CREDIT SUISSE FIRST BOSTON USA INC - 10-Q Quarterly Report

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
For the Nine Months Ended September 30, 2004 and 2003
(In millions)

	Preferred Stock				Common Stock			Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive (Loss) Income				Total
Balances as of December 31, 2002		$	4			$	—	$	7,646		$	595		$	(156	)	$	8,089
Net income		—				—		—			1,190			—			1,190
Foreign currency translation adjustment		—				—		—			—			(1		)	(1		)
Total comprehensive income																	1,189
Redemption of Series B preferred stock		(4		)		—		—			—			—			(4		)
Capital contribution by CSFBI		—				—		75			—			—			75
CSG share plan activity, net of tax charge of $28		—				—		250			—			—			250
Balances as of September 30, 2003		$	—			$	—	$	7,971		$	1,785		$	(157	)	$	9,599
Balances as of December 31, 2003		$	—			$	—	$	8,012		$	1,787		$	(158	)	$	9,641
Net income		—				—		—			478			—			478
Decrease in pension liability		—				—		—			—			1			1
Total comprehensive income																	479
CSG share plan activity, including tax benefit of $99		—				—		354			—			—			354
Balances as of September 30, 2004		$	—			$	—	$	8,366		$	2,265		$	(157	)	$	10,474

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

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2004

1. Summary of Significant Accounting Policies

The Company

Credit Suisse First Boston (USA), Inc. and its subsidiaries (the “Company”) is a leading integrated investment bank serving institutional, corporate, government and high-net worth individual clients. The Company provides clients with a broad range of products and services that includes securities underwriting, sales and trading, financial advisory services, private equity investments, full-service brokerage services, derivatives and risk management products and investment research.

Basis of Presentation

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

Certain financial information that is normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America but not required for interim reporting purposes has been condensed or omitted. These condensed consolidated financial statements reflect, in the opinion of management, all adjustments (consisting of normal, recurring accruals) that are necessary for a fair presentation of the condensed consolidated statements of financial condition and income for the interim periods presented.

On June 4, 2004, the Company filed on Form 8-K (the “June 4 Form 8-K”) audited consolidated statements of financial condition as of December 31, 2003 and 2002 and the related audited consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the three years ended December 31, 2003, 2002 and 2001 and related notes, restated to reflect the transfer of the high-net-worth business discussed below and containing updated segment information to reflect the segment changes discussed both below and in Note 15 of the condensed consolidated financial statements.

The results of operations for interim periods are not necessarily indicative of results for the entire year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the June 4 Form 8-K.

To prepare condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, management must make estimates and assumptions. The reported amounts of assets and liabilities and revenues and expenses are affected by these estimates and assumptions, the most significant of which are discussed in the notes to the condensed consolidated financial statements. Estimates, by their nature, are based on judgment and available information. Therefore, actual results could differ materially from these estimates. For a description of the Company’s significant accounting policies, see Note 1 of the consolidated financial statements in the June 4 Form 8-K.

Prior period numbers have been restated to reflect the transfer by CSFBI, the Company’s immediate parent, of the high-net-worth business of Credit Suisse Asset Management, LLC (“CSAM”), a wholly owned subsidiary of CSFBI, to the Company as a capital contribution of $221 million on March 31, 2004. The transfer of this business was accounted for at historical cost in a manner similar to pooling-of-interest accounting because CSAM and the Company were under the common control of CSFBI at the time of transfer. Accordingly, the Company has restated its financial information for all periods presented to

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

1. Summary of Significant Accounting Policies (Continued)

reflect the results of operations, financial condition, cash flows and changes in stockholders’ equity of the CSAM high-net-worth business as if the Company had acquired it on November 3, 2000, the date that the Company was acquired by CSFBI. The transferred assets of this business consist principally of goodwill and intangible assets relating primarily to CSAM’s acquisition of Warburg Pincus Asset Management in 1999. In December 2003, CSAM wrote down the value of its high-net-worth intangible assets, resulting in a pre-tax loss of $200 million and an after-tax loss of $130 million. The loss is reflected in the restated audited consolidated financial statements included in the June 4 Form 8-K. For the three and nine months ended September 30, 2003, the CSAM high-net-worth business had net revenues of $1 million and $3 million, respectively. For the three and nine months ended September 30, 2003, the high-net-worth business had a net loss of $2 million and $6 million, respectively.

As of January 1, 2004, the Company transferred the private equity and private fund businesses from the Institutional Securities segment to the Financial Services segment, which has been renamed the Wealth & Asset Management segment. As a result, the Company changed the presentation of the Institutional Securities and Wealth & Asset Management segment results. In addition, the Company allocated to the segments merger-related costs and certain other costs and revenues, previously excluded from its reportable segments, which the Company believed did not represent normal operating costs and revenues. For comparative purposes, prior period segment numbers have been changed to conform to the new segment reporting structure. These segment changes did not affect the Company’s previously reported consolidated results of operations.

In early 2004, management identified erroneous profit recorded in the three and nine months ended September 30, 2003 on certain intercompany residential mortgage securitization-related transactions. The Company has restated total net revenues, income from continuing operations and net income from that filed with the Securities and Exchange Commission on Form 10-Q for the quarterly period ended September 30, 2003. For the three and nine months ended September 30, 2003, each of total net revenues and income from continuing operations has been reduced by $37 million and net income has been reduced by $24 million as previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2003 and the June 4 Form 8-K.

On May 1, 2003, the Company sold its Pershing unit (“Pershing”) to The Bank of New York Company, Inc. and recorded a pre-tax gain of approximately $1.3 billion and an after-tax gain of $852 million in the second quarter of 2003. The Pershing income is presented as discontinued operations for all periods presented in the condensed consolidated statements of income. The condensed consolidated statements of cash flows present the Company’s cash flows as if the assets and liabilities of Pershing were not presented as assets held for sale and liabilities held for sale in the condensed consolidated statement of financial condition as of December 31, 2002 used to prepare the condensed consolidated statement of cash flows for the nine months ended September 30, 2003. Therefore, the cash flows pertaining to discontinued operations have not been reported separately in the condensed consolidated statements of cash flows.

Certain other reclassifications have been made to prior year condensed consolidated financial statements to conform to the 2004 presentation.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

1. Summary of Significant Accounting Policies (Continued)

New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), which requires the Company to consolidate all variable interest entities (“VIEs”) for which it is the primary beneficiary, defined as the entity that will absorb a majority of expected losses, receive a majority of the expected residual returns, or both. In December 2003, the FASB modified FIN 46, through the issuance of FIN 46R, to address various implementation issues that had arisen since the issuance of FIN 46 and to provide companies the option to defer the adoption of FIN 46 for certain VIEs to periods ending after March 15, 2004. As of December 31, 2003, with the exception of certain private equity funds that were a subject of the deferral, the Company consolidated all VIEs under FIN 46, for which it is the primary beneficiary, all of which were related to its collateralized debt obligations (“CDO”) activities. During 2004, the Company consolidated certain private equity funds that are managed by the Company. As of September 30, 2004, the Company recorded $1.6 billion of additional private equity and other long-term investments, reduced other assets and other liabilities by $167 million and $79 million, respectively, and recorded $1.5 billion of minority interests in other liabilities in the condensed consolidated statement of financial condition through the consolidation of certain private equity funds primarily under FIN 46R. Similarly, for the three and nine months ended September 30, 2004, the Company recorded an increase of $55 million and $501 million, respectively, in net revenues and an increase of $6 million in expenses as a result of the consolidation of these private equity funds. Net income was unaffected as minority interests of $49 million and $495 million for the three and nine months ended September 30, 2004, respectively, were recorded in the condensed consolidated statements of income. See Note 6 for more information.

In May 2004, the FASB issued FASB Staff Position (“FSP”) 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“Medicare Act”) which supersedes FSP 106-1 issued in January 2004 with the same title (“FSP 106-2”). FSP 106-2 provides guidance on the accounting for the Medicare Act and is effective for the first interim or annual period beginning after June 15, 2004. The Medicare Act became law in December 2003 and introduced both a Medicare prescription drug benefit and a federal subsidy to sponsors of retiree health-care plans that provide a benefit that is at least “actuarially equivalent” to the Medicare benefit. The Company adopted FSP 106-2 on July 1, 2004 and has determined that its retiree health-care plans provide a benefit that is “actuarially equivalent” to the Medicare benefit. The effect of adopting FSP 106-2 was not significant. See Note 12 for more information.

On July 16, 2004, the FASB ratified the Emerging Issues Task Force (“EITF”) consensus on Issue 02-14, “Whether the Equity Method of Accounting Applies When an Investor Does Not Have an Investment in Voting Stock of an Investee but Exercises Significant Influence through Other Means” (“EITF 02-14”). The consensus concludes that an investor should apply the equity method of accounting when it can exercise significant influence over an entity through a means other than holding voting rights. The consensus is effective for reporting periods beginning after September 15, 2004. The adoption of EITF 02-14 is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

2. Share-Based Compensation

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

Share option awards granted in or before January 2003 for services provided in prior years, if not subsequently modified, will continue to be accounted for under the recognition and measurement provisions of Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and no compensation expense has been or will be recognized for those option awards, which had no intrinsic value on the date of grant. Share awards with no vesting requirements granted in or before January 2003 for services provided in prior years were expensed during the year the services were provided. For share awards granted with vesting requirements, compensation expense is recognized over the vesting period.

If the Company had applied the fair-value based method under SFAS 123 to recognize expense over the relevant service period for share options that had future vesting requirements granted in or before January 2003, net income would have decreased for the three and nine months ended September 30, 2004 and 2003. The following table reflects this pro forma effect:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2004		2003		2004		2003
	(In millions)
Net income, as reported	$	19	$	131	$	478	$	1,190
Add: Share-based employee compensation expense, net of related tax effects, included in reported net income	57		29		175		169
Deduct: Share-based employee compensation expense, net of related tax effects, determined under the fair-value based method for all awards	58		34		180		183
Pro forma net income	$	18	$	126	$	473	$	1,176

3. Discontinued Operations

In accordance with SFAS 144, “Accounting for Impairment or Disposal of Long-lived Assets”, the operating results of Pershing are presented as discontinued operations in the condensed consolidated statements of income. For the three months ended September 30, 2003, the Company had no income or loss from discontinued operations. For the nine months ended September 30, 2003, the Company had income from discontinued operations of $37 million, excluding the gain on the sale.

4. Related Party Transactions

Credit Suisse Group (“CSG”), through CSFBI, owns all of the Company’s outstanding voting common stock. The Company is involved in significant financing and other transactions, and has significant related

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

4. Related Party Transactions (Continued)

party balances, with Credit Suisse First Boston, a Swiss bank subsidiary of CSG and an indirect parent of the Company, and certain of its subsidiaries and affiliates. The Company generally enters into these transactions in the ordinary course of business and believes that these transactions are generally on market terms that could be obtained from unrelated third parties.

The following table sets forth the Company’s related party assets and liabilities as of September 30, 2004 and December 31, 2003.

	As of September 30, 2004			As of December 31, 2003
	(In millions)
ASSETS
Securities purchased under agreements to resell		$	6,710		$	8,071
Securities borrowed		1,797			1,688
Receivables from customers		261			297
Receivables from brokers, dealers and other		3,555			1,168
Derivatives contracts		1,582			1,910
Net deferred tax asset		1,250			1,283
Loans receivable from parent and affiliates		21,304			19,481
Total assets		$	36,459		$	33,898
LIABILITIES
Short-term borrowings		$	16,593		$	14,482
Securities sold under agreements to repurchase		25,137			16,651
Securities loaned		28,008			16,425
Payables to customers		893			721
Payables to brokers, dealers and other		1,726			581
Derivatives contracts		800			824
Obligation to return securities received as collateral		3,250			751
Taxes payable (included in Other liabilities)		401			311
Intercompany payables (included in Other liabilities)		160			211
Total liabilities		$	76,968		$	50,957

Included in the condensed consolidated statements of income are revenues and expenses resulting from various securities trading and financing activities with certain affiliates, as well as fees for administrative services performed by the Company under the terms of various service agreements. Service fees earned are treated as a reduction of other operating expenses in the condensed consolidated statements of income.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

4. Related Party Transactions (Continued)

The following table sets forth the Company’s related party revenues and expenses, excluding transactions with Pershing, for the three and nine months ended September 30, 2004 and 2003:

	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2004				2003				2004				2003
	(In millions)
Principal transactions-net (derivatives contracts)		$	(124	)		$	216			$	406			$	268
Commissions		10				(2		)		29				(16		)
Net interest expense		(119		)		(36		)		(262		)		(97		)
Total net revenues		$	(233	)		$	178			$	173			$	155
Other operating expenses		$	(88	)		$	(27	)		$	(212	)		$	(55	)
Total expenses		$	(88	)		$	(27	)		$	(212	)		$	(55	)

There were no revenues and expenses of Pershing with respect to related party transactions with the Company for the three months ended September 30, 2003. Revenues and expenses of Pershing with respect to related party transactions with the Company for the nine months ended September 30, 2003 were not material. The operating results of Pershing for the nine months ended September 30, 2003 are presented as discontinued operations in the condensed consolidated statements of income.

The Company sold at cost, to CSFBI, the right, title and interest in certain assets with an aggregate value of $443 million and $303 million as of September 30, 2004 and December 31, 2003, respectively.

Certain CSAM private equity funds of funds with approximately $4.1 billion of committed capital and certain CSAM hedge funds, hedge funds of funds and CDO VIEs with aggregate assets under management of approximately $15.0 billion are managed by the Company’s Alternative Capital division. CSAM reimburses the Alternative Capital division for all costs and expenses incurred by the Company in connection with managing these assets.

In April 2004, the Company entered into hedging arrangements with respect to deferred compensation obligations payable to its employees and employees of affiliates that are not part of its consolidated group. These hedging arrangements will result in the Company recognizing gains or losses with respect to the hedge of the deferred compensation obligation of such affiliates. For the three and nine months ended September 30, 2004, the gain from the hedging arrangements with respect to these affiliate obligations was $1 million and $2 million, respectively.

The Credit Suisse Group International Share Plan provides for the grant of equity-based awards to Company employees based on CSG shares pursuant to which employees of the Company may be granted, as compensation, share or other equity-based awards as compensation for services performed. CSFBI purchases shares from CSG to satisfy these awards, but CSFBI does not require reimbursement from the Company; therefore, amounts are considered a capital contribution to the Company and credited to paid-in-capital. Amounts contributed by CSFBI relating to compensation expense for the nine months ended September 30, 2004 and 2003 were $354 million and $250 million, respectively, net of taxes. See Note 2 for further information on the Company’s share-based compensation.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

4. Related Party Transactions (Continued)

Certain of the Company’s directors, officers and employees and those of the Company’s affiliates and their subsidiaries maintain margin accounts with Credit Suisse First Boston LLC (“CSFB LLC”), a direct wholly owned subsidiary of the Company, in the ordinary course of business. In addition, certain of such directors, officers and employees had investments or commitments to invest in various private equity funds sponsored by the Company, pursuant to which the Company has made loans to such directors, officers and employees, to the extent permitted by law. CSFB LLC, from time to time and in the ordinary course of business, enters into, as principal, transactions involving the purchase or sale of securities from or to such directors, officers and employees and members of their immediate families.

The Company is included in the consolidated federal income tax return and combined state and local income tax returns filed by CSFBI. See Note 5 for more information.

5. Income Taxes

The Company is included in the consolidated federal income tax return and combined state and local income tax returns filed by CSFBI. CSFBI allocates federal income taxes to its subsidiaries on a separate return basis, and current state and local income taxes on a pro rata basis, pursuant to a tax sharing agreement. Included in the condensed consolidated statements of income for the nine months ended September 30, 2004 and 2003, are current and deferred provisions (benefits) for income taxes from continuing operations that were allocated to the Company by CSFBI as follows:

	For the Nine Months Ended September 30,
	2004			2003
	(In millions)
Current:
U.S. federal		$	187		$	(3	)
State and local		3			1
Foreign		4			1
Total current		194			(1		)
Deferred:
U.S. federal		26			114
Total deferred		26			114
Provision for income taxes from continuing operations		$	220		$	113

Excluded from the table above is a provision for income taxes that CSFBI allocated to the Company for the nine months ended September 30, 2003 of $485 million related to discontinued operations.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

5. Income Taxes (Continued)

The following table summarizes the difference between the federal statutory tax rate and the effective tax rate related to continuing operations for the nine months ended September 30, 2004 and 2003:

	For the Nine Months Ended September 30,
	2004							2003
	Amount				Percent of Pre-tax Income			Amount				Percent of Pre-tax Income
	(In millions)							(In millions)
Computed “expected” tax provision		$	417			35.0	%		$	149			35.0	%
Increase (decrease) due to:
Minority interests(1)		(173		)		(14.5	)		—				—
Dividend exclusion		(28		)		(2.4	)		(20		)		(4.8	)
Entertainment expense		4				0.3			3				0.8
State and local taxes, net of federal income tax effects		2				0.2			1				0.2
Other		(2		)		(0.3	)		(20		)		(4.7	)
Provision for income taxes from continuing operations		$	220			18.3	%		$	113			26.5	%

(1) Represents the effect of non-taxable revenues and expenses from private equity funds consolidated primarily under FIN 46R. Net income was unaffected as offsetting minority interests were recorded in the condensed consolidated statements of income. See Note 6 for more information.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

5. Income Taxes (Continued)

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

	As of September 30, 2004				As of December 31, 2003
	(In millions)
Deferred tax assets:
Inventory		$	198			$	171
Investments		273				267
Other liabilities and accrued expenses, primarily compensation and benefits		1,073				1,196
Office facilities		25				24
Net operating loss carryforward		57				—
State and local taxes		35				36
Total deferred tax assets		1,661				1,694
Deferred tax liabilities:
Inventory		57				55
Investments		231				228
Office facilities		19				51
Other		69				41
Total deferred tax liabilities		376				375
Deferred tax assets net of deferred tax liabilities		1,285				1,319
Valuation allowance for state and local taxes		(35		)		(36		)
Net deferred tax asset		$	1,250			$	1,283

Management has determined that the realization of the recognized gross deferred tax assets of $1.7 billion as of September 30, 2004 and December 31, 2003 is more likely than not based on anticipated future taxable income. In addition, for federal income tax purposes, the Company has tax planning strategies available that enhance its ability to utilize these tax benefits. However, if estimates of future taxable income are reduced, the amount of the deferred tax assets considered realizable could also be reduced. Further, due to uncertainty concerning the Company’s ability to generate the necessary amount and mix of state and local taxable income in future periods, the Company maintains a valuation allowance against its deferred state and local tax asset in the amount of $35 million and $36 million as of September 30, 2004 and December 31, 2003, respectively.

6. Transfers and Servicing of Financial Assets

As of September 30, 2004 and December 31, 2003, the fair market value of assets that the Company pledged to counterparties was $216.8 billion and $174.8 billion, respectively, of which $52.9 billion and $47.6 billion, respectively, was included in financial instruments owned in the condensed consolidated statements of financial condition.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

6. Transfers and Servicing of Financial Assets (Continued)

The Company has also received similar assets as collateral that the Company has the right to re-pledge or sell. The Company routinely re-pledges or lends these assets to third parties. As of September 30, 2004 and December 31, 2003, the fair market value of the assets pledged to the Company was $205.0 billion and $166.7 billion, respectively, of which $186.8 billion and $154.3 billion, respectively, was sold or repledged.

Securitization Activities

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

The Company purchases loans and other debt obligations from clients for the purpose of securitization. The loans and other debt obligations are sold by the Company directly, or indirectly through affiliates, to QSPEs or other VIEs that issue CDOs. CSFB LLC structures, underwrites and makes a market in these CDOs. CDOs are securities backed by the assets transferred to the CDO VIEs and pay a return based on the returns on those assets. Investors typically have recourse to the assets in the CDO VIEs. The investors and the CDO VIEs have no recourse to the Company’s assets.

The Company may retain interests in these securitized assets in connection with its underwriting and market-making activities. The Company’s exposure in its securitization activities is limited to its retained interests. Retained interests in securitized financial assets are included at fair value in financial instruments owned in the condensed consolidated statements of financial condition. Any changes in the fair value of these retained interests are recognized in the condensed consolidated statements of income. The fair values of retained interests are determined using present value of estimated future cash flows valuation techniques that incorporate assumptions that market participants customarily use in their estimates of values.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

6. Transfers and Servicing of Financial Assets (Continued)

The following table presents the proceeds and gain or loss related to the securitization of commercial mortgage loans, residential mortgage loans, CDOs and other asset-backed loans for the nine months ended September 30, 2004 and 2003:

	Commercial mortgage loans			Residential mortgage loans				Collateralized debt obligations			Other asset-backed(1)
	(In millions)
For the Nine Months Ended September 30, 2004
Proceeds from new securitizations		$	5,287		$	32,626			$	3,729		$	5,079
Gain (loss) on securitizations(2)		$	185		$	26			$	44		$	(1	)
For the Nine Months Ended September 30, 2003
Proceeds from new securitizations		$	4,756		$	51,426			$	4,044		$	3,648
Gain (loss) on securitizations(2)		$	203		$	(69	)		$	36		$	38

(1) Primarily includes home equity loans.

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

Included in residential mortgage loans in the table above are proceeds of $11.9 billion and $32.3 billion, respectively, related to the securitization of agency mortgage-backed securities for the nine months ended September 30, 2004 and 2003. For the nine months ended September 30, 2004 and 2003, the Company realized gains of $12 million and $20 million, respectively, from these securitizations.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

6. Transfers and Servicing of Financial Assets (Continued)

Key economic assumptions used in measuring at the date of securitization the fair value of the retained interests resulting from securitizations completed during the nine months ended September 30, 2004 and 2003 were as follows:

	Commercial mortgage loans(1)		Residential mortgage loans		Collateralized debt obligations(2)			Other asset-backed
For the Nine Months Ended September 30, 2004
Weighted-average life (in years)	3.4		4.2			11.6		1.5
Prepayment speed assumption (“PSA”) (in rate per annum)(3)	N/A		150 PSA to 1,570% PSA			N/A		467 PSA to 733% PSA
Cash flow discount rate (in rate per annum)(4)	3.6%-10.6	%	5.4%-6.5	%		4.7%-9.6	%	11.1%-11.9	%
Expected credit losses (in rate per annum)	6.4	%	3.5	%		6.4	%	7.8	%
For the Nine Months Ended September 30, 2003
Weighted-average life (in years)	3.0		4.6			8.0		3.5
Prepayment speed assumption (“PSA”) (in rate per annum)(3)	N/A		200 PSA to 325% PSA			N/A		200 PSA to 325% PSA
Cash flow discount rate (in rate per annum)(4)	7.8%-12.8	%	11.9%-38.9	%		2.9%-5.9	%	9.2%-221.2	%
Expected credit losses (in rate per annum)	9.4	%	6.7	%		4.0	%	3.2	%

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

6. Transfers and Servicing of Financial Assets (Continued)

The following table sets forth the fair value of retained interests from securitizations as of September 30, 2004, key economic assumptions used to determine the fair value and the sensitivity of the fair value to immediate adverse changes in those assumptions:

	As of September 30, 2004
	Commercial mortgage loans(1)				Residential mortgage loans			Collateralized debt obligations(2)				Other asset-backed
	(Dollars in millions)
Carrying amount/fair value of retained interests		$	3		$	1,000			$	217		$	132
Weighted-average life (in years)		0.9			3.1				11.6			2.2
PSA (in rate per annum)(3)		N/A			150 PSA to 1,570% PSA				N/A			467 PSA to 733% PSA
Impact on fair value of 10% adverse change		N/A			$	(3	)		N/A			—
Impact on fair value of 20% adverse change		N/A			$	(6	)		N/A			—
Cash flow discount rate (in rate per annum)(4)		10.6		%	6.5		%		9.6		%	11.9		%
Impact on fair value of 10% adverse change		$	—		$	(12	)		$	(9	)	—
Impact on fair value of 20% adverse change		$	—		$	(24	)		$	(18	)	(1		)
Expected credit losses (in rate per annum)
Impact on fair value of 10% adverse change		$	—		$	(3	)		$	(4	)	—
Impact on fair value of 20% adverse change		$	—		$	(6	)		$	(8	)	(1		)

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

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

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

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

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

6. Transfers and Servicing of Financial Assets (Continued)

These sensitivities are hypothetical and do not reflect the benefits of hedging activities and therefore should be used with caution. Changes in fair value based on a 10% or 20% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interests is calculated without changing any other assumption. In practice, changes in one assumption may result in changes in other assumptions (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which may magnify or counteract the sensitivities.

Variable Interest Entities

The Company has variable interests in several CDO VIEs. In the normal course of its business, the Company purchases loans and other debt obligations from and on behalf of clients primarily for the purpose of securitization. These assets are sold to and warehoused by affiliates and, at the end of a warehousing period, the assets are sold to VIEs or QSPEs for securitization. The Company engages in these transactions to meet the needs of clients, earn fees and sell financial assets. The purpose of CDO VIEs is to provide investors a return based on the underlying debt instruments of the CDO VIEs. In connection with its underwriting and market-making activities, the Company may retain interests in the CDO VIEs. The CDO entities may have actively managed (“open”) portfolios or static or unmanaged (“closed”) portfolios. The closed CDO transactions are typically structured to use QSPEs, which are not consolidated in the Company’s financial statements.

The Company has consolidated all CDO VIEs for which it is the primary beneficiary. As of September 30, 2004, the Company recorded $458 million, the carrying amount of the consolidated assets of these CDO VIEs that are collateral for the VIE obligations. The beneficial interests of these consolidated CDO VIEs are payable solely from the cash flows of the related collateral, and the creditors of these VIEs do not have recourse to the Company in the event of default.

The Company retains significant debt and equity interests in open CDO VIEs that are not consolidated because the Company is not the primary beneficiary. The total assets in these CDO VIEs as of September 30, 2004 were $1.0 billion. The Company’s maximum exposure to loss as of September 30, 2004 was $9 million, which was the amount of its retained interests, carried at fair value, in financial instruments owned.

Certain of the Company’s private equity funds are subject to FIN 46R. In the normal course of its private equity activities, the Company is typically the general partner and investment adviser to private equity funds. The Company did not consolidate these private equity funds as of December 31, 2003 in accordance with the effective date and transition provisions of FIN 46R. During 2004, the Company consolidated certain private equity funds that are managed by the Company. As of September 30, 2004, the Company recorded $1.6 billion of additional private equity and other long-term investments, reduced other assets and other liabilities by $167 million and $79 million, respectively, and recorded $1.5 billion of minority interests in other liabilities in the condensed consolidated statement of financial condition through the consolidation of certain private equity funds primarily under FIN 46R. Similarly, for the three and nine months ended September 30, 2004, the Company recorded an increase of $55 million and

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

6. Transfers and Servicing of Financial Assets (Continued)

$501 million, respectively, in net revenues and an increase of $6 million in expenses as a result of the consolidation of these private equity funds. Net income was unaffected as minority interests of $49 million and $495 million for the three and nine months ended September 30, 2004, respectively, were recorded in the condensed consolidated statements of income.

7. Borrowings

Short-term borrowings are generally demand obligations with interest approximating the federal funds rate, LIBOR or other money market indices. Such borrowings are generally used to facilitate the securities settlement process, finance financial instruments owned and finance securities purchased by customers on margin. As of September 30, 2004 and December 31, 2003, there were no short-term borrowings secured by Company-owned securities.

The following table sets forth the Company’s short-term borrowings and their weighted average interest rates:

	Short-term borrowings						Weighted average interest rates
	As of September 30, 2004			As of December 31, 2003			As of September 30, 2004			As of December 31, 2003
	(In millions)
Bank loans, including loans from affiliates(1)		$	16,860		$	14,932		1.96	%		1.31	%
Commercial paper		1,271			1,052			1.62	%		1.08	%
Total short-term borrowings		$	18,131		$	15,984

(1) Includes $16.6 billion and $14.5 billion in loans from affiliates as of September 30, 2004 and December 31, 2003, respectively.

The Company has two commercial paper programs exempt from registration under the Securities Act of 1933 that allow the Company to issue up to $7.0 billion in commercial paper. As of September 30, 2004 and December 31, 2003, $1.3 billion and $1.1 billion, respectively, of commercial paper was outstanding under these programs.

In June 2004, the Company filed with the Securities and Exchange Commission (“SEC”) a shelf registration statement that allows the Company to issue from time to time up to $15.0 billion of senior and subordinated debt securities and warrants to purchase such securities. Under that shelf registration statement, the Company had, as of November 8, 2004, $15.0 billion available for issuance.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

7. Borrowings (Continued)

The following table sets forth the Company’s long-term borrowings as of September 30, 2004 and December 31, 2003:

	As of September 30, 2004			As of December 31, 2003
	(In millions)
Senior notes 3.875%-8.00%, due various dates through 2032		$	19,164		$	16,791
Medium-term notes 1.60%-7.528%, due various dates through 2032		6,988			7,391
Structured borrowings 7.06%-16.06%, due various dates through 2014		67			139
Total long-term borrowings		$	26,219		$	24,321
Current maturities of long-term borrowings		$	3,263		$	2,239

As of September 30, 2004 and December 31, 2003, long-term borrowings included unrealized appreciation of approximately $798 million and $808 million, respectively, associated with fair value hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended (“SFAS 133”). As of September 30, 2004 and December 31, 2003, the Company had entered into interest rate swaps of $18.9 billion and $16.6 billion, respectively, on the Company’s long-term borrowings for hedging purposes. Substantially all of these swaps qualified as fair value hedges under SFAS 133. See Note 11 for more information.

As of September 30, 2004, CSFB LLC maintained four 364-day committed secured revolving credit facilities totaling $1.2 billion, with one facility totaling $250 million maturing in November 2004, two facilities for $450 million maturing in February 2005 and one facility for $500 million maturing in July 2005. These facilities require CSFB LLC to pledge unencumbered marketable securities to secure any borrowings. Borrowings under each facility would bear interest at short-term rates related to either the federal funds rate or LIBOR and can be used for general corporate purposes. The facilities contain customary covenants that the Company believes will not impair its ability to obtain funding. As of September 30, 2004, no borrowings were outstanding under any of the facilities.

2004 Financings:

In the nine months ended September 30, 2004, the Company issued longer-dated fixed income securities to extend the maturity profile of the Company’s debt. For the nine months ended September 30, 2004, the Company issued $1.1 billion in medium-term notes, $1.0 billion of 5.125% notes due 2014 and $1.4 billion of 4.7% notes due 2009 under its then-existing $10.0 billion shelf registration statement.

During the nine months ended September 30, 2004, the Company redeemed approximately $1.6 billion of medium-term notes and $68 million of structured notes.

8. Private Equity and Other Long-Term Investments

Private equity and other long-term investments include direct investments and investments in partnerships that make private equity and related investments in various portfolio companies and funds.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

8. Private Equity and Other Long-Term Investments (Continued)

The Company categorizes its private equity and other long-term investments into three categories, CSFB-managed funds, direct investments and funds managed by third parties. These investments generally have no readily available market or may be otherwise restricted as to resale under the Securities Act of 1933; therefore, these investments are carried at amounts which approximate fair value.

The Company’s subsidiaries manage many private equity partnerships (the “Funds”). When the investment performance of CSFB-managed Funds exceeds specific thresholds, the Company and certain other general partners (the “GPs”) may be entitled to receive a carried interest distribution. Carried interest distributions are based on the cumulative investment performance of each Fund at the time the distribution is made. As a result, the Company, in its capacity as a GP (or general partner or managing member of a GP), may be obligated to return to investors in the Funds all or a portion of the carried interest distributions received by the GPs if the GPs have received excess carried interest payments over the life of the Funds under the governing documents of the Funds. The amount of such contingent obligation is based upon the performance of the Funds but cannot exceed the amount of carried interest received by the GPs. As of September 30, 2004 and December 31, 2003, the maximum amount of such contingent obligations was $444 million and $252 million, respectively, assuming the Funds’ remaining investments were worthless. Assuming the Funds’ remaining investments were sold at their current carrying values, as of September 30, 2004 and December 31, 2003, the contingent obligations would have been $8 million and $6 million, respectively. As of September 30, 2004 and December 31, 2003, the Company has recorded liabilities of $70 million and $25 million, respectively, in connection with the contingent obligation to return prior carried interest distributions to third party investors in the Funds.

In addition, pursuant to certain contractual arrangements, the Company is obligated to make cash payments to certain investors in certain Funds if specified performance thresholds are not met. As of September 30, 2004 and December 31, 2003, the maximum amount of such contingent obligations was $61 million and $46 million, respectively, assuming the Funds’ remaining investments were worthless. Assuming the Funds’ remaining investments were sold at their current carrying values as of September 30, 2004 and December 31, 2003, there would have been no contingent obligations.

As of September 30, 2004 and December 31, 2003, the Company had investments in private equity and other long-term investments of $2.6 billion and $1.1 billion, respectively, and had commitments to invest up to an additional $1.0 billion and $1.3 billion as of September 30, 2004 and December 31, 2003, respectively. The cost of these investments, excluding the private equity investments consolidated primarily under FIN 46R, was $1.4 billion and $1.5 billion as of September 30, 2004 and December 31, 2003, respectively. Changes in net unrealized appreciation/depreciation arising from changes in fair value and the gain or loss realized upon sale are reflected in principal transactions-net in the condensed consolidated statements of income. The increase in the private equity and other long-term investments was principally related to the Company’s adoption of FIN 46R and the consolidation of certain private equity funds. See Notes 1 and 6 for more information.

9. Net Capital

The Company’s principal wholly owned subsidiary, CSFB LLC, is a registered broker-dealer, registered futures commission merchant and member firm of the New York Stock Exchange, Inc.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

9. Net Capital (Continued)

(“NYSE”). As such, it is subject to the NYSE’s net capital rule, which conforms to the uniform net capital rule pursuant to Rule 15c3-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Under the alternative method permitted by this rule, the required net capital may not be less than two percent of aggregate debit balances arising from customer transactions or four percent of segregated funds, whichever is greater. If a member firm’s net capital is less than four percent of aggregate debit balances, the NYSE may require the firm to reduce its business. If a member firm’s net capital is less than five percent of aggregate debit balances, the NYSE may prevent the firm from expanding its business and declaring cash dividends. As of September 30, 2004, CSFB LLC’s net capital of approximately $2.6 billion was 63% of aggregate debit balances and in excess of the minimum requirement by approximately $2.5 billion.

The Company’s over-the-counter (“OTC”) derivatives dealer subsidiary, Credit Suisse First Boston Capital LLC (“CSFB Capital LLC”), is also subject to the uniform net capital rule, but calculates its net capital based on value at risk under Appendix F of Rule 15c3-1 under the Exchange Act. As of September 30, 2004, CSFB Capital LLC’s net capital of $180 million, allowing for market and credit risk exposure of $41 million and $55 million, respectively, was in excess of the minimum net capital requirement by $160 million. CSFB Capital LLC operates pursuant to the (k)(2)(ii) exemptive provisions of Rule 15c3-3 of the Exchange Act, and, accordingly, all customer transactions are cleared through CSFB LLC on a fully disclosed basis.

Certain other subsidiaries are subject to capital adequacy requirements. As of September 30, 2004, the Company and its subsidiaries complied with all applicable regulatory capital adequacy requirements.

10. Cash and Securities Segregated Under Federal and Other Regulations

In compliance with the Commodity Exchange Act, CSFB LLC segregates funds deposited by customers and funds accruing to customers as a result of trades or contracts. As of September 30, 2004 and December 31, 2003, cash and securities aggregating $2.9 billion and $2.6 billion, respectively, were segregated or secured by CSFB LLC in separate accounts exclusively for the benefit of customers.

In accordance with the SEC’s no-action letter dated November 3, 1998, CSFB LLC computed a reserve requirement for the proprietary accounts of introducing broker-dealers. As of September 30, 2004 and December 31, 2003, CSFB LLC segregated securities aggregating $234 million and $196 million, respectively, on behalf of introducing broker-dealers.

In addition, CSFB LLC segregated U.S. Treasury securities with a market value of $4.2 billion and $3.3 billion as of September 30, 2004 and December 31, 2003, respectively, in a special reserve bank account exclusively for the benefit of customers as required by Rule 15c3-3 of the Exchange Act.

11. Derivatives Contracts

The Company uses derivatives contracts for trading and hedging purposes and to provide products for clients. These derivatives include options, forwards, futures and swaps.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

11. Derivatives Contracts (Continued)

Non-trading Derivatives

The Company hedges its fixed rate debt by using interest rate swaps. These swaps are considered hedging instruments and qualify as fair value hedges under SFAS 133. For qualifying fair value hedges, the changes in fair value of both the hedging instrument and the underlying debt are included in principal transactions-net and the interest flows are included in interest and dividends, net of interest expense in the condensed consolidated statements of income.

The effectiveness of a qualifying hedging relationship is evaluated using quantitative measures of correlation. If a hedge relationship is not found to be highly effective, the hedge relationship no longer qualifies for hedge accounting under SFAS 133. As such, any subsequent gains or losses attributable to the hedged item cease to be recognized, while the subsequent changes in the derivatives instrument’s fair value are recognized in earnings, in each reporting period. In addition, the fair value adjustment of the debt due to hedge accounting is amortized over the remaining life of the debt as a yield adjustment.

The gains and losses related to the ineffective component of the fair value hedges were not material for the nine months ended September 30, 2004 and 2003.

Other derivatives used for hedging purposes that do not qualify as hedges under SFAS 133 are carried at fair value with changes in value and interest flows included in principal transactions-net in the condensed consolidated statements of income. For the nine months ended September 30, 2004 and 2003, the Company recognized a pre-tax gain of $1 million and $3 million, respectively, for these derivatives.

Trading Derivatives

The Company enters into various transactions using derivatives for trading purposes, to hedge trading exposures or to provide products to its clients. These derivatives include options, forwards, futures and swaps. Trading derivative contracts are carried at fair value with changes in unrealized and realized gains and losses and interest flows included in principal transactions-net in the condensed consolidated statements of income.

Options

The Company writes option contracts specifically designed to meet customer needs, for trading purposes or for hedging purposes. The options do not expose the Company to credit risk because the Company, not its counterparty, is obligated to perform. At the beginning of the contract period, the Company receives a cash premium. During the contract period, the Company bears the risk of unfavorable changes in the value of the financial instruments underlying the options. To manage this market risk, the Company purchases or sells cash or derivative financial instruments on a proprietary basis. Such purchases and sales may include debt and equity securities, forward and futures contracts, swaps and options.

The Company also purchases options to meet customer needs, for trading purposes or for hedging purposes. With purchased options, the Company gets the right, for a fee, to buy or sell the underlying instrument at a fixed price on or before a specified date. The underlying instruments for these options include fixed income securities, equities, foreign currencies and interest rate instruments or indices. The counterparties to these option contracts are reviewed to determine whether they are creditworthy.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

11. Derivatives Contracts (Continued)

Forwards and Futures

The Company enters into forward purchases and sales contracts for U.S. government and agencies, corporate debt, mortgage-backed securities and foreign currencies. In addition, the Company enters into futures contracts on equity-based indices and other financial instruments, as well as options on futures contracts.

Because forward contracts are subject to the financial reliability of the counterparty, the Company is exposed to credit risk. To mitigate this credit risk, the Company limits transactions with specific counterparties, reviews credit limits and adheres to internally established credit extension policies.

For futures contracts and options on futures contracts, the change in the market value is settled with a clearing broker in cash each day. As a result, the credit risk with the clearing broker is limited to the net positive change in the market value for a single day, which is recorded in receivables (payables) from (to) brokers, dealers and others in the condensed consolidated statements of financial condition.

Swaps

The Company’s swap agreements consist primarily of interest rate, equity and credit default swaps. Interest rate swaps are contractual agreements to exchange interest rate payments based on agreed notional amounts and maturity. Equity swaps are contractual agreements to receive the appreciation or depreciation in value based on a specific strike price on an equity instrument in exchange for paying another rate, which is usually based on an index or interest rate movements. Credit default swaps are contractual agreements in which one counterparty pays a periodic fee in return for a contingent payment by the other counterparty following a credit event of a reference entity. A credit event is commonly defined as bankruptcy, insolvency, receivership, material adverse restructuring of debt, or failure to meet payment obligations when due. Swaps are reported at fair value.

Quantitative Disclosures for All Derivatives

The fair values of all derivatives contracts outstanding as of September 30, 2004 and December 31, 2003 were as follows:

	As of September 30, 2004						As of December 31, 2003
	Assets			Liabilities			Assets			Liabilities
	(In millions)
Options		$	2,740		$	2,634		$	2,892		$	2,756
Forward contracts		1,028			553			695			257
Swaps		1,740			962			1,986			942
Total		$	5,508		$	4,149		$	5,573		$	3,955

These assets and liabilities are included as derivatives contracts in financial instruments owned/sold not yet purchased, respectively, in the condensed consolidated statements of financial condition.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

12. Employee Benefit Plans

The Company provides retirement and postretirement benefits to its U.S. and certain non-U.S. employees through participation in defined benefit and defined contribution pension plans and other plans. The Company’s measurement date is September 30 for its pension and other postretirement benefit plans.

Pension Plans

The Company participates in a non-contributory defined benefit pension plan (the “Qualified Plan”) available to certain individuals employed before January 1, 2000. Contributions to the Qualified Plan are made as required by the Internal Revenue Code and applicable law but not in excess of the amounts deductible by the Company for income tax purposes.

The Company also sponsors a savings and retirement plan, which is a defined contribution plan, with both a savings and a retirement component. All employees are eligible to participate in the savings component whereby the Company matches employee contributions. In addition, individuals employed before January 1, 2000 who do not accrue benefits under the Qualified Plan and employees hired on or after January 1, 2000 participate in the retirement component and receive a retirement contribution that is linked to the return on equity of the Credit Suisse First Boston business unit.

The Company also provides a non-contributory, non-qualified, unfunded plan (the “Supplemental Plan”), which provides benefits to certain senior employees and Qualified Plan participants whose benefits may be limited by tax regulations. Benefits under these pension plans are based on years of service and employee compensation.

Other Postretirement Plans

In addition, the Company provides certain subsidized unfunded health-care benefits for eligible retired employees (the “Other Plans”). Employees hired prior to July 1, 1988 become eligible for these benefits if they meet minimum age and service requirements.

In May 2004, the FASB issued FSP 106-2. The Medicare Act became law in December 2003 and introduced both a Medicare prescription drug benefit and a federal subsidy to sponsors of retiree health-care plans that provide a benefit that is at least “actuarially equivalent” to the Medicare benefit. The Company adopted FSP 106-2 on July 1, 2004 and has determined that its retiree health-care plans provide a benefit that is “actuarially equivalent” to the Medicare benefit. The effect of adopting FSP 106-2 was not significant.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

12. Employee Benefit Plans (Continued)

The following table presents the pension expense by component for the Qualified Plan, the Supplemental Plan and the Other Plans for the three and nine months ended September 30, 2004 and 2003:

	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2004				2003				2004				2003
	(In millions)
Components of Net Periodic Benefit Cost:
Service cost		$	4			$	7			$	16			$	20
Interest cost		9				8				27				24
Expected return on plan assets		(12		)		(9		)		(34		)		(25		)
Amortization of loss		3				4				13				9
Amortization of prior service cost		—				—				—				1
Recognized net actuarial loss		—				—				(1		)		(1		)
Net periodic benefit cost		$	4			$	10			$	21			$	28

The Company made payments of $225 million to the Qualified Plan during the first nine months of 2004. The Company made payments of $4 million to participants in the Supplemental Plan and the Other Plans during the first nine months of 2004 and expects to pay a total of $1 million for the remainder of 2004.

13. Commitments

The following table sets forth certain of the Company’s long-term commitments, including the current portion, as of September 30, 2004:

	Commitment Expiration Per Period
	Less than 1 year			1-3 years		4-5 years		Over 5 years		Total commitments
	(In millions)
Standby resale agreements(1)		$	25	$	—	$	—	$	—		$	25
Private equity(2)		166		105		169		606			1,046
Operating lease obligations(3)		154		292		262		1,105			1,813
Forward agreements(4)		7,119		—		—		—			7,119
Total commitments		$	7,464	$	397	$	431	$	1,711		$	10,003

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

(2) Represents commitments to invest in various partnerships that make private equity and related investments in various portfolio companies or other private equity funds.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

13. Commitments (Continued)

(3) Includes contractual obligations related to certain information technology, equipment leases and software licenses of $8 million and excludes sublease revenue of $314 million.

(4) Represents commitments to enter into forward agreements for securities purchased under agreements to resell and forward agreements to borrow securities.

The Company had access to standby letters of credit of $1.5 billion as of September 30, 2004. The Company had $91 million in outstanding standby letters of credit as of September 30, 2004, in order to satisfy counterparty collateral requirements.

In connection with its residential mortgage business, the Company may from time to time arrange for the sale of certain qualifying mortgage loans or pools of mortgage loans (the “Loans”) to an unaffiliated entity (the “Purchaser”) pursuant to an agreement between the Company and the Purchaser. In accordance with the agreement, the Company may be required to repurchase one or more Loans, including the related hedge positions, from the Purchaser at its request in accordance with the terms of the agreement. As of September 30, 2004, the Purchaser has the right to request the Company to repurchase approximately $809 million of Loans from the Purchaser pursuant to the terms of the agreement.

The Company had no capital lease or purchase obligations as of September 30, 2004. For information about certain of the Company’s additional commitments, see Notes 7, 8 and 14.

14. Guarantees

In the ordinary course of business, the Company enters into guarantee contracts as guarantor. FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”), requires disclosure by a guarantor of its maximum potential payment obligations under certain of its guarantees to the extent that it is possible to estimate them. FIN 45 also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligations undertaken in issuing such guarantee, including its ongoing obligation to stand ready to perform over the term of the guarantee in the event that certain events or conditions occur. With certain exceptions, these liability recognition requirements apply to any new guarantees entered into, or existing guarantees that are modified, after December 31, 2002.

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

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

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

14. Guarantees (Continued)

The following table sets forth the maximum quantifiable contingent liability and carrying amount associated with guarantees covered by FIN 45 as of September 30, 2004 by maturity:

	Guarantee of Commitment Expiration Per Period
	Less than 1 year			1-3 years		4-5 years		Over 5 years		Total guarantees			Carrying amount
	(In millions)
Credit guarantees		$	—	$	20	$	43	$	363		$	426		$	10
Performance guarantees		42		189		134		—			365			4
Derivatives		3,396		1,760		483		1,070			6,709			141
Related party guarantees		—		—		20		1			21			—
Total guarantees		$	3,438	$	1,969	$	680	$	1,434		$	7,521		$	155

Credit Guarantees

In the ordinary course of business the Company enters into contracts that would require it, as the guarantor, to make payments to the guaranteed party if a third party fails to pay under a credit obligation. As of September 30, 2004, the Company recorded liabilities of $10 million and had a maximum contingent liability of $426 million under credit guarantees. These credit guarantees are described below.

As part of the Company’s residential mortgage activities, the Company sells to the Federal National Mortgage Association (“FNMA”) certain residential mortgages that it has purchased and agrees to bear a percentage of the losses should the borrowers fail to perform. In accordance with FIN 45, the Company did not recognize a liability for these guarantees because they were issued prior to December 31, 2002 and have not been modified. The Company’s maximum potential exposure related to these guarantees, assuming all the borrowers failed to perform, was $149 million as of September 30, 2004.

As part of the Company’s commercial mortgage activities, the Company sells to FNMA certain commercial mortgages that it has originated and agrees to bear a percentage of the losses should the borrowers fail to perform. As of September 30, 2004, in accordance with FIN 45, the Company recorded liabilities of $10 million related to these guarantees. The Company’s maximum potential exposure related to these guarantees, assuming all the borrowers failed to perform, was $277 million as of September 30, 2004.

Performance Guarantees

In the ordinary course of business, the Company enters into contracts that would require it, as the guarantor, to make payments to the guaranteed party based on the occurrence or non-occurrence of a specified event such as a third party’s failure to perform under an agreement.

As part of the Company’s residential mortgage securitization activities, the Company at times guarantees the collection by the servicer and remittance to the securitization trust of prepayment penalties. As of September 30, 2004, the Company recorded liabilities of $4 million related to these guarantees. As of September 30, 2004, the Company’s maximum exposure under the guarantees, assuming that every mortgage holder prepays and the servicers fail to collect and remit the prepayment penalties, was $365 million; however, the Company has recourse against the servicer.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

14. Guarantees (Continued)

In addition, the Company at times guarantees any increases in servicing fees in connection with the replacement of the existing servicer that would otherwise be borne by the securitization trust. The Company did not record a liability because it has determined that is it not possible to estimate the fair value and the maximum amount of its obligations under these guarantees as of September 30, 2004.

Derivatives

In the ordinary course of business, the Company enters into OTC contracts that meet the definition of a guarantee under FIN 45. Included in this category are certain written OTC put option contracts, pursuant to which the counterparty can potentially force the Company to acquire the underlying financial instrument or require the Company to make a cash payment in an amount equal to the decline in value of the financial instrument underlying the OTC put option. Also included in this category are credit derivatives that may subject the Company to credit spread or issuer default risk because the change in credit spreads or the credit quality of the underlying financial instrument may obligate the Company to make a payment. The Company seeks to manage these OTC derivatives exposures by engaging in various hedging strategies to reduce its exposure.

FIN 45 does not require disclosures about derivatives instruments if they can be cash settled and the Company has no basis to conclude that it is probable that the counterparties held the underlying instruments related to the derivatives instruments at the inception of the contract. Derivatives meeting both of these criteria are not disclosed in the table above.

As of September 30, 2004, the Company recorded $141 million in derivatives that met the definition of a guarantee under FIN 45. These are reflected as derivatives contracts in the condensed consolidated statements of financial condition. The maximum gross contingent liability, excluding any potential offset from hedging activities related to these contracts, was $6.7 billion, of which $4.0 billion was with CSG affiliates, and represents the obligation of the Company in the event that all the underlying financial instruments are worthless, the likelihood of which the Company believes is remote. For more information on derivatives, see Note 11.

Related Party Guarantees

For purposes of FIN 45, related party guarantees refer to any guarantees issued by the Company for obligations of any company (“affiliates”) controlled by CSG, the Company’s ultimate parent, unless it is one of the Company’s consolidated subsidiaries. Guarantees issued by the Company for the obligations of its consolidated subsidiaries are excluded because they do not create any incremental liability.

The Company issues guarantees to customers with respect to certain obligations of its affiliates in the ordinary course of business, including, but not limited to, certain derivatives transactions. Failure to perform by an affiliate would require the Company to perform under the guarantee. The maximum contingent liability of future payments of guarantees issued to counterparties of affiliates as of September 30, 2004 was $21 million. Excluded from this maximum contingent liability are certain guarantees for which an estimate cannot be made because the exposure is unlimited and therefore impossible to estimate. While the maximum contingent liability represents possible future payments under the guarantees, the Company believes that the likelihood of nonperformance by these affiliates is remote.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

14. Guarantees (Continued)

Guarantees Related to Private Equity Activities

As part of its private equity activities, the Company provides guarantees related to carried interest and performance thresholds. The amounts of such guarantees are included in the contingent obligations disclosed in Note 8.

Other Guarantees

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

Indemnifications Issued in Connection with Asset Sales

In connection with sales of certain assets or businesses, the Company has provided purchasers customary indemnification provisions based on changes in an underlying asset or liability relating to the assets sold. These indemnification provisions are negotiated with the purchaser of the assets or businesses and vary in their scope and duration. These indemnification provisions generally shift the risk of certain unquantifiable and unknowable loss contingencies (e.g., relating to litigation, tax and intellectual property matters) from the purchaser to the seller, as known or quantifiable loss contingencies generally are reflected in the value of the assets or businesses being sold. The Company has determined that it is not possible to make an estimate of the maximum contingent liability under these indemnification provisions. To date, the Company’s actual payments arising from these indemnification provisions have been in connection with litigation matters and have not been material.

Tax Gross-up Arrangements

As a normal part of issuing its own securities, the Company typically agrees to reimburse holders for additional tax withholding charges or assessments resulting from changes in applicable tax laws or the interpretation of those laws. Securities that include these agreements to pay additional amounts generally also include a related redemption or call provision if the obligation to pay the additional amounts results from a change in law or its interpretation and the obligation cannot be avoided by the issuer taking reasonable steps to avoid the payment of additional amounts. Since such potential obligations are dependent on future changes in tax laws, the Company has determined that it is not possible to make an estimate of the maximum amount it could be obligated to pay as a result of such changes. In light of the related redemption or call provisions generally included in the securities, the Company does not expect any potential liabilities in respect of tax gross-ups to be material.

Exchange and Clearinghouse Memberships

The Company is a member of numerous securities exchanges and clearinghouses, and may, as a result of its membership arrangements, be required to perform if another member defaults. The Company has determined that it is not possible to estimate the maximum amount of these obligations and believes that any potential requirement to make payments under these arrangements is remote.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

15. Industry Segment and Geographic Data

As of January 1, 2004, the Company transferred the private equity and private fund businesses from the Institutional Securities segment to the Financial Services segment, which has been renamed the Wealth & Asset Management segment. As a result, the Company changed the presentation of the Institutional Securities and Wealth & Asset Management segment results. In addition, the Company allocated to the segments merger-related costs and certain other costs and revenues, previously excluded from its reportable segments, which the Company believed did not represent normal operating costs and revenues. Prior period segment numbers have been changed to conform to the new segment reporting structure.

The Company operates and manages its businesses through two operating segments: the Institutional Securities segment, consisting primarily of the Investment Banking and Trading divisions; and the Wealth & Asset Management segment, consisting of the Alternative Capital division, which includes the results of the private equity and private fund businesses, and the Private Client Services division.

The Company’s segments are managed based on types of products and services offered and their related client bases. The Company evaluates the performance of its segments based primarily on income (loss) from continuing operations before provision for income taxes and discontinued operations but excluding minority interests.

The Institutional Securities segment consists of:

· the Investment Banking division, which serves a broad range of users and suppliers of capital and provides financial advisory and securities underwriting and placement services; and

· the Trading division, which trades and distributes equity and equity-related products, including listed and OTC derivatives, fixed income financial instruments and derivatives and risk management products, and engages in securities lending and borrowing.

The Institutional Securities segment also includes the results from legacy private equity and distressed assets.

The Wealth & Asset Management segment consists of:

· the Alternative Capital division, which includes the private equity and private fund businesses. The private equity business makes privately negotiated investments and acts as an investment advisor for private equity funds. The private fund business raises private capital, primarily from institutional investors, for direct investment by venture capital, management buyout and other investment firms in a variety of fund types; and

· the Private Client Services division, which is a financial advisory business serving high-net-worth individuals and corporate investors with a wide range of CSFB and third-party investment management products and services.

The Company allocates to its segments a pro rata share of certain centrally managed costs, such as leased facilities and equipment costs, employee benefits and certain general overhead expenses based upon specified amounts, usage criteria or agreed rates, and allocates interest expense based upon the type of asset. The segmental allocation of some costs, such as incentive bonuses, is estimated.

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

15. Industry Segment and Geographic Data (Continued)

The following table sets forth certain financial information of the Company’s segments.

	Institutional Securities				Wealth & Asset Management				Total Segment
	(In millions)
For the Three Months Ended September 30, 2004:
Net revenues excluding net interest		$	426			$	203		$	629
Net interest revenue		560				(6		)	554
Total net revenues(1)		986				197			1,183
Total expenses		984				138			1,122
Income(2)		2				59			61
Minority interests(3)		8				41			49
(Loss) Income after minority interests(4)		$	(6	)		$	18		12
For the Three Months Ended September 30, 2003:
Net revenues excluding net interest		$	221			$	132		$	353
Net interest revenue		694				16			710
Total net revenues(1)(5)		915				148			1,063
Total expenses		780				99			879
Income(2)(5)		135				49			184
Minority interests(3)		—				—			—
Income after minority interests(4)(5)		$	135			$	49		$	184
For the Nine Months Ended September 30, 2004:
Net revenues excluding net interest		$	1,805			$	1,100		$	2,905
Net interest revenue		1,790				35			1,825
Total net revenues(1)		3,595				1,135			4,730
Total expenses		3,103				434			3,537
Income(2)		492				701			1,193
Minority interests(3)		70				425			495
Income after minority interests(4)		$	422			$	276		$	698
For the Nine Months Ended September 30, 2003:
Net revenues excluding net interest		$	1,413			$	444		$	1,857
Net interest revenue		1,823				30			1,853
Total net revenues(1)(5)		3,236				474			3,710
Total expenses		2,916				367			3,283
Income(2)(5)		320				107			427
Minority interests(3)		—				—			—
Income after minority interests(4)(5)		$	320			$	107		$	427
Segment assets as of September 30, 2004(6)		$	266,941			$	3,786		$	270,727
Segment assets as of December 31, 2003		$	239,733			$	1,833		$	241,566

(1) Interest income and expense is accrued at the stated coupon rate for coupon-bearing financial instruments, and for non-coupon-bearing financial instruments, interest income is recognized by accreting the discount over the life of the instrument. For coupon-bearing financial instruments purchased at a discount or premium, the difference between interest income and expense accrued at the stated coupon rate and interest income and

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

15. Industry Segment and Geographic Data (Continued)

expense determined on an effective yield basis is included in principal transactions-net in the Company’s condensed consolidated statements of income and in net revenues excluding net interest above.

(2) Income from continuing operations before provision (benefit) for income taxes, minority interests and discontinued operations.

(3) Related to the Company’s consolidation of certain private equity funds.

(4) Income (loss) from continuing operations before provision (benefit) for income taxes and discontinued operations.

(5) In early 2004, management identified erroneous profit recorded in Institutional Securities in the three and nine months ended September 30, 2003 on certain intercompany residential mortgage securitization-related transactions. The Company has restated total net revenues and income from continuing operations from that filed with the Securities and Exchange Commission on Form 10-Q for the quarterly period ended September 30, 2003. For the three and nine-months ended September 30, 2003, each of total net revenues and income from continuing operations has been reduced by $37 million and $24 million, respectively, as previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2003 and the June 4 Form 8-K.

(6) The Institutional Securities and Wealth & Asset Management segment assets as of September 30, 2004 include $522 million and $879 million, respectively, related to the Company’s consolidation of certain private equity funds.

The Company’s principal operations are located in the United States. The Company’s foreign revenues are not significant.

16. Goodwill and Identifiable Intangible Assets

On January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), which addresses the initial recognition and measurement of intangible assets acquired outside a business combination and the recognition and measurement of goodwill and other intangible assets subsequent to acquisition. Under the standard, goodwill and indefinite-lived intangible assets are reviewed annually for impairment instead of being amortized to earnings. Intangible assets that do not have indefinite lives will continue to be amortized over their useful lives and reviewed for impairment.

As of September 30, 2004 and December 31, 2003, the Company had $527 million and $532 million, respectively, of goodwill. In September 2004, the Company reduced its interest in PM Realty Group, LP, a real estate management company, resulting in a decrease in goodwill of $5 million. As of September 30, 2004 and December 31, 2003, the Company had identifiable intangible assets (primarily software and customer lists, which are being amortized over useful lives ranging from 3 to 20 years) of $40 million and $46 million, net of accumulated amortization of $51 million and $47 million, respectively, included in other assets and deferred amounts in the condensed consolidated statements of financial condition.

17. Legal Proceedings

The Company is involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of its businesses. These actions have been brought on behalf of various classes of claimants and, unless otherwise specified, seek damages of material and/or

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
September 30, 2004

17. Legal Proceedings (Continued)

indeterminate amounts. The Company believes, based on currently available information and advice of counsel, that the results of such proceedings, in the aggregate, will not have a material adverse effect on its financial condition but might be material to operating results for any particular period, depending, in part, upon the operating results for such period.

It is inherently difficult to predict the outcome of many of these matters. In presenting the condensed consolidated financial statements, management makes estimates regarding the outcome of these matters and records a reserve and takes a charge to income when losses with respect to such matters are probable and can be reasonably estimated. Estimates, by their nature, are based on judgment and currently available information and involve a variety of factors, including, but not limited to, the type and nature of the litigation, claim or proceeding, the progress of the matter, the advice of legal counsel, the Company’s defenses and its experience in similar cases or proceedings.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are a leading integrated investment bank serving institutional, corporate, government and high-net-worth individual clients. We are part of the Credit Suisse First Boston business unit, which we call CSFB, of Credit Suisse Group, or CSG, and our results do not necessarily reflect the overall performance of CSFB or CSG. When we use the terms “we” and “our” and the “Company,” we mean Credit Suisse First Boston (USA), Inc., a Delaware corporation, and its consolidated subsidiaries.

The Company’s principal operations are located in the United States. The Company’s foreign revenues are not significant.

BUSINESS ENVIRONMENT

Our principal business activities, investment banking, private equity, securities underwriting and sales and trading, are, by their nature, highly competitive and subject to general market conditions that include volatile trading markets and fluctuations in the volume of new issues and public and private mergers and acquisitions activities and fluctuations in the value of financial instruments. Consequently, our results have been, and are likely to continue to be, subject to significant fluctuations reflecting the impact of many factors beyond our control, including securities market conditions, the level and volatility of interest rates, competitive conditions, the size and timing of transactions and the geopolitical environment.

The strong growth that characterized the direction of the U.S. economy late in 2003 and early in 2004 deteriorated in the third quarter of 2004 as the U.S gross domestic product grew at a slower pace and the job market weakened. High oil prices and the negative implications they have on consumer spending and corporate profitability contributed to a slide in stock prices and a rise in bond prices. While recent increases in construction spending, auto sales and manufacturing appear to show the economy gaining momentum, high oil prices, mixed economic data and geopolitical uncertainties continue to raise concerns about the economy and create challenging markets.

For the three and nine months ended September 30, 2004, the major stock market indices were primarily down, reflecting disappointing corporate earnings, higher oil prices and rising interest rates. For the three months ended September 30, 2004, the Dow Jones Industrial Average, the Standard & Poor’s 500 stock index and the NASDAQ composite index declined 3%, 2% and 7%, respectively. The Dow Jones Industrial Average and the NASDAQ composite index decreased 4% and 5%, respectively and the Standard & Poor’s 500 stock index was flat for the nine months ended September 30, 2004.

The Federal Reserve Board increased the federal funds rate three times beginning June 30, 2004. As of September 30, 2004, the federal funds rate was 1.75% compared to 1% as of December 31, 2003. Long-term interest rates declined in the third quarter of 2004 and the yield curve flattened. Treasury bond prices rose as soft economic data caused concern about the outlook of the economy. Corporate bonds also performed well during the quarter.

The dollar value of U.S. debt underwriting decreased for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, led by a decline in mortgage-backed new issues. The dollar value of U.S. debt underwriting increased slightly for the three months ended September 30, 2004 compared to the three months ended September 30, 2003, as increases in asset-backed underwriting were partially offset by a decline in mortgage-backed securities new issues. The dollar value of U.S. equity and equity-related underwriting increased moderately in the first nine months of 2004 compared to the first nine months of 2003, as increases in primary and secondary offerings of common stock were partially offset by decreases in convertible securities issuances. The dollar value of U.S. equity and equity-related underwriting decreased for the three months ended September 30, 2004 compared to the three months

ended September 30, 2003, primarily reflecting a decrease in convertible securities issuances. Mergers and acquisitions activity showed signs of recovery as the dollar value of completed mergers and acquisitions in the United States increased for the three and nine months ended September 30, 2004 compared to the three and nine months ended September 30, 2003.

MANAGEMENT OVERVIEW

Net income of $19 million decreased compared to third quarter 2003 net income of $131 million, reflecting improved revenues offset by higher expenses, and a small income tax benefit. Net revenues in the third quarter of 2004 increased $120 million compared to the third quarter of 2003. The increase was primarily attributed to improvements in fixed income trading from Institutional Securities and the consolidation of certain private equity funds, which increased net revenues by $55 million. Net trading revenues increased 16% as increases in fixed income trading revenues were partially offset by decreases in equity trading revenues. Investment Banking revenues for the Institutional Securities segment decreased 9%, reflecting a decline in debt and equity underwriting and essentially flat advisory and other fees. Total expenses increased 28% primarily due to increases in incentive compensation, higher severance expenses and increased base salary expenses. The increase in incentive compensation reflected the introduction of vesting for stock awards in the third quarter of 2003 and the reversal of $85 million of expenses accrued in the first half of 2003.

Net income of $478 million decreased compared to first nine months 2003 net income of $1.2 billion, primarily reflecting the after-tax gain of $852 million from the sale of Pershing in the second quarter of 2003. Net revenues in the first nine months of 2004 increased $1.0 billion compared to the first nine months of 2003, primarily due to significant gains from Wealth & Asset Management private equity investments, the consolidation of certain private equity funds, which increased net revenues by $501 million, and improvements in fixed income trading from Institutional Securities. Net trading revenues for Institutional Securities increased 8% as increases in fixed income trading revenues were partially offset by decreases in equity trading revenues. Investment Banking revenues for the Institutional Securities segment decreased 4%, reflecting declines in debt underwriting and essentially flat advisory and other revenues offset in part by an increase in equity underwriting. Total expenses increased 8% primarily due to increases in employee compensation and benefits, including higher incentive compensation, severance expenses and increased base salary expenses, offset in part by lower merger-related costs and other expenses.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

Our significant accounting policies and a discussion of new accounting pronouncements are disclosed in Note 1 of the consolidated financial statements in Part II, Item 8 in our Annual Report on Form 10-K for the year ended December 31, 2003. We believe that the critical accounting policies discussed below involve the most complex judgments and assessments. We believe that the estimates and assumptions used in the preparation of the condensed consolidated financial statements are prudent, reasonable and consistently applied.

Fair Value

As is the normal practice in our industry, the values we report in the condensed consolidated financial statements with respect to Financial instruments owned and Financial instruments sold not yet purchased

are in most cases based on fair value, with related unrealized and realized gains or losses included in the condensed consolidated statements of income. Commercial mortgage whole loans and certain residential mortgage whole loans held for sale are carried at the lower of aggregate cost or fair value.

Fair value may be objective, as is the case for exchange-traded instruments for which quoted prices in price-efficient and liquid markets generally exist, or as is the case where a financial instrument’s fair value is derived from actively quoted prices or pricing parameters or alternative pricing sources with a reasonable level of price transparency. For financial instruments that trade infrequently and have little price transparency, fair value may be subjective and require varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. In such circumstances, valuation is based on management’s best estimate of fair value. In addition, valuation of financial instruments ordinarily based on quoted prices may be distorted in times of market dislocation.

Controls Over Fair Valuation Process

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

Control processes include the approval of new products, review of profit and loss, risk monitoring and review, price verification procedures and reviews of models used to price financial instruments by senior management and personnel with relevant expertise who are independent of the trading and investment functions.

The Company also has agreements with certain counterparties to exchange collateral based on the fair value of derivatives contracts. Through this process, one or both parties provide the other party with the fair value of these derivatives contracts in order to determine the amount of collateral required. This exchange of information provides additional support for the Company’s derivatives contracts valuations. As part of the Company’s over-the-counter, or OTC, derivatives business, the Company and other participants provide pricing information to aggregation services that compile this data and provide this information to subscribers. This information is considered in the determination of fair value for certain OTC derivatives.

For further discussion of our risk management policies and procedures, see “Quantitative and Qualitative Disclosures About Market Risk” in Part I, Item 3 and in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2003.

Valuation

For purposes of valuation, we categorize our financial instruments as cash products, derivatives contracts and private equity investments. As of September 30, 2004 and December 31, 2003, the fair value of cash products, derivatives contracts and private equity investments was:

	As of September 30, 2004						As of December 31, 2003
	Financial instruments owned			Financial instruments sold not yet purchased			Financial instruments owned			Financial instruments sold not yet purchased
	(In millions)
Cash products		$	92,414		$	39,703		$	73,210		$	31,790
Derivatives contracts		5,508			4,149			5,573			3,955
Private equity investments		2,615			—			1,123			—
Total		$	100,537		$	43,852		$	79,906		$	35,745

Cash Products

The vast majority of our financial instruments owned and financial instruments sold not yet purchased are considered cash trading instruments. The fair value of the vast majority of these financial instruments is based on quoted market prices in active markets or observable market parameters or is derived from such prices or parameters. These include U.S. government and agency securities, commercial paper, most investment-grade corporate debt, most high-yield debt securities, most mortgage-backed securities and listed equities.

In addition, we hold positions in cash products that are thinly traded or for which no market prices are available, and which have little or no price transparency. These products include certain high-yield debt securities, distressed debt securities, mortgage loans, certain mortgage-backed and asset-backed securities, certain collateralized debt obligations, or CDOs, and equity securities that are not publicly traded. The techniques used to determine fair value for these instruments are based on the type of product. Some of these valuation techniques require us to exercise a substantial amount of judgment, for example, in determining the likely future cash flows or default recovery on distressed debt instruments or asset-backed obligations or the likely impact of country or market risk on various investments. Valuation techniques for certain of these products are described more fully below.

For certain high-yield debt securities that are thinly traded or for which market prices are not available, valuation is based on recent market transactions, taking into account changes in the creditworthiness of the issuer, and pricing models to derive yields reflecting the perceived risk of the issuer or country rating and the maturity of the security. These factors contribute to significant subjectivity in the valuation of these financial instruments.

Financial instruments held in the distressed portfolio are typically issued by private companies under significant financial burden and/or near bankruptcy. Because of the less liquid nature of these financial instruments, valuation techniques often include earnings-multiple analyses, similar market transactions and default recovery analyses. These factors contribute to significant subjectivity in the valuation of these financial instruments.

The mortgage loan portfolio primarily includes residential and commercial mortgage loans that are either purchased or originated with the intent to securitize. For residential mortgage loans, valuations are based on pricing factors specific to loan level attributes, such as loan-to-value ratios, current balance and liens. The commercial real estate loans are valued using origination spreads, incorporating loan-to-value ratios, debt service coverage ratios, geographic location, prepayment protection and current yield curves. In addition, current written offers or contract prices are considered in the valuation process.

Values of residential and commercial mortgage-backed securities and other asset-backed securities that are not based on quoted market prices or prices at which similarly structured and collateralized securities trade between dealers and to and from customers are valued using pricing models employing prepayment scenarios and Monte Carlo simulations.

CDOs are structured securities based on underlying portfolios of asset-backed securities, certain residential and commercial mortgage securities, high-yield and investment grade corporate bonds, leveraged loans and other debt obligations. These instruments are split into various structured tranches, and each tranche is priced based upon its individual rating and the value or cash flow of the underlying collateral supporting the structure. Values are derived using pricing models that involve projected cash flows, default recovery analysis and other assumptions, and such valuations involve judgment.

For convertible securities that are thinly traded or for which no market prices are available, internal models are used to derive fair value. The terms and conditions of the security are factored into the model, along with market inputs such as underlying equity price, equity price volatility and credit spread. Certain adjustments are made to the derived theoretical values for high concentration levels and low trading volumes.

Derivatives Contracts

Our derivatives contracts consist of OTC and exchange-traded derivatives, and the fair value of these as of September 30, 2004 and December 31, 2003 was as follows:

	As of September 30, 2004						As of December 31, 2003
	Assets			Liabilities			Assets			Liabilities
	(In millions)
Exchange-traded		$	2,417		$	2,232		$	2,552		$	2,292
OTC		3,091			1,917			3,021			1,663
Total		$	5,508		$	4,149		$	5,573		$	3,955

The fair value of exchange-traded derivatives is typically derived from the observable exchange price and/or observable market parameters. Our primary exchange-traded derivatives include futures and certain option agreements. OTC derivatives include forwards, swaps and options on foreign exchange, interest rates, equities and credit products. Fair values for OTC derivatives are determined on the basis of internally developed proprietary models using various input parameters. The input parameters include those characteristics of the derivative that have a bearing on the economics of the instrument and market parameters. In well-established derivatives markets, the use of a particular model may be widely accepted. For example, the Black-Scholes model is widely used to calculate the fair value of many types of options. These models are used to calculate the fair value of OTC derivatives and to facilitate the effective risk management of the portfolio. The determination of the fair value of many derivatives involves only limited subjectivity because the required input parameters are observable in the marketplace. For other more complex derivatives, subjectivity relating to the determination of input parameters reduces price transparency. Specific areas of subjectivity include long-dated volatilities on OTC option transactions and recovery rate assumptions for credit derivatives transactions. Uncertainty of pricing assumptions and liquidity are also considered as part of the valuation process. Because of these uncertainties, we do not recognize a dealer profit or unrealized gain at the inception of a derivatives transaction unless the valuation underlying the unrealized gain is evidenced by quoted market prices in an active market, observable prices of other current market transactions or other observable data supporting a valuation technique in accordance with Emerging Issues Task Force Issue No. 02-3, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities.” As of September 30, 2004 and December 31, 2003, most of the replacement values reported in our condensed consolidated statements of financial condition were derived using observable input parameters. For further information on the fair value of derivatives as of September 30,

2004 and December 31, 2003, see “—Derivatives—Sources and Maturities of OTC Derivatives” and Note 11 of the condensed consolidated financial statements in Part I, Item 1.

Private Equity Investments

Private equity and other long-term investments include direct investments and investments in partnerships that make private equity and related investments in various portfolio companies and funds. Private equity investments and other long-term investments consist of both publicly traded securities and private securities. Publicly traded investments are valued based upon readily available market quotes with appropriate adjustments for liquidity as a result of holding large blocks and/or having trading restrictions. Private securities, which generally have no readily available market or may be otherwise restricted as to resale, are valued taking into account a number of factors, such as the most recent round of financing involving unrelated new investors, earnings-multiple analyses using comparable companies or discounted cash flow analysis.

The Company categorizes its private equity investments into three categories: CSFB-managed funds, funds managed by third parties and direct investments. The increase in CSFB-managed funds reflects our consolidation primarily under the Financial Accounting Standards Board Interpretation, or FIN, No. 46, “(Revised 2003) Consolidation of Variable Interest Entities,” or FIN 46R, of certain private equity funds. For more information see Note 6 of the condensed consolidated financial statements in Part I, Item 1. The following table sets forth the fair value of our private equity investments by category as of September 30, 2004 and December 31, 2003:

	As of September 30, 2004						As of December 31, 2003
	Fair value			Percent of total			Fair value			Percent of total
	(In millions)						(In millions)
CSFB-managed funds		$	2,208		84	%		$	839		74	%
Funds managed by third parties		392			15			279			25
Direct investments		15			1			5			1
Total		$	2,615		100	%		$	1,123		100	%

CSFB-Managed Funds. CSFB-managed funds are partnerships and related “side by side” direct investments for which CSFB acts as the fund’s advisor and makes investment decisions. As of September 30, 2004 and December 31, 2003, approximately 92% and 80%, respectively, of CSFB-managed fund investments (excluding minority interests in private equity funds that were consolidated primarily under FIN 46R) were in private securities. The fair value of our investments in CSFB-managed fund of funds partnerships is based on the valuation received from the underlying fund manager.

Funds Managed by Third Parties. Funds managed by third parties are investments by the Company as a limited partner in a fund managed by an external fund manager. The fair value of these funds is based on the valuation received from the general partner of the fund.

Direct Investments. Direct investments are generally debt and equity securities that are not made through or “side by side” CSFB-managed funds and consist of public and private securities. These investments are priced in accordance with the procedures for CSFB-managed or third-party managed funds. As of September 30, 2004 and December 31, 2003, approximately 81% and 82%, respectively, of direct investments were in private securities.

Deferred Tax Assets

We recognize deferred tax assets and liabilities for the estimated future tax effects of operating loss carry-forwards and temporary differences between the carrying amounts of existing assets and liabilities and their respective tax bases as of the balance sheet date.

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

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

As of September 30, 2004, we had deferred tax assets resulting from temporary differences that could reduce taxable income in future periods. The condensed consolidated statements of financial condition as of September 30, 2004 and December 31, 2003 include deferred tax assets of $1.7 billion and deferred tax liabilities of $376 million and $375 million, respectively. Due to uncertainty concerning our ability to generate the necessary amount and mix of state and local taxable income in future periods, we maintained a valuation allowance against our deferred state and local tax assets in the amount of $35 million and $36 million as of September 30, 2004 and December 31, 2003, respectively. For further information on the temporary differences that generate deferred tax assets, see Note 5 of the condensed consolidated financial statements in Part I, Item 1.

Litigation Contingencies

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

RECENT DEVELOPMENTS

On June 4, 2004, we filed on Form 8-K audited consolidated statements of financial condition as of December 31, 2003 and 2002 and the related audited consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the three years ended December 31, 2003, 2002 and 2001 and related notes, restated to reflect the transfer of the high-net-worth business and updated segment information to reflect the segment changes made effective January 1, 2004. The Form 8-K filed on June 4, 2004 also includes a revised discussion of the Company’s results of operations to reflect the transfer of the high-net-worth business and change in segments.

On May 17, 2004, we entered into a memorandum of understanding with TXU Energy Company LLC, a Texas-based energy trading company, or TXU, to work together to form an independent energy trading entity to market and trade power, natural gas and other energy-related commodities in North America. After a detailed review of the proposal, TXU and we were unable to agree on an economic arrangement that met each side’s objectives and on September 29, 2004, TXU and we agreed not to form this entity.

On March 31, 2004, Credit Suisse First Boston, Inc., or CSFBI, our immediate parent company, transferred the high-net-worth business of Credit Suisse Asset Management, LLC, or CSAM, a wholly owned subsidiary of CSFBI, to us as a capital contribution of $221 million, and this business is part of our Private Client Services business. The transfer of this business was accounted for at historical cost in a manner similar to pooling-of-interest accounting because CSAM and we were under the common control of CSFBI at the time of transfer. Accordingly, we have restated our financial information for all periods presented to reflect the results of operations, financial condition, cash flows and changes in stockholders’ equity of the CSAM high-net-worth business as if we had acquired it on November 3, 2000, the date that we were acquired by CSFBI. The transferred assets of this business consist principally of goodwill and intangible assets relating primarily to CSAM’s acquisition of Warburg Pincus Asset Management in 1999. In December 2003, CSAM wrote down the value of its high-net-worth intangible assets, resulting in a pre-tax loss of $200 million and an after-tax loss of $130 million, and this loss is reflected in our restated audited consolidated financial statements.

RESULTS OF OPERATIONS

The following table sets forth a summary of our financial results for the three and nine months ended September 30, 2004 and 2003. On May 1, 2003, we sold the Pershing unit, or Pershing, to The Bank of New York Company, Inc. The results of operations for Pershing, including the gain on the sale, are presented as discontinued operations in the condensed consolidated statements of income and in the following table.

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2004			2003		2004		2003
	(In millions)
Total net revenues	$	1,183		$	1,063	$	4,730	$	3,710
Total expenses	1,122			879		3,537		3,283
Income from continuing operations before provision for income taxes, minority interests and discontinued operations	61			184		1,193		427
(Benefit) Provision for income taxes	(7		)	53		220		113
Minority interests	49			––		495		––
Income from continuing operations	19			131		478		314
Income from discontinued operations, net of income tax provision	––			––		––		876
Net income	$	19		$	131	$	478	$	1,190

In early 2004, we identified erroneous profit recorded in the three and nine months ended September 30, 2003 on certain intercompany residential mortgage securitization-related transactions. We have restated total net revenues, income from continuing operations and net income from that filed with the Securities and Exchange Commission on Form 10-Q for the quarterly period ended September 30, 2003. For the three and nine-months ended September 30, 2003, each of total net revenues and income from continuing operations has been reduced by $37 million and net income has been reduced by $24 million as previously reported in our Annual Report on Form 10-K for the year ended December 31, 2003 and in our Form 8-K filed on June 4, 2004.

Substantially all of our inventory is marked to market daily and, therefore, the value of such inventory and our net revenues are subject to fluctuations based on market movements. In addition, net revenues derived from our less liquid assets may fluctuate significantly depending on the revaluation or sale of these investments in any given period. We also regularly enter into large transactions as part of our proprietary and other trading businesses, and the number and size of such transactions may affect our results of operations in a given period.

Interest income and expense is accrued at the stated coupon rate for coupon-bearing financial instruments, and for non-coupon-bearing financial instruments, interest income is recognized by accreting the discount over the life of the instrument. For coupon-bearing financial instruments purchased at a discount or premium, the difference between interest income and expense accrued at the stated coupon rate and interest income and expense determined on an effective yield basis is included in principal transactions-net in the condensed consolidated statements of income.

We use derivatives to hedge the interest rate exposure associated with commercial mortgage whole loans and resale and repurchase agreements. These derivatives are carried at fair value, while the commercial mortgage whole loans are carried at the lower of aggregate cost or fair value and the resale and repurchase agreements are carried at contract amounts, with interest income or expense accruing over the term of the agreement. As a result, increases and decreases in the value of the derivatives are not offset by decreases and increases in the value of (i) the commercial mortgage whole loans until the loans are sold and (ii) the resale and repurchase agreements until the securities are sold or repurchased. Therefore, our net revenues are subject to volatility from period to period.

Our businesses are materially affected by conditions in the financial markets and economic conditions generally, including geopolitical events. Unpredictable or adverse market and economic conditions have adversely affected and may in the future adversely affect our results of operations. See “Business—Certain Factors That May Affect Our Results of Operations” in Part I, Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2003.

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

The Company recorded net income of $19 million for the three months ended September 30, 2004 compared to net income of $131 million for the three months ended September 30, 2003 reflecting improved net revenues offset by higher expenses.

Total net revenues increased $120 million, or 11%, to $1.2 billion for the three months ended September 30, 2004, as principal transactions improved compared to the three months ended September 30, 2003, partially offset by decreases in investment banking and advisory, commissions and net interest revenues. Principal transactions losses were reduced as a result of higher trading revenues from fixed income products and the consolidation of certain private equity funds in 2004, which increased net revenues by $55 million. Net income was unaffected by the consolidation of such private equity funds as offsetting minority interests of $49 million and related operating expenses of $6 million were recorded in the condensed consolidated statements of income. Investment banking and advisory fees decreased primarily due to lower debt underwriting fees. Commissions were down due to decreases in equity commissions. Net interest revenues declined due to lower net interest from fixed income products.

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

The Company recorded net income of $478 million for the nine months ended September 30, 2004 compared to net income of $1.2 billion for the nine months ended September 30, 2003. The decrease reflects the after-tax gain of $852 million from the sale of Pershing during the second quarter of 2003. The Company recorded income from continuing operations of $478 million for the nine months ended September 30, 2004 compared to $314 million for the nine months ended September 30, 2003, reflecting both higher net revenues and higher expenses.

Total net revenues increased $1.0 billion, or 27%, to $4.7 billion for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, primarily due to a significant increase in principal transactions and slightly higher commissions. The increase in principal transactions revenue was primarily due to significant gains from certain private equity investments and the consolidation of certain private equity funds in 2004, which increased net revenues by $501 million. Net income was unaffected by the consolidation of such private equity funds as offsetting minority interests of $495 million and related operating expenses of $6 million were recorded in the condensed consolidated statements of income. The slight increase in commissions was primarily a result of increased trading activity from fixed income listed derivatives. Net interest revenues declined due to lower net interest from fixed income products.

Total expenses increased $254 million, or 8%, to $3.5 billion for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, as increases in employee compensation and benefits expenses, reflecting increased revenues, were partially offset by lower merger-related costs and other operating expenses. See “—Expenses.”

Results by Segment

As of January 1, 2004, we transferred the private equity and private fund businesses from the Institutional Securities segment to the Financial Services segment, which has been renamed Wealth & Asset Management. In addition, we changed the presentation of the Institutional Securities and Wealth & Asset Management segment results. The operations of the Institutional Securities segment are presented in two divisions: Investment Banking, which includes debt and equity underwriting and financial advisory services; and Trading, which includes our debt and equity sales and trading and other related activities. The Institutional Securities segment also includes the results from legacy private equity and distressed assets. The operations of the Wealth & Asset Management segment are presented in two divisions: Alternative Capital, which includes the results of the private equity and private fund businesses, and Private Client Services. Prior period segment numbers have been changed to conform to the new segment reporting structure. These segment changes did not affect our previously reported consolidated results of operations.

Our segments are managed based on the types of products and services offered and their related client bases. We evaluate the performance of our segments based primarily on income from continuing operations before provision for income taxes and discontinued operations but excluding minority interests.

Revenues are evaluated in the aggregate, including an assessment of trading gains and losses and the related interest income and expense attributable to financing and hedging positions. Therefore, individual revenue categories may not be indicative of the performance of the segment results.

The cost structure of each of our segments is broadly similar to that of the Company as a whole, and, consequently, the discussion of expenses is presented on a company-wide basis. The Company allocates to its segments a pro rata share of certain centrally managed costs, such as leased facilities and equipment costs, employee benefits and certain general overhead expenses based upon specified amounts, usage criteria or agreed rates, and allocates interest expense based upon the particular type of asset. The

allocation of some costs, such as incentive bonuses, has been estimated. The timing and magnitude of changes in our incentive bonus accrual can have a significant effect on our operating results for a given period.

Institutional Securities

The Institutional Securities segment consists of the Trading and Investment Banking divisions and the results from legacy private equity and distressed assets. The Trading division consists of sales and trading in equity securities, equity-related derivatives, fixed income financial instruments and fixed income-related derivatives, and other related activities. The Investment Banking division raises and invests capital and provides financial advice to companies throughout the United States and abroad. Through the Investment Banking division, we manage and underwrite offerings of securities, arrange private placements and provide financial advisory and other services.

The following table sets forth certain financial information of the Company’s Institutional Securities segment:

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
	(In millions)
Revenues:
Principal transactions-net	$	(267	)	$	(554	)	$	(274	)	$	(724	)
Investment banking and advisory	463			508			1,281			1,339
Commissions	219			256			761			741
Interest and dividends, net	560			694			1,790			1,823
Other	11			11			37			57
Total net revenues	986			915			3,595			3,236
Total expenses	984			780			3,103			2,916
Income(1)	2			135			492			320
Minority interests(2)	8			—			70			—
(Loss) Income after minority interests(3)	$	(6	)	$	135		$	422		$	320

(1) Income from continuing operations before provision (benefit) for income taxes, minority interests and discontinued operations.

(2) Related to the Company’s consolidation of certain private equity funds.

(3) (Loss) income from continuing operations before (benefit) provision for income taxes and discontinued operations.

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

The Institutional Securities segment recorded a loss after minority interests of $6 million for the three months ended September 30, 2004 compared to income after minority interests of $135 million for the three months ended September 30, 2003. Total net revenues for the Institutional Securities segment increased $71 million to $1.0 billion for the three months ended September 30, 2004 compared to the three months ended September 30, 2003, reflecting reductions in losses from principal transactions partially offset by decreases in investment banking and advisory fees, commissions and net interest. Excluding $11 million of revenues from the consolidation of certain legacy private equity funds, total net revenues increased $60 million, or 7%.

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

The Institutional Securities segment recorded income after minority interests of $422 million for the nine months ended September 30, 2004 compared to $320 million for the nine months ended September 30, 2003. Total net revenues increased $359 million, or 11%, to $3.6 billion for the nine months ended September 30, 2004, reflecting reductions in losses in principal transactions and increases in commissions partially offset by decreases in investment banking and advisory fees, net interest and other revenues. Excluding $73 million of revenues from the consolidation of certain legacy private equity funds, total net revenues increased $286 million, or 9%.

Trading

In evaluating the performance of its Trading activities, the Company aggregates principal transactions, commissions and net interest as net trading revenues. Changes in the composition of trading inventories and hedge positions can cause principal transactions and net interest income to vary.

The following table sets forth net Trading revenues of the Institutional Securities segment:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2004		2003		2004		2003
	(In millions)
Fixed Income	$	252	$	119	$	1,275	$	1,035
Equity	183		257		721		812
Total net Trading	$	435	$	376	$	1,996	$	1,847

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

Total net Trading revenues for the Institutional Securities segment increased $59 million, or 16% to $435 million for the three months ended September 30, 2004 compared to the three months ended September 30, 2003, as increases in fixed income net trading revenues were partially offset by decreases in equity net trading revenues. The increase in fixed income net trading revenues reflected significantly improved results in structured products offset in part by weaker results in interest rate products and credit products. The increase in structured products net trading revenues was due primarily to higher revenues from residential mortgage-backed securities due to improved market conditions and lower write-downs. Net trading revenues from commercial mortgage-backed securities were also higher, reflecting favorable market conditions and lower write-downs. Losses in interest rate products reflected losses on derivatives that hedged certain resale and repurchase agreements. The weaker results from credit products reflected decreased volumes in high yield trading activity due to concerns about rising interest rates.

The decrease in equity net trading revenues was primarily due to lower revenues from the cash business due to lower volumes and declining equity prices. Revenues from convertible securities declined, reflecting lower trading volumes as a result of reduced liquidity and wider spreads. The decrease was partially offset by improved results from certain arbitrage strategies and growth in our advanced execution services and prime services businesses.

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Total net Trading revenues for the Institutional Securities segment increased $149 million, or 8%, to $2.0 billion for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, as increases in fixed income net trading revenues were partially offset by decreases in equity net trading revenues. The increase in fixed income net trading revenues reflected significantly improved results in structured products offset in part by weaker results in credit products. The increase in

structured products net trading revenues was due primarily to increases from residential mortgage-backed securities due to improved market conditions and lower write-downs. Net trading revenues from commercial mortgage-backed securities were higher, reflecting favorable market conditions. The weaker results from credit products reflected decreased volumes in high yield trading activity due to concerns about rising interest rates.

The decrease in equity net trading revenues was primarily due to declines in revenues from convertible securities, reflecting lower trading volumes as a result of reduced liquidity and wider spreads, and declines in revenues from the cash business due to lower volumes and declining equity prices. The decrease was partially offset by improved results from certain arbitrage strategies and growth in our advanced execution services and prime services businesses.

Investment Banking

The following table sets forth the Investment Banking revenues for the Institutional Securities segment:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2004		2003		2004		2003
	(In millions)
Debt underwriting	$	203	$	237	$	553	$	674
Equity underwriting	78		92		315		254
Total underwriting	281		329		868		928
Advisory and other fees	182		179		413		411
Total Investment Banking	$	463	$	508	$	1,281	$	1,339

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

Investment Banking revenues decreased 9% to $463 million, reflecting a decline in debt and equity underwriting and flat advisory and other fees. For the three months ended September 30, 2004, debt underwriting revenues decreased 14% compared to the three months ended September 30, 2003 to $203 million as commercial mortgage-backed securities and high-yield debt new issuance revenues declined due to lower volume. Equity underwriting revenues decreased 15% to $78 million reflecting modest industry-wide declines in convertible securities and common stock new issuances. Advisory and other fees improved 2% to $182 million, reflecting industry-wide increases in mergers and acquisitions activity offset by lower fees from restructurings and private placements.

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Investment Banking revenues decreased 4% to $1.3 billion, reflecting declines in debt underwriting offset by an increase in equity underwriting. Advisory and other fees were essentially flat. For the nine months ended September 30, 2004, debt underwriting revenues decreased 18% compared to the nine months ended September 30, 2003 to $553 million primarily due to lower underwriting revenues from commercial mortgage-backed securities. Underwriting revenues from high-yield debt new issuance revenues also declined significantly due to lower volume. The decreases were partially offset by increases in residential mortgage securitizations. Equity underwriting revenues increased 24% to $315 million despite a decline in convertible securities issuances as our initial public offering and common stock transaction volumes increased compared to the weak first nine months of 2003. Advisory and other fees increased less than 1% to $413 million as improvement in mergers and acquisitions activity was offset by lower fees from structured products, restructurings and private placements.

Other Institutional Securities

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

Total revenues from Other Institutional Securities increased $57 million to $88 million for the three months ended September 30, 2004 compared to the three months ended September 30, 2003, primarily including revenue that offsets certain allocations of interest expense charged to our business divisions and gains in legacy private equity investments. Revenues from legacy distressed assets declined in the three months ended September 30, 2004.

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Total revenues from Other Institutional Securities increased $268 million to $318 million for the nine months ended September 30, 2004 primarily reflecting revenue that offsets certain allocations of interest expense charged to our business divisions and gains from legacy distressed and real estate assets, including increases in legacy private equity revenues of $73 million as a result of our consolidation, primarily under FIN 46R, of certain private equity funds. Net income was unaffected by the consolidation of private equity funds as offsetting minority interests and related operating expenses were recorded in the condensed consolidated statements of income. See Note 6 of the condensed consolidated financial statements in Part I, Item 1 for more information.

Wealth & Asset Management

The Wealth & Asset Management segment consists of the Alternative Capital division, which includes the private equity and private fund businesses, and the Private Client Services division. The private equity business makes privately negotiated investments and acts as an investment advisor for private equity funds. The private fund business raises private capital, primarily from institutional investors, for direct investment by venture capital, management buyout and other investment firms in a variety of fund types. The Private Client Services division is a financial advisory business serving high-net-worth individuals and corporate investors with a wide range of CSFB and third-party investment management products and services.

The following table sets forth certain financial information of the Company’s Wealth & Asset Management segment:

	For the Three Months Ended					For the Nine Months Ended
	September 30,					September 30,
	2004			2003		2004		2003
	(In millions)
Revenues:
Principal transactions-net	$	93		$	17	$	774	$	139
Investment banking and advisory	19			21		65		43
Asset Management and Other Fees	85			89		250		254
Interest and dividends, net	(6		)	16		35		30
Other	6			5		11		8
Total net revenues	197			148		1,135		474
Total expenses	138			99		434		367
Income(1)	59			49		701		107
Minority interests(2)	41			—		425		—
Income after minority interests(3)	$	18		$	49	$	276	$	107

(1) Income from continuing operations before provision (benefit) for income taxes, minority interests and discontinued operations.

(2) Related to the Company’s consolidation of certain private equity funds.

(3) Income from continuing operations before provision (benefit) for income taxes and discontinued operations.

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

The Wealth & Asset Management segment recorded income after minority interests of $18 million for the three months ended September 30, 2004 compared to $49 million for the three months ended September 30, 2003. Total net revenues increased $49 million to $197 million for the three months ended September 30, 2004, including $44 million of revenues as a result of our consolidation, primarily under FIN 46R, of certain private equity funds. Excluding the effect of the consolidation of certain private equity funds, total net revenues increased $5 million, or 3%. Net income was unaffected by the consolidation of private equity funds as offsetting minority interests and related operating expenses were recorded in the condensed consolidated statements of income. See Note 6 of the condensed consolidated financial statements in Part I, Item 1 for more information.

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

The Wealth & Asset Management segment recorded income after minority interests of $276 million for the nine months ended September 30, 2004 compared to $107 million for the nine months ended September 30, 2003. Total net revenues increased $661 million to $1.1 billion for the nine months ended September 30, 2004, reflecting increases in net investment gains from certain private equity investments and $428 million of revenues as a result of our consolidation, primarily under FIN 46R, of certain private equity funds. Excluding the effect of the consolidation of certain private equity funds, total net revenues increased $233 million, or 49%. Net income was unaffected by the consolidation of private equity funds as offsetting minority interests and related operating expenses were recorded in the condensed consolidated statements of income. See Note 6 of the condensed consolidated financial statements in Part I, Item 1 for more information.

Wealth & Asset Management Divisions

The following table sets forth the Alternative Capital and Private Client Services division revenues for the Wealth & Asset Management segment:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2004		2003		2004		2003
	(In millions)
Alternative Capital	$	134	$	86	$	960	$	297
Private Client Services	48		59		162		170
Other	15		3		13		7
Total Wealth & Asset Management	$	197	$	148	$	1,135	$	474

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

Net revenues for the Alternative Capital division increased $48 million to $134 million, including $44 million of revenues as a result of our consolidation, primarily under FIN 46R, of certain private equity funds. Excluding the effect of the consolidation of certain private equity funds, total net revenues increased $4 million, or 5% reflecting increases in net investment gains from private equity investments. Net income was unaffected by the consolidation of such private equity funds as offsetting minority interests and related operating expenses were recorded in the condensed consolidated statements of income. See Note 6 of the condensed consolidated financial statements in Part I, Item 1 for more information.

Net revenues for the Private Client Services division decreased 19% to $48 million, primarily reflecting lower interest income as a result of reduced customer margin debit balances.

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Net revenues for the Alternative Capital division increased $663 million to $960 million, primarily reflecting increases in net investment gains. The increase in net investment gains reflects gains from the sale of certain private equity investments and $428 million of revenues as a result of our consolidation, primarily under FIN 46R, of certain private equity funds. Excluding the effect of the consolidation of certain private equity funds, total net revenues increased $235 million, or 79%. Net income was unaffected by the consolidation of private equity funds as offsetting minority interests and related operating expenses were recorded in the condensed consolidated statements of income. See Note 6 of the condensed consolidated financial statements in Part I, Item 1 for more information.

Net revenues for the Private Client Services division decreased 5% to $162 million, primarily reflecting lower interest income as a result of reduced customer margin debit balances. The decrease was partially offset by increases in equity underwriting revenues and asset management fees.

Expenses

The normal operating cost structure of each of our segments is broadly similar to that of the Company as a whole and, as a result, the discussion of expenses is presented on a company-wide basis.

The following table sets forth employee compensation and benefits expenses, other expenses and total expenses of the Company:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2004		2003		2004		2003
	(In millions)
Employee compensation and benefits	$	744	$	505	$	2,532	$	2,058
Other expenses	378		374		1,005		1,225
Total expenses	$	1,122	$	879	$	3,537	$	3,283

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

Total expenses increased $243 million, or 28%, to $1.1 billion for the three months ended September 30, 2004 compared to the three months ended September 30, 2003. The increase was principally due to higher compensation and benefits expenses. The increase in employee compensation and benefits expenses was due to increases in incentive compensation, higher severance expenses and increased base salary expenses offset in part by decreased accruals for certain deferred compensation plans. The third quarter 2003 employee compensation and benefits expenses included the effect of the introduction of vesting for stock awards and the reversal of accrued expenses of $85 million recorded in the first half of 2003.

Other expenses consist principally of occupancy and equipment rental; brokerage, clearing and exchange fees; communications; professional fees; merger-related costs of retention awards; and other operating expenses. Other expenses increased 1% for the three months ended September 30, 2004 compared to the three months ended September 30, 2003, primarily as a result of higher brokerage, clearing and exchange fees and communications expenses, partially offset by decreases in other operating expenses reflecting lower litigation accruals and higher affiliate service fees that are treated as a reduction in other operating expenses.

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Total expenses increased $254 million, or 8%, to $3.5 billion for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003. The increase was principally due to higher employee compensation and benefits expenses. The increase in employee compensation and benefits expenses was due to increases in incentive compensation reflecting improved net revenues, higher severance expenses and increased base salary expenses offset in part by decreased accruals for certain deferred compensation plans.

Other expenses decreased 18% for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, primarily as a result of decreased merger-related costs, reflecting the completion of the retention awards, and decreases in other operating expenses reflecting lower litigation accruals and higher affiliate service fees that are treated as a reduction in other operating expenses.

Taxes

The provision for income taxes from continuing operations for the nine months ended September 30, 2004 and 2003 was $220 million and $113 million, respectively. Excluded from the provision for income taxes from continuing operations for the nine months ended September 30, 2003 was a provision of $485 million from discontinued operations. In the third quarter of 2004, the Company had a $7 million tax benefit resulting from operating losses in certain businesses, non-taxable revenues from certain private equity funds consolidated primarily under FIN 46R and increases in qualifying dividend income taxed at low rates.

The effective tax rate for continuing operations changed from a provision of 26.5% for the nine months ended September 30, 2003 to a provision of 18.3% for the nine months ended September 30, 2004. The lower effective tax rate was due to non-taxable revenues from certain private equity funds consolidated primarily under FIN 46R. See Notes 5 and 6 of the condensed consolidated financial statements in Part I, Item 1 for more information.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Management Oversight

We believe that maintaining access to liquidity is fundamental for firms operating in the financial services industry. We have therefore established a comprehensive process for the management and oversight of our capital, liquidity and funding strategies. CSFB’s Capital Allocation and Risk Management Committee, or CARMC, has primary oversight responsibility for these functional disciplines. CARMC periodically reviews and approves our liquidity management policies and targets and reviews our liquidity position and other key risk indicators. The Corporate Treasury department is responsible for the management of capital, liquidity, long-term funding and a portion of the Company’s short-term funding, as well as relationships with creditor banks and investors. It also maintains regular contact with rating agencies and regulators on these and other issues. See “Liquidity Risk” in “Business—Certain Factors That May Affect Our Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2003.

Balance Sheet

Significant portions of our assets are highly liquid, with the majority consisting of securities inventories and collateralized receivables, which fluctuate depending on the levels of proprietary trading and customer business. Collateralized receivables consist primarily of securities purchased under agreements to resell and securities borrowed, both of which are primarily secured by U.S. government and agency securities and marketable corporate debt and equity securities. In addition, we have significant receivables from

customers, brokers, dealers and others, which turn over frequently. To meet client needs as a securities dealer, we carry significant levels of trading inventories.

In addition to these liquid assets, we also maintain positions in less liquid assets, such as certain mortgage whole loans, distressed securities, high-yield debt securities, asset-backed securities and private equity investments. These assets may be relatively illiquid at times, especially during periods of market stress. We typically fund a significant portion of less liquid assets, such as private equity investments, with long-term borrowings and stockholders’ equity. Mortgage whole loans, distressed securities, high-yield debt and asset-backed securities are generally financed with a combination of short-term unsecured financing or repurchase agreements, long-term borrowings and stockholders’ equity.

Because of changes relating to customer needs, economic and market conditions and proprietary trading and other strategies, our total assets or the individual components of total assets may vary significantly from period to period. As of September 30, 2004 and December 31, 2003, our total assets were $270.7 billion and $241.6 billion, respectively.

Included below is a discussion of our long-term contractual obligations, off-balance sheet arrangements and less liquid assets.

Funding Sources and Strategy

The majority of our assets are funded by collateralized short-term borrowings, which include securities sold under agreements to repurchase and securities loaned. Other significant funding sources include: commercial paper; short-term borrowings from affiliates; payables to customers, brokers, dealers and others; long-term borrowings; and stockholders’ equity. Short-term funding is generally obtained at rates related to the federal funds rate, LIBOR or other money market indices, while long-term funding is generally obtained at fixed and floating rates related to U.S. Treasury securities or LIBOR, depending upon prevailing market conditions. We continually aim to broaden our funding base by geography, investor and funding instrument.

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

Liquidity Planning and Measurement

We maintain a large secondary source of liquidity, principally through our broker-dealers and various other operating subsidiaries. We have historically been able to access significant liquidity through the secured funding markets (securities sold under agreements to repurchase, securities loaned and other collateralized financing arrangements), even in periods of market stress. We continually monitor overall liquidity by tracking the extent to which unencumbered marketable assets and alternative unsecured funding sources exceed both contractual obligations and anticipated contingent commitments.

The principal measure we use to monitor our liquidity position is the “liquidity barometer,” which estimates the time period over which the adjusted market value of unencumbered assets (including cash) exceeds the aggregate value of our maturing unsecured liabilities plus anticipated contingent commitments. The adjusted market value of unencumbered assets includes a reduction from market value, or “haircut,” reflecting the amount that could be realized by pledging an asset as collateral to a third-party lender in a secured funding transaction. Contingent commitments include letters of credit, guarantees, commitments to invest in private equity funds and collateralization requirements related to credit ratings.

Our objective, as mandated by CARMC, is to ensure that the liquidity barometer equals or exceeds one year. We believe this will enable us to carry out our business plans during extended periods of market stress, while minimizing, to the extent possible, disruptions to our business.

Contractual Obligations

The following table sets forth future cash payments on our contractual obligations pursuant to long-term borrowings and operating leases as of September 30, 2004:

	Contractual Obligations Expiration Per Period
	Less than 1 year			1-3 years		4-5 years		Over 5 years		Total
	(In millions)
Long-term borrowings		$	3,263	$	7,078	$	6,237	$	9,641	$	26,219
Operating leases		154		292		262		1,105		1,813
Total contractual obligations		$	3,417	$	7,370	$	6,499	$	10,746	$	28,032

Our long-term borrowings are unsecured. As of September 30, 2004, the weighted average maturity of our long-term borrowings was approximately 5.2 years. Our lease obligations are primarily for our principal offices in New York City and other locations. The operating lease obligations in the table above include $8 million in contractual obligations related to certain information technology, equipment leases and software licenses and exclude $314 million in sublease revenue. We had no capital lease or purchase obligations as of September 30, 2004.

For information on these and other material commitments, see Notes 7, 8, 13 and 14 of the condensed consolidated financial statements in Part I, Item 1. For information on commitments under our pension arrangements, see Note 12 of the condensed consolidated financial statements in Part I, Item 1.

The following table sets forth our commercial paper and other short-term unsecured borrowings:

	As of September 30, 2004			As of December 31, 2003
	(In millions)
Bank loans		$	267		$	450
Commercial paper		1,271			1,052
Loans from affiliates(1)		16,593			14,482
Total		$	18,131		$	15,984

(1) We have significant financing transactions with Credit Suisse First Boston and certain of its subsidiaries and affiliates. See “—Related Party Transactions” and Note 4 of the condensed consolidated financial statements in Part I, Item 1.

Credit Facilities

As part of our liquidity management strategy, we moved from syndicated unsecured facilities to bilateral secured facilities. As of September 30, 2004, Credit Suisse First Boston LLC, or CSFB LLC, maintained four 364-day committed secured revolving credit facilities totaling $1.2 billion, with one facility totaling $250 million maturing in November 2004, two facilities for $450 million maturing in February 2005 and one facility for $500 million maturing in July 2005. We expect to renew these facilities as they mature. These facilities require CSFB LLC to pledge unencumbered marketable securities to secure any borrowings. Borrowings under each facility would bear interest at short-term rates related to either the federal funds rate or LIBOR and can be used for general corporate purposes. The facilities contain customary covenants that we believe will not impair our ability to obtain funding. As of September 30, 2004, no borrowings were outstanding under any of the facilities.

Long-term Funding

We issue long-term debt through U.S. and Euromarket medium-term note programs, as well as syndicated and privately placed offerings around the world.

Under our currently effective $15.0 billion shelf registration statement on file with the SEC, which was established in June 2004 and allows us to issue from time to time senior and subordinated debt securities and warrants to purchase such securities, we had as of November 8, 2004 $15.0 billion available for issuance.

For the nine months ended September 30, 2004, in order to extend the maturity profile of our debt, we issued $1.1 billion in medium-term notes, $1.0 billion of 5.125% notes due 2014 and $1.4 billion of 4.7% notes due 2009 off of our then-existing $10.0 billion shelf registration statement.

During the nine months ended September 30, 2004, we repaid approximately $1.6 billion of medium-term notes and $68 million of structured notes.

Credit Ratings

Our access to the debt capital markets and our borrowing costs depend significantly on our credit ratings. These ratings are assigned by agencies, which may raise, lower or withdraw their ratings or place us on “credit watch” with positive or negative implications at any time. Credit ratings are important to us when competing in certain markets and when seeking to engage in longer-term transactions, including OTC derivatives. We believe agencies consider several factors in determining our credit ratings, including earnings performance, business mix, market position, financial strategy, level of capital, risk management policies and practices and management team, and our affiliation with CSFB and CSG, in addition to the broader outlook for the financial services industry.

A reduction in our credit ratings could limit our access to capital markets, increase our borrowing costs, require us to provide additional collateral in connection with OTC derivatives contracts, and allow counterparties to terminate transactions under certain of our trading and collateralized financing contracts. This, in turn, could reduce our liquidity and negatively impact our operating results and financial position. Our liquidity planning takes into consideration those contingent events associated with a reduction in our credit ratings.

Because the majority of our OTC derivatives arrangements are with affiliates, the amount of collateral that we would have been required to post pursuant to such contracts in the event of a one-notch downgrade of our senior long-term debt credit rating was not material as of September 30, 2004.

As of November 8, 2004, our ratings and ratings outlooks were as follows:

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

(1) On October 5, 2004, Fitch Ratings changed our credit rating outlook from negative to stable.

Capital Resources

Certain of our businesses are capital intensive. In addition to normal operating requirements, capital is required to cover financing and regulatory capital charges on securities inventories, private equity investments and investments in fixed assets. Our overall capital needs are regularly reviewed to ensure that our capital base can appropriately support the anticipated needs of our business and the regulatory and

other capital requirements of our subsidiaries. Based on these analyses, we believe that our capitalization is adequate for current operating levels.

Regulated Subsidiaries

Our principal wholly owned subsidiary, CSFB LLC, is a registered broker-dealer, registered futures commission merchant and member firm of the New York Stock Exchange, or NYSE. As such, it is subject to the NYSE’s net capital rule, which conforms to the uniform net capital rule pursuant to Rule 15c3-1 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under the alternative method permitted by this rule, its required net capital may not be less than two percent of aggregate debit balances arising from customer transactions or four percent of segregated funds, whichever is greater. If a member firm’s capital is less than four percent of aggregate debit balances, the NYSE may require the firm to reduce its business. If a member firm’s capital is less than five percent of aggregate debit balances, the NYSE may prevent the firm from expanding its business and declaring cash dividends. As of September 30, 2004, CSFB LLC’s net capital of approximately $2.6 billion was 63% of aggregate debit balances and in excess of the minimum requirement by approximately $2.5 billion.

Our OTC derivatives dealer subsidiary, Credit Suisse First Boston Capital LLC, is also subject to the uniform net capital rule, but calculates its net capital requirements based on value at risk pursuant to Appendix F of Rule 15c3-1. As of September 30, 2004, Credit Suisse First Boston Capital LLC’s net capital of $180 million, allowing for market and credit risk exposure of $41 million and $55 million, respectively, was in excess of the minimum net capital requirement by $160 million. Credit Suisse First Boston Capital LLC operates pursuant to the (k)(2)(ii) exemptive provisions of Rule 15c3-3 of the Exchange Act, and, accordingly, all customer transactions are cleared through an affiliated broker-dealer on a fully disclosed basis.

Certain of our other subsidiaries are subject to capital adequacy requirements. As of September 30, 2004, our subsidiaries complied with all applicable regulatory capital adequacy requirements.

Cash Flows

Our condensed consolidated statements of cash flows classify cash flows into three broad categories: cash flows from operating activities, investing activities and financing activities. These statements should be read in conjunction with “—Related Party Transactions” as well as Note 4 of the condensed consolidated financial statements in Part I, Item 1.

We present the condensed consolidated statements of cash flows for the nine months ended September 30, 2003 as if Pershing were part of our continuing operations and its assets and liabilities as of December 31, 2002 were not presented as Assets held for sale and Liabilities held for sale in the condensed consolidated statement of financial condition and its results of operations were not presented as discontinued operations in the condensed consolidated statement of income.

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

For the Nine Months Ended September 30, 2004

Cash and cash equivalents increased $39 million to $373 million as of September 30, 2004. Cash used in operating activities was $4.0 billion. The change in cash used in operating activities reflected a net decrease in operating liabilities relative to operating assets of $5.0 billion, which occurred in the normal course of operations as a result of changes in customer needs, market conditions and proprietary trading and other strategies.

Cash of $2.0 billion was used in investing activities. Prior to the acquisition of the Company, CSFBI issued its own debt to fund its operating, investment and financing needs. The Company now provides most of this funding, resulting in increases in receivables from affiliates of $1.8 billion.

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

For the Nine Months Ended September 30, 2003

Cash and cash equivalents decreased $25 million to $455 million as of September 30, 2003. Cash provided by operating activities was $2.1 billion. The change in cash provided by operating activities reflected a net increase in operating liabilities relative to operating assets of $1.7 billion, which occurred in the normal course of operations as a result of changes in customer needs, market conditions and proprietary trading and other strategies.

Cash of $653 million was provided by investing activities. The Company provides funding to CSFBI to fund its operating, investing and financing needs, resulting in increases in receivables from affiliates of $1.3 billion. The Company received $2.0 billion in cash as a result of the Pershing disposal.

Cash used in financing activities was $2.7 billion. The changes are due to decreases in net collateralized financing arrangements of $7.0 billion, partially offset by increases of $3.3 billion in short-term borrowings and increases of $4.1 billion in long-term borrowings used primarily to fund normal operating activities, provide funding to affiliates as part of the Company’s investing activities and repay $3.1 billion in long-term borrowings.

OFF-BALANCE SHEET ARRANGEMENTS

We enter into off-balance sheet arrangements in the ordinary course of business. Off-balance sheet arrangements are transactions, agreements or other contractual arrangements with, or for the benefit of, an entity that is not consolidated with an issuer, and which include guarantees and similar arrangements, retained or contingent interests in assets transferred to an unconsolidated entity, and obligations and liabilities (including contingent obligations and liabilities) under material variable interests in unconsolidated entities for the purpose of providing financing, liquidity, market risk or credit risk support.

We have not entered into any derivatives contracts indexed or linked to the stock of CSG.

Guarantees

In the ordinary course of our business, we provide guarantees and indemnifications that contingently obligate us to make payments to the guaranteed or indemnified party based on changes in an asset, liability or equity security of the guaranteed or indemnified party. We may also be contingently obligated to make payments to a guaranteed party based on another entity’s failure to perform, or we may have an indirect guarantee of the indebtedness of others. Guarantees we provide include customary indemnifications to

purchasers in conjunction with the sale of assets or businesses; to investors in private equity funds sponsored by the firm regarding potential obligations of employees to return amounts previously paid as carried interest; and to investors in our securities and other arrangements to provide “gross up” payments if there is a withholding or deduction because of a tax assessment or other governmental charge. From time to time, we also guarantee the obligations of subsidiaries of CSG that are not our consolidated subsidiaries, and these guarantees are included in the scope of the disclosure requirements of FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” or FIN 45.

FIN 45 requires disclosure of our maximum potential payment obligations under certain guarantees to the extent that it is possible to estimate them and requires recognition of a liability for the fair value of guaranteed obligations for guarantees issued or amended after December 31, 2002. The recognition of these liabilities did not have a material effect on our financial position or results of operations. For disclosure of our estimable maximum payment obligations under certain guarantees and related information, see Note 14 of the condensed consolidated financial statements in Part I, Item 1.

Retained or Contingent Interests in Assets Transferred to Unconsolidated Entities

We originate and purchase commercial and residential mortgages and sell these assets directly or through affiliates to special purpose entities that are, in most cases, qualified special purpose entities, or QSPEs. These QSPEs issue securities that are backed by the assets transferred to the QSPEs and pay a return based on the returns on those assets. Investors in these mortgage-backed securities typically have recourse to the assets in the QSPE. The investors and the QSPEs have no recourse to our assets.

These QSPEs are sponsored by our subsidiaries. Our principal broker-dealer subsidiary, CSFB LLC, underwrites and makes markets in these mortgage-backed securities. Under Statement of Financial Accounting Standards, or SFAS, No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125,” or SFAS 140, a QSPE is not required to be consolidated with the transferor. Our mortgage-backed securitization activities are generally structured to use QSPEs, and the assets and liabilities transferred to QSPEs are not included in our financial statements.

We may retain interests in these securitized assets if CSFB LLC holds the assets in connection with its underwriting or market-making activities. Retained interests in securitized financial assets are included at fair value in the condensed consolidated statements of financial condition. Any changes in the fair value of these retained interests are recognized in the condensed consolidated statements of income. We engage in these securitization activities to meet the needs of clients as part of our fixed income activities, earn fees and sell financial assets. These securitization activities do not provide a material source of our liquidity, capital resources or credit risk or market risk support. See Note 6 of the condensed consolidated financial statements in Part I, Item 1, which includes quantitative information on our securitization activities and retained interests.

In connection with our residential mortgage business, we may from time to time arrange for the sale of certain qualifying mortgage loans or pools of mortgage loans, or the Loans, to an unaffiliated entity, or the Purchaser, pursuant to an agreement between us and the Purchaser, or the Agreement. In accordance with the Agreement, we may be required to repurchase one or more Loans, including the related hedge positions, from the Purchaser at its request in accordance with the terms of the Agreement. As of September 30, 2004, the Purchaser has the right to request us to repurchase approximately $809 million of Loans from the Purchaser pursuant to the terms of the Agreement.

Variable Interest Entities

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

We purchase loans and other debt obligations from and on behalf of clients primarily for the purpose of securitization. The loans and other debt obligations are transferred by us directly, or indirectly through affiliates, to QSPEs or to VIEs that issue CDOs. CDOs are securities backed by the assets transferred to the VIE and pay a return based on the returns on those assets. Investors typically have recourse to the assets in the CDO VIE. The investors and the CDO VIE have no recourse to the Company’s assets. CSFB LLC structures, underwrites and makes a market in these CDOs, and we may have retained interests in these CDOs in connection with CSFB LLC’s underwriting and market-making activities. We engage in these CDO transactions to meet the needs of clients, to earn fees and to sell financial assets. These CDO transactions do not provide a material source of our liquidity, capital resources or credit risk or market risk support.

FIN No. 46, “Consolidation of Variable Interest Entities,” or FIN 46, requires us to consolidate all VIEs for which we are the primary beneficiary, defined as the entity that will absorb a majority of expected losses, receive a majority of the expected residual returns, or both. In December 2003, the FASB modified FIN 46, through the issuance of FIN 46R, to address various implementation issues that had arisen since the issuance of FIN 46 and to provide companies the option to defer the adoption of FIN 46 for certain VIEs to periods ending after March 15, 2004. As of December 31, 2003, with the exception of certain private equity funds that were a subject of the deferral, we consolidated all VIEs under FIN 46 for which we are the primary beneficiary, all of which were related to our CDO activities. We also have interests in CDO VIEs that are not required to be consolidated because we are not the primary beneficiary.

As of January 1, 2004, the Company consolidated under FIN 46R certain private equity funds that are managed by the Company. See Note 6 of the condensed consolidated financial statements in Part I, Item 1.

OTHER COMMITMENTS

We have commitments under a variety of arrangements that are not recorded as liabilities in our condensed consolidated statements of financial condition. These commitments are in addition to guarantees and other arrangements discussed in “—Off-Balance Sheet Arrangements.” These commitments include standby letters of credit, standby resale agreement facilities that commit us to enter into resale agreements with customers at market rates, commitments to invest in various partnerships that make private equity and related investments in various portfolio companies and in other private equity funds and commitments to enter into forward resale agreements. See Note 13 of the condensed consolidated financial statements in Part I, Item 1.

RELATED PARTY TRANSACTIONS

CSG, through CSFBI, owns all of our outstanding voting common stock. We are involved in significant financing and other transactions, and have significant related party balances, with Credit Suisse First Boston and certain affiliates. We generally enter into these transactions in the ordinary course of business and believe that these transactions are on market terms that could be obtained from unrelated third parties. See “—Derivatives” and Notes 4 and 14 of the condensed consolidated financial statements in Part I, Item 1 for more information.

Certain of our directors, officers and employees and those of our affiliates and their subsidiaries maintain margin accounts with CSFB LLC and other affiliated broker-dealers in the ordinary course of business. In addition, certain of such directors, officers and employees had investments or commitments to invest in various private funds sponsored by us, pursuant to which we have made loans to such directors,

officers and employees, to the extent permitted by law. CSFB LLC and other affiliated broker-dealers, from time to time and in the ordinary course of business, enter into, as principal, transactions involving the purchase or sale of securities from or to such directors, officers and employees and members of their immediate families.

LESS LIQUID ASSETS

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

Private Equity Activities

Our private equity and other long-term investment activities include direct investments and investments in partnerships that make private equity and related investments in various portfolio companies and funds. These investments are primarily in unlisted or illiquid equity or equity-related securities and are carried at fair value based on a number of factors. As of September 30, 2004 and December 31, 2003, we had investments in private equity and other long-term investments of $2.6 billion and $1.1 billion, respectively, and we had commitments to invest up to an additional $1.0 billion and $1.3 billion as of September 30, 2004 and December 31, 2003, respectively. The increase in private equity and other long-term investments reflects our consolidation primarily under FIN 46R of certain private equity funds. See “—Critical Accounting Policies and Estimates—Fair Value” and Notes 1, 6 and 8 of the condensed consolidated financial statements in Part I, Item 1 for more information.

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

We underwrite, trade and hold high-yield debt, which includes distressed debt, mortgage whole loans, loan participations, legacy distressed financial instruments, and other non-investment-grade financial instruments. Due to credit considerations, liquidity of secondary trading markets and vulnerability to general economic conditions, these financial instruments and loans generally involve greater risk than investment-grade financial instruments. We record high-yield debt, residential mortgage whole loans, legacy distressed financial instruments and other non-investment-grade financial instruments at fair value, with the exception of certain residential mortgage whole loans that are held for sale and are carried at the lower of cost or fair value. We record commercial mortgage whole loans held for sale and loan participations at the lower of cost or fair value. Timing of the securitization of our mortgage whole loan inventory will affect the size of our positions at any given time. The following table sets forth our positions in these instruments as of September 30, 2004 and December 31, 2003:

	As of September 30, 2004						As of December 31, 2003
	Assets			Liabilities			Assets			Liabilities
	(In millions)
High-yield and distressed debt		$	1,498		$	710		$	1,551		$	675
Mortgage whole loans		14,636			—			9,101			—
Loan participations		18			—			70			—
Legacy distressed financial instruments		213			—			171			—
Total		$	16,365		$	710		$	10,893		$	675

DERIVATIVES

We enter into various transactions involving derivatives. We use derivatives contracts for both trading and hedging purposes and to provide products for our clients. These derivatives include options, forwards, futures and swaps. In general, derivatives are contractual agreements that derive their values from the performance of underlying assets, interest or currency exchange rates or a variety of indices. Most of our derivatives transactions are considered trading positions. See Note 11 of the condensed consolidated financial statements in Part I, Item 1 for more information.

Sources and Maturities of OTC Derivatives

The following table sets forth the distributions, by maturity, of our exposure with respect to OTC derivatives as of September 30, 2004, after taking into account the effect of netting agreements. Fair values were determined on the basis of pricing models and other valuation methods. See “—Critical Accounting Policies and Estimates—Fair Value” and Notes 11 and 14 of the condensed consolidated financial statements in Part I, Item 1 for more information.

	Assets Maturity Distribution as of September 30, 2004
	Less than 1 year			1-4 years			4-5 years			Over 5 years			Total fair value
	(In millions)
Interest rate risk		$	499		$	1,382		$	534		$	431		$	2,846
Equity price risk		32			92			5			67			196
Foreign exchange risk		1			21			27			—			49
Total		$	532		$	1,495		$	566		$	498		$	3,091

	Liabilities Maturity Distribution as of September 30, 2004
	Less than 1 year			1-4 years			4-5 years			Over 5 years			Total fair value
	(In millions)
Interest rate risk		$	501		$	357		$	191		$	357		$	1,406
Equity price risk		99			138			27			225			489
Foreign exchange risk		1			—			21			—			22
Total		$	601		$	495		$	239		$	582		$	1,917

The following table sets forth as of September 30, 2004 our exposure with respect to OTC derivatives, by counterparty credit rating and with affiliates, after taking into account the effect of netting agreements.

	As of September 30,
Credit Rating(1)	2004
	(In millions)
AAA		$	2
AA+/AA		1,112
AA-		33
A+/A/A-		237
BBB+/BBB/BBB-		16
BB+ or lower		16
Unrated		93
Derivatives with affiliates		1,582
Total		$	3,091

⁽¹⁾ Credit ratings are determined by external rating agencies or by our credit risk management department.

Derivatives With Related Parties

We enter into a substantial number of derivatives transactions with related parties. The following table sets forth derivatives transactions with related parties consisting primarily of interest rate swaps, credit default swaps and foreign exchange forward contracts. The fair values of derivatives contracts outstanding with related parties as of September 30, 2004 and December 31, 2003 were as follows:

	As of September 30, 2004						As of December 31, 2003
	Assets			Liabilities			Assets			Liabilities
	(In millions)
Interest rate risk		$	1,557		$	793		$	1,860		$	794
Equity price risk		2			1			12			29
Foreign exchange risk		23			6			38			1
Total		$	1,582		$	800		$	1,910		$	824

See Notes 4 and 11 of the condensed consolidated financial statements in Part I, Item 1 for more information.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

Risk Management and Value at Risk

For a description of the Company’s risk management policies and procedures and value-at-risk, or VAR, model, including such model’s assumptions and limitations, see “Quantitative and Qualitative Disclosure About Market Risk” in Part II, Item 7A of the Company’s Annual Report on Form 10-K for the December 31, 2003.

Market Risk Exposure

Trading portfolios

The Company-wide trading portfolio VAR was approximately $30 million and $49 million as of September 30, 2004 and December 31, 2003, respectively.

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

	Company’s Market Risk Exposures in Trading Portfolios (Unaudited)
	As of September 30, 2004			As of June 30, 2004			As of March 31, 2004			As of December 31, 2003
99%, one-day VAR, in $ millions
Interest rate risk		29			51			35			49
Equity risk		13			20			17			14
Foreign currency exchange risk		2			1			—			—
Benefit of diversification		(14	)		(23	)		(13	)		(14	)
Total		30			49			39			49

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

	Company’s Market Risk Exposures in Trading Portfolios (Unaudited)
	Three Months Ended September 30, 2004							Three Months Ended June 30, 2004							Three Months Ended March 31, 2004
	Minimum(1)		Maximum(1)		Average			Minimum(1)		Maximum(1)		Average			Minimum(1)		Maximum(1)		Average
99%, one-day VAR, in $ millions
Interest rate risk		28		50		38			39		55		46			32		49		40
Equity risk		13		29		19			19		32		24			12		26		19
Foreign currency exchange risk		1		2		1			—		4		—			—		3		—
Benefit of diversification		—		—		(14	)		—		—		(16	)		—		—		(11	)
Total		30		62		44			45		69		54			34		63		48

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

The average, maximum and minimum daily trading revenue over the last three quarters is shown below:

	Three Months Ended September 30, 2004			Three Months Ended June 30, 2004			Three Months Ended March 31, 2004
Daily trading revenue, in $ millions
Average		11			14			16
Maximum		64			63			67
Minimum		(7	)		(16	)		(17	)

Non-trading portfolios

We measure equity risk on non-trading positions using sensitivity analysis that estimates the potential change in the recorded value of the investments resulting from a 10% decline in the equity markets of G22 nations and a 20% decline in the equity markets of non-G22 nations. The estimated impact of equity risk on our non-trading financial instruments portfolio, which is mainly comprised of our private equity investments, would be a decrease in the value of the non-trading portfolio of approximately $105 million and a decrease of approximately $112 million as of September 30, 2004 and December 31, 2003, respectively. The estimated impact of equity price risk as of September 30, 2004 excludes the investments in certain private equity funds consolidated primarily under FIN 46R.

The interest rate risk on non-trading positions is measured using sensitivity analysis that estimates the potential change in the value of the non-trading portfolio resulting from a 50 basis point decline in the interest rates of G22 nations and a 200 basis point decline in the interest rates of non-G22 nations. The estimated impact of interest rate risk on pre-tax net income would be a decrease of approximately $14 million and an increase of approximately $55 million as of September 30, 2004 and December 31, 2003, respectively. This decrease is due to the reclassification of certain positions into the trading portfolio.

The foreign exchange risk on non-trading positions is measured using sensitivity analysis that estimates the potential change in the value of the non-trading portfolio resulting from a 10% strengthening of the U.S. dollar against G22 currencies and a 20% strengthening of the U.S. dollar against non-G22 currencies. The estimated impact of foreign exchange risk on the value of the non-trading portfolio would be a decrease of approximately $1 million as of September 30, 2004 and December 31, 2003.

We do not have material commodity price risk in our non-trading portfolio.

Item 4: Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial and Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon and as of the date of the evaluation, our Chief Executive Officer and Chief Financial and Accounting Officer concluded that the design and operation of these disclosure controls and procedures were effective in all material respects to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2004 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Delaware		13-1898818
(State or other jurisdiction of incorporation 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)

	September 30, 2004				December 31, 2003
LIABILITIES AND STOCKHOLDERS’ EQUITY
Commercial paper and short-term borrowings		$	18,131			$	15,984
Collateralized short-term financings:
Securities sold under agreements to repurchase		113,356				110,667
Securities loaned		36,088				27,708
Payables:
Customers		5,408				4,278
Brokers, dealers and other		5,039				5,410
Financial instruments sold not yet purchased:
U.S. government and agencies		29,680				23,700
Corporate debt		3,156				2,523
Equities		6,661				5,231
Derivatives contracts		4,149				3,955
Other		206				336
Obligation to return securities received as collateral		5,132				1,955
Accounts payable and accrued expenses		2,898				2,836
Other liabilities		4,130				3,021
Long-term borrowings		26,219				24,321
Total liabilities		260,253				231,925
Stockholders’ Equity:
Common stock ($0.10 par value; 50,000 shares authorized; 1,100 shares issued and outstanding)		—				—
Paid-in capital		8,366				8,012
Retained earnings		2,265				1,787
Accumulated other comprehensive loss		(157		)		(158		)
Total stockholders’ equity		10,474				9,641
Total liabilities and stockholders’ equity		$	270,727			$	241,566

	For the Nine Months Ended September 30,
	2004			2003
Cash flows from operating activities:
Net income	$	478		$	1,190
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Pre-tax gain on sale of Pershing	—			(1,324		)
Depreciation and amortization	133			122
CSG share plan activity	277			278
Deferred taxes	26			114
Other, net	99			(29		)
Change in operating assets and operating liabilities:
Securities borrowed	(5,455		)	1,292
Receivables from customers	1,468			(430		)
Receivables from brokers, dealers and other	(2,532		)	(4,860		)
Financial instruments owned	(19,045		)	(10,844		)
Other assets and Other liabilities, net	39			1,416
Securities loaned	8,380			4,263
Payables to customers	1,130			1,570
Payables to brokers, dealers and other	(371		)	2,831
Financial instruments sold not yet purchased	8,107			6,718
Obligation to return securities received as collateral	3,177			444
Accounts payable and accrued expenses	62			(698		)
Net cash (used in) provided by operating activities	(4,027		)	2,053
Cash flows from investing activities:
Net (payments for) proceeds from:
Loans receivable from parent and affiliates	(1,823		)	(1,267		)
Proceeds from Pershing sale	—			2,000
Office facilities	(152		)	(80		)
Net cash (used in) provided by investing activities	(1,975		)	653
Cash flows from financing activities:
Net proceeds from (payments for):
Commercial paper and short-term borrowings	2,147			3,274
Repurchase of Series B preferred stock	—			(4		)
Capital contribution by CSFBI	—			75
Securities sold under agreements to repurchase, net of securities purchased under agreements to resell	2,029			(7,034		)
Issuances of long-term borrowings	3,483			4,083
Redemptions and maturities of long-term borrowings	(1,618		)	(3,125		)
Net cash provided by (used in) financing activities	6,041			(2,731		)
Increase (decrease) in cash and cash equivalents	39			(25		)
Cash and cash equivalents as of the beginning of period	334			480
Cash and cash equivalents as of the end of period	$	373		$	455
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest	$	3,929		$	3,566
Cash payments for income taxes, net of refunds	$	64		$	121

(a)	Exhibits
	12	Statement re computation of ratio of earnings to fixed charges
	15	Letter re unaudited interim financial information
	31.1	Rule 13a-14(a) certification of Chief Executive Officer
	31.2	Rule 13a-14(a) certification of Chief Financial and Accounting Officer
	32	Section 1350 certifications

(b)	Reports on Form 8-K
	1. Form 8-K dated August 4, 2004; Item 5
	2. Form 8-K dated September 29, 2004; Item 8.01
	3. Form 8-K dated November 4, 2004; Item 8.01

	CREDIT SUISSE FIRST BOSTON (USA), INC.
November 9, 2004	By:	/s/ PAUL C. WIRTH
		Chief Financial and Accounting Officer (On behalf of the Registrant and as Principal Financial Officer)

PART I	FINANCIAL INFORMATION
	ITEM 1:	Financial Statements
		Condensed Consolidated Statements of Financial Condition (Unaudited) as of September 30, 2004 and December 31, 2003		2
		Condensed Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2004 and 2003		4
		Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the nine months ended September 30, 2004 and 2003		5
		Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2004 and 2003		6
		Notes to Condensed Consolidated Financial Statements (Unaudited)
		1.	Summary of Significant Accounting Policies	7
		2.	Share-Based Compensation	10
		3.	Discontinued Operations	10
		4.	Related Party Transactions	10
		5.	Income Taxes	13
		6.	Transfers and Servicing of Financial Assets	15
		7.	Borrowings	21
		8.	Private Equity and Other Long-Term Investments	22
		9.	Net Capital	23
		10.	Cash and Securities Segregated Under Federal and Other Regulations	24
		11.	Derivatives Contracts	24
		12.	Employee Benefit Plans	27
		13.	Commitments	28
		14.	Guarantees	29
		15.	Industry Segment and Geographic Data	33
		16.	Goodwill and Identifiable Intangible Assets	35
		17.	Legal Proceedings	35
		Report of Independent Registered Public Accounting Firm		37
	ITEM 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations		38
	ITEM 3:	Quantitative and Qualitative Disclosures About Market Risk		64
	ITEM 4:	Controls and Procedures		66
PART II	OTHER INFORMATION
	ITEM 1:	Legal Proceedings		67
	ITEM 5:	Other Information		68
	ITEM 6:	Exhibits and Reports on Form 8-K		68
	Signature			69

	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004		2003
Revenues:
Principal transactions-net	$	(174	)	$	(537	)	$	500	$	(585	)
Investment banking and advisory	482			529			1,346		1,382
Commissions and fees	304			345			1,011		995
Interest and dividends, net of interest expense of $1,512, $1,036, $3,983 and $3,359, respectively	554			710			1,825		1,853
Other	17			16			48		65
Total net revenues	1,183			1,063			4,730		3,710
Expenses:
Employee compensation and benefits	744			505			2,532		2,058
Occupancy and equipment rental	123			119			354		356
Brokerage, clearing and exchange fees	88			76			241		223
Communications	32			24			96		95
Professional fees	74			72			195		209
Merger-related costs	—			4			8		125
Other operating expenses	61			79			111		217
Total expenses	1,122			879			3,537		3,283
Income from continuing operations before provision for income taxes, minority interests and discontinued operations	61			184			1,193		427
(Benefit) provision for income taxes	(7		)	53			220		113
Minority interests	49			—			495		—
Income from continuing operations	19			131			478		314
Discontinued operations:
Income from discontinued operations	—			—			—		1,361
Provision for income taxes	—			—			—		485
Income from discontinued operations, net of income taxes	—			—			—		876
Net income	$	19		$	131		$	478	$	1,190

Exhibit Number		Description
12		Computation of ratio of earnings to fixed charges
15		Letter re unaudited interim financial information
31.1		Rule 13a-14(a) certification of Chief Executive Officer
31.2		Rule 13a-14(a) certification of Chief Financial and Accounting Officer
32		Section 1350 certifications