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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2003

OR

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

For the transition period from                             to                              

Commission File Number: 1-6862

Credit Suisse First Boston (USA), Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)		   13-1898818
(I.R.S. employer identification no.)

Eleven Madison Avenue
New York, N.Y.
(Address of principal executive offices)
 

10010
(Zip Code)

(212) 325-2000
(Registrant's telephone number, including area code)

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

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

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

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


CREDIT SUISSE FIRST BOSTON (USA), INC.

Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2003

PART I   FINANCIAL INFORMATION    
    ITEM 1: Financial Statements    
        Condensed Consolidated Statements of Financial Condition
    (Unaudited) as of September 30, 2003 and December 31, 2002		   2

 
 
 
 
Condensed Consolidated Statements of Income
    (Unaudited) for the three and nine months ended September 30, 2003 and 2002
 
4

 
 
 
 
Condensed Consolidated Statements of Changes in Stockholders' Equity
    (Unaudited) for the nine months ended September 30, 2003 and 2002
 
5

 
 
 
 
Condensed Consolidated Statements of Cash Flows
    (Unaudited) for the nine months ended September 30, 2003 and 2002
 
6

 
 
 
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
 
          1.   Summary of Significant Accounting Policies   7
          2.   Stock-Based Compensation   9
          3.   Discontinued Operations   10
          4.   Merger-Related Costs   11
          5.   Related Party Transactions   11
          6.   Transfers and Servicing of Financial Assets   13
          7.   Borrowings   17
          8.   Private Equity and Other Long-Term Investments   18
          9.   Net Capital   19
        10.   Cash and Securities Segregated Under Federal and Other Regulations   19
        11.   Derivatives Contracts   20
        12.   Commitments   22
        13.   Guarantees   23
        14.   Industry Segment and Geographic Data   26
        15.   Legal Proceedings   28
        Independent Accountants' Review Report   29
    ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of
                   Operations		   30
    ITEM 3: Quantitative and Qualitative Disclosures About Market Risk   50
    ITEM 4: Controls and Procedures   52

PART II
 
OTHER INFORMATION
 
 
    ITEM 1: Legal Proceedings   53
    ITEM 5: Other Information   54
    ITEM 6: Exhibits and Reports on Form 8-K   55
    Signature   56


AVAILABLE INFORMATION

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

1


PART I
FINANCIAL INFORMATION
ITEM 1: Financial Statements

CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(Unaudited)
(In millions)

 
   September 30,
2003
   December 31,
2002
ASSETS            
Cash and cash equivalents   $ 455   $ 480
Collateralized short-term financings:            
  Securities purchased under agreements to resell     52,663     51,756
  Securities borrowed     70,004     71,296
Receivables:            
  Customers     1,509     829
  Brokers, dealers and other     11,920     7,310
Financial instruments owned (includes securities pledged as collateral of
    $55,247 and $49,695, respectively):		            
  U.S. government and agencies     32,803     32,131
  Corporate debt     12,313     12,174
  Mortgage whole loans     10,046     9,465
  Equities     13,623     9,735
  Commercial paper     830     619
  Private equity and other long-term investments     1,043     956
  Derivatives contracts     7,578     3,956
  Other     4,729     3,211
Net deferred tax asset     1,472     1,685
Office facilities at cost (net of accumulated depreciation and amortization of
    $866 and $749, respectively)		     444     485
Goodwill     320     301
Loans receivable from parent and affiliates     17,676     16,412
Other assets and deferred amounts     1,561     1,749
Assets held for sale     —     11,547
   
 
  Total assets   $ 240,989   $ 236,097
   
 

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

2


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

 
   September 30,
2003
   December 31,
2002
  
LIABILITIES AND STOCKHOLDERS' EQUITY              

Commercial paper and short-term borrowings
 
$
15,207
 
$
11,933
 
Collateralized short-term financings:              
  Securities sold under agreements to repurchase     101,769     107,896  
  Securities loaned     28,441     24,178  
Payables:              
  Customers     4,498     2,928  
  Brokers, dealers and other     11,520     8,689  
Financial instruments sold not yet purchased:              
  U.S. government and agencies     26,044     22,710  
  Corporate debt     2,330     3,315  
  Equities     4,357     3,240  
  Derivatives contracts     6,311     2,849  
  Other     125     335  
Obligation to return securities received as collateral     1,340     896  
Accounts payable and accrued expenses     2,533     3,200  
Other liabilities     3,227     2,156  
Long-term borrowings     24,016     23,094  
Liabilities held for sale     —     10,947  
   
 
 
  Total liabilities     231,718     228,366  
   
 
 

Stockholders' Equity:
 
 
 
 
 
 
 
Preferred stock, 50,000,000 shares authorized:              
  Series B preferred stock, at $50.00 per share liquidation preference (88,500
    shares issued and outstanding at December 31, 2002)		     —     4  
Common stock ($0.10 par value; 50,000 shares authorized; 1,100 shares issued
    and outstanding)		     —     —  
Paid-in capital     7,604     7,279  
Retained earnings     1,824     604  
Accumulated other comprehensive loss     (157 )   (156 )
   
 
 
  Total stockholders' equity     9,271     7,731  
   
 
 
  Total liabilities and stockholders' equity   $ 240,989   $ 236,097  
   
 
 

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

3



CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(In millions)

 
   Three Months Ended
September 30,
   Nine Months Ended
September 30,
  
 
   2003
   2002
   2003
   2002
  
Revenues:                          
  Principal transactions-net   $ (318 ) $ (581 ) $ (268 ) $ (570 )
  Investment banking and advisory     599     499     1,567     2,005  
  Commissions     273     290     784     933  
  Interest and dividends, net of interest expense of $1,035,
    $1,421, $3,359 and $4,174, respectively		     529     496     1,596     1,365  
  Other     16     (17 )   65     512  
   
 
 
 
 
  Total net revenues     1,099     687     3,744     4,245  
   
 
 
 
 
Expenses:                          
  Employee compensation and benefits     513     669     2,084     2,540  
  Occupancy and equipment rental     111     119     333     349  
  Brokerage, clearing and exchange fees     76     66     220     201  
  Communications     31     51     117     143  
  Professional fees     65     50     181     146  
  Merger-related costs     4     78     125     260  
  Other operating expenses     75     22     211     200  
   
 
 
 
 
  Total expenses     875     1,055     3,271     3,839  
   
 
 
 
 
Income (loss) from continuing operations before provision
    (benefit) for income taxes and discontinued operations		     224     (368 )   473     406  
Provision (benefit) for income taxes     68     (129 )   129     142  
   
 
 
 
 
Income (loss) from continuing operations before discontinued
    operations		     156     (239 )   344     264  
Discontinued operations:                          
  Income from discontinued operations     —     31     1,361     100  
  Provision for income taxes     —     11     485     35  
   
 
 
 
 
  Income from discontinued operations, net of income taxes     —     20     876     65  
   
 
 
 
 
Net income (loss)   $ 156   $ (219 ) $ 1,220   $ 329  
   
 
 
 
 

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

4


CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
For the Nine Months Ended September 30, 2003 and September 30, 2002
(In millions)

 
   Preferred Stock
   Common Stock
   Paid-in Capital
   Retained Earnings
   Accumulated Other Comprehensive Income (Loss)
   Total
  
Balances at December 31, 2001   $ 5   $ —   $ 6,326   $ 859   $ (72 ) $ 7,118  
Net income     —     —     —     329     —     329  
Foreign currency translation adjustment     —     —     —     —     6     6  
Decrease in pension liability, net of income
    tax expense of $3		     —     —     —     —     5     5  
                                 
 
  Total comprehensive income                                   340  
                                 
 
CSG share plan activity, net of tax effect of
    $4		     —     —     461     —     —     461  
Redemption of Series B preferred stock     (1 )   —     —     —     —     (1 )
   
 
 
 
 
 
 
Balances at September 30, 2002   $ 4   $ —   $ 6,787   $ 1,188   $ (61 ) $ 7,918  
   
 
 
 
 
 
 

Balances at December 31, 2002
 
$
4
 
$
—
 
$
7,279
 
$
604
 
$
(156
)
$
7,731
 
Net income     —     —     —     1,220     —     1,220  
Foreign currency translation adjustment     —     —     —     —     (1 )   (1 )
                                 
 
  Total comprehensive income                                   1,219  
                                 
 
CSG share plan activity, net of tax effect of
    $28		     —     —     250     —     —     250  
Redemption of Series B preferred stock     (4 )   —     —     —     —     (4 )
Capital contribution by CSFBI     —     —     75     —     —     75  
   
 
 
 
 
 
 
Balances at September 30, 2003   $ —   $ —   $ 7,604   $ 1,824   $ (157 ) $ 9,271  
   
 
 
 
 
 
 

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

5


CREDIT SUISSE FIRST BOSTON (USA), INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In millions)

 
   Nine Months Ended
September 30,
  
 
   2003
   2002
  
Cash flows from operating activities:              
  Net income   $ 1,220   $ 329  
  Adjustments to reconcile net income to net cash (used in) provided by
    operating activities:		              
    Net pre-tax gain on sale of certain broker-dealer subsidiaries     —     (528 )
    Pre-tax gain on sale of Pershing     (1,324 )   —  
    Depreciation and amortization     122     117  
    CSG share plan activity     278     465  
    Deferred taxes     130     157  
    Other, net     (29 )   7  
  Change in operating assets and operating liabilities:              
    Securities borrowed     1,292     285  
    Receivables from customers     (680 )   1,040  
    Receivables from brokers, dealers and other     (4,610 )   1,483  
    Financial instruments owned     (10,754 )   727  
    Other assets and Other liabilities, net     1,277     (853 )
    Securities loaned     4,263     (5,020 )
    Payables to customers     1,570     (2,500 )
    Payables to brokers, dealers and other     2,831     (1,305 )
    Financial instruments sold not yet purchased     6,718     4,028  
    Obligation to return securities received as collateral     444     (473 )
    Accounts payable and accrued expenses     (698 )   (520 )
   
 
 
Net cash provided by (used in) operating activities     2,050     (2,561 )
   
 
 
Cash flows from investing activities:              
  Net (payments for) proceeds from:              
    Loans receivable from parent and affiliates     (1,264 )   (10,694 )
    Sale of broker-dealer subsidiaries     —     674  
    Sale of Pershing     2,000     —  
    Office facilities     (80 )   (71 )
    Purchase of subsidiary     —     (70 )
   
 
 
Net cash provided by (used in) investing activities     656     (10,161 )
   
 
 
Cash flows from financing activities:              
  Net proceeds from (payments for):              
    Commercial paper and short-term borrowings     3,274     1,079  
    Securities purchased under agreements to resell, net of securities sold
    under agreements to repurchase		     (7,034 )   4,596  
    Capital contribution from CSFBI     75     —  
    Redemption of Series B preferred stock     (4 )   (1 )
    Issuances of long-term borrowings     4,083     8,976  
    Redemptions and maturities of long-term borrowings     (3,125 )   (2,179 )
   
 
 
Net cash (used in) provided by financing activities     (2,731 )   12,471  
   
 
 
Decrease in cash and cash equivalents     (25 )   (251 )
   
 
 
Cash and cash equivalents at beginning of period     480     1,752  
   
 
 
Cash and cash equivalents at end of period   $ 455   $ 1,501  
   
 
 

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

6


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

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2003

1.    Summary of Significant Accounting Policies

The Company

        Credit Suisse First Boston (USA), Inc., formerly known as Donaldson, Lufkin & Jenrette, Inc., and its subsidiaries (the "Company"), is a leading integrated investment bank serving institutional, corpo