alternativeinvestments, full-service brokerage services, derivatives and risk managementproducts, asset management and investment research. We are part of the CreditSuisse First Boston division, which we call CSFB, of Credit Suisse Group, orCSG, and our results do not reflect the overall performance of CSFB or CSG.

When we use the terms “we,” “our,” “us” and the “Company,”we mean Credit Suisse First Boston (USA), Inc., a Delaware corporation,and its consolidated subsidiaries.

The Company’s principaloperations are located in the United States. The Company’s foreign revenues arenot significant.

**BUSINESS ENVIRONMENT**

Our principal business activities, investment banking,securities underwriting and sales, trading and wealth and asset management,are, by their nature, highly competitive and subject to general marketconditions that include volatile trading markets, fluctuations in the volume ofnew issues, mergers and acquisitions activities and the value of securities.Consequently, our results have been, and are likely to continue to be, subjectto wide fluctuations reflecting the impact of many factors beyond our control,including securities market conditions, the level and volatility of interestrates, competitive conditions, the size and timing of transactions and thegeopolitical environment.

The U.S. economy performed better in the summer monthsthan expected and GDP growth and consumer spending were strong. The end of thethird quarter was impacted by two hurricanes on the Gulf Coast which may slowoverall economic activity for the rest of the year due to rising oil and gasprices and the disruption to the economy. The Federal Reserve Board continuedto raise short-term interest rates at a measured pace in an effort to containinflationary pressures and indicated that further rate increases are likely.The U.S. economy expanded at a moderate pace during the first nine months of2005.

The major U.S. stock market indices posted gainsduring the three months ended September 30, 2005, but had mixed resultsduring the nine months ended September 30, 2005 as rising interest ratesand oil prices slowed the momentum generated from solid corporate earnings. Forthe three months ended September 30, 2005, the Dow Jones IndustrialAverage, the Standard & Poor’s 500 stock index and the NASDAQcomposite index increased 3%, 3% and 5%, respectively. For the nine monthsended September 30, 2005, the Dow Jones Industrial Average and the NASDAQcomposite index declined 2% and 1%, respectively, while the Standard &Poor’s 500 stock index increased 1%.

The federal funds rate was 3.75% as of September 30,2005 compared to 2.25% as of December 31, 2004 as the Federal ReserveBoard increased the federal funds rate six times during the nine months ended September 30,2005, including two times during the three months ended September 30,2005. Despite increases in short-term interest rates by the Federal ReserveBoard, the yield on 10-year U.S. Treasury notes was relatively unchanged,increasing slightly from 4.22% as of December 31, 2004 to 4.33% as of September 30,2005.

The dollar value of U.S.equity and equity-related underwriting increased for the three months ended September 30,2005 compared to the three months ended September 30, 2004, primarilyreflecting increases in secondary common stock issuances. The dollar value ofU.S. equity and equity-related underwriting decreased for the nine months endedSeptember 30, 2005 compared to the nine months ended September 30,2004, primarily reflecting decreases in convertible securities issuances,secondary common stock issuances and initial public offerings. The dollar valueof U.S. debt underwriting increased for the three and nine months ended September 30,2005 compared to the three and nine months ended September 30, 2004,primarily as a result of an increase in asset-backed and mortgage-backedsecurities 

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underwritings.The increases in asset-backed and mortgage-backed underwritings for the ninemonths ended September 30, 2005 compared to the nine months ended September 30,2004 were partially offset by a significant decline in high-yield corporatedebt underwritings. Mergers and acquisitions activity was robust as the dollarvalue of both announced and completed mergers and acquisitions in the UnitedStates for the three and nine months ended September 30, 2005 increasedcompared to the three and nine months ended September 30, 2004.

**MANAGEMENT OVERVIEW**

The Company’s total net revenues for the third quarterof 2005 increased 76% compared to the third quarter of 2004. This increase inrevenues reflected significantly higher revenues from fixed income and equitytrading, as well as higher revenues from equity underwriting and the privateequity business. This increase was partially offset by lower debt underwriting revenuesand lower interest revenues from structured products. The Company consolidatescertain private equity funds, resulting in an increase in net revenues of $214million for the third quarter of 2005. Net income was unaffected by thisconsolidation as offsetting minority interests and related operating expenseswere recorded by the Company. Total expenses for the third quarter of 2005increased 15% compared to the third quarter of 2004, reflecting higher employeecompensation and benefits expenses. The Company recorded net income of $386million for the third quarter of 2005 compared to $19 million for the thirdquarter of 2004.

The Company’s total netrevenues for the first nine months of 2005 increased 9% compared to the firstnine months of 2004. This increase in revenues primarily reflected higherrevenues from fixed income and equity trading. This increase was partiallyoffset by lower revenues from debt and equity underwriting, as well as lowerinterest and dividends revenues from structured products and equities.Consolidation of certain private equity funds resulted in an increase in netrevenues of $675 million for the first nine months of 2005. Net income wasunaffected by this consolidation as offsetting minority interests and relatedoperating expenses were recorded by the Company. Total expenses for the firstnine months of 2005 increased 23% compared to the first nine months of 2004,reflecting significantly higher other operating expenses, which included a $750million litigation charge in the second quarter of 2005 to increase the reservefor private litigation involving Enron, certain IPO allocation practices,research analyst independence and other related litigation. The Companyrecorded net income of $123 million for the first nine months of 2005 comparedto net income of $478 million for the first nine months of 2004.

**CRITICALACCOUNTING POLICIES AND ESTIMATES**

In order to prepare the condensed consolidatedfinancial statements in accordance with accounting principles generallyaccepted in the United States of America, we must make estimates andassumptions based on judgment and available information. The reported amountsof assets and liabilities and revenues and expenses are affected by theseestimates and assumptions. Actual results could differ from these estimates,and the differences could be material.

Our significant accountingpolicies and a discussion of new accounting pronouncements are disclosed inNote 1 of the consolidated financial statements in Part II, Item 8 inour Annual Report on Form 10-K for the year ended December 31,2004 and Note 1 of the condensed consolidated financial statements in Part I,Item 1 herein. We believe that the critical accounting policies discussed belowinvolve the most complex judgments and assessments. We believe that theestimates and assumptions used in the preparation of the condensed consolidatedfinancial statements are prudent, reasonable and consistently applied.

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**Fair Value**

As is the normal practice in our industry, the valueswe report in the condensed consolidated financial statements with respect tofinancial instruments owned and financial instruments sold not yet purchasedare in most cases based on fair value, with related unrealized and realizedgains or losses included in the condensed consolidated statements of income.Commercial mortgage whole loans are carried at the lower of aggregate cost orfair value and certain residential mortgage whole loans held for sale arecarried at the lower of cost or fair value.

Fair value may be objective,as is the case for exchange-traded instruments, for which quoted pricesin price-efficient and liquid markets generally exist, or as is the casewhere a financial instrument’s fair value is derived from actively quotedprices or pricing parameters or alternative pricing sources with a reasonablelevel of price transparency. For financial instruments that trade infrequentlyand have little price transparency, fair value may be subjective and requirevarying degrees of judgment depending on liquidity, concentration, uncertaintyof market factors, pricing assumptions and other risks affecting the specificinstrument. In such circumstances, valuation is based on management’s bestestimate of fair value. In addition, valuation of financial instruments ordinarilybased on quoted prices may be distorted in times of market dislocation.

***Controls Over Fair Valuation Process***

Control processes are applied to ensure that the fairvalue of the financial instruments reported in our condensed consolidatedfinancial statements, including those derived from pricing models, areappropriate and measured on a reliable basis. The Company bases fair value onobservable market prices or market-based parameters whenever possible. In theabsence of observable market prices or market-based parameters in an activemarket or from comparable market transactions, or other observable datasupporting fair value based on a model at the inception of a contract, fairvalue is based on the transaction price. Control processes are designed to ensurethat the valuation approach is appropriate and the assumptions are reasonable.

Control processes include the approval of newproducts, review of profit and loss, risk monitoring and review, priceverification procedures and reviews of models used to price financialinstruments by senior management and personnel with relevant expertise who areindependent of the trading and investment functions.

The Company also has agreements with certaincounterparties to exchange collateral based on the fair value of derivativescontracts. Through this process, one or both parties provide the other partywith the fair value of these derivatives contracts in order to determine theamount of collateral required. This exchange of information provides additionalsupport for the Company’s derivatives contracts valuations. As part of theCompany’s over-the-counter, or OTC, derivatives business, the Company and otherparticipants provide pricing information to aggregation services that compilethis data and provide this information to subscribers. This information isconsidered in the determination of fair value for certain OTC derivatives.

For further discussion ofour risk management policies and procedures, see “Quantitative and QualitativeDisclosures About Market Risk” in Part II, Item 7A of our Annual Report onForm 10-K for the year ended December 31, 2004.

***Valuation***

Forpurposes of valuation, we categorize our financial instruments as cashproducts, derivatives contracts and private equity and other long-term investments.The table below presents the carrying value of our cash products, derivativescontracts and private equity and other long-term investments as of 

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September 30, 2005 and December 31, 2004.Included in cash products are commercial mortgage whole loans, which arecarried at the lower of the aggregate cost or fair value, and certainresidential mortgage whole loans, which are carried at the lower of the cost orfair value.

| ** **                                      | ** ** | **As of September 30, 2005** | ** ** | **As of December 31, 2004**               | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                      | ** ** | **Financial  instruments  owned**                | ** ** | **Financial  instruments  sold not yet  purchased** | ** ** | **Financial  instruments  owned** | ** ** | **Financial  instruments  sold not yet  purchased** | ** ** |
| ** **                                      | ** ** | **(In millions)**                           | ** ** |
| Cash products                                   |       |                                             | $          | 114,731                                                       |       |   |   | $ | 45,375 |   |   |   | $ | 96,097 |   |   |   | $ | 28,402 |   |   |
| Derivatives  contracts                          |       |                                             | 5,278      |                                                          |       |   | 3,090 |   |   |   | 3,663 |   |   |   | 2,295 |   |   |
| Private equity  and other long-term investments |       |                                             | 3,698      |                                                          |       |   | — |   |   |   | 3,127 |   |   |   | — |   |   |
| Total                                           |       |                                             | $          | 123,707                                                       |       |   |   | $ | 48,465 |   |   |   | $ | 102,887 |   |   |   | $ | 30,697 |   |   |

 

*Cash Products*

The vast majority of our financial instruments ownedand financial instruments sold not yet purchased are considered cash tradinginstruments. The fair value of the vast majority of these financial instrumentsis based on quoted market prices in active markets or observable marketparameters or is derived from such prices or parameters. These include U.S.government and agency securities, commercial paper, most investment-gradecorporate debt, most high-yield debt securities, certain leveraged loans, mostmortgage-backed securities, certain mortgage whole loans and listed equities.

In addition, we hold positions in cash products thatare thinly traded or for which no market prices are available, and which havelittle or no price transparency. These products include certain high-yield debt securities, certainleveraged loans, distressed debt securities, certain mortgage whole loans,certain mortgage-backed and asset-backed securities, certain collateralizeddebt obligations, or CDOs, and equity securities that are not publicly traded. Thetechniques used to estimate fair value for these instruments are based on thetype of product. Some of these valuation techniques require us to exercise asubstantial amount of judgment, for example, in determining the likely futurecash flows or default recovery on distressed debt instruments or asset-backedobligations or the likely impact of country or market risk on variousinvestments. Valuation techniques for certain of these products are describedmore fully below.

For certain high-yield debt securities that are thinlytraded or for which market prices are not available, valuation is based onrecent market transactions, taking into account changes in the creditworthinessof the issuer, and pricing models to derive yields reflecting the perceivedrisk of the issuer or country rating and the maturity of the security. Suchvaluation may involve judgment.

Financial instruments held in the distressed portfolioare typically issued by private companies under significant financial burdenand/or near bankruptcy. Because of the less liquid nature of these financialinstruments, valuation techniques often include earnings-multipleanalyses using comparable companies or discounted cash flow analysis. Thesefactors contribute to significant subjectivity in the valuation of thesefinancial instruments.

The mortgage loan portfolio primarily includesresidential mortgage loans that are either purchased or originated andcommercial mortgage loans that are originated with the intent to securitize orsell. For residential mortgage loans, valuations are based on pricing factorsspecific to loan level attributes, such as loan-to-value ratios, currentbalance and liens. The commercial real estate loans are valued usingorigination spreads, incorporating loan-to-value ratios, debt service coverageratios, geographic location, prepayment protection and current yield curves. Inaddition, current written offers or contract prices are considered in thevaluation process.

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Values of residential and commercial mortgage-backedsecurities and other asset-backed securities that are not based on quotedmarket prices or prices at which similarly structured and collateralizedsecurities trade between dealers and to and from customers are valued usingpricing models including for example employing prepayment scenarios and MonteCarlo simulations where applicable.

CDOs arestructured securities based on underlying portfolios of asset-backedsecurities, certain residential and commercial mortgage securities, high-yieldand investment grade corporate bonds, leveraged loans and other debtobligations. These instruments are split into various structured tranches, andeach tranche is priced based upon its individual rating and the value or cashflow of the underlying collateral supporting the structure. Values are derivedusing pricing models that involve projected cash flows, default recoveryanalysis and other assumptions, and such valuations involve judgment.

For convertible securitiesthat are thinly traded or for which no market prices are available, internalmodels are used to derive fair value. The terms and conditions of the securityare factored into the model, along with market inputs such as underlying equityprice, equity price volatility and credit spread. Certain adjustments are madeto the derived theoretical values for high concentration levels and low tradingvolumes.

*DerivativesContracts*

Ourderivatives contracts consist of exchange-traded and OTC derivatives, and thefair value of these as of September 30, 2005 and December 31, 2004was as follows:

| ** **      | ** ** | **As of September 30, 2005** | ** ** | **As of December 31, 2004** | ** ** |
|-----------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **      | ** ** | **Assets**                                       | ** ** | **Liabilities**                                 | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **      | ** ** | **(In millions)**                           | ** ** |
| Exchange-traded |       |                                             | $          | 754                                             |       |   |   | $ | 543 |   |   |   | $ | 695 |   |   |   | $ | 598 |   |   |   |
| OTC             |       |                                             | 4,524      |                                            |       |   | 2,547 |   |   |   | 2,968 |   |   |   | 1,697 |   |   |   |
| Total           |       |                                             | $          | 5,278                                           |       |   |   | $ | 3,090 |   |   |   | $ | 3,663 |   |   |   | $ | 2,295 |   |   |   |

 

The fair value of exchange-tradedderivatives is typically derived from the observable exchange price and/orobservable market parameters. Our primary exchange-traded derivativesinclude certain option agreements. OTC derivatives include forwards, swaps andoptions on foreign exchange, interest rates, equities and credit products. Fairvalues for OTC derivatives are determined using internally developedproprietary models using various input parameters. The input parameters includethose characteristics of the derivative that have a bearing on the economics ofthe instrument and market parameters. In well-established derivatives markets,the use of a particular model may be widely accepted. For example, the Black-Scholesmodel is widely used to calculate the fair value of many types of options.These models are used to calculate the fair value of OTC derivatives and tofacilitate the effective risk management of the portfolio. The determination ofthe fair value of many derivatives involves only limited subjectivity becausethe required input parameters are observable in the marketplace. For other morecomplex derivatives, subjectivity relating to the determination of inputparameters reduces price transparency. Specific areas of subjectivity includelong-dated volatilities on OTC option transactions and recovery rateassumptions for credit derivatives transactions. Uncertainty of pricingassumptions and liquidity are also considered as part of the valuation process.Consequently, we do not recognize dealer profits and losses or unrealized gainsor losses at the inception of derivatives transactions unless the valuation isevidenced by quoted market prices in an active market, observable prices ofother current market transactions or other observable data supporting avaluation technique in accordance with Emerging Issues Task Force Issue No. 02-3,“Issues Involved in Accounting for Derivative Contracts Held for TradingPurposes and Contracts Involved in Energy Trading and Risk ManagementActivities.” As of September 30, 2005 and December 31, 2004, most ofthe fair values reported in our condensed consolidated statements of financialcondition were derived using observable input parameters. For furtherinformation on the fair value of derivatives as of 

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September 30,2005 and December 31, 2004, see “—Derivatives—Sources and Maturities ofOTC Derivatives” and Note 5 of the condensed consolidated financial statementsin Part I, Item 1.

*Private equity andother long-term investments*

Private equity and other long-term investments includedirect investments and investments in partnerships that make private equity andrelated investments in various portfolio companies and funds. Private equityinvestments and other long-term investments consist of both publicly tradedsecurities and private securities. Publicly traded investments are valued basedupon readily available market quotes with appropriate adjustments for liquidityas a result of holding large blocks and/or having trading restrictions. Privatesecurities, which generally have no readily available market or may beotherwise restricted as to resale, are valued taking into account a number offactors, such as the most recent round of financing involving unrelated newinvestors, earnings-multiple analyses using comparable companies or discountedcash flow analysis, and have little or no price transparency.

TheCompany categorizes its private equity investments into three categories:CSFB-managed funds, funds managed by third parties and direct investments. Thefollowing table sets forth the fair value of our private equity investments bycategory as of September 30, 2005 and December 31, 2004:

| ** **                                                                                                                                                                                    | ** ** | **As of September 30, 2005** | ** ** | **As of December 31, 2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                                                                                                                    | ** ** | **Fair value**                              | ** ** | **Percent  of total**                      | ** ** | **Fair value** | ** ** | **Percent  of total** | ** ** |
| ** **                                                                                                                                                                                    | ** ** | **(In millions)**                           | ** ** | ** **                                      | ** ** | **(In millions)** | ** ** | ** ** | ** ** |
| CSFB-managed  funds (which includes $2,444 and $1,947 related to funds consolidated  primarily under FIN 46R(1) as of September 30, 2005 and  December 31, 2004, respectively) |       |                                             | $          | 3,233                                           |       |   |   | 87 | % |   |   | $ | 2,670 |   |   |   | 85 | % |   |
| Funds managed by  third parties                                                                                                                                                               |       |                                             | 449        |                                            |       |   | 12 |   |   |   | 442 |   |   |   | 14 |   |   |
| Direct  investments                                                                                                                                                                           |       |                                             | 16         |                                            |       |   | 1 |   |   |   | 15 |   |   |   | 1 |   |   |
| Total                                                                                                                                                                                         |       |                                             | $          | 3,698                                           |       |   |   | 100 | % |   |   | $ | 3,127 |   |   |   | 100 | % |   |

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(1)          For more information onthe consolidated funds as of September 30, 2005 and December 31,2004, see Notes 3 and 4 of the condensed consolidated financial statements in Part I,Item 1.

*CSFB-ManagedFunds.**  *CSFB-managedfunds are partnerships and related “side-by-side” direct investments made byour subsidiaries for which CSFB acts as the fund’s advisor and makes investmentdecisions. As of September 30, 2005 and December 31, 2004,approximately 14% and 10%, respectively, of the aggregate fair value ofCSFB-managed fund investments, excluding private equity funds consolidatedprimarily under Financial Accounting Standards Board, or FASB, Interpretation No. 46,“Consolidation of Variable Interest Entities”, or FIN 46, as subsequentlymodified through the issuance of FIN 46R, were public securities. The fairvalue of our investments in CSFB-managed funds is based on our valuation or, inthe case of funds of funds, valuations received from the underlying fundmanager and reviewed by us.

*FundsManaged by Third Parties.**  *Funds managed by third parties are investments byCSFB as a limited partner in a fund managed by an external fund manager. Thefair value of these funds is based on the valuation received from the generalpartner of the fund and reviewed by us.

*Direct Investments.**  *Direct investments are generallydebt and equity securities that are not made through or “side-by-side” withCSFB-managed funds and consist of public and private securities. Theseinvestments are priced in accordance with the procedures for CSFB-managedfunds. As of September 30, 2005 and December 31, 2004, approximately49% and 22%, respectively, of the aggregate fair value of direct investmentswere public securities.

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**Income Taxes**

***Deferred Tax Assets***

We recognize deferred tax assets and liabilities forthe estimated future tax effects of operating loss carry-forwards andtemporary differences between the carrying amounts of existing assets andliabilities and their respective tax bases as of the date of the statement offinancial condition.

The realization of deferred tax assets on temporarydifferences is dependent upon the generation of taxable income during theperiods in which those temporary differences become deductible. The realizationof deferred tax assets on net operating losses is dependent upon the generationof taxable income during the periods prior to their expiration, if any.Periodically, management evaluates whether deferred tax assets can be realized.If management considers it more likely than not that all or a portion of adeferred tax asset will not be realized, a corresponding valuation allowance isestablished. In evaluating whether deferred tax assets can be realized, managementconsiders projected future taxable income, the scheduled reversal of deferredtax liabilities and tax planning strategies.

This evaluation requires significant managementjudgment, primarily with respect to projected taxable income. The estimate offuture taxable income can never be predicted with certainty. It is derived frombudgets and strategic business plans but is dependent on numerous factors, someof which are beyond our control. Substantial variance of actual results fromestimated future taxable profits, or changes in our estimate of future taxableprofits, could lead to changes in deferred tax assets being realizable orconsidered realizable, and would require a corresponding adjustment to thevaluation allowance.

As of September 30,2005 and December 31, 2004, we had deferred tax assets resulting fromtemporary differences that could reduce taxable income in future periods. Thecondensed consolidated statements of financial condition as of September 30,2005 and December 31, 2004 include deferred tax assets of$1.5 billion and $1.6 billion, respectively, and deferred taxliabilities of $522 million and $438 million, respectively. Due touncertainty concerning our ability to generate the necessary amount and mix ofstate and local taxable income in future periods, we maintained a valuationallowance against our deferred state and local tax assets in the amount of$27 million and $32 million as of September 30, 2005 and December 31,2004, respectively.

***Tax Contingencies***

Significant judgment isrequired in determining the effective tax rate and in evaluating certain of ourtax positions. We accrue for tax contingencies when, despite our belief thatour tax return positions are fully supportable, certain positions could bechallenged and our positions may not be fully sustained. Once established, taxcontingency accruals are adjusted due to changing facts and circumstances, suchas case law, progress of audits or when an event occurs requiring a change tothe tax contingency accruals. We regularly assess the likelihood of adverseoutcomes to determine the appropriateness of our provision (benefit) for incometaxes. Although the outcome of any dispute is uncertain, management believesthat it has appropriately accrued for any unfavorable outcome.

**Litigation Contingencies**

From time to time, we areinvolved in a variety of legal, regulatory and arbitration matters inconnection with the conduct of our business. It is inherently difficult topredict the outcome of many of these matters, particularly those cases in whichthe matters are brought on behalf of various classes of claimants, seek damagesof unspecified or indeterminate amounts or involve novel legal claims. Inpresenting our consolidated financial statements, management makes estimatesregarding the outcome of these matters and records a reserve and takes a chargeto income when losses with respect to such matters are probable and can bereasonably estimated. Charges, other than those taken periodically for cost of 

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defense,are not established for matters when losses cannot be reasonably estimated.Estimates, by their nature, are based on judgment and currently availableinformation and involve a variety of factors, including, but not limited to,the type and nature of the litigation, claim or proceeding, the progress of thematter, the advice of legal counsel, our defenses and our experience in similarcases or proceedings as well as our assessment of matters, includingsettlements, involving other defendants in similar or related cases or proceedings.For a discussion of legal proceedings, see “Legal Proceedings” in Part II,Item 1.

**RECENT DEVELOPMENTS**

On October 4, 2005, we acquired all of theoutstanding stock of SPS Holding Corp. and its subsidiary Select PortfolioServicing, Inc., or SPS, from PMI Group, Inc., FSA PortfolioManagement Inc. and Greenrange Partners LLC, for approximately $140 million. Weare contractually obligated to make additional future contingent payments up toapproximately $40 million for servicing rights on mortgage loans currentlyserviced by SPS on behalf of third parties.

SPS is a leading nonprimeresidential mortgage loan servicer, headquartered in Salt Lake City, Utah, withfacilities in Jacksonville, Florida. SPS services a significant portion ofmortgage loan collateral underwritten by CSFB. SPS will be integrated into CSFB’sresidential mortgage-backed securities businesses and reflects our strategy togrow this business.

**RESULTS OF OPERATIONS**

Thefollowing table sets forth a summary of our financial results:

| ** **                                                                                                                         | ** ** | **For the Three  Months Ended  September 30,** | ** ** | **For the Nine  Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                                                                         | ** ** | **2005**                                                           | ** ** | **2004**                                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                                         | ** ** | **(In millions)**                                             | ** ** |
| Total net  revenues                                                                                                                |       | $                                                                  | 2,080      |                                                              | $          | 1,183 |   | $ | 5,140 |   | $ | 4,730 |   |
| Total expenses                                                                                                                     |       | 1,286                                                              |       | 1,122                                                             |       | 4,335 | ** ** | 3,537 |   |
| Income before  provision (benefit) for income taxes, minority interests and cumulative  effect of a change in accounting principle |       | 794                                                                |       | 61                                                                |       | 805 | ** ** | 1,193 |   |
| Provision  (benefit) for income taxes                                                                                              |       | 196                                                                |       | (7                                                                | )          | 18 | ** ** | 220 |   |
| Minority  interests                                                                                                                |       | 212                                                                |       | 49                                                                |       | 670 | ** ** | 495 |   |
| Income before  cumulative effect of a change in accounting principle                                                               |       | 386                                                                |       | 19                                                                |       | 117 | ** ** | 478 |   |
| Cumulative effect  of a change in accounting principle, net of income tax expense of $3                                            |       | —                                                             |       | —                                                            |       | 6 | ** ** | — |   |
| Net income                                                                                                                         |       | $                                                                  | 386        |                                                              | $          | 19 |   | $ | 123 |   | $ | 478 |   |

 

Substantially all of our financial instruments aremarked to market daily and, therefore, the value of such financial instrumentsand our net revenues are subject to fluctuations based on market movements. Inaddition, net revenues derived from our less liquid assets may fluctuatesignificantly depending on the revaluation or sale of these investments in anygiven period. We also regularly enter into large transactions as part of ourproprietary and other trading businesses, and the number and size of such transactionsmay subject our net revenues to volatility from period to period.

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Interest income and expense is accrued at the statedcoupon rate for coupon-bearing financial instruments, and for non-coupon-bearingfinancial instruments, interest income is recognized by accreting the discountover the life of the instrument. For coupon-bearing financial instrumentspurchased at a discount or premium, the difference between interest income andexpense accrued at the stated coupon rate and interest income and expensedetermined on an effective yield basis, which could be significant, is includedin principal transactions-net instead of interest and dividends, net, in thecondensed consolidated statements of income.

We use derivatives and cash instruments to mitigatethe interest rate exposure associated with commercial mortgage whole loans,originated residential mortgage whole loans and resale and repurchaseagreements. These derivatives and cash instruments are carried at fair value,while the commercial mortgage whole loans and originated residential mortgagewhole loans are carried at the lower of aggregate cost or fair value and theresale and repurchase agreements are carried at contract amounts. As a result,decreases in the value of the derivatives and cash instruments, if any, are notoffset by increases in the value of the commercial mortgage whole loans untilthe loans are sold and increases and decreases in the value of the derivativesand cash instruments, if any, are not offset by decreases and increases in thevalue of the resale and repurchase agreements until the securities are sold orrepurchased. Commercial whole loans and resale and repurchase agreements can bea significant part of our statement of financial condition. Therefore, our netrevenues are subject to volatility from period to period.

Our 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 That May AffectOur Results of Operations” in Part I, Item 1 of our Annual Report on Form 10-Kfor the year ended December 31, 2004.

**ThreeMonths Ended September 30, 2005 Compared to Three Months Ended September 30, 2004**

The Company recorded net income of $386 million forthe three months ended September 30, 2005 compared to net income of $19million for the three months ended September 30, 2004, reflectingsignificantly higher net revenues and slightly higher expenses. The Companyconsolidates certain private equity funds, resulting in an increase in netrevenues of $214 million and $55 million, respectively, for the three monthsended September 30, 2005 and 2004. Net income was unaffected by theconsolidation of these private equity funds as offsetting minority interestsand related operating expenses were recorded in the condensed consolidatedstatements of income. See Note 3 of the condensed consolidated financialstatements in Part I, Item 1 for more information. Excluding the increasesattributable to the consolidation of certain private equity funds, net revenuesincreased 65%.

Total net revenues increased $897 million, or 76%, to$2.1 billion for the three months endedSeptember 30, 2005, compared to thethree months ended September 30, 2004, reflecting a significantincrease in principal transactions-net and slight increases in investmentbanking and advisory and commissions and fees, partially offset by a decreasein net interest and dividends. The increase in principal transactions-net wasprimarily due to higher revenues in fixed income trading as well as improvedresults in equity trading and our private equity business. Investment bankingand advisory revenues were marginally higher reflecting an increase in equityunderwriting revenues, higher placement fees from our private funds group andimproved advisory fees partially offset by a decrease in debt underwritingrevenues. Commissions and fees were marginally higher from our cash equitybusiness. Net interest and dividend revenues decreased primarily due to lowernet interest revenues from structured products.

Total expenses increased$164 million, or 15%, to $1.3 billion forthe three months ended September 30, 2005 compared to the three months ended September 30,2004, primarily due to increases in employee compensation and benefits expenses. See “—Expenses.”

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**NineMonths Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004**

The Company recorded net income of $123 millionfor the nine months ended September 30, 2005 compared to net income of$478 million for the nine months ended September 30, 2004, reflecting anincrease in net revenues but significantly higher expenses. The Companyconsolidates certain private equity funds, resulting in an increase in netrevenues of $675 million and $501 million, respectively, for the nine monthsended September 30, 2005 and 2004. Net income was unaffected by theconsolidation of private equity funds as offsetting minority interests andrelated operating expenses were recorded in the condensed consolidatedstatements of income. See Note 3 of the condensed consolidated financialstatements in Part I, Item 1 for more information. Excluding the increasesattributable to the consolidation of certain private equity funds, net revenuesincreased 6%.

Total net revenues increased $410 million, or 9%, to$5.1 billion for the nine months ended September 30,2005, compared to the nine months ended September 30,2004, reflecting a significant increase in principal transactions-netpartially offset by decreases in net interest and dividends, investment bankingand advisory, commissions and fees and other revenues. The increase inprincipal transactions-net was primarily due to higher revenues in fixed incometrading, improved results in equity trading and higher revenues from theconsolidation of private equity funds primarily under FIN 46R. Net interest anddividend revenues decreased primarily due to lower net interest revenues fromstructured products and lower net interest and dividend revenue from mostequity trading activities, offset in part by increases in prime services.Investment banking and advisory fees decreased due to lower debt and equityunderwriting fees. Commissions were lower primarily as a result of decreasedtrading activity from fixed income listed derivatives and lower management feesfrom our private equity business.

Total expenses increased$798 million, or 23%, to $4.3 billion forthe nine months ended September 30, 2005 compared to the nine months ended September 30,2004, primarily due to increases in other operating expenses resulting from thelitigation charge of $750 million in the second quarter of 2005 to increase thereserve for certain private litigation. See “—Expenses.”

**Results by Segment**

The operations of the Institutional Securities segmentinclude: Investment Banking, which includes debt and equity underwriting andfinancial advisory services; and Trading, which includes our debt and equitysales and trading and other related activities. The Institutional Securitiessegment also includes the results from certain separately managed privateequity and distressed assets. The operations of the Wealth & AssetManagement segment include: Alternative Capital, which includes the results ofthe private equity and private funds businesses, and Private Client Services.

Our segments are managed based on types of productsand services offered and their related client bases. We evaluate theperformance of our segments based primarily on income (loss) before theprovision (benefit) for income taxes, minority interests and cumulative effectof a change in accounting principle.

Revenues are evaluated in the aggregate, including anassessment of trading gains and losses and the related interest income and expenseattributable to financing and hedging positions. Therefore, individual revenuecategories may not be indicative of the performance of the segment results.

The cost structure of each of our segments is broadlysimilar to that of the Company as a whole, and, consequently, the discussion ofexpenses is presented on a company-wide basis. The Company allocates to itssegments a *pro rata* share ofcertain centrally managed costs. Leased facilities and equipment costs,employee benefits and certain general overhead expenses are allocated basedupon specified amounts, usage criteria or agreed rates. Interest expense isallocated based upon the particular type of asset. The allocation of somecosts, such as incentive bonuses, has been estimated. The timing and magnitudeof 

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changes in our incentivebonus accrual can have a significant effect on our operating results for agiven period.

Beginning in 2004, theGlobal Treasury department allocated to the Company’s segments certain interestexpense primarily relating to the goodwill and intangible assets from theacquisition of Donaldson, Lufkin & Jenrette, Inc., which isrecorded in the financial statements of Credit Suisse First Boston, Inc.,or CSFBI, which is the Company’s direct parent. In addition, the Global Treasurydepartment allocated to the Company’s segments gains and losses related tocertain corporate treasury funding transactions, which allocation is based uponthe expected funding requirements of the segments. There is an offsettingcredit for this allocated interest expense and offsettingcontra-revenues/revenues for the allocated gains and losses in OtherInstitutional Securities and Other Wealth & Asset Management.

***Institutional Securities***

The Institutional Securities segment includes theTrading and Investment Banking businesses and the results from certainseparately managed private equity and distressed assets. Trading consists ofsales and trading in equity securities, equity-related derivatives, fixedincome financial instruments, fixed income-related derivatives, and otherrelated activities. Investment Banking raises capital and provides financialadvice to companies throughout the United States and abroad. Through InvestmentBanking, we manage and underwrite offerings of securities, arrange privateplacements and provide financial advisory and other services.

Thefollowing table sets forth certain financial information of the Company’sInstitutional Securities segment:

| ** **                                      | ** ** | **For the Three  Months Ended  September 30,** | ** ** | **For the Nine  Months Ended  September 30,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2005**                                                           | ** ** | **2004**                                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                      | ** ** | **(In millions)**                                             | ** ** |
| Revenues:                                       |       |                                                               |       |                                                              |       |   |   |   |   |
| Principal transactions-net                      |       | $                                                                  | 560        |                                                              | $          | (267 | ) | $ | 549 |   | $ | (274 | ) |
| Investment banking and advisory                 |       | 463                                                                |       | 463                                                               |       | 1,111 |   | 1,281 |   |
| Commissions                                     |       | 247                                                                |       | 219                                                               |       | 756 |   | 761 |   |
| Interest and dividends, net of interest expense |       | 408                                                                |       | 560                                                               |       | 1,483 |   | 1,790 |   |
| Other                                           |       | 18                                                                 |       | 11                                                                |       | 39 |   | 37 |   |
| Total net revenues                              |       | 1,696                                                              |       | 986                                                               |       | 3,938 |   | 3,595 |   |
| Total expenses                                  |       | 1,126                                                              |       | 984                                                               |       | 3,886 |   | 3,103 |   |
| Income(1)                                       |       | 570                                                                |       | 2                                                                 |       | 52 |   | 492 |   |
| Minority interests(2)                           |       | 58                                                                 |       | 8                                                                 |       | 173 |   | 70 |   |
| Income (loss)  after minority interests(3)      |       | $                                                                  | 512        |                                                              | $          | (6 | ) | $ | (121 | ) | $ | 422 |   |

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(1)          Income (loss) beforeprovision (benefit) for income taxes, minority interests and cumulative effectof a change in accounting principle.

(2)          Represents minorityinterest revenues related to the Company’s consolidation of certain privateequity funds, net of related operating expenses.

(3)          Income(loss) before provision (benefit) for income taxes and cumulative effect of achange in accounting principle.

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*Three Months Ended September 30,2005 Compared to Three Months Ended September 30,2004*

The InstitutionalSecurities segment recorded income after minority interests of$512 million for the three months endedSeptember 30, 2005 compared to a loss after minority interests of$6 million for the three months ended September 30,2004. Total net revenues increased $710 million, or 72%*,*to**$1.7billion for the three months ended September 30,2005, primarily reflecting higher revenues from Trading and Other InstitutionalSecurities. Other Institutional Securities includes treasury allocations, theCompany’s consolidation of certain private equity funds and the results forcertain separately managed private equity and distressed assets. Theconsolidation of these private equity funds resulted in an increase in netrevenues of $58 million and $11 million for the three months ended September 30,2005 and 2004, respectively. See Note 3 of the condensed consolidated financialstatements in Part I, Item 1 for more information. Excluding the increasesattributable to the consolidation of certain private equity funds, net revenuesincreased $663 million, or 68%, for the three months ended September 30,2005 compared to the three months ended September 30, 2004.

*Nine Months Ended September 30,2005 Compared to Nine Months Ended September 30,2004*

The InstitutionalSecurities segment recorded a loss after minority interests of$121 million for the nine months ended September 30,2005 compared to income after minority interests of $422 million for the nine months ended September 30,2004. Total net revenues increased $343 million, or 10%, to$3.9 billion for the nine months ended September 30,2005, reflecting higher revenues from Other Institutional Securities andTrading partially offset by lower Investment Banking revenues. Theconsolidation of private equity funds resulted in an increase in net revenuesof $176 million and $73 million for the nine months ended September 30,2005 and 2004, respectively. See Note 3 of the condensed consolidated financialstatements in Part I, Item 1 for more information. Excluding the increasesattributable to the consolidation of certain private equity funds, net revenuesincreased $240 million, or 7%, for the nine months ended September 30,2005 compared to the nine months ended September 30, 2004. Included in theresults for the Institutional Securities segment for the nine months ended September 30,2005 was a litigation charge of $750 million in the second quarter of 2005 toincrease the reserve for certain private litigation.

***Investment Banking***

Thefollowing table sets forth the Investment Banking revenues for theInstitutional Securities segment:

| ** **                | ** ** | **For the Three  Months Ended  September 30,** | ** ** | **For the Nine  Months Ended  September 30,** | ** ** |
|---------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                | ** ** | **2005**                                                           | ** ** | **2004**                                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                | ** ** | **(In millions)**                                             | ** ** |
| Debt underwriting         |       | $                                                                  | 148        |                                                              | $          | 203 |   | $ | 412 |   | $ | 553 |   |
| Equity  underwriting      |       | 119                                                                |       | 78                                                                |       | 268 |   | 315 |   |
| Total underwriting        |       | 267                                                                |       | 281                                                               |       | 680 |   | 868 |   |
| Advisory and  other fees  |       | 196                                                                |       | 182                                                               |       | 431 |   | 413 |   |
| Total Investment  Banking |       | $                                                                  | 463        |                                                              | $          | 463 |   | $ | 1,111 |   | $ | 1,281 |   |

 

*Three Months Ended September 30,2005 Compared to Three Months Ended September 30,2004*

Investment Bankingrevenues were flat, reflecting increases in equity underwriting and advisoryand other fees and a decline in debt underwriting. For the three months ended September 30,2005, equity underwriting revenues increased 53% to $119 million,reflecting an industry-wide increase in common stock new issuance volume.Advisory and other fees increased 8% to $196 million reflecting higherfees from mergers and acquisitions and private placements. Debt underwritingrevenues decreased 27% 

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comparedto the three months ended September 30, 2004 to $148 million,reflecting lower underwriting revenues from high-yield securities, consistentwith an industry-wide trend, and lower underwriting revenues from asset-backedsecurities, residential mortgage-backed securities and CDOs. This decrease waspartially offset by an increase in high-grade debt underwriting revenues.

*Nine Months Ended September 30,2005 Compared to Nine Months Ended September 30,2004*

Investment Bankingrevenues decreased 13% to $1.1 billion, reflecting declines in debt and equityunderwriting partially offset by a modest increase in advisory and other fees.For the nine months ended September 30, 2005, debt underwriting revenuesdecreased 25% compared to the nine months ended September 30, 2004 to$412 million, primarily due to lower underwriting revenues fromhigh-yield, asset-backed and commercial mortgage-backed securities partiallyoffset by higher residential mortgage-backed securities and high-grade debtunderwriting revenues. Equity underwriting revenues decreased 15% to $268million reflecting an industry-wide decrease in common stock and convertiblesecurities new issuance volumes. Advisory and other fees increased 4% to $431 millionreflecting higher fees from mergers and acquisitions and private placements.

***Trading***

In evaluating the performance of its Tradingactivities, the Company aggregates principal transactions-net, commissions andnet interest as net trading revenues. Changes in the composition of tradinginventories and hedge positions can cause principal transactions and netinterest income to vary from period to period.

Thefollowing table sets forth net Trading revenues of the Institutional Securitiessegment:

| ** **       | ** ** | **For the Three  Months Ended  September 30,** | ** ** | **For the Nine  Months Ended  September 30,** | ** ** |
|------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **       | ** ** | **2005**                                                           | ** ** | **2004**                                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **       | ** ** | **(In millions)**                                             | ** ** |
| Fixed Income     |       | $                                                                  | 660        |                                                              | $          | 252 |   | $ | 1,394 |   | $ | 1,275 |   |
| Equity           |       | 349                                                                |       | 183                                                               |       | 804 |   | 721 |   |
| Total Trading(1) |       | $                                                                  | 1,009      |                                                              | $          | 435 |   | $ | 2,198 |   | $ | 1,996 |   |

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(1)          Revenuesreflect the allocation of certain net revenues and interest expense from theGlobal Treasury department to Trading. For the three months ended September 30,2005 and 2004, the amount was $74 million and $73 million of contra-revenues,respectively. For the nine months ended September 30, 2005 and 2004, theamount was $234 million and $194 million of contra-revenues, respectively. See “—Results by Segment” above.

*Three Months Ended September 30,2005 Compared to Three Months Ended September 30,2004*

Total net trading revenues for the InstitutionalSecurities segment increased $574 million to $1.0 billion for the three monthsended September 30, 2005 compared to the three months ended September 30,2004, due to increases in fixed income and equity net trading revenues.

Fixed income net trading revenues increased$408 million to $660 million as revenues from structured products,interest rate products and credit products all improved. The increase instructured products net trading revenues was due to higher revenues primarilyfrom residential mortgage, commercial mortgage and asset-backed products.During the three months ended September 30, 2005, Institutional Securitieschanged its estimate of fair value of its retained interests in residentialmortgage-backed securities. Specifically, the valuation was enhanced to reflectimproved observable secondary market transaction data and the use of improvedmodeling of the expected prepayment and default assumptions that are used to 

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generate the expectedfuture cash flows from these securities. This change in estimate resulted in a$167 million adjustment to the valuation of these positions, which increasedrevenues for the three months ended September 30, 2005. The increase inrevenues from interest rate products primarily reflected gains on derivativesthat hedged certain resale and repurchase agreements. Revenues from creditproducts were higher primarily from leveraged finance products.

Equity net tradingrevenues increased 91% to $349 million, primarily reflecting higherrevenues from certain proprietarytrading strategies and most cash products, growth in our prime services business and higher revenuesfrom equity derivatives.

*Nine Months Ended September 30,2005 Compared to Nine Months Ended September 30,2004*

Total net trading revenues for the InstitutionalSecurities segment increased $202 million, or 10%, to $2.2 billion for the nine monthsended September 30, 2005 compared to the nine months ended September 30,2004, due to increases in fixed income and equity net trading revenues.

Fixed income net trading revenues increased 9% to $1.4billion reflecting increases in revenues from structured products partiallyoffset by lower revenues from credit products and interest rate products. Theincrease in structured products net trading revenues was due to higher revenuesprimarily from residential mortgage and commercial mortgage products. Duringthe third quarter of 2005, Institutional Securities enhanced its estimate offair value of its retained interests in residential mortgage-backed securities.This change in estimate resulted in a $167 million adjustment to the valuationof these positions, which increased revenues for the nine months ended September 30,2005. The decrease in revenues from credit products reflected lower revenuesprimarily from high-grade, high-yield and distressed products. The decrease inrevenues from interest rate products reflected lower revenues from listedderivatives and U.S. government and agency securities offset in part by higherrevenues from derivatives that hedged certain resale and repurchase agreements.

Equity net tradingrevenues increased 12% to $804 million primarily reflecting growth in ourprime services business and higher revenues from most cash products, equityderivatives and certain proprietary trading strategies. The increase waspartially offset by losses from convertible securities reflecting reducedliquidity and low volatility which resulted in lower trading volumes.

***Other Institutional Securities***

Other Institutional Securities revenues primarilyconsist of revenues from the consolidation of certain private equity funds, theresults for certain separately managed private equity and distressed assets,interest income on loans to affiliates and treasury allocations to our Tradingbusiness.

Thefollowing table sets forth Other Institutional Securities revenues:

| ** **                                               | ** ** | **For the Three  Months Ended  September 30,** | ** ** | **For the Nine  Months Ended  September 30,** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                               | ** ** | **2005**                                                           | ** ** | **2004**                                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                               | ** ** | **(In millions)**                                             | ** ** |
| Separately managed  private equity and distressed assets |       | $                                                                  | 63         |                                                              |       | $ | 25 |   |   | $ | 228 |   | $ | 140 |   |
| Other                                                    |       | 161                                                                |       |                                                              | 63         |   |   | 401 |   | 178 |   |
| Total Other  Institutional Securities                    |       | $                                                                  | 224        |                                                              |       | $ | 88 |   |   | $ | 629 |   | $ | 318 |   |

 

*Three Months Ended September 30,2005 Compared to Three Months Ended September 30,2004*

Total revenues from OtherInstitutional Securities increased $136 million to $224 million during thethree months ended September 30, 2005 compared to the three months ended September 30,2004, reflecting the consolidation of certain private equity funds whichresulted in an increase in net revenues of 

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$58million and $11 million, respectively. Net income was unaffected by theconsolidation of private equity funds as offsetting minority interests andrelated operating expenses were recorded in the condensed consolidatedstatements of income. See Note 3 of the condensed consolidated financialstatements in Part I, Item 1 for more information. Excluding the revenuesattributable to the consolidation of certain private equity funds, OtherInstitutional Securities revenues increased $89 million, primarily related toincreases in interest income on loans to affiliates and a credit that offsetsthe Global Treasury department’s allocation of interest expense as acontra-revenue to our Trading business, both of which reflected higher interestrates. Other Institutional Securities also reflected higher revenues fromdistressed assets offset by lower revenues from certain separately managedprivate equity assets.

*Nine Months Ended September 30,2005 Compared to Nine Months Ended September 30,2004*

Total revenues from OtherInstitutional Securities increased $311 million to $629 million during the ninemonths ended September 30, 2005 compared to the nine months ended September 30,2004, reflecting the consolidation of certain private equity funds whichresulted in an increase in net revenues of $176 million and $73 million,respectively. Net income was unaffected by the consolidation of private equityfunds as offsetting minority interests and related operating expenses wererecorded in the condensed consolidated statements of income. See Note 3 of thecondensed consolidated financial statements in Part I, Item 1 for moreinformation. Excluding the revenues attributable to the consolidation ofcertain private equity funds, Other Institutional Securities revenues increased$208 million, primarily related to increases in interest income on loans toaffiliates and a credit that offsets the Global Treasury department’sallocation of interest expense as a contra-revenue to our Trading business,both of which reflected higher interest rates.

***Wealth & Asset Management***

The Wealth & Asset Management segmentconsists of Alternative Capital, which includes the private equity and privatefunds businesses, and Private Client Services. The private equity business makes privately negotiated investments and actsas an investment advisor for private equity funds. The private funds businessraises private capital, primarily from institutional investors, for directinvestment by venture capital, management buyout and other investment firms ina variety of fund types. Private Client Services is a financial advisorybusiness serving high-net-worth individuals and corporate investors with a widerange of CSFB and third-party investment management products and services.

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Thefollowing table sets forth certain financial information of the Wealth &Asset Management segment:

| ** **                                      | ** ** | **For the Three  Months Ended  September 30,** | ** ** | **For the Nine  Months Ended  September 30,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2005**                                                           | ** ** | **2004**                                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                      | ** ** | **(In millions)**                                             | ** ** |
| Revenues:                                       |       |                                                               |       |                                                              |       |   |   |   |   |
| Principal transactions-net                      |       | $                                                                  | 258        |                                                              | $          | 93 |   | $ | 830 |   | $ | 774 |   |
| Investment banking and advisory                 |       | 40                                                                 |       | 19                                                                |       | 120 |   | 65 |   |
| Asset management and other fees                 |       | 75                                                                 |       | 85                                                                |       | 226 |   | 250 |   |
| Interest and dividends, net of interest expense |       | 10                                                                 |       | (6                                                                | )          | 21 |   | 35 |   |
| Other                                           |       | 1                                                                  |       | 6                                                                 |       | 5 |   | 11 |   |
| Total net revenues                              |       | 384                                                                |       | 197                                                               |       | 1,202 |   | 1,135 |   |
| Total expenses                                  |       | 160                                                                |       | 138                                                               |       | 449 |   | 434 |   |
| Income(1)                                       |       | 224                                                                |       | 59                                                                |       | 753 |   | 701 |   |
| Minority interests(2)                           |       | 154                                                                |       | 41                                                                |       | 497 |   | 425 |   |
| Income after minority interests(3)              |       | $                                                                  | 70         |                                                              | $          | 18 |   | $ | 256 |   | $ | 276 |   |

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(1)          Income before provisionfor income taxes, minority interests and cumulative effect of a change inaccounting principle.

(2)          Represents minorityinterest revenues net of related operating expenses related to the Company’sconsolidation of certain private equity funds.

(3)          Incomebefore provision for income taxes and cumulative effect of a change inaccounting principle.

*Three Months Ended September 30,2005 Compared to Three Months Ended September 30,2004*

The Wealth &Asset Management segment recorded income after minority interests of$70 million for the three months ended September 30, 2005 compared to$18 million for the three months ended September 30, 2004. Total netrevenues increased $187 million to $384 million for the three months endedSeptember 30, 2005, reflecting an increase in net revenues from theconsolidation of certain private equity funds to $156 million for the threemonths ended September 30, 2005 from $44 million for the three monthsended September 30, 2004. Net income was unaffected by the consolidationof private equity funds as offsetting minority interests and related operatingexpenses were recorded in the condensed consolidated statements of income. SeeNote 3 of the condensed consolidated financial statements in Part I, Item1 for more information. Excluding the effects of the consolidation of certainprivate equity funds, total net revenues increased $75 million, or 49%,primarily reflecting higher net investment gains from our private equitybusiness and increases in placement fees from the private funds business.

*Nine Months Ended September 30,2005 Compared to Nine Months Ended September 30,2004*

The Wealth &Asset Management segment recorded income after minority interests of$256 million for the nine months ended September 30, 2005 compared to$276 million for the nine months ended September 30, 2004. Total netrevenues increased $67 million to $1.2 billion for the nine months ended September 30,2005, reflecting an increase in net revenues from the consolidation of certainprivate equity funds to $499 million for the nine months ended September 30,2005 from $428 million for the nine months ended September 30, 2004. Netincome was unaffected by the consolidation of private equity funds asoffsetting minority interests and related operating expenses were recorded inthe condensed consolidated statements of income. See Note 3 of the condensedconsolidated financial statements in Part I, Item 1 for more information.Excluding the effects of the consolidation of certain private equity 

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funds,total net revenues decreased $4 million, or 1%, primarily reflecting lower netinvestment gains from our private equity business, which had significant gainsduring the nine months ended September 30, 2004, partially offset byincreases in placement fees from the private funds business.

***Alternative Capital, Private Client Services and Other***

Thefollowing table sets forth the Alternative Capital, Private Client Services andOther revenues for the Wealth & Asset Management segment:

| ** **                                  | ** ** | **For the Three  Months Ended  September 30,** | ** ** | **For the Nine  Months Ended  September 30,** | ** ** |
|---------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                  | ** ** | **2005**                                                           | ** ** | **2004**                                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                  | ** ** | **(In millions)**                                             | ** ** |
| Alternative  Capital                        |       | $                                                                  | 316        |                                                              | $          | 134 |   | $ | 1,010 |   | $ | 960 |   |
| Private Client  Services                    |       | 58                                                                 |       | 48                                                                |       | 165 |   | 162 |   |
| Other                                       |       | 10                                                                 |       | 15                                                                |       | 27 |   | 13 |   |
| Total Wealth & Asset Management(1) |       | $                                                                  | 384        |                                                              | $          | 197 |   | $ | 1,202 |   | $ | 1,135 |   |

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(1)          Revenuesreflect the allocation of certain net revenues and interest expense from theGlobal Treasury department to Alternative Capital and Private Client Services.For the three months ended September 30, 2005 and 2004, the amount was $9million and $16 million of contra-revenues, respectively. For the nine monthsended September 30, 2005 and 2004, the amount was $26 million and$16 million of contra-revenues, respectively. See “—Results by Segment” above.

*Three Months EndedSeptember 30, 2005 Compared to ThreeMonths Ended September 30, 2004*

Revenues fromAlternative Capital consist of management and placement fees, netinvestment gains and losses, which include realized and unrealized gains andlosses, including carried interest, net interest and other revenues fromprivate equity and private funds. Revenues from Alternative Capital increased $182 millionto $316 million for the three months ended September 30, 2005, reflectingan increase in net revenues from the consolidation of certain private equityfunds to $156 million for the three months ended September 30, 2005 from$44 million for the three months ended September 30, 2004. Net income wasunaffected by the consolidation of private equity funds as offsetting minorityinterests and related operating expenses were recorded in the condensedconsolidated statements of income. See Note 3 of the condensed consolidatedfinancial statements in Part I, Item 1 for more information. Excluding theeffect of the consolidation of certain private equity funds, total net revenuesincreased $70 million, or 78%, primarily reflecting higher net investment gainsfrom our private equity business and increases in placement fees from theprivate funds business.

Revenues for Private Client Services increased 21% to$58 million, primarily due to higher commissions and higher equity capitalmarkets revenues.

Other revenues decreased$5 million compared to the three months ended September 30, 2004,reflecting a decrease in the credit thatoffsets allocations by the Global Treasury department to our alternativecapital and private client services businessesof certain interest expense and revenues.

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*Nine Months Ended September 30,2005 Compared to Nine Months Ended September 30,2004*

Revenues from Alternative Capital increased $50 millionto $1.0 billion for the nine months ended September 30, 2005, reflectingan increase in net revenues from the consolidation of certain private equityfunds to $499 million for the nine months ended September 30, 2005 from$428 million for the nine months ended September 30, 2004. Net income wasunaffected by the consolidation of private equity funds as offsetting minorityinterests and related operating expenses were recorded in the condensedconsolidated statements of income. See Note 3 of the condensed consolidatedfinancial statements in Part I, Item 1 for more information. Excluding theeffect of the consolidation of certain private equity funds, total net revenuesdecreased $21 million, or 4%, primarily reflecting lower net investment gainsfrom our private equity business, which had significant gains during the ninemonths ended September 30, 2004, partially offset by increases inplacement fees from the private funds business.

Revenues for Private Client Services increased 2% to$165 million, primarily due to higher commissions partially offset bylower net interest revenues.

Other revenues increased$14 million compared to the nine months ended September 30, 2004,reflecting an increase in the credit thatoffsets allocations by the Global Treasury department to our alternativecapital and private client services businessesof certain interest expense and revenues.

**Expenses**

The normal operating cost structure of each of oursegments is broadly similar to that of the Company as a whole. For this reason,the discussion of expenses is presented on a company-wide basis.

Thefollowing table sets forth employee compensation and benefits expenses, otherexpenses and total expenses of the Company:

| ** **                          | ** ** | **For the Three  Months Ended  September 30,** | ** ** | **For the Nine  Months Ended  September 30,** | ** ** |
|-------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                          | ** ** | **2005**                                                           | ** ** | **2004**                                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                          | ** ** | **(In millions)**                                             | ** ** |
| Employee  compensation and benefits |       | $                                                                  | 959        |                                                              | $          | 744 |   | $ | 2,644 |   | $ | 2,532 |   |
| Other expenses                      |       | 327                                                                |       | 378                                                               |       | 1,691 |   | 1,005 |   |
| Total expenses                      |       | $                                                                  | 1,286      |                                                              | $          | 1,122 |   | $ | 4,335 |   | $ | 3,537 |   |

 

*Three Months Ended September 30,2005 Compared to Three Months Ended September 30,2004*

Total expenses increased $164 million, or 15%, to $1.3billion for the three months ended September 30,2005 compared to the three months ended September 30,2004, as increases in employee compensation and benefit expenses, professionalfees, communications and occupancy and equipment rental expenses were partiallyoffset by decreases in other operating expenses. The increase in employeecompensation and benefits expenses reflects increases in performance-relatedcompensation, share-based compensation, base salaries and head count. Included in employee compensation and benefitsexpense was $54 million and $41 million for the three months ended September 30,2005 and 2004, respectively, related to business activities conducted byCompany employees on behalf of CSG affiliates outside of the Company. These expenseswere charged to these affiliates and are reflected as a reduction in our otheroperating expenses. See Notes 1 and 11 of the condensed consolidatedfinancial statements in Part I, Item 1 for more information.

Other expenses consistprincipally of occupancy and equipment rental; brokerage, clearing and exchangefees; communications; professional fees; and all other operating expenses.Other expenses decreased $51 million for the three months ended September 30,2005 compared to the three months ended September 30, 2004, primarilyreflecting lower accruals for legal fees and higher affiliate service fees 

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(includingthe charge to affiliates of compensation expense) that are treated as areduction in other operating expenses. Excluding the charges to affiliates forcompensation expense, other operating expenses decreased 9%.

*Nine Months Ended September 30,2005 Compared to Nine Months Ended September 30,2004*

Total expenses increased $798 million, or 23%, to $4.3billion for the nine months ended September 30,2005 compared to the nine months ended September 30,2004, primarily as a result of a litigation charge of $750 million in thesecond quarter of 2005 to increase the reserve for certain private litigation.Employee compensation and benefits expenses were moderately higher reflectinghigher share-based compensation, base salaries and headcount. Theseincreases were partially offset by lower accruals for certain deferredcompensation plans, severance and performance-related compensation. Included in employee compensation and benefitsexpense was $159 million and $101 million for the nine months ended September 30,2005 and 2004, respectively, related to business activities conducted byCompany employees on behalf of CSG affiliates outside of the Company. Theseexpenses were charged to these affiliates and are reflected as a reduction inour other operating expenses. See Notes 1 and 11 of the condensedconsolidated financial statements in Part I, Item 1 for more information.

Other expenses increased$686 million for the nine months ended September 30, 2005 compared to thenine months ended September 30, 2004, primarily as a result of alitigation charge of $750 million in the second quarter of 2005 to increase thereserve for certain private litigation. This increase was partially offset bylower merger-related expenses reflecting the completion of retention awards in2004 and higher affiliate service fees (including the charge to affiliates ofcompensation expense) that are treated as a reduction in other operatingexpenses. Excluding the litigation charge to increase the reserve for certainprivate litigation and the charges to affiliates for compensation expense,other operating expenses decreased 1%.

**Provision for Taxes**

*Nine Months Ended September 30,2005 Compared to Nine Months Ended September 30,2004*

The provision for income taxes for the nine monthsended September 30, 2005 was $18 million compared to a provision forincome taxes for the nine months ended September 30, 2004 of$220 million. Excluded from the provision for income taxes for the ninemonths ended September 30, 2005 was an income tax expense of $3 millionrelated to the Company’s adoption of Statement of Financial AccountingStandards, or SFAS, No. 123, “Accounting for Stock-Based Compensation,” asamended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transitionand Disclosure,”****and****SFAS No. 123 (Revised 2004), “Share-BasedPayment,” or SFAS 123R.

The effective tax ratechanged from a provision of 18.3% for the nine months ended September 30,2004 to a provision of 2.3% for the nine months ended September 30, 2005.The decrease from the Federal statutory rate of 35% in both periods wasprimarily due to non-taxable revenues from private equity funds consolidatedprimarily under FIN 46R.

**Share-based Compensation**

We have early adopted SFAS 123R as of January 1,2005, using the modified prospective method. We had previously adopted therecognition provisions of SFAS 123 effective January 1, 2003. See Note 11of the condensed consolidated financial statements in Part I, Item 1 formore information.

In connection with ouradoption of SFAS 123R, we recorded an after-tax gain of $6 million in thecondensed consolidated statement of income as a cumulative effect of a changein accounting principle to reverse the expense for awards previously recognizedon all outstanding unvested awards that are expected 

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to beforfeited. For new grants after January 1, 2005, forfeitures are includedin the initial estimate of compensation expense at the grant date.

**LIQUIDITY AND CAPITAL RESOURCES**

**Liquidity Management Oversight**

We believe thatmaintaining access to liquidity is fundamental for firms operating in thefinancial services industry. We have therefore established a comprehensiveprocess for the management and oversight of our capital, liquidity and fundingstrategies. Credit Suisse’s Capital Allocation and Risk Management Committee,or CARMC, has primary oversight responsibility for these functionaldisciplines. CARMC periodically reviews and approves our liquidity managementpolicies and targets and reviews our liquidity position and other key riskindicators. The Global Treasury department is responsible for the day-to-daymanagement of capital, liquidity and funding, as well as relationships with creditorbanks and fixed income investors. It also maintains regular contact with ratingagencies and regulators on these and other issues. See “Liquidity Risk” in “Business—CertainFactors That May Affect Our Results of Operations” in Part I, Item Iof our Annual Report on Form 10-K for the year ended December 31,2004 for more information.

**Liquidity Management Organization**

We are an indirect subsidiary of Credit Suisse, aSwiss bank. Consequently, our liquidity management structure operates at twolevels, the “Non-Bank Franchise” and the “Bank Franchise.”

First, at the holding company level, the “Non-BankFranchise,” where access to parent bank funding is limited, we aim to maintainsufficient liquidity so that in the event that we are unable to access the unsecuredcapital markets, we have cash and liquid assets sufficient to repay maturingliabilities for a minimum period of one year. When assessing the amount of cashand liquid assets, we take account of the regulatory restrictions that limitthe amount of cash that could be distributed upstream by our principalbroker-dealer subsidiaries, Credit Suisse First Boston LLC, or CSFB LLC, andCredit Suisse First Boston Capital LLC, or CSFB Capital LLC, which hold over 86%of our consolidated assets.

Second, our regulatedsubsidiaries have access to unsecured funding from Credit Suisse, the “BankFranchise,” as well as secured funding via the repurchase and securitieslending markets. Historically, Credit Suisse’s bank deposit base has provenextremely stable and is comprised of a diversified customer base, includingretail deposits as well as wholesale and institutional deposits. In a stressedliquidity environment, our broker-dealers would directly access the securedfunding markets to replace unsecured borrowings from Credit Suisse.

**Balance Sheet and Funding**

The majority of our assets are held in ourbroker-dealer subsidiaries and comprise a substantial portion of the BankFranchise. These assets—principally trading inventories in our InstitutionalSecurities business—are funded by a combination of collateralized short-termborrowings, which include securities sold under agreements to repurchase andsecurities loaned, as well as unsecured loans from Credit Suisse, the centralfunding entity of the Bank Franchise. Significant portions of our assets heldin the Bank Franchise are highly liquid, with the majority consisting ofsecurities inventories and collateralized receivables, which fluctuatedepending on the levels of proprietary trading and customer business. Collateralizedreceivables consist primarily of securities purchased under agreements toresell and securities borrowed, both of which are primarily secured by U.S.government and agency securities and marketable corporate debt and equitysecurities. In addition, we have significant receivables from customers,brokers, dealers and others, which turn over frequently. To meet client needsas a securities dealer, we carry significant levels of trading inventories.

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Unsecured funding for the Bank Franchise originateslargely from Credit Suisse’s borrowings in the wholesale and institutionaldeposit markets as well as access to retail deposits.

Assets not funded by the Bank Franchise include lessliquid assets such as certain mortgage whole loans, distressed securities,high-yield debt securities, asset-backed securities and private equityinvestments. These less liquid assets are principally held in the Non-BankFranchise. These assets may be relatively illiquid at times, especially duringperiods of market stress. Mortgage whole loans, distressed securities,high-yield debt and asset-backed securities are generally financed with acombination of short-term unsecured financing or repurchase agreements,long-term borrowings and stockholder’s equity. We typically fund a significantportion of less liquid assets, such as private equity investments, withlong-term borrowings that we issue directly to the market, and stockholder’sequity.

Short-term funding is generally obtained at ratesrelated to the Federal Funds rate, the London Interbank Offered Rate, or LIBOR,or other money market indices, while long-term funding is generally obtained atfixed and floating rates related to U.S. Treasury securities or LIBOR,depending upon prevailing market conditions. We continually aim to broaden ourfunding base by geography, investor and funding instrument.

We lend funds as needed to our operating subsidiariesand affiliates on both a senior and subordinated basis, the latter typically tomeet capital requirements of regulated subsidiaries. We generally try to ensurethat loans to our operating subsidiaries and affiliates have maturities equalto or shorter than the maturities of our market borrowings. As such, seniorfunding to operating subsidiaries and affiliates is typically extended on ademand basis. Alternatively, subordinated financing to regulated subsidiariesis extended on a term basis and we structure our long-term market borrowingswith maturities that extend beyond those of our subordinated advances tosubsidiaries and affiliates.

Because of changes relating to customer needs,economic and market conditions and proprietary trading and other strategies,our total assets, or the individual components of total assets, may varysignificantly from period to period. As of September 30, 2005 and December 31,2004, our total assets were $314.7 billion and $275.8 billion,respectively.

Included below is adiscussion of our long-term contractual obligations, off-balance sheetarrangements and less liquid assets.

**Liquidity Measurement and Planning**

The principal measure we use to monitor our liquidityposition at each funding franchise is the “liquidity barometer,” whichestimates the time period over which the adjusted market value of unencumberedassets (including cash) exceeds the aggregate value of our maturing unsecuredliabilities plus a conservative forecast of anticipated contingent commitments.Our objective, as mandated by CARMC, is to ensure that the liquidity barometerfor each of the funding franchises is maintained at a sufficient level so as toensure that, in the event we are unable to access unsecured funding, we willhave sufficient liquidity for an extended period. We believe this will enableus to carry out our business plans during extended periods of market stress,while minimizing, to the extent possible, disruptions to our business.

For the Non-Bank Franchise, our objective is to ensurethat the liquidity barometer equals or exceeds a time horizon of one-year. Forthe Bank Franchise, our objective is to ensure the liquidity barometer equalsor exceeds 120 days. The different time horizons reflect the relative stabilityof the unsecured funding base of each Franchise. In the Non-Bank Franchise,liabilities are measured at their contractual maturities because historically,investors in publicly issued debt securities and commercial paper are highlysensitive to liquidity events such that we believe access to these marketscould be quickly diminished. Conversely, the Bank Franchise’s retail andinstitutional deposit base is measured using contractual 

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maturities that have beenadjusted to reflect behavioral stability. Historically, this core deposit basehas proven extremely stable, even in stressed markets. The conservativeparameters we use in establishing the time horizons in the funding franchisesassume that assets will not be sold to generate cash, that no new unsecureddebt can be issued, and that funds that are assumed to be trapped because ofregulatory restrictions are not available to be distributed upstream in astressed liquidity environment. The adjusted market value of unencumberedassets includes a conservative reduction from market value, or “haircut,”reflecting the amount that could be realized by pledging an asset as collateralto a third-party lender in a secured funding transaction.

In the case of theNon-Bank Franchise, contingent commitments include such items as commitments toinvest in private equity funds. Certain contingent obligations do notmaterially impact the liquidity planning at the Company or Non-Bank Franchise,as these are incurred by other affiliated operating entities that are notconsolidated by the Company. These items, which are taken into account in ourliquidity planning for the Bank Franchise, include:

·       creditrating-related collateralization requirements (CSFB’s derivatives business isprimarily conducted in Credit Suisse First Boston International, a wholly-ownedsubsidiary of CSG);

·       back-up liquidity linesprovided to asset-backed commercial paper conduits (back-up liquidity lines areprovided by Credit Suisse);

·       committedcredit facilities to clients that are currently undrawn (CSFB’s corporatelending business is conducted in Credit Suisse).

The Bank Franchise maintains a large secondary sourceof liquidity, principally through Credit Suisse’s principal broker-dealersand other regulated operating entities. The Bank Franchise has historicallybeen able to access significant liquidity through the secured funding markets(securities sold under agreements to repurchase, securities loaned and othercollateralized financing arrangements), even in periods of market stress. Wecontinually monitor overall liquidity by tracking the extent to whichunencumbered marketable assets and alternative unsecured funding sources exceedboth contractual obligations and anticipated contingent commitments.

As of September 30, 2005, we estimate that theNon-Bank Franchise held cash, other liquidity reserves and marginable assets,net of haircuts, of approximately $8.4 billion versus estimated maturingobligations and commitments out to one year of $6.6 billion. Also, as of September 30,2005, we estimate that the Bank Franchise held cash, other liquidity reservesand marginable assets, net of haircuts, of approximately $112.9 billion versusestimated maturing obligations, commitments and contingent funding requirementsout to 120 days of $103.4 billion.

Our liquidityplanning and management focuses on maintaining a liquidity cushion so that wemay continue to conduct business for an extended period in the event of acrisis. Our liquidity contingency plan focuses on the specific actions that wewould take in the event of a crisis, including a detailed communication planfor creditors, investors and customers. The plan, which is regularly updated,sets out a three-stage process of the specific actions we would take:

·       StageI—Market disruption

·       StageII—Unsecured markets partially inaccessible

·       StageIII—Unsecured markets fully inaccessible

In the event of a liquidity crisis, a meeting of theLiquidity Crisis Committee would be convened by Global Treasury to activate thecontingency plan. The Liquidity Crisis Committee’s membership includes seniorbusiness line, Global Treasury and finance department management, and thiscommittee would meet frequently throughout the crisis to ensure our plans areexecuted.

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**Cash Capital**

We measure cash capital (long-term funding sources)against long-term unsecured funding requirements on an ongoing basis, and seekto maintain a surplus at all times. Sources of cash capital include thenon-current component of the Company’s long-term borrowings and stockholder’sequity. Uses of cash capital include illiquid assets such as related partyreceivables (except where the receivable is the short-term investment of ourexcess cash with Credit Suisse), property, goodwill and intangibles, deferredtax assets, private equity and other long-term investments.

Our cash capital as of September 30,2005 totaled $39.6 billion compared with $36.9 billion as of December 31,2004. The increase in cash capital of $2.7 billion was primarily due to anincrease in long-term debt and higher stockholder’s equity from retainedearnings. As of September 30, 2005, cash capital was substantially inexcess of our cash capital requirements.

**ContractualObligations and Commitments**

Thefollowing table sets forth future cash payments on our contractual obligationspursuant to long-term borrowings, operating leases and purchaseobligations as of September 30, 2005:

| ** **                     | ** ** | **Contractual Obligations  Expiration Per Period** | ** ** |
|--------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                     | ** ** | **Less than  1 year**                                   | ** ** | **1-3  years** | ** ** | **4-5  years** | ** ** | **Over  5 years** | ** ** | **Total** | ** ** |
| ** **                     | ** ** | **(In millions)**                                            | ** ** |
| Long-term  borrowings          |       |                                                              | $          | 4,192 |   |   | $ | 8,565 |   | $ | 6,062 |   | $ | 13,327 |   | $ | 32,146 |   |
| Operating leases               |       |                                                              | 149        |   |   | 291 |   | 272 |   | 1,015 |   | 1,727 |   |
| Purchase  obligations(1)       |       |                                                              | 22         |   |   | 18 |   | 16 |   | 4 |   | 60 |   |
| Total contractual  obligations |       |                                                              | $          | 4,363 |   |   | $ | 8,874 |   | $ | 6,350 |   | $ | 14,346 |   | $ | 33,933 |   |

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(1)          Purchase obligations forgoods and services include payments for, among other things, benefitsconsulting, corporate services outsourcing and computer and telecommunicationsmaintenance agreements. Purchase obligations reflect the minimum contractualobligation under legally enforceable contracts through the termination datesspecified in the respective agreements, even if the contract is renewable.Purchase obligations do not reflect termination fees payable upon the Company’stermination of the respective contracts.

Our long-term borrowings are unsecured. As of September 30,2005, the weighted average maturity of our long-term borrowings wasapproximately 5.2 years. Our lease obligations are primarily for our principaloffices in New York City and other locations. The operating lease obligationsin the table above do not reflect $321 million in sublease revenue andexecutory costs such as insurance, maintenance and taxes of $552 million.We had no capital lease obligations as of September 30, 2005.

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Wehave commitments under a variety of arrangements that are not recorded asliabilities in our condensed consolidated statements of financial condition.These commitments are in addition to guarantees and other arrangements discussedin “—Off-BalanceSheet Arrangements.” Thefollowing table sets forth certain of our commitments, including the currentportion, as of September 30, 2005:

| ** **                           | ** ** | **Commitment Expiration Per Period** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                           | ** ** | **Less than 1  year**                     | ** ** | **1-3  years** | ** ** | **4-5  years** | ** ** | **Over  5 years** | ** ** | **Total  commitments** | ** ** |
| ** **                           | ** ** | **(In millions)**                              | ** ** |
| Standby resale  agreements(1)        |       |                                                | $          | — |   |   | $ | 100 |   | $ | — |   |   | $ | — |   |   |   | $ | 100 |   |   |
| Private equity(2)                    |       |                                                | 165        |   |   | 89 |   | 58 |   |   | 401 |   |   |   | 713 |   |   |
| Forward  agreements(3)               |       |                                                | 6,634      |   |   | — |   | — |   |   | — |   |   |   | 6,634 |   |   |
| Unfunded lending  commitments(4)     |       |                                                | —     |   |   | 77 |   | 189 |   |   | 312 |   |   |   | 578 |   |   |
| Unfunded  warehousing commitments(5) |       |                                                | 1,210      |   |   | — |   | — |   |   | — |   |   |   | 1,210 |   |   |
| Total commitments                    |       |                                                | $          | 8,009 |   |   | $ | 266 |   | $ | 247 |   |   | $ | 713 |   |   |   | $ | 9,235 |   |   |

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(1)          In the ordinary courseof business, we maintain certain standby resale agreement facilities thatcommit us to enter into resale agreements with customers at current marketrates.

(2)          As of September 30,2005 we had commitments to invest up to an additional $713 million in non-consolidatedprivate equity funds and $1.1 billion in consolidated private equity funds.

(3)          Represents commitmentsto enter into forward resale agreements for securities purchased underagreements to resell and forward agreements to borrow securities.

(4)          We enter intocommitments to extend credit in connection with certain premium financeactivities.

(5)          We enter intocommitments to warehouse commercial mortgage whole loans.

For information on these and other materialcommitments, see Notes 4, 6, 7 and 8 of the condensed consolidated financialstatements in Part I, Item 1. For information on commitments under ourpension arrangements, see Note 12 of the condensed consolidated financialstatements in Part I, Item 1.

Thefollowing table sets forth our commercial paper and other short-term unsecuredborrowings:

| ** **                | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                | ** ** | **(In millions)**       | ** ** |
| Bank loans                |       |                         | $          | 289                         |       |   |   | $ | 350 |   |   |
| Commercial paper          |       |                         | 1,291      |                        |       |   | 1,249 |   |   |
| Loans from  affiliates(1) |       |                         | 16,091     |                        |       |   | 20,085 |   |   |
| Total                     |       |                         | $          | 17,671                      |       |   |   | $ | 21,684 |   |   |

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(1)          Wehave significant financing transactions with Credit Suisse and certain of itssubsidiaries and affiliates. See “—RelatedParty Transactions” and Note 2 of the condensed consolidated financialstatements in Part I, Item 1.

**Credit Facilities**

As of September 30,2005, CSFB LLC maintained with third parties five 364-day committedsecured revolving credit facilities totaling $2.2 billion, with onefacility for $500 million maturing in November 2005 (which we expectto renew through November 2006), one facility for $500 millionmaturing in February 2006, one facility for $500 million maturing in March 2006,one facility for $500 million maturing in July 2006 and one facility for$200 million maturing in August 2006. We expect to renew these facilitiesas they mature. These facilities require CSFB LLC to pledge unencumbered marketablesecurities to 

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secureany borrowings. Borrowings under each facility would bear interest atshort-term rates related to either the Federal Funds rate or LIBOR and can beused for general corporate purposes. The facilities contain customary covenantsthat we believe will not impair our ability to obtain funding. As of September 30,2005, no borrowings were outstanding under any of the facilities. We may fromtime to time enter into additional secured revolving credit facilities as partof our liquidity management.

**Long-term Funding**

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

Under our currently effective $15.0 billion shelfregistration statement on file with the SEC, which was established in June 2004and allows us to issue from time to time senior and subordinated debtsecurities and warrants to purchase such securities, we had as of November 7,2005 $5.2 billion available for issuance.

Under our $5.0 billion Euro medium-term noteprogram, which was established in July 2001 and allows us to issue notesfrom time to time, we had as of November 7, 2005 $1.2 billionavailable for issuance.

For the nine months ended September 30,2005, we issued $2.3 billion in medium-term notes, $4.0 billion insenior notes and $38 million in structured notes and we repaid approximately $2.1 billion of medium-term notes,$500 million of senior notes and $56 million of structured notes.

**Credit Ratings**

Our access to the debt capital markets and ourborrowing costs depend significantly on our credit ratings. These ratings areassigned by credit rating agencies, which may raise, lower or withdraw theirratings or place us on “credit watch” with positive or negative implications atany time. Credit ratings are important to us when competing in certain marketsand when seeking to engage in longer-term transactions, including OTCderivatives. We believe agencies consider several factors in determining ourcredit ratings, including earnings performance, business mix, market position,financial strategy, level of capital, risk management policies and practicesand management team, and our affiliation with Credit Suisse and CSG, inaddition to the broader outlook for the financial services industry.

A reduction in our credit ratings could limit ouraccess to capital markets, increase our borrowing costs, require us to provideadditional collateral in connection with OTC derivatives contracts, and allowcounterparties to terminate transactions under certain of our trading andcollateralized financing contracts. This, in turn, could reduce our liquidityand negatively impact our operating results and financial position. Ourliquidity planning takes into consideration those contingent events associatedwith a reduction in our credit ratings.

Because a significant portion of our OTC derivativesarrangements are with affiliates, the amount of collateral that we would havebeen required to post pursuant to such contracts in the event of a one-notchdowngrade of our senior long-term debt credit rating was not material as of September 30,2005.

As of November 7,2005, our ratings and ratings outlooks were as follows:

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

 

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**Capital Resources**

Certain of our businessesare capital intensive. In addition to normal operating requirements, capital isrequired to cover financing and regulatory capital charges on various assetclasses, including but not limited to, securities inventories, private equityinvestments and investments in fixed assets. Our overall capital needs areregularly reviewed to ensure that our capital base can appropriately supportthe anticipated needs of our business and the regulatory and other capitalrequirements of our subsidiaries. Based upon these analyses, we believe thatour capitalization is adequate for current operating levels.

***Regulated Subsidiaries***

Our principal wholly ownedsubsidiary, CSFB LLC, is a registered broker-dealer, registered futurescommission merchant and member firm of the New York Stock Exchange, Inc.Accordingly, CSFB LLC is subject to the minimum net capital requirements of theSecurities and Exchange Commission, or SEC, and the Commodities Futures TradingCommission, or CFTC. Under the alternative method permitted by Rule 15c3-1of the Securities Exchange Act of 1934, or Exchange Act, the required netcapital may not be less than the greater of 2% of aggregate debit balancesarising from customer transactions or 4% of the funds required to be segregatedpursuant to the Commodity Exchange Act less the market value of certaincommodity options, all as defined. Under CFTC Regulation 1.17, the requiredminimum net capital requirement is 8% of the total risk margin requirement (asdefined) for all positions carried in customer accounts plus 4% of the totalrisk margin requirement (as defined) for all positions carried in non-customeraccounts. As of September 30, 2005, CSFB LLC’s net capital ofapproximately $4.3 billion was 55.2 % of aggregate debit balances and inexcess of the minimum requirement by approximately $4.1 billion. Duringthe third quarter of 2005, we made $2.0 billion in regulatory capitalcontributions to CSFB LLC in the form of subordinated debt.

Our OTC derivatives dealer subsidiary, CSFB CapitalLLC, is also subject to the uniform net capital rule, but computes its netcapital requirements based on value at risk pursuant to Appendix F of Rule 15c3-1.As of September 30, 2005, CSFB Capital LLC’s net capital of$619 million, allowing for market and credit risk exposure of$68 million and $141 million, respectively, was in excess of theminimum net capital requirement by $599 million. CSFB Capital LLC operatespursuant to the (k)(2)(ii) exemptive provisions of Rule 15c3-3of the Exchange Act and accordingly, all customer transactions are clearedthrough CSFB LLC on a fully disclosed basis. On July 20, 2005, we made a$400 million capital contribution to CSFB Capital LLC.

As of September 30,2005, our subsidiaries complied with all applicable regulatory capital adequacyrequirements.

**Cash Flows**

Our condensed consolidated statements of cash flowsclassify cash flows 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 as Note 2 of thecondensed consolidated financial statements in Part I, Item 1.

Our cash flows are complexand frequently bear little relation to our net income and net assets,particularly because the Company is an indirect wholly owned subsidiary of CSG,a global financial institution that may choose to allocate cash among itssubsidiaries for reasons independent of the Company’s activities. As a result,we believe that traditional cash flow analysis is not a particularly usefulmethod to evaluate our liquidity position as discussed above. Cash flowanalysis may, however, assist in highlighting certain macro trends andstrategic initiatives in our business.

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***For the Nine Months Ended September 30, 2005***

Cash and cash equivalents decreased $104 millionto $623 million as of September 30, 2005. Cash used in operatingactivities was $11.9 billion. The change in cash used in operatingactivities reflected a net increase in operating assets relative to operatingliabilities of $12.8 billion, which occurred in the normal course ofoperations as a result of changes in customer needs, market conditions andproprietary trading and other strategies.

Cash of $1.1 billion was used in investing activities,primarily reflecting an increase in funding to affiliates. Prior to theacquisition of the Company, CSFBI issued its own debt to fund its operating,investment and financing needs. The Company now provides most of this funding.

Cash provided by financingactivities was $12.9 billion. This was due to increases in net collateralizedfinancing arrangements of $13.4 billion and increases of $6.3 billion inlong-term borrowings used primarily to fund normal operating activities,provide funding to affiliates as part of the Company’s investing activities andrepay $2.7 billion in long-term borrowings and $4.0 billion in commercial paperand short-term borrowings.

***For the Nine Months Ended September 30, 2004***

Cash and cash equivalents increased $39 millionto $373 million as of September 30, 2004. Cash used in operatingactivities was $4.0 billion. The change in cash used in operating activitiesreflected a net increase in operating assets and liabilities of$5.0 billion, which occurred in the normal course of operations as aresult of changes in customer needs, market conditions and proprietary tradingand other strategies.

Cash of $2.0 billion was used in investingactivities resulting in increases in receivables from affiliates of$1.8 billion.

Cash provided by financingactivities was $6.0 billion. The changes are due to increases in netcollateralized financing arrangements of $2.0 billion, increases of $2.1billion in short-term borrowings and increases of $3.5 billion inlong-term borrowings used primarily to fund normal operating activities,provide funding to affiliates as part of the Company’s investing activities andrepay $1.6 billion in long-term borrowings.

**OFF-BALANCE SHEET ARRANGEMENTS**

We enter into off-balance sheet arrangements in theordinary course of business. Off-balance sheet arrangements are transactions,agreements or other contractual arrangements with, or for the benefit of, anentity that is not consolidated with an issuer, and which include guaranteesand 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 intoany derivatives contracts indexed or linked to the stock of CSG.

**Guarantees**

In the ordinary course of our business, we provideguarantees and indemnifications that contingently obligate us to make paymentsto the guaranteed or indemnified party based on changes in an asset, liabilityor equity security of the guaranteed or indemnified party. We may also becontingently obligated to make payments to a guaranteed party based on anotherentity’s failure to perform, or we may have an indirect guarantee of theindebtedness of others. Guarantees we provide include customaryindemnifications to purchasers in conjunction with the sale of assets orbusinesses; to investors in private equity funds 

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sponsored by the firmregarding potential obligations of employees to return amounts previously paidas carried interest; and to investors in our securities and other arrangementsto provide “gross up” payments if there is a withholding or deduction becauseof a tax assessment or other governmental charge. From time to time, we alsoguarantee the obligations of subsidiaries of CSG that are not our consolidatedsubsidiaries, and these guarantees are included in the scope of the disclosurerequirements of FIN No. 45, “Guarantor’s Accounting and DisclosureRequirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,”or FIN 45.

FIN 45 requires disclosureof our maximum potential payment obligations under certain guarantees to theextent that it is possible to estimate them and requires recognition of aliability at inception for the fair value of guaranteed obligations forguarantees issued or amended after December 31, 2002. The recognition ofthese liabilities did not have a material effect on our financial position orresults of operations. For disclosure of our estimable maximum paymentobligations under certain guarantees and related information, see Note 8of the condensed consolidated financial statements in Part I, Item 1.

**Retainedor Contingent Interests in Assets Transferred to Unconsolidated Entities**

We originate and purchase commercial and residentialmortgages and purchase other debt obligations such as automobile loans andstudent loans and sell these assets directly or through affiliates to specialpurpose entities that are, in most cases, qualified special purpose entities,or QSPEs. These QSPEs issue securities that are backed by the assetstransferred to the QSPEs and pay a return based on the returns on those assets.Investors in these mortgage-backed and asset-backed securities typically haverecourse to the assets in the QSPE. The investors and the QSPEs have norecourse to our assets.

These QSPEs are generally sponsored by oursubsidiaries. Our principal broker-dealer subsidiary, CSFB LLC,underwrites and makes markets in these mortgage-backed and asset-backedsecurities. Under SFAS No. 140, “Accounting for Transfers and Servicing ofFinancial Assets and Extinguishments of Liabilities, a replacement of FASBStatement No. 125,” a QSPE is not required to be consolidated with thetransferor. Our mortgage-backed and asset-backed securitization activities aregenerally structured to use QSPEs, and the assets and liabilities transferredto QSPEs are not included in our financial statements.

We may retain interests inthese securitized assets if CSFB LLC holds the assets in connection with itsunderwriting or market-making activities. Retained interests insecuritized financial assets are included at fair value in the condensedconsolidated statements of financial condition. Any changes in the fair valueof these retained interests are recognized in the condensed consolidatedstatements of income. We engage in these securitization activities to meet theneeds of clients as part of our fixed income activities, to earn fees and tosell financial assets. These securitization activities do not provide a materialsource of our liquidity, capital resources or credit risk or market risksupport. See Note 3 of the condensed consolidated financial statements in Part I,Item 1, which includes quantitative information on our securitizationactivities and retained interests.

**Variable Interest Entities**

We are involved with various entities in the normalcourse of business that may be deemed to be variable interest entities, orVIEs, including VIEs that issue CDOs.

We purchase loans and other debt obligations from andon behalf of clients primarily for the purpose of securitization. The loans andother debt obligations are transferred by us directly, or indirectly throughaffiliates, to QSPEs or to VIEs that issue CDOs. CDOs are securities backed bythe assets transferred to the VIE and pay a return based on the returns onthose assets. Investors typically have recourse to the assets in the CDO VIE.The investors and the CDO VIE have no recourse to the Company’s assets.CSFB LLC structures, underwrites and makes a market in these CDOs, and wemay have retained interests in these CDOs in connection with CSFB LLC’sunderwriting and market-making activities. We engage in 

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these CDO transactions tomeet the needs of clients, to earn fees and to sell financial assets. These CDOtransactions do not provide a material source of our liquidity, capitalresources or credit risk or market risk support.

FIN 46 requires us to consolidate all VIEs for whichwe are the primary beneficiary, which is defined as the entity that will absorba majority of expected losses, receive a majority of the expected residualreturns, or both. In December 2003, the FASB modified FIN 46, through theissuance of FIN 46R, to address various implementation issues that had arisensince the issuance of FIN 46 and to provide companies the option to defer theadoption of FIN 46 for certain VIEs to periods ending after March 15,2004. As of September 30, 2005 and December 31, 2004, we consolidatedCDO VIEs for which we are the primary beneficiary. We also have interests inCDO VIEs that are not required to be consolidated because we are not theprimary beneficiary.

As of January 1,2004, the Company consolidated primarily under FIN 46R certain private equityfunds that are managed by the Company. SeeNotes 1, 3 and 4 of the condensed consolidated financial statements in Part I,Item 1.

**RELATED PARTY TRANSACTIONS**

CSG, through CSFBI, owns all of our outstanding votingcommon stock. We are involved in significant financing and other transactions,and have significant related party balances, with Credit Suisse and certainaffiliates. We generally enter into these transactions in the ordinary courseof business and believe that these transactions are on market terms that couldbe obtained from unrelated third parties. See “—Derivatives” and Notes 2 and 5of the condensed consolidated financial statements in Part I, Item 1 formore 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-dealersin the ordinary course of business. In addition, certain of such directors,officers and employees have investments or commitments to invest in variousprivate equity funds. We make loans to directors and executive officers on thesame terms as are generally available to third parties or otherwise pursuant towidely available employee benefit plans. CSFB LLC and other affiliated broker-dealers,from time to time and in the ordinary course of business, enter into, as principal,transactions involving the purchase or sale of securities from or to suchdirectors, officers and employees and members of their immediate families.

**LESS LIQUID ASSETS**

Certain of our assets,including private equity and other long-term investments, distressedsecurities, high-yield debt, mortgage whole loans and other non-investment-gradedebt, are not highly liquid or trade in markets that have periods of volatilityand illiquidity. The values of most of the more illiquid assets are reported atfair value, and the determination of fair value is based on management’s bestestimate and depends on varying factors. See “—Critical Accounting Policies andEstimates—Fair Value” for further information on the determination of fairvalue of these less liquid assets.

**Private Equity Activities**

Our private equity andother long-term investment activities include direct investments andinvestments in partnerships that make private equity and related investments invarious portfolio companies and funds. These investments are primarily inunlisted or illiquid equity or equity-related securities and are carriedat fair value based on a number of factors. As of September 30, 2005 and December 31,2004, we had investments in private equity and other long-term investments of$3.7 and $3.1 billion, respectively. As of September 30, 2005 we hadcommitments to invest up to an additional $713 million in non-consolidatedprivate equity funds and $1.1 billion in consolidated private equity funds. 

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Theincrease in private equity and other long-term investments reflects ourconsolidation of certain private equity funds. See “—Critical AccountingPolicies and Estimates—Fair Value” in Part I, Item 2 and Notes 1, 3and 4 of the condensed consolidated financial statements in Part I, Item 1for more information.

**CorporateDebt, Mortgage Whole Loans and Other Non-Investment-Grade FinancialInstruments**

Weunderwrite, trade and hold non-investment-grade financial instruments, whichinclude corporate debt, commercial and residential mortgage whole loans, loanparticipations and certain separately managed distressed financial instruments.Corporate debt includes high-yield debt, distressed debt, commercial andresidential mortgage-backed securities, other asset-backed securities and CDOs.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, otherasset-backed securities, CDOs, and certain separately managed distressedfinancial instruments at fair value, with the exception of certain residentialmortgage whole loans and loan participations that are held for sale and arecarried at the lower of cost or fair value. We record commercial mortgage wholeloans held for sale at the lower of aggregate cost or fair value. Timing of thesecuritization of our mortgage whole loan inventory will affect the size of ourpositions at any given time. The following table sets forth our positions inthese instruments as of September 30, 2005 and December 31, 2004:

| ** **                                                   | ** ** | **September 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                   | ** ** | **Assets**                       | ** ** | **Liabilities**                 | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **                                                   | ** ** | **(In millions)**           | ** ** |
| Corporate debt                                               |       | $                                | 3,460      |                            |       | $ | 1,437 |   |   | $ | 2,152 |   |   | $ | 709 |   |   |
| Mortgage whole  loans                                        |       | 21,326                           |       |                            | —     |   |   | 14,987 |   |   | — |   |   |
| Loan  participations                                         |       | 17                               |       |                            | —     |   |   | 17 |   |   | — |   |   |
| Certain  separately managed distressed financial instruments |       | 91                               |       |                            | —     |   |   | 185 |   |   | — |   |   |
| Total                                                        |       | $                                | 24,894     |                            |       | $ | 1,437 |   |   | $ | 17,341 |   |   | $ | 709 |   |   |

 

**DERIVATIVES**

We enter into various transactions involvingderivatives. We use derivatives contracts for both trading and hedging purposesand to provide products for our clients. These derivatives include options,forwards, futures and swaps. In general, derivatives are contractual agreementsthat derive their values from the performance of underlying assets, interest orcurrency exchange rates or a variety of indices. Most of our derivativestransactions are considered trading positions. See Note 5 of the condensedconsolidated financial statements in Part I, Item 1 for more information.

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**Sourcesand Maturities of OTC Derivatives**

Thefollowing table sets forth the distributions, by maturity, of our exposure withrespect to OTC derivatives as of September 30, 2005. Fair values weredetermined on the basis of pricing models and other valuation methods. See “—CriticalAccounting Policies and Estimates—Fair Value” and Notes 5 and 8 of thecondensed consolidated financial statements in Part I, Item 1 for moreinformation.

| ** **                            | ** ** | **Assets  Maturity Distribution as of September 30, 2005** | ** ** |
|---------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Less than 1 year**                                                      | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **Over 5 years** | ** ** | **Total fair value** | ** ** |
| ** **                            | ** ** | **(In millions)**                                                                   | ** ** |
| Interest rate and  credit spread risk |       |                                                                                     | $          | 1,305 |   |   |   | $ | 459 |   |   |   | $ | 162 |   |   |   | $ | 796 |   |   |   | $ | 2,722 |   |   |
| Foreign exchange  risk                |       |                                                                                     | 9          |   |   |   | 37 |   |   |   | — |   |   |   | — |   |   |   | 46 |   |   |
| Equity price risk                     |       |                                                                                     | 459        |   |   |   | 839 |   |   |   | 84 |   |   |   | 374 |   |   |   | 1,756 |   |   |
| Total                                 |       |                                                                                     | $          | 1,773 |   |   |   | $ | 1,335 |   |   |   | $ | 246 |   |   |   | $ | 1,170 |   |   |   | $ | 4,524 |   |   |

 

| ** **                            | ** ** | **Liabilities  Maturity Distribution as of September 30, 2005** | ** ** |
|---------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Less than 1 year**                                                           | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **Over 5 years** | ** ** | **Total fair value** | ** ** |
| ** **                            | ** ** | **(In millions)**                                                                        | ** ** |
| Interest rate and  credit spread risk |       |                                                                                          | $          | 1,177 |   |   |   | $ | 259 |   |   |   | $ | 232 |   |   |   | $ | 332 |   |   |   | $ | 2,000 |   |   |
| Foreign exchange  risk                |       |                                                                                          | 6          |   |   |   | 38 |   |   |   | — |   |   |   | — |   |   |   | 44 |   |   |
| Equity price risk                     |       |                                                                                          | 125        |   |   |   | 57 |   |   |   | — |   |   |   | 321 |   |   |   | 503 |   |   |
| Total                                 |       |                                                                                          | $          | 1,308 |   |   |   | $ | 354 |   |   |   | $ | 232 |   |   |   | $ | 653 |   |   |   | $ | 2,547 |   |   |

 

Thefollowing table sets forth as of September 30, 2005 substantially all ofour exposure with respect to OTC derivatives, by counterparty credit rating andwith affiliates.

| **Credit Rating**(1)    | ** ** | ** **             | ** ** | **September 30,  2005** | ** ** |
|------------------------------|------------|------------------------|------------|------------------------------|------------|
| ** **                   | ** ** | **(In millions)** | ** ** |
| AA+/AA                       |       |                   | $          | 2,640                        |       |   |
| AA-                          |       |                   | 10         |                         |       |
| A+/A/A-                      |       |                   | 210        |                         |       |
| BBB+/BBB/BBB-                |       |                   | 6          |                         |       |
| BB+ or lower                 |       |                   | 115        |                         |       |
| Unrated                      |       |                   | 118        |                         |       |
| Derivatives with  affiliates |       |                   | 1,425      |                         |       |
| Total                        |       |                   | $          | 4,524                        |       |   |

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(1)          Creditratings are determined by external rating agencies or by our credit riskmanagement department.

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**Derivatives With Related Parties**

Weenter into a substantial number of derivatives transactions with relatedparties. The following table sets forth derivatives transactions with relatedparties consisting primarily of interest rate swaps, credit default swaps andforeign exchange forward contracts. The fair values of derivatives contractsoutstanding with related parties as of September 30, 2005 and December 31,2004 were as follows.

| ** **                            | ** ** | **September 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | **Assets**                       | ** ** | **Liabilities**                 | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **                            | ** ** | **(In millions)**           | ** ** |
| Interest rate and  credit spread risk |       | $                                | 1,361      |                            |       | $ | 865 |   |   | $ | 1,346 |   |   | $ | 616 |   |   |
| Foreign exchange  risk                |       | 25                               |       |                            | 30         |   |   | 45 |   |   | 18 |   |   |
| Equity price risk                     |       | 39                               |       |                            | 5          |   |   | 9 |   |   | 61 |   |   |
| Total                                 |       | $                                | 1,425      |                            |       | $ | 900 |   |   | $ | 1,400 |   |   | $ | 695 |   |   |

 

See Notes 2 and 5 of thecondensed consolidated financial statements in Part I, Item 1 for moreinformation.

**FORWARD LOOKING STATEMENTS**

We have made in thisQuarterly Report on Form 10-Q, including, without limitation, in “LegalProceedings” in Part II, Item 1, and in “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” in Part I, Item2, and from time to time may otherwise make in our public filings and pressreleases, forward-looking statements concerning our operations, economicperformance and financial condition, as well as our future plans and strategicobjectives. Such forward-looking statements are subject to various risks anduncertainties, and we claim the protection afforded by the safe harbor forforward-looking statements contained in the Private Securities LitigationReform Act of 1995. Actual results could differ materially from thoseanticipated herein or in any such other filings, releases or statements becauseof a number of factors, including without limitation, those detailed in “Business—CertainFactors That May Affect Our Results of Operations” in Part I, Item 1of our Annual Report on Form 10-K for the year ended December 31,2004, those discussed elsewhere herein, and in other public filings and pressreleases. These forward-looking statements are not historical facts but insteadrepresent only our belief regarding future events, many of which, by theirnature, are inherently uncertain and beyond our control. Forward-lookingstatements are typically identified by the use of future or conditional verbssuch 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.

**Item 3:        Quantitativeand Qualitative Disclosures About Market Risk**

**Risk Management and Value atRisk**

For a description of theCompany’s risk management policies and procedures and value-at-risk, or VAR,model, including such model’s assumptions and limitations, see “Quantitativeand Qualitative Disclosure About Market Risk” in Part II, Item 7A of theCompany’s Annual Report on Form 10-K for the year ended December 31,2004.

**Market RiskExposure**

We measure market riskexposure by using complementary risk measurement techniques, including VAR andsensitivity analysis. VAR is used for our trading portfolio, which includesthose financial 

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instrumentstreated as part of our “trading book” for Bank for International Settlementsregulatory capital purposes. Sensitivity analysis is used for our non-tradingportfolio, which primarily includes commercial mortgage loans, private equityinvestments, derivatives that hedge the Company’s long-term borrowings andcertain commodity positions. This classification of assets as trading andnon-trading is done for purposes of analyzing our market risk exposure, not forfinancial statement purposes.

**Trading Portfolios**

The Company-wide trading portfolio VAR wasapproximately $36 million and $37 million as of September 30, 2005 and December 31,2004, respectively. Theslight reduction in VAR was primarily due to a decrease in interest rate andcredit spread VAR associated with mortgage products offset by increases inequity and commodity VAR. The decrease in interest rate and credit spread VARassociated with mortgage products was primarily caused by a reduction in thevolatility of the market data in the rolling two-year underlying data that weuse to calculate VAR, as data from 2003 was replaced by less volatile data from2005. The increases in equity and commodity VAR were primarily caused byincreased equity proprietary trading and energy trading, respectively.

Due tothe benefit of diversification, the Company-wide VAR is less than the sum ofthe individual components. The four main components of market risk, expressedin terms of theoretical fair values, had the following VAR:

| ** **                       | ** ** | **Company’s Market Risk  Exposures in Trading Portfolios** | ** ** |
|----------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| ** **                       | ** ** | **As of September 30, 2005**                                         | ** ** | **As of December 31, 2004** | ** ** |
| ** **                       | ** ** | **(In millions)**                                                                   | ** ** |
| 99%, one-day VAR                 |       |                                                                                     |       |   |   |   |   |   |   |
| Interest rate and  credit spread |       |                                                                                     | $          | 24 |   |   |   | $ | 34 |   |   |
| Equity                           |       |                                                                                     | 21         |   |   |   | 15 |   |   |
| Foreign exchange  rate           |       |                                                                                     | 1          |   |   |   | 1 |   |   |
| Commodity                        |       |                                                                                     | 9          |   |   |   | — |   |   |
| Diversification  benefit         |       |                                                                                     | (19        | ) |   |   | (13 | ) |   |
| Total                            |       |                                                                                     | $          | 36 |   |   |   | $ | 37 |   |   |

 

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The table below presentsminimum, maximum and average VAR by market risk component:

| ** **                       | ** ** | **Company’s Market Risk Exposures in Trading Portfolios** | ** ** |
|----------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                       | ** ** | **Three Months Ended  September 30, 2005**                               | ** ** | **Three Months Ended  September 30, 2004** | ** ** |
| ** **                       | ** ** | **Minimum**                                                                                  | ** ** | **Maximum** | ** ** | **Average** | ** ** | **Minimum** | ** ** | **Maximum** | ** ** | **Average** | ** ** |
| ** **                       | ** ** | **(In millions)**                                                                       | ** ** |
| 99%, one-day VAR                 |       |                                                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate and  credit spread |       |                                                                                         | $          | 20 |   |   |   | $ | 37 |   |   |   | $ | 27 |   |   |   | $ | 28 |   |   |   | $ | 53 |   |   |   | $ | 38 |   |   |
| Equity                           |       |                                                                                         | 17         |   |   |   | 27 |   |   |   | 21 |   |   |   | 13 |   |   |   | 29 |   |   |   | 19 |   |   |
| Foreign exchange  rate           |       |                                                                                         | —     |   |   |   | 1 |   |   |   | 1 |   |   |   | 1 |   |   |   | 2 |   |   |   | 1 |   |   |
| Commodity                        |       |                                                                                         | 4          |   |   |   | 10 |   |   |   | 7 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Diversification  benefit         |       |                                                                                         | —     | (1) |   |   | — | (1) |   |   | (18 | ) |   |   | — | (1) |   |   | — | (1) |   |   | (14 | ) |   |
| Total                            |       |                                                                                         | $          | 27 |   |   |   | $ | 45 |   |   |   | $ | 38 |   |   |   | $ | 30 |   |   |   | $ | 62 |   |   |   | $ | 44 |   |   |

 

| ** **                       | ** ** | **Company’s Market Risk Exposures in Trading Portfolios** | ** ** |
|----------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                       | ** ** | **Nine Months Ended  September 30, 2005**                                | ** ** | **Nine Months Ended  September 30, 2004** | ** ** |
| ** **                       | ** ** | **Minimum**                                                                                  | ** ** | **Maximum** | ** ** | **Average** | ** ** | **Minimum** | ** ** | **Maximum** | ** ** | **Average** | ** ** |
| ** **                       | ** ** | **(In millions)**                                                                       | ** ** |
| 99%, one-day VAR                 |       |                                                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate and  credit spread |       |                                                                                         | $          | 20 |   |   |   | $ | 52 |   |   |   | $ | 34 |   |   |   | $ | 28 |   |   |   | $ | 55 |   |   |   | $ | 42 |   |   |
| Equity                           |       |                                                                                         | 13         |   |   |   | 27 |   |   |   | 19 |   |   |   | 12 |   |   |   | 32 |   |   |   | 21 |   |   |
| Foreign exchange  rate           |       |                                                                                         | —     |   |   |   | 4 |   |   |   | 1 |   |   |   | — |   |   |   | 4 |   |   |   | 1 |   |   |
| Commodity                        |       |                                                                                         | —     |   |   |   | 10 |   |   |   | 3 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Diversification  benefit         |       |                                                                                         | —     | (1) |   |   | — | (1) |   |   | (16 | ) |   |   | — | (1) |   |   | — | (1) |   |   | (15 | ) |   |
| Total                            |       |                                                                                         | $          | 27 |   |   |   | $ | 55 |   |   |   | $ | 41 |   |   |   | $ | 30 |   |   |   | $ | 69 |   |   |   | $ | 49 |   |   |

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(1)          As the minimum and maximumoccur on different days for different risk types, it is not meaningful tocalculate a portfolio diversification benefit.

For detailsof the Company’s average, maximum and minimum VAR for 2004, see “Quantitativeand Qualitative Disclosure About Market Risk” in Part II, Item 7A of theCompany’s Annual Report on Form 10-K for the year ended December 31,2004.

Theaverage, maximum and minimum daily trading revenue for the three and ninemonths ended September 30, 2005 and 2004 are shown below:

| ** **            | ** ** | **Three Months Ended  September 30, 2005** | ** ** | **Three Months Ended  September 30, 2004** | ** ** | **Nine Months Ended  September 30, 2005** | ** ** | **Nine Months Ended  September 30, 2004** | ** ** |
|-----------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **            | ** ** | **(In millions)**                                         | ** ** |
| Daily trading revenue |       |                                                           |       |                                                           |       |                                                          |       |                                                          |       |   |   |   |   |   |   |   |   |
| Average               |       |                                                           | $          | 17                                                             |       |                                                          |       | $                                                             | 11         |   |   |   | $ | 14 |   |   |   | $ | 14 |   |   |
| Maximum               |       |                                                           | 95         |                                                           |       |                                                          | 64         |                                                          |       |   | 95 |   |   |   | 67 |   |   |
| Minimum               |       |                                                           | $          | (10                                                            | )          |                                                          |       | $                                                             | (7         | ) |   |   | $ | (15 | ) |   |   | $ | (17 | ) |   |

 

For details of the Company’s average, maximum and minimumdaily trading revenue for 2004, 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, 2004.

**Non-tradingPortfolios**

The equity risk on non-trading positions, which isprimarily comprised of private equity investments, is measured usingsensitivity analysis that estimates the potential change in the recorded valueof the investments resulting from a 10% decline in the equity markets ofdeveloped nations and a 20% decline in 

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the equity markets ofemerging market nations. Theestimated impact of equity risk on our non-trading financial instrumentsportfolio would be a decrease in the value of the non-trading portfolio ofapproximately $125 million and $118 million as of September 30, 2005and December 31, 2004, respectively. The estimated impact of equity riskexcludes the minority interests in certain consolidated private equity funds.

The interest rate risk on non-trading positions, whichis primarily comprised of commercial mortgage loans and derivatives that hedgethe Company’s long-term borrowings, is measured using sensitivity analysis thatestimates the potential change in the value of the non-trading portfolioresulting from a 50 basis point decline in the interest rates of developednations and a 200 basis point decline in the interest rates of emerging marketnations. The estimated impact of interest rate risk on the value of the non-tradingportfolio would be a decrease of approximately $31 million and $12 millionas of September 30, 2005 and December 31, 2004, respectively. Thechange was primarily caused by increased interest rate sensitivity in ourlong-term borrowings and the related hedges.

The foreign exchange risk on non-trading positions ismeasured using sensitivity analysis that estimates the potential change in thevalue of the non-trading portfolio resulting from a 10% strengthening of theU.S. dollar against developed currencies and a 20% strengthening of the U.S.dollar against emerging market currencies. The estimated impact of foreign exchangerisk on the value of the non-trading portfolio would be approximately zero and a decrease of approximately $1 million as of September 30,2005 and December 31, 2004, respectively.

The commodity price riskon non-trading positions, which is primarily comprised of various emissioncredit positions, is measured using sensitivity analysis that estimates thepotential change in the value of the non-trading portfolio resulting from a 20%weakening in commodity prices. The estimated impact of commodity price risk on the value of thenon-trading portfolio would be anincrease of $1 million as of September 30,2005. As of December 31, 2004, commodity price risk was immaterial in ournon-trading portfolio.

**Item 4:        Controlsand Procedures**

Pursuant to Rule 13a-15(b) under theExchange Act, as of the end of the period covered by this report, an evaluationwas carried out under the supervision and with the participation of ourmanagement, including our Chief Executive Officer and Chief Financial andAccounting Officer, of the effectiveness of the design and operation of ourdisclosure controls and procedures (as defined in Rule 13a-15(e) underthe Exchange Act). There are inherent limitations to the effectiveness of anysystem of disclosure controls and procedures, including the possibility ofhuman error and 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 asof the date of the evaluation, our Chief Executive Officer and Chief Financialand Accounting Officer concluded that the design and operation of thesedisclosure controls and procedures were effective in all material respects toprovide reasonable assurance that information required to be disclosed in thereports we file and submit under the Exchange Act is recorded, processed,summarized and reported as and when required. There were no changes in ourinternal control over financial reporting (as defined in Rule 13a-15(f) underthe Exchange Act) that occurred during the quarter ended September 30,2005 that materially affected, or are reasonably likely to materially affect,our internal control over financial reporting.

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**PART IIOTHER INFORMATION**

**Item 1:**                       LegalProceedings

Certain significant legalproceedings and matters have been previously disclosed in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2004 andQuarterly Reports on Form 10-Q for the quarterly periods ended March 31,2005 and June 30, 2005. The following is an update of such proceedings.

**LitigationRelating to IPO Allocation/Research-related Practices**

In a decision, dated September 28, 2005, the U.S.Court of Appeals for the Second Circuit vacated the district court’s dismissalof the *In re Initial Public OfferingAntitrust Litigation* and remanded the case to the district court forfurther proceedings.

In the action brought on behalf of a putative class ofissuers in IPOs for which Donaldson, Lufkin & Jenrette SecuritiesCorporation acted as underwriter, the U.S. District Court for the SouthernDistrict of New York, inan opinion and order dated August 1, 2005, granted, in part, putativeclass representative Xpedior’s motion for leave to amend its complaint. Thedistrict court permitted Xpedior to drop all class action allegations and addallegations of intentional underpricing in support of its claim for breach offiduciary duty, but denied Xpedior’s motion to add allegations of intentionalunderpricing in support of its claim for breach of good faith and fair dealing.Additionally, in that opinion and order, the district court granted the Company’ssummary judgment motion to dismiss Xpedior’s breach of good faith and fairdealing claim, but denied the Company’s motion to dismiss Xpedior’s breach offiduciary duty claim. On or about August 15, 2005, Xpedior amended itscomplaint to drop all class action allegations and assert an individual claimfor breach of fiduciary duty on behalf of Xpedior.

On August 16, 2005, in the action brought onbehalf of purchasers of shares in Agilent Technologies, Inc., theplaintiffs filed their brief in support of their appeal of the district court’sdismissal of their complaint with the U.S. Court of Appeals for the FirstCircuit.

On August 17, 2005 the U.S. District Court forthe District of Massachusetts granted class certification in the proceedingbrought on behalf of purchasers of shares of Winstar, Inc. CSFB LLC hasappealed that decision.

On September 14, 2005, the U.S. District Courtfor the District of Massachusetts granted class certification in the proceedingbrought on behalf of purchasers of shares of Razorfish, Inc. CSFB LLC hasappealed that decision.

The Circuit Court of Marshall County, West Virginia,in an opinion dated September 16, 2005, dismissed the consumer fraudaction brought by the West Virginia Attorney General with prejudice.

The plaintiff whopreviously filed, and then voluntarily dismissed, a Missouri state court actionrelating to analyst research, voluntarily dismissed its amended complaint filedin the Southern District of New York. The district court so ordered thedismissal on September 29, 2005.

**Enron-relatedLitigation and Inquiries**

On July 29, 2005, the U.S. Bankruptcy Court forthe Southern District of New York denied CSFB LLC’s and an affiliate’s motionto dismiss Enron’s claims to recover certain payments made in connection withequity forward and swap transactions. On September 21, 2005, CSFB LLCfiled a motion for leave to appeal with the U.S. District Court for theSouthern District of New York.

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On October 7, 2005, ajoint stipulation and order of dismissal was filed in the action broughtagainst CSFB LLC and its affiliates by an Enron subsidiary, Enron InternationalKorea, LLC, in the U.S. District Court for the Southern District of New York.

**Refco-related Litigation and Inquiries**

In October 2005, CSFB LLC was named, along withother financial services firms, accountants, officers, directors andcontrolling persons, as a defendant in several federal class action andderivative lawsuits filed in the U.S. District Court for the Southern Districtof New York relating to Refco Inc. The actions allege that CSFB LLC (and otherunderwriters) violated federal securities laws and state laws in connectionwith the sale of Refco securities, including in the Refco initial publicoffering in August 2005.

CSFB LLC and certain ofits affiliates have received subpoenas and requests for information fromvarious regulators including the SEC regarding Refco. We are cooperating withthese requests.

**Other**

In accordance with SFAS No. 5, “Accounting forContingencies,” the Company recorded in the second quarter of 2005 a $750million litigation charge to increase the reserve for private litigationinvolving Enron, certain IPO allocation practices, research analystindependence and other related litigation. This charge, coupled with the chargerecorded in 2002, brings the Company’s reserves for these private litigationmatters to $1.1 billion after the application of settlements. It is inherentlydifficult to predict the outcome of many of these matters. In presenting theconsolidated financial statements, management makes estimates regarding theoutcome of these matters and records a reserve and takes a charge to incomewhen losses with respect to such matters are probable and can be reasonablyestimated. Estimates, by their nature, are based on judgment and currentlyavailable information and involve a variety of factors, including, but not limitedto, the type and nature of the litigation, claim or proceeding, the progress ofthe matter, the advice of legal counsel, the Company’s defenses and itsexperience in similar cases or proceedings as well as its assessment ofmatters, including settlements, involving other defendants in similar orrelated cases or proceedings. Further litigation charges or releases oflitigation reserves may be necessary in the future as developments in suchcases or proceedings warrant.

We are involved in anumber of judicial, regulatory and arbitration proceedings (including thosedescribed above) concerning matters arising in connection with the conduct ofour businesses. Some of these actions have been brought on behalf of variousclasses of claimants and seek damages of material and/or indeterminate amounts.We believe, based on currently available information and advice of counsel,that the results of such proceedings, in the aggregate, will not have amaterial adverse effect on our financial condition but might be material tooperating results for any particular period, depending, in part, upon theoperating results for such period. The Company intends to defend itselfvigorously in these matters, litigating or settling when determined bymanagement to be in the best interests of the Company.

**Items 2, 3 and 4:**

Pursuant to GeneralInstruction H of Form 10-Q, the information required by Items 2, 3and 4 is omitted.

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**Item 6:**                       Exhibits

(a)          Exhibits
|        | 10.1 | Option Agreement, dated as of August 12, 2005,  by and among the Company, SPS Holding Corp. (“SPS Holding”), The PMI  Group, Inc. (“PMI”), FSA Portfolio Management Inc. (“FSA”) and  Greenrange Partners LLC (“Greenrange”) |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 10.2 | Contingent Payment Agreement, dated as of  August 12, 2005, among Select Portfolio Servicing, Inc., the  Company, Greenrange, PMI and FSA                                                                                                                            |
|   | 10.3 | Exercise Notice, dated August 12, 2005, from  the Company to PMI, FSA, Greenrange and SPS Holding                                                                                                                                                                         |
|   | 10.4 | First Amendment to the Option Agreement and the  Contingent Payment Agreement, made and entered into as of October 4,  2005, by and among the Company, SPS Holding, PMI, FSA and Greenrange                                                                               |
|   | 12   | Statement re computation of ratio of earnings to  fixed charges                                                                                                                                                                                                                |
|   | 15   | Letter re unaudited interim financial information                                                                                                                                                                                                                              |
|   | 31.1 | Rule 13a-14(a) certification of  Chief Executive Officer                                                                                                                                                                                                             |
|   | 31.2 | Rule 13a-14(a) certification of  Chief Financial and Accounting Officer                                                                                                                                                                                              |
|   | 32   | Section 1350 certifications                                                                                                                                                                                                                                               |

 

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**SIGNATURE**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

|                       | CREDIT  SUISSE  FIRST  BOSTON (USA), INC. |
|-----------------------|----------------------------------------------------------|
| November 8, 2005 | By:                                                      | /s/ DAVID C. FISHER |
|                  |                                                     | Chief Financial and Accounting Officer  (On behalf of the Registrant and as Principal Financial Officer) |

 

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**INDEX TO EXHIBITS**

| Exhibit Number | ** ** | **Description**                                                                                                                                                                                                                                                                |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                |       | Option Agreement, dated as of August 12, 2005,  by and among the Company, SPS Holding Corp. (“SPS Holding”), The PMI  Group, Inc. (“PMI”), FSA Portfolio Management Inc. (“FSA”) and  Greenrange Partners LLC (“Greenrange”) |
| 10.2                |       | Contingent Payment Agreement, dated as of  August 12, 2005, among Select Portfolio Servicing, Inc., the  Company, Greenrange, PMI and FSA                                                                                                                            |
| 10.3                |       | Exercise Notice, dated August 12, 2005, from  the Company to PMI, FSA, Greenrange and SPS Holding                                                                                                                                                                         |
| 10.4                |       | First Amendment to the Option Agreement and the  Contingent Payment Agreement, made and entered into as of October 4,  2005, by and among the Company, SPS Holding, PMI, FSA and Greenrange                                                                          |
| 12                  |       | Computation of ratio of earnings to fixed charges                                                                                                                                                                                                                              |
| 15                  |       | Letter re unaudited interim financial information                                                                                                                                                                                                                              |
| 31.1                |       | Rule 13a-14(a) certification of  Chief Executive Officer                                                                                                                                                                                                             |
| 31.2                |       | Rule 13a-14(a) certification of  Chief Financial and Accounting Officer                                                                                                                                                                                              |
| 32                  |       | Section 1350 certifications                                                                                                                                                                                                                                               |

 

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