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                                  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

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                                     PART I

ITEM 1. FINANCIAL STATEMENTS

                CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
(000's omitted) (Unaudited) September 30, December 31, 1998 1997 ------------- ------------ 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 =========== ===========
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. 3 CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS FOR INCOME (UNAUDITED)
(000's omitted except per share data) Nine Months Ended Sept. 30, Three Months Ended Sept. 30, 1998 1997 1998 1997 ------ ------ ------ ------ 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
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. 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:
Fixed Equity Maturities Securities Total ---------- ---------- ----- 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
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:
Ceded Reinsurance Premiums Recoveries -------- ----------- 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
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. 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. 6 CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) (000's omitted) NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 ---------------------------------------------
Accumulated Other Total Common Stock Treasury Paid-In Retained Comprehensive Shareholders' Shares Amount Stock Capital Earnings Income Equity -------- ------ ------ ------- -------- -------- -------- 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 ======= ========= ========= ========= =========== =========== ==========
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. 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. 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.
% 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 -------------- ------------- ------------- Mission critical systems 75% 90% 100% All other systems 75% 90% 100%
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. 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. 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) 11 CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(000's omitted) Nine Months Ended September 30, ------------------------------- 1998 1997 ---- ---- 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
Accompanying notes are an integral part of these financial statements.
   1


                                   EXHIBIT 11
                        CINCINNATI FINANCIAL CORPORATION
                 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
                      (000's omitted except per share data)

Nine Months Ended Three Months Ended September 30, September 30, ------------------ ------------------- 1998 1997 1998 1997 ---- ---- ---- ---- 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
 

7 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. 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 2,803,154 0 0 6,298,088 11,119 4,508 9,152,994 97,809 3,612 139,880 9,938,969 2,518,813 456,724 34,924 16,959 472,407 0 0 340,587 4,552,187 9,938,969 1,195,595 272,833 71,624 5,845 907,434 250,443 134,754 253,266 57,323 195,943 0 0 0 195,943 1.17 1.15 1,776,648 0 0 0 0 1,854,496 0 Equals the sum of Fixed Maturities, Equity Securities and other Invested Assets. 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. Equals the sum of Notes Payable, the 5.5% Convertible Senior Debentures and the 6.9% Senior Debentures Equals the Total Shareholders' Equity Equals the Sum of Commissions, Other Operating Expenses, Taxes and licenses and Fees, Increase in deferred acquisition costs, Interest expense and other expenses Equals the net reserve for unpaid claims for the property casualty subsidiaries less loss checks payable as of December 31, 1997 Equals the net reserve for unpaid claims for the property casualty subsidiaries less loss checks payable as of September 30, 1998
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