<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q
[X] Quarterly Report Under Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1998
[ ] Transition Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
-------------------------
Commission File Number 0-4604
CINCINNATI FINANCIAL CORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
An Ohio Corporation 31-0746871
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6200 South Gilmore Road
Fairfield, Ohio 45014-5141
(Address of principal executive offices)
Registrant's telephone number, including area code: 513/870-2000
*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 X . NO .
--- ---
Securities registered pursuant to Section 12(g) of the Act:
$2.00 Par Common--166,968,082 shares outstanding at September 30, 1998
(Shares outstanding reflect the effects of a 3-for-1 stock
split effective to shareholders of record on April 24, 1998.)
$52,769,000 of 5.5% Convertible Senior Debentures Due 2002
$419,597,000 of 6.9% Senior Debentures Due 2028
<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000's omitted)
(Unaudited)
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Investments
Fixed maturities (cost: 1998--$2,646,174;
1997--$2,571,549)........................................ $ 2,803,154 $ 2,751,219
Equity securities (cost: 1998--$1,921,871;
1997--$1,725,855)........................................ 6,298,088 5,999,271
Other invested assets...................................... 51,752 46,560
Cash ........................................................ 97,809 80,168
Investment income receivable.................................. 75,266 74,520
Finance receivables........................................... 32,182 31,715
Premiums receivable........................................... 172,043 158,539
Reinsurance receivable........................................ 130,585 109,110
Prepaid reinsurance premiums.................................. 25,349 23,612
Deferred acquisition costs pertaining to unearned
premiums and to life policies in force..................... 139,880 135,313
Land, buildings and equipment for Company use (at cost
less accumulated depreciation)............................. 55,099 52,559
Other assets.................................................. 57,762 30,839
----------- -----------
Total assets $ 9,938,969 $ 9,493,425
=========== ===========
LIABILITIES
Insurance reserves:
Losses and loss expenses................................... $ 2,033,549 $ 1,936,534
Life policy reserves....................................... 523,885 482,447
Unearned premiums............................................. 456,724 443,054
Notes payable ................................................ 41 280,558
6.9% senior debentures due 2028............................... 419,597 0
5.5% convertible senior debentures due 2002................... 52,769 58,430
Federal income taxes
Current.................................................... 6,720 24,335
Deferred .................................................. 1,430,346 1,406,478
Other liabilities............................................. 122,564 144,624
----------- -----------
Total liabilities 5,046,195 4,776,460
----------- -----------
SHAREHOLDERS' EQUITY
Common stock, $2 per share; authorized 200,000 shares;
issued 1998--170,293; 1997--169,391 shares; outstanding
1998--166,968; 1997--166,356 shares........................ 340,587 338,782
Paid-in capital .............................................. 216,155 203,282
Retained earnings............................................. 1,460,855 1,341,730
Accumulated other comprehensive income........................ 2,957,827 2,905,756
----------- -----------
4,975,424 4,789,550
Less treasury shares at cost (1998--3,325 shares;
1997--3,035 shares)......................................... (82,650) (72,585)
----------- -----------
Total shareholders' equity.............................. 4,892,774 4,716,965
----------- -----------
Total liabilities and shareholders' equity........... $ 9,938,969 $ 9,493,425
=========== ===========
</TABLE>
Common Stock, Paid-In-Capital and Share figures reflect the effects of a 3-for-1
stock split effective to shareholders of record on April 24, 1998.
Accompanying notes are an integral part of these financial statements.
<PAGE> 3
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS FOR INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(000's omitted except per share data)
Nine Months Ended Sept. 30, Three Months Ended Sept. 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES
Premiums earned:
Property and casualty.................................. $ 1,144,515 $1,082,563 $ 386,056 $ 365,579
Life ................................................. 44,815 41,118 14,418 13,680
Accident and health.................................... 6,265 6,058 2,130 2,104
---------- ---------- -------- --------
Net premiums earned................................. 1,195,595 1,129,739 402,604 381,363
Investment income, less expenses......................... 272,833 259,166 91,446 88,245
Realized gain on investments............................. 71,624 64,599 18,861 20,308
Other income............................................. 5,845 6,474 1,854 2,122
---------- ---------- -------- --------
Total revenues......................................... 1,545,897 1,459,978 514,765 492,038
---------- ---------- -------- --------
BENEFITS & EXPENSES
Insurance losses and policyholder benefits.............. 907,434 790,050 316,095 264,360
Commissions............................................. 211,664 214,143 73,614 73,264
Other operating expenses................................ 110,342 101,502 36,810 34,337
Taxes, licenses & fees ................................ 42,231 37,163 16,394 12,208
Increase in deferred acquisition costs
pertaining to unearned premiums
and to life policies in force....................... (4,567) (5,563) (2,331) (3,149)
Interest expense ....................................... 19,600 15,314 8,119 5,536
Other expenses.......................................... 5,927 6,785 2,045 3,518
---------- ---------- -------- --------
Total benefits & expenses.............................. 1,292,631 1,159,394 450,746 390,074
----------- ---------- -------- --------
INCOME BEFORE INCOME TAXES................................ 253,266 300,584 64,019 101,964
---------- ---------- -------- --------
PROVISION FOR INCOME TAXES
Current ................................................. 61,492 72,923 16,683 26,976
Deferred ................................................ (4,169) 784 (5,579) (2,012)
---------- ---------- -------- --------
Total provision for income taxes....................... 57,323 73,707 11,104 24,964
---------- ---------- -------- --------
NET INCOME................................................ $ 195,943 $ 226,877 $ 52,915 $ 77,000
========= ========= ======== ========
Average shares outstanding................................ 166,871 165,690 167,072 163,124
Average shares outstanding (diluted)...................... 172,251 172,266 172,233 169,963
PER COMMON SHARE
Net income................................................ $ 1.17 $ 1.37 $ .31 $ .47
Net income (diluted)...................................... $ 1.15 $ 1.33 $ .31 $ .46
Cash dividends declared................................... $.4600 $ .4101 $ .1533 $ .1367
</TABLE>
Per share amounts reflect the effects of a 3-for-1 stock split effective to
shareholders of record on April 24, 1998.
Accompanying notes are an integral part of these financial statements.
<PAGE> 4
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE I - ACCOUNTING POLICIES (000's omitted)
The consolidated financial statements include the accounts of the Company and
all of its subsidiaries, each of which is wholly owned, and are presented in
conformity with generally accepted accounting principles. All significant
inter-company investments and transactions have been eliminated in
consolidation. The December 31, 1997 consolidated balance sheet amounts are
derived from the audited financial statements but do not include all disclosures
required by generally accepted accounting principles.
INVESTMENTS--Fixed maturities and equity securities have been classified as
available for sale and are carried at fair values at September 30, 1998 and
December 31, 1997.
UNREALIZED GAINS AND LOSSES--The increases (decreases) in unrealized gains for
fixed maturities and equity securities (net of income tax effect) for the
nine-month and three-month periods ended September 30 are as follows:
<TABLE>
<CAPTION>
Fixed Equity
Maturities Securities Total
---------- ---------- -----
<S> <C> <C> <C>
Nine-Month Periods Ended
September 30, 1998 $ (14,749) $ 66,820 $ 52,071
September 30, 1997 $ 30,722 $ 849,476 $ 880,198
Three-Month Periods Ended
September 30, 1998 $ (14,524) $ (379,859) $ (394,383)
September 30, 1997 $ 23,196 $ 342,464 $ 365,660
</TABLE>
Such amounts are included as additions to and deductions from shareholders'
equity.
REINSURANCE--Premiums earned are net of premiums on ceded business, and
insurance losses and policyholder benefits are net of reinsurance recoveries in
the accompanying statements of income for the nine-month and three-month periods
ended September 30 as follows:
<TABLE>
<CAPTION>
Ceded Reinsurance
Premiums Recoveries
-------- -----------
<S> <C> <C>
Nine-Month Periods Ended
September 30, 1998 $ 73,912 $ 45,000
September 30, 1997 $ 72,803 $ 20,212
Three-Month Periods Ended
September 30, 1998 $ 24,932 $ 9,748
September 30, 1997 $ 24,210 $ 6,897
</TABLE>
NOTE II - STOCK OPTIONS
The Company has primarily qualified stock option plans under which options are
granted to employees of the Company at prices which are not less than market
price at the date of grant and which are exercisable over ten-year periods. On
September 30, 1998, outstanding options for Stock Option Plan No. III totalled
49,614 shares with a purchase price of $7.34, outstanding options for Stock Plan
No. IV totalled 2,834,023 shares with purchase prices ranging from a low of
$7.46 to a high of $42.88, outstanding options for Stock Plan V totalled
1,446,405 shares with purchase prices ranging from a low of $20.48 to a high of
$45.38, and outstanding options for Stock Plan VI totalled 606,000 shares with a
purchase price of $33.88. These amounts reflect the effects of a 3-for-1 stock
split effective to shareholders of record on April 24, 1998.
<PAGE> 5
NOTE III - INTERIM ADJUSTMENTS
The preceding summary of financial information for Cincinnati Financial
Corporation and consolidated subsidiaries is unaudited, but the Company believes
that all adjustments (consisting only of normal recurring accruals) necessary
for fair presentation have been made. The results of operations for this interim
period is not necessarily an indication of results to be expected for the
remaining three months of the year.
NOTE IV - FINANCIAL ACCOUNTING PRONOUNCEMENTS
SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information" is effective for the Company in 1998 and will require additional
disclosures for the Company's operating segments in the annual consolidated
financial statement. Beginning in 1999, certain segment information is required
to be reported quarterly.
NOTE V - COMPREHENSIVE INCOME (000's omitted)
In the first nine months of 1998, the Company experienced less unrealized gains
in equity securities than in the first nine months of 1997, resulting in
comprehensive income of $248,014 in 1998, compared to $1,107,075 in 1997 and a
third quarter 1998 comprehensive loss of $(341,469) compared to comprehensive
income of $442,660 in the third quarter of 1997.
<PAGE> 6
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(000's omitted)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
---------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Treasury Paid-In Retained Comprehensive Shareholders'
Shares Amount Stock Capital Earnings Income Equity
-------- ------ ------ ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Bal. Dec. 31,
1996 167,486 $334,972 $ (11,217) $ 178,547 $1,132,880 $ 1,527,707 $3,162,889
----------
Net income 226,877 226,877
Change in unreal.
gains net of
inc. taxes of
$473,953 880,198 880,198
----------
Comprehensive
income 1,107,075
Div. declared (67,820) (67,820)
Purchase/issuance of
treasury shares (61,829) 22 (61,807)
Stock options
exercised 231 460 2,725 3,185
Conversion of
debentures 50 99 641 740
------- --------- --------- --------- ----------- ----------- ----------
Bal. Sept. 30,
1997 167,767 $ 335,531 $ (73,046) $ 181,935 $ 1,291,937 $ 2,407,905 $4,144,262
======= ========= ========= ========- =========== =========== ==========
Bal. Dec. 31,
1997 169,391 $338,782 $ (72,585) $ 203,282 $ 1,341,730 $ 2,905,756 $4,716,965
----------
Net income 195,943 195,943
Change in unreal.
gains net of
inc. taxes of
$28,039 52,071 52,071
----------
Comprehensive
income 248,014
Div. declared (76,818) (76,818)
Purchase/issuance of
treasury shares (10,065) 21 (10,044)
Stock options
exercised 522 1,044 7,952 8,996
Conversion of
debentures 380 761 4,900 5,661
------- --------- --------- --------- ----------- ----------- ----------
Bal. Sept. 30,
1998 170,293 $ 340,587 $ (82,650) $ 216,155 $ 1,460,855 $ 2,957,827 $4,892,774
======= ========= ========= ========= =========== =========== ==========
</TABLE>
Common Stock, Paid-In-Capital and Share figures reflect the effects of a 3-for-1
stock split effective to shareholders of record on April 24, 1998.
Accompanying notes are an integral part of these financial statements.
<PAGE> 7
(000's omitted)
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Premiums earned for the nine months ended September 30, 1998 have increased
$65,856 (6%) over the nine months ended September 30, 1997. Also, premiums
earned have increased $21,241 (6%) for the three months ended September 30, 1998
over the three months ended September 30, 1997. For the nine-month period ended
September 30, 1998 and the three-month period ended September 30, 1998, the
growth rate of our property and casualty subsidiaries is less than last year on
both a gross written and earned premium basis. These growth rates were less than
last year because the increases in new business and some rate increases on
personal lines business were offset by the continued softness of the commercial
lines market and by lower premiums on workers' compensation coverages. The net
premium growth of our life and health subsidiary has increased 24.1% for the
nine-month and 26.8% for the three-month periods ended September 30, 1998
compared to the same periods of 1997. The premium growth in our life subsidiary
is mainly attributable to growth of life insurance and increased annuity sales
of structured settlements from Cincinnati Insurance claims. For the nine-month
and three-month periods ended September 30, 1998, investment income, net of
expenses, has increased $13,667 (5%) and $3,201 (4%) when compared with the
first nine months and third quarter of 1997, respectively. This increase is the
result of the growth of the investment portfolio because of investing cash flows
from operations and dividend increases from equity securities.
Realized gains on investments for the nine months ended September 30, 1998
amounted to $71,624 compared to $64,599 for the nine-month period ended
September 30, 1997, and $18,861 for the three-month period ended September 30,
1998 compared to $20,308 for the three-month period ended September 30, 1997.
The realized gains are predominantly the result of the sale of equity
securities. With convertible securities, it is management's decision to realize
the gains and reinvest the proceeds at higher yields. Other equity securities
are sold at the discretion of management and reinvested in other equity
securities.
Insurance losses and policyholder benefits (net of reinsurance recoveries)
increased $117,384 (15%) for the first nine months of 1998 over the same period
in 1997 and increased $51,735 (20%) for the third quarter when compared to the
third quarter of 1997. The losses and benefits of the property and casualty
companies have increased $111,582 for the nine-month period and increased
$46,927 for the third quarter of 1998 compared to the comparable periods for
1997. The property and casualty losses for the first nine months and for the
third quarter of 1998 have increased because of an increase in catastrophe
losses and a higher incidence of claims that occur in the normal course of
business. Catastrophe losses were $81.8 million and $23.5 million, respectively,
for the first nine months of 1998 and 1997 and were $24.5 million and $9.0
million, respectively, for the third quarter of 1998 and 1997. These losses were
substantially higher for the first nine months and third quarter of 1998
compared to the same periods of 1997 because of higher incidence and severity of
these weather-related claims. Policyholder benefits of the life insurance
subsidiary increased $5,802 for the first nine months of 1998 over the same
period of 1997 and increased $4,808 for the third quarter when compared to the
third quarter of 1997. The majority of the nine-month and third quarter increase
is the result of an increase in life-related costs.
Commission expenses decreased $2,479 for the nine-month period ended September
30, 1998 compared to the same period of 1997 and increased $350 for the third
quarter of 1998 compared to the same period in 1997. The decrease for the year
is attributable to lower contingency commissions. Other operating expenses
increased $8,840 for the nine-month period ended September 30, 1998 compared to
the same period for 1997 and increased $2,473 for the third quarter of 1998
compared to the same period in 1997. The increase is attributable to increases
in staff and costs associated to our investment in infrastructure to support
future growth. Interest expenses increased $4,286 for the nine-month period
ended September 30, 1998 compared to the same period for 1997 and increased
$2,583 for the third quarter of 1998 compared to the same period in 1997. The
increase is attributable to the increase in debt and a higher interest rate of
the 30-year senior debenture compared to short-term debt held previously.
<PAGE> 8
Provision for income taxes, current and deferred, have decreased by $16,384 for
the first nine months of 1998 compared to the first nine months of 1997 and have
decreased $13,860 for the third quarter of 1998 compared to the third quarter of
1997. The decrease in federal taxes is primarily attributable to a decrease in
the effective tax rate to 22.6% from 24.5% at September 30, 1998 and 1997,
respectively, and a decrease in the effective tax rate to 17.3% from 24.5% for
the third quarter of 1998 and 1997, respectively.
The Company issued $419,594 of 30-year, noncallable senior debentures in the
second quarter 1998. Proceeds were used to pay off $279,694 of short-term debt
as it matures and for future general corporate purposes, including the expansion
of the Company's headquarters.
The Company has been working on the Year 2000 project for several years to
address potential problems within the Company's operations that could result
from the century change. The corporate Information Systems Department is
primarily responsible for this endeavor and has a designated team of Company
associates assigned to this effort. This team has access to key associates in
all areas of the Company's operations as well as to outside consultants and
resources on an as-needed basis.
The Information Systems Department provides a comprehensive report on a
quarterly basis for corporate management and the Audit Committee of the Board of
Directors. This report identifies progress against the plan as well as
projections on specific issues.
<TABLE>
<CAPTION>
% of Hardware/Software Applications Year 2000 Compliant
-------------------------------------------------------
Actual as of Planned as of Planned as of
Sept. 30, 1998 Dec. 31, 1998 June 30, 1999
-------------- ------------- -------------
<S> <C> <C> <C>
Mission critical systems 75% 90% 100%
All other systems 75% 90% 100%
</TABLE>
We have identified computer systems (both hardware and software), including
equipment with embedded computer chips, that were not Year 2000 compliant;
determined what revisions or replacements would be needed to achieve compliance;
prioritized and proceeded to implement those revisions or replacements;
instituted testing procedures to ensure that the revisions and fixes are
operational; and moved the compliant systems into production. As of September
30, 1998, approximately 75% of the applications have either been modified to be
compliant or have been replaced by purchased compliant systems. Additional
in-depth testing, both internal and third-party related, is planned into 1999.
We believe that all critical systems will be Year 2000 compliant by June 30,
1999.
As part of the overall review of Year 2000, the Company is verifying with
certain key outside vendors, and with others where a significant business
relationship exists to determine their Year 2000 compliance status and plans.
Because the Company markets products through independent agencies, it is of
paramount importance that those approximately 1,000 agencies (1,300 offices)
successfully transition to a Year 2000 compliant processing system. We are
actively working with those agencies. As of September 1998, nearly all of the
agencies' processing systems have either been made compliant or the agencies
have plans to get them compliant by June 30, 1999. Phone and personal interviews
are being used to verify the progress of the agencies.
Contingency planning for the Year 2000 includes standard backup and recovery
procedures to be followed in the event of a critical system failure. While we do
not expect any unusual kinds of failure as a result of specific Year 2000
related changes, by June 30, 1999, we plan to develop specific backup procedures
for the Year 2000 to minimize the effect of any potential problems.
Should the Company or a third party with whom the Company transacts business
have a system failure due to the century change, it is believed it will not
result in more than a delay in processing or reporting, with no material
financial impact.
<PAGE> 9
We have budgeted $9.5 million pretax to resolve the Year 2000 issues. This would
encompass the costs of modifications, the salaries of the associates primarily
assigned to this effort and the fees of outside consultants for this effort. As
of September 30, 1998, the Company has incurred approximately $6.8 million of
these costs. The expenses incurred during the first nine months of 1998 were
approximately $3.1 million.
Although the Company expects its systems to be Year 2000 compliant on or before
December 31, 1999, it cannot predict the outcome or the success of its Year 2000
project, or that third-party systems are or will be Year 2000 compliant, or that
the costs required to address the Year 2000 issue or the impact of a failure to
achieve substantial Year 2000 compliance will not have a material adverse effect
on the Company's business, financial condition or results of operations.
The Company could incur losses due to adverse changes in market rates and
prices. The Company's primary market risk exposures are to changes in price for
equity securities and changes in interest rates and credit ratings for fixed
maturity securities. The Company could alter the existing investment portfolios
or change the character of future investments to manage exposure to market risk.
CFC, with the Board of Directors, administers and oversees investment risk
through the Investment Committee, which provides executive oversight of
investment activities. The Company has specific investment guidelines and
policies that define the overall framework used daily by investment portfolio
managers to limit the Company's exposure to market risk.
On November 22, 1996, the Board authorized repurchase of up to 3 million of the
Company's outstanding shares. On August 21, 1998, the Board authorized
repurchase of an additional 6 million shares, to reflect the three-for-one
split, which results in a total of 9 million shares authorized to be
repurchased. As of September 30, 1998, the Company has repurchased 3.1 million
shares, and plans to repurchase the remaining 5.9 million shares as management
deems appropriate, over an unspecified period of time.
<PAGE> 10
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is involved in no material litigation other than routine litigation
incident to the nature of the insurance industry.
ITEM 2. Changes in Securities
There have been no material changes in securities during the third quarter.
ITEM 3. Defaults Upon Senior Securities
The Company has not defaulted on any interest or principal payment, and no
arrearage in the payment of dividends has occurred.
ITEM 4. Submission of Matters to a Vote of Security Holders
No special matters were voted upon by security holders during the
third quarter.
ITEM 5. Other Information
No matters to report.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits included:
Exhibit 11--Statement re Computation of Per Share Earnings.
Exhibit 27--Financial Data Schedule
(b) The Company was not required to file any reports on Form 8-K
during the quarter ended September 30, 1998.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CINCINNATI FINANCIAL CORPORATION
--------------------------------
(Registrant)
Date October 29, 1998
By /s/ T.F. ELCHYNSKI
------------------------------
T.F. Elchynski
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
<PAGE> 11
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(000's omitted)
Nine Months Ended September 30,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 195,943 $ 226,877
Adjustments to reconcile operating income to net cash
provided by operating activities:
Depreciation and amortization..................................... 8,313 7,604
Increase in investment income receivable.......................... (746) (2,857)
Increase in premiums receivable................................... (13,504) (877)
(Increase) decrease in reinsurance receivable..................... (21,475) 15,645
(Increase) decrease in prepaid reinsurance premiums............... (1,737) 1,078
Increase in deferred acquisition costs............................ (4,567) (5,563)
Increase in accounts receivable................................... (7,933) (119)
Decrease in other assets.......................................... 853 36,621
Increase in loss and loss expense reserves........................ 97,015 45,391
Increase in life policy reserves.................................. 41,438 31,493
Increase in unearned premiums..................................... 13,670 12,469
(Decrease) increase in other liabilities.......................... (24,969) 20,498
(Decrease) increase in deferred income taxes...................... (4,169) 205
Realized gains on investments..................................... (71,624) (64,599)
(Decrease) increase in current income taxes....................... (17,615) 11,514
Other............................................................. (19,216) 531
--------- ---------
Net cash provided by operating activities...................... 169,677 335,911
--------- ---------
Cash flows from investing activities:
Sale of fixed maturities.......................................... 30,010 142,168
Call or maturity of fixed maturities investments.................. 275,860 233,397
Sale of equity securities investments............................. 258,310 212,164
Collection of finance receivables................................. 11,003 4,746
Purchase of fixed maturities investments.......................... (373,844) (506,317)
Purchase of equity securities investments......................... (387,661) (271,335)
Investment in land, buildings and equipment....................... (12,981) (10,820)
Investment in finance receivables................................. (11,470) (8,747)
Investment in other invested assets............................... (5,382) (3,433)
--------- ---------
Net cash used in investing activities.......................... (216,155) (208,177)
--------- ---------
Cash flows from financing activities:
Debentures issue.................................................. 419,594 -0-
Proceeds from stock options exercised............................. 8,996 3,186
Purchase/Issuance of treasury shares.............................. (10,044) (61,807)
(Decrease) increase in notes payable.............................. (280,517) 14,890
Payment of cash dividends to shareholders......................... (73,910) (65,882)
--------- ---------
Net cash used in financial activities.......................... 64,119 (109,613)
--------- ---------
Net increase in cash.................................................... 17,641 18,121
Cash at beginning of period............................................. 80,168 59,933
--------- ---------
Cash at end of period................................................... $ 97,809 $ 78,054
========= =========
Supplemental disclosures of cash flow information
Interest paid........................................................ $ 24,348 $ 15,673
Income taxes paid.................................................... $ 76,301 $ 61,988
</TABLE>
Accompanying notes are an integral part of these financial statements.
<PAGE> 1
EXHIBIT 11
CINCINNATI FINANCIAL CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(000's omitted except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------ -------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income $ 195,943 $ 226,877 $ 52,915 $ 77,000
Average shares outstanding 166,871 165,690 167,072 163,124
Net income per common share $ 1.17 $ 1.37 $ .31 $ .47
Diluted earnings per share:
Net income $ 195,943 $ 226,877 $ 52,915 $ 77,000
Interest on convertible debentures--net of tax 1,452 2,128 471 707
--------- --------- -------- --------
Net income for per share calculation (diluted) $ 197,395 $ 229,005 $ 53,386 $ 77,707
========= ========= ======== ========
Average shares outstanding 166,871 165,690 167,072 163,124
Effective of dilutive securities:
5.5% convertible senior debentures 3,547 5,318 3,547 5,318
Stock options 1,833 1,258 1,614 1,521
--------- --------- -------- --------
Total dilutive shares 172,251 172,266 172,233 169,963
======== ======== ======== ========
Net income per common share--diluted $ 1.15 $ 1.33 $ .31 $ .46
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 2,803,154
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 6,298,088
<MORTGAGE> 11,119
<REAL-ESTATE> 4,508
<TOTAL-INVEST> 9,152,994<F1>
<CASH> 97,809
<RECOVER-REINSURE> 3,612
<DEFERRED-ACQUISITION> 139,880
<TOTAL-ASSETS> 9,938,969
<POLICY-LOSSES> 2,518,813<F2>
<UNEARNED-PREMIUMS> 456,724
<POLICY-OTHER> 34,924<F2>
<POLICY-HOLDER-FUNDS> 16,959
<NOTES-PAYABLE> 472,407<F3>
0
0
<COMMON> 340,587<F4>
<OTHER-SE> 4,552,187<F4>
<TOTAL-LIABILITY-AND-EQUITY> 9,938,969
1,195,595
<INVESTMENT-INCOME> 272,833
<INVESTMENT-GAINS> 71,624
<OTHER-INCOME> 5,845
<BENEFITS> 907,434
<UNDERWRITING-AMORTIZATION> 250,443<F5>
<UNDERWRITING-OTHER> 134,754<F5>
<INCOME-PRETAX> 253,266
<INCOME-TAX> 57,323
<INCOME-CONTINUING> 195,943
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 195,943
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.15
<RESERVE-OPEN> 1,776,648<F6>
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 1,854,496<F7>
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Equals the sum of Fixed Maturities, Equity Securities and other Invested
Assets.
<F2>Equals the sum of Life Policy Reserves and Losses and Loss Expenses less the
Life Company liability for Supplementary Contracts without Life Contingencies
of $3,697 which is classified as Other Policyholder Funds.
<F3>Equals the sum of Notes Payable, the 5.5% Convertible Senior Debentures and the
6.9% Senior Debentures
<F4>Equals the Total Shareholders' Equity
<F5>Equals the Sum of Commissions, Other Operating Expenses, Taxes and licenses and
Fees, Increase in deferred acquisition costs, Interest expense and other
expenses
<F6>Equals the net reserve for unpaid claims for the property casualty subsidiaries
less loss checks payable as of December 31, 1997
<F7>Equals the net reserve for unpaid claims for the property casualty subsidiaries
less loss checks payable as of September 30, 1998
</FN>
</TABLE>
