**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 March 31, 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 of registrantas 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 telephonenumber, including area code)

**The Registrant meets the conditions set forth inGeneral Instruction H(1)(a) and (b) of Form 10-Q andis therefore filing this Form 10-Q with the reduced disclosureformat.**

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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**CREDIT SUISSE FIRST BOSTON (USA), INC.Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2005**
| **PART I**  | **FINANCIAL  INFORMATION** |                                                                                                                                            |       |
|------------------|----------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|             | ITEM 1:                    | Financial  Statements                                                                                                                           |       |   |
|             |                       | Condensed  Consolidated Statements of Financial Condition (Unaudited) as of  March 31, 2005 and December 31, 2004                     |       | 2 |
|             |                       | Condensed  Consolidated Statements of Income (Unaudited) for the three months ended  March 31, 2005 and 2004                               |       | 4 |
|             |                       | Condensed  Consolidated Statements of Changes in Stockholder’s Equity (Unaudited) for  the three months ended March 31, 2005 and 2004 |       | 5 |
|             |                       | Condensed  Consolidated Statements of Cash Flows (Unaudited) for the three months ended  March 31, 2005 and 2004                           |       | 6 |
|             |                       | Notes to Condensed Consolidated  Financial Statements (Unaudited)                                                                               |       | 7 |
|             |                       |   1. Summary of Significant  Accounting Policies                                                                                      |       | 7 |
|             |                       |   2. Related Party Transactions                                                                                                       |       | 8 |
|             |                       |   3. Transfers and Servicing  of Financial Assets                                                                                     |       | 11 |
|             |                       |   4. Private Equity and Other  Long-Term Investments                                                                                  |       | 15 |
|             |                       |   5. Derivatives Contracts                                                                                                            |       | 16 |
|             |                       |   6. Borrowings                                                                                                                       |       | 17 |
|             |                       |   7. Leases and Commitments                                                                                                           |       | 19 |
|             |                       |   8. Guarantees                                                                                                                       |       | 20 |
|             |                       |   9. Net Capital Requirements                                                                                                         |       | 21 |
|             |                       | 10. Cash and Securities  Segregated Under Federal and Other Regulations                                                                         |       | 22 |
|             |                       | 11. Share-Based Compensation                                                                                                                    |       | 22 |
|             |                       | 12. Employee Benefit Plans                                                                                                                      |       | 23 |
|             |                       | 13. Legal Proceedings                                                                                                                           |       | 24 |
|             |                       | 14. Industry Segment and  Geographic Data                                                                                                       |       | 24 |
|             |                       | Report  of Independent Registered Public Accounting Firm                                                                                        |       | 26 |
|             | ITEM  2:                   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                       |       | 27 |
|             | ITEM  3:                   | Quantitative  and Qualitative Disclosures About Market Risk                                                                                     |       | 53 |
|             | ITEM 4:                    | Controls  and Procedures                                                                                                                        |       | 55 |
| **PART II** | **OTHER INFORMATION**      |                                                                                                                                            | ** ** |
|             | ITEM 1:                    | Legal  Proceedings                                                                                                                              |       | 56 |
|             | ITEM 6:                    | Exhibits                                                                                                                                        |       | 56 |
|             | Signature                  |                                                                                                                                            | 57         |

 

**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 is reasonably practicable after the report is electronically filedwith, or furnished to, the SEC. The information on our website is notincorporated by reference into this Quarterly Report.

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**PART IFINANCIAL INFORMATION**Item 1: Financial Statements

**CREDIT SUISSE FIRST BOSTON (USA), INC. ANDSUBSIDIARIESCondensed ConsolidatedStatements of Financial Condition(Unaudited)(In millions)**
| ** **                                                                                                      | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                      |       |                     |       |                        |       |   |   |
| Cash and cash  equivalents                                                                                      |       | $                        | 465        |                        |       | $ | 727 |   |   |
| Collateralized  short-term financings:                                                                          |       |                     |       |                        |       |   |   |
| Securities purchased under agreements to resell                                                                 |       | 50,661                   |       |                        | 48,887     |   |   |
| Securities borrowed                                                                                             |       | 79,383                   |       |                        | 82,912     |   |   |
| Receivables:                                                                                                    |       |                     |       |                        |       |   |   |
| Customers                                                                                                       |       | 3,025                    |       |                        | 3,307      |   |   |
| Brokers, dealers and other                                                                                      |       | 21,865                   |       |                        | 11,094     |   |   |
| Financial instruments  owned (includes securities pledged as collateral of $70,075 and $54,663,  respectively): |       |                     |       |                        |       |   |   |
| U.S. government and agencies                                                                                    |       | 36,876                   |       |                        | 32,841     |   |   |
| Corporate debt                                                                                                  |       | 15,981                   |       |                        | 14,721     |   |   |
| Mortgage whole loans                                                                                            |       | 17,380                   |       |                        | 14,987     |   |   |
| Equities                                                                                                        |       | 26,181                   |       |                        | 28,712     |   |   |
| Commercial paper                                                                                                |       | 2,197                    |       |                        | 1,171      |   |   |
| Private equity and other long-term investments                                                                  |       | 3,119                    |       |                        | 3,127      |   |   |
| Derivatives contracts                                                                                           |       | 4,348                    |       |                        | 3,663      |   |   |
| Other                                                                                                           |       | 3,564                    |       |                        | 3,665      |   |   |
| Net deferred tax  asset                                                                                         |       | 1,005                    |       |                        | 1,103      |   |   |
| Office facilities  at cost (net of accumulated depreciation and amortization of $710 and $913,  respectively)   |       | 413                      |       |                        | 420        |   |   |
| Goodwill                                                                                                        |       | 530                      |       |                        | 527        |   |   |
| Loans receivable  from parent and affiliates                                                                    |       | 20,749                   |       |                        | 22,692     |   |   |
| Other assets and  deferred amounts                                                                              |       | 1,703                    |       |                        | 1,257      |   |   |
| Total assets                                                                                                    |       | $                        | 289,445    |                        |       | $ | 275,813 |   |   |

 

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

2

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**CREDIT SUISSE FIRST BOSTON (USA), INC. ANDSUBSIDIARIESCondensed Consolidated Statementsof Financial Condition (Continued)(Unaudited)**(In millions, exceptshare data)
| ** **                                                                                           | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** **     |
|------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|----------------|
| **LIABILITIES  AND STOCKHOLDER’S EQUITY**                                                       |       |                     |       |                        |           |   |   |
| Commercial paper  and short-term borrowings                                                          |       | $ 15,742            |       |                        | $ 21,684  |   |   |
| Collateralized  short-term financings:                                                               |       |                     |       |                        |           |   |   |
| Securities sold under agreements to repurchase                                                       |       | 116,421                  |       |                        | 108,407        |   |   |
| Securities loaned                                                                                    |       | 49,122                   |       |                        | 45,148         |   |   |
| Payables:                                                                                            |       |                     |       |                        |           |   |   |
| Customers                                                                                            |       | 8,036                    |       |                        | 6,767          |   |   |
| Brokers, dealers and other                                                                           |       | 8,769                    |       |                        | 10,277         |   |   |
| Financial instruments  sold not yet purchased:                                                       |       |                     |       |                        |           |   |   |
| U.S. government and agencies                                                                         |       | 25,402                   |       |                        | 20,154         |   |   |
| Corporate debt                                                                                       |       | 3,635                    |       |                        | 2,842          |   |   |
| Equities                                                                                             |       | 10,495                   |       |                        | 5,245          |   |   |
| Derivatives contracts                                                                                |       | 2,840                    |       |                        | 2,295          |   |   |
| Other                                                                                                |       | 277                      |       |                        | 161            |   |   |
| Obligation to  return securities received as collateral                                              |       | 4,027                    |       |                        | 4,980          |   |   |
| Accounts payable  and accrued expenses                                                               |       | 1,869                    |       |                        | 3,327          |   |   |
| Other liabilities                                                                                    |       | 4,606                    |       |                        | 4,521          |   |   |
| Long-term  borrowings                                                                                |       | 26,849                   |       |                        | 28,941         |   |   |
| Total liabilities                                                                                    |       | 278,090                  |       |                        | 264,749        |   |   |
| Stockholder’s Equity:                                                                           |       |                     |       |                        |           |   |   |
| Common stock  ($0.10 par value; 50,000 shares authorized; 1,100 shares issued and  outstanding) |       | —                   |       |                        | —         |   |   |
| Paid-in capital                                                                                      |       | 8,656                    |       |                        | 8,538          |   |   |
| Retained earnings                                                                                    |       | 2,710                    |       |                        | 2,534          |   |   |
| Accumulated other  comprehensive loss                                                                |       | (11                      | )          |                        | (8             | ) |   |
| Total stockholder’s equity                                                                      |       | 11,355                   |       |                        | 11,064         |   |   |
| Total liabilities  and stockholder’s equity                                                     |       | $ 289,445           |       |                        | $ 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)**
| ** **                                                                                                               | ** ** | **For the Three Months  Ended March 31,**   | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **     2005     ** | ** ** | **     2004     ** | ** ** |
| Revenues:                                                                                                                |       |                                                                 |       |   |   |   |   |   |   |
| Principal transactions-net                                                                                               |       |                                                                 | $          | 367 |   |   |   | $ | 63 |   |   |
| Investment banking and advisory                                                                                          |       |                                                                 | 321        |   |   |   | 474 |   |   |
| Commissions and fees                                                                                                     |       |                                                                 | 351        |   |   |   | 374 |   |   |
| Interest and dividends, net of interest expense of  $2,147 and $1,198,  respectively                                     |       |                                                                 | 577        |   |   |   | 647 |   |   |
| Other                                                                                                                    |       |                                                                 | 17         |   |   |   | 22 |   |   |
| Total net revenues                                                                                                       |       |                                                                 | 1,633      |   |   |   | 1,580 |   |   |
| Expenses:                                                                                                                |       |                                                                 |       |   |   |   |   |   |   |
| Employee compensation and benefits                                                                                       |       |                                                                 | 947        |   |   |   | 963 |   |   |
| Occupancy and equipment rental                                                                                           |       |                                                                 | 120        |   |   |   | 114 |   |   |
| Brokerage, clearing and exchange fees                                                                                    |       |                                                                 | 77         |   |   |   | 72 |   |   |
| Communications                                                                                                           |       |                                                                 | 36         |   |   |   | 32 |   |   |
| Professional fees                                                                                                        |       |                                                                 | 67         |   |   |   | 55 |   |   |
| Merger-related costs                                                                                                     |       |                                                                 | —     |   |   |   | 4 |   |   |
| Other operating expenses                                                                                                 |       |                                                                 | (5         | ) |   |   | 13 |   |   |
| Total expenses                                                                                                           |       |                                                                 | 1,242      |   |   |   | 1,253 |   |   |
| Income before  provision for income taxes, minority interests and cumulative  effect of a change in accounting principle |       |                                                                 | 391        |   |   |   | 327 |   |   |
| Provision for  income taxes                                                                                              |       |                                                                 | 66         |   |   |   | 79 |   |   |
| Minority  interests                                                                                                      |       |                                                                 | 155        |   |   |   | 81 |   |   |
| Income before  cumulative effect of a change in accounting principle                                                     |       |                                                                 | 170        |   |   |   | 167 |   |   |
| Cumulative effect  of a change in accounting principle, net of income tax expense  of $3                                 |       |                                                                 | 6          |   |   |   | — |   |   |
| Net income                                                                                                               |       |                                                                 | $          | 176 |   |   |   | $ | 167 |   |   |

 

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

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**CREDIT SUISSE FIRST BOSTON (USA), INC. ANDSUBSIDIARIESCondensed Consolidated Statementsof Changes in Stockholder’s EquityFor the Three Months Ended March 31, 2005 and 2004(Unaudited)(In millions)**
| ** **                                                       | ** ** | **Common  Stock** | ** ** | **Paid-in    Capital  ** | ** ** | **Retained   Earnings ** | ** ** | **Accumulated  Other  Comprehensive  (Loss)** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------|------------|-------------------|------------|----------------------------------------------|------------|------------------------------------|------------|-----------------------------------------------|------------|-----------|------------|
| Balances as of  December 31, 2003                           |       |              | $          | —                                       |       |                               |       | $                                             | 8,012      |      |       |   | $ | 1,787 |   |   |   | $ | (158 | ) |   | $ | 9,641 |   |
| Net income                                                       |       |              | —     |                                         |       |                               | —     |                                          |       |      | 167        |   |   |   | — |   |   | 167 |   |
| Decrease in  pension liability                                   |       |              | —     |                                         |       |                               | —     |                                          |       |      | —     |   |   |   | 1 |   |   | 1 |   |
| Total comprehensive income                                       |       |              |       |                                         |       |                               |       |                                          |       |      |       |   |   |   |   |   |   | 168 |   |
| CSG share plan  activity, including tax charge  of $10           |       |              | —     |                                         |       |                               | 90         |                                          |       |      | —     |   |   |   | — |   |   | 90 |   |
| Balances as of  March 31, 2004                              |       |              | $          | —                                       |       |                               |       | $                                             | 8,102      |      |       |   | $ | 1,954 |   |   |   | $ | (157 | ) |   | $ | 9,899 |   |
| Balances as of December 31, 2004                            |       |              | $          | —                                       |       |                               |       | $                                             | 8,538      |      |       |   | $ | 2,534 |   |   |   | $ | (8 | ) |   | $ | 11,064 |   |
| Net income                                                       |       |              | —     |                                         |       |                               | —     |                                          |       |      | 176        |   |   |   | — |   |   | 176 |   |
| Net change in  cash flow hedge, including tax benefit of $2 |       |              | —     |                                         |       |                               | —     |                                          |       |      | —     |   |   |   | (3 | ) |   | (3 | ) |
| Total comprehensive income                                       |       |              |       |                                         |       |                               |       |                                          |       |      |       |   |   |   |   |   |   | 173 |   |
| CSG share plan  activity, including tax charge  of $11           |       |              | —     |                                         |       |                               | 118        |                                          |       |      | —     |   |   |   | — |   |   | 118 |   |
| Balances as of  March 31, 2005                              |       |              | $          | —                                       |       |                               |       | $                                             | 8,656      |      |       |   | $ | 2,710 |   |   |   | $ | (11 | ) |   | $ | 11,355 |   |

 

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

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**CREDIT SUISSE FIRST BOSTON (USA), INC. ANDSUBSIDIARIESCondensed ConsolidatedStatements of Cash Flows(Unaudited)**(In millions)
| ** **                                                                                               | ** ** | **For the Three Months  Ended March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                                               | ** ** | **2005**                                                           | ** ** | **2004** | ** ** |
| Cash flows from operating activities:                                                                    |       |                                                               |       |   |   |
| Net income                                                                                               |       | $                                                                  | 176        |   | $ | 167 |   |
| Adjustments to reconcile net income to net cash  (used in) provided by operating activities:             |       |                                                               |       |   |   |
| Depreciation and  amortization                                                                           |       | 33                                                                 |       | 47 |   |
| Non-cash CSG share plan  activity                                                                        |       | 129                                                                |       | 100 |   |
| Deferred taxes                                                                                           |       | 85                                                                 |       | 61 |   |
| Other, net                                                                                               |       | (14                                                                | )          | (9 | ) |
| Change in operating assets and operating  liabilities:                                                   |       |                                                               |       |   |   |
| Securities borrowed                                                                                      |       | 3,529                                                              |       | (2,187 | ) |
| Receivables from  customers                                                                              |       | 282                                                                |       | 365 |   |
| Receivables from  brokers, dealers and other                                                             |       | (10,771                                                            | )          | 338 |   |
| Financial instruments  owned                                                                             |       | (5,403                                                             | )          | (22,157 | ) |
| Other assets and deferred  amounts and Other liabilities, net                                            |       | (2,177                                                             | )          | (89 | ) |
| Securities loaned                                                                                        |       | 3,974                                                              |       | 441 |   |
| Payables to customers                                                                                    |       | 1,269                                                              |       | 690 |   |
| Payables to brokers,  dealers and other                                                                  |       | (1,508                                                             | )          | 128 |   |
| Financial instruments  sold not yet purchased                                                            |       | 11,952                                                             |       | 3,799 |   |
| Obligation to return  securities received as collateral                                                  |       | (953                                                               | )          | 2,868 |   |
| Accounts payable and  accrued expenses                                                                   |       | (1,458                                                             | )          | (721 | ) |
| Net cash used in  operating activities                                                                   |       | (855                                                               | )          | (16,159 | ) |
| Cash flows from investing activities:                                                                    |       |                                                               |       |   |   |
| Net (payments for) proceeds from:                                                                        |       |                                                               |       |   |   |
| Loans receivable from  parent and affiliates                                                             |       | 1,943                                                              |       | (174 | ) |
| Office facilities, net                                                                                   |       | (30                                                                | )          | (97 | ) |
| Net cash provided by  (used in) investing activities                                                     |       | 1,913                                                              |       | (271 | ) |
| Cash flows from financing activities:                                                                    |       |                                                               |       |   |   |
| Net proceeds from (payments for):                                                                        |       |                                                               |       |   |   |
| Commercial paper and  short-term borrowings                                                              |       | (5,942                                                             | )          | 8,021 |   |
| Securities sold under  agreements to repurchase, net of securities purchased under agreements to  resell |       | 6,240                                                              |       | 8,634 |   |
| Issuances of long-term  borrowings                                                                       |       | 3                                                                  |       | 996 |   |
| Redemptions and  maturities of long-term borrowings                                                      |       | (1,621                                                             | )          | (626 | ) |
| Net cash (used in)  provided by financing activities                                                     |       | (1,320                                                             | )          | 17,025 |   |
| (Decrease) increase in  cash and cash equivalents                                                        |       | (262                                                               | )          | 595 |   |
| Cash and cash  equivalents as of the beginning of period                                                 |       | 727                                                                |       | 334 |   |
| Cash and cash  equivalents as of the end of period                                                       |       | $                                                                  | 465        |   | $ | 929 |   |
| SUPPLEMENTAL DISCLOSURES                                                                                 |       |                                                               |       |   |   |
| Cash payments for  interest                                                                              |       | $                                                                  | 2,001      |   | $ | 1,244 |   |
| Cash payments for income taxes, net of refunds                                                           |       | $                                                                  | 6          |   | $ | 8 |   |

 

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

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) March 31, 2005**

**1.**   Summary of SignificantAccounting 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 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**

In August 2003, the Company adopted the fairvalue recognition provisions of Statement of Financial Accounting Standards (“SFAS”)No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148,“Accounting for Stock-Based Compensation—Transition and Disclosure,” (“SFAS123”) using the prospective method. Under the prospective method, the Companyrecognized compensation expense over the vesting period for all share optionand share awards granted under the Credit Suisse Group International Share Plan(the “Plan”) for services provided after January 1, 2003.

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) March 31, 2005**

**1.**   Summary ofSignificant Accounting Policies (Continued)

In December 2004, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 123 (Revised 2004), “Share-BasedPayment” (“SFAS 123R”). In April 2005, the Securities and ExchangeCommission (the “SEC”) deferred the effective date of SFAS 123R, which is noweffective for fiscal years beginning after June 15, 2005. Under SFAS 123R,a company that has previously adopted the recognition provisions of SFAS 123must adopt the revised standard using the modified prospective method, and mayalso choose to apply the modified retrospective method to prior reportingperiods. The Company has early adopted the new standard as of January 1,2005, using the modified prospective method. During the three months ended March 31,2005, the Company recorded an after-tax gain of $6 million in the condensedconsolidated statement of income as cumulative effect of a change in accountingprinciple to reverse the expense previously recognized on all outstandingunvested awards that are not expected to vest. For new grants after January 1,2005, forfeitures will be included in the initial estimate of compensationexpense at the grant date.

For further information onshare-based compensation, see Note 11.

**2.**   RelatedParty Transactions

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 with Credit Suisse First Boston, aSwiss bank subsidiary of CSG and an indirect parent of the Company, and certainof its subsidiaries and affiliates. The Company generally enters into thesetransactions in the ordinary course of business and believes that thesetransactions are generally on market terms that could be obtained fromunrelated third parties.

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) March 31, 2005**

**2.**   Related PartyTransactions (Continued)

The following table setsforth the Company’s related party assets and liabilities as of March 31,2005 and December 31, 2004:
| ** **                                              | ** ** | **  March 31,    2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------|------------|
| ** **                                              | ** ** | **(In millions)**                           | ** ** |
| **ASSETS**                                              |       |                                             |       |                        |       |   |   |   |   |
| Securities purchased  under agreements to resell        |       |                                             | $          | 6,787                       |       |   |   | $ | 6,685 |   |   |
| Securities  borrowed                                    |       |                                             | 2,701      |                        |       |   | 1,861 |   |   |
| Receivables from  customers                             |       |                                             | 395        |                        |       |   | 379 |   |   |
| Receivables from  brokers, dealers and other            |       |                                             | 4,381      |                        |       |   | 1,893 |   |   |
| Derivatives  contracts                                  |       |                                             | 1,300      |                        |       |   | 1,400 |   |   |
| Net deferred tax  asset                                 |       |                                             | 1,005      |                        |       |   | 1,103 |   |   |
| Loans receivable  from parent and affiliates            |       |                                             | 20,749     |                        |       |   | 22,692 |   |   |
| Total assets                                            |       |                                             | $          | 37,318                      |       |   |   | $ | 36,013 |   |   |
| **LIABILITIES**                                         |       |                                             |       |                        |       |   |   |   |   |
| Short-term  borrowings                                  |       |                                             | $          | 13,983                      |       |   |   | $ | 20,085 |   |   |
| Securities sold  under agreements to repurchase         |       |                                             | 25,512     |                        |       |   | 22,317 |   |   |
| Securities loaned                                       |       |                                             | 36,466     |                        |       |   | 34,056 |   |   |
| Payables to  customers                                  |       |                                             | 1,542      |                        |       |   | 1,054 |   |   |
| Payables to  brokers, dealers and other                 |       |                                             | 3,182      |                        |       |   | 1,300 |   |   |
| Derivatives  contracts                                  |       |                                             | 946        |                        |       |   | 695 |   |   |
| Obligation to  return securities received as collateral |       |                                             | 1,335      |                        |       |   | 1,252 |   |   |
| Taxes payable  (included in Other liabilities)          |       |                                             | 452        |                        |       |   | 484 |   |   |
| Intercompany  payables (included in Other liabilities)  |       |                                             | 330        |                        |       |   | 191 |   |   |
| Total liabilities                                       |       |                                             | $          | 83,748                      |       |   |   | $ | 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 variousservice agreements. The Company incurs commission expenses during the normalcourse of business for securities transactions conducted with affiliates. Otheroperating expenses include affiliate service fees that are treated as areduction in other operating expenses in the condensed consolidated statementsof income. These fees include compensation and benefits expense relating tobusiness activities conducted by Company employees on behalf of CSG affiliatesoutside the Company.

9

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) March 31, 2005**

**2.**   Related PartyTransactions (Continued)

The following table setsforth the Company’s related party revenues and expenses for the three monthsended March 31, 2005 and 2004:
| ** **                                          | ** ** | **For the Three  Months Ended  March 31,** | ** ** |
|-----------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                          | ** ** | **2005**                                                       | ** ** | **2004** | ** ** |
| ** **                                          | ** ** | **(In millions)**                                         | ** ** |
| Principal  transactions-net (derivatives contracts) |       | $                                                              | 474        |   | $ | 60 |   |
| Commissions                                         |       | (7                                                             | )          | (8 | ) |
| Net interest  expense                               |       | (196                                                           | )          | (59 | ) |
| Total net revenues                                  |       | $                                                              | 271        |   | $ | (7 | ) |
| Other operating expenses                            |       | $                                                              | (84        | ) | $ | (44 | ) |
| Total expenses                                      |       | $                                                              | (84        | ) | $ | (44 | ) |

 

From time to time the Company sells at cost to CSFBI theright, title and interest in certain assets. For the three months ended March31, 2005 the value of the assets sold was not significant.

As of March 31, 2005, certain private equityfunds of funds, with approximately $4.1 billion of committed capital, andcertain hedge funds, hedge funds of funds and variable interest entities (“VIEs”)that issue collateralized debt obligations (“CDOs”), with aggregate assetsunder management of approximately $15.5 billion, of CSFB Alternative Capital, Inc.,an indirect wholly owned subsidiary of CSFBI, are managed by the Company’sAlternative Capital division. CSFB Alternative Capital, Inc. reimbursesthe Alternative Capital division for all costs and expenses incurred by theCompany in connection with managing these assets.

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 March 31, 2005,the gain from the economic hedging arrangements with respect to these affiliateobligations was $1 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 areconsidered a capital contribution to the Company and credited to paid-in-capital.Amounts contributed by CSFBI relating to compensation expense for the threemonths ended March 31, 2005 and 2004 were $129 million and $100million, respectively. See Note 11 for further information on the Company’sshare-based compensation.

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 

10

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) March 31, 2005**

**2.**   Related PartyTransactions (Continued)

and employees haveinvestments or commitments to invest in various private funds. The Companymakes loans to directors and executive officers on the same terms as aregenerally available to third parties or otherwise pursuant to widely availableemployee benefit plans. CSFB LLC and other affiliated broker-dealers,from time to time and in the ordinary course of business, enter into, asprincipal, transactions involving the purchase or sale of securities from or tosuch directors, officers and employees and members of their immediate families.

In connection with its derivatives activities, theCompany enters into over-the-counter (“OTC”) derivatives contracts with relatedparties that contingently require the Company, as guarantor, to make paymentsbased on changes in an underlying financial instrument. See Note 8 for moreinformation.

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

**3.**   Transfersand Servicing 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 March 31, 2005 and December 31, 2004,the fair value of assets that the Company pledged to counterparties was$213.4 billion and $199.3 billion, respectively, of which$70.1 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 lends these assets to thirdparties. As of March 31, 2005 and December 31, 2004, the fair valueof the assets pledged to the Company was $192.6 billion and$182.3 billion, respectively, of which $191.8 billion and$180.6 billion, respectively, was sold or repledged.

**Securitization Activities**

The Company originates and purchases commercial andresidential mortgages for the purpose of securitization. The Company sellsthese mortgage loans to qualified special purpose entities (“QSPEs”) or otherVIEs. These QSPEs issue securities that are backed by the assets transferred tothe QSPEs and pay a return based on the returns on those assets. Investors inthese mortgage-backed securities typically have recourse to the assets in theQSPE. The investors and the QSPEs have no recourse to the Company’s assets. CSFBLLC is an underwriter of, and makes a market in, these securities.

The Company purchases loans and other debt obligationsfrom clients for the purpose of securitization. The loans and other debtobligations are sold by the Company directly, or indirectly through affiliates,to QSPEs or other VIEs that issue CDOs. CSFB LLC structures, underwrites andmakes a market in these CDOs. CDOs are securities backed by the assetstransferred to the CDO VIEs and pay a 

11

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) March 31, 2005**

**3.**   Transfers andServicing of Financial Assets (Continued)

return based on thereturns on those assets. Investors typically have recourse to the assets in theCDO VIEs. The investors and the CDO VIEs have no recourse to the Company’sassets.

The following tablepresents the proceeds and gains related to the securitization of commercialmortgage loans, residential mortgage loans, CDOs and other asset-backed loansfor the three months ended March 31, 2005 and 2004: 
| ** **                                             | ** ** | **Commercial  mortgage  loans** | ** ** | **Residential  mortgage  loans** | ** ** | **Collateralized  debt  obligations** | ** ** | **Other  asset-backed loans**(1) | ** ** |
|--------------------------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| ** **                                             | ** ** | **(In millions)**          | ** ** |
| **For the Three Months Ended****March 31, 2005**  |       |                            |       |                             |       |                                  |       |                                  |       |   |   |   |   |   |   |   |   |
| Proceeds from new  securitizations                     |       |                            | $          | 1,357                            |       |                                  |       | $                                     | 11,755     |   |   |   | $ | 1,320 |   |   |   | $ | 1,908 |   |   |
| Gain on  securitizations(2)                            |       |                            | $          | 39                               |       |                                  |       | $                                     | 12         |   |   |   | $ | 10 |   |   |   | $ | 15 |   |   |
| **For the  Three Months Ended****March 31, 2004** |       |                            |       |                             |       |                                  |       |                                  |       |   |   |   |   |   |   |   |   |
| Proceeds from new  securitizations                     |       |                            | $          | 1,299                            |       |                                  |       | $                                     | 8,714      |   |   |   | $ | 401 |   |   |   | $ | 744 |   |   |
| Gain on securitizations(2)                             |       |                            | $          | 63                               |       |                                  |       | $                                     | 27         |   |   |   | $ | 5 |   |   |   | $ | 4 |   |   |

----

(1)          Primarily includes homeequity loans.

(2)          Includes underwritingfees and retained interest gains and losses but excludes all gains or losses,including net interest revenues, on assets prior to securitization.

Included in residential mortgage loans in the tableabove are proceeds of $4.4 billion and $3.4 billion related to thesecuritization of agency mortgage-backed securities for the three months ended March 31,2005 and 2004, respectively. For the three months ended March 31, 2005 and2004, the Company recognized losses of $4 million and gains of $2 million,respectively, from these securitizations.

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 March 31, 2005 and December 31, 2004, the fair value ofthe interests retained by the Company was $2.9 billion and$2.0 billion, respectively.

12

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) March 31, 2005**

**3.**   Transfers andServicing of Financial Assets (Continued)

Key economic assumptionsused in measuring at the date of securitization the fair value of the retainedinterests resulting from securitizations completed during the three monthsended March 31, 2005 were as follows:
| ** **                                      | ** ** | **For the Three Months Ended March 31, 2005** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **Commercial  mortgage  loans**(1)                                               | ** ** | **Residential  mortgage  loans** | ** ** | **Collateralized  debt  obligations**(2) | ** ** | **Other  asset-backed loans** | ** ** |
| Weighted-average  life (in years)               |       |                                                                             | N/A        |   |   | 4.6 |   |   | 6.8 |   |   |   | 3.5 |   |   |
| Prepayment rate  (in rate per annum)(3)         |       |                                                                             | N/A        |   |   | 11%-25 | % |   | N/A |   |   |   | 25 | % |   |
| Cash flow  discount rate (in rate per annum)(4) |       |                                                                             | N/A        |   |   | 3.7%-39.5 | % |   | 9.2 | % |   |   | 4.8 | % |   |
| Expected credit losses  (in rate per annum)     |       |                                                                             | N/A        |   |   | 0.1%-34.9 | % |   | 5.1 | % |   |   | 0.7 | % |   |

 

The followingtable sets forth the fair value of retained interests from securitizations asof March 31, 2005, key economic assumptions used to determine the fairvalue and the sensitivity of the fair value to immediate adverse changes inthose assumptions:
| ** **                                        | ** ** | **As of March 31, 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 |       |                                         | $          | 3 |   |   |   | $ | 2,691 |   |   |   | $ | 140 |   |   |   | $ | 54 |   |   |
| Weighted-average  life (in years)                 |       |                                         | 0.4        |   |   |   | 2.6 |   |   |   | 11.4 |   |   |   | 1.6 |   |   |
| Prepayment rate  (in rate per annum)(3)           |       |                                         | N/A        |   |   |   | 3%-53 | % |   |   | N/A |   |   |   | 21%-51 | % |   |
| Impact on fair value of 10% adverse change        |       |                                         | N/A        |   |   |   | $ | (4 | ) |   |   | N/A |   |   |   | $ | — |   |   |
| Impact on fair value of 20% adverse change        |       |                                         | N/A        |   |   |   | $ | (8 | ) |   |   | N/A |   |   |   | $ | — |   |   |
| Cash flow  discount rate (in rate per annum)(4)   |       |                                         | 19.5       | % |   |   | 6.2 | % |   |   | 11.9 | % |   |   | 16.3 | % |   |
| Impact on fair value of 10% adverse change        |       |                                         | $          | — |   |   |   | $ | (34 | ) |   |   | $ | (7 | ) |   |   | $ | — |   |   |
| Impact on fair value of 20% adverse change        |       |                                         | $          | — |   |   |   | $ | (68 | ) |   |   | $ | (14 | ) |   |   | $ | (1 | ) |   |
| Expected credit  losses (in rate per annum)       |       |                                         | 15.0       | % |   |   | 2.3 | % |   |   | 7.8 | % |   |   | 11.8 | % |   |
| Impact on fair value of 10% adverse change        |       |                                         | $          | — |   |   |   | $ | (7 | ) |   |   | $ | (3 | ) |   |   | $ | — |   |   |
| Impact on fair  value of 20% adverse change       |       |                                         | $          | — |   |   |   | $ | (15 | ) |   |   | $ | (6 | ) |   |   | $ | — |   |   |

----

(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.

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 

13

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) March 31, 2005**

**3.**   Transfers andServicing of Financial Assets (Continued)

retainedinterests is calculated without changing any other assumption. In practice,changes in one assumption may result in changes in other assumptions (forexample, increases in market interest rates may result in lower prepayments andincreased credit losses), which may magnify or counteract the sensitivities.

**Variable Interest Entities**

The Company has variable interests in several CDO VIEs.As described under “—Securitization Activities,” in the normal course of itsbusiness, the Company purchases loans and other debt obligations from and onbehalf of clients primarily for the purpose of securitization. These assets aresold to and warehoused by affiliates and, at the end of a warehousing period,the assets are sold to VIEs or QSPEs for securitization. The Company engages inthese transactions to meet the needs of clients, to earn fees and to sellfinancial assets. The purpose of these CDO VIEs is to provide investors areturn based on the underlying debt instruments of the CDO VIEs. In connectionwith its underwriting and market-making activities, the Company may retaininterests in the CDO VIEs. The CDO entities may have actively managed (“open”)portfolios or static or unmanaged (“closed”) portfolios. The closed CDOtransactions are typically structured to use QSPEs, which are not consolidatedin the Company’s financial statements.

The Company has consolidated all CDO VIEs for which itis the primary beneficiary. As of March 31, 2005 and December 31,2004, the Company recorded $282 million and $291 million,respectively, representing the carrying amount of the consolidated assets ofthese CDO VIEs that are collateral for the VIE obligations. The beneficialinterests of these consolidated CDO VIEs are payable solely from the cash flowsof the related collateral, and the creditors of these VIEs do not have recourseto the Company in the event of default.

The Company retains significant debt and equityinterests in open CDO VIEs that are not consolidated because the Company is notthe primary beneficiary. The total assets in these CDO VIEs as of March 31,2005 and December 31, 2004 were $5.0 billion and $4.5 billion,respectively. The Company’s maximum exposure to loss as of March 31, 2005and December 31, 2004 was $194 million and $62 million,respectively, which was the amount of its retained interests, carried at fairvalue, in financial instruments owned.

14

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) March 31, 2005**

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

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 privateequity funds. Limited partners of these funds typically have recourse to thefunds assets but have no recourse to the Company’s assets. During 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 consolidation of theseprivate equity funds primarily under FIN 46R, as of March 31, 2005and December 31, 2004:
| ** **                                                 | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                 | ** ** | **(In millions)**   | ** ** |
| Private equity and other  long-term investments            |       |                     | $          | 1,825                       |       |   |   | $ | 1,947 |   |   |
| All other assets, net                                      |       |                     | (87        | )                           |       |   | 2 |   |   |
| Total assets                                               |       |                     | $          | 1,738                       |       |   |   | $ | 1,949 |   |   |
| Minority interests  (included in other liabilities)        |       |                     | $          | 1,884                       |       |   |   | $ | 1,978 |   |   |
| All other liabilities,  net (excluding minority interests) |       |                     | (146       | )                           |       |   | (29 | ) |   |
| Total liabilities                                          |       |                     | $          | 1,738                       |       |   |   | $ | 1,949 |   |   |

 

Thefollowing table presents the impact on the condensed consolidated statements ofincome of the Company’s adoption of FIN 46R, for the three months ended March 31,2005 and 2004:
| ** **         | ** ** | **For the Three  Months Ended  March 31,** | ** ** |
|--------------------|------------|----------------------------------------------------------------|------------|
| ** **         | ** ** | **    2005    **       | ** ** | **    2004    ** | ** ** |
| ** **         | ** ** | **(In millions)**                                         | ** ** |
| Net revenues       |       |                                                           | $          | 157 |   |   |   | $ | 81 |   |   |
| Expenses           |       |                                                           | 2          |   |   |   | — |   |   |
| Minority interests |       |                                                           | $          | 155 |   |   |   | $ | 81 |   |   |

 

**4.**   Private Equity and Other Long-TermInvestments

Private equity and otherlong-term investments include direct investments and investments inpartnerships that make private equity and related investments in variousportfolio companies and funds. The Company categorizes its private equity andother long-term investments into three categories: CSFB-managed funds,which include funds consolidated primarily under FIN 46R, funds managed bythird parties and direct investments. These investments generally have noreadily available market or may be otherwise restricted as to resale under theSecurities Act of 1933; therefore, these investments are carried at amounts whichapproximate fair value.

As of March 31, 2005and December 31, 2004, the Company had investments in private equity andother long-term investments of $3.1 billion, including $1.8 billionand $1.9 billion, respectively, in private equity investments consolidatedprimarily under FIN 46R. As of March 31, 2005 the Company had commitmentsto invest up to an additional $936 million. The cost of these investments,excluding the private equity investments consolidated primarily under FIN 46R,was $1.6 billion as of March 31, 2005 

15

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) March 31, 2005**

**4.**   Private Equityand Other Long-Term Investments (Continued)

and $1.5billion as of December 31, 2004. 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 Company’s subsidiaries managemany private equity partnerships (the “Funds”). When the investment performanceon CSFB-managed Funds exceeds specific thresholds, the Company and certainother partners (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 interestdistributions the Company has received if the Company has received excesscarried interest distributions over the life of the Funds. The Company alsoguarantees the obligation of the other partners to return excess carriedinterest payments. The amount of such contingent obligations is based upon theperformance of the Funds but cannot exceed the amount of carried interestreceived by the GPs. As of March 31, 2005 and December 31, 2004, themaximum amount of such contingent obligations was $462 million and$439 million, respectively, assuming the Funds’ remaining investments wereworthless. Assuming the Funds’ remaining investments were sold at their currentcarrying values as of March 31, 2005 and December 31, 2004, thecontingent obligations would have been $5 million and $9 million, respectively.As of March 31, 2005 and December 31, 2004, the Company withheld cashfrom distributions on prior realizations to the partners, and recordedcorresponding liabilities of $93 million and $75 million,respectively, in connection with the Company’s guarantee to return priorcarried interest distributions to third party investors in the Funds.

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 March 31, 2005 and December 31, 2004,the maximum amount of such contingent obligations was $65 million assumingthe Funds’ remaining investments were worthless. Assuming the Funds’ remaininginvestments were sold at their current carrying values as of March 31,2005 and December 31, 2004, there would have been no contingentobligation.

**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 Annual Report on Form 10-K for the year ended December 31,2004.

The fair values of allderivatives contracts outstanding as of March 31, 2005 and December 31,2004 were as follows:
| ** **        | ** ** | **March 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|-------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **        | ** ** | **Assets**                   | ** ** | **Liabilities**                 | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **        | ** ** | **(In millions)**       | ** ** |
| Options           |       | $                            | 811        |                            |       | $ | 694 |   |   | $ | 1,001 |   |   | $ | 879 |   |   |
| Forward contracts |       | 2,017                        |       |                            | 882        |   |   | 1,206 |   |   | 355 |   |   |
| Swaps             |       | 1,520                        |       |                            | 1,264      |   |   | 1,456 |   |   | 1,061 |   |   |
| Total             |       | $                            | 4,348      |                            |       | $ | 2,840 |   |   | $ | 3,663 |   |   | $ | 2,295 |   |   |

 

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) March 31, 2005**

**5.**   Derivatives Contracts (Continued)

These assets andliabilities are included as derivatives contracts in financial instrumentsowned/sold not yet purchased, respectively, in the condensed consolidatedstatements of financial condition.

**6.**   Borrowings

Short-term borrowings aregenerally demand obligations with interest approximating the federal fundsrate, LIBOR or other money market indices. Such borrowings are generally usedto facilitate the securities settlement process, finance financial instrumentsowned and finance securities purchased by customers on margin. As of March 31,2005 and December 31, 2004, there were no short-term borrowings secured byCompany-owned securities.

The followingtable sets forth the Company’s short-term borrowings and their weighted averageinterest rates:
| ** **                                      | ** ** | **Short-term borrowings**                               | ** ** | **Weighted average interest rates** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                      | ** ** | **As of    March 31,    2005** | ** ** | **As of  December 31,  2004**            | ** ** | **As of    March 31,    2005** | ** ** | **As of    December 31,    2004** | ** ** |
| ** **                                      | ** ** | **(In millions)**                                       | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Bank loans, including  loans from affiliates(1) |       |                                                         | $          | 14,371                                             |       |   |   | $ | 20,435 |   |   |   | 3.24 | % |   |   | 2.65 | % |   |
| Commercial paper                                |       |                                                         | 1,371      |                                               |       |   | 1,249 |   |   |   | 2.82 | % |   |   | 2.11 | % |   |
| Total short-term borrowings                     |       |                                                         | $          | 15,742                                             |       |   |   | $ | 21,684 |   |   |   |   |   |   |   |   |   |   |

----

(1)          Includes$14.0 billion and $20.1 billion in loans from affiliates as of March 31,2005 and December 31, 2004, respectively.

The Company has twocommercial paper programs exempt from registration under the Securities Act of 1933that allow the Company to issue up to $7.0 billion in commercial paper. Asof March 31, 2005 and December 31, 2004, $1.4 billion and$1.2 billion, respectively, of commercial paper was outstanding underthese programs.

In June 2004, theCompany filed with the SEC a shelf registration statement that allows theCompany to issue from time to time up to $15.0 billion of senior andsubordinated debt securities, and warrants to purchase such securities. Underthat shelf registration statement, the Company had, as of May 10, 2005,approximately $11.5 billion available for issuance.

In July 2001, theCompany established a Euro Medium-Term Note program that allows the Company toissue up to $5.0 billion of notes. Under this program, the Company had, asof May 10, 2005, approximately $1.2 billion available for issuance.

The following table setsforth the Company’s long-term borrowings as of March 31, 2005 and December 31,2004:
| ** **                                                              | ** ** | **March 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                                              | ** ** | **(In millions)**       | ** ** |
| Senior notes 2.66%-7.13%, due various dates  through 2032          |       |                         | $          | 21,523                          |       |   |   | $ | 22,485 |   |   |
| Medium-term notes 2.14%-7.53%, due various dates  through 2032     |       |                         | 5,310      |                            |       |   | 6,387 |   |   |
| Structured borrowings 5.7%-16.06%, due various dates  through 2007 |       |                         | 16         |                            |       |   | 69 |   |   |
| Total long-term borrowings                                              |       |                         | $          | 26,849                          |       |   |   | $ | 28,941 |   |   |
| Current maturities of  long-term borrowings                             |       |                         | $          | 1,647                           |       |   |   | $ | 3,137 |   |   |

 

17

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) March 31, 2005**

**6.**   Borrowings (Continued)

As of March 31, 2005 and December 31, 2004,long-term borrowings included an increase of approximately $154 millionand $624 million, respectively, associated with fair value hedges underSFAS No. 133, “Accounting for Derivative Instruments and HedgingActivities” as amended (“SFAS 133”). As of March 31, 2005 and December 31,2004, the Company had entered into interest rate swaps, with a notional amountof $21.3 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 March 31, 2005:
| ** ** | ** ** | **Twelve Months Ended  March 31,** | ** ** |
|------------|------------|---------------------------------------------------|------------|
| ** ** | ** ** | **(In millions)**                            | ** ** |
| 2006       |       |                                              | $          | 1,647 |   |   |
| 2007       |       |                                              | 3,966      |   |   |
| 2008       |       |                                              | 4,999      |   |   |
| 2009       |       |                                              | 2,194      |   |   |
| 2010       |       |                                              | 2,777      |   |   |
| 2011-2032  |       |                                              | 11,266     |   |   |
| Total      |       |                                              | $          | 26,849 |   |   |

 

Thefollowing table sets forth scheduled maturities of the current portion of long-termborrowings as of March 31, 2005:
| ** **               | ** ** | **Three Months Ended** | ** ** |
|--------------------------|------------|----------------------------------|------------|
| ** **               | ** ** | **(In millions)**           | ** ** |
| June 30,  2005      |       |                             | $          | 900 |   |   |
| September 30,  2005 |       |                             | 149        |   |   |
| December 31,  2005  |       |                             | 498        |   |   |
| March 31,  2006     |       |                             | 100        |   |   |
| Total                    |       |                             | $          | 1,647 |   |   |

 

As of March 31, 2005,Credit Suisse First Boston LLC (“CSFB LLC”) maintained with third parties four364-day committed secured revolving credit facilities totaling $2.0 billion,with one facility for $500 million maturing in July 2005, onefacility for $500 million maturing in November 2005, one facility for$500 million maturing in February 2006 and one facility for $500million maturing in March 2006. These facilities require CSFB LLC topledge unencumbered marketable securities to secure any borrowings. Borrowingsunder each facility would bear interest at short-term rates related to eitherthe federal funds rate or LIBOR and can be used for general corporate purposes.The facilities contain customary covenants that the Company believes will notimpair its ability to obtain funding. As of March 31, 2005, no borrowingswere outstanding under any of the facilities.

18

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) March 31, 2005**

**6.**   Borrowings (Continued)

**2005 Financings:**

During the three monthsended March 31, 2005, the Company issued $3 million in structurednotes and repaid approximately $1.1 billion of medium-term notes,$500 million of senior notes and $55 million of structured notes.

**7.   Leases andCommitments**

Thefollowing table sets forth the Company’s minimum operating lease commitments asof March 31, 2005:
| ** ** | ** ** | **Twelve Months Ended  March 31,** | ** ** |
|------------|------------|---------------------------------------------------|------------|
| ** ** | ** ** | **(In millions)**                            | ** ** |
| 2006       |       |                                              | $          | 154 |   |   |
| 2007       |       |                                              | 150        |   |   |
| 2008       |       |                                              | 140        |   |   |
| 2009       |       |                                              | 134        |   |   |
| 2010       |       |                                              | 131        |   |   |
| 2011-2025  |       |                                              | 1,050      |   |   |
| Total(1)   |       |                                              | $          | 1,759 |   |   |

----

(1)          Includescontractual obligations related to certain information technology, equipmentleases and software licenses of $4 million and excludes sublease revenue of$341 million and executory costs suchas insurance, maintenance and taxes of $554 million.

The following table setsforth certain of the Company’s long-term commitments, including the currentportion as of March 31, 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)     |       |                                                | $          | — |   |   | $ | 25 |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | 25 |   |   |
| Private equity(2)                 |       |                                                | 169        |   |   | 129 |   |   | 57 |   |   |   | 581 |   |   |   | 936 |   |   |
| Forward  agreements(3)            |       |                                                | 10,048     |   |   | — |   |   | — |   |   |   | — |   |   |   | 10,048 |   |   |
| Unfunded mortgage  commitments(4) |       |                                                | —     |   |   | 51 |   |   | — |   |   |   | — |   |   |   | 51 |   |   |
| Total commitments                 |       |                                                | $          | 10,217 |   |   | $ | 205 |   |   | $ | 57 |   |   |   | $ | 581 |   |   |   | $ | 11,060 |   |   |

----

(1)          Inthe ordinary course of business, the Company maintains certain standby resaleagreement facilities that commit the Company to enter into securities purchasedunder agreements to resell with customers at current market rates.

(2)          Representscommitments to invest in various partnerships that make private equity and relatedinvestments in various portfolio companies or other private equity funds.

19

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) March 31, 2005**

**7.**   Leases andCommitments (Continued)

(3)          Represents commitmentsto enter into forward securities purchased under agreements to resell andforward agreements to borrow securities.

(4)          TheCompany enters into commitments to extend credit, predominantly at variableinterest rates, in connection with certain commercial mortgage activities.

Excluded from the table above are certain commitmentsto originate, purchase and sell mortgage whole loans. These commitments arereflected as derivatives contracts in the condensed consolidated statements offinancial condition. For more information on the Company’s derivativescontracts see Note 5.

The Company used $55 million in outstandingstandby letters of credit as of March 31, 2005, in order to satisfycounterparty collateral requirements.

The Company had no capitallease or purchase obligations as of March 31, 2005. For information aboutcertain of 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 ready to perform over the term of theguarantee in the event that certain events or conditions occur. With certainexceptions, these liability recognition requirements apply to any guaranteesentered 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 the tax law or anadverse interpretation of the tax law.

20

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) March 31, 2005**

**8.**   Guarantees(Continued)

The following table setsforth the maximum quantifiable contingent liabilities and carrying amountsassociated with guarantees covered by FIN 45 as of March 31, 2005, bymaturity.
| ** **                | ** ** | **Guarantee of Commitment  Expiration Per Period** | ** ** |
|---------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                | ** ** | **Less than 1  year**                                        | ** ** | **1-3  years** | ** ** | **4-5  years** | ** ** | **Over 5  years** | ** ** | **Total  guarantees** | ** ** | **Carrying  amounts** | ** ** |
| ** **                | ** ** | **(In millions)**                                                 | ** ** |
| Credit guarantees         |       |                                                                   | $          | 6 |   |   | $ | 10 |   | $ | 53 |   | $ | 384 |   |   | $ | 453 |   |   |   | $ | 11 |   |   |
| Performance  guarantees   |       |                                                                   | 73         |   |   | 326 |   | — |   | — |   |   | 399 |   |   |   | 6 |   |   |
| Derivatives               |       |                                                                   | 3,621      |   |   | 2,075 |   | 248 |   | 1,246 |   |   | 7,190 |   |   |   | 112 |   |   |
| Related party  guarantees |       |                                                                   | —     |   |   | — |   | — |   | 1 |   |   | 1 |   |   |   | — |   |   |
| Indemnifications          |       |                                                                   | —     |   |   | — |   | — |   | 6 |   |   | 6 |   |   |   | — |   |   |
| Total guarantees          |       |                                                                   | $          | 3,700 |   |   | $ | 2,411 |   | $ | 301 |   | $ | 1,637 |   |   | $ | 8,049 |   |   |   | $ | 129 |   |   |

 

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 Annual Report on Form 10-K forthe year ended December 31, 2004.

**9.**   Net Capital 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 the minimum netcapital requirements of the SEC and the Commodities Futures Trading Commission(“CFTC”). Under the alternative method permitted by SEC rule 15c3-1, therequired net capital may not be less than the greater of 2% of aggregate debitbalances arising from customer transactions or 4% of the funds required to besegregated pursuant to the Commodity Exchange Act less the market value ofcertain commodity options, all as defined. Under CFTC Regulation 1.17, therequired minimum net capital requirement is 8% of the total risk marginrequirement (as defined) for all positions carried in customer accounts plus 4%of the total risk margin requirement (as defined) for all positions carried innon-customer accounts. As of March 31, 2005, the CFTC’s minimum netcapital requirement was greater than the SEC’s minimum net capital requirement.As of March 31, 2005, CSFB LLC’s net capital of approximately$2.8 billion was 40.8% of aggregate debit balances and in excess of theCFTC’s minimum requirement by approximately $2.6 billion.

The Company’s OTC derivatives dealer subsidiary,Credit Suisse First Boston Capital LLC (“CSFB Capital LLC”), is also subject tothe uniform net capital rule, but computes its net capital based on value atrisk under Appendix F of rule 15c3-1 under the Securities ExchangeAct of 1934. As of March 31, 2005, CSFB Capital LLC’s net capital of$302 million, allowing for market and credit risk exposure of$82 million and $43 million, respectively, was in excess of theminimum net capital requirement by $282 million. CSFB Capital LLC is incompliance with the exemptive provisions of Rule 15c3-3 because theCompany does not carry securities accounts for customers or perform custodialfunctions relating to customer securities.

As of March 31, 2005,the Company and its subsidiaries complied with all applicable regulatorycapital adequacy requirements.

21

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) March 31, 2005**

**10.   Cashand Securities Segregated** Under Federal and OtherRegulations

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 March 31, 2005 and December 31,2004, cash and securities aggregating $3.4 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 March 31, 2005 and December 31,2004, CSFB LLC segregated securities aggregating $2.6 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 $4.8 billionand $4.4 billion as of March 31, 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-Based Compensation

The Company participatesin the Credit Suisse Group International Share Plan (the “Plan”). The Planprovides for share option and share awards to be granted to certain employeesbased on the fair market value of CSG shares at the time of grant. Effective January 1,2005, the Company early adopted the provisions of SFAS 123R on accounting forstock compensation using the modified prospective method. For additionalinformation on the effect of adopting SFAS 123R, see Note 1.

**Share Awards**

Under the Plan, the Company grants share awards aspart of incentive compensation with a three-year vesting period. Compensationexpense is recognized over the vesting period on a straight-line basis. Forshare awards that are not granted as part of incentive compensation,compensation expense is recognized over a vesting period of one to five yearson a straight-line basis.

The fair value of shareawards is determined by the market price of CSG shares on the date of grant.The weighted-average fair value at grant date for share awards granted duringthe three months ended March 31, 2005 and 2004 was $41.56 and $37.81,respectively. The number of share awards granted during the three months ended March 31,2005 and 2004 was 17 million.

**Share Option Awards**

Under the Plan, the Company may grant share optionawards as part of incentive compensation with a three-year vesting period. Compensationexpense is recognized over the vesting period on a straight-line basis. Forshare option awards that are not part of incentive compensation, compensationexpense is recognized on a straight-line basis over the service period, whichranges from two to four years. These awards expire ten years from the grantdate. The Company did not grant any share option awards during the three monthsended March 31, 2005 and 2004.

Share option awards granted in or before January 2003for services provided before January 1, 2003, if not subsequentlymodified, were previously accounted for under the recognition and measurementprovisions of Accounting Principles Board Opinion No. 25, “Accounting forStock Issued to Employees”. 

22

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) March 31, 2005**

**11.**   Share-BasedCompensation (Continued)

Upon adoption of SFAS123R, compensation expense for these options that have future vestingrequirements was recognized in the condensed consolidated statement of income.

If the Company had applied thefair-value based method under SFAS 123 to recognize expense overthe relevant service period for share options that had future vestingrequirements granted in or before January 2003, net income would havedecreased for the three months ended March 31, 2004. For the three months ended March 31, 2005,there was no *pro forma* impact ascompensation expense includes the fair value as of the grant date of alloutstanding unvested share option awards granted. The following table reflects the *pro forma* effect for the three monthsended March 31, 2004:
| ** **                                                                                                                                   | ** ** | **For the Three  Months Ended  March 31, 2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| ** **                                                                                                                                   | ** ** | **(In millions)**                                                   | ** ** |
| Net income, as  reported                                                                                                                     |       |                                                                     | $          | 167 |   |   |
| Add: Share-based  employee compensation expense, net of related tax effects, included in  reported net income                                |       |                                                                     | 64         |   |   |
| Deduct: Share-based  employee compensation expense, net of related tax effects, determined under  the fair-value based method for all awards |       |                                                                     | 66         |   |   |
| Pro forma net income                                                                                                                         |       |                                                                     | $          | 165 |   |   |

 

**12.**   Employee Benefit Plans

The Company provides retirement and postretirementbenefits to its U.S. and certain non-U.S. employees through participation indefined benefit pension plans, a defined contribution plan and otherpost-retirement plans. The Company’s measurement date is September 30 forits pension and other plans. For more information on the Company’s employeebenefit plans, see Note 16 of the consolidated financial statements in Part II,Item 8 in the Annual Report on Form 10-K for the year ended December 31,2004.

The following tablepresents the pension expense by component for the Company’s defined benefit pensionplans and other post-retirement plans for the three months ended March 31,2005 and 2004:
| ** **                                    | ** ** | **For the Three  Months Ended  March 31,** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                    | ** ** | **  2005  **                               | ** ** | **  2004  ** | ** ** |
| ** **                                    | ** ** | **(In millions)**                                         | ** ** |
| **Components of Net Periodic  Benefit Cost:** |       |                                                           |       |   |   |   |   |   |   |
| Service cost                                  |       |                                                           | $          | 6 |   |   |   | $ | 7 |   |   |
| Interest cost                                 |       |                                                           | 11         |   |   |   | 11 |   |   |
| Expected return  on plan assets               |       |                                                           | (14        | ) |   |   | (13 | ) |   |
| Amortization of  loss                         |       |                                                           | 5          |   |   |   | 6 |   |   |
| Amortization of  prior service cost           |       |                                                           | —     |   |   |   | (1 | ) |   |
| Net periodic  benefit cost                    |       |                                                           | $          | 8 |   |   |   | $ | 10 |   |   |

 

23

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**CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued) March 31, 2005**

**12.**   Employee BenefitPlans (Continued)

The Company did not makepayments to the qualified pension plan during the three months ended March 31,2005 and does not expect to make any payments during the remainder of the yearending December 31, 2005. The Company made payments of $1 million toparticipants in the supplemental plan and the other post-retirement plansduring the three months ended March 31, 2005 and expects to pay a total of$4 million during the remainder of the year ending 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.

It is inherently difficultto predict the outcome of many of these matters. In presenting the condensedconsolidated 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 notlimited to, the type and nature of the litigation, claim or proceeding, theprogress of the matter, the advice of legal counsel, the Company’s defenses andits experience in similar cases or proceedings.

**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 our 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) March 31, 2005**

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

The following table setsforth the net revenues excluding net interest, net interest revenue, total netrevenues, total expenses and income before provision for income taxes andcumulative effect of a change in accounting principle and assets of the Company’ssegments.
| ** **                                             | ** ** | **Institutional  Securities** | ** ** | **Wealth & Asset  Management** | ** ** | **Total  Segments** | ** ** |
|--------------------------------------------------------|------------|-------------------------------|------------|----------------------------------------------|------------|---------------------|------------|
| ** **                                             | ** ** | **(In millions)**        | ** ** |
| **For the three months ended March 31, 2005:**    | ** ** |                          | ** ** | ** **                                   |       |                | ** ** | ** ** |   | ** ** | ** ** |
| Net revenues excluding  net interest                   |       |                          | $          | 767                                          | ** ** |                |       | $ | 289 | ** ** |   | $ | 1,056 |   |
| Net interest revenue                                   |       |                          | 567        | ** **                                   |       |                | 10         | ** ** |   | 577 |   |
| Total net revenues(1)                                  |       |                          | 1,334      | ** **                                   |       |                | 299        | ** ** |   | 1,633 |   |
| Total expenses                                         |       |                          | 1,093      | ** **                                   |       |                | 149        | ** ** |   | 1,242 |   |
| Income(2)                                              |       |                          | 241        | ** **                                   |       |                | 150        | ** ** |   | 391 |   |
| Minority interests(3)                                  |       |                          | 54         | ** **                                   |       |                | 101        | ** ** |   | 155 |   |
| Income after minority  interests(4)                    |       |                          | $          | 187                                          |       |                |       | $ | 49 |   |   | $ | 236 |   |
| **Segment  assets as of March 31, 2005****(5)**   |       |                          | $          | 284,674                                      |       |                |       | $ | 4,771 |   |   | $ | 289,445 |   |
| **For the three months ended March 31, 2004:**    |       |                          |       | ** **                                   |       |                |       | ** ** |   |   |   |
| Net revenues excluding  net interest                   |       |                          | $          | 703                                          | ** ** |                |       | $ | 230 | ** ** |   | $ | 933 |   |
| Net interest revenue                                   |       |                          | 637        | ** **                                   |       |                | 10         | ** ** |   | 647 |   |
| Total net revenues(1)                                  |       |                          | 1,340      | ** **                                   |       |                | 240        | ** ** |   | 1,580 |   |
| Total expenses                                         |       |                          | 1,095      | ** **                                   |       |                | 158        | ** ** |   | 1,253 |   |
| Income(2)                                              |       |                          | 245        | ** **                                   |       |                | 82         | ** ** |   | 327 |   |
| Minority interests(3)                                  |       |                          | 27         |                                         |       |                | 54         |   |   | 81 |   |
| Income after minority  interests(4)                    |       |                          | $          | 218                                          |       |                |       | $ | 28 |   |   | $ | 246 |   |
| **Segment assets as of December 31, 2004****(5)** |       |                          | $          | 271,203                                      |       |                |       | $ | 4,610 |   |   | $ | 275,813 |   |

----

(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 expense determined on an effectiveyield basis is included in principal transactions-net in the Company’scondensed consolidated statements of income and in net revenues excluding netinterest above.

(2)          Incomebefore provision for income taxes, minority interests and cumulative effect ata change in accounting principle.

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

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

(5)          TheInstitutional Securities and Wealth & Asset Management segment assetsinclude $510 million and $1.2 billion, respectively, as of March 31,2005 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 March 31, 2005, the relatedcondensed consolidated statements of income for the three-month periods ended March 31,2005 and 2004, and the related condensed consolidated statements of changes instockholder’s equity and cash flows for the three-month periods ended March 31,2005 and 2004. These condensed consolidated financial statements are theresponsibility of the Company’s management.

We conducted our reviews in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Areview of interim financial information consists principally of applyinganalytical procedures and making inquiries of persons responsible for financialand accounting matters. It is substantially less in scope than an auditconducted in accordance with the standards of the Public Company AccountingOversight Board (United States), the objective of which is the expression of anopinion regarding the financial statements taken as a whole. Accordingly, we donot express 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.

Asdiscussed in Note 1 to the condensed consolidated financial statements, in 2005the Company changed its method of accounting for share-based compensation.
| /s/ KPMG LLP       |   |   |
|--------------------|--------|--------|
| New York, New York |
| May 10, 2005  |

 

26

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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 and investment research. We are part of the Credit Suisse First Bostonbusiness unit, which we call CSFB, of Credit Suisse Group, or CSG, and ourresults 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 market conditionsthat include volatile trading markets, fluctuations in the volume of newissues, 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 expanded at a moderate pace duringthe first three months of 2005 despite rising oil prices that sparked inflationconcerns. Although mixed employment data raised concerns about the durabilityof the economy’s expansion, the Federal Reserve Board continued to raiseinterest rates at a measured pace but implied that interest rate increases maybe less measured in the future.

The major U.S. stock market indices posted lossesduring the three months ended March 31, 2005 reflecting rising interestrates and concerns over inflation. For the three months ended March 31,2005, the Dow Jones Industrial Average, the Standard & Poor’s 500stock index and the NASDAQ composite index decreased 3%, 3% and 8%,respectively.

The federal funds rate was 2.75% as of March 31,2005 compared to 2.25% as of December 31, 2004 as the Federal ReserveBoard increased the federal funds rate twice during the three months ended March 31,2005. Unlike 2004, when well-telegraphed and measured rate increases along withdemand for U.S. treasuries by foreign central banks kept bond yields stable,during the three months ended March 31, 2005, concerns over inflation,signals that the Federal Reserve Board may speed up the pace of rate increasesand lower demand for U.S. treasuries by foreign central banks pushed bondyields higher. The yield on the benchmark 10-year Treasury note rose from 4.22%as of December 31, 2004 to 4.49% as of March 31, 2005.

The dollar value of U.S.debt underwriting declined for the three months ended March 31, 2005compared to the three months ended March 31, 2004, as high-yield andinvestment grade new issues declined. The dollar value of U.S. equity andequity-related underwriting decreased for the three months ended March 31,2005 compared to the three months ended March 31, 2004, as decreases insecondary offerings of common stock and convertible securities issuances werepartially offset by increases in initial public offerings of common stock. Thedollar value of completed mergers and acquisitions in the United Statesincreased for the three months ended March 31, 2005 compared to the threemonths ended March 31, 2004, reflecting an increase in both the size andnumber of transactions.

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**MANAGEMENT OVERVIEW**

Despite rising interestrates and declines in the major U.S. stock market indices and the dollar valueof U.S. debt and equity underwriting activity, the Company’s net revenues forthe three months ended March 31, 2005 increased 3% compared to the threemonths ended March 31, 2004. The improved results primarily reflectedhigher revenues from fixed income trading offset in part by significantdecreases in underwriting, advisory and equity trading revenues. Revenues fromour Alternative Capital business increased, reflecting our consolidation ofcertain private equity funds, primarily under Financial Accounting StandardsBoard, or FASB, Interpretation, or FIN, No. 46 “Consolidation of VariableInterest Entities,” or FIN 46, as subsequently modified, FIN 46R. Revenues fromour private client services business decreased slightly, reflecting weakerequity capital markets. Operating expenses for the three months ended March 31,2005 decreased 1% compared to the three months ended March 31, 2004,reflecting slightly lower employee compensation and benefits expenses andslightly increased other operating expenses. Net income increased, reflectinghigher revenues and modestly lower expenses.

**CRITICALACCOUNTING POLICIES AND ESTIMATES**

In order to prepare the condensed consolidatedfinancial statements in accordance with accounting principles generallyaccepted in the United States of America, or U.S. GAAP, we must make estimatesand assumptions based on judgment and available information. The reportedamounts of assets and liabilities and revenues and expenses are affected bythese estimates and assumptions. Actual results could differ from theseestimates, 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, 2004and Note 1 of the condensed consolidated financial statements in Part I,Item 1. 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.

**FairValue**

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 beobjective, as is the case for exchange-traded instruments, for whichquoted prices in price-efficient and liquid markets generally exist, oras is the case where a financial instrument’s fair value is derived fromactively quoted prices or pricing parameters or alternative pricing sourceswith a reasonable level of price transparency. For financial instruments thattrade infrequently and have little price transparency, fair value may besubjective and require varying degrees of judgment depending on liquidity,concentration, uncertainty of market factors, pricing assumptions and otherrisks affecting the specific instrument. In such circumstances, valuation isbased on management’s best estimate of fair value. In addition, valuation offinancial instruments ordinarily based on quoted prices may be distorted intimes 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 

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and measured on a reliablebasis. The Company bases fair value on observable market prices or market-basedparameters whenever possible. In the absence of observable market prices ormarket-based parameters in an active market or from comparable markettransactions, or other observable data supporting fair value based on a modelat the inception of a contract, fair value is based on the transaction price. Controlprocesses are designed to ensure that the valuation approach is appropriate andthe 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-terminvestments. The table below presents the carrying value of our cash products,derivatives contracts and private equity and other long-term investments as of March 31,2005 and December 31, 2004. Included in cash products are commercialmortgage whole loans, which are carried at the lower of the aggregate cost orfair value, and certain residential mortgage whole loans, which are carried atthe lower of the cost or fair value.
| ** **                                      | ** ** | **As of March 31, 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                                   |       |                                          | $          | 102,179                                                       |       |   |   | $ | 39,809 |   |   |   | $ | 96,097 |   |   |   | $ | 28,402 |   |   |
| Derivatives  contracts                          |       |                                          | 4,348      |                                                          |       |   | 2,840 |   |   |   | 3,663 |   |   |   | 2,295 |   |   |
| Private equity  and other long-term investments |       |                                          | 3,119      |                                                          |       |   | — |   |   |   | 3,127 |   |   |   | — |   |   |
| Total                                           |       |                                          | $          | 109,646                                                       |       |   |   | $ | 42,649 |   |   |   | $ | 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, most mortgage-backedsecurities and listed equities.

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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, distresseddebt securities, mortgage loans, certain mortgage-backed and asset-backedsecurities, certain collateralized debt obligations, or CDOs, and equitysecurities that are not publicly traded. The techniques used todetermine fair value for these instruments are based on the type of product.Some of these valuation techniques require us to exercise a substantial amountof judgment, for example, in determining the likely future cash flows ordefault recovery on distressed debt instruments or asset-backed obligations orthe likely impact of country or market risk on various investments. Valuationtechniques for certain of these products are described more 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 and commercial mortgage loans that are either purchased ororiginated with the intent to securitize or sell. For residential mortgageloans, valuations are based on pricing factors specific to loan level attributes,such as loan-to-value ratios, current balance and liens. The commercial realestate loans are valued using origination spreads, incorporating loan-to-valueratios, debt service coverage ratios, geographic location, prepaymentprotection and current yield curves. In addition, current written offers orcontract prices are considered in the valuation process.

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 employing prepayment scenarios and Monte Carlo simulations.

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.

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*DerivativesContracts*

Ourderivatives contracts consist of exchange-traded and OTC derivatives, and thefair value of these as of March 31, 2005 and December 31, 2004 was asfollows:
| ** **      | ** ** | **As of March 31, 2005** | ** ** | **As of December 31, 2004** | ** ** |
|-----------------|------------|----------------------------------------------|------------|-------------------------------------------------|------------|
| ** **      | ** ** | **Assets**                                   | ** ** | **Liabilities**                                 | ** ** | **   Assets   ** | ** ** | ** Liabilities ** | ** ** |
| ** **      | ** ** | **(In millions)**                       | ** ** |
| Exchange-traded |       | $                                            | 567        |                                            |       | $ | 453 |   |   |   | $ | 695 |   |   |   | $ | 598 |   |   |
| OTC             |       | 3,781                                        |       |                                            | 2,387      |   |   |   | 2,968 |   |   |   | 1,697 |   |   |
| Total           |       | $                                            | 4,348      |                                            |       | $ | 2,840 |   |   |   | $ | 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.Because of these uncertainties, we do not recognize a dealer profit orunrealized gain at the inception of a derivatives transaction unless the valuationunderlying the unrealized gain is evidenced by quoted market prices in anactive market, observable prices of other current market transactions or otherobservable data supporting a valuation technique in accordance with EmergingIssues Task Force Issue No. 02-3, “Issues Involved in Accounting forDerivative Contracts Held for Trading Purposes and Contracts Involved in EnergyTrading and Risk Management Activities.” As of March 31, 2005 and December 31,2004, most of the replacement values reported in our condensed consolidatedstatements of financial condition were derived using observable inputparameters. For further information on the fair value of derivatives as of March 31,2005 and December 31, 2004, see “—Derivatives—Sources and Maturities of OTCDerivatives” and Note 5 of the condensed consolidated financial statements in 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 (which include certain funds consolidated primarily underFIN 46R), funds managed by third parties and 

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direct investments. The following table sets forth thefair value of our private equity investments by category as of March 31,2005 and December 31, 2004:
| ** **                                                                                                                                                                                     | ** ** | **As of March 31, 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 $1,825 and $1,947 related to funds consolidated  primarily under FIN 46R(1) as  of March 31, 2005 and December 31, 2004, respectively) |       |                                         | $          | 2,648                                           |       |   |   | 85 | % |   |   | $ | 2,670 |   |   |   | 85 | % |   |
| Funds managed by  third parties                                                                                                                                                                |       |                                         | 455        |                                            |       |   | 14 |   |   |   | 442 |   |   |   | 14 |   |   |
| Direct  investments                                                                                                                                                                            |       |                                         | 16         |                                            |       |   | 1 |   |   |   | 15 |   |   |   | 1 |   |   |
| Total                                                                                                                                                                                          |       |                                         | $          | 3,119                                           |       |   |   | 100 | % |   |   | $ | 3,127 |   |   |   | 100 | % |   |

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(1)          For more information onthe funds consolidated primarily under FIN 46R as of March 31, 2005 and December 31,2004, see Note 3 of the condensed consolidated financial statements in Part I,Item 1.

*CSFB-Managed Funds.  *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 March 31, 2005 and December 31, 2004, approximately7% and 10%, respectively, of CSFB-managed fund investments, excluding privateequity funds that were consolidated primarily under FIN 46R, were publicsecurities. The fair value of our investments in CSFB-managed funds is based onour valuation or, in the case of funds of funds, valuations received from theunderlying fund manager and reviewed by us.

*Funds Managed by Third Parties.  *Fundsmanaged by third parties are investments by CSFB as a limited partner in a fundmanaged by an external fund manager. The fair value of these funds is based onthe valuation received from the general partner of the fund and reviewed by us.

*DirectInvestments.  *Direct investments are generally debt andequity securities that are not made through or “side-by-side” with CSFB-managedfunds and consist of public and private securities. These investments arepriced in accordance with the procedures for CSFB-managed funds. As of March 31,2005 and December 31, 2004, approximately 29% and 22%, respectively, ofdirect investments were public securities.

**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,management considers projected future taxable income, the scheduled reversal ofdeferred tax liabilities and tax planning strategies.

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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 or consideredrealizable, and would require a corresponding adjustment to the valuationallowance.

As of March 31, 2005and December 31, 2004, we had deferred tax assets resulting from temporarydifferences that could reduce taxable income in future periods. The condensedconsolidated statements of financial condition as of March 31, 2005 and December 31,2004 include deferred tax assets of $1.5 billion and $1.6 billion,respectively, and deferred tax liabilities of $450 million and$438 million, respectively. Due to uncertainty concerning our ability togenerate the necessary amount and mix of state and local taxable income infuture periods, we maintained a valuation allowance against our deferred stateand local tax assets in the amount of $28 million and $32 million asof March 31, 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 for income taxes. Althoughthe outcome of any dispute is uncertain, management believes that it hasappropriately accrued for any unfavorable outcome.

**Litigation Contingencies**

From time to time, we are involved in a variety oflegal, regulatory and arbitration matters in connection with the conduct of ourbusiness. It is inherently difficult to predict the outcome of many of thesematters, particularly those cases in which the matters are brought on behalf ofvarious classes of claimants, seek damages of unspecified or indeterminateamounts or involve novel legal claims. In presenting our condensed consolidatedfinancial statements, management makes estimates regarding the outcome oflegal, regulatory and arbitration matters and takes a charge to income whenlosses with respect to such matters are probable and can be reasonablyestimated. Charges, other than those taken periodically for cost of defense,are not established for matters when losses cannot be reasonably estimated. Estimates,by their nature, are based on judgment and currently available information andinvolve a variety of factors, including, but not limited to, the type andnature of the litigation, claim or proceeding, the progress of the matter, theadvice of legal counsel and other advisers, our defenses and our experience insimilar cases or proceedings. For a discussion of legal proceedings, see “LegalProceedings” in Part II, Item 1.

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**RESULTS OF OPERATIONS**

Thefollowing table sets forth a summary of our financial results:
| ** **                                                                                                               | ** ** | **For the Three  Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **2005**                                                       | ** ** | **2004** | ** ** |
| ** **                                                                                                               | ** ** | **(In millions)**                                         | ** ** |
| Total net  revenues                                                                                                      |       | $                                                              | 1,633      |   | $ | 1,580 |   |
| Total expenses                                                                                                           |       | 1,242                                                          |       | 1,253 |   |
| Income before  provision for income taxes, minority interests and cumulative effect of  a change in accounting principle |       | 391                                                            |       | 327 |   |
| Provision for  income taxes                                                                                              |       | 66                                                             |       | 79 |   |
| Minority  interests                                                                                                      |       | 155                                                            |       | 81 |   |
| Income before  cumulative effect of a change in accounting principle                                                     |       | 170                                                            |       | 167 |   |
| Cumulative effect  of a change in accounting principle, net of income tax expense of $3                                  |       | 6                                                              |       | — |   |
| Net income                                                                                                               |       | $                                                              | 176        |   | $ | 167 |   |

 

Substantially all of our inventory is marked to marketdaily and, therefore, the value of such inventory and our net revenues aresubject to fluctuations based on market movements. In addition, net revenuesderived from our less liquid assets may fluctuate significantly depending onthe revaluation or sale of these investments in any given period. We alsoregularly enter into large transactions as part of our proprietary and othertrading businesses, and the number and size of such transactions may subjectour net revenues to volatility from period to period.

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 is included in principaltransactions-net in the condensed consolidated statements of income.

We use derivatives and cash instruments to mitigatethe interest rate exposure associated with commercial mortgage whole loans andresale and repurchase agreements. These derivatives and cash instruments arecarried at fair value, while the commercial mortgage whole loans are carried atthe lower of aggregate cost or fair value and the resale and repurchaseagreements are carried at contract amounts. As a result, decreases in the valueof the derivatives and cash instruments, if any, are not offset by increases inthe value of the commercial mortgage whole loans until the loans are sold andincreases and decreases in the value of the derivatives and cash instruments,if any, are not offset by decreases and increases in the value of the resaleand repurchase agreements until the securities are sold or repurchased. Commercialwhole loans and resale and repurchase agreements can be a significant part ofour statement of financial condition. Therefore, our net revenues are subjectto 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 March 31, 2005 Compared to ThreeMonths Ended March 31, 2004**

The Company recorded net income of $176 million forthe three months ended March 31, 2005 compared to net income of $167million for the three months ended March 31, 2004, reflecting higher net 

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revenues and modestlylower expenses. The Company consolidates certain private equity funds primarilyunder FIN 46R, resulting in an increase in net revenues of $157 million and $81million, respectively, for the three months ended March 31, 2005 and 2004.Net income 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. Excludingthe increases attributable to the consolidation under FIN 46R of certainprivate equity funds, net revenues decreased 2%.

Total net revenues increased $53 million, or 3%, to$1.6 billion for the three months endedMarch 31, 2005, as principal transactions-net improved compared to the three months ended March 31, 2004,partially offset by decreases in investment banking and advisory, net interestrevenues, commissions and fees and other revenues. The increase in principaltransactions-net was primarily due to improved results from our fixed incometrading business and higher revenues from certain private equity fundsconsolidated primarily under FIN 46R. These increases were partially offset bylower revenues from our equity trading business. Investment banking andadvisory fees decreased due to lower debt and equity underwriting fees.Commissions were lower primarily as a result of decreased trading activity fromfixed income listed derivatives and lower revenues from convertible securities.Net interest revenues decreased primarily due to lower net interest fromstructured products as a result of higher interest rates.

Total expenses decreased$11 million, or 1%, to $1.2 billion for the three months ended March 31,2005 compared to thethree months ended March 31, 2004, as decreases in employeecompensation and benefits expenses and other operating expenses were partiallyoffset by higher professional fees. Includedin employee compensation and benefits expense was $60 million and$28 million for the three months ended March 31, 2005 and 2004,respectively, related to business activities conducted by Company employees onbehalf of CSG affiliates outside of the Company. These expenses were charged tothese affiliates and are reflected as a reduction in our other operatingexpenses. 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 before the provision forincome taxes, minority interests and cumulative effect of a change inaccounting principle.

Revenues are evaluated in the aggregate, including anassessment of trading gains and losses and the related interest income andexpense attributable to financing and hedging positions. Therefore, individualrevenue categories may not be indicative of the performance of the segmentresults.

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 changes in our incentive bonus accrual can have a significant effect on ouroperating results for a given period.

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Beginning in 2004, CSFB’sCorporate Treasury department allocated to the Company’s segments certaininterest expense primarily relating to the goodwill and intangible assets fromthe acquisition of Donaldson, Lufkin & Jenrette, Inc., or DLJ,which is recorded in the financial statements of Credit Suisse First Boston, Inc.,the Company’s direct parent, or CSFBI. In addition, CSFB’s Corporate 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 other revenuesof the segments.

***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  March 31,** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2005**                                                       | ** ** | **2004** | ** ** |
| ** **                                      | ** ** | **(In millions)**                                         | ** ** |
| Revenues:                                       |       |                                                           |       |   |   |
| Principal transactions-net                      |       | $                                                              | 202        |   | $ | (58 | ) |
| Investment banking and advisory                 |       | 290                                                            |       | 454 |   |
| Commissions                                     |       | 264                                                            |       | 287 |   |
| Interest and dividends, net of interest expense |       | 567                                                            |       | 637 |   |
| Other                                           |       | 11                                                             |       | 20 |   |
| Total net revenues                              |       | 1,334                                                          |       | 1,340 |   |
| Total expenses                                  |       | 1,093                                                          |       | 1,095 |   |
| Income(1)                                       |       | 241                                                            |       | 245 |   |
| Minority interests(2)                           |       | 54                                                             |       | 27 |   |
| Income after  minority interests(3)             |       | $                                                              | 187        |   | $ | 218 |   |

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

(2)          Represents minorityinterest revenues related to the Company’s consolidation of certain privateequity funds primarily under FIN 46R, net of related operating expenses.

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

*Three Months Ended March 31,2005 Compared to Three Months Ended March 31,2004*

The InstitutionalSecurities segment recorded income after minority interests of$187 million for the three months endedMarch 31, 2005 compared to $218 million for the three months ended March 31, 2004.Total net revenues decreased $6 million, or less than 1%, to$1.3 billion for the three months endedMarch 31, 2005, reflecting decreases in Investment banking revenuesoffset by increases in Trading revenues and the consolidation of certainprivate equity funds primarily under FIN 46R, which resulted in 

36

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anincrease in net revenues of $55 million and $27 million for the three monthsended March 31, 2005 and 2004, respectively. See Note 3 of the condensedconsolidated financial statements in Part I, Item 1 for more information. Excludingthe increases attributable to the consolidation primarily under FIN 46R ofcertain private equity funds, net revenues decreased $34 million, or 3%,for the three months ended March 31, 2005 compared to the three monthsended March 31, 2004.

***Investment Banking***

Thefollowing table sets forth the Investment Banking revenues for theInstitutional Securities segment:
| ** **                | ** ** | **For the Three  Months Ended  March 31,** | ** ** |
|---------------------------|------------|----------------------------------------------------------------|------------|
| ** **                | ** ** | **2005**(1)                                                    | ** ** | **2004**(1) | ** ** |
| ** **                | ** ** | **(In millions)**                                         | ** ** |
| Debt underwriting         |       |                                                           | $          | 133 |   |   |   | $ | 228 |   |   |
| Equity  underwriting      |       |                                                           | 77         |   |   |   | 139 |   |   |
| Total underwriting        |       |                                                           | 210        |   |   |   | 367 |   |   |
| Advisory and  other fees  |       |                                                           | 80         |   |   |   | 87 |   |   |
| Total Investment  Banking |       |                                                           | $          | 290 |   |   |   | $ | 454 |   |   |

----

(1)          Revenuesreflect the allocation of certain net revenues and interest expense from CSFB’sCorporate Treasury department to Investment Banking. For the three months endedMarch 31, 2005 and 2004, the amount was less than $1 million ofexpenses. See “—Results bySegment” above.

*Three Months Ended March 31,2005 Compared to Three Months Ended March 31,2004*

Investment Bankingrevenues decreased 36% to $290 million, reflecting significant declines in debtand equity underwriting and advisory and other fees. For the three months endedMarch 31, 2005, debt underwriting revenues decreased 42% compared to thethree months ended March 31, 2004 to $133 million, primarily due tolower underwriting revenues from asset-backed, commercial mortgage-backed andhigh-yield securities. Asset-backed securities underwriting declined reflectinga highly competitive environment. The decline in commercial mortgage-backedsecurities reflects the industry-wide decline in mortgage-backed new issues. Underwritingrevenues from high-yield debt and investment grade new issuance revenues alsodeclined due to lower volume. Equity underwriting revenues decreased 45% to$77 million reflecting a decrease in our initial public offering andsecondary new issuance volumes. Advisory and other fees decreased 8% to$80 million reflecting lower fees from restructurings and structuredproducts and flat mergers and acquisition fees.

***Trading***

In evaluating the performance of its Tradingactivities, the Company aggregates principal transactions, commissions and netinterest 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.

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Thefollowing table sets forth net Trading revenues of the Institutional Securitiessegment:
| ** **    | ** ** | **For the Three  Months Ended  March 31,** | ** ** |
|---------------|------------|----------------------------------------------------------------|------------|
| ** **    | ** ** | **2005**(1)                                                    | ** ** | **2004**(1) | ** ** |
| ** **    | ** ** | **(In millions)**                                         | ** ** |
| Fixed Income  |       |                                                           | $          | 623 |   |   |   | $ | 466 |   |   |
| Equity        |       |                                                           | 240        |   |   |   | 347 |   |   |
| Total Trading |       |                                                           | $          | 863 |   |   |   | $ | 813 |   |   |

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(1)          Revenuesreflect the allocation of certain net revenues and interest expense from CSFB’sCorporate Treasury department to Trading. For the three months ended March 31,2005 and 2004, the amount was $80 million and $21 million of expenses,respectively. See “—Resultsby Segment” above.

*Three Months Ended March 31,2005 Compared to Three Months Ended March 31,2004*

Total net trading revenues for the InstitutionalSecurities segment increased $50 million, or 6%, to $863 million for the three monthsended March 31, 2005 compared to the three months ended March 31, 2004,due to increases in fixed income net trading revenues partially offset by lowerequity net trading revenues.

Fixed income net trading revenues increased 34% to$623 million reflecting significantly improved results in structured productsand interest rate products. The increase in structured products net tradingrevenues was due to higher revenues from residential mortgages, otherasset-backed products and commercial mortgages. Revenues from interest rateproducts reflected gains on derivatives that hedged certain resale andrepurchase agreements. These increases were partially offset by lower revenuesfrom credit products, primarily high-yield, which reflected an industry-widedecrease in volume, and an increase in interest expense allocated by CSFB’sCorporate Treasury department to our Trading business.

Equity net tradingrevenues decreased 31% to $240 million primarily due to lower revenuesfrom convertible securities as a result of lower trading volumes reflectingreduced liquidity, low volatility and widened spreads and lower revenues fromproprietary trading. These decreases were partially offset by growth in ourprime services business.

***Other Institutional Securities***

*Three Months Ended March 31,2005 Compared to Three Months Ended March 31,2004*

Other InstitutionalSecurities revenues primarily consist of revenues from certain separatelymanaged private equity and distressed assets. Other Institutional Securitiesrevenues for the three months ended March 31, 2005 also reflect a $59million increase in the credit that offsets allocations by CSFB’s CorporateTreasury department to our Investment Banking and Trading businesses of certaininterest expense and revenues. Total revenues from Other InstitutionalSecurities increased $108 million to $181 million during the three months endedMarch 31, 2005 compared to the three months ended March 31, 2004,reflecting the consolidation of certain private equity funds primarily underFIN 46R which resulted in an increase in net revenues of $55 million and $27million, respectively. Net income was unaffected by the consolidation ofprivate equity funds as offsetting minority interests and related operatingexpenses were recorded in the condensed consolidated statements of income. Excludingthe revenues attributable to the consolidation under FIN 46R of certain privateequity funds, Other Institutional Securities revenues increased $80 million,primarily reflecting an increase in the offsetting credit described above andgains from certain separately managed real estate assets. See Note 3 of thecondensed consolidated financial statements in Part I, Item 1 for moreinformation.

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***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.

Thefollowing table sets forth certain financial information of the Company’sWealth & Asset Management segment:
| ** **                                      | ** ** | **For the Three  Months Ended  March 31,** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2005**                                                       | ** ** | **2004** | ** ** |
| ** **                                      | ** ** | **(In millions)**                                         | ** ** |
| Revenues:                                       |       |                                                           |       |   |   |
| Principal transactions-net                      |       | $                                                              | 165        |   | $ | 121 |   |
| Investment banking and advisory                 |       | 31                                                             |       | 20 |   |
| Asset management and other fees                 |       | 87                                                             |       | 87 |   |
| Interest and dividends, net of interest expense |       | 10                                                             |       | 10 |   |
| Other                                           |       | 6                                                              |       | 2 |   |
| Total net revenues                              |       | 299                                                            |       | 240 |   |
| Total expenses                                  |       | 149                                                            |       | 158 |   |
| Income(1)                                       |       | 150                                                            |       | 82 |   |
| Minority interests(2)                           |       | 101                                                            |       | 54 |   |
| Income after  minority interests(3)             |       | $                                                              | 49         |   | $ | 28 |   |

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

(2)          Represents minorityinterest net revenues related to the Company’s consolidation of certain privateequity funds primarily under FIN 46R, net of related operating expenses.

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

*Three Months Ended March 31,2005 Compared to Three Months Ended March 31,2004*

The Wealth & Asset Management segmentrecorded income after minority interests of $49 million for the threemonths ended March 31, 2005 compared to $28 million for the three monthsended March 31, 2004. Total net revenues increased $59 million to$299 million for the three months ended March 31, 2005, reflecting theconsolidation of certain private equity funds primarily under FIN 46R whichresulted in an increase in net revenues of $102 million and $54 million for thethree months ended March 31, 2005 and 2004, respectively. 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 theeffects of the consolidation of certain private equity funds, total netrevenues increased $11 million, or 6%, reflecting increased placement fees fromour private funds business.

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***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  March 31,** | ** ** |
|-------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                | ** ** | ** 2005**(1)                                              | ** ** | **2004** | ** ** |
| ** **                                | ** ** | **(In millions)**                                         | ** ** |
| Alternative Capital                       |       |                                                           | $          | 236 |   |   | $ | 179 |   |
| Private Client Services                   |       |                                                           | 55         |   |   | 61 |   |
| Other                                     |       |                                                           | 8          |   |   | — |   |
| Total Wealth &  Asset Management |       |                                                           | $          | 299 |   |   | $ | 240 |   |

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(1)          Revenuesreflect the allocation of certain net revenues and interest expense from CSFB’sCorporate Treasury department to Alternative Capital and Private ClientServices. For the three months ended March 31, 2005, the amount was$6 million of expenses. See “—Results by Segment” above.

*Three Months Ended March 31,2005 Compared to Three Months Ended March 31,2004*

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 $57 millionto $236 million for the three months ended March 31, 2005, reflecting theconsolidation of certain private equity funds primarily under FIN 46R whichresulted in an increase in net revenues of $102 million and $54 millionfor the three months ended March 31, 2005 and 2004, respectively. 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. Excludingthe effect of the consolidation of certain private equity funds, total netrevenues increased $9 million, or 7%, reflecting increased placement fees fromour private funds business.

Revenues for Private Client Services decreased 10% to$55 million primarily due to lower equity capital markets revenues.

Other revenues increasedto $8 million compared to the three months ended March 31, 2004,reflecting a credit of $6 million thatoffsets allocations by CSFB’s Corporate 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.

The following table setsforth employee compensation and benefits expenses, other expenses and totalexpenses of the Company:
| ** **                         | ** ** | **For the Three  Months Ended  March 31,**                   | ** ** |
|------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                         | ** ** | **      2005      ** | ** ** | **      2004      ** | ** ** |
| ** **                         | ** ** | **(In millions)**                                                           | ** ** |
| Employee compensation and benefits |       |                                                                             | $          | 947 |   |   |   | $ | 963 |   |   |
| Other expenses                     |       |                                                                             | 295        |   |   |   | 290 |   |   |
| Total expenses                     |       |                                                                             | $1,242     |   |   |   | $1,253 |   |   |

 

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*Three Months Ended March 31,2005 Compared to Three Months Ended March 31,2004*

Total expenses decreased $11 million, or 1%, to $1.2billion for the three months ended March 31,2005 compared to the three months ended March 31,2004, as decreases in employee compensation and benefits expenses and otheroperating expenses were partially offset primarily by higher professional fees.The decrease in employee compensation and benefits expenses reflects loweraccruals for incentive compensation and certain deferred compensation plans. Thesedecreases were partially offset by increases in share-based compensation, basesalaries and severance. Included in employeecompensation and benefits expense was $60 million and $28 million forthe three months ended March 31, 2005 and 2004, respectively, related to businessactivities conducted by Company employees on behalf of CSG affiliates outsideof the Company. These expenses were charged to these affiliates and arereflected as a reduction in our other operating expenses. See Notes 1and 11 of the condensed consolidated financial statements in Part I, Item1 for more information.

Other expenses consistprincipally of occupancy and equipment rental; brokerage, clearing and exchangefees; communications; professional fees; merger-related costs ofretention awards and all other operating expenses. Other expenses increased 2%for the three months ended March 31, 2005 compared to the three monthsended March 31, 2004, primarily as a result of increases in professionalfees, reflecting expansion of our mortgage business, and increased occupancyand equipment rental, brokerage, clearing and exchange fees and communicationsexpenses due to increased business activity. These increases were partiallyoffset by decreases in other operating expenses, which reflect higher affiliateservice fees (including the charge to affiliates of compensation expense) thatare treated as a reduction in other operating expenses, and merger-relatedexpenses due to the completion of retention awards in 2004. Excluding thecharges to affiliates for compensation expense, other operating expensesincreased 12%.

**Provision for Taxes**

*Three Months Ended March 31,2005 Compared to Three Months Ended March 31,2004*

The provision for income taxes for the three monthsended March 31, 2005 and 2004 was $66 million and $79 million,respectively. Excluded from the provision for income taxes for the three monthsended March 31, 2005 was an income tax expense of $3 million relatedto the Company’s adoption of Statement of Financial Accounting Standards, orSFAS, No. 123, “Accounting for Stock-Based Compensation,” as amended bySFAS 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 24.2% for the three months ended March 31,2004 to a provision of 16.9% for the three months ended March 31, 2005.The decrease in the effective tax rate was due primarily to an increase innon-taxable revenues from certain private equity funds consolidated under FIN46R.

**Share-based Compensation**

The Company has early adopted SFAS 123R as of January 1,2005, using the modified prospective method. The Company had previously adoptedthe recognition provisions of SFAS 123 effective January 2003.

During the three monthsended March 31, 2005, the Company recorded an after-tax gain of $6 millionin the condensed consolidated statement of income as cumulative effect of achange in accounting principle to reverse the expense for awards previouslyrecognized on all outstanding unvested awards that are not expected to vest. Fornew grants after January 1, 2005, forfeitures will be included in theinitial estimate of compensation expense at the grant date.

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**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. CSFB’s Capital Allocation and Risk Management Committee, or CARMC,has primary oversight responsibility for these functional disciplines. CARMCperiodically reviews and approves our liquidity management policies and targetsand reviews our liquidity position and other key risk indicators. The CorporateTreasury department is responsible for the day-to-day management ofcapital, liquidity and funding, as well as relationships with creditor banksand 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 FirstBoston, a Swiss bank. Consequently, our liquidity management structure operatesat two levels, 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 theunsecured capital markets, we have cash and liquid assets sufficient to repaymaturing liabilities for a minimum period of one year. When assessing theamount of cash and liquid assets, we take account of the regulatoryrestrictions that limit the amount of cash that could be distributed upstreamby our principal broker-dealer subsidiaries, Credit Suisse First Boston LLC, orCSFB LLC, and Credit Suisse First Boston Capital LLC, or CSFB Capital LLC,which hold over 85% of our consolidated assets.

Second, our regulatedsubsidiaries have access to unsecured funding from Credit Suisse First Boston,the “Bank Franchise,” as well as secured funding via the repurchase andsecurities lending markets. Historically, Credit Suisse First Boston’s bankdeposit base has proven extremely stable and is comprised of a diversifiedcustomer base, including retail deposits, accessed via its sister Swiss bank,Credit Suisse, as well as wholesale and institutional deposits accesseddirectly by Credit Suisse First Boston. In a stressed liquidity environment,our broker-dealers would directly access the secured funding markets to replaceunsecured borrowings from Credit Suisse First Boston.

**Balance Sheet and Funding**

The majority of our assets are held in ourbroker-dealer subsidiaries and comprise a substantial portion of the Bank Franchise.These assets—principally trading inventories in our Institutional Securitiesbusiness—are funded by a combination of collateralized short-term borrowings,which include securities sold under agreements to repurchase and securitiesloaned, as well as unsecured loans from Credit Suisse First Boston, 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.Collateralized receivables consist primarily of securities purchased underagreements to resell and securities borrowed, both of which are primarily securedby U.S. government and agency securities and marketable corporate debt andequity securities. 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 First Boston’s borrowings in the wholesale andinstitutional deposit markets, as well as from its Swiss bank affiliate, CreditSuisse, which has access to retail deposits.

Assets not funded by CSFB’s Bank Franchise includeless liquid 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, with long-termborrowings that we issue directly to the market, and stockholder’s equity.

Short-term funding is generally obtained at ratesrelated to the Federal Funds rate, LIBOR or other money market indices, whilelong-term funding is generally obtained at fixed and floating rates related toU.S. Treasury securities or LIBOR, depending upon prevailing market conditions.We continually aim to broaden our funding base by geography, investor andfunding 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 March 31, 2005 and December 31,2004, our total assets were $289.4 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 highlyliquidity event sensitive such that we believe access to these markets could bequickly diminished. Conversely, the Bank Franchise’s retail and institutionaldeposit 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 CSFB affiliated operating entities that are notconsolidated under the Company. These items, which are taken into account inour liquidity planning for the Bank Franchise, include:

·       creditrating-related collateralization requirements (CSFB’s derivatives business isprimarily conducted in Credit Suisse First Boston International);

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

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

The Bank Franchise maintains a large secondary sourceof liquidity, principally through CSFB’s principal broker-dealers andother regulated operating entities. The Bank Franchise has historically beenable 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 March 31, 2005, we estimate that theNon-Bank Franchise held cash, other liquidity reserves and marginable assets,net of haircuts, of approximately $6.4 billion versus estimated maturingobligations and commitments out to one year of $4.0 billion. Also, as of March 31,2005, we estimate that the Bank Franchise held cash, other liquidity reservesand marginable assets, net of haircuts, of approximately $98 billion versusestimated maturing obligations, commitments and contingent funding requirementsout to 120 days of $76 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 aliquidity crisis, a meeting of the Liquidity Crisis Committee would be convenedby Corporate Treasury to activate the contingency plan. The Liquidity CrisisCommittee’s membership includes senior business line, funding and financedepartment management, and this committee would meet frequently throughout thecrisis to ensure our plans are executed.

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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 First Boston), property, goodwill andintangibles, deferred tax assets, private equity and other long-terminvestments.

Our cash capital as of March 31,2005 totaled $36.6 billion compared with $36.9 billion as of December 31,2004. The decrease in cash capital of $0.3 billion was primarily due to a netredemption of long-term debt during the first quarter of 2005. As of March 31,2005, cash capital was substantially in excess of our cash capitalrequirements.

**ContractualObligations and Commitments**

Thefollowing table sets forth future cash payments on our contractual obligationspursuant to long-term borrowings and operating leases as of March 31,2005:
| ** **                    | ** ** | **Contractual Obligations  Expiration Per Period** | ** **   |
|-------------------------------|------------|-------------------------------------------------------------------|--------------|
| ** **                    | ** ** | **Less than  1 year**                                   | ** **   | **1-3  years** | ** ** | **4-5  years** | ** ** | **Over  5 years** | ** ** | **Total** | ** ** |
| ** **                    | ** ** | **(In millions)**                                            | ** **   |
| Long-term borrowings          |       |                                                              | $ 1,647 |   |   | $ 8,965 |   | $ 4,971 |   | $ 11,266 |   | $ 26,849 |   |
| Operating leases              |       |                                                              | 154          |   |   | 290 |   | 265 |   | 1,050 |   | 1,759 |   |
| Total contractual obligations |       |                                                              | $ 1,801 |   |   | $ 9,255 |   | $ 5,236 |   | $ 12,316 |   | $ 28,608 |   |

 

Our long-term borrowings are unsecured. As of March 31,2005, the weighted average maturity of our long-term borrowings wasapproximately 5.5 years. Our lease obligations are primarily for our principaloffices in New York City and other locations. The operating lease obligationsin the table above include $4 million in contractual obligations relatedto certain information technology, equipment leases and software licenses andexclude $341 million in sublease revenue and executory costs such asinsurance, maintenance and taxes of $554 million. We had no capital leaseor purchase obligations as of March 31, 2005.

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 arrangementsdiscussed in “—Off-Balance Sheet Arrangements.” The following table sets forth certain of ourlong-term commitments, including the current portion as of March 31, 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)     |       |                                                | $        — |   |   | $   25 |   |   | $ — |   |   |   | $  — |   |   |   | $       25 |   |   |
| Private equity(2)                 |       |                                                | 169                                                     |   |   | 129 |   |   | 57 |   |   |   | 581 |   |   |   | 936 |   |   |
| Forward agreements(3)             |       |                                                | 10,048                                                  |   |   | — |   |   | — |   |   |   | — |   |   |   | 10,048 |   |   |
| Unfunded mortgage  commitments(4) |       |                                                | —                                                  |   |   | 51 |   |   | — |   |   |   | — |   |   |   | 51 |   |   |
| Total commitments                 |       |                                                | $ 10,217                                           |   |   | $ 205 |   |   | $ 57 |   |   |   | $ 581 |   |   |   | $ 11,060 |   |   |

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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)          Represents commitmentsto invest in various partnerships that make private equity and relatedinvestments in various portfolio companies or other private equity funds.

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(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, predominantly at variable interest rates, inconnection with certain commercial mortgage activities.

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:
| ** **                | ** ** | **  March 31,    2005** | ** **                               | ** December 31,   2004** | ** ** |
|---------------------------|------------|--------------------------------------------------|------------------------------------------|-----------------------------------------|------------|
| ** **                | ** ** | **(In millions)**                           | ** **                               |
| Bank loans                |       |                                             | $      388 |                                    |       |   | $      350 |   |   |
| Commercial paper          |       |                                             | 1,371                                    |                                    |       |   | 1,249 |   |   |
| Loans from  affiliates(1) |       |                                             | 13,983                                   |                                    |       |   | 20,085 |   |   |
| Total                     |       |                                             | $ 15,742                            |                                    |       |   | $ 21,684 |   |   |

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(1)          Wehave significant financing transactions with Credit Suisse First Boston andcertain of its subsidiaries and affiliates. See “—Related Party Transactions” and Note 2 of thecondensed consolidated financial statements in Part I, Item 1.

**Credit Facilities**

As part of our liquiditymanagement strategy, we moved from syndicated unsecured facilities to bilateralsecured facilities. As of March 31, 2005, CSFB LLC maintained with thirdparties four 364-day committed secured revolving credit facilities totaling$2.0 billion, with one facility for $500 million maturing in July 2005,one facility for $500 million maturing in November 2005, one facility for$500 million maturing in February 2006 and one facility for $500million maturing in March 2006. We expect to renew these facilities asthey mature. These facilities require CSFB LLC to pledge unencumberedmarketable securities to secure any borrowings. Borrowings under each facilitywould bear interest at short-term rates related to either the Federal Fundsrate or LIBOR and can be used for general corporate purposes. The facilitiescontain customary covenants that we believe will not impair our ability toobtain funding. As of March 31, 2005, no borrowings were outstanding underany of the facilities. We may from time to time enter into additional securedrevolving credit facilities as part of 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 May 10,2005 $11.5 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 May 10, 2005 $1.2 billion availablefor issuance.

For the three months endedMarch 31, 2005, we issued $3 million in structured notes and we repaidapproximately $1.1 billion of medium-term notes, $500 million ofsenior notes and $55 million of structured notes.

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**Credit Ratings**

Our access to the debt capital markets and ourborrowing costs depend significantly on our credit ratings. These ratings areassigned by agencies, which may raise, lower or withdraw their ratings or placeus on “credit watch” with positive or negative implications at any time. Creditratings are important to us when competing in certain markets and when seekingto engage in longer-term transactions, including OTC derivatives. We believeagencies consider several factors in determining our credit ratings, includingearnings performance, business mix, market position, financial strategy, levelof capital, risk management policies and practices and management team, and ouraffiliation with CSFB and CSG, in addition to the broader outlook for thefinancial 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 and collateralizedfinancing contracts. This, in turn, could reduce our liquidity and negativelyimpact our operating results and financial position. Our liquidity planningtakes into consideration those contingent events associated with a reduction inour credit ratings.

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 March 31,2005.

As of May 10,2005, 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 |   |

 

**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 the SEC and theCFTC. Under the alternative method permitted by SEC Rule 15c3-1, therequired net capital may not be less than the greater of 2% of aggregate debitbalances arising from customer transactions or 4% of the funds required to besegregated pursuant 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 March 31, 2005, the CFTC’s minimum net capital requirementwas greater than the SEC’s minimum net capital requirement. As of March 31,2005, CSFB LLC’s net capital of approximately $2.8 billion was 40.8% ofaggregate debit balances and in excess of the CFTC’s minimum requirement byapproximately $2.6 billion.

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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 March 31, 2005, CSFB Capital LLC’s net capital of $302 million,allowing for market and credit risk exposure of $82 million and$43 million, respectively, was in excess of the minimum net capitalrequirement by $282 million. CSFB Capital LLC operates pursuant to the(k)(2)(ii) exemptive provisions of Rule 15c3-3 of the Exchange Act,and, accordingly, all customer transactions are cleared through CSFB LLC on afully disclosed basis.

As of March 31, 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 a wholly owned subsidiary of CSG, a globalfinancial institution that may choose to allocate cash among its subsidiariesfor reasons independent of the Company’s activities. As a result, we believethat traditional cash flow analysis is not a particularly useful method toevaluate our liquidity position as discussed above. Cash flow analysis may,however, assist in highlighting certain macro trends and strategic initiativesin our business.

***For the Three Months ended March 31, 2005***

Cash and cash equivalents decreased $262 millionto $465 million as of March 31, 2005. Cash used in operatingactivities was $855 million and reflected a net increase in operating assetsand operating liabilities of $1.3 billion, which occurred in the normalcourse of operations as a result of changes in customer needs, marketconditions and proprietary trading and other strategies.

Cash of $1.9 billion was provided by investingactivities. The Company provides funding to affiliates. The Company receivedcash from its affiliates related to this funding, resulting in decreases inreceivables from parent and affiliates of $1.9 billion.

Cash used in financingactivities was $1.3 billion. This was due to increases in net collateralizedfinancing arrangements of $6.2 billion and decreases of $5.9 billionin short-term borrowings, reflecting an increase in the use of securedborrowings and repayments of $1.6 billion in long-term borrowings.

***For the Three Months ended March 31, 2004***

Cash and cash equivalents increased $595 millionto $929 million as of March 31, 2004. Cash used in operatingactivities was $16.2 billion and reflected a net increase in operatingassets and operating liabilities of $16.5 billion, which occurred in thenormal course of operations as a result of changes in customer needs, marketconditions and proprietary trading and other strategies.

Cash of $271 million was used for investingactivities. The Company provides funding to affiliates, resulting in increasesin receivables from affiliates of $174 million.

Cash provided by financingactivities was $17.0 billion. This was due to increases in net collateralizedfinancing arrangements of $8.6 billion, increases of $8.0 billion in short-termborrowings and increases of $996 million in long-term borrowings used primarilyto fund normal operating activities, provide funding to affiliates as part ofthe Company’s investing activities and to repay $626 million in long-termborrowings.

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**OFF-BALANCE SHEETARRANGEMENTS**

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 customary indemnificationsto purchasers in conjunction with the sale of assets or businesses; toinvestors in private equity funds sponsored by the firm regarding potentialobligations of employees to return amounts previously paid as carried interest;and to investors in our securities and other arrangements to provide “gross up”payments if there is a withholding or deduction because of a tax assessment orother governmental charge. From time to time, we also guarantee the obligationsof subsidiaries of CSG that are not our consolidated subsidiaries, and theseguarantees are included in the scope of the disclosure requirements of FIN No. 45,“Guarantor’s Accounting and Disclosure Requirements for Guarantees, IncludingIndirect 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 for the fair value of guaranteed obligations for guarantees issued oramended after December 31, 2002. The recognition of these liabilities didnot have a material effect on our financial position or results of operations.For disclosure of our estimable maximum payment obligations under certainguarantees and related information, see Note 8 of the condensedconsolidated financial statements in Part I, Item 1.

**Retained orContingent 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 no recourseto 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 

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theseretained interests are recognized in the condensed consolidated statements ofincome. We engage in these securitization activities to meet the needs ofclients as part of our fixed income activities, to earn fees and to sellfinancial 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 InterestEntities**

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. Theinvestors and the CDO VIE have no recourse to the Company’s assets. CSFB LLCstructures, underwrites and makes a market in these CDOs, and we may haveretained interests in these CDOs in connection with CSFB LLC’s underwriting andmarket-making activities. We engage in these CDO transactions to meet theneeds 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 March 31, 2005 and December 31, 2004, we consolidated CDO VIEsfor which we are the primary beneficiary. We also have interests in CDO VIEsthat are not required to be consolidated because we are not the primarybeneficiary.

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

**RELATED PARTYTRANSACTIONS**

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 First Bostonand certain affiliates. We generally enter into these transactions in theordinary course of business and believe that these transactions are on marketterms that could be obtained from unrelated third parties. See “—Derivatives”and Notes 2 and 5 of the condensed consolidated financial statements in Part I,Item 1 for more information.

Certain of our directors,officers and employees and those of our affiliates and their subsidiariesmaintain margin accounts with CSFB LLC and other affiliated broker-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, asprincipal, transactions involving the purchase or sale of securities from or tosuch directors, officers and employees and members of their immediate families.

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**LESS LIQUID ASSETS**

Certain of our assets,including private equity and other long-term investments, distressed securities,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 EquityActivities**

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 March 31, 2005 and December 31,2004, we had investments in private equity and other long-term investments of$3.1 billion and we had commitments to invest up to an additional$936 million as of March 31, 2005. The increase in private equity andother long-term investments reflects our consolidation primarily under FIN 46Rof certain private equity funds. See “—Critical Accounting Policies andEstimates—Fair Value” in Part I, Item 2 and Notes 1 and 4 of the condensedconsolidated financial statements in Part I, Item 1 for more information.

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

Weunderwrite, trade and hold high-yield debt, which includes distressed debt,mortgage whole loans, loan participations, certain separately manageddistressed financial instruments and other non-investment-grade financialinstruments. Due to credit considerations, liquidity of secondary tradingmarkets and vulnerability to general economic conditions, these financialinstruments and loans generally involve greater risk than investment-gradefinancial instruments. We record high-yield debt, residential mortgage wholeloans and certain separately managed distressed financial instruments at fairvalue, with the exception of certain residential mortgage whole loans and loanparticipations that are held for sale and are carried at the lower of cost orfair value. We record commercial mortgage whole loans held for sale at thelower of aggregate cost or fair value. Timing of the securitization of ourmortgage whole loan inventory will affect the size of our positions at anygiven time. The following table sets forth our positions in these instrumentsas of March 31, 2005 and December 31, 2004:
| ** **                                                   | ** ** | **March 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|--------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                                   | ** ** | **Assets**                   | ** ** | **Liabilities**                 | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **                                                   | ** ** | **(In millions)**       | ** ** |
| High-yield and  distressed debt                              |       | $                            | 1,856      |                            |       | $ | 742 |   |   | $ | 2,152 |   |   | $ | 709 |   |   |
| Mortgage whole  loans                                        |       | 17,380                       |       |                            | —     |   |   | 14,987 |   |   | — |   |   |
| Loan  participations                                         |       | 17                           |       |                            | —     |   |   | 17 |   |   | — |   |   |
| Certain  separately managed distressed financial instruments |       | 116                          |       |                            | —     |   |   | 185 |   |   | — |   |   |
| Total                                                        |       | $                            | 19,369     |                            |       | $ | 742 |   |   | $ | 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 substantially allof our exposure with respect to OTC derivatives as of March 31, 2005. Fairvalues were determined on the basis of pricing models and other valuationmethods. See “—Critical Accounting Policies and Estimates—Fair Value” and Notes5 and 8 of the condensed consolidated financial statements in Part I, Item1 for more information.
| ** **                            | ** ** | **Assets  Maturity Distribution as of March 31, 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 |       |                                                                                 | $          | 1,010 |   |   |   | $ | 471 |   |   |   | $ | 170 |   |   |   | $ | 1,026 |   |   |   | $ | 2,677 |   |   |
| Foreign exchange  risk                |       |                                                                                 | 15         |   |   |   | 25 |   |   |   | 32 |   |   |   | — |   |   |   | 72 |   |   |
| Equity price risk                     |       |                                                                                 | 96         |   |   |   | 600 |   |   |   | 77 |   |   |   | 259 |   |   |   | 1,032 |   |   |
| Total                                 |       |                                                                                 | $          | 1,121 |   |   |   | $ | 1,096 |   |   |   | $ | 279 |   |   |   | $ | 1,285 |   |   |   | $ | 3,781 |   |   |

 
| ** **                            | ** ** | **Liabilities  Maturity Distribution as of March 31, 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 |       |                                                                                      | $          | 911 | ** ** |   |   | $ | 341 | ** ** |   |   | $ | 215 | ** ** |   |   | $ | 451 | ** ** |   |   | $ | 1,918 | ** ** |   |
| Foreign exchange  risk                |       |                                                                                      | 11         | ** ** |   |   | — | ** ** |   |   | 15 | ** ** |   |   | — | ** ** |   |   | 26 | ** ** |   |
| Equity price risk                     |       |                                                                                      | 19         | ** ** |   |   | 104 | ** ** |   |   | 14 | ** ** |   |   | 306 | ** ** |   |   | 443 | ** ** |   |
| Total                                 |       |                                                                                      | $          | 941 | ** ** |   |   | $ | 445 | ** ** |   |   | $ | 244 | ** ** |   |   | $ | 757 | ** ** |   |   | $ | 2,387 | ** ** |   |

 

The followingtable sets forth as of March 31, 2005 substantially all of our exposurewith respect to OTC derivatives, by counterparty credit rating and withaffiliates.
| **Credit Rating**(1)    | ** ** | ** **             | ** ** | **March 31,  2005** | ** ** |
|------------------------------|------------|------------------------|------------|--------------------------|------------|
| ** **                   | ** ** | **(In millions)** | ** ** |
| AA+/AA                       |       |                   | $          | 2,090                    |       |   |
| AA-                          |       |                   | 10         |                     |       |
| A+/A/A-                      |       |                   | 260        |                     |       |
| BBB+/BBB/BBB-                |       |                   | 10         |                     |       |
| BB+ or lower                 |       |                   | 20         |                     |       |
| Unrated                      |       |                   | 91         |                     |       |
| Derivatives with  affiliates |       |                   | 1,300      |                     |       |
| Total                        |       |                   | $          | 3,781                    |       |   |

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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**

We enter into asubstantial number of derivatives transactions with related parties. Thefollowing table sets forth derivatives transactions with related partiesconsisting primarily of interest rate swaps, credit default swaps and foreignexchange forward contracts. The fair values of derivatives contractsoutstanding with related parties as of March 31, 2005 and December 31,2004 were as follows.
| ** **                            | ** ** | **March 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|---------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | **Assets**                   | ** ** | **Liabilities**                 | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **                            | ** ** | **(In millions)**       | ** ** |
| Interest rate and credit  spread risk |       |                         | $1,242     |                            |       |   | $934 |   |   | $1,346 |   |   | $616 |   |   |
| Foreign exchange risk                 |       |                         | 40         |                            |       |   | 8 |   |   | 45 |   |   | 18 |   |   |
| Equity price risk                     |       |                         | 18         |                            |       |   | 4 |   |   | 9 |   |   | 61 |   |   |
| Total                                 |       |                         | $1,300     |                            |       |   | $946 |   |   | $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 press releases.These forward-looking statements are not historical facts but instead representonly our belief regarding future events, many of which, by their nature, areinherently uncertain and beyond our control. Forward-looking statements aretypically identified by the use of future or conditional verbs such as “will,” “should,”“would” or “could,” and by words or phrases such as “believe,” “expect,” “intend,”“estimate” and similar expressions. By identifying these statements for you inthis manner, we are alerting you to the possibility that our actual results maydiffer, possibly materially, from the results indicated in theseforward-looking statements. We undertake no obligation to update or revise anyforward-looking statements except as otherwise required by applicable law.

**Item3: Quantitative and Qualitative Disclosures About Market Risk**

**Risk Management and Value at Risk**

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 December 31, 2004.

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***Market Risk Exposure***

*Trading portfolios*

The Company-wide trading portfolio VAR wasapproximately $40 million and $37 million as of March 31, 2005 and December 31,2004, 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 March 31, 2005**                                             | ** ** | **As of December 31, 2004** | ** ** |
| 99%, one-day VAR, in $ millions | ** ** |                                                                                     | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Interest rate and  credit spread     |       |                                                                                     | 34         | ** ** |   |   | 34 | ** ** |   |
| Equity                               |       |                                                                                     | 19         | ** ** |   |   | 15 | ** ** |   |
| Foreign exchange  rate               |       |                                                                                     | 2          | ** ** |   |   | 1 | ** ** |   |
| Commodity                            |       |                                                                                     | 1          | ** ** |   |   | — | ** ** |   |
| Diversification  benefit             |       |                                                                                     | (16        | **)** |   |   | (13 | **)** |   |
| Total                                |       |                                                                                     | 40         |   |   |   | 37 |   |   |

 

Thetable below presents minimum, maximum and average VAR by market risk component:
| ** **                           | ** ** | **Company’s Market Risk Exposures in Trading Portfolios** | ** ** |
|--------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                           | ** ** | **Three Months Ended  March 31, 2005**                                   | ** ** | **Three Months Ended  March 31, 2004** | ** ** | **Year Ended  December 31, 2004** | ** ** |
| ** **                           | ** ** | **Minimum**                                                                                  | ** ** | **Maximum** | ** ** | **Average** | ** ** | **Minimum** | ** ** | **Maximum** | ** ** | **Average** | ** ** | **Minimum** | ** ** | **Maximum** | ** ** | **Average** | ** ** |
| 99%, one-day VAR, in $ millions |       |                                                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate and credit spread      |       |                                                                                         | 33         |   |   |   | 52 |   |   |   | 42 |   |   |   | 32 |   |   |   | 49 |   |   |   | 40 |   |   |   | 25 |   |   |   | 55 |   |   |   | 39 |   |   |
| Equity                               |       |                                                                                         | 13         |   |   |   | 21 |   |   |   | 17 |   |   |   | 12 |   |   |   | 26 |   |   |   | 19 |   |   |   | 12 |   |   |   | 32 |   |   |   | 19 |   |   |
| Foreign exchange rate                |       |                                                                                         | —     |   |   |   | 4 |   |   |   | 1 |   |   |   | — |   |   |   | 3 |   |   |   | — |   |   |   | — |   |   |   | 4 |   |   |   | 1 |   |   |
| Commodity                            |       |                                                                                         | —     |   |   |   | 3 |   |   |   | 1 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Diversification benefit              |       |                                                                                         | —     | (1) |   |   | — | (1) |   |   | (16 | ) |   |   | — | (1) |   |   | — | (1) |   |   | (11 | ) |   |   | — | (1) |   |   | — | (1) |   |   | (14 | ) |   |
| Total                                |       |                                                                                         | 36         |   |   |   | 55 |   |   |   | 45 |   |   |   | 34 |   |   |   | 63 |   |   |   | 48 |   |   |   | 27 |   |   |   | 69 |   |   |   | 45 |   |   |

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(1)        As the minimum and maximum occur on different days fordifferent risk types, it is not meaningful to calculate a portfoliodiversification benefit.

The average, maximum andminimum daily trading revenue for the three months ended March 31, 2005and 2004 and for the year ended December 31, 2004 is shown below:
| ** **                                 | ** ** | **Three months ended  March 31, 2005** | ** ** | **Three months ended  March 31, 2004** | ** ** | **Year ended  December 31, 2004** | ** ** |
|--------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|--------------------------------------------------|------------|
| Daily trading revenue,  in $ millions |       |                                                       |       |                                                       |       |                                             |       |   |   |   |   |   |   |
| Average                                    |       |                                                       | 15         |                                                       |       |                                             | 16         |   |   |   | 14 |   |   |
| Maximum                                    |       |                                                       | 64         |                                                       |       |                                             | 67         |   |   |   | 67 |   |   |
| Minimum                                    |       |                                                       | (12        | )                                                          |       |                                             | (17        | ) |   |   | (17 | ) |   |

 

*Non-tradingportfolios*

We measure equity risk on non-trading positions 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 the equity markets of emerging marketnations. The estimatedimpact of equity risk on our non-trading financial instruments portfolio, whichis mainly comprised of our private equity investments, would be a decrease inthe value of the non-trading portfolio of approximately $129 million and adecrease of approximately $118 million as of March 31, 2005 and December 31,2004, 

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respectively.The estimated impact of equity risk as excludes the investments in certainprivate equity funds consolidated primarily under FIN 46R.

The interest rate risk on non-trading positions ismeasured using sensitivity analysis that estimates the potential change in thevalue of the non-trading portfolio resulting from a 50 basis point decline inthe interest rates of developed nations and a 200 basis point decline in theinterest rates of emerging market nations. The estimated impact of interestrate risk on pre-tax net income would be a decrease of approximately $12million on both March 31, 2005 and December 31, 2004.

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 zero and a decrease of approximately $1 million as of March 31, 2005 and December 31,2004, respectively.

The commodity price riskon non-trading positions is measured using sensitivity analysis that estimatesthe potential change in the value of the non-trading portfolio resulting from a20% weakening in commodity prices. The estimated impact of commodity price risk on the value of thenon-trading portfolio would be adecrease of $2 million as of March 31,2005. Previously, commodity price risk was immaterial in our non-tradingportfolio.

**Item 4: Controls and Procedures**

As of the end of the period covered by this report, anevaluation was carried out under the supervision and with the participation ofour management, including our Chief Executive Officer and Chief Financial andAccounting Officer, of the effectiveness of the design and operation of ourdisclosure controls and procedures. There are inherent limitations to theeffectiveness of any system of disclosure controls and procedures, includingthe possibility of human error and the circumvention or overriding of thecontrols and procedures. Accordingly, even effective disclosure controls andprocedures can only provide reasonable assurance of achieving their controlobjectives. Based upon and as of the date of the evaluation, our ChiefExecutive Officer and Chief Financial and Accounting Officer concluded that thedesign and operation of these disclosure controls and procedures were effectivein all material respects to provide reasonable assurance that information requiredto be disclosed in the reports we file and submit under the Exchange Act isrecorded, processed, summarized and reported as and when required. There wereno changes in our internal control over financial reporting that occurredduring the quarter ended March 31, 2005 that materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

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**PART IIOTHER INFORMATION**

**Item 1:   Legal Proceedings**

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. Thefollowing is an update of such proceedings. 

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

On March 31, 2005, the U.S. District Court forthe District of Massachusetts granted CSFB LLC’s motion to dismiss thecomplaint brought on behalf of purchasers of shares of Agilent Technologies, Inc.

On April 14, 2005,the U.S. District Court for the Southern District of New York dismissed theanalyst research-related claims brought by the plaintiff who previously filed,and then voluntarily dismissed, a similar action in Missouri state court.

**NCFE-related Litigation**

On March 31, 2005, CSFB LLC and certainaffiliates filed a motion to dismiss the action in the U.S. District Court forthe Southern District of Ohio filed by a trust created through the confirmedbankruptcy plan of National Century Financial Enterprise Inc. asserting commonlaw claims similar to those asserted in the Multidistrict Litigation cases aswell as statutory claims under the Ohio corrupt practices act, claims forprofessional negligence and claims under the U.S. Bankruptcy Code. 

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. 

**Items 2, 3 and 4:**

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

**Item 6:   Exhibits**

(a)      Exhibits
| 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. |
|-------------------|----------------------------------------------|
| May 11, 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**                                                                   |
|-------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|
|            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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