<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 JUNE 30, 2000
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--160,967,000 shares outstanding at June 30, 2000
$31,411,000 of 5.5% Convertible Senior Debentures Due 2002
$419,621,000 of 6.9% Senior Debentures Due 2028
Page 1 of 13
<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000's omitted)
(Unaudited)
June 30, December 31,
2000 1999
------ ------
<S> <C> <C>
ASSETS
Investments
Fixed maturities (cost: 2000--$2,773,773;
1999--$2,692,154)........................................ $ 2,636,926 $ 2,617,412
Equity securities (cost: 2000--$2,102,176;
1999--$2,022,555)........................................ 6,723,471 7,510,918
Other invested assets...................................... 68,808 65,909
Cash ........................................................ 37,247 339,554
Investment income receivable.................................. 84,208 80,128
Finance receivables........................................... 31,623 32,931
Premiums receivable........................................... 195,260 166,585
Reinsurance receivable........................................ 193,826 159,229
Prepaid reinsurance premiums.................................. 24,497 24,684
Deferred acquisition costs pertaining to unearned
premiums and to life policies in force..................... 161,389 154,385
Land, buildings and equipment for company use (at cost
less accumulated depreciation)............................. 118,249 107,784
Other assets.................................................. 112,222 120,695
Assets held in separate accounts.............................. 313,742 -0-
------------ ------------
Total Assets $ 10,701,468 $ 11,380,214
============ ============
LIABILITIES
Insurance reserves:
Losses and loss expenses................................... $ 2,180,549 $ 2,154,149
Life policy reserves....................................... 578,085 860,561
Unearned premiums............................................. 490,747 480,453
Notes payable ................................................ 173,000 118,000
5.5% Convertible senior debentures due 2002................... 31,411 36,759
6.9% Senior debentures due 2028............................... 419,621 419,614
Federal income taxes
Current.................................................... 77,766 30,492
Deferred .................................................. 1,399,547 1,719,673
Other liabilities............................................. 168,462 139,229
Liabilities related to separate accounts...................... 313,742 -0-
------------ ------------
Total Liabilities 5,832,930 5,958,930
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $2 per share; authorized 200,000 Shares; issued
2000--172,645; 1999--171,862 Shares; outstanding
2000--160,967; 1999--162,021 Shares........................ 345,289 343,725
Paid-in capital .............................................. 250,719 237,859
Retained earnings............................................. 1,716,779 1,623,890
Accumulated other comprehensive income........................ 2,926,142 3,530,104
------------ ------------
5,238,929 5,735,578
Less treasury shares at cost (2000--11,678 shares;
1999--9,841 shares)......................................... (370,391) (314,294)
------------ ------------
Total Shareholders' Equity.............................. 4,868,538 5,421,284
------------ ------------
Total Liabilities and Shareholders' Equity........... $ 10,701,468 $ 11,380,214
============ ============
</TABLE>
Accompanying notes are an integral part of these financial statements.
Page 1 of 13
<PAGE> 3
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(000's omitted except per share data)
Six Months Ended June 30, Three Months Ended June 30,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Premiums earned:
Property and casualty.................................. $ 880,089 $804,637 $ 449,719 $ 408,540
Life ................................................. 37,015 32,336 20,003 16,804
Accident and health.................................... 1,476 4,576 765 2,405
--------- -------- --------- ---------
Net premiums earned................................. 918,580 841,549 470,487 427,749
Investment income, less expenses........................ 209,020 190,524 102,741 94,709
Realized gains on investments........................... 17,624 38,788 3,100 14,041
Other income............................................ 4,853 7,119 2,479 4,822
--------- -------- --------- ---------
Total revenues......................................... 1,150,077 1,077,980 578,807 541,321
--------- -------- --------- ---------
Benefits & expenses:
Insurance losses and policyholder benefits.............. 646,895 611,097 329,605 286,631
Commissions............................................. 169,706 153,331 86,984 80,416
Other operating expenses................................ 82,698 73,232 41,184 35,425
Taxes, licenses & fees ................................ 27,313 23,667 14,092 13,459
Increase in deferred acquisition costs
pertaining to unearned premiums
and to life policies in force....................... (7,004) (898) (5,553) (796)
Interest expense ....................................... 19,141 15,391 9,979 7,606
Other expenses.......................................... 11,160 3,758 5,876 2,239
--------- -------- --------- ---------
Total benefits & expenses.............................. 949,909 879,578 482,167 424,980
--------- -------- --------- ---------
Income before income taxes................................ 200,168 198,402 96,640 116,341
--------- -------- --------- ---------
Provision for income taxes:
Current ................................................. 41,027 52,974 19,449 32,135
Deferred ................................................ 5,084 (5,303) 2,497 (2,048)
--------- -------- --------- ---------
Total provision for income taxes....................... 46,111 47,671 21,946 30,087
--------- -------- --------- ---------
Net income................................................ $ 154,057 $ 150,731 $ 74,694 $ 86,254
========= ========= ======== ========
Average shares outstanding................................ 161,527 165,507 161,623 163,105
Average shares outstanding (diluted)...................... 164,895 170,028 165,549 167,750
Per common share:
Net income................................................ $ .95 $ .91 $ .46 $ .53
===== ===== ===== =====
Net income (diluted)...................................... $ .94 $ .89 $ .45 $ .52
===== ===== ===== =====
Cash dividends declared................................... $ .38 $ .34 $ .19 $ .17
===== ===== ===== =====
</TABLE>
Accompanying notes are an integral part of these financial statements.
Page 3 of 13
<PAGE> 4
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
(000's omitted)
SIX MONTHS ENDED JUNE 30, 1999 AND 2000
--------------------------------------------------------------
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,
1998 170,435 $340,871 $ (97,196) $ 218,328 $1,480,914 $ 3,678,019 $5,620,936
----------
Net Income 150,731 150,731
Change in unreal.
gains net of
inc. taxes of
$28,039 (104,166) (104,166)
----------
Comprehensive
income 46,565
Div. declared (56,200) (56,200)
Purchase/issuance of
treasury shares (91,239) 9 (91,230)
Stock options
exercised 258 517 4,078 4,595
Conversion of
debentures 595 1,189 7,657 8,846
------- --------- ---------- --------- ----------- ----------- ----------
Bal. June 30,
1999 171,288 $342,577 $ (188,435) $ 230,072 $ 1,575,445 $ 3,573,853 $5,533,512
======= ======== ========== ========= =========== =========== ==========
Bal. Dec. 31,
1999 171,862 $343,725 $ (314,294) $ 237,859 $ 1,623,890 $ 3,530,104 $5,421,284
----------
Net income 154,057 154,057
Change in unreal.
gains net of
inc. taxes of
$325,210 (603,962) (603,962)
----------
Comprehensive
income (449,905)
Div. declared (61,168) (61,168)
Purchase/issuance of
treasury shares (56,097) 4 (56,093)
Stock options
exercised 423 846 8,226 9,072
Conversion of
debentures 360 718 4,630 5,348
------- --------- ---------- --------- ----------- ----------- ----------
Bal. June 30,
2000 172,645 $ 345,289 $ (370,391) $ 250,719 $ 1,716,779 $ 2,926,142 $4,868,538
======== ========= ========== ========= =========== =========== ==========
</TABLE>
Accompanying notes are an integral part of these financial statements.
Page 4 of 13
<PAGE> 5
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(000's omitted)
Six Months Ended June 30,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income ....................................................... $ 154,057 $ 150,731
Adjustments to reconcile operating income to net cash
provided by operating activities:
Depreciation and amortization ................................. 8,252 6,701
Increase in investment income receivable ...................... (9,011) (1,148)
Increase in premiums receivable ............................... (28,675) (11,489)
Increase in reinsurance receivable ............................ (34,597) (2,842)
Decrease in prepaid reinsurance premiums ...................... 187 3,284
Increase in deferred acquisition costs ........................ (7,004) (898)
Decrease in accounts receivable ............................... 26,136 13,145
Increase in other assets ...................................... (7,031) (14,662)
Increase in loss and loss expense reserves .................... 58,471 24,092
Increase (decrease) in life policy reserves ................... 25,286 4,318
Increase in unearned premiums ................................. 10,294 449
Increase (decrease) in other liabilities ...................... 3,675 18,965
Increase (decrease) in deferred income taxes .................. 5,084 (5,303)
Realized gains on investments ................................. (17,624) (38,788)
Increase in current income taxes .............................. 47,274 34,359
Transfer of cash to separate account .......................... (11,394) 0
Other ......................................................... (12,624) (16,822)
--------- ---------
Net cash provided by operating activities ................. (210,756) 164,092
--------- ---------
Cash flows from investing activities:
Sale of fixed maturities ...................................... 21,512 46,280
Call or maturity of fixed maturities investments .............. 305,611 211,359
Sale of equity securities investments ......................... 56,868 95,770
Collection of finance receivables ............................. 7,892 8,838
Purchase of fixed maturities investments ...................... (708,523) (268,629)
Purchase of equity securities investments ..................... (118,742) (123,012)
Investment in land, buildings and equipment ................... (17,884) (24,318)
Investment in finance receivables ............................. (6,584) (8,814)
Investment in other invested assets ........................... (3,035) (3,595)
--------- ---------
Net cash used in investing activities ..................... (462,885) (66,121)
--------- ---------
Cash flows from financing activities:
Proceeds from stock options exercised ......................... 9,072 4,594
Purchase/issuance of treasury shares .......................... (56,093) (91,230)
Increase in notes payable ..................................... 55,000 50,000
Payment of cash dividends to shareholders ..................... (58,157) (53,694)
--------- ---------
Net cash used in financial activities ..................... (50,178) (90,330)
--------- ---------
Net increase (decrease) in cash ..................................... (302,307) 7,641
Cash at beginning of period ......................................... 339,554 58,611
--------- ---------
Cash at end of period ............................................... $ 37,247 $ 66,252
========= =========
Supplemental disclosures of cash flow information
Interest paid .................................................... $ 19,173 $ 15,331
========= =========
Income taxes paid (refunded) ..................................... $ (7,604) $ 18,000
========= =========
</TABLE>
Noncash transaction--During the second quarter, the Company established a
separate account. This resulted in a noncash transfer to the separate account of
the following: $300,818 from investments, $207,762 from life policy reserves,
$11,394 from cash, $8,924 from accounts payable securities, $4,932 from
investment income receivable, $520 from other liabilities, and $142 from
accounts receivable securities.
Accompanying notes are an integral part of these financial statements
Page 5 of 13
<PAGE> 6
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE I - ACCOUNTING POLICIES
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 accounting principles generally accepted in the United States of
America. All significant inter-company investments and transactions have been
eliminated in consolidation. The December 31, 1999 consolidated balance sheet
amounts are derived from the audited financial statements but do not include all
disclosures required by accounting principles generally accepted in the United
States of America.
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 six months of the year.
INVESTMENTS--Fixed maturities and equity securities have been classified as
available for sale and are carried at fair values at June 30, 2000 and December
31, 1999.
UNREALIZED GAINS AND LOSSES (000's omitted)--The increases (decreases) in
unrealized gains for fixed maturities and equity securities (net of income tax
effect) for the six-month and three-month periods ended June 30 are as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Fixed maturities $ (40,368) $ (76,362) $ (20,781) $ (51,899)
Equity securities (563,594) (27,804) 42,833 138,415
--------- --------- --------- ---------
Total $(603,962) $(104,166) $ 22,052 $ 86,516
========= ========= ========= =========
</TABLE>
Such amounts are included as additions to and deductions from shareholders'
equity.
REINSURANCE (000's omitted)--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 six-month and
three-month periods ended June 30 as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Ceded premiums $57,401 $51,563 $29,691 $24,998
Reinsurance recoveries $59,291 $24,006 $36,425 $12,717
</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
June 30, 2000, outstanding options for Stock Plan No. IV totaled 2,153,953
shares with purchase prices ranging from a low of $7.71 to a high of $42.87,
outstanding options for Stock Plan V totaled 1,198,557 shares with purchase
prices ranging from a low of $20.47 to a high of $45.37 and outstanding options
for Stock Plan VI totaled 2,702,377 shares with purchase prices ranging from a
low of $29.38 to a high of $41.47.
Page 6 of 13
<PAGE> 7
NOTE III - SEGMENT INFORMATION
The Company is organized and operates principally in two industries and has four
reportable segments--commercial lines property and casualty insurance, personal
lines property and casualty insurance, life insurance and investment operations.
The accounting policies of the segments are the same as those described in Note
I - Accounting Policies. Revenue is primarily from unaffiliated customers.
Identifiable assets by segment are those assets, including investment
securities, used in the Company's operations in each industry. Corporate and
other identifiable assets are principally cash and marketable securities.
Segment information, for which results are regularly reviewed by Company
management in making decisions about resources to be allocated to the segments
and assess their performance, is summarized as follows (000's omitted):
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------- ----------
2000 1999 2000 1999
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Commercial lines insurance............................. $ 584,028 $ 525,560 $ 300,635 $ 267,105
Personal lines insurance............................... 296,061 279,077 149,084 141,435
Life insurance......................................... 38,491 36,912 20,768 19,209
Investment operations.................................. 226,644 229,312 105,841 108,750
Corporate and other.................................... 4,853 7,119 2,479 4,822
----------- ----------- --------- ---------
Total revenues..................................... $ 1,150,077 $ 1,077,980 $ 578,807 $ 541,321
=========== =========== ========= =========
INCOME BEFORE INCOME TAXES
Property and casualty insurance........................ $ 14,302 $ 702 $ 6,843 $ 21,538
Life insurance......................................... 3,433 345 3,745 207
Investment operations.................................. 204,128 214,199 95,942 101,316
Corporate and other ................................... (21,695) (16,844) (9,890) (6,720)
----------- ----------- --------- ---------
Total income before income taxes .................. $ 200,168 $ 198,402 $ 96,640 $ 116,341
=========== =========== ========= =========
IDENTIFIABLE ASSETS
Property and casualty insurance........................ $ 5,257,426 $ 5,538,591
Life insurance......................................... 1,455,376 1,193,884
Corporate and other ................................... 3,988,666 4,331,060
---------- ----------
Total identifiable assets.......................... $10,701,468 $11,063,535
=========== ===========
</TABLE>
NOTE IV - FINANCIAL ACCOUNTING PRONOUNCEMENTS
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - SFAS No. 133 "Accounting For
Derivative Instruments and Hedging Activities" is effective for the Company in
2001. This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The effects of the Statement to the Company are not
yet known.
REVENUE RECOGNITION - In December 1999, the staff of the Securities and Exchange
Commission issued Staff Accounting Bulletin (SAB) No. 101 "Revenue Recognition
in Financial Statements". SAB No. 101 summarizes some of the staff's
interpretations of the application of accounting principles generally accepted
in the United States of America to revenue recognition. The Company will adopt
SAB No. 101 when required in the fourth quarter of 2000. At present, the Company
does not expect that SAB No. 101 will have a material effect on its financial
statements.
Page 7 of 13
<PAGE> 8
NOTE V - SUBSEQUENT EVENTS
The Company also reported that a one-time, pre-tax charge of approximately $43
million, or $0.17 per share after taxes, will be incurred in the third quarter
2000. The planned charge, to expense assets related to development costs for
next generation software to process property casualty policies, results from a
review by management of the project. Substantially completed in July 2000, the
review determined that the investment in the project over the past several years
will not be of value as the project continues. The review process included an
assessment conducted at the Company's request by an independent firm.
Page 8 of 13
<PAGE> 9
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (000's omitted)
This Management Discussion is intended to supplement the data contained in the
financial statements and related notes of Cincinnati Financial Corporation and
subsidiaries. The following discussion, related consolidated financial
statements and accompanying notes contain certain forward-looking statements
that involve potential risks and uncertainties. The Company's future results
could differ materially from those discussed. Factors that could cause or
contribute to such differences include, but are not limited to: unusually high
levels of catastrophe losses due to changes in weather patterns or other natural
causes; changes in insurance regulations or legislation that place the Company
at a disadvantage in the marketplace; recession or other economic conditions
resulting in lower demand for insurance products; sustained decline in overall
stock market values negatively impacting the Company's equity portfolio and the
ability to generate investment income; undertakes no obligation to review or
update the forward-looking statements included in this material.
Premiums earned for the six months ended June 30, 2000 have increased $77,031
(9%) over the six months ended June 30, 1999. Also, premiums earned have
increased $42,738 (10%) for the three months ended June 30, 2000 over the three
months ended June 30, 1999. For the six-month and three-month periods ended June
30, 2000, the premium growth rate of our property and casualty subsidiaries is
more than last year because of increases in new commercial business along with
some price firming in the commercial lines market. The premium growth of our
life and health subsidiary increased 4% for the six months ended June 30, 2000
and 8% for the three months ended June 30, 2000 compared to the same periods of
1999. The premium growth in our life subsidiary is mainly attributable to
increased sales of both traditional and work site marketing products. For the
six-month and three-month periods ended June 30, 2000, investment income, net of
expenses, has increased $18,496 (10%) and $8,032 (8%) when compared with the
first six months and second three months of 1999, respectively. The six-month
increase includes $5.4 million from a $302.9 million premium for a bank-owned
life insurance (BOLI) policy booked at the end of 1999. Effective April 1, 2000,
BOLI interest income is excluded from investment income as the life company has
adopted separate account accounting. Excluding BOLI interest income, pre-tax
investment income rose 7 percent to $203.6 million versus a comparable $190.5
million in the first six months of 1999. 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 six months ended June 30, 2000 amounted to
$17,624 compared to $38,788 for the six-month period ended June 30, 1999, and
$3,100 for the three-month period ended June 30, 2000 compared to $14,041 for
the three-month period ended June 30, 1999. The realized gains are predominantly
the result of the sale of preferred equity securities and 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 $35,798 (6%) for the first six months of 2000 over the same period in
1999 and increased $42,974 for the second quarter when compared to the second
quarter of 1999. The losses and benefits of the property and casualty companies
have increased $31,191 for the six-month period and increased $42,664 for the
second quarter of 2000 compared to the comparable periods for 1999. Catastrophe
losses were $31,488 and $31,037 respectively, for the first six months of 2000
and 1999 and were $23,376 and $7,452 respectively, for the second quarter of
2000 and 1999. Policyholder benefits of the life insurance subsidiary increased
$4,607 for the first six months of 2000 over the same period of 1999 and
increased $310 for the second quarter when compared to the second quarter of
1999. The lower second quarter increase is the result of a lower incidence of
death claims and life related costs.
Page 9 of 13
<PAGE> 10
Commission expenses increased $16,375 for the six-month period ended June 30,
2000 compared to the same period of 1999 and increased $6,568 for the second
quarter of 2000 compared to the same period in 1999. The increase is primarily
attributable to increased written premiums. Other operating expenses increased
$9,466 for the six-month period ended June 30, 2000 compared to the same period
for 1999 and increased $5,759 for the second quarter of 2000 compared to the
same period in 1999. These increases are attributable to increases in staff and
costs associated to our investment in technology to support future growth.
Interest expense increased $3,750 for the six-month period ended June 30, 2000
compared to the same period for 1999 and increased $2,373 for the second quarter
of 2000 compared to the same period in 1999. The increase is attributable to an
increase in debt of $55,000 in the first six months and $36,000 in the second
quarter and higher short term interest rates. Taxes, licenses and fees increased
$3,646 for the six-month period ended June 30, 2000 compared to the same period
in 1999. Second quarter 2000 taxes, licenses and fees increased $633, compared
to second quarter 1999.
In the first six months of 2000, the Company experienced a decrease in
unrealized gains in investments of $603,962, compared to a decrease in
unrealized gains in investments in the first six months of 1999 of $104,166,
resulting in comprehensive income of $(449,905) in 2000, compared to $46,565 in
1999. The second quarter of 2000 resulted in increased unrealized gains in
investments of $22,052, compared to increased unrealized gains in investments of
$86,516 in the second quarter 1999, resulting in comprehensive income of $96,746
and $172,770 for the second quarter of 2000 and 1999, respectively.
Provision for income taxes, current and deferred, have decreased by $1,560 for
the first six months of 2000 compared to the first six months of 1999 and have
decreased $8,141 for the second quarter of 2000 compared to the second quarter
of 1999. The effective tax rates for the six months ended June 30, 2000 and 1999
were 23.0% and 24.0%, respectively. Second quarter effective tax rates were
22.7% and 25.9%, for 2000 and 1999, respectively. Rates were lower primarily
because of lower realized capital gains in 2000.
On February 6, 1999, the Board authorized repurchase of up to seventeen million
of the Company's outstanding shares, with the intent to complete the repurchase
by December 31, 2000. This authorization supersedes the previous authorization
of nine million shares. As of June 30, 2000, the Company has repurchased 7,559
shares, leaving 9,441 future repurchased shares authorized.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
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.
The market risks associated with the Company's investment portfolios have not
changed materially from those disclosed at year-end 1999.
Page 10 of 13
<PAGE> 11
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 second 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
On April 1, 2000, the registrant held its Annual Meeting of Stockholders for
which the Board of Directors solicited proxies; all nominees named in the
Registrant's Proxy Statement were elected.
Shares (000's)
--------------
For Against/Abstain
--- ---------------
William F. Bahl 141,433 1,777
Kenneth C. Lichtendahl 141,431 1,779
Jackson H. Randolph 141,085 2,125
John J. Schiff, Jr 134,100 9,110
E. Anthony Woods 141,418 1,792
ITEM 5. OTHER INFORMATION
No matters to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 3(i) --Amended Articles of Incorporation of Cincinnati
Financial Corporation - incorporated by reference to Exhibit 3(i) of
the Company's Annual Report on Form 10-K for the year ended December
31, 1999.
Exhibit 3(ii) --Regulations of Cincinnati Financial Corporation -
incorporated by reference to Exhibit 2 to registrant Proxy Statement
dated March 2, 1992.
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 June 30, 2000.
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 August 10, 2000
-------------------------------
By/s/ Kenneth W. Stecher
------------------------------------
Kenneth W. Stecher
Senior Vice President
(Principal Financial Officer)
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