EXHIBIT 99.2
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999
PAGE NUMBER
-----------
Financial Statements - Credit Suisse First Boston Corporation
Independent Auditors' Report................................................................... 8
Consolidated Statements of Financial Condition as of December 31, 1999 and 1998................ 9
Consolidated Statements of Operations for the years ended December 31, 1999,
1998 and 1997............................................................................... 11
Consolidated Statements of Changes in Stockholder's Equity for the
years ended December 31, 1999, 1998 and 1997................................................ 12
Consolidated Statements of Cash Flows for years ended December 31, 1999, 1998
and 1997.................................................................................... 13
Notes to Consolidated Financial Statements.................................................... 14
Condensed Consolidated Statements of Financial Condition as of June 30, 2000 (Unaudited),
and December 31, 1999 (Unaudited)........................................................... 27
Condensed Consolidated Statements of Income for the six-month periods ended June 30, 2000
and 1999 (Unaudited)........................................................................ 29
Condensed Consolidated Statements of Changes in Stockholder's Equity for the
six-month period ended June 30, 2000 and for the year ended December 31, 1999 (Unaudited)... 30
Condensed Consolidated Statements of Cash Flows for six-month periods ended June 30,
2000 and 1999 (Unaudited)................................................................... 31
Notes to Condensed Consolidated Financial Statements (Unaudited).............................. 32
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Credit Suisse First Boston Corporation:
We have audited the accompanying consolidated statements of financial
condition of Credit Suisse First Boston Corporation and Subsidiary as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, changes in stockholder's equity, and cash flows for each of the
years in the three-year period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Credit Suisse First
Boston Corporation and Subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
New York, New York
November 1, 2000
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
December 31, December 31,
1999 1998
-------------- --------------
ASSETS
Cash and cash equivalents.................................................... $ 101,411 $ 116,215
Cash and securities segregated for regulatory purposes or deposited with
clearing organizations.................................................... 2,678,975 1,995,667
Collateralized short-term agreements:
Securities purchased under agreements to resell........................... 28,016,598 21,287,084
Securities borrowed....................................................... 39,126,463 27,802,926
Securities pledged as collateral............................................. 1,316,264 1,559,884
Receivables:
Customers................................................................. 1,020,488 212,649
Brokers, dealers and other................................................ 3,833,917 4,207,483
Financial instruments owned, at value:
U.S. government and agencies.............................................. 7,503,760 6,823,647
Non-U.S. government securities............................................ 78,322 260,022
Corporate debt............................................................ 5,719,556 5,458,975
Equities and other........................................................ 7,791,803 6,688,473
Office facilities, at cost (net of accumulated depreciation and amortization of
$187,684 and $156,826, respectively)...................................... 216,220 202,033
Goodwill (net of accumulated amortization of $238,370 and $211,851,
respectively)............................................................. 291,999 318,518
Other assets and deferred amounts............................................ 442,901 465,542
-------------- --------------
Total Assets................................................................. $ 98,138,677 $ 77,399,118
============== ==============
See accompanying notes to consolidated financial statements.
1
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
December 31, December 31,
1999 1998
-------------- --------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Short-term borrowings........................................................... $ 2,839,897 $ 7,460,424
Collateralized short-term financings:
Securities sold under agreements to repurchase.............................. 43,478,449 36,287,959
Securities loaned........................................................... 19,427,088 6,762,656
Obligation to return pledged securities......................................... 2,178,896 1,615,646
Payables:
Customers................................................................... 3,592,682 1,668,010
Brokers, dealers and other.................................................. 2,571,790 3,130,896
Financial instruments sold not yet purchased, at value:
U.S. government and agencies................................................ 12,622,131 10,358,675
Non - U.S. government securities............................................ 132,323 224,526
Corporate debt.............................................................. 1,471,526 1,399,986
Equities and other.......................................................... 1,527,957 1,642,476
Accounts payable and accrued expenses........................................... 2,045,401 1,078,225
Subordinated borrowings......................................................... 4,150,000 4,150,000
-------------- --------------
Total liabilities...................................................... 96,038,140 75,779,479
Stockholder's equity:
Common stock ($1.00 par value; 1,000 shares authorized, issued and
outstanding)............................................................ 1 1
Paid-in capital............................................................. 1,951,503 1,486,425
Retained earnings........................................................... 149,033 133,213
-------------- --------------
Total stockholder's equity............................................. 2,100,537 1,619,639
-------------- --------------
Total Liabilities and Stockholder's Equity...................................... $ 98,138,677 $ 77,399,118
============== ==============
See accompanying notes to consolidated financial statements.
2
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(IN THOUSANDS)
Years Ended December 31,
1999 1998 1997
------------- ------------- --------------
Revenues:
Commissions............................................... $ 515,451 $ 332,843 $ 267,301
Underwritings............................................. 909,144 534,783 524,853
Fees...................................................... 746,754 518,606 383,405
Interest and dividend income (expense) net of interest
expense (income) of $6,421,951, $(5,881,368),
and $3,237,359, respectively........................... 5,539 (68,722) 100,908
Principal transactions-net................................ 754,740 210,086 383,522
Other..................................................... 14,009 12,587 10,592
------------- ------------- --------------
Total revenues......................................... 2,945,637 1,540,183 1,670,581
------------- ------------- --------------
Costs and Expenses:
Compensation and benefits................................. 2,221,896 1,165,393 986,100
Communications and technology............................. 147,310 118,677 96,899
Brokerage, clearing, exchange fees and other.............. 126,675 118,933 99,282
Occupancy and related costs............................... 154,947 126,194 105,069
Other operating expenses.................................. 313,691 384,263 227,499
------------- ------------- --------------
Total costs and expenses............................... 2,964,519 1,913,460 1,514,849
------------- ------------- --------------
(Loss) income before (benefit) provision for income taxes..... (18,882) (373,277) 155,732
------------- ------------- --------------
(Benefit) provision for income taxes.......................... (34,702) (164,573) 57,774
------------- ------------- --------------
Net income (loss)............................................. $ 15,820 $ (208,704) $ 97,958
============= ============= ==============
See accompanying notes to consolidated financial statements.
3
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Consolidated Statements of Changes in Stockholder's Equity
Years Ended December 31, 1999, 1998 and 1997
(IN THOUSANDS)
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----- ------- -------- -----
Balances at December 31, 1996................... $ 1 $ 914,068 $ 243,959 $ 1,158,028
Net income...................................... - - 97,958 97,958
Credit Suisse Group Share Plan Activity......... - 275,176 - 275,176
---- ------------ -------------- ------------
Balances at December 31, 1997................... 1 1,189,244 341,917 1,531,162
Net loss........................................ - - (208,704) (208,704)
Credit Suisse Group Share Plan Activity......... - 297,181 - 297,181
---- ------------ --------------- ------------
Balances at December 31, 1998................... 1 1,486,425 133,213 1,619,639
Net income...................................... - - 15,820 15,820
Credit Suisse Group Share Plan Activity......... - 465,078 - 465,078
---- ------------ --------------- ------------
Balances at December 31, 1999................... $ 1 $ 1,951,503 $ 149,033 $ 2,100,537
=== =========== ========= ===========
See accompanying notes to consolidated financial statements.
4
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(IN THOUSANDS)
Years Ended December 31,
1999 1998 1997
------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) ................................................. $ 15,820 $ (208,704) $ 97,958
Adjustment to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization .................................. 92,656 69,710 49,933
Deferred taxes ................................................. 7,136 (132,881) (75,414)
Stock compensation ............................................. 453,948 270,513 156,371
(Increase) decrease in operating assets:
Cash and securities segregated for regulatory
purposes or deposited with clearing organizations .............. (683,308) (1,014,229) (215,101)
Collateralized short-term agreements .............................. (18,053,051) (632,871) (6,714,136)
Securities pledged as collateral .................................. 243,620 (1,559,884) --
Receivables ....................................................... (434,273) (2,312,454) (374,197)
Financial instruments owned, at value ............................. (1,862,324) (5,239,409) 474,635
Other assets and deferred amounts ................................. 15,505 (8,719) (15,754)
Increase (decrease) in operating liabilities:
Collateralized short-term financings .............................. 19,854,922 4,198,840 899,844
Obligation to return pledged securities ........................... 563,250 1,615,646 --
Payables .......................................................... 1,365,566 (2,107,306) 2,072,564
Financial instruments sold not yet purchased, at value ............ 2,128,274 4,891,402 (610,487)
Accounts payable and accrued expenses ............................. 978,306 335,321 (127,673)
------------ ------------ ------------
Net cash provided by (used in) operating activities ............ 4,686,047 (1,835,025) (4,381,457)
------------ ------------ ------------
Cash flows from investing activities:
Net payment for other assets ...................................... (80,324) (84,429) (5,759)
------------ ------------ ------------
Net cash used in investing activities .......................... (80,324) (84,429) (5,759)
------------ ------------ ------------
Cash flows from financing activities:
Net (payments for) proceeds from:
Short-term borrowings ............................................. (4,620,527) 381,287 3,856,332
Subordinated borrowings ........................................... -- 1,600,000 550,000
------------ ------------ ------------
Net cash (used in) provided by financing activities ............ (4,620,527) 1,981,287 4,406,332
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents .................. (14,804) 61,833 19,116
Cash and cash equivalents at beginning of period ...................... 116,215 54,382 35,266
------------ ------------ ------------
Cash and cash equivalents at end of period ............................ $ 101,411 $ 116,215 $ 54,382
============ ============ ============
See accompanying notes to consolidated financial statements.
5
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(IN THOUSANDS EXCEPT WHERE INDICATED OTHERWISE)
December 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Credit Suisse First Boston Corporation and Subsidiary ("CSFB Corp.") is a wholly
owned subsidiary of Credit Suisse First Boston, Inc. (the "Parent Company"),
whose ultimate parent is Credit Suisse Group. CSFB Corp., as a U.S. registered
broker-dealer, provides a variety of capital raising, market making, advisory
and brokerage services for its government, financial institution and corporate
clients. It is also a primary dealer in U.S. Government securities and an
underwriter, placement agent or dealer for money market instruments, commercial
paper, mortgage and other asset-backed securities, as well as a range of debt,
equity and other convertible securities of corporations and other issuers. CSFB
Corp. also executes trading strategies for its own account using debt, equity,
and related derivative instruments.
BASIS OF PRESENTATION
The consolidated financial statements include Credit Suisse First Boston
Corporation and its wholly owned subsidiary, Special Situations Holdings, Inc. -
Westbridge ("Westbridge"). During 1999, Westbridge was established for the
purpose of holding certain investment securities. The preparation of
consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. All material intercompany
balances and transactions have been eliminated.
Substantially all of CSFB Corp.'s financial assets and liabilities, as well as
financial instruments with off-balance sheet risk, are carried at market or fair
values or are carried at amounts that approximate fair value because of their
short-term nature. Fair value is estimated at a specific point in time, based on
quoted market prices or estimated fair value as determined by management through
the use of price quotes from brokers and dealers, discounted expected cash
flows, model pricing, or other appropriate methods. These estimates do not
generally reflect any premium or discount that could result from offering for
sale at one time CSFB Corp.'s entire holdings of a particular financial
instrument.
Certain reclassifications have been made to previously issued financial
statements to conform to the current presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all demand deposits held in banks and highly
liquid investments with original maturities of 90 days or less, other than those
held for sale in the ordinary course of business.
COLLATERALIZED FINANCING AGREEMENTS
Securities sold under agreements to repurchase ("repurchase agreements") and
securities purchased under agreements to resell ("resale agreements") are
treated as financing arrangements and are carried at contract amounts that
reflect the amounts at which the securities will be subsequently repurchased or
resold. Interest on such contract amounts is accrued and is included in the
accompanying Consolidated Statements of Financial Condition in Receivables from
and Payables to brokers, dealers and other. Repurchase and resale agreements
with the same counterparty and the same maturity date, executed under master
netting agreements and common clearing facilities, are presented net in the
Consolidated Statements of Financial Condition. It is CSFB Corp.'s policy to
take possession of securities borrowed and securities purchased under resale
agreements. CSFB Corp. monitors the market value of the underlying securities as
compared to the related receivable, including accrued interest, and requests
additional collateral as required through contractual provisions where
appropriate.
SECURITIES BORROWED AND SECURITIES LOANED
Securities borrowed and securities loaned are recorded at the amount of cash
collateral advanced or received. For securities borrowed, CSFB Corp. deposits
cash, letters of credit or other collateral that exceeds the market value of
securities borrowed with the lender. For securities loaned, CSFB Corp.
receives collateral in cash or other collateral that exceeds the market value
of securities loaned. CSFB Corp. monitors the market value of securities
borrowed and loaned daily and obtains or refunds additional collateral, as
necessary.
6
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
SECURITIES PLEDGED AS COLLATERAL AND OBLIGATION TO RETURN PLEDGED SECURITIES
Certain inventory positions, primarily U.S. government and agency securities,
have been reclassified to Securities pledged as collateral. Certain other
inventory positions have been recorded with a corresponding Obligation to return
pledged securities. These positions are primarily a result of securities
received or pledged as collateral in term repurchase or resale agreements for
which the collateral provider does not have the explicit contractual right to
substitute.
RECEIVABLES AND PAYABLES
Customer securities transactions are recorded on a settlement date basis with
related commission income and expenses reported on a trade date basis.
Receivables from and Payables to customers include amounts due on cash and
margin transactions.
Amounts receivable and payable for securities transactions that have not
reached their contractual settlement date are recorded net on the Consolidated
Statements of Financial Condition.
FINANCIAL INSTRUMENTS
Financial instruments, including U.S. government and agency securities,
mortgage-backed securities, options, forward and futures transactions, debt and
equity securities, are recorded in the Consolidated Statements of Financial
Condition on a trade date basis.
OFFICE FACILITIES
Furniture, equipment, and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation for furniture and
equipment is provided on a straight-line basis using estimated lives of between
three and five years. Leasehold improvements are amortized over the lesser of
the economic useful life of the improvement or the term of the lease. Exchange
memberships owned by CSFB Corp. are included in Other assets and deferred
amounts and are carried at cost.
GOODWILL
In 1988, First Boston Inc., the then parent of CSFB Corp., and CS Holding (now
Credit Suisse Group), formed CS First Boston, Inc. with CS Holding becoming a
significant shareholder. Subsequent purchases by Credit Suisse Group in 1990,
1994, and 1996 increased ownership to 100%. Goodwill, which resulted from the
excess of the purchase price over the fair value of the acquired net assets
at the dates of acquisition, is being amortized over a 20 year life at a
current annual rate of approximately $26.5 million. The accumulated amount of
amortization was $238.4 million and $211.9 million for 1999 and 1998,
respectively. Goodwill is reviewed for possible impairment when events or
changed circumstances may affect the underlying basis of the asset. If it is
determined that goodwill is unlikely to be recovered, impairment is measured
on a discounted cash flow basis.
PRINCIPAL TRANSACTIONS - NET
Changes in unrealized gains and losses, as well as realized gains and losses on
all derivative instruments (options, forward and futures contracts and swaps),
are included in Principal transactions - net in the Consolidated Statements of
Operations.
UNDERWRITING AND FEES
Investment banking underwriting revenues from gains, losses, and fees, net of
syndicate expenses, arising from securities offerings in which CSFB Corp. acts
as an underwriter or agent, are recorded in Underwritings in the Consolidated
Statements of Operations. Investment banking revenues from fees earned from
providing merger-and-acquisition and other advisory services are recorded in
Fees in the Consolidated Statements of Operations. Investment banking management
fees are recorded on offering date, sales concessions on settlement date, and
underwriting fees at the time the underwriting is completed.
7
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
STOCK-BASED COMPENSATION
CSFB Corp. accounts for stock-based compensation in accordance with the
intrinsic value-based method in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", rather than the fair value-based
method in Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation".
INCOME TAXES
CSFB Corp. is included in a consolidated federal income tax return and combined
New York State and New York City income tax returns filed by the Parent
Company. The Parent Company allocates federal, state and city income taxes to
its subsidiaries on a separate return basis. Any credits for losses will be
paid by the Parent Company to the extent that such credits are for tax benefits
that have been utilized in the consolidated federal or combined state and city
income tax return. The amount due from the Parent Company based on the
allocation of tax benefits amounted to $41,838 and $31,692 for the years ended
December 31, 1999 and 1998, respectively. The amount due to the Parent Company
amounted to $133,188 for the year ended December 31, 1997.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
requires all derivatives to be recognized in the Consolidated Statements of
Financial Condition at fair value. SFAS No. 133, as amended, is effective for
fiscal years beginning after June 15, 2000, and should be applied prospectively.
Since most of CSFB Corp.'s derivatives are currently carried at fair value, the
adoption of this statement is not expected to have a material effect on CSFB
Corp.'s Consolidated Financial Statements.
2. RELATED PARTY TRANSACTIONS
In the normal course of business, CSFB Corp. enters into transactions with
affiliated companies. Total assets and total liabilities at December 31, 1999
include $2,477,520 and $22,384,549, respectively, and revenues and expenses for
the year ended December 31, 1999 include $214,658 and $1,439,731, respectively,
resulting from these transactions. Total assets and total liabilities at
December 31, 1998 include $2,611,735 and $15,060,575, respectively, and
revenues and expenses for the year ended December 31, 1998 include $161,304 and
$1,333,333, respectively, resulting from these transactions. Revenues and
expenses for the year ended December 31, 1997 include $47,000 and $553,000,
respectively, resulting from these transactions. Included in these transactions
are revenues and expenses resulting from various securities trading, investment
banking and financing activities with certain affiliates, as well as
reimbursement for administrative services performed by CSFB Corp. under the
terms of a management fee arrangement. Such fees are treated as a reduction of
expenses in the Consolidated Statements of Operations.
Pursuant to an agreement, CSFB Corp. sold, without recourse, to the Parent
Company the right, title and interest in certain assets aggregating $270,588 and
$139,134 at December 31, 1999 and 1998, respectively. CSFB Corp. has not
realized a gain or loss under this agreement.
Included in Other assets and deferred amounts are certain equipment and
leasehold improvements in the amount of $5,000, which have been pledged as
collateral for loans issued to CSFB Corp. from a subsidiary of the Parent
Company.
3. CASH AND SECURITIES SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS
In compliance with the Commodities Exchange Act, CSFB Corp. segregates funds
deposited by customers and funds accruing to customers as a result of trades or
contracts. As of December 31, 1999 and 1998, cash and securities aggregating
$842,887 and $446,127, respectively, were segregated or secured in separate
accounts on behalf of customers.
In accordance with the Securities and Exchange Commission's no action letter
dated November 3, 1998, CSFB Corp. computed a reserve requirement for the
proprietary accounts of introducing broker-dealers ("PAIB") as of December 29,
1999. CSFB Corp. did not have a deposit requirement at that date.
In addition, U.S. Treasury securities with a market value of $1,836,088 and
$1,549,540 as of December 31, 1999 and 1998, respectively, have been segregated
in a special reserve bank account for the benefit of customers as required by
rule 15c3-3 of the Securities and Exchange Commission.
8
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
4. BORROWINGS
Short-term borrowings are generally demand obligations with interest
approximating Federal fund rates. Such borrowings are generally used to
facilitate the securities settlement process, to finance securities inventories,
and to finance securities purchased by customers on margin.
Short-term borrowings and repurchase agreements:
Weighted Average
Interest Rates
December 31, December 31,
1999 1998 1999 1998
--------- --------- -------- ------
(IN MILLIONS)
Securities sold under repurchase agreements $43,478 $36,288 4.76% 5.01%
Bank loans $ 2,840 $ 7,460 5.58% 6.44%
At December 31, 1999 and 1998, CSFB Corp.'s outstanding subordinated borrowings
were as follows:
December 31,
1999 1998
------------ -------------
(IN THOUSANDS)
Revolving Subordinated Loan Agreements:
Due May 31, 2003 $ 500,000 $ 500,000
Due December 31, 2005 1,000,000 1,000,000
Due February 28, 2008 1,150,000 1,150,000
Equity Subordination Agreements:
Due April 30, 2005 500,000 500,000
Due September 30, 2007 450,000 450,000
Due July 31, 2008 550,000 550,000
------------ -------------
Total subordinated borrowings $ 4,150,000 $ 4,150,000
============ =============
The above subordinated loan agreements are with the Parent Company. During 1999,
CSFB Corp. extended the maturity on one of the revolving subordinated loans from
April 30, 2000 to April 30, 2005. During 1998, CSFB Corp. extended the maturity
on one of the revolving subordinated loans from December 31, 1999 to February
28, 2008 and increased the amount outstanding under that facility by $900,000.
Also during 1998, CSFB Corp. increased the outstanding amount of the revolving
subordinated loan agreement with a maturity of May 31, 2003 by $150,000. In
addition, during 1998, CSFB Corp. entered into a new equity subordination
agreement with a maturity of July 31, 2008 in the amount of $550,000. The
agreements are at floating interest rates and are equivalent to those obtained
by the Parent Company for its subordinated borrowings. The weighted average
effective interest rate at December 31, 1999 and 1998 for these borrowings was
6.45% and 6.20%, respectively. The fair value of these borrowings approximates
the amounts reflected in the Consolidated Statements of Financial Condition.
For the years ended December 31, 1999, 1998 and 1997, interest paid on all
borrowings and financing arrangements was $6,070,000, $6,125,000, and
$2,693,000, respectively.
The borrowings under these agreements qualify as regulatory capital and the
agreements include all statutory restrictions specified by the Uniform Net
Capital Rule under the Securities Exchange Act of 1934, including restrictive
covenants relating to additional subordinated borrowings and to minimum levels
of net capital, as defined, and consolidated stockholder's equity.
9
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
5. INCOME TAXES
Income taxes included in the Consolidated Statements of Operations include the
following:
December 31,
1999 1998 1997
------ ------ -----
(IN THOUSANDS)
Current:
U.S. Federal $ (46,919) $ (35,004) $ 115,333
Foreign 1,081 812 855
State and local 4,000 2,500 17,000
---------- ---------- ----------
Total current (41,838) (31,692) 133,188
Deferred:
U.S. Federal 7,136 (132,881) (75,414)
---------- ---------- ----------
Total (benefit) provision for income taxes $ (34,702) $ (164,573) $ 57,774
========= ========== =========
The following summarizes the difference between the "expected" tax provision
(benefit), which is computed by applying the statutory tax rate to
income (loss) before provision (benefit) for income taxes, and the
effective provision (benefit) for income taxes, which is computed by using
the effective tax rate:
1999 1998 1997
---- ---- ----
PERCENT OF PERCENT OF PERCENT OF
PRE-TAX PRE-TAX PRE-TAX
AMOUNT LOSS AMOUNT LOSS AMOUNT INCOME
------ ------ ------ ------ ------ ------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
Computed "expected" tax
(benefit) provision........... $ (6,609) (35.0)% $ (130,647) (35.0)% $ 54,506 35.0%
Increase (decrease) due to:
State and local taxes, net of
related federal income tax
benefit...................... 2,600 13.8 1,625 0.4 11,050 7.1
Dividend exclusion............. (40,970) (217.0) (43,834) (11.7) (12,368) (7.9)
Goodwill....................... 9,282 49.1 9,282 2.5 9,282 5.9
Other.......................... 995 5.3 (999) (0.3) (4,696) (3.0)
--------- ------ ---------- ----- -------- -----
Total (benefit) provision for
income taxes................... $ (34,702) (183.8)% $ (164,573) (44.1)% $ 57,774 37.1%
========== ========= =========== ======= ======== =====
Deferred tax assets are principally applicable to employees' deferred
compensation and benefits, net unrealized gains and losses in trading and
investment inventories, and certain reserves. The net deferred tax asset,
included in Other assets and deferred assets in the Consolidated Statements
of Financial Condition, has the following components at December 31, 1999 and
1998:
1999 1998
---------- -------
(IN THOUSANDS)
Deferred tax assets $ 427,460 $ 454,409
Valuation allowance (11,853) (12,056)
----------- -----------
415,607 442,353
Deferred tax liabilities (768) (20,378)
----------- -----------
Net deferred tax asset $ 414,839 $ 421,975
=========== ===========
10
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
The realization of net deferred tax assets may be based on utilization of
carrybacks to prior taxable periods, anticipation of future taxable income in
certain periods and the utilization of tax planning strategies. Management has
determined that it is more likely than not that the net deferred tax asset can
be supported by expected future taxable income, which will exceed amounts
necessary to fully realize remaining deferred tax assets resulting from the
scheduling of temporary differences. Due to the uncertainty of the realization
of certain state and local tax benefits, CSFB Corp. has established a valuation
allowance against these future benefits in the amount of $11,853 and $12,056 as
of December 31, 1999 and 1998, respectively.
6. NET CAPITAL
CSFB Corp. is subject to the requirements of several regulatory bodies,
including the Uniform Net Capital Rule under the Securities Exchange Act of 1934
(the "Exchange Act"). As such, it is subject to the NYSE's net capital rule,
which conforms to the Uniform Net Capital Rule under rule 15c3-1 of 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 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. At December 31, 1999, CSFB Corp.'s net capital of $1,801,804 was
77.35 percent of aggregate debit balances and in excess of the minimum
requirement of $51,917 by $1,749,887.
7. DERIVATIVE FINANCIAL INSTRUMENTS
CSFB Corp. enters into various transactions involving derivatives. 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. CSFB Corp. enters into derivative transactions for trading
purposes or to provide products for its clients. These transactions involve
options, forwards, futures and swaps.
OPTIONS
Options are contracts that allow the holder to purchase or sell financial
instruments for cash at a specified price at or within a specified period of
time. Options bear the risk of an unfavorable change in the price of the
financial instruments underlying the option and the risk that a counterparty is
unable to perform in accordance with the terms of the option.
FORWARDS AND FUTURES
Forward and futures contracts are for the delayed delivery of securities and/or
currencies in which the seller agrees to make delivery at a specified future
date at a specified price or yield for cash. TBA's provide for delayed delivery
of an underlying instrument. Risks arise from the possible inability of
counterparties to meet the terms of contracts and from movements in market
values and interest rates.
SWAPS
CSFB Corp.'s swap agreements are primarily interest rate related. Interest rate
swaps are contractual agreements to exchange interest rate payments based on
agreed notional amounts and maturity. In addition, CSFB Corp. also enters into
total return swap transactions whereby CSFB Corp. receives/pays the equivalent
of the unrealized gains and losses and net interest or dividend income on
underlying securities. As principal in these transactions, CSFB Corp. is exposed
to loss should any of the parties default as well as from interest rate risk
associated with unmatched positions.
11
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
The notional or contract amounts indicate the extent of CSFB Corp.'s involvement
in the derivative instruments noted above. They do not measure CSFB Corp.'s
exposure to market or credit risk and do not represent the future cash
requirements of such contracts. The notional (contract) amounts for derivatives
outstanding at December 31, 1999 and 1998 are as follows:
1999 1998
---- ----
(IN BILLIONS)
Options written $ 38.7 $ 14.3
Options purchased $ 222.8 $ 11.8
Forward contracts purchased $ 20.5 $ 22.6
Forward contracts sold $ 15.4 $ 11.1
Futures contracts purchased $ 25.1 $ 16.1
Futures contracts sold $ 39.9 $ 45.7
Swaps $ 2.4 $ 1.1
During 1999, CSFB Corp. purchased options on interest rate strips tied to U.S.
Treasury Bills. At December 31, 1999, the notional amount of the underlying U.S.
Treasury Bills represented $200,600,000 of the total purchased options and had a
market value of $200. These options expired unexercised by January 15, 2000.
The fair values of derivatives outstanding at December 31, 1999 and 1998 are as
follows:
1999 1998
---- ----
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
(IN MILLIONS)
-------------
Options $ 415.6 $ 344.8 $ 516.5 $ 186.6
Forward contracts $ 398.9 $ 358.6 $ 195.0 $ 190.5
Futures contracts $ 8.0 $ 24.8 $ 12.0 $ 28.9
Swaps $ 8.7 $ 22.7 $ 6.6 $ 16.2
The average fair values of derivatives for 1999 and 1998 are as follows:
1999 1998
---- ----
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
(IN MILLIONS)
-------------
Options $ 566.7 $ 410.9 $ 489.0 $ 165.2
Forward contracts $ 370.9 $ 369.5 $ 165.8 $ 62.9
Futures contracts $ 50.8 $ 109.0 $ 110.4 $ 157.1
Swaps $ 4.8 $ 6.7 $ 5.1 $ 6.6
The majority of CSFB Corp.'s derivatives are short-term in duration. At December
31, 1999, the notional or contract amounts of derivatives expiring in future
years based on contractual expiration are as follows:
LESS THAN ONE TO THREE THREE TO FIVE GREATER THAN
ONE YEAR YEARS YEARS FIVE YEARS TOTAL
-------- ----- ----- ---------- -----
(IN BILLIONS)
Options written $ 36.7 $1.9 $ - $ 0.1 $ 38.7
Options purchased 210.5 0.6 - 11.7 222.8
Forward contracts purchased 20.5 - - - 20.5
Forward contracts sold 15.4 - - - 15.4
Futures contracts purchased 19.6 5.5 - - 25.1
Futures contracts sold 32.6 6.3 1.0 - 39.9
Swaps 2.1 - - 0.3 2.4
------- ------ ----- ------ -------
Total $ 337.4 $ 14.3 $ 1.0 $ 12.1 $ 364.8
======= ====== ===== ====== =======
Percent of total 92.5% 3.9% 0.3% 3.3% 100.0%
======= ====== ===== ====== =======
12
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, CSFB Corp.'s customer and trading activities
include executing, settling and financing various securities and financial
instrument transactions. To execute these transactions, CSFB Corp. purchases and
sells (including "short sales") securities, writes options, and purchases and
sells forward contracts for mortgage-backed securities and foreign currencies
and financial futures contracts. If the customer or counterparty to the
transaction is unable to fulfill its contractual obligations, and margin
requirements are not sufficient to cover losses, CSFB Corp. may be exposed to
off-balance sheet risk. In these situations, CSFB Corp. may be required to
purchase or sell financial instruments at prevailing market prices, which may
not fully cover the obligations of its customers or counterparties. This risk is
limited by requiring customers and counterparties to maintain margin collateral
that complies with regulatory and internal guidelines.
As part of CSFB Corp.'s financing and securities settlement activities, CSFB
Corp. uses securities as collateral to support various secured financing
sources. If the counterparty does not meet its contracted obligation to return
securities used as collateral, CSFB Corp. may be exposed to the risk of
reacquiring the securities at prevailing market prices to satisfy its
obligations. CSFB Corp. controls this risk by monitoring the market value of
securities pledged each day and by requiring collateral levels to be adjusted in
the event of excess market exposure. As of December 31, 1999 and 1998, CSFB
Corp. entered into securities borrowed versus pledged transactions with the
approximate market value of $412 million and $2,437 million, respectively.
Securities borrowed versus pledged are not reflected in the Consolidated
Statements of Financial Condition.
CSFB Corp. enters into forward contracts under which securities are delivered or
received in the future at a specified price or yield. If counterparties are
unable to perform under the terms of the contracts or if the value of securities
and interest rates changes, CSFB Corp. is exposed to risk. Such risk is
controlled by monitoring the market value of the securities contracted for each
day and by reviewing the creditworthiness of the counterparties. The settlement
of these transactions is not expected to have a material adverse effect on CSFB
Corp.'s Consolidated Statements of Financial Condition.
Risks associated with letters of credit, guarantees and underwriting commitments
are not significant.
9. CONCENTRATIONS OF CREDIT RISK
As a securities broker and dealer, CSFB, Corp. is engaged in various securities
trading and brokerage activities servicing a diverse group of domestic and
foreign corporations, governments, and institutional and individual investors.
A substantial portion of CSFB Corp.'s transactions is executed with and on
behalf of institutional investors including other brokers and dealers, mortgage
brokers, commercial banks, U.S. government agencies, mutual funds and other
financial institutions. These transactions are generally collateralized.
Credit risk is the potential for loss resulting from the default by a
counterparty of its obligations. Exposure to credit risk is generated by
securities and currency settlements, contracting derivative and forward
transactions with customers and dealers, and the holding in inventory of
bonds and/or loans. CSFB Corp. uses various means to manage its credit risk.
The credit-worthiness of all counterparties is analyzed at the outset of a
credit relationship with CSFB Corp. These counterparties are subsequently
reviewed on a periodic basis. CSFB Corp. sets a maximum exposure limit
for each counterparty, as well as for groups or classes of counterparties.
Furthermore, CSFB Corp. enters into master netting agreements when feasible
and demands collateral from certain counterparties or for certain types of
credit transactions.
CSFB Corp.'s customer securities activities are transacted either in cash or
on a margin basis, in which CSFB Corp. extends credit to the customer.
CSFB Corp. seeks to control the risks associated with its customer activities
by requiring customers to maintain margin collateral to comply with various
regulatory and internal guidelines. Each day, CSFB Corp. monitors required
margin levels and requires customers to deposit additional collateral, or
reduce positions, when necessary.
10. EMPLOYEE COMPENSATION AND BENEFIT PLANS
Key employees of CSFB Corp. participate in the Credit Suisse Group
International Share Plan (the "Plan"), which provides for the grant or sale
of equity based awards based on, and ultimately settled with, shares of
Credit Suisse Group. Such awards consist of incentive awards granted as part
of annual compensation or retention awards that are considered compensation
in future periods.
13
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements- (Continued)
To the extent that the Parent Company does not require reimbursement from
CSFB Corp. for these awards, amounts are contributed to CSFB Corp.'s
paid-in capital. The total amount charged to expense for the equity based
award plans was approximately $453,948, $270,513 and $156,371 for the years
ended December 31, 1999, 1998 and 1997, respectively. In addition,
approximately $238,000 and $332,000 as of December 31, 1999 and 1998,
respectively, related to these plans remained to be expensed in future
periods.
CSFB Corp., together with certain of its affiliates, participates in a
non-contributory defined benefit pension plan (the "Qualified Plan") and
sponsors a savings and profit sharing plan which cover substantially all of
its employees. In addition, CSFB Corp., together with certain of its
affiliates, participates in a non-contributory, non-qualified, unfunded plan
(the "Supplemental Plan"), which is designed to provide benefits to plan
participants whose benefits under the Qualified Plan may be limited by tax
regulations. Benefits under these pension plans are based on years of service
and employees' compensation. Contributions to the Qualified Plan are made to
the extent that such amounts are deductible for federal income tax purposes.
Contributions to the savings and profit sharing plan by the participants are
matched by CSFB Corp. based upon a prescribed amount as set forth in the
401-(k) plan.
The following table sets forth the funded status as of December 31, 1999 and
1998 for the Qualified Plan and the Supplemental Plan:
1999 1998
---- ----
QUALIFIED SUPPLEMENTAL QUALIFIED SUPPLEMENTAL
--------- ------------ --------- ------------
(IN THOUSANDS) (IN THOUSANDS)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year............. $ 307,914 $ 12,281 $ 251,971 $ 9,711
Service cost........................................ 15,140 808 14,462 813
Interest cost....................................... 16,361 701 18,190 727
Amendments.......................................... 1,847 150 - -
Actuarial (gain)/loss............................... (39,979) (187) 34,988 1,496
Transfers from affiliates........................... 12,656 - - -
Benefits paid....................................... (8,268) (173) (11,697) (466)
--------- -------- --------- ---------
Benefit obligation at end of year................... $ 305,671 $ 13,580 $ 307,914 $ 12,281
========= ======== ========= =========
CHANGE IN PLAN ASSETS
Fair value of assets at beginning of year........... $ 314,011 $ - $ 277,057 $ -
Actual return on plan assets........................ 17,306 - 31,189 -
Transfers from affiliates........................... 9,565 - - -
Employer contributions.............................. - 173 17,462 466
Benefits paid....................................... (8,268) (173) (11,697) (466)
--------- -------- --------- ---------
Fair value of assets at end of year................. $ 332,614 $ - $ 314,011 $ -
========= ======== ========= =========
FUNDED STATUS
Funded status....................................... $ 26,943 $(13,580) $ 6,097 $ (12,281)
Unrecognized transition (asset) / obligation........ (10,638) 3,675 (12,158) 4,116
Unrecognized prior service cost..................... 1,758 (2,660) 423 (3,139)
Unrecognized net actuarial (gain)/loss.............. 7,460 (351) 44,318 (135)
--------- -------- --------- ---------
Prepaid/(accrued) benefit cost...................... $ 25,523 $(12,916) $ 38,680 $ (11,439)
========= ======== ========= =========
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate....................................... 7.50% 7.50% 6.75% 6.75%
Expected rate of return on plan assets.............. 7.75% N/A 8.25% N/A
Rate of compensation increase....................... 5.50% 5.50% 4.75% 4.75%
Service cost........................................ $ 15,140 $ 808 $ 14,462 $ 813
Interest cost....................................... 16,361 701 18,190 727
Expected return on plan assets...................... (18,662) - (23,678) -
Amortization of unrecognized transition
(asset) / obligation.............................. (1,520) 441 (2,026) 588
Amortization of prior service cost.................. 312 (329) 233 (456)
Recognized net actuarial loss....................... 1,526 29 - -
--------- -------- --------- --------
Net periodic benefit cost........................... $ 13,157 $ 1,650 $ 7,181 $ 1,672
========= ======== ========= ========
14
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
CSFB Corp. provides certain unfunded health care and life benefits for retired
employees. Employees hired by CSFB Corp. prior to July 1, 1988 become eligible
for these benefits if they meet minimum age and service requirements and are
eligible for retirement benefits. CSFB Corp. has the right to modify or
terminate these benefits. At December 31, 1999 and 1998, the aggregate
accumulated postretirement benefit obligations were $35,103 and $39,415,
respectively.
The following table sets forth the funded status as of December 31, 1999 and
1998 for the postretirement benefit obligation:
1999 1998
---- ----
MEDICAL LIFE MEDICAL LIFE
------- ---- ------- ----
(IN THOUSANDS) (IN THOUSANDS)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at end of prior year .................... $ 37,353 $ 2,062 $ 33,610 $ 1,911
Service cost (with interest) ............................... 612 13 831 18
Interest cost .............................................. 1,743 107 2,375 134
Expected plan participants' contributions* ................. 67 -- 87 --
Actuarial (gain)/loss ...................................... (5,399) (78) 2,269 121
Expected benefits paid* .................................... (1,274) (103) (1,819) (122)
-------- -------- -------- --------
Benefit obligation at end of year .......................... $ 33,102 $ 2,001 $ 37,353 $ 2,062
======== ======== ======== ========
FUNDED STATUS
Funded status .............................................. $(33,102) $ (2,001) $(37,353) $ (2,062)
Unrecognized prior service cost ............................ 1,288 17 1,506 20
Unrecognized net (gain)/loss ............................... (4,448) 34 951 114
Unrecognized transition obligation ......................... 11,038 924 11,714 980
-------- -------- -------- --------
Accrued postretirement benefit cost* ....................... $(25,224) $ (1,026) $(23,182) $ (948)
======== ======== ======== ========
COMPONENTS OF NET PERIODIC BENEFIT COSTS
Service cost ............................................... $ 612 $ 13 $ 831 $ 18
Interest cost .............................................. 1,743 107 2,375 134
Amortization of transition obligation ...................... 676 56 901 75
Amortization of prior service cost ......................... 218 3 290 4
Amortization of net loss ................................... -- 2 -- --
-------- -------- -------- --------
Total ...................................................... $ 3,249 $ 181 $ 4,397 $ 231
======== ======== ======== ========
EFFECT OF 1% INCREASE IN TREND ON:
Benefit obligation at end of year .......................... $ 5,223 N/A $ 5,152 N/A
Total of service and interest costs for year ............... 440 N/A 496 N/A
EFFECT OF 1% DECREASE IN TREND ON:
Benefit obligation at end of year .......................... $ 4,604 N/A $ 4,451 N/A
Total of service and interest costs for year ............... 368 N/A 420 N/A
*The accrued postretirement benefit costs reflect expected benefit payments.
The assumptions used in determining the accumulated postretirement benefit
obligation and net periodic postretirement cost for 1999 were a discount rate
of 7.50% and 6.75%, respectively, and health care trend rates ranging from
7.20% in 2000 for employees under age 65 and 6.70% in 2000 for employees who
are age 65 and above to 5.30% in 2003 for both groups. The weighted average
compensation increase was 5.50% for the year ended December 31, 1999. CSFB
Corp. has elected to amortize the transition obligation (the cumulative
actuarial present value of postretirement benefits at the point of adoption)
over a 20-year period.
11 LEASES, COMMITMENTS AND CONTINGENT LIABILITIES
Net rental expenses on operating leases were approximately $74,800, $61,750,
and $61,400 in 1999, 1998, and 1997, respectively.
15
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
At December 31, 1999, non-cancelable leases, net of subleases, in excess of one
year, excluding escalation and renewal options, had the following minimum lease
commitments:
PERIOD (IN THOUSANDS)
2000 $ 46,027
2001 47,627
2002 46,479
2003 46,391
2004 41,408
2005-2021 371,427
----------
Total $ 599,359
=========
In the normal course of business, CSFB Corp. enters into underwriting
commitments. Management of CSFB Corp. believes that transactions relating to
such underwriting commitments that were open at December 31, 1999 will have no
material effect on the Consolidated Financial Statements. CSFB Corp. is
contingently liable for underwriting commitments of $1,300,000 and $1,400,000 at
December 31, 1999 and 1998, respectively.
CSFB Corp. was contingently liable at December 31, 1999 and 1998 for letters of
credit aggregating $601,603 and $216,500, respectively, which satisfy various
collateral requirements.
12. INDUSTRY SEGMENT DATA
CSFB Corp. operates and manages its businesses and presents segment information
through three principal operating segments: Investment Banking ("IBD"), Fixed
Income ("FID") and Equities.
Such segments are managed separately based on types of products and services
offered and their related client bases. CSFB Corp. evaluates the performance of
its segments primarily on the basis of income before income taxes.
o Through its industry and product groups, IBD provides clients
with a full range of investment banking services such as primary
issuance, merger and acquisition and other advisory activities.
o FID presents one unified group to handle a broad range of fixed
income cash and derivative products, such as government and corporate
bonds, money markets, and foreign exchange, and assists clients in
managing their assets and liabilities.
o The Equities division engages in both exchange-traded and over-the-counter
traded securities, including American Depositary Receipts, restricted
stocks, equity repurchases, block trade executions, equity derivatives and
convertible securities.
CSFB Corp. 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 interest rates applied will also vary depending upon the type and
duration of the asset. The segment allocation of some costs such as incentive
bonuses has been estimated. All other accounting policies of the segments are
the same as those described in the summary of significant accounting policies.
16
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
The following is a summary of CSFB Corp.'s segment data:
IBD FID EQUITIES OTHER TOTAL
--- ------ -------- ----- -----
(IN MILLIONS)
DECEMBER 31, 1999:
Net revenues (expenses) ........................ $ 1,151.4 $ 564.6 $ 1,358.3 $ (128.7) $ 2,945.6
Depreciation and amortization .................. 18.3 26.4 21.4 26.5 92.6
Net interest (expense) income .................. (17.4) 306.9 (154.3) (129.7) 5.5
Income (loss) before income taxes .............. $ 195.8 $ (173.7) $ 418.9 $ (459.9) $ (18.9)
Segment assets ................................. $ -- $ 66,754.8 $ 25,466.1 $ 5,917.8 $ 98,138.7
Expenditures for long lived assets ............. $ 23.1 $ 42.2 $ 23.0 $ -- $ 88.3
DECEMBER 31, 1998:
Net revenues (expenses) ........................ $ 742.3 $ 247.1 $ 632.2 $ (81.4) $ 1,540.2
Depreciation and amortization .................. 11.4 19.1 12.7 26.5 69.7
Net interest (expense) income .................. (7.5) 240.2 (177.2) (124.2) (68.7)
Income (loss) before income taxes .............. $ 195.6 $ (320.0) $ 140.8 $ (389.7) $ (373.3)
Segment assets ................................. $ -- $ 54,852.1 $ 15,850.5 $ 6,696.5 $ 77,399.1
Expenditures for long lived assets ............. $ 19.2 $ 33.5 $ 22.5 $ -- $ 75.2
DECEMBER 31, 1997:
Net revenues (expenses) ........................ $ 433.2 $ 774.7 $ 496.0 $ (33.3) $ 1,670.6
Depreciation and amortization .................. 5.7 10.7 7.0 26.5 49.9
Net interest (expense) income .................. (7.1) 204.7 (51.5) (45.2) 100.9
Income (loss) before income taxes .............. $ 7.3 $ 218.1 $ 54.4 $ (124.1) $ 155.7
Expenditures for long-lived assets ............. $ 15.5 $ 28.4 $ 18.9 $ -- $ 62.8
13. LEGAL PROCEEDINGS
CSFB Corp. has been named as a defendant in a number of actions relating to
its various businesses including various civil actions and arbitrations
arising out of its activities as a broker-dealer in securities, as an
underwriter and as an employer, and arising out of alleged employee
misconduct. From time to time, CSFB Corp. is also involved in proceedings
with, and investigations by, government agencies and self-regulatory
organizations. Some of the actions have been brought on behalf of various
classes of claimants and seek damages of material or indeterminate amounts.
Although the ultimate outcome of litigation involving CSFB Corp. cannot be
predicted with certainty, after reviewing these actions with its counsel,
management believes it has meritorious defenses to all such actions and
intends to defend each of these vigorously.
Although there can be no assurance that such actions, proceedings,
investigations and litigation will not have a material adverse effect on the
results of operations of CSFB Corp. in any future period, depending in part
on the results for such period, in the opinion of management of CSFB Corp.,
based upon advice of counsel, the ultimate resolution of such actions,
proceedings, investigations and litigation against CSFB Corp. will not have a
material adverse effect on the consolidated financial condition and/or
results of CSFB. Corp.
17
CREDIT SUISSE FIRST BOSTON CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements-(Continued)
14. QUARTERLY DATA (UNAUDITED)
INCOME (LOSS)
BEFORE TAX NET INCOME
TOTAL REVENUES PROVISIONS (BENEFIT) (LOSS)
-------------- -------------------- -----------
1999:
First quarter............ $ 655,279 $ 89,967 $ 63,437
Second quarter........... 853,925 16,651 19,175
Third quarter............ 578,834 (117,601) (71,562)
Fourth quarter........... 857,599 (7,899) 4,770
----------- --------- ----------
Total year.......... $ 2,945,637 $ (18,882) $ 15,820
=========== ========= ==========
1998:
First quarter............ $ 485,961 $ 44,517 $ 26,613
Second quarter........... 487,694 (102) 823
Third quarter............ 293,689 (19,356) (14,902)
Fourth quarter........... 272,839 (398,336) (221,238)
----------- ---------- ----------
Total year.......... $ 1,540,183 $(373,277) $ (208,704)
=========== ========== ==========
15. SUBSEQUENT EVENTS
On September 8, 2000, Credit Suisse Group, through a subsidiary, agreed to
purchase all of the outstanding shares of common stock of Donaldson, Lufkin &
Jenrette, Inc. - series designated Donaldson, Lufkin & Jenrette, Inc. - DLJ
Common Stock (the "Acquisition"). The purchase is expected to close on
November 3, 2000. Beginning on October 6, 2000, Donaldson, Lufkin & Jenrette,
Inc. ("DLJ") and the Parent Company initiated a series of transfers relating
to certain proprietary fixed income and equity portfolios maintained by DLJ
and certain of its subsidiaries, to CSFB Corp. and certain of its affiliates.
In connection with these transfers, CSFB Corp. and certain of its affiliates
made an aggregate cash payment of approximately $4.5 billion to DLJ and its
subsidiaries.
On November 3, 2000, and simultaneous with the closing of the Acquisition,
the Parent Company will transfer all of the outstanding shares of CSFB Corp.
to DLJ in exchange for newly issued shares of DLJ. As a result of the
transfer, CSFB Corp. will become a direct wholly owned subsidiary of DLJ.
Effective November 6, 2000, DLJ will change its name to Credit Suisse First
Boston (USA), Inc.
18