SEC Filing | Cincinnati Financial Corporation

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

2 PART I ITEM 1. FINANCIAL STATEMENTS CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (000's omitted) (Unaudited) June 30, December 31, 2000 1999 ------ ------ 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 ============ ============ Accompanying notes are an integral part of these financial statements. Page 1 of 13

3 CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (000's omitted except per share data) Six Months Ended June 30, Three Months Ended June 30, 2000 1999 2000 1999 ------ ------ ------ ------ 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 ===== ===== ===== ===== Accompanying notes are an integral part of these financial statements. Page 3 of 13

4 CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) (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 -------- ------ -------- ------- -------- ------------- ----------- 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 ======== ========= ========== ========= =========== =========== ========== Accompanying notes are an integral part of these financial statements. Page 4 of 13

5 CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (000's omitted) Six Months Ended June 30, 2000 1999 --------- --------- 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 ========= ========= 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

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: Six Months Ended June 30, Three Months Ended June 30, 2000 1999 2000 1999 --------- --------- --------- --------- 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 ========= ========= ========= ========= 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: Six Months Ended June 30, Three Months Ended June 30, 2000 1999 2000 1999 ------- ------- ------- ------- Ceded premiums $57,401 $51,563 $29,691 $24,998 Reinsurance recoveries $59,291 $24,006 $36,425 $12,717 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

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): Six Months Ended Three Months Ended June 30, June 30, ---------- ---------- 2000 1999 2000 1999 ----------- ----------- --------- --------- 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 =========== =========== 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

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

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

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

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) Page 11 of 13

1 EXHIBIT 11 CINCINNATI FINANCIAL CORPORATION STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (000's omitted except per share data) Six Months Ended Three Months Ended June 30, June 30, -------------------- -------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Basic earnings per share: Net income $154,057 $150,731 $ 74,694 $ 86,254 ======== ======== ======== ======== Average shares outstanding 161,527 165,507 161,623 163,105 ======== ======== ======== ======== Net income per common share $ .95 $ .91 $ .46 $ .53 ======== ======== ======== ======== Diluted earnings per share: Net income $154,057 $150,731 $ 74,694 $ 86,254 Interest on convertible debentures--net of tax 665 858 337 408 -------- -------- -------- -------- Net income for per share calculation (diluted) $154,722 $151,589 $ 75,031 $ 86,662 ======== ======== ======== ======== Average shares outstanding 161,527 165,507 161,623 163,105 Effective of dilutive securities: 5.5% convertible senior debentures 2,112 2,895 2,112 2,895 Stock options 1,256 1,626 1,814 1,750 -------- -------- -------- -------- Total dilutive shares 164,895 170,028 165,549 167,750 ======== ======== ======== ======== Net income per common share--diluted $ .94 $ .89 $ .45 $ .52 ======== ======== ======== ======== Page 12 of 13

7 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 2,636,926 0 0 6,723,471 16,851 4,135 9,429,205 37,247 2,403 161,389 10,701,468 2,710,041

490,747 43,557

22,541 624,032

0 0 345,289

4,523,249

10,701,468 918,580 209,020 17,624 4,853 646,895 188,833

114,181

200,168 46,111 154,057 0 0 0 154,057 .95 .94 1,931,767

0 0 0 0 1,964,035

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 $5,036 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 as of December 31, 1999 Equals the net reserve for unpaid claims for the property casualty subsidiaries as of June 30, 2000