UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------------------
FORM 10-Q
X Quarterly Report Under Section 13 or 15 (d) of the
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Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
Transition Report Pursuant to Section 13 or 15 (d)
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of the Securities Exchange Act of 1934
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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--162,262,000 shares outstanding at April 30, 2002
$3,554,000 of 5.5% Convertible Senior Debentures Due 2002
$419,645,000 of 6.9% Senior Debentures Due 2028
Page 1 of 12
PART I
ITEM 1. FINANCIAL STATEMENTS
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions except per share data)
(Unaudited)
March 31, December 31,
2002 2001
-------- --------
Assets
- ------
Investments
Fixed maturities (amortized cost: 2002--$3,103;
2001--$3,012) .................................... $ 3,110 $ 3,010
Equity securities (cost: 2002--$2,246;
2001--$2,174) .................................... 9,118 8,495
Other invested assets ............................... 67 66
Cash ................................................... 81 93
Investment income receivable ........................... 91 93
Finance receivable ..................................... 30 27
Premiums receivable .................................... 785 732
Reinsurance receivable ................................. 508 515
Prepaid reinsurance premium ............................ 38 28
Deferred policy acquisition costs ...................... 299 286
Property and equipment, net, for Company use ........... 123 125
Other assets ........................................... 102 99
Separate accounts ...................................... 390 390
-------- --------
Total assets ..................................... $ 14,742 $ 13,959
======== ========
Liabilities
- -----------
Insurance reserves:
Losses and loss expenses ............................ $ 2,976 $ 2,932
Life policy reserves ................................ 693 674
Unearned premiums ...................................... 1,135 1,062
Other liabilities ...................................... 313 283
Federal income taxes:
Current ........................................... 15 10
Deferred .......................................... 2,202 2,001
Notes payable .......................................... 183 183
5.5% Convertible senior debentures due 2002 ............ 4 6
6.9% Senior debentures due 2002 ........................ 420 420
Separate accounts ...................................... 390 390
-------- --------
Total liabilities ................................ 8,331 7,961
-------- --------
Shareholders' equity
- --------------------
Common stock, $2 per share; authorized 200 million
Shares; issued 2002 and 2001--175 million ........... 351 350
Paid-in capital ........................................ 290 284
Retained earnings ...................................... 1,716 1,678
Accumulated other comprehensive income-unrealized
gains on investments and derivatives ............... 4,488 4,113
-------- --------
6,845 6,425
Less treasury shares at cost (2002 and 2001--13 million
shares) ............................................. (434) (427)
-------- --------
Total shareholders' equity ....................... 6,411 5,998
-------- --------
Total liabilities and shareholders' equity .... $ 14,742 $ 13,959
======== ========
Accompanying notes are an integral part of these condensed consolidated
financial statements.
2
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in millions except per share data)
Three Months Ended March 31,
Revenues: ................................................ 2002 2001
------ ------
Net earned premiums:
Property and casualty ............................. $ 559 $ 490
Life .............................................. 19 17
Accident and health ............................... 1 1
------ ------
Net earned premiums ............................ 579 508
Net investment income ................................. 109 100
Realized (losses) gains on investments ................ (8) 5
Other income .......................................... 7 5
------ ------
Total revenues .................................... 687 618
------ ------
Benefits & expenses:
Insurance losses and policyholder benefits ............ 419 357
Commissions ........................................... 112 94
Other operating expenses .............................. 49 46
Taxes, licenses & fees ................................ 15 18
Increase in deferred policy acquisition costs ......... (13) (8)
Interest expense ...................................... 9 10
Other expenses ........................................ 3 4
------ ------
Total benefits & expenses ......................... 594 521
------ ------
Income before income taxes ............................... 93 97
------ ------
Provision for income taxes:
Current ............................................... 19 18
Deferred .............................................. (1) 6
------ ------
Total provision for income taxes .................. 18 24
------ ------
Net income ............................................... $ 75 $ 73
====== ======
Average shares outstanding (basic) ....................... 162 163
====== ======
Average shares outstanding (diluted) ..................... 163 166
====== ======
Per common share:
Net income (basic) .................................... $ .46 $ .45
====== ======
Net income (diluted) .................................. $ .46 $ .44
====== ======
Cash dividends declared ............................... $.2225 $.2100
====== ======
Accompanying notes are an integral part of these condensed consolidated
financial statements.
3
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(in millions)
THREE MONTHS ENDED MARCH 31, 2001 AND 2002
------------------------------------------
Accumulated
Common Treasury Other Total
Common Stock Stock Paid-In Retained Comprehensive Shareholders'
Shares Amount Amount Capital Earnings Income Equity
-------- ------ ------- ------- -------- -------- --------
Bal. Dec. 31,
2000 173 $346 $ (381) $ 254 $1,620 $ 4,156 $5,995
Net income........... 73 73
Change in unreal.
gains net of
inc. taxes of
$266............... (495) (495)
------
Comprehensive
loss.............. (422)
Div. declared........ (34) (34)
Purchase/issuance of
treasury shares.... (9) (9)
Stock options
exercised......... 1 1
---- ----- ------ ----- ------- ------- ------
Bal. March 31,
2001 173 $ 346 $ (390) $ 255 $ 1,659 $ 3,661 $5,531
==== ===== ====== ===== ======= ======= ======
Bal. Dec. 31,
2001 175 $350 $ (427) $284 $ 1,678 $ 4,113 $5,998
Net income........... 75 75
Change in unreal.
gains net of
inc. taxes of
($202)............. 375 375
----
Comprehensive
income............ 450
Div. declared........ (37) (37)
Purchase/issuance of
treasury shares.... (7) (7)
Stock options
exercised.......... 3 3
Conversion of
Debentures......... 1 3 4
---- ----- ------ ----- ------- ------- ------
Bal. March 31,
2002 175 $ 351 $ (434) $ 290 $ 1,716 $ 4,488 $ 6,411
==== ===== ====== ===== ======= ======= =======
Accompanying notes are an integral part of these condensed consolidated
financial statements.
4
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
Three Months Ended March 31,
2002 2001
----- -----
Cash flows from operating activities:
Net income .............................................................. $ 75 $ 73
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................................ 6 7
Realized (losses) gains on investments ............................... 8 (3)
Interest credited to contractholders ................................. 5 5
Changes in:
Investment income receivable ......................................... 2 0
Premiums and reinsurance receivable .................................. (56) (76)
Deferred policy acquisition .......................................... (13) (7)
Other assets ......................................................... 3 54
Loss and loss expense reserves ....................................... 44 59
Life policy reserves ................................................. 13 12
Unearned premiums .................................................... 73 56
Other liabilities .................................................... 28 (9)
Current income taxes ................................................. 5 18
Deferred income taxes ................................................ (1) 6
----- -----
Net cash provided by operating activities ........................ 192 195
----- -----
Cash flows from investing activities:
Sale of fixed maturities investments ................................. 25 7
Call or maturity of fixed maturities investments ..................... 80 57
Sale of equity securities investments ................................ 12 21
Collection of finance receivables .................................... 3 3
Purchase of fixed maturities investments ............................. (203) (148)
Purchase of equity securities investments ............................ (66) (70)
Investment in property and equipment ................................. (11) (4)
Investment in finance receivables .................................... (6) (3)
Investments in other invested assets ................................. (1) (0)
----- -----
Net cash used in investing activities ............................ (167) (137)
----- -----
Cash flows from financing activities:
Payment of cash dividends to shareholders ............................ (34) (31)
Purchase of treasury shares, net ..................................... (7) (9)
Decrease in notes payable ............................................ 0 (12)
Proceeds from stock options exercised ................................ 3 1
Contract holder funds deposited ...................................... 5 5
Contract holder funds withdrawn ...................................... (4) (5)
----- -----
Net cash used in financing activities ............................ (37) (51)
----- -----
Net (decrease) increase in cash ............................................ (12) 7
Cash at the beginning of the period ........................................ 93 60
----- -----
Cash at the end of the period .............................................. $ 81 $ 67
===== =====
Supplemental disclosures of cash flow information
Interest paid ........................................................... $ 9 $ 3
Income taxes (refunded) paid ............................................ $ 15 $ -0-
The company converted the following securities during the three-month period
ended March 31:
Conversion of 5.5% senior debentures to common stock ................... $ 3 $ -0-
Conversion of fixed maturity to equity security investments ............ $ 6 $ 7
Accompanying notes are an integral part of these condensed consolidated
financial statements.
5
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE I - ACCOUNTING POLICIES
The condensed 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, 2001
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 nine months of the year.
INVESTMENTS--Fixed maturities and equity securities have been classified as
available for sale and are carried at fair values at March 31, 2002 and December
31, 2001.
UNREALIZED GAINS AND LOSSES (in millions)--The increases (decreases) in
unrealized gains for fixed maturities and equity securities (net of income tax
effect) for the three-month periods ended March 31 are as follows:
Fixed Equity
Year Maturities Securities Total
---- ---------- ---------- -----
2002 $ 5 $ 370 $ 375
2001 $ 41 $ (536) $ (495)
Such amounts are included as additions to (deductions from) from shareholders'
equity.
REINSURANCE (in millions)--Premiums earned are net of $72 and $37 premiums on
ceded business for the three months ended March 31, 2002 and 2001, respectively.
Insurance losses and policyholder benefits in the accompanying condensed
consolidated statements of income are net of $16 and $67 reinsurance recoveries
for March 31, 2002 and 2001, respectively.
RECLASSIFICATIONS - Certain prior amounts have been reclassified to conform with
the current period classifications.
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
March 31, 2002, outstanding options for Stock Plan IV totalled 1,344,163 shares
with purchase prices ranging from a low of $12.14 to a high of $42.87,
outstanding options for Stock Plan V totalled 1,224,633 shares with purchase
prices ranging from a low of $20.47 to a high of $45.37 and outstanding options
for Stock Plan VI totalled 4,918,849 shares with purchase prices ranging from a
low of $29.38 to a high of $41.61.
6
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 in the following table. Information
regarding income before income taxes and identifiable assets is not available
for two reportable segments - commercial lines and personal lines - property
casualty insurance.
Quarter Ended March 31,
2002 2001
(in millions) -------- --------
REVENUES
Commercial lines insurance .................... $ 398 $ 338
Personal lines insurance ...................... 161 152
Life insurance ................................ 20 18
Investment operations ......................... 101 105
Corporate and other ........................... 7 5
-------- --------
Total revenues ........................... $ 687 $ 618
======== ========
INCOME (LOSS) BEFORE INCOME TAXES
Property and casualty insurance ............... $ 9 $ 8
Life insurance ................................ (1) 3
Investment operations ......................... 91 96
Corporate and other ........................... (6) (10)
-------- --------
Total income before income taxes ......... $ 93 $ 97
======== ========
IDENTIFIABLE ASSETS
Property and casualty insurance ............... $ 7,340 $ 6,311
Life insurance ................................ 1,792 1,651
Corporate and other ........................... 5,610 4,733
-------- --------
Total identifiable assets ................ $ 14,742 $ 12,695
======== ========
NOTE IV - FINANCIAL ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, SFAS No. 142 "Goodwill and Other Intangible Assets" was
approved by the Financial Accounting Standards Board (FASB). SFAS No. 142
changes the accounting for goodwill from an amortization method to an
impairment-only approach. Amortization of goodwill, including goodwill recorded
in past business combinations, will cease upon adoption of this statement. The
Company adopted SFAS No. 142 on January 1, 2002. The adoption of this statement
had no effect on the consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and
reporting for the impairment of long-lived assets and for long-lived assets to
be disposed of. It supersedes SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," while retaining
the fundamental provisions of Statement No. 121 for (a) recognition and
measurement of the impairment of long-lived assets to be held and used and (b)
measurement of long-lived assets to be disposed of by sale. It also supersedes
the accounting and reporting provisions of Accounting Principles Board Opinion
No. 30 "Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The adoption of this statement had no effect on the
consolidated financial statements.
7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in millions)
INTRODUCTION
This Management Discussion is intended to supplement the data contained in the
condensed consolidated financial statements and related notes of Cincinnati
Financial Corporation and subsidiaries.
Forward-looking Statements
- --------------------------
The following discussion contains 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 causes; the
frequency and severity of claims; environmental events or changes; changes in
insurance regulations, legislation or court decisions that place the Company at
a disadvantage in the marketplace; adverse outcomes from litigation or
administrative proceedings; recession or other economic conditions resulting in
lower demand for insurance products; sustained decline in overall stock market
values negatively affecting the Company's equity portfolio; delays in the
development, implementation and benefits of technology enhancements; and
decreased ability to generate growth in investment income.
Further, the Company's insurance businesses are subject to the effects of
changing social, economic and regulatory environments. Public and regulatory
initiatives have included efforts to adversely influence and restrict premium
rates, restrict the ability to cancel policies, impose underwriting standards
and expand overall regulation. The ultimate changes and eventual effects, if
any, of these initiatives are uncertain.
Readers are cautioned that the Company undertakes no obligation to review or
update the forward-looking statements included in this material.
RESULTS OF OPERATIONS
As discussed in greater detail below, premiums earned for the three months ended
March 31, 2002 increased $71 (14%) over the three months ended March 31, 2001.
Investment income, net of expenses, increased $9 (9%) when compared with the
first three months of 2001. Investment income growth was attributable to cash
flow from insurance operations, an increase in the average yield for the bond
portfolio and higher dividends earned in the quarter. Realized losses on
investments amounted to $8 compared with $5 in gains for the comparable
three-month period ended March 31, 2001.
Insurance losses and policyholder benefits (net of reinsurance recoveries)
increased $62 (17%) for the first three months of 2002 over the same period in
2001. Commission expenses increased $18. Other operating expenses increased $3,
attributable to increases in staff and other internal development costs
associated with our investment in infrastructure to support future growth.
Taxes, licenses and fees decreased $3 in the first quarter of 2002 compared with
the first quarter of 2001, primarily because of changes in estimated amounts due
to various states and municipalities. Interest expense decreased $2 primarily
due to lower short-term interest rates.
8
Property Casualty Insurance Operations
- --------------------------------------
The GAAP combined ratio of 98.8% for the first quarter 2002 was the same as the
first quarter 2001. The loss and LAE ratio was 71.2% and the expense ratio 27.6%
for first quarter 2002. This compared with a 69.5% loss and LAE ratio and 29.3%
expense ratio for the first quarter 2001. The 2002 loss ratio included 2.6
percentage points for catastrophe losses, compared with 1.4 percentage points in
2001. The 2002 expense ratio decline of 1.9 percentage points is the result of
expenses remaining relatively stable, while premiums increased. Higher
reinsurance costs in 2002 impacted the combined ratio by 1.3 percentage points.
Net written premiums increased by $83, a 15% increase, and net earned premiums
increased by $69, a 14% increase. The premium growth rate is being generated by
rate increases and insurance-to-value initiatives, addressing adequate premiums
to the exposure. Our target for the remainder of the year is to achieve premium
growth above the industry. Various rate increases will be a major component of
growth in earned premium this year and into 2003. First quarter 2002 commercial
lines earned premiums increased by $61, an 18% increase over first quarter 2001.
New commercial business increased $2, or 4%. Requirements for more detailed
information about each new risk and stricter risk selection limited new business
growth. Excluding premiums for workers compensation, a line where heightened
risk selection criteria are being vigorously applied, commercial new business
growth was 14%. First quarter 2002 personal lines earned premiums increased $9,
a 6% increase. New personal business increased $5, or 50%.
The property casualty company continued to experience higher claims severity
with losses increasing $58, or 17%, in the first quarter of 2002 compared with
the first quarter of 2001. First-quarter 2002 losses above $250 thousand
(including case reserve increases greater than $250 thousand) were $94 for 176
claims, essentially unchanged from the level of the second through fourth
quarters of 2001, although $41 (78%) above the first quarter of 2001. Losses
below $250 thousand were $219 for 87,000 claims, $9 (4%) below first quarter
2001, but in line with the quarterly average for the second through fourth
quarters of 2001 of $240 for 82,000 claims. Catastrophe losses were higher by
$8, due to March 2002 wind and hail storms in the Midwest. IBNR increased $8
over the first quarter of 2001.
The first quarter 2002 loss and LAE ratio of 71.2% included these continuing
high levels of claims, with the impact mitigated by the quarter's strong premium
growth. The commercial lines loss and LAE ratio was 69.2% in the first quarter
2002, compared with 69.7% in 2001. The personal lines loss and LAE ratio was
76.1% in the first quarter 2002, compared with 68.9% in the first quarter 2001.
The personal lines loss and LAE in 2002 included 6.0 points for catastrophes
versus 2.5 points in the first quarter of 2001. Personal lines premium growth of
6% did not impact their 2002 ratio as much as in commercial lines.
Property casualty commissions increased $17, reflecting higher commissions
related to the growth of written premiums.
Life and Accident Health Operations
- -----------------------------------
Earned premiums of our life company increased $2, a 10% increase. The premium
growth in our life products is mainly attributable to increased sales of both
traditional and work site marketing products. Policyholder benefits increased
$3, or 16% over the first quarter of 2001, due to higher than normal death
benefits incurred. Life commissions increased $1, a 12% increase over 2001,
because of premium growth.
Federal Income Taxes
- --------------------
There was no significant change in the provision for federal income taxes from
operations for the first three months of 2002 compared to the first three months
of 2001.
9
INVESTMENT OPERATIONS
In the first quarter of 2002, the Company experienced an increase in unrealized
gains on investments, resulting in comprehensive income of $450 in 2002 compared
with a comprehensive net loss of $422 in 2001, which resulted from a reduction
in unrealized gains for the same period in 2001. Our top 10 equity holdings
produced a $333, net of tax, increase in unrealized gains in the first three
months of 2002.
Investment Income
- -----------------
Pre-tax investment income rose to $109 in the first quarter 2002, compared with
$100 in the same period last year, a 9% increase. The strong premium growth
accounted for a major portion of the growth in funds available for investment.
The increase in investment income was driven primarily from greater dividend
yields on our equity portfolio and higher interest earnings because of the
growth of the fixed maturities portfolio, generated by the increases on cash
flows from operations. Additionally, investment income for the first quarter of
2001 included an adjustment for certain fixed income securities that reduced
investment income by $2, before tax, to better reflect amortization of premiums
and discounts to produce a constant effective yield.
Realized Gains (Losses) on Investments
- --------------------------------------
Realized losses before federal taxes were $8 in the first quarter 2002, compared
with realized gains of $5 for the first quarter last year. Included in the first
quarter 2002 net capital loss were write downs of $6 for investments management
deemed impaired, related to 3 specific fixed maturity investments. There were no
asset impairments in the first quarter 2001.
The Company's Asset Impairment Committee continually monitors investments and
other assets that have fair values that are less than carrying amounts for signs
of other-than-temporary impairment. Factors such as the amount and timing of
declines in fair values, the significance of the declines, the length of time
(six to nine months) of the declines, duration of fixed-maturity securities, and
interest payment defaults, among others, are considered when determining
investment impairment.
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 and there have been no
significant changes to these guidelines during the three months ended March 31,
2002.
OUTLOOK
The Company continues to seek premium growth in excess of industry averages, a
return to historic profitability levels in its segments through stringent
underwriting practices, and growth of investment income.
Property Casualty Insurance Operations
- --------------------------------------
The Company has targeted a return to its five year (1995-1999) average statutory
and GAAP combined ratio of 101.3%, assuming a normal level of catastrophe losses
in the range of 2 to 3 percentage points for the year.
10
Property casualty ceded reinsurance premiums increased by $33 for 2002 compared
with 2001, adding approximately 1.3 points to the first quarter 2002 combined
ratio and a reduction of 3 cents to earnings per share. Management projects the
2002 earnings impact to be a reduction of 12 cents per share.
In the fourth quarter of 2000, the Company established a $110 reserve for Ohio
uninsured, underinsured motorists claims, as a result of two Ohio Supreme Court
decisions. In the first quarter of 2002, $10 of new claims was recorded,
reducing the remaining reserves for such claims to $47. The Company recorded $10
in additional claims in April 2002. Management is monitoring these claims
closely to ensure adequate loss reserves are held for these claims.
Investment Operations
- ---------------------
Investment income grew 9% in the first quarter 2002 compared with 2001 due to
the factors stated above. The Company anticipates the investment income growth
will be in the 6 to 7% range for the remainder of 2002.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
- ---------
Management expects operating cash flow generated from operations will continue
to be the Company's primary source of newly investable funds.
Cash flow from operating activities was $192 in the first quarter 2002, down
slightly from $195 in the first quarter 2001. Cash flow used for investing
activities was $167 in the first quarter 2002, compared with $137 in the same
period last year. Cash flow used for financing activities was $37 this year,
compared with $51 last year.
Debt
- ----
The Company's remaining 5.5% convertible senior debenture matured on May 1,
2002. The remaining outstanding debentures at that time were substantially all
converted to common stock.
Dividends
- ---------
The Company declared a dividend of 22 1/4 cents per share, payable April 15,
2002 for shareholders of record on March 22, 2002. This dividend payout was an
increase of 6% over the first quarter 2001.
Common Stock Repurchases
- ------------------------
The Company's Board of Directors has authorized the repurchase of outstanding
shares. At March 31, 2002, 7.7 million shares remain authorized for repurchase
at any time in the future. During the first quarter 2002, 198 thousand shares
were repurchased at a cost of $7. As of March 31, 2002, the Company has
repurchased 13.2 million shares.
OTHER MATTERS
Significant Accounting Policies
- -------------------------------
The Company did not change any significant accounting policies during the three
months ended March 31, 2002 from those utilized in the preparation of the
consolidated financial statements as of and for the year ended December 31,
2001. Please refer to the Company's Annual Report to Shareholders incorporated
by reference within that Form 10-K for a discussion of significant accounting
policies.
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 first 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 first 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.
(b) The Company was not required to file any reports on Form
8-K during the quarter ended March 31, 2002.
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 May 8, 2002
---------------------------
By/s/ Kenneth W. Stecher
-------------------------------
Kenneth W. Stecher
Chief Financial Officer
12