** **

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

----

 

#### **FORM 10-Q**

 

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

 

----

 

**For the nine months endedSeptember 30, 2001**

 

**Commission File Number: 1-6862**

 

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

(Exact name of registrant asspecified in its charter)

 

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

 

Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days: Yes ý No o

 

All of theoutstanding shares of common stock of the registrant, $0.10 par value, are heldby Credit Suisse First Boston, Inc.

 

 

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

**Quarterly Report on Form 10-Q forthe Nine Months Ended September 30, 2001**

 
| PART I   | FINANCIAL INFORMATION |
|----------|-----------------------|
|     | Item 1.               | Financial Statements |
|     |                  | Condensed  Consolidated Statements of Financial Condition at September 30, 2001 and  December 31, 2000 (Unaudited) |
|     |                  | Condensed  Consolidated Statements of Operations for the three and nine months ended September 30,  2001 and 2000 (Unaudited) |
|     |                  | Condensed  Consolidated Statements of Changes in Stockholders' Equity for the nine  months ended September 30, 2001 and the year ended December 31, 2000  (Unaudited) |
|     |                  | Condensed  Consolidated Statements of Cash Flows for the nine months ended  September 30, 2001 and 2000 (Unaudited) |
|     |                  | Notes  to Condensed Consolidated Financial Statements (Unaudited) |
|     | Item 2.               | Management's  Discussion and Analysis of Financial Condition and Results of Operations |
|     | Item  3.              | Quantitative  and Qualitative Disclosures about Market Risk |
|     | Item  4.              | Submission  of Matters to a Vote of Security Holders |
| Part  II | OTHER  INFORMATION    |
|     | Item 1.               | Legal Proceedings |
|     | Item 6.               | Exhibits and  Reports on Form 8–K |
|     | Signature             |   |
|          |                       |  |  |

 

CREDIT SUISSE FIRST BOSTON (USA), INC. ANDSUBSIDIARIES

CondensedConsolidated Statements of Financial Condition (Unaudited)

 

(In thousands, exceptshare data)

 
|                                                                                                                    |   | **September 30,****2001** | ** **  | **December 31,****2000** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|-------------|--------------------------|------------|
| ASSETS                                                                                                                  |   |                      |        |                     |       |
| Cash and cash equivalents                                                                                               |   | $                         | 2,062,406   |                     | $          | 2,758,390 |   |
| Cash and securities  segregated for regulatory purposes or deposited with clearing organizations                        |   | 6,013,539                 |        | 4,968,705                |       |
| Collateralized short-term  agreements:                                                                                  |   |                      |        |                     |       |
| Securities purchased under  agreements to resell                                                                        |   | 39,981,188                |        | 35,598,793               |       |
| Securities borrowed                                                                                                     |   | 68,012,250                |        | 77,304,516               |       |
| Receivables:                                                                                                            |   |                      |        |                     |       |
| Customers                                                                                                               |   | 5,031,494                 |        | 8,991,211                |       |
| Brokers, dealers and other                                                                                              |   | 20,709,704                |        | 9,206,523                |       |
| Financial instruments owned,  at value:                                                                                 |   |                      |        |                     |       |
| U.S. government and agencies  (includes securities pledged as collateral of $25,018,199 and $14,272,177,  respectively) |   | 30,851,174                |        | 25,052,071               |       |
| Corporate debt (includes  securities pledged as collateral of $7,674,425 and $6,074,305, respectively)                  |   | 9,874,616                 |        | 12,701,622               |       |
| Mortgage whole loans  (includes loans pledged as collateral of $8,078,349 and $4,136,383,  respectively)                |   | 9,326,314                 |        | 6,870,172                |       |
| Equities (includes  securities pledged as collateral of $6,681,963 and $9,325,965, respectively)                        |   | 9,134,478                 |        | 15,332,579               |       |
| Commercial paper                                                                                                        |   | 1,696,725                 |        | 236,656                  |       |
| Merchant banking investments                                                                                            |   | 870,364                   |        | 1,031,339                |       |
| Other                                                                                                                   |   | 4,665,243                 |        | 3,612,129                |       |
| Federal income taxes  receivable                                                                                        |   | 77,754                    |        | 489,790                  |       |
| Net deferred tax asset                                                                                                  |   | 1,978,815                 |        | 1,820,857                |       |
| Office facilities at cost  (net of accumulated depreciation and amortization of $638,229 and $723,365,  respectively)   |   | 775,205                   |        | 990,653                  |       |
| Goodwill                                                                                                                |   | 286,590                   |        | 312,770                  |       |
| Other assets and deferred  amounts                                                                                      |   | 7,802,625                 |        | 4,940,476                |       |
| Total Assets                                                                                                            |   | $                         | 219,150,484 |                     | $          | 212,219,252 |   |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

CREDIT SUISSE FIRST BOSTON (USA), INC. ANDSUBSIDIARIES

CondensedConsolidated Statements of Financial Condition (Unaudited)

 

(In thousands, exceptshare data)

 
|                                                                                                                                                                                                                                        |   | **September 30,****2001** | ** **  | **December 31,****2000** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|-------------|--------------------------|------------|
| LIABILITIES  AND STOCKHOLDERS' EQUITY                                                                                                                                                                                                       |   |                      |        |                     |       |
| Commercial paper and  short-term borrowings                                                                                                                                                                                                 |   | $                         | 9,199,731   |                     | $          | 20,818,494 |   |
| Collateralized short-term  financings:                                                                                                                                                                                                      |   |                      |        |                     |       |
| Securities sold under  agreements to repurchase                                                                                                                                                                                             |   | 96,551,389                |        | 71,063,703               |       |
| Securities loaned                                                                                                                                                                                                                           |   | 23,319,926                |        | 35,597,774               |       |
| Payables:                                                                                                                                                                                                                                   |   |                      |        |                     |       |
| Customers                                                                                                                                                                                                                                   |   | 12,068,011                |        | 12,118,763               |       |
| Brokers, dealers and other                                                                                                                                                                                                                  |   | 21,041,951                |        | 13,578,923               |       |
| Financial instruments sold  not yet purchased, at value:                                                                                                                                                                                    |   |                      |        |                     |       |
| U.S. government and agencies                                                                                                                                                                                                                |   | 21,252,717                |        | 21,987,370               |       |
| Corporate debt                                                                                                                                                                                                                              |   | 3,596,173                 |        | 4,115,817                |       |
| Equities                                                                                                                                                                                                                                    |   | 3,022,032                 |        | 3,421,406                |       |
| Other                                                                                                                                                                                                                                       |   | 3,236,010                 |        | 2,668,346                |       |
| Obligation to return  securities received as collateral                                                                                                                                                                                     |   | 942,535                   |        | -                        |       |
| Accounts payable and accrued  expenses                                                                                                                                                                                                      |   | 4,214,835                 |        | 7,488,068                |       |
| Other liabilities                                                                                                                                                                                                                           |   | 2,013,990                 |        | 1,397,101                |       |
| Long-term borrowings                                                                                                                                                                                                                        |   | 11,510,632                |        | 11,257,516               |       |
| Company-obligated mandatorily  redeemable trust securities of subsidiary trust holding solely debentures of  the Company                                                                                                                    |   | -                         |        | 200,000                  |       |
| Stockholders' Equity:                                                                                                                                                                                                                       |   |                      |        |                     |       |
| Preferred stock, 50,000,000  shares authorized:                                                                                                                                                                                             |   |                      |        |                     |       |
| Series A Preferred Stock, at  $50.00 per share liquidation preference (4,000,000 shares issued and  outstanding)                                                                                                                            |   | 200,000                   |        | 200,000                  |       |
| Series B Preferred Stock, at  $50.00 per share liquidation preference (3,500,000 shares issued and  outstanding)                                                                                                                            |   | 175,000                   |        | 175,000                  |       |
| Common Stock, 1,500,000,000  shares authorized:                                                                                                                                                                                             |   |                      |        |                     |       |
| CSFB (USA) Common Stock  ($0.10 par value; 500,000,000 shares authorized; 1,100 shares issued and  outstanding)                                                                                                                             |   | -                         |        | -                        |       |
| CSFB*direct* Common Stock ($0.10  par value; 500,000,000 shares authorized; 18,400,000 shares issued and  outstanding at December 31, 2000; 84,250,000 notional shares at December 31,  2000, in respect of CSFB (USA)'s retained interest) |   | -                         |        | 1,840                    |       |
| Paid–in capital                                                                                                                                                                                                                        |   | 5,792,175                 |        | 5,072,215                |       |
| Retained earnings                                                                                                                                                                                                                           |   | 1,022,799                 |        | 1,064,413                |       |
| Accumulated other  comprehensive loss                                                                                                                                                                                                       |   | (9,422                    | )           | (7,497                   | )          |
| Total stockholders' equity                                                                                                                                                                                                                  |   | 7,180,552                 |        | 6,505,971                |       |
| Total Liabilities and  Stockholders' Equity                                                                                                                                                                                                 |   | $                         | 219,150,484 |                     | $          | 212,219,252 |   |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

CREDIT SUISSE FIRST BOSTON (USA), INC. ANDSUBSIDIARIES

Condensed Consolidated Statements of Operations(Unaudited)

 

(In thousands, except share data)

 
|                                                                                                                         |   | **Three Months Ended** |     | **Nine Months Ended****,** |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|----------|----------------------------|--------|
|                                                                                                                         |   | **September 30,**      |     | **September 30**           |   |
|                                                                                                                         |   | **2001**               |     | **2000**                   |   | **2001** |   | **2000** | ** ** |
| Revenues:                                                                                                                    |   |                   |     |                       |   |   |   |   |   |
| Principal transactions-net                                                                                                   |   | $                      | 20,300   |                       | $      | 219,949 |   | $ | 1,390,101 |   | $ | 949,328 |   |
| Investment banking and  advisory                                                                                             |   | 657,343                |     | 594,865                    |   | 2,499,476 |   | 1,970,844 |   |
| Commissions                                                                                                                  |   | 354,178                |     | 308,669                    |   | 1,156,065 |   | 1,152,971 |   |
| Interest and dividend income  (net of interest expense of $2,412,140, $1,972,732, $8,746,027, and  $5,451,692, respectively) |   | 292,242                |     | 187,721                    |   | 727,247 |   | 603,633 |   |
| Other                                                                                                                        |   | 8,704                  |     | 27,995                     |   | 198,293 |   | 80,388 |   |
| Total net revenues                                                                                                           |   | 1,332,767              |     | 1,339,199                  |   | 5,971,182 |   | 4,757,164 |   |
| Expenses:                                                                                                                    |   |                   |     |                       |   |   |   |   |   |
| Employee compensation and benefits                                                                                           |   | 1,242,740              |     | 854,161                    |   | 3,857,660 |   | 2,842,530 |   |
| Occupancy and equipment  rental                                                                                              |   | 179,639                |     | 110,398                    |   | 519,452 |   | 301,807 |   |
| Brokerage, clearing and  exchange fees                                                                                       |   | 84,153                 |     | 40,537                     |   | 237,056 |   | 136,539 |   |
| Communications                                                                                                               |   | 76,221                 |     | 55,201                     |   | 228,645 |   | 139,670 |   |
| Professional fees                                                                                                            |   | 83,516                 |     | 54,289                     |   | 276,473 |   | 157,358 |   |
| Merger-related costs                                                                                                         |   | 90,084                 |     | -                          |   | 378,138 |   | - |   |
| Other operating expenses                                                                                                     |   | 180,972                |     | 145,613                    |   | 522,282 |   | 453,560 |   |
| Total costs and expenses                                                                                                     |   | 1,937,325              |     | 1,260,199                  |   | 6,019,706 |   | 4,031,464 |   |
| Income (loss) before  provision  (benefit) for income taxes  and cumulative effect of a change in accounting principle  |   | (604,558               | )        | 79,000                     |   | (48,524 | ) | 725,700 |   |
| Provision (benefit) for  income taxes                                                                                        |   | (206,687               | )        | 29,200                     |   | (22,135 | ) | 268,500 |   |
| Income (loss) before  cumulative effect of a change in accounting principle                                                  |   | (397,871               | )        | 49,800                     |   | (26,389 | ) | 457,200 |   |
| Cumulative effect of a  change in accounting principle, net of tax provision of $346                                         |   | -                      |     | -                          |   | 642 |   | - |   |
| Net income (loss)                                                                                                            |   | $                      | (397,871 | )                          | $      | 49,800 |   | $ | (25,747 | ) | $ | 457,200 |   |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

CREDIT SUISSE FIRSTBOSTON (USA), INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes inStockholders' Equity (Unaudited)

For the Year EndedDecember 31, 2000 and the Nine Months Ended September 30, 2001

 

(In thousands, exceptper share data)

 
|                                                           |   | **Preferred****Stock** |    | **CSFB****(USA)CommonStock** |   | **CSFB*direct*****CommonStock** |   | **Paid–in****Capital** |   | **Retained****Earnings** |   | **Accumulated****OtherComprehensiveIncome (loss)** |   | **Total**  |      |
|----------------------------------------------------------------|--------|------------------------|---------|------------------------------|--------|---------------------------------|--------|-----------------------------|--------|--------------------------|--------|----------------------------------------------------|--------|------------|-----------|
| Balances at December 31,  1999                                 |   | $                      | 375,000 |                         | $      | —                          |   | $                           | 1,840  |                     | $      | 1,322,540                                          |   | $          | 2,205,818 |   | $ | 2,044 |   | $ | 3,907,242 |   |
| Net loss                                                       |   | —                 |    | —                       |   | —                          |   | —                      |   | (1,075,812               | )      | —                                             |   | (1,075,812 | )         |
| Translation adjustment                                         |   | —                 |    | —                       |   | —                          |   | —                      |   | —                   |   | (9,541                                             | )      | (9,541     | )         |
| Total comprehensive loss                                       |   |                   |    |                         |   |                            |   |                        |   |                     |   |                                               |   | (1,085,353 | )         |
| Issuance of shares in  consideration of transfer of CSFB Corp. |   | —                 |    | —                       |   | —                          |   | 2,537,976                   |   | —                   |   | —                                             |   | 2,537,976  |      |
| Dividend of DLJ Asset  Management Group to parent              |   | —                 |    | —                       |   | —                          |   | —                      |   | (28,473                  | )      | —                                             |   | (28,473    | )         |
| Dividends:                                                     |   |                   |    |                         |   |                            |   |                        |   |                     |   |                                               |   |       |      |
| CSFB (USA) Common Stock                                        |   | —                 |    | —                       |   | —                          |   | —                      |   | (15,965                  | )      | —                                             |   | (15,965    | )         |
| Preferred stock ($2.82 per  share)                             |   | —                 |    | —                       |   | —                          |   | —                      |   | (21,155                  | )      | —                                             |   | (21,155    | )         |
| CSG Share Plan Activity                                        |   | —                 |    | —                       |   | —                          |   | 298,648                     |   | —                   |   | —                                             |   | 298,648    |      |
| Exercise of stock options                                      |   | —                 |    | —                       |   | —                          |   | 373,140                     |   | —                   |   | —                                             |   | 373,140    |      |
| Tax benefit on exercise of  stock options                      |   | —                 |    | —                       |   | —                          |   | 406,447                     |   | —                   |   | —                                             |   | 406,447    |      |
| Tender shares to employee  trust                               |   | —                 |    | —                       |   | —                          |   | 122,724                     |   | —                   |   | —                                             |   | 122,724    |      |
| Conversion of restricted  stock units                          |   | —                 |    | —                       |   | —                          |   | 10,740                      |   | —                   |   | —                                             |   | 10,740     |      |
| Balances at December 31,  2000                                 |   | 375,000                |    | —                       |   | 1,840                           |   | 5,072,215                   |   | 1,064,413                |   | (7,497                                             | )      | 6,505,971  |      |
| Net loss                                                       |   | —                 |    | —                       |   | —                          |   | —                      |   | (25,747                  | )      | —                                             |   | (25,747    | )         |
| Translation adjustment                                         |   | —                 |    | —                       |   | —                          |   | —                      |   | —                   |   | (447                                               | )      | (447       | )         |
| Change in accounting  principle (SFAS 133)                |   | —                 |    | —                       |   | —                          |   | —                      |   | —                   |   | (1,478                                             | )      | (1,478     | )         |
| Total comprehensive loss                                       |   |                   |    |                         |   |                            |   |                        |   |                     |   |                                               |   | (27,672    | )         |
| Capital contribution of CSFB  Capital Holdings, Inc.           |   | —                 |    | —                       |   | —                          |   | 34,519                      |   | —                   |   | —                                             |   | 34,519     |      |
| Retirement of  CSFB*direct*  stock.                       |   | —                 |    | —                       |   | (1,840                          | )      | 1,840                       |   | —                   |   | —                                             |   | —     |      |
| Dividends:                                                     |   |                   |    |                         |   |                            |   |                        |   |                     |   |                                               |   |       |      |
| Preferred stock ($2.12 per  share)                             |   | —                 |    | —                       |   | —                          |   | —                      |   | (15,867                  | )      | —                                             |   | (15,867    | )         |
| CSG Share Plan Activity                                        |   | —                 |    | —                       |   | —                          |   | 683,601                     |   | —                   |   | —                                             |   | 683,601    |      |
| Balances at September 30,  2001                                |   | $                      | 375,000 |                         | $      | —                          |   | $                           | — |                     | $      | 5,792,175                                          |   | $          | 1,022,799 |   | $ | (9,422 | ) | $ | 7,180,552 |   |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

CREDIT SUISSE FIRSTBOSTON (USA), INC. AND SUBSIDIARIES

CondensedConsolidated Statements of Cash Flows (Unaudited)

 

For the Nine MonthsEnded September 30, 2001 and 2000

 
|                                                                                                |   | **2001**           |       | **2000**   | ** ** |
|-----------------------------------------------------------------------------------------------------|--------|--------------------|------------|------------|------------|
|                                                                                                |   | **(In thousands)** | ** ** |
| Cash flows from operating  activities:                                                              |   |               |       |       |       |
| Net income (loss)                                                                                   |   | $                  | (25,747    | )          | $          | 457,200 |   |
| Adjustments to reconcile net  income (loss) to net cash (used in) provided by operating activities: |   |               |       |       |       |
| Depreciation and  amortization                                                                      |   | 152,748            |       | 78,978     |       |
| CSG Share Plan activity                                                                             |   | 621,768            |       | —     |       |
| Deferred taxes                                                                                      |   | (155,684           | )          | 141,849    |       |
| Decrease (increase) in  unrealized appreciation of long-term corporate development investments      |   | 209,906            |       | (51,773    | )          |
| Foreign currency translation  adjustment                                                            |   | (447               | )          | (3,816     | )          |
| Cumulative effect of a  change in accounting principle                                              |   | (1,478             | )          | —     |       |
| (Increase) decrease in  operating assets:                                                           |   |               |       |       |       |
| Cash and securities  segregated for regulatory purposes or deposited with clearing organizations    |   | (1,044,834         | )          | 115,060    |       |
| Securities purchased under  agreements to resell                                                    |   | 5,047,309          |       | 4,750,177  |       |
| Securities borrowed                                                                                 |   | 9,292,266          |       | 5,932,281  |       |
| Receivables from customers                                                                          |   | 3,959,717          |       | (2,366,156 | )          |
| Receivables from brokers,  dealers and other                                                        |   | (11,503,181        | )          | (2,512,185 | )          |
| Financial instruments owned,  at value                                                              |   | (1,743,321         | )          | 1,203,679  |       |
| Federal income taxes  receivable                                                                    |   | 412,036            |       | —     |       |
| Other assets and deferred  amounts                                                                  |   | 128,482            |       | (51,249    | )          |
| Increase (decrease) in  operating liabilities:                                                      |   |               |       |       |       |
| Securities sold under  agreements to repurchase                                                     |   | (5,047,309         | )          | (4,750,177 | )          |
| Securities loaned                                                                                   |   | (12,277,848        | )          | 205,100    |       |
| Payables to customers                                                                               |   | (50,752            | )          | (369,604   | )          |
| Payables to brokers, dealers  and other                                                             |   | 7,463,028          |       | 3,126,760  |       |
| Financial instruments sold  not yet purchased, at value                                             |   | (1,086,007         | )          | (1,986,528 | )          |
| Obligation to return  securities received as collateral                                             |   | 942,535            |       | —     |       |
| Accounts payable and accrued  expenses                                                              |   | (3,273,233         | )          | (166,718   | )          |
| Other liabilities                                                                                   |   | 678,722            |       | (279,512   | )          |
| Net cash (used in) provided  by operating activities                                                |   | $                  | (7,301,324 | )          | $          | 3,473,366 |   |
|                                                                                                     |        |                    |            |            |            |  |  |  |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

CREDIT SUISSE FIRSTBOSTON (USA), INC. AND SUBSIDIARIES

Condensed ConsolidatedStatements of Cash Flows (Unaudited)

 

For the Nine MonthsEnded September 30, 2001 and 2000

 
|                                                                  |   | **2001**           |       | **2000**   | ** ** |
|-----------------------------------------------------------------------|--------|--------------------|------------|------------|------------|
|                                                                  |   | **(In thousands)** | ** ** |
| Cash flows from investing  activities:                                |   |               |       |       |       |
| Net proceeds from (payments  for):                                    |   |               |       |       |       |
| Capital contribution of CSFB  Capital Holdings, Inc.                  |   | $                  | 34,519     |       | $          | — |   |
| Purchases of merchant  banking investments                            |   | (316,858           | )          | (584,650   | )          |
| Sales of merchant banking  investments                                |   | 267,927            |       | 766,118    |       |
| Office facilities                                                     |   | 92,130             |       | (243,644   | )          |
| Note receivable from parent                                           |   | 3,100,000          |       | —     |       |
| Other assets                                                          |   | (6,081,146         | )          | (96,239    | )          |
| Net cash used in investing  activities                                |   | (2,903,428         | )          | (158,415   | )          |
| Cash flows from financing  activities:                                |   |               |       |       |       |
| Net proceeds from (payments  for):                                    |   |               |       |       |       |
| Short-term financings                                                 |   | 9,486,528          |       | (3,693,030 | )          |
| Redemption of preferred  trust securities                             |   | (200,000           | )          | —     |       |
| Issuance (repayments) of:                                             |   |               |       |       |       |
| Subordinated loan agreements                                          |   | (4,150,000         | )          | —     |       |
| Senior notes                                                          |   | 2,362,626          |       | 503,399    |       |
| Senior secured floating rate  notes                                   |   | —             |       | (9,578     | )          |
| Global floating rate notes                                            |   | (349,551           | )          | —     |       |
| Medium-term notes                                                     |   | 2,427,279          |       | 1,777,812  |       |
| Structured notes                                                      |   | (20,694            | )          | 166,925    |       |
| Other long-term debt                                                  |   | (16,544            | )          | 579        |       |
| Cash dividends                                                        |   | (15,867            | )          | (31,831    | )          |
| Exercise of stock options                                             |   | —             |       | 247,330    |       |
| Other assets                                                          |   | (15,009            | )          | —     |       |
| Net cash provided by (used  in) financing activities                  |   | 9,508,768          |       | (1,038,394 | )          |
| Increase (decrease) in cash  and cash equivalents                     |   | (695,984           | )          | 2,276,557  |       |
| Cash and cash equivalents at  beginning of period                     |   | 2,758,390          |       | 2,020,543  |       |
| Cash and cash equivalents at  end of period                           |   | $                  | 2,062,406  |       | $          | 4,297,100 |   |
| Supplemental statement of  cash flows information:                    |   |               |       |       |       |
| Supplemental schedule of  noncash investing and financing activities: |   |               |       |       |       |
| Capital contribution of CSFB  Capital Holdings, Inc.                  |   |               |       |       |       |
| Fair value of assets  contributed                                     |   | $                  | 67,470     |       |       |   |
| Less: liabilities assumed                                             |   | 32,951             |       |       |       |
| Capital contribution of CSFB  Capital Holdings, Inc.                  |   | $                  | 34,519     |       |       |   |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

CREDIT SUISSE FIRSTBOSTON (USA), INC. AND SUBSIDIARIES

Notesto Condensed Consolidated Financial Statements (Unaudited)

 

September 30, 2001

 

**1.              Summaryof Significant Accounting Policies**

 

The condensedconsolidated financial statements include Credit Suisse First Boston(USA), Inc. and its subsidiaries (the "Company"). Allsignificant intercompany balances and transactions have been eliminated. TheCompany is a wholly owned subsidiary of Credit Suisse First Boston, Inc.("CSFBI") and was acquired on November 3, 2000 (the"Acquisition"). No adjustments of the historical carrying values ofthe Company's assets and liabilities to reflect the Acquisition by CSFBI wererecorded in the Company's historical financial statements. Similarly, althoughthe Acquisition gave rise to goodwill, none of this goodwill was "pusheddown" to the Company, and thus goodwill associated with the Acquisition willnot affect the Company's results of operations. In addition, in conjunctionwith the Acquisition, CSFBI transferred all of the outstanding shares of CreditSuisse First Boston Corporation ("CSFB Corp."), a U.S. registeredbroker dealer that was a direct wholly owned subsidiary of CSFBI, to theCompany in exchange for newly issued shares of the Company (the"Transfer"). For further discussion of the Acquisition and theTransfer, see the Company's Annual Report on Form 10-K for the year endedDecember 31, 2000.

 

Certainfinancial information that is normally included in annual financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America but is not required for interim reporting purposes hasbeen condensed or omitted. These condensed consolidated financial statementsreflect, in the opinion of management, all adjustments (consisting of normal,recurring accruals), as well as the accounting change to adopt Statement ofFinancial Accounting Standards No. 133, "Accounting for DerivativeInstruments and Hedging Activities" ("SFAS 133"), which arenecessary for a fair presentation of the condensed consolidated statements offinancial condition and operations for the interim periods presented.

 

In September 2000, the FASB issued Statementof Financial Accounting Standards No. 140, "Accounting for Transfersand Servicing of Financial Assets and Extinguishment of Liabilities—a replacement of FASBStatement No. 125" ("SFAS 140"). While the Companyadopted SFAS 140 as of December 31, 2000, certain provisions relatedto determining whether the transferor has relinquished control of assets and,therefore, determining if the transfer should be accounted for as a sale wereadopted for transactions occurring after March 31, 2001. As a result, theCompany was required to recognize securities received as collateral in certainsecurities lending transactions in the condensed consolidated statement offinancial condition as of September 30, 2001. See Note 6.

 

InJune 2001, the FASB issued Statement of Financial Accounting StandardsNo. 141, "Business Combinations"  ("SFAS 141"), which requires that all businesscombinations initiated after June 30, 2001 be accounted for under thepurchase method of accounting. The pooling of interest method will no longer bepermitted.  No business combinationswere initiated or consummated for the three months ended September 30, 2001.

 

InJune 2001, the FASB issued Statement of Financial Accounting StandardsNo. 142, "Goodwill and Other Intangible Assets"("SFAS 142"), which requires that goodwill be reviewed forimpairment instead of being amortized to earnings. The statement is effectivefor fiscal years beginning after December 15, 2001.  Management isevaluating the impact of adopting SFAS 142.  For the nine monthsended September 30, 2001, the amount of goodwill amortization charged toearnings was $22.8 million.

 

In June 2001, the FASB issuedStatement of Financial Accounting Standards No. 143, “Accounting for AssetRetirement Obligations” (“SFAS 143”), which addresses the financial accountingand reporting for obligations associated with the retirement of tangiblelong-lived assets and the associated asset retirement costs.  This statement is effective for fiscal yearsbeginning after June 15, 2002.  SFAS 143is not expected to have a significant impact on the Company’s financialstatements.

 

In October 2001, the FASB issuedStatement of Financial Accounting Standards No. 144, “Accounting for Impairmentor Disposal of Long-Lived Assets” (“SFAS 144”), which replaces FASB StatementNo. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-LivedAssets to Be Disposed Of”. SFAS 144 requires that long-lived assets which are“held for sale” be measured at the lower of carrying amount or fair value lesscost to sell and also broadens the reporting requirements for discontinuedoperations.  This statement is effectivefor fiscal years beginning after December 15, 2001, and is to be appliedprospectively.  Management is evaluatingthe impact of adopting SFAS 144.

 

The results ofoperations for interim periods are not necessarily indicative of results forthe entire year. These condensed consolidated financial statements should beread in conjunction with the consolidated financial statements and notesthereto as of and for the year ended December 31, 2000 included in theCompany's Annual Report on Form 10-K for the year ended December 31,2000.

 

To prepare condensed consolidated financial statements in accordancewith accounting principles generally accepted in the United States of America,management must estimate certain amounts that affect the reported assets andliabilities, disclosure of contingent assets and liabilities and reportedrevenues and expenses. Actual results could differ from those estimates.

 

The Company isincluded in the consolidated federal income tax return and unitary state andlocal income tax returns filed by CSFBI. CSFBI allocates federal, state andlocal income taxes to its subsidiaries on a separate return basis.

 

Certainreclassifications have been made to prior year condensed consolidated financialstatements to conform to the 2001 presentation.

 

**2.            Restructuring Costs and Merger–Related Costs**

 

As ofSeptember 30, 2001, all significant restructuring initiatives contemplatedin the Acquisition have been completed. During the nine months endedSeptember 30, 2001, restructuring costs of approximately $469 million werepaid. The remaining balance of $6 million is included in accounts payable andaccrued expenses in the condensed consolidated statement of financial conditionas of September 30, 2001. All components of restructuring costs werefunded from working capital and do not require any incremental funding source.It is expected that the restructuring plan will be fully executed byDecember 2001.

 

Merger–relatedcosts represent retention awards related to the merger, which are expensed overthe vesting period. The vesting period is generally three years. Merger–relatedcosts of $378.1 million are included in the condensed consolidated statement ofoperations for the nine months ended September 30, 2001.

 

Merger relatedcosts of $653.3 million at September 30, 2001 are expected to be chargedagainst earnings in the following periods:

 

|             |   | **Amounts to be charged** |   |
|------------------|--------|---------------------------|--------|
|             |   | **(in millions)**         |   |
| 4th Quarter 2001 |   | $                         | 84.0   |   |
| Year ended 2002  |   | $                         | 356.2  |   |
| Year ended 2003  |   | $                         | 193.1  |   |
| Year ended 2004  |   | $                         | 20.0   |   |

 

 

The followingis an analysis of the change in the restructuring accrual account for the ninemonths ended September 30, 2001: 

 
|                        |   | **Balance at**        |   | **Amounts Paid**  |   | **Balance at**         |       |
|-----------------------------|--------|-----------------------|--------|-------------------|--------|------------------------|------------|
|                        |   | **December 31, 2000** |   | **in 2001**       |   | **September 30, 2001** | ** ** |
|                        |   |                  |   | **(in millions)** |   |                   |       |
| Compensation and benefits   |   | $                     | 325    |              | $      | 325                    |       | $ | - |   |
| Occupancy and related costs |   | 76                    |   | 71                |   | 5                      |       |
| Technology costs            |   | 74                    |   | 73                |   | 1                      |       |
|                        |   | $                     | 475    |              | $      | 469                    |       | $ | 6 |   |

 

In addition,included in other income for the nine months ended September 30, 2001 is again of approximately $166.1 million on the assignment of the lease andrelated sale of leasehold improvements on the Company's former headquarters. InFebruary 2001, an incremental gain related to the lease assignment of$30.4 million was deferred and is being amortized throughFebruary 2002.  The amortization ofthe deferred gain is included in the $166.1 million.

 

**3.             CSFB*direct*Common Stock**

 

CSFB*direct* common stock was the series ofcommon stock issued by the Company that tracked the performance of the onlinebrokerage unit, CSFB*direct.*

 

On August 21, 2001, CSFB*direct*Acquisition Corp., a wholly-owned subsidiaryof CSFBI, completed a tender offer to acquire the 18.4 million shares ofCSFB*direct*common stock owned bythe public for $6.00 per share in cash, or a total of approximately $110.4million. The Company subsequently effected a short-form merger to acquire theshares and has deregistered and delisted the shares of CSFB*direct* common stock from theNew York Stock Exchange and retired all shares.  Subsequent to completing the tender offer, CSFB*direct* Acquistion Corp. was merged intoCSFB (USA), Inc. with CSFB (USA), Inc. as the surviving entity.  No earnings per share data is beingpresented for the current or prior periods.

 

**4.              RelatedParty Transactions**

 

In the normal course of business, the Companyenters into transactions with affiliated companies. Total assets and totalliabilities at September 30, 2001 and December 31, 2000 include $13.0billion and $39.8 billion, and $5.6 billion and $47.7 billion,respectively, resulting from these transactions. Included in these transactionsare revenues and expenses resulting from various securities trading, investmentbanking and financing activities with certain affiliates, as well as fees foradministrative services performed by the Company under the terms of amanagement fee arrangement. Such fees are treated as a reduction of expenses inthe consolidated statements of operations.

 

From time totime, the Company enters into financing transactions with various CSFBaffiliates. Interest paid or received on notes or advances is on market terms.

 

**5.              IncomeTaxes**

 

As a result ofthe Acquisition, the Company is included in a consolidated federal income taxreturn and combined New York State and New York City income tax returns filedby CSFBI. CSFBI allocates federal, state and city income taxes to itssubsidiaries on a separate return basis. Any resulting liability will be paidcurrently to CSFBI. Any credits for losses will be paid by CSFBI to the extentthat such credits are for tax benefits that have been utilized in theconsolidated federal or combined state and city income tax return. The amountdue to CSFBI based on the allocation of tax expense amounted to $133.9 millionfor the nine months ended September 30, 2001.

 

During the nine months ended September 30,2000, income taxes were accrued using the Company's estimated effective taxrate. Federal income taxes paid for the nine months ended September 30,2000 were $221.3 million.

 

The following table displays a reconciliation ofthe difference between the expected U.S. statutory income tax rate and theeffective income tax rate for the nine months ended September 30, 2001.

 
|                                                   |   | **Amount** |    | **Percent of Pre-tax Loss** |   |
|--------------------------------------------------------|--------|------------|---------|-----------------------------|--------|
|                                                   |   |       |    |                        |   |
| Computed “expected” tax  (benefit)           |   | $          | (16,983 | )                           | (35.0  | )% |
| Increase (decrease) due to:                            |   |       |    |                        |   |
| State and local taxes, net  of U.S. income tax effects |   | (13,732    | )       | (28.3                       | )%     |
| Dividend exclusion                                     |   | (27,620    | )       | (56.9                       | )%     |
| Goodwill and Intangibles                               |   | 6,961      |    | 14.3                        | %      |
| Other                                                  |   | 29,239     |    | 60.3                        | %      |
| Effective tax rate                                     |   | $          | (22,135 | )                           | (45.6  | )% |

 

Management hasdetermined that the realization of the recognized net deferred tax asset of$2.0 billion at September 30, 2001 is more likely than not, based onanticipated future taxable income. In addition, for federal income taxpurposes, the Company has planning strategies available, which may enhance itsability to utilize these tax benefits. However, if estimates of future taxableincome are reduced, the amount of the deferred tax assets considered realizablecould also be reduced. In addition, due to uncertainty concerning the Company'sability to generate the necessary amount and mix of state and local taxableincome in future periods, the Company continues to maintain a valuationallowance against its deferred state and local tax asset.

 

**6.            Accounting for Transfers and Servicing of Financial Assets and Extinguishmentsof Liabilities**

 

EffectiveDecember 31, 2000, the Company adopted SFAS 140. As ofSeptember 30, 2001, the fair market value of assets that the Company haspledged to counterparties was $158.4 billion. The Company has alsoreceived similar assets as collateral where it has the right to re-pledge orsell the assets. As of September 30, 2001, the fair market value of theassets received was $142.6 billion. The Company routinely re-pledges or lendsthese assets to third parties.

 

Certainprovisions of SFAS 140 were required to be adopted for transactionsoccurring after March 31, 2001. Effective April 1, 2001, as a resultof the Company's adoption of these provisions of SFAS 140, the Companyrecognized in the condensed consolidated statement of financial conditionsecurities received as collateral (as opposed to cash) in certain securitieslending transactions. At September 30, 2001, as a result of thesetransactions, the Company recorded obligations to return securities received ascollateral of approximately $942.5 million in the condensed consolidatedstatement of financial condition.

 

The Company enters into various transactions wherebycommercial and residential mortgages are sold to a qualifying trust or specialpurpose trusts and securitized. Beneficial interests in those trusts are soldto investors. The investors and the securitization trusts have no recourse tothe Company's assets for failure of debtors to pay when due. AtSeptember 30, 2001 the amount of beneficial interests retained by theCompany is not significant. During the nine months ended September 30, 2001,the Company sold $202.3 million in residential mortgages receivable insecuritization transactions. Net losses recognized on these transactions were$0.7 million for the nine months ended September 30, 2001.

 

**7.            Borrowings**

 

Short-termborrowings are generally demand obligations with interest approximating theFederal funds rate. Such borrowings are generally used to facilitate thesecurities settlement process, to finance securities inventories, and tofinance securities purchased by customers on margin. At September 30, 2001and December 31, 2000, there were no borrowings secured by Company-ownedsecurities.

 

The Companyhas two commercial paper programs totaling $7.0 billion, which are exemptfrom registration under the Securities Act of 1933. At September 30, 2001,$2.5 billion of commercial paper was outstanding under these programs.

 

Long-termborrowings: 

 
|                                                                |   | **September 30,**  |       | **December 31,** |       |
|---------------------------------------------------------------------|--------|--------------------|------------|------------------|------------|
|                                                                |   | **2001**           |       | **2000**         | ** ** |
|                                                                |   | **(In thousands)** |       |
| Senior notes 5.875%-8.00%,  due various dates through 2008          |   | $                  | 4,907,080  |             | $          | 2,544,454 |   |
| Medium-term notes  0.625%-7.49%, due various dates through 2016     |   | 6,300,790          |       | 3,873,511        |       |
| Global floating rate notes  due 2002                                |   | -                  |       | 349,551          |       |
| Structured borrowings  6.909%-7.41%, due various dates through 2007 |   | 296,839            |       | 317,533          |       |
| Other                                                               |   | 5,923              |       | 22,467           |       |
| Subtotal long-term  borrowings                                      |   | $                  | 11,510,632 |             | $          | 7,107,516 |   |
| Subordinated Loan Agreements  with CSFBI:                           |   |               |       |             |       |
| Revolving Subordinated Loan  Agreements due 2003-2008               |   | -                  |       | 2,650,000        |       |
| Equity Subordination  Agreements due 2005-2008                      |   | -                  |       | 1,500,000        |       |
| Subtotal  subordinated loan agreements with CSFBI                   |   | -                  |       | 4,150,000        |       |
| Total long-term borrowings                                          |   | $                  | 11,510,632 |             | $          | 11,257,516 |   |
| Current maturities of  long-term borrowings                         |   | $                  | 2,592,908  |             | $          | 1,485,217 |   |
|                                                                     |        |                    |            |                  |            |  |  |  |

 

In May 2001, the Company replaced its $2.8 billion creditfacility with a $3.5 billion revolving credit facility available to theCompany and CSFBI as borrowers. At September 30, 2001, no borrowings wereoutstanding under this facility.

 

InNovember 2000, CSFBI obtained a $3.1 billion loan from the Companythat had an original maturity date of November 1, 2001 and bore interestat a market rate based on LIBOR. On April 25, 2001, CSFBI, in a series oftransactions, repaid the $3.1 billion loan from the Company, includingaccrued interest, and the Company's $4.2 billion subordinated loanagreements with CSFBI referred to above were repaid by the Company in full,including accrued interest.

 

For the ninemonths ended September 30, 2001 and 2000, interest paid on all borrowingsand financing arrangements was $7.9 billion and $5.3 billion,respectively. At September 30, 2001, the Company had entered into interestrate and currency swaps on $3.2 billion of its senior and medium-termnotes.

 

During the quarter ended June 30, 2001 theCompany issued $2.3 billion of medium-term notes off its existing$3.1 billion shelf. On June 29, 2001, the Company filed a new shelfregistration statement with the Securities and Exchange Commission, whichenables the Company to issue up to $5 billion of senior and subordinateddebt securities, preferred stock and warrants to purchase debt securities,preferred stock or other equity securities. On July 27, the Company issued$2.25 billion of 57/8% senior notes due 2006 offthis effective shelf registration statement. The Company has issued $2.06 billion of medium-term notes off thiseffective shelf registration statement from July 1, 2001 through October 30,2001.

 

In July 2001, the Company established a EuroMedium-Term Note program, which enables it to issue up to $5 billion ofnotes. This program replaces the $1.0 billion Euro Medium-Term Noteprogram established in April 2000. The Company has issued $520.2 million of medium-term notes off thisprogram from July 1, 2001 through October 30, 2001.

 

**8.              MerchantBanking Investments**

 

Merchantbanking investments represent the Company's involvement in primarily privatedebt and equity investments. These investments generally have no readilyavailable market or may be otherwise restricted as to resale under theSecurities Act of 1933 and are carried at estimated fair value. The cost ofthese investments was $1.03 billion and $1.0 billion at September 30,2001 and December 31, 2000, respectively. In the first nine months of 2001and 2000, net unrealized appreciation of merchant banking investments decreased$209.9 million and increased $51.8 million, respectively. Changes in netunrealized (depreciation) appreciation arising from changes in fair value orupon realization are reflected in principal transactions-net in the condensedconsolidated statements of operations.

 

**9.              NetCapital**

 

The Company'sprincipal wholly owned subsidiaries, Donaldson, Lufkin & JenretteSecurities Corp. ("DLJSC") and CSFB Corp., are registeredbroker-dealers, registered futures commission merchants and member firms of TheNew York Stock Exchange, Inc. (the "NYSE"). As such, they aresubject to the NYSE's net capital rule, which conforms to the Uniform NetCapital Rule pursuant to Rule 15c3-1 of the Securities Exchange Act of1934, as amended (the "Exchange Act"). Under the alternative methodpermitted by this rule, the required net capital may not be less than twopercent of aggregate debit balances arising from customer transactions or fourpercent of segregated funds, whichever is greater. If a member firm's capitalis less than four percent of aggregate debit balances, the NYSE may require thefirm to reduce its business. If a member firm's net capital is less than fivepercent of aggregate debit balances, the NYSE may prevent the firm fromexpanding its business and declaring cash dividends. At September 30,2001, DLJSC's and CSFB Corp.'s net capital of approximately $1.2 billion and$2.5 billion, respectively, was 19.3 percent and 33.7 percent,respectively, of aggregate debit balances and in excess of the minimum requirementby approximately $1.1 billion and $2.3 billion, respectively.

 

The Company'sLondon–based broker–dealer subsidiaries are subject to therequirements of the Securities and Futures Authority, a self-regulatoryorganization established pursuant to the U.K. Financial Services Act of 1986.Other U.S. and foreign broker–dealer subsidiaries of the Company aresubject to net capital requirements of their respective regulatory agencies. AtSeptember 30, 2001, the Company and its broker–dealer subsidiariescomplied with all applicable regulatory capital adequacy requirements.

 

**10.           Accountingfor Derivative Instruments and Hedging Activities**

 

In June 1998, the Financial AccountingStandards Board ("FASB") issued SFAS 133 which was amended byStatement of Financial Accounting Standards No. 137, "Accounting forDerivative Instruments and Hedging ActivitiesDeferral of the Effective Date of FASBStatement No. 133anamendment of FASB Statement No. 133" ("SFAS 137") andStatement of Financial Accounting Standards No. 138, "Accounting forCertain Derivative Instruments and Certain Hedging Activities"("SFAS 138").

 

The standardestablishes new accounting and reporting standards for derivative instruments,including certain derivative instruments embedded in other contracts, and forhedging activities. It does not change the accounting for derivativeinstruments held or issued for trading purposes. All derivatives are requiredto be recognized as assets or liabilities in the statement of financialcondition at fair value.

 

The recognitionof the changes in fair value in a derivative instrument depends upon theintended use and designation of the derivative instrument. If certainconditions are met, entities may elect to designate a derivative instrument asa hedge of exposures to changes in fair values, cash flows or a net investmentin a foreign subsidiary. If the hedged exposure is a fair value exposure, thegain or loss on the derivative instrument is recognized in current earningstogether with the offsetting loss or gain on the hedged item attributable tothe risk being hedged. If the hedged exposure is a cash flow exposure, theeffective portion of the gain or loss on the derivative instrument is reportedinitially in other comprehensive income (a component of equity) and subsequentlyreclassified into earnings when the forecasted transaction affects earnings.Any amounts excluded from the assessment of hedge effectiveness as well as theineffective portion of the gain or loss is reported in earnings immediately. Ifthe derivative instrument is not designated as a hedge, the gain or loss isrecognized in current earnings.

 

The Company uses derivative instruments to manageexposures to interest rate and foreign currency risks by modifying thecharacteristics of periodic interest payments and foreign currencyexposure associated with some of its long-term debt obligations. As ofSeptember 30, 2001, the Company only has fair value hedges of fixed ratedebt for which derivatives hedge the fair value of the debt.  These derivatives and other derivatives thatdo not qualify as hedges under the new rules are carried at fair value withchanges in value included in other revenues in the condensed consolidatedstatements of operations. For the nine months ended September 30, 2001, theCompany recognized an after-tax gain of $3.9 million for such non-tradingderivatives.

 

Theeffectiveness of hedging relationships is evaluated using quantitative measuresof correlation. If a hedge relationship is not found to be highly effective, itno longer qualifies as a hedge and any excess gains or losses attributable tothe hedged item, as well as subsequent changes in the fair value of thederivative, are recognized in other revenues. For the nine months endedSeptember 30, 2001, the amount of hedge ineffectiveness that reduced otherrevenues was $0.9 million, net of tax. There were no gains or losses onderivatives that were excluded from the assessment of effectiveness during thenine months ended September 30, 2001.

 

The cumulativeeffect of adopting SFAS 133 at January 1, 2001, representing theinitial revaluation of derivatives and other items as described above, was anafter-tax gain of $0.6 million reported in the condensed consolidatedstatements of operations separately as "cumulative effect of change inaccounting principle" and an after-tax loss of $1.5 million includedin other comprehensive income. The Company estimates that $0.4 million of netderivative losses included in other comprehensive income will be reclassifiedinto other revenues within the next twelve months.

 

The Companyenters into various transactions involving derivatives for trading purposes orto provide products for its clients. These derivatives include options,forwards, futures and swaps.

 

*Options*

 

The Companywrites option contracts specifically designed to meet customers' needs. Most ofthe options do not expose the Company to credit risk since the Company, not itscounterparty, is obligated to perform. At the beginning of the contract period,the Company receives a cash premium. During the contract period, the Companybears the risk of unfavorable changes in the value of the financial instrumentsunderlying the options ("market risk"). To manage this market risk,the Company purchases or sells cash or derivative financial instruments on aproprietary basis. Such purchases and sales may include debt and equitysecurities, forward and futures contracts and options. The counterparties tothese purchases and sales are reviewed to determine whether they arecreditworthy. Future cash requirements for options written equal the fair valueof the options.

 

The Companyalso purchases options for trading purposes. With purchased options, theCompany gets the right, for a fee, to buy or sell the underlying instrument ata fixed price on or before a specified date. The underlying instruments forthese options include mortgage–backed securities, equities, interestrates and foreign currencies. All options are reported at fair value.

 

*Forwards and Futures*

 

The Companyenters into forward purchases and sales contracts for mortgage-backedsecurities and foreign currencies. In addition, the Company enters into futurescontracts on equity-based indices, foreign currencies and other financialinstruments as well as options on futures contracts. Market risk is the pricemovement on the notional value of the contracts.

 

For forwardcontracts, cash is generally not required at inception; cash equal to thecontract value is required at settlement. For futures contracts, the originalmargin is required in cash at inception; cash equal to the change in marketvalue is required daily.

 

Since forward contracts are subject to the financialreliability of the counterparty, the Company is exposed to credit risk. Tomonitor this credit risk, the Company limits transactions with specificcounterparties, reviews credit limits and adheres to internally establishedcredit extension policies. For futures contracts and options on futurescontracts, the change in the market value is settled with a clearing broker incash each day. As a result, the credit risk with the clearing broker is limitedto the net positive change in the market value for a single day.

 

*Swaps*

 

The Company'sswap agreements consist primarily of interest rate and equity swaps. Interestrate swaps are contractual agreements to exchange interest rate payments basedon agreed notional amounts and maturity.

 

Equity swapsare contractual agreements to receive the appreciation or depreciation in valuebased on a specific strike price on an equity instrument in exchange for payinganother rate, which is usually based on index or interest rate movements. Swapsare reported at fair value.

 

*Quantitative Disclosures for All Trading Derivatives*

 

The fairvalues of trading derivatives outstanding at September 30, 2001 andDecember 31, 2000 are as follows:

 

|              |   | **September  30, 2001** |       | **December 31, 2000** |       |
|-------------------|--------|-------------------------|------------|-----------------------|------------|
|              |   | **Assets**              |       | **Liabilities**       |       | **Assets** |   | **Liabilities** | ** ** |
|              |   |                    | ** ** | **(In millions)**     | ** ** |   | ** ** |
| Options           |   | $                       | 964.5      |                  | $          | 1,113.0 |   | $ | 1,190.0 |   | $ | 1,064.7 |   |
| Forward contracts |   | $                       | 1,289.9    |                  | $          | 1,505.2 |   | $ | 727.4 |   | $ | 719.2 |   |
| Futures contracts |   | $                       | 32.5       |                  | $          | 154.5 |   | $ | 180.0 |   | $ | 15.5 |   |
| Swaps             |   | $                       | 403.1      |                  | $          | 303.1 |   | $ | 943.7 |   | $ | 868.1 |   |

 

These amounts are included in financialinstruments owned/sold not yet purchased in the condensed consolidatedstatements of financial condition.

 

The majorityof the Company's derivatives are short-term in duration.

 

**11.           FinancialInstruments With Off-Balance Sheet Risk**

 

In the normalcourse of business, the Company's customer, trading and correspondent clearanceactivities include executing, settling and financing various securities andfinancial instrument transactions. To execute these transactions, the Companypurchases and sells (including "short sales") securities, writesoptions, and purchases and sells forward contracts for mortgage-backedsecurities and foreign currencies and financial futures contracts. If thecustomer or counterparty to the transaction is unable to fulfill itscontractual obligations, and margin requirements are not sufficient to coverlosses, the Company may be exposed to off-balance sheet risk. In thesesituations, the Company may be required to purchase or sell financialinstruments at prevailing market prices, which may not fully cover theobligations of its customers or counterparties. This risk is limited byrequiring customers and counterparties to maintain margin collateral thatcomplies with regulatory and internal guidelines. Additionally, with respect tothe Company's correspondent clearance activities, introducing correspondentbrokers are required to guarantee the performance of their customers to meetcontractual obligations.

 

As part of theCompany's financing and securities settlement activities, the Company usessecurities as collateral to support various secured financing sources. If thecounterparty does not meet its contractual obligation to return securities usedas collateral, the Company may be exposed to the risk of reacquiring thesecurities at prevailing market prices to satisfy its obligations. The Companycontrols this risk by monitoring the market value of securities pledged eachday and by requiring collateral levels to be adjusted in the event of excessmarket exposure.

 

The Companyenters into forward contracts under which securities are delivered or receivedin the future at a specified price or yield. If counterparties are unable toperform under the terms of the contracts or if the value of securities andinterest rates changes, the Company is exposed to risk. Such risk is controlledby monitoring the market value of the securities contracted for each day and byreviewing the creditworthiness of the counterparties.

 

The settlement of these transactions is not expected tohave a material adverse effect on the Company's consolidated financialstatements.

 

**12.           TrustSecurities**

 

On August 31, 2001, the Company redeemed its$200 million 8.42% redeemable preferred trust securities, at a redemptionprice of $25 per preferred security, plus accrued and unpaid distributions tothe redemption date.

 

**13.         Stockholders' Equity**

** **

In February 2001,CSFBI transferred CSFB Capital Holdings, Inc. to the Company as a capitalcontribution of $34.5 million. CSFB Capital Holdings, Inc. is theparent of Credit Suisse First Boston Capital LLC ("CSFB Capital"),which is a broker–dealer registered with the Securities and ExchangeCommission. On May 1, 2001, CSFB Capital received regulatory approval tocommence operating as an OTC derivatives dealer pursuant to Appendix F ofRule 15c3-1.

 

On August 21, 2001, a tender offer was completedfor the outstanding shares of CSFB*direct*common stock. See footnote 3 for discussion of the tender offer and retirementof CSFB*direct* common stock.

 

As a result of the change in capital structurebrought about by the Acquisition by CSFBI of all of the outstanding shares ofCSFB (USA) voting Common Stock and acquisition of CSFB*direct* non-voting stock, 1,100 shares ofCSFB (USA) Common Stock were issued to CSFBI. All share amounts have beenadjusted retroactively to reflect this change in capital structure.

 

CSG Share PlanActivity includes amounts contributed by CSFBI related to retention awards andother stock awards to be settled in Credit Suisse Group shares.

 

**14.           Leases,Commitments and Contingent Liabilities**

 

InFebruary 2001, the Company assigned its interest in substantially allleases and sold the related leasehold improvements of its former headquartersand recorded approximately $166.1 million in other income for the nine monthsended September 30, 2001 in the accompanying condensed consolidatedstatements of operations.

 

In the normalcourse of business, the Company enters into firm underwriting commitments,which represent the Company's future obligation to issue and sell securitiesfor or on behalf of a customer. The Company had approximately $2.8 billion and$1.8 billion in outstanding firm underwriting commitments atSeptember 30, 2001, and December 31, 2000, respectively.

 

The Companywas contingently liable for letters of credit aggregating approximately $0.7billion and $1.0 billion at September 30, 2001 and December 31,2000, respectively, which satisfy various collateral requirements.

 

The Companyhad commitments to invest on a side-by-side basis with merchant bankingpartnerships of approximately $1.75 billion and $1.6 billion atSeptember 30, 2001 and December 31, 2000, respectively.

 

**15.           IndustrySegment and Geographic Data**

 

The Companyoperates and manages its businesses through four operating segments: Equity,Investment Banking ("IBD"), Fixed Income ("FID") andFinancial Services.

 

Such segmentsare managed based on types of products and services offered and their relatedclient bases. The Company evaluates the performance of its segments basedprimarily on income (loss) before income taxes and cumulative effect of achange in accounting principle.

 

In conjunctionwith the Acquisition, the Company changed its method of allocation ofunderwriting revenues and related expenses to operating segments to conform tothe CSFB methodology. Accordingly, segment data has been restated to conform tothe current method of managing its business. The change in allocation did nothave an effect on the Company's consolidated results.

 

The Company allocates to its segments a pro rata shareof certain centrally managed costs such as leased facilities and equipment costs,employee benefits and certain general overhead expenses based upon specifiedamounts, usage criteria or agreed rates, and allocates interest expense basedupon the type of asset. The interest rates applied will also vary dependingupon the type and duration of the asset. The segment allocation of some costs,such as incentive bonuses, has been estimated.

 

The Company has notallocated merger–related costs to its segments since none of these costsrepresent normal operating costs. Instead, these costs are in theElimination & Other category. All other accounting policies of thesegments are the same as those described in the summary of significantaccounting policies.

 
|                                                                                              |   |       |    |    |   |              |   | **Financial** |    | **Elimination** |   |      |   |
|---------------------------------------------------------------------------------------------------|--------|------------|---------|---------|--------|-------------------|--------|---------------|---------|-----------------|--------|-----------|--------|
|                                                                                              |   | **Equity** |    | **IBD** |   | **FID**           |   | **Services**  |    | **& Other** |   | **Total** |   |
|                                                                                              |   |       |    |    |   | **(in millions)** |   |          |    |            |   |
| **For the Quarters Ended:**                                                                       |   |       |    |    |   |              |   |          |    |            |   |      |   |
| **September 30, 2001**                                                                            |   |       |    |    |   |              |   |          |    |            |   |      |   |
| Net revenues from external  sources                                                               |   | $          | 363.1   |    | $      | 302.5             |   | $             | 100.8   |            | $      | 277.2     |   | $ | (3.0 | ) | $ | 1,040.6 |   |
| Net intersegment revenues                                                                         |   | -          |    | -       |   | -                 |   | 21.1          |    | (21.1           | )      | -         |   |
| Net interest and dividend  revenue                                                                |   | (30.7      | )       | 8.4     |   | 249.8             |   | 67.6          |    | (2.9            | )      | 292.2     |   |
| Loss before provision for  income taxes and cumulative effect of a change in accounting principle |   | $          | (57.0   | )       | $      | (283.9            | )      | $             | (122.3  | )               | $      | (11.5     | )      | $ | (129.9 | ) | $ | (604.6 | ) |
|                                                                                              |   |       |    |    |   |              |   |          |    |            |   |      |   |
| **September 30, 2000**                                                                            |   |       |    |    |   |              |   |          |    |            |   |      |   |
| Net revenues from external  sources                                                               |   | $          | 228.1   |    | $      | 426.1             |   | $             | 158.2   |            | $      | 336.4     |   | $ | 2.7 |   | $ | 1,151.5 |   |
| Net intersegment revenues                                                                         |   | (1.0       | )       | -       |   | (0.1              | )      | 40.6          |    | (39.5           | )      | -         |   |
| Net interest and dividend  revenue                                                                |   | 25.6       |    | (4.1    | )      | 41.7              |   | 104.8         |    | 19.7            |   | 187.7     |   |
| Income (loss) before income  taxes                                                                |   | $          | (61.5   | )       | $      | 69.8              |   | $             | 49.8    |            | $      | 62.7      |   | $ | (41.8 | ) | $ | 79.0 |   |
|                                                                                              |   |       |    |    |   |              |   |          |    |            |   |      |   |
| **For the Nine Months Ended:**                                                                    |   |       |    |    |   |              |   |          |    |            |   |      |   |
| **September 30, 2001**                                                                            |   |       |    |    |   |              |   |          |    |            |   |      |   |
| Net revenues from external  sources                                                               |   | $          | 1,773.4 |    | $      | 1,306.4           |   | $             | 1,002.6 |            | $      | 894.4     |   | $ | 267.2 |   | $ | 5,244.0 |   |
| Net intersegment revenues                                                                         |   | -          |    | -       |   | -                 |   | 74.3          |    | (74.3           | )      | -         |   |
| Net interest and dividend  revenue                                                                |   | (178.1     | )       | (21.1   | )      | 691.0             |   | 240.4         |    | (5.0            | )      | 727.2     |   |
| Income (loss) before income  taxes and cumulative effect of a change in accounting principle      |   | $          | 325.0   |    | $      | (553.4            | )      | $             | 417.2   |            | $      | (17.8     | )      | $ | (219.5 | ) | $ | (48.5 | ) |
|                                                                                              |   |       |    |    |   |              |   |          |    |            |   |      |   |
| **September 30, 2000**                                                                            |   |       |    |    |   |              |   |          |    |            |   |      |   |
| Net revenues from external  sources                                                               |   | $          | 1,014.5 |    | $      | 1,476.9           |   | $             | 482.0   |            | $      | 1,182.4   |   | $ | (2.2 | ) | $ | 4,153.6 |   |
| Net intersegment revenues                                                                         |   | (4.1       | )       | -       |   | (0.2              | )      | 128.1         |    | (123.8          | )      | -         |   |
| Net interest and dividend  revenue                                                                |   | $          | 57.4    |    | $      | (14.6             | )      | $             | 132.0   |            | $      | 336.1     |   | $ | 92.7 |   | $ | 603.6 |   |
| Income (loss) before income  taxes                                                                |   | $          | 47.7    |    | $      | 327.7             |   | $             | 163.6   |            | $      | 325.0     |   | $ | (138.3 | ) | $ | 725.7 |   |

 

The following is a reconciliation of the Company's reported revenuesand income before provision for income taxes and cumulative effect of change inaccounting principle to the Company's consolidated totals: 

 
|                                                                                                     |   | **For the Quarter Ended**** September 30,** |    | **For the Nine****Months Ended September 30,** |   |
|----------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|---------|-----------------------------------------------------|--------|
|                                                                                                     |   | **2001**                                         |    | **2000**                                            |   | **2001** |   | **2000** |   |
| Revenues:                                                                                                |   |                                             |    |                                                |   |   |   |   |   |
| Total net revenues for  reported segments                                                                |   | $                                                | 1,359.8 |                                                | $      | 1,323.9 |   | $ | 5,783.3 |   | $ | 4,650.5 |   |
| All other revenues                                                                                       |   | (5.9                                             | )       | 54.8                                                |   | 262.2 |   | 230.5 |   |
| Consolidation/elimination(1)                                                                             |   | (21.1                                            | )       | (39.5                                               | )      | (74.3 | ) | (123.8 | ) |
| Total consolidated net  revenues                                                                         |   | $                                                | 1,332.8 |                                                | $      | 1,339.2 |   | $ | 5,971.2 |   | $ | 4,757.2 |   |
| Income before provision for  income taxes:                                                               |   |                                             |    |                                                |   |   |   |   |   |
| Total income for reported  segments                                                                      |   | $                                                | (474.7  | )                                                   | $      | 104.6 |   | $ | 171.0 |   | $ | 794.1 |   |
| All other income (loss)                                                                                  |   | (108.8                                           | )       | 13.9                                                |   | (145.2 | ) | 55.4 |   |
| Consolidation/elimination(1)                                                                             |   | (21.1                                            | )       | (39.5                                               | )      | (74.3 | ) | (123.8 | ) |
| Total income before  provision for income taxes and cumulative effect of change in accounting  principle |   | $                                                | (604.6  | )                                                   | $      | 79.0 |   | $ | (48.5 | ) | $ | 725.7 |   |

 

----

(1)Consolidation/elimination represents intercompanyaccounts/intersegment revenue-sharing arrangements that are eliminated inconsolidation.

 

The Company's principal operations are located inthe United States. The Company maintains offices in Europe, Latin America andAsia. Historically, the majority of foreign business was done through theLondon offices. The Company's foreign revenues are not significant.

 

**16.           LegalProceedings**

 

Certainsignificant legal proceedings and matters have been previously disclosed in theCompany's Annual Report on Form 10-K for the year ended December 31,2000, Quarterly Reports on Form 10-Q for the three months endedMarch 31, 2001 and the six months ended June 30, 2001, or Current Reportson Form 8-K previously filed in 2001. The following is an update of suchproceedings:

 

Anagreement, dated September 28, 2001, has been entered into to settle the claimsagainst DLJSC arising out of DLJSC’s activities as financial advisor to NationalGypsum Corporation (“NGC”).  Thesettlement agreement was reached in the course of NGC’s Chapter 11reorganization proceedings.  Thesettlement is subject to notice to the class members in the class action andcourt approval.

 

In the actionfiled by GSC Recovery, Inc. in New Jersey State Court arising out ofalleged misrepresentations and omissions relating to GSC's purchases of certainunsecured AmeriServe notes issued on or about October 1, 1999, the Courtdenied plaintiff’s motion to reconsider the Court’s decision granting in part,and denying in part, the motion to dismiss filed on March 6, 2001 by theDLJ entities named as defendants.  OnAugust 10, 2001, plaintiff filed a second amended complaint and the DLJentities served an answer to the second amended complaint on September 4, 2001.

 

On August 31, 2001, Conseco Capital Management, Inc. filed anamended complaint in the litigation originally filed on January 30, 2001 in theU.S. District Court for the Southern District of New York against DLJSC, DLJMerchant Banking, Inc., DLJ Merchant Banking Partners, L.P., DLJ MerchantBanking Partners II, L.P., and certain officers, directors and otherindividuals and entities.  The amendedcomplaint asserts claims for fraudand control person liability under federal securities law.

 

On October 5, 2001, the U.S. District Court forthe Southern District of New York dismissed the putative class action complaintfiled in September 2000 that alleged, among other things, that certainstatements in the 1999 prospectus issued in connection with the initial publicoffering of DLJ*direct* shares were false and misleading in their descriptionof the rights attributable to the DLJ*direct*shares; that the tender offermaterials disseminated in connection with Credit Suisse Group's acquisition ofDLJ (the "CSG Transaction") were false and misleading in allegedlyfailing to describe certain rights to the DLJ*direct* shares in connectionwith the CSG Transaction, among other things; and that those allegedmisstatements constituted violations of the federal securities laws.

 

On September 28, 2001, the defendants moved todismiss the consolidated issuer complaint in the *In re Public Offering Fee Antitrust Litigation.*

 

We intend todefend vigorously against all of the claims asserted in these matters.

 

We areinvolved in a number of judicial, regulatory and arbitration proceedings(including those described above and actions that have been separatelydescribed in previous filings) concerning matters arising in connection withthe conduct of our businesses. Some of the actions have been brought on behalfof various classes of claimants and seek damages of material and indeterminateamounts. We believe, based on currently available information and advice ofcounsel, that the results of such proceedings, in the aggregate, will not havea material 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.

 

**17.         Other Event**

 

As a result of the terroristattacks in New York City on September 11, 2001, the Company has identifiedapproximately $40 million of direct losses consisting primarily of leaseholdimprovements, furniture and fixtures and equipment at Five World Trade Centerand other incremental expenses. The Company’s parent, CSFBI, has received $20million as an advance against these losses from insurance carriers in Septemberand October, 2001.  The results ofoperations for the quarter and nine months ended September 30, 2001 include $20million of direct costs which have not yet been recovered from insurancecarriers.  Certain other losses,including costs related to the recreation of lost data, relocation ofoperations, etc. have not been separately identified and will be included inthe results of operations in the period in which they are incurred. The Companyis in the process of assessing whether any of these losses qualify for recoveryunder any of its insurance policies.

 

**18.         Subsequent Events**

 

On October 19,2001, the Company filed a new $10.5 billion shelf registration statement withthe Securities and Exchange Commission, which enables the Company to issue upto an additional $10.0 billion of senior and subordinated debt securities andwarrants.

 

On October 30, 2001, the Companycommenced its offer to acquire all of the outstanding shares of itsFixed/Adjustable Rate Cumulative Preferred Stock, Series B, (liquidationpreference $50.00 per share), for $52.20 per share, plus accrued and unpaiddividends.

 

On November 6, 2001, the Companyissued $3.0 billion of 6.125% Senior Notes due 2011 off its effective shelfregistration statement.

 

+**MANAGEMENT'SDISCUSSION AND ANALYSIS OF**

**FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

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

 

We are aglobal integrated investment bank serving institutional, corporate, governmentand individual clients. On November 3, 2000, Credit Suisse Group acquiredDLJ, which we call the Acquisition. For a complete description of the Acquisition,we refer you to our Annual Report on Form 10-K for the year endedDecember 31, 2000 filed with the Securities and Exchange Commission.

 

We have madein this Quarterly Report on Form 10-Q for the three and nine months endedSeptember 30, 2001, and from time to time may otherwise make in our publicfilings, press releases and discussions with our management,"forward-looking statements", within the meaning of the safe harborprovisions of the Private Securities Litigation Reform Act of 1995, concerningour operations, economic performance and financial condition, as well as ourstrategic objectives, including, without limitation, global expansion. Theseforward-looking statements are not historical facts but instead represent onlyour belief regarding future events, many of which, by their nature, areinherently uncertain and beyond our control. Such forward-looking statementsare subject to various risks and uncertainties, and we claim the protectionafforded by the safe harbor for forward-looking statements contained in thePrivate Securities Litigation Reform Act of 1995. Actual results could differmaterially from those currently anticipated because of a number of factors inaddition to those discussed elsewhere herein and in our other public filings,press releases and discussions with our management, including:

 

•              the volatile natureof the securities business, which is affected by, among other things, theavailability of capital, the level and volatility of interest rates and theuncertainties of the global and U.S. economies;

 

•           thecompetitive nature of the securities business;

 

•               the effect of extensive federal,state and foreign regulation on our business;

 

•               market, credit and liquidityrisks associated with our underwriting, securities trading, market-making,online and traditional brokerage and arbitrage activities;

 

•               potential losses that couldresult from our private equity and merchant banking activity as a result of itscapital intensive nature;

 

•               risks associated with our use ofderivative financial instruments;

 

•               the availability of adequatefinancing to support our business;

 

•               potential restrictions on thebusiness of, and withdrawal of capital from, certain of our subsidiaries due tonet capital requirements;

 

•               risks associated with potentialsystems limitations or systems failures in our clearance and settlement andtrading businesses;

 

•               potential liability under federaland state securities and other laws; and

 

•               the ability to integrateeffectively existing and any future acquisitions, including integration effortsrelated to the Acquisition.

 

**BUSINESS ENVIRONMENT**

 

Our principalbusiness activities, investment banking and private equity, securitiesunderwriting, sales and trading, and correspondent and online brokerageservices, are, by their nature, highly competitive and subject to generalmarket conditions, volatile trading markets and fluctuations in the volume ofmarket activity. Consequently, our operations and our results have been, andare likely to continue to be, subject to wide fluctuations reflecting theimpact of many factors beyond our control, including securities marketconditions, the level and volatility of interest rates, competitive conditionsand the size and timing of transactions.

 

During thethird quarter difficult market conditions continued to affect our industry as awhole, and all our businesses, particularly equity capital markets andinvestment banking. In addition, the terrorist attacks of September 11, 2001 inNew York and Washington, D.C. led to the closing of domestic financial marketsfor almost a week. Investors’ fear and uncertainty were reflected in a dramaticdrop in all major indices.  The fullimpact of these events on the economy and our business remains unknown.

 

Merger and acquisition activity during thefirst nine months of 2001 is approximately half the level of the comparableperiod one year ago, and U.S. equity underwriting is off by more than one thirdfrom the previous year. The outlook for the new issues market continues to bebleak in virtually all sectors. As a consequence, our results for the thirdquarter of 2001 have been adversely affected. The difficult operatingenvironment has adversely impacted most of our businesses, particularly mergersand acquisitions, equity capital markets and financial services.

 

**RECENT DEVELOPMENTS**

 

On August 21, 2001, CSFB*direct*Acquisition Corp., a wholly-owned subsidiaryof CSFBI, completed a tender offer and acquired the 18.4 million sharesof CSFB*direct*common stock ownedby the public for $6.00 per share in cash, or a total of approximately $110.4million.  The Company subsequentlyeffected a short-form merger to acquire the shares and has deregistered anddelisted the shares of CSFB*direct* common stock from the New YorkStock Exchange and retired all shares. Subsequent to completing the tender offer, CSFB*direct* Acquistion Corp. was merged intoCSFB (USA), Inc. with CSFB (USA), Inc. as the surviving entity.  No earnings per share data is beingpresented for the current or prior periods.

 

OnAugust 31, 2001, the Company redeemed its $200 million 8.42%redeemable preferred trust securities, at a redemption price of $25 perpreferred security, plus accrued and unpaid distributions to the redemptiondate.

 

On October 9,2001, our ultimate parent, Credit Suisse Group announced that CSFB, thebusiness unit of which we are a part, has initiated an extensive cost-reductionprogram to reduce operating costs by approximately $1 billion for the 2002financial year by reducing staff levels, as well as achieving savings fromother non-staff costs. CSFB will eliminate approximately 2,000 jobs(approximately 7% of its workforce), with reductions coming from all divisionsof the organization. Many of these staff and non-staff reductions will be madeat the Company level. We expect that implementation of this cost-reductioninitiative, as well as potentially other measures, will have a negative impactin the fourth quarter of 2001 from charges relating to the acceleration ofretention payments and guaranteed bonuses and other severance costs and otherone-time charges.

 

On October 19,2001, the Company filed a new $10.5 billion shelf registration statement withthe Securities and Exchange Commission that enables it to issue up to $10.0billion of senior and subordinated debt securities and warrants.  On November 6, 2001, the Company issued $3.0billion of 6.125% Senior Notes due 2011 off its effective shelf registrationstatement.

 

On October 30, 2001, the Companycommenced its offer to acquire all of the outstanding shares of itsFixed/Adjustable Rate Cumulative Preferred Stock, Series B, (liquidationpreference $50.00 per share), for $52.20 per share, plus accrued and unpaiddividends.

 

On November 6, 2001, the Companyissued $3.0 billion of 6.125% Senior Notes due 2011 off its effective shelfregistration statement.

 

**RESULTS OF OPERATIONS**

 

We are part ofthe CSFB business unit of Credit Suisse Group, but our results do notnecessarily reflect the overall performance of CSFB or Credit Suisse Group.

 

The transferof Credit Suisse First Boston Corporation, or CSFB Corp., Credit Suisse Group'sprincipal U.S. registered broker-dealer subsidiary, to us by our direct parent,Credit Suisse First Boston, Inc., or CSFBI, in November 2000 had asignificant effect on our statement of financial condition and results ofoperations. As a result, inclusion of results of CSFB Corp. for the nine monthsended September 30, 2001 increased virtually all revenue, expense andstatement of financial condition line items. Because of the inclusion of CSFBCorp. from November 3, 2000 through December 31, 2000, and for thenine months ended September 30, 2001, our financial statements may not be fullycomparable with prior periods. For more information on the transfer of CSFBCorp. to us, we refer you to our Annual Report on Form 10-K for the yearended December 31, 2000.

 

We refer youto note 2 of notes to the condensed consolidated financial statements fora discussion of restructuring and merger-related costs.

 

##### ***QuarterEnded September 30, 2001 Compared to Quarter Ended September 30, 2000***

 

For the threemonths ended September 30, 2001, total net revenues decreased$6.4 million, or 0.5% to $1.3 billion. During the third quarter of2001, revenues decreased primarily as a result of decreases in trading gainsdue to difficult market conditions affecting the industry in general, and theeffect of the terrorist attacks in New York City and Washington, D.C. onSeptember 11, 2001. This decrease was offset in part by an increase in interestincome, investment banking and advisory revenue and commissions.. Inconjunction with the Acquisition, we changed our method of allocation ofunderwriting revenues and related expenses to operating segments to conform tothe CSFB methodology. Accordingly, segment data has been restated to conform tothe current method of managing our business.

 

Equity Division net revenues from external sources increased $135.0million or 59.2% to $363.1 million, primarily as a result of the inclusion ofCSFB Corp. Investment Banking Division net revenues from external sourcesdecreased $123.6 million or 29.0% to $302.5 million, primarily as a resultof losses in the private equity area due to unfavorable market conditions.Fixed Income Division net revenues from external sources decreased $57.4million or 36.2% to $100.8 million, principally as a result of decreasedtrading gains in the mortgage and other asset-backed areas. Financial ServicesDivision net revenues from external sources decreased $59.2 million or 17.6% to$277.2 million, primarily as a result of decreased commission revenues in ourcorrespondent and online brokerage businesses, and the transfer of the assetmanagement business to Credit Suisse Asset Management in November 2000.For more information on segment data, we refer you to note 15 of notes tothe condensed consolidated financial statements.

 

Principaltransactions-net, decreased $199.6 million or 90.8% to $20.3 million,primarily as a result of losses on our private equity investments due tounfavorable market conditions and losses in the Fixed Income Division,particularly in mortgage and other asset-backed products, offset by netinterest income.

 

Investmentbanking and advisory revenues increased $62.5 million or 10.5% to$657.3 million as a result of the inclusion of CSFB Corp. revenues andincreased underwriting revenue and fees from debt capital market transactions.These increases more than offset decreased investment banking fees.

 

Commissionrevenues increased $45.5 million or 14.7% to $354.2 million,primarily as a result of the inclusion of CSFB Corp, which more than offset adecline in daily trading volume in our online and correspondent brokeragebusiness.

 

Interest anddividend income, net of interest expense, increased $104.5 million or55.7% to $292.2 million. The increase was primarily attributable to theinclusion of CSFB Corp., offset in part by reduced interest rates on lowercustomer balances in the online and correspondent brokerage businesses.

 

Total costsand expenses for the three months ended September 30, 2001 increasedapproximately $677.1 million or 53.7% to $1.9 billion, primarily due tomerger–related costs and the inclusion of CSFB Corp. The Company isincluded in an extensive cost reduction program to reduce operating costswithin CSFB by approximately $1 billion for the 2002 financial year. (SeeRecent Developments for a description of CSFB’s cost reduction plans.)

 

Employeecompensation and benefits increased $370.6 million or 43.4% to$1.2 billion. The increase was primarily attributable to increasedheadcount due to the inclusion of CSFB Corp. As is normal in our industry, asignificant portion of compensation expense is a bonus amount awarded at orshortly after year-end. Bonuses are based upon a number of factors includingthe profitability of each business segment and market conditions. From time totime to attract new employees or to retain existing employees in a competitiveenvironment, in the past we have guaranteed certain minimum compensationlevels. For these reasons and as a result of the Acquisition, we providedgreater bonus guarantees for 2001 than in prior fiscal years. Consistent withindustry practice, certain of these guarantees are multi-year and extend intofiscal years beyond 2001. As a result of a change in senior management and inresponse to the poor market conditions that currently exist, we are in theprocess of renegotiating certain of these guarantees. We anticipate that as aresult of the renegotiations and other steps we are currently taking, such asstaff reductions, our compensation and benefit costs will be reduced in 2002.

 

Occupancy andequipment rental increased $69.2 million to $179.6 million;brokerage, clearing, exchange fees and other expenses increased$43.6 million to $84.2 million; communications expense increased by$21.0 million to $76.2 million; and professional fees increased$29.2 million to $83.5 million, in each case principally due to theinclusion of CSFB Corp. Merger and other related costs of $108.1 millionreflect the accrual of the retention awards related to the merger. Otheroperating expenses increased $35.4 million to $181.0 million.

 

EquityDivision pre-tax loss decreased $4.5 million to a loss of $57.0 million,primarily due to the inclusion of CSFB Corp. Investment Banking Division pre-taxincome decreased $353.7 million to a loss of $283.9 million, primarily as aresult of decreased underwriting revenues and fees related to mergers andacquisitions activity. Fixed Income Division pre-tax income decreased $172.1million to a loss of $122.3 million, primarily as a result of decreased tradinggains in high-yield, government bonds and mortgage and other real estateproducts. Financial Services Division pre-tax income decreased $74.2 million toa loss of $11.5 million, primarily as a result of decreased commissions,underwritings and interest income related to our correspondent and onlinebrokerage businesses, and the transfer of the asset management business toCredit Suisse Asset Management.

 

Our income tax provision (benefit) for the thirdquarter of 2001 and 2000 was $(206.7) million and $29.2 million, a34.2% and 37.0% effective tax rate, respectively.

 

The net lossfor the third quarter 2001 was $397.9 million compared with net income of$49.8 million in the third quarter of 2000.

 

***Nine Months Ended September 30,2001 Compared to Nine Months Ended September 30, 2000***

 

For the ninemonths ended September 30, 2001, total net revenues increased$1.2 billion, or 25.5% to $6.0 billion. During the first nine months of2001, revenues increased in all areas, primarily due to the inclusion of CSFBCorp. Included in other income is a pre-tax gain of approximately$166.1 million from the assignment of the lease and sale of leaseholdimprovements of our former headquarters at 277 Park Avenue.  Equity Division net revenues from externalsources increased $758.9 million or 74.8 % to $1,773.4 millionprimarily as a result of increased trading revenues due to the inclusion ofCSFB Corp. Investment Banking Division net revenues from external sourcesdecreased $170.5 million or 11.5% to $1.3 billion primarily due tothe decline in underwritings and merger and acquisition fees offset in part bythe inclusion of CSFB Corp. Fixed Income Division net revenues from externalsources increased $520.6 million or 108% to $1.0 billion, principally as aresult of increased trading gains due to the inclusion of CSFB Corp. FinancialServices Division net revenues from external sources decreased$288.0 million or 24.4% to $894.4 million primarily as a result ofdecreased commission revenues in our correspondent and online brokeragebusinesses, and the transfer of the asset management business to Credit SuisseAsset Management in November 2000.

 

Principaltransactions-net, increased $440.8 million or 46.4% to $1.4 billionprimarily as a result of gains in the Equity Division and the Fixed IncomeDivision, particularly in mortgage and other real estate products. Theseincreases were offset by losses on our private equity investments due tounfavorable market conditions.

 

Investmentbanking and advisory revenues increased $528.6 million or 26.8% to$2.5 billion primarily as a result of the inclusion of CSFB Corp.revenues.  The transfer of the assetmanagement business to Credit Suisse Asset Management in November 2000 andthe contraction in the U.S. new issues market partially offset these increases.

 

Commissionrevenues increased slightly by $3.1 million or 0.3% to $1.2 billiondespite adverse market conditions, primarily as a result of the inclusion ofCSFB Corp. These increases were offset by decreases in commissions in ouronline and correspondent brokerage operations due to unfavorable marketconditions.

 

Interest anddividend income, net of interest expense, increased $123.6 million or20.5% to $727.2 million. The increase was primarily attributable to theinclusion of CSFB Corp.

 

Other incomeincreased $117.9 million to $198.3 million primarily as a result of apre-tax gain of approximately $166.1 million on the assignment of thelease and sale of related leasehold improvements on our former headquarters.

 

Total costsand expenses for the nine months ended September 30, 2001 increasedapproximately $2.0 billion or 49.3% to $6.0 billion, primarily due tomerger related costs and the inclusion of CSFB Corp. The Company is included inan extensive cost reduction program to reduce operating costs within CSFB byapproximately $1 billion for the 2002 financial year. (See Recent Developmentsfor a description of CSFB’s cost reduction plans.)

 

Employeecompensation and benefits increased $997.1 million or 35.1% to$3.8 billion. The increase was primarily attributable to increasedheadcount due to the inclusion of CSFB Corp. As is normal in our industry, asignificant portion of compensation expense is a bonus amount awarded at orshortly after year-end. Bonuses are based upon a number of factors includingthe profitability of each business segment and market conditions. From time totime to attract new employees or to retain existing employees in a competitiveenvironment, in the past we have guaranteed certain minimum compensationlevels. For these reasons and as a result of the Acquisition, we providedgreater bonus guarantees for 2001 than in prior fiscal years. Consistent withindustry practice, certain of these guarantees are multi-year and extend intofiscal years beyond 2001. As a result of a change in senior management and inresponse to the poor market conditions that currently exist, we are in theprocess of renegotiating certain of these guarantees. It is anticipated that asa result of the renegotiations and other steps we are currently taking, such asstaff reductions, our compensation will be reduced in 2002.

 

Occupancy and equipment rental increased$217.6 million to $519.5 million; communications expense increased$89.0 million to $228.6 million; brokerage, clearing, exchange feesand other expenses increased $100.5 million to $237.1 million; andprofessional fees increased $119.1 million to $276.5 million, in eachcase primarily due to the inclusion of CSFB Corp. Merger and other relatedcosts of $396.1 million reflect the accrual of the retention awardsrelated to the merger. All other operating expenses increased$68.7 million to $522.3 million, which resulted principally fromrebranding costs related to the CSFB*direct* name change as well as theinclusion of CSFB Corp.

 

Equity Division pre-tax income increased $277.3 million to$325.0 million principally due to the inclusion of CSFB Corp. InvestmentBanking Division pre-tax income decreased $881.1 million to a loss of $553.4 millionprincipally as a result of decreased underwritings and fees related to mergersand acquisitions activity. Fixed Income Division pre-tax income increased$253.6 million to $417.2 million principally as a result of increasedtrading gains due to the inclusion of CSFB Corp. Financial Services Divisionpre-tax income decreased $342.8 million to a loss of $17.8 million,principally as a result of decreasedcommissions and underwritings related to its correspondent and online brokeragebusinesses, and the transfer of the asset management business to Credit SuisseAsset Management.

 

Our income taxprovision (benefit) for the first nine months of 2001 and first nine months of2000 was $(22.1) million and $268.5 million, a 45.6% and 37.0%effective tax rate, respectively.

 

The net lossfor the first nine months of 2001 was $25.7 million compared with netincome of $457.2 million in 2000.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

Our assets arehighly liquid with the majority consisting of securities inventories andcollateralized receivables, each of which fluctuate depending on the levels ofproprietary trading and customer business. Such collateralized receivablesconsist primarily of resale agreements and securities borrowed both of whichare secured by U.S. government and agency securities, and marketable corporatedebt and equity securities. In addition, we have significant receivables fromcustomers, brokers and dealers that turn over frequently. To meet client needsas a securities dealer, we may carry significant levels of trading inventories.Because of changes relating to customer needs, economic and market conditionsand proprietary trading strategies, our total assets or the individualcomponents of total assets may vary significantly from period to period. AtSeptember 30, 2001 and December 31, 2000, our total assets were$219.2 billion and $212.2 billion, respectively.

 

The majorityof our assets are financed through daily operations by repurchase agreements,financial instruments sold not yet purchased, securities loaned, bank loans,commercial paper and payables to brokers and dealers. Short-term funding isgenerally obtained at rates related to federal funds, LIBOR and money marketrates. Depending upon prevailing market conditions, other borrowing costs arenegotiated. We monitor overall liquidity by tracking the extent to whichunencumbered marketable assets exceed short-term unsecured borrowings.

 

InMay 2001, we replaced our $2.8 billion credit facility with a$3.5 billion revolving credit facility available to CSFBI and us asborrowers. There were no borrowings outstanding under this facility atSeptember 30, 2001.

 

 InJune 2001, we filed a new shelf registration statement with the Securitiesand Exchange Commission, or the SEC, which enables us to issue up to$5.0 billion of senior and subordinated debt securities, preferred stockand warrants to purchase debt securities, preferred stock or other equitysecurities. During the quarter ended September 30, 2001 we issued  $2.25 billion 5 7/8%senior notes due 2006 off this effective shelf registration statement. TheCompany has issued $2.06 billion of medium-term notes off this effective shelfregistration statement from July 1, 2001 through October 30, 2001.

 

InJuly 2001, we established a Euro Medium-Term Note program, which enablesus to issue up to $5 billion of medium-term notes. This program replacesthe $1.0 billion Euro Medium-Term Note program established inApril 2000.   The Company has issued$520.2 million of medium-term notes off this program from July 1, 2001 throughOctober 30, 2001.

 

OnAugust 31, 2001, the Company redeemed its $200 million 8.42%redeemable preferred trust securities, at a redemption price of $25 perpreferred security, plus accrued and unpaid distributions to the redemptiondate.

 

On October 19,2001, the Company filed a new $10.5 billion shelf registration statement withthe SEC that enables it to issue up to $10.0 billion of senior and subordinateddebt securities and warrants.   OnNovember 6, 2001, the Company issued $3.0 billion of 6.125% Senior Notes due2011 off this effective shelf registration statement.

 

 On October 30, 2001, the Company commenced acash tender offer to acquire all of the outstanding shares of itsFixed/Adjustable Rate Cumulative Preferred Stock, Series B (liquidationperformance of $50.00 per share) for $52.20 per share, plus accrued and unpaiddividends.  The offer is expected toclose in the fourth quarter of 2001.

 

On November 6,2001, the Company issued $3.0 billion of 6.125% Senior Notes due 2011 off itseffective shelf registration statement.

 

Certain of ourbusinesses are capital intensive. In addition to normal operating requirements,capital is required to cover financing and regulatory charges on securitiesinventories, private equity investments and investments in fixed assets. Ouroverall capital needs are continually reviewed to ensure that our capital basecan appropriately support the anticipated needs of our business divisions aswell as the regulatory capital requirements of our subsidiaries. Based uponthese analyses, we believe that our debt and equity base is adequate forcurrent operating levels.

 

At September 30, 2001 the credit ratings of ourlong-term debt and commercial paper were as follows:

 
|                  |   | **Long-Term Debt** |   | **Commercial Paper** | ** ** |
|-----------------------|--------|--------------------|--------|----------------------|------------|
| Fitch                 |   | A+                 |   | F-1                  |       |
| Moody's               |   | A1                 |   | P-1                  |       |
| Standard & Poor's |   | AA-                |   | A-1+                 |       |

 

On October 31, 2001, Moody’s Investors raisedour long-term deposit and debt ratings to Aa3 from A1.

 

As registeredbroker-dealers and member firms of various self-regulatory organizations, eachof our broker-dealer subsidiaries, which include Donaldson, Lufkin &Jenrette Securities Corporation, or DLJSC, and CSFB Corp., is subject to theuniform net capital rule, Rule 15c3-1 under the Securities Exchange Act of1934. This rule specifies the minimum level of net capital a broker-dealer mustmaintain and also requires that part of its assets be kept in relatively liquidform. DLJSC and CSFB Corp. are also subject to the net capital requirements ofthe Commodity Futures Trading Commission and various commodity exchanges. AtSeptember 30, 2001, DLJSC and CSFB Corp. had aggregate net capital, afteradjustments required by Rule 15c3-1 of approximately $1.2 billion and $2.5billion, respectively, which exceeded minimum net capital requirements by $1.1billion and $2.3 billion, respectively.

 

The SEC, andvarious self-regulatory organizations impose rules that require notificationwhen net capital falls below certain predefined criteria, dictate the ratio ofsubordinated debt to equity in the regulatory capital composition of abroker-dealer and constrain the ability of a broker-dealer to expand itsbusiness under certain circumstances. Additionally, the SEC's uniform netcapital rule imposes certain requirements that may have the effect ofprohibiting a broker-dealer from distributing or withdrawing capital andrequiring prior notice to the SEC for certain withdrawals of capital.

 

Compliancewith net capital requirements of these and other regulators could limit thoseoperations of our subsidiaries that require the intensive use of capital, suchas underwriting and trading activities and the financing of customer accountbalances, and also could restrict our ability to withdraw capital from ourregulated subsidiaries, which in turn could limit our ability to pay our debtobligations.

 

At September30, 2001, our broker-dealer subsidiaries were in compliance with all applicableregulatory capital adequacy requirements.

 

***Cash Flows***

 

Ourconsolidated statements of cash flows classify cash flow into three broadcategories: cash flows from operating activities, investing activities andfinancing activities. Our net cash flows are principally associated withoperating and financing activities, which support our trading, customer andbanking activities.

 

The inclusionof results of CSFB Corp. for the first nine months of 2001 had a significanteffect on our financial statements, increasing virtually all revenue, expenseand statement of financial condition line items. Because of the inclusion ofCSFB Corp. for the nine months ended September 30, 2001, our financialstatements may not be fully comparable with prior periods. Due to the size ofthe Acquisition, the volume of activity of the combined entity wassignificantly greater than for our previous activities despite unfavorablemarket conditions.

 

***Nine Months Ended September 30, 2001and 2000***

 

At September30, 2001 and 2000, cash and cash equivalents totaled $2.1 billion and $4.3billion, respectively, a decrease of $0.7 billion and an increase of $2.3 billion,respectively, compared to December 31, 2000 and 1999.

 

Cash (used in)provided by operating activities totaled $(7.3) billion and $3.5 billion in thefirst nine months of 2001 and 2000, respectively. In the first nine months of2001, there were increases in assets including receivables from brokers,dealers and others of $11.5 billion and financial instruments owned of$1.7 billion and decreases in liabilities, including securities loaned of $12.3billion, accounts payable and accrued expenses of $3.3 billion and securitiessold short of $1.1 billion.  These werepartially offset by decreases in assets, including securities borrowed of $9.3billion, receivables from customers of $4.0 billion and increases in payablesto brokers, dealers and other of $7.5 billion and obligation to returnsecurities received as collateral of $1.0 billion. In 2000, there wereincreases in liabilities including payables to brokers, dealers and other of$3.1 billion, and decreases in assets, including securities borrowed of $ 5.9billion and financial instruments owned of $1.2 billion. These were partiallyoffset by increases in receivables from customers, brokers and dealers of $4.9billion, and decreases in securities sold short of $2.0 billion.

 

In the first nine months of 2001 and 2000, net cash used in investingactivities was $2.9 billion and $0.2 billion, respectively. In 2001, cash wasused primarily as a result loans to affiliates, offset in part by theprepayment of the $3.1 billion note receivable from our parent. In 2000,cash was used primarily to purchase long-term corporate development investmentsand office facilities.

 

In the firstnine months of 2001 and 2000, net cash provided by (used in) financingactivities totaled $9.5 billion and $1.0 billion, respectively. During the first nine months of 2001, $9.5billion was provided by short-term financings (principally repurchaseagreements), the issuance of $2.4 billion of senior notes, and a net increaseof $2.4 billion of medium-term notes. This increase was partially offset by therepayment of $4.2 billion of subordinated loan agreements. In the first ninemonths of 2000, $3.7 billion of short-term financings were repaid, which wasoffset in part by the issuance of $2.4 billion of senior notes, medium-term notesand structured borrowings.

 

We believe ourcash, cash equivalents and cash generated from operations and financingactivities will be sufficient to meet our expected cash needs for workingcapital and capital expenditures through at least the end of 2001.

 

**DERIVATIVE FINANCIAL INSTRUMENTS**

 

We enter intovarious transactions involving derivatives. In general, derivatives arecontractual agreements that derive their values from the performance ofunderlying assets, interest or currency exchange rates, or a variety ofindices. We enter into derivative transactions primarily for trading purposes,or to provide products for our clients. These transactions involve options,forwards, futures and swaps. We also enter into interest rate and crosscurrency swaps to modify the characteristics of periodic interest paymentsassociated with some of our long-term debt obligations.

 

InJune 1998, the Financial Accounting Standards Board issued SFASNo. 133, which was amended by SFAS No. 137 and SFAS No. 138, andwas adopted by the Company on January 1, 2001.

 

For furtherdiscussion of these matters, we refer you to note 10 of notes to thecondensed consolidated financial statements for the three and nine months endedSeptember 30, 2001 included herein, and note 12 of notes to theconsolidated financial statements and Management's Discussion and Analysis ofFinancial Condition and Results of Operations included in our Annual Report onForm 10-K for the year ended December 31, 2000.

 

**MERCHANT BANKING ACTIVITIES**

 

Our merchantbanking activities include direct investments and investments in variouspartnerships, for which our subsidiaries act as general partner. Theseinstruments are primarily in unlisted or illiquid equity or equity–relatedsecurities. At September 30, 2001 and December 31, 2000, we hadinvestments of $0.6 billion and $0.9 billion, respectively, and hadcommitments to invest up to an additional $2.7 billion and $1.6 billion,respectively.

 

**HIGH-YIELD DEBT, MORTGAGE WHOLE LOANSAND OTHER NON-INVESTMENT–GRADE DEBT**

 

We underwrite, trade, sell and hold high-yield debt,mortgage whole loans, senior bank and foreign sovereign debt and othernon-investment– grade debt. Due to credit considerations, liquidity ofsecondary trading markets and vulnerability to general economic conditions,these securities generally involve greater risk than investment–gradesecurities.

 

We recordhigh-yield debt at market value, mortgage whole loans and senior bank debt atlower of cost or market value and foreign sovereign and other non-investment-gradedebt at market value or fair value. At September 30, 2001, we had longpositions of high-yield debt, mortgage whole loans, and othernon-investment-grade debt of approximately $597.8 million, $9.3 billion, and$958.6 million, respectively, and short positions of approximately $155.6million, $971.7 million, and $437.0 million, respectively. At December 31,2000, we had long positions of high-yield debt, mortgage whole loans, seniorbank and foreign sovereign debt, and other non-investment-grade debt ofapproximately $1.1 billion, $6.9 billion, $929.4 million and$990.5 million, respectively, and short positions of approximately$536.8 million, $1.0 million, $0.8 million and$238.1 million, respectively. Timing of the securitization of our mortgagewhole loan inventory will impact the size of our positions at any given time.

 

**ITEM 3.  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK-CSFB (USA), INC.**

 

**RISK MANAGEMENT AND VALUE AT RISK**

 

For adescription of our risk management policies and procedures and thevalue-at-risk ("VAR") model, including such model's assumptions andlimitations, we refer you to the Management's Discussion and Analysis ofFinancial Condition and Results of Operations included in our Annual Report onForm 10-K for the year ended December 31, 2000. Our trading portfolioVAR was approximately $193 million and $103 million at September 30,2001 and December 31, 2000, respectively.

 

The VAR databelow shows the market risk exposures of our trading positions at September 30,2001 and December 31, 2000. Due to the benefit of diversification theCompany-wide VAR is less than the sum of the individual components.

 
|                            |   | **September 30,** |   | **December 31,** |       |
|---------------------------------|--------|-------------------|--------|------------------|------------|
|                            |   | **2001**          |   | **2000**         | ** ** |
|                            |   | **(In millions)** |   |
| Trading:                        |   |              |   |             |       |
| Interest rate risk              |   | $                 | 225.9  |             | $          | 99.9 |   |
| Equity risk                     |   | $                 | 43.7   |             | $          | 32.1 |   |
| Foreign currency exchange  risk |   | $                 | 9.8    |             | $          | 1.6 |   |
| Total                           |   | $                 | 193.4  |             | $          | 102.7 |   |

 

We have equity risk on our non-trading financialinstruments portfolio, which is mainly comprised of our merchant bankinginvestments. We measure this equity risk using a sensitivity analysis thatestimates the potential decline in the recorded value of the investmentsresulting from a 10% decline in equity markets. Different assumptions couldproduce materially different estimates of market risk as described in ourAnnual Report on Form 10-K for the year ended December 31, 2000. Ourequity risk on the non-trading portfolio was approximately $84 million and$97 million at September 30, 2001 and December 31, 2000,respectively. These non-trading market risk estimates measure the potentialdecline in the recorded value of the private equity investments.

 

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS—CSFB(USA), INC.**

 

During thethird quarter of 2001, there were two matters put to a shareholder vote.  John J. Mack was elected a director of theCompany on July 12, 2001.  On August 1,2001 Stephen Volk was elected a director of the Company.

 

**PART II**

**OTHER INFORMATION**

 

**ITEM 1. LEGALPROCEEDINGS—CSFB(USA), Inc.**

 

Certain significantlegal proceedings and matters have been previously disclosed in our AnnualReport on Form 10-K for the year ended December 31, 2000, QuarterlyReports on Form 10-Q for the three months ended March 31, 2001 andthe six months ended June 30, 2001, or Current Reports on Form 8-Kspreviously filed in 2001. The following is an update of such proceedings:

 

An agreement,dated September 28, 2001, has been entered into to settle the claims againstDLJSC arising out of DLJSC’s activities as financial advisor to National GypsumCorporation (“NGC”).  The settlementagreement was reached in the course of NGC’s Chapter 11 reorganizationproceedings.  The settlement is subjectto notice to the class members in the class action and court approval.

 

In the actionfiled by GSC Recovery, Inc. in New Jersey State Court arising out ofalleged misrepresentations and omissions relating to GSC's purchases of certainunsecured AmeriServe notes issued on or about October 1, 1999, the Courtdenied plaintiff’s motion to reconsider the Court’s decision granting in part,and denying in part, the motion to dismiss filed on March 6, 2001 by theDLJ entities named as defendants.  OnAugust 10, 2001, plaintiff filed a second amended complaint and the DLJentities served an answer to the second amended complaint on September 4, 2001.

 

On August 31,2001, Conseco Capital Management, Inc. filed an amended complaint in thelitigation originally filed on January 30, 2001 in the U.S. District Court forthe Southern District of New York against DLJSC, DLJ Merchant Banking, Inc.,DLJ Merchant Banking Partners, L.P., DLJ Merchant Banking Partners II, L.P.,and certain officers, directors and other individuals and entities.  The amended complaint asserts claims forfraud and control person liability under federal securities law.

 

On October 5, 2001, the U.S. District Court forthe Southern District of New York dismissed the putative class action complaintfiled in September 2000 that alleged, among other things, that certainstatements in the 1999 prospectus issued in connection with the initial publicoffering of DLJ*direct* shares were false and misleading in their descriptionof the rights attributable to the DLJ*direct*shares; that the tender offermaterials disseminated in connection with Credit Suisse Group's acquisition ofDLJ (the "CSG Transaction") were false and misleading in allegedlyfailing to describe certain rights to the DLJ*direct* shares in connectionwith the CSG Transaction, among other things; and that those allegedmisstatements constituted violations of the federal securities laws.

 

On September 28, 2001, the defendants moved todismiss the consolidated issuer complaint in the** ***In re Public Offering Fee Antitrust Litigation.*

 

We intend todefend vigorously against all of the claims asserted in these matters.

 

We areinvolved in a number of judicial, regulatory and arbitration proceedings(including those described above and actions that have been separatelydescribed in previous filings) concerning matters arising in connection withthe conduct of our businesses. Some of the actions have been brought on behalfof various classes of claimants and seek damages of material and indeterminateamounts. We believe, based on currently available information and advice ofcounsel, that the results of such proceedings, in the aggregate, will not havea material 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.

 

**ITEM 6. EXHIBITSAND REPORTS ON FORM 8-K**

 

(a)           Exhibits.

 

2.1           Agreement and Plan of Merger, dated as of July 11, 2001,among Credit Suisse First Boston, Inc., CSFB*direct*Acquisition Corp. and the Registrant, as amended (incorporated by reference toExhibit (d)(1) to the Tender Offer Statement on Schedule TO filed by CreditSuisse Group, Credit Suisse First Boston, Inc. and CSFBdirect Acquisition Corp.on July 24, 2001).

 

3.1                Sixth Amended and RestatedCertificate of Incorporation of Credit Suisse First Boston (USA), Inc.

 

4.3           Senior Indenture between the Registrant and The ChaseManhattan Bank, as trustee (incorporated by reference to Exhibit 4.1 to theRegistrant's Registration Statement on Form S–3, File No. 333–71850).

 

12            Computation of ratio of earnings to fixed charges.

 

12.1         Computation of ratio of earnings to combined fixed chargesand preferred stock dividends.

 

(b)           Reports on Form 8-K

 

1.             Form 8-Kdated August 23, 2001; Item 5

 

2.             Form 8-K dated October 9, 2001;Item 5

 

3.             Form8-K dated October 31, 2001; Item 5 and 7

 

**Signature**

 

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

 
|              |   | Credit Suisse First Boston  (USA), Inc.                                                                  |
|-------------------|--------|---------------------------------------------------------------------------------------------------------------|
| November 13, 2001 | By:    | /s/ David C. Fisher                                                                                      |
|              |   |                                                                                                          |
|              |   | David C. Fisher*Chief Accounting Officer   (On behalf of the Registrant and as**Principal Financial Officer)* |

 

**INDEX TO EXHIBITS**

 
| **Exhibits No.** |                                                                                                                                                                                                                                                                                                                                                                            | **Description** |   |
|------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|--------|
|             |                                                                                                                                                                                                                                                                                                                                                                            |            |   |   |   |
| 2.1              | Agreement and Plan of Merger, dated as of July 11,  2001, among Credit Suisse First Boston, Inc., CSFB*direct* Acquisition Corp. and the Registrant, as amended  (incorporated by reference to Exhibit (d)(1) to the Tender Offer Statement on  Schedule TO filed by Credit Suisse Group, Credit Suisse First Boston, Inc.  and CSFBdirect Acquisition Corp. on July 24, 2001). |
|             |                                                                                                                                                                                                                                                                                                                                                                            |            |   |   |   |
| 3.1              | Sixth Amended and Restated Certificate of  Incorporation of Credit Suisse First Boston (USA), Inc.*                                                                                                                                                                                                                                                                             |
|             |                                                                                                                                                                                                                                                                                                                                                                            |            |   |   |   |
| 4.3              | Senior Indenture between the Registrant and The Chase  Manhattan Bank, as trustee (incorporated by reference to Exhibit 4.1 to the  Registrant's Registration Statement on Form S–3, File No. 333–71850).                                                                                                                                                             |
|             |                                                                                                                                                                                                                                                                                                                                                                            |            |   |   |   |
| 12               | Computation of ratio of earnings to fixed charges.*                                                                                                                                                                                                                                                                                                                             |
|             |                                                                                                                                                                                                                                                                                                                                                                            |            |   |   |   |
| 12.1             | Computation of ratio of earnings to combined fixed  charges and preferred stock dividends.*                                                                                                                                                                                                                                                                                     |
|             |                                                                                                                                                                                                                                                                                                                                                                            |            |   |   |   |
|                  |                                                                                                                                                                                                                                                                                                                                                                                 |                 |        |  |  |  |  |

----

*              Filed herewith.