ITEM 1. BUSINESS
(a) General Development of Business
The Progressive Corporation, an insurance holding company formed in 1965, has 64 operating subsidiaries and one mutual insurance company affiliate. The Progressive Corporation's insurance subsidiaries and its affiliate (collectively, the "Insurance Group") provide personal automobile insurance and other specialty property-casualty insurance and related services throughout the United States and in Canada. The Company's property-casualty insurance products protect its customers against collision and physical damage to their motor vehicles and liability to others for personal injury or property damage arising out of the use of those vehicles.
Of the approximately 250 United States insurance company groups writing private passenger auto insurance, the Company estimates that it ranks seventh in size for 1995. Except as otherwise noted, all industry data and Progressive's market share or ranking in the industry were derived either directly from data reported by A.M. Best Company Inc. ("A.M. Best") or were estimated using A.M. Best data as the primary source. For 1995, the estimated industry premiums written, which include personal auto insurance in the United States and Ontario, Canada, as well as insurance for commercial vehicles, were $122 billion, and Progressive's share of this market was approximately 2.3%.
(b) Financial Information About Industry Segments
Incorporated by reference from Note 11, Segment Information, on page 46 of the Company's Annual Report.
(c) Narrative Description of Business
INSURANCE SEGMENT
The Insurance Group offers a number of personal and commercial property-casualty insurance products primarily related to motor vehicles. Net premiums written were $2,912.8 million in 1995, compared to $2,457.2 million and $1,819.2 million in 1994 and 1993, respectively. The underwriting profit margin was 5.7% in 1995, compared to 8.3% (excluding the elimination of the "supplemental reserve." See Management's Discussion and Analysis of Financial Condition and Results of Operations beginning on page 14 for further discussion) in 1994 and 10.7% in 1993, respectively.
The Insurance Group's core business writes insurance for private passenger automobiles, recreational vehicles and small fleets of commercial vehicles. This business frequently has more than one program in a single state, with each targeted to a specific market segment. The core business accounted for 97% of the Company's 1995 total net premiums written.
The bulk of the Insurance Group's core business consists of nonstandard automobile insurance products for people cancelled or rejected by other insurers. The size of the nonstandard automobile insurance market changes with the insurance environment. Volume potential is influenced by the actions of direct competitors, writers of standard and preferred automobile insurance and state-mandated involuntary plans. The total direct premiums written in the nonstandard automobile insurance market were about $21 billion in 1995, $20 billion in 1994 and $18 billion in 1993. Approximately 280 nonstandard insurance companies, many of which are part of an affiliated group, wrote an estimated $17 billion of nonstandard auto premiums in 1995. In 1994, the Insurance Group ranked second in direct premiums written in this market and near the top in underwriting performance. Although final data has not been published, the Company estimates that its 1995 ranking and underwriting performance will be consistent with 1994.
The core business also writes standard and preferred automobile risks in many states. These products accounted for between 5% and 10% of the Company's total private passenger auto premiums in 1995. The strategy is to build towards becoming a low-cost provider of a full line of auto insurance and related services, distributed through whichever channel the customer prefers. The Insurance Group's goal is to compete successfully in the standard and preferred market, which comprises 80% of the personal automobile insurance market.
The Insurance Group's principal specialty personal lines product is motorcycle insurance. Other products offered include recreational vehicle, mobile home and boat insurance. The Insurance Group's competitors are specialty companies and large multi-line insurance carriers. Although industry figures are not available, based on the Company's analysis of this market, the Company believes that it is a significant participant in the specialty personal lines market.
Nonstandard commercial vehicle insurance covers commercial vehicle risks that are rejected or cancelled by other insurance companies. Based on the Company's analysis of this market, approximately 40 companies compete for this business on a nationwide basis. State assigned risk plans also provide this coverage.
The core business insurance products are marketed by thirteen divisions headquartered in or near the markets served: the Florida and Southeast divisions in Tampa, Florida; the Northeast, New York, Central States, Ohio, Commercial Vehicle and National Accounts divisions in Cleveland, Ohio; the South Central division in Austin, Texas; the Mountain division in Colorado Springs, Colorado; the Mid-Atlantic division in Richmond, Virginia; the Canada division in Ontario, Canada; and the West division in Sacramento, California. Each division is responsible for its own marketing, sales, processing and claims.
In an effort to better manage growth and improve customer service, the Company is moving profit and growth responsibility for high potential communities from state-focused division presidents to community managers. In 1995, eleven metropolitan areas were served by community managers.
In 1995, over 90% of the net premiums written by the core business were written through a network of more than 30,000 independent insurance agents located throughout the United States and in Canada. Subject to compliance with certain Company-mandated procedures, these independent insurance agents have the authority to bind the Company to specified insurance coverages within prescribed underwriting guidelines. These guidelines prescribe the kinds and amounts of coverage that may be written and the premium rates that may be charged for specified categories of risk. The agents do not have authority on behalf of the Company to settle or adjust claims, establish underwriting guidelines, develop rates or enter into other transactions or commitments. The Company also markets its products through intermediaries such as employers, other insurance companies and national brokerage agencies, and direct to customers through employed sales people and owned insurance agencies. The core business currently markets personal automobile insurance directly to the public by direct mail, television and radio advertising, primarily throughout Florida and in Ohio and Texas.
The Insurance Group's diversified businesses - the United Financial Casualty Company (UFCC), Professional Liability Group (PLG) and Motor Carrier division - accounted for 3% of total volume in 1995. These businesses, which are organized by customer group, are headquartered in Cleveland, Ohio. The choice of distribution channel is driven by each customer group's buying preference and service needs. Distribution channels include financial institutions and vehicle dealers. Distribution arrangements are individually negotiated between such intermediaries and the Company and are tailored to the specific needs of the customer group and the nature of the related financial or purchase transactions. The diversified businesses also market their products directly to their customers through company-employed sales forces.
UFCC provides physical damage insurance and related tracking services to protect the commercial or retail lender's interest in collateral which is not otherwise insured against these risks. The principal product is collateral protection for automobile lenders, which is sold to financial institutions and/or their customers. Commercial banks are UFCC's largest customer group for these services. This business also serves savings and loans, finance companies and credit unions. According to the Company's analysis of this market, numerous companies offer these products and none of them has a dominant market share.
PLG's principal customers are community banks. Its principal products are liability insurance for directors and officers and employee dishonesty insurance. Progressive shares the risk and premium on these coverages with a small mutual reinsurer controlled by its bank customers. The program is sponsored by the American Bankers Association. This program represented less than one half of one percent of the Company's total 1995 net premiums written.
The Motor Carrier division primarily manages involuntary Commercial Auto Insurance Procedures. See Service Operations on page 7 for further discussion.
COMPETITIVE FACTORS
The automobile insurance and other property-casualty markets in which the Company operates are highly competitive. Property-casualty insurers generally compete on the basis of price, consumer recognition, coverages offered, claim handling, financial stability, customer service and geographic coverage. Vigorous competition is provided by large, well-capitalized national companies, some of which have broad distribution networks of employed or captive agents, and by smaller regional insurers. While the Company relies heavily on technology and extensive data gathering and analysis to segment and price markets according to risk potential, some competitors merely price their coverage at rates set lower than the Company's published rates. By avoiding extensive data gathering and analysis, these competitors incur lower underwriting costs. The Company has remained competitive by closely managing expenses and achieving operating efficiencies, and by refining its risk measurement and price segmentation skills. In addition, the Company offers prices for a wide spectrum of risks and seeks to offer a wider array of payment plans, limits of liability and deductibles than its competitors. Superior customer service and claim adjustment are also important factors in the Company's competitive strategy.
LICENSES
The Insurance Group operates under licenses issued by various state or provincial insurance authorities. Such licenses may be of perpetual duration or renewable periodically, provided the holder continues to meet applicable regulatory requirements. The licenses govern the kind of insurance coverages which may be written in the issuing state. Such licenses are normally issued only after the filing of an appropriate application and the satisfaction of prescribed criteria. All licenses which are material to the Company's business are in good standing.
INSURANCE REGULATION
The insurance subsidiaries are generally subject to regulation and supervision by insurance departments of the jurisdictions in which they are domiciled or licensed to transact business. At least one of the subsidiaries is licensed and subject to regulation in each of the 50 states and certain U.S. possessions, in one Canadian province and by Canadian federal authorities. The nature and extent of such regulation and supervision varies from jurisdiction to jurisdiction. Generally, an insurance company is subject to a higher degree of regulation and supervision in its state of domicile. The Company's principal insurance subsidiaries are domiciled in the states of Florida, Mississippi, Missouri, New York, Ohio, Pennsylvania, Texas, Washington and Wisconsin. State insurance departments have broad administrative power relating to licensing insurers and agents, regulating premium rates and policy forms, establishing reserve requirements, prescribing accounting methods and the form and content of statutory financial reports and regulating the type and amount of investments permitted. Rate regulation varies from "file and use" to prior approval to mandated rates. Most jurisdictions prohibit rates that are "excessive, inadequate or unfairly discriminatory."
Insurance departments are charged with the responsibility to ensure that insurance companies maintain adequate capital and surplus and comply with a variety of operational standards. Insurance companies are generally required to file detailed annual and other reports with the insurance department of each jurisdiction in which they conduct business. Insurance departments are authorized to make periodic and other examinations of regulated insurers' financial condition, adherence to statutory accounting principles and compliance with state insurance laws and regulations.
Insurance holding company laws enacted in many jurisdictions grant to insurance authorities the power to regulate acquisitions of insurers and certain other transactions involving insurers and to require periodic disclosure of certain information. These laws impose prior approval requirements for certain transactions between regulated insurers and their affiliates and generally regulate dividend and other distributions, including loans and cash advances, between regulated insurers and their affiliates. See the "Dividends" discussion in Item 5(c) for further information on such dividend limitations.
Under state insolvency and guaranty laws, regulated insurers can be assessed, or required to contribute to state guaranty funds to cover policyholder losses resulting from insurer insolvencies. Insurers are also required by many states to provide coverage to certain risks as a condition of doing business in the state. Such programs generally specify the types of insurance and the level of coverage which must be offered to such involuntary risks, as well as the allowable premium.
Insurance companies are generally required by insurance regulators to maintain sufficient surplus to support their writings. Although the ratio of writings to surplus that the regulators will allow is a function of a number of factors, including the type of business being written, the adequacy of the insurer's reserves, the quality of the insurer's assets, and the identity of the regulator, as a general rule, the regulators prefer that annual net written premium be not more than three times the insurer's total policyholders' surplus. Thus, the amount of an insurer's surplus may, in certain cases, limit its ability to grow its business.
Many states have laws and regulations that limit an insurer's ability to exit a market. For example, certain states limit an automobile insurer's ability to cancel and non-renew policies. Furthermore, certain states prohibit an insurer from withdrawing one or more lines of business from the state, except pursuant to a plan that is approved by the state insurance department. The state insurance department may disapprove a plan that may lead to market disruption. Laws and regulations that limit cancellation and non-renewal and that subject program withdrawals to prior approval requirements may restrict an insurer's ability to exit unprofitable markets.
Regulation of insurance constantly changes as real or perceived issues and developments arise. Some changes may be due to technical factors, such as changes in investment laws made to recognize new investment vehicles; other changes result from such general pressures as consumer resistance to price increases and concerns relating to insurer solvency. In recent years, legislation and voter initiatives have been introduced which deal with insurance rate development, rate determination and the ability of insurers to cancel or renew insurance policies, reflecting concerns about availability, prices and alleged discriminatory pricing.
In some states, the automobile insurance industry has been under pressure in recent years from regulators, legislators or special interest groups to reduce, freeze or set rates to or at levels that are not necessarily related to underlying costs, including initiatives to roll back automobile and other personal lines rates. This kind of activity has adversely affected, and may in the future adversely affect, the profitability and growth of the subsidiaries' automobile insurance business in those jurisdictions, and may limit the subsidiaries' ability to increase rates to compensate for increases in costs. Adverse legislative and regulatory activity limiting the subsidiaries' ability to adequately price automobile insurance may occur in the future. The impact of these regulatory changes on the subsidiaries' businesses cannot be predicted.
The state insurance regulatory framework has come under increased federal scrutiny, and certain state legislatures have considered or enacted laws that alter and, in many cases, expand state authority to regulate insurance companies and insurance holding company systems. Further, the National Association of Insurance Commissioners (NAIC) and state insurance regulators are re-examining existing laws and regulations, specifically focusing on insurance company investments, issues relating to the solvency of insurance companies and further limitations on the ability of regulated insurers to pay dividends. The NAIC also developed a risk-based capital (RBC) program to enable regulators to take appropriate and timely regulatory actions relating to insurers that show signs of weak or deteriorating financial conditions. RBC is a series of dynamic surplus-related formulas which contain a variety of factors that are applied to financial balances based on a degree of certain risks, such as asset, credit and underwriting risks. In addition, from time to time, the United States Congress and certain federal agencies investigate the current condition of the insurance industry to determine whether federal regulation is necessary.
STATUTORY ACCOUNTING PRINCIPLES
The Insurance Group's results are reported in accordance with generally accepted accounting principles (GAAP), which differ from amounts reported under statutory accounting principles (SAP) prescribed by insurance regulatory authorities. Specifically, under GAAP:
1. Commissions, premium taxes and other costs incurred in connection with writing new and renewal business are capitalized and amortized on a pro rata basis over the period in which the related premiums are earned, rather than expensed as incurred, as required by SAP.
2. Certain assets are included in the consolidated balance sheets, which for SAP are charged directly against statutory surplus. These assets consist primarily of premium receivables over 90 days, furniture and equipment and prepaid expenses.
3. Amounts related to ceded reinsurance are shown gross as prepaid reinsurance premiums and reinsurance recoverables, rather than netted against unearned premium reserves and loss and loss adjustment expense reserves, respectively, as required by SAP.
4. Fixed maturities securities, which are classified as available-for-sale, are reported at market values, rather than at amortized cost, or the lower of amortized cost or market depending on the specific type of security as required by SAP. Equity securities are reported at quoted market values which may differ from the NAIC market values as required by SAP.
The differing treatment of income and expense items results in a corresponding difference in Federal income tax expense.
During 1994, the insurance subsidiaries began to reduce loss reserves for anticipated salvage and subrogation recoveries. Previously, salvage and subrogation was not reflected in the statutory financial statements until actually recovered.
SERVICE OPERATIONS
The service operations of the diversified businesses consist primarily of processing business for involuntary plans and providing claim services to fleet owners and other insurance companies. Service revenues were $38.9 million in 1995, compared to $41.9 million in 1994 and $43.7 million in 1993. Pretax operating profits were $8.7 million in 1995, compared to $10.0 million and $6.8 million in 1994 and 1993, respectively.
The Motor Carrier division currently processes business for the Commercial Auto Insurance Procedures (CAIP) in 29 states, the Florida Joint Underwriters Association (FAJUA) and the New York Public Automobile Pool (NYPAP), which are all part of the involuntary residual market. As a CAIP servicing carrier, the division processes about one third of the premiums in the involuntary residual market, without assuming the indemnity risk. It competes with approximately 17 other providers nationwide. In 1995, the division began processing business for the FAJUA and competes with five other carriers in the state. Beginning in March 1996, the Company began processing business for the NYPAP and was granted a one-third share of new business with a three-year phase-in period.
INVESTMENTS
The Company's approach to investing is consistent with its need to maintain capital adequate to support the insurance premiums written and its commitment to risk adverse investment policies. The Company's portfolio is invested primarily in short-term and intermediate-term, investment-grade fixed-income securities. The Company's investment portfolio, at market value, was $3,768.0 million at December 31, 1995, compared to $3,186.3 million at December 31, 1994. Investment income is affected by shifts in the types of investments in the portfolio, changes in interest rates and other factors. Investment income, including net realized gains on security sales, before expenses and taxes, was $245.8 million in 1995, compared to $182.3 million in 1994 and $242.4 million in 1993. See Management's Discussion and Analysis of Financial Condition and Results of Operations, beginning on page 14 herein for additional discussion.
EMPLOYEES
The number of employees, excluding temporary employees, at December 31, 1995, was 8,025.
LIABILITY FOR PROPERTY-CASUALTY LOSSES AND LOSS ADJUSTMENT EXPENSES
The consolidated financial statements include the estimated liability for unpaid losses and loss adjustment expenses ("LAE") of the Company's insurance subsidiaries. Total loss reserves are established at a level that is intended to represent the midpoint of the reasonable range of loss reserves. The liabilities for losses and LAE are determined using actuarial and statistical procedures and represent undiscounted estimates of the ultimate net cost of all unpaid losses and LAE incurred through December 31 of each year. These estimates are subject to the effect of future trends on claim settlement. These estimates are continually reviewed and adjusted as experience develops and new information becomes known. Such adjustments, if any, are reflected in the current results of operations.
During 1994, based on a review of the adequacy of its total loss reserves, the Company eliminated its $71.0 million "supplemental reserve." See Management's Discussion and Analysis of Financial Condition and Results of Operations beginning on page 14 for further discussion. The elimination of the supplemental reserve is reflected in the Reconciliation of Net Reserves for Losses and Loss Adjustment Expenses table on page 8 and the Analysis of Loss and Loss Adjustment Expenses Development table on page 9.
The accompanying tables present an analysis of property-casualty losses and LAE. The following table: (1) provides a reconciliation of beginning and ending estimated liability balances for 1995, 1994 and 1993, and (2) shows the difference between the estimated liability in accordance with GAAP and that reported in accordance with SAP.
RECONCILIATION OF NET RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
(1)In 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts."
(2)During 1994, the Company changed its method of accounting for salvage and subrogation. See Statutory Accounting Principles on page 6 for further discussion.
The reconciliation above shows a $56.6 million redundancy, which emerged during 1995, in the 1995 liability and a $142.5 million redundancy in the 1994 liability, based on information known as of December 31, 1995 and December 31, 1994, respectively. In addition, the incurred losses in the table above are on a SAP basis, which differ slightly from the GAAP incurred losses due to the reclassification of losses on the Company's self-insurance program to expenses for GAAP reporting.
The anticipated effect of inflation is explicitly considered when estimating liabilities for losses and LAE. While anticipated increases due to inflation are considered in estimating the ultimate claim costs, the increase in average severities of claims is caused by a number of factors that vary with the individual type of policy written. Future average severities are projected based on historical trends adjusted for anticipated changes in underwriting standards, inflation, policy provisions and general economic trends. These anticipated trends are monitored based on actual development and are modified if necessary.
The Company has not entered into any loss reserve transfers or similar transactions having a material effect on earnings or reserves.
ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSES DEVELOPMENT (millions)
(1)Cumulative redundancy/(deficiency) liability for unpaid losses and LAE.
The above table presents the development of balance sheet liabilities for 1985 through 1994. The top line of the table shows the estimated liability for unpaid losses and LAE recorded at the balance sheet date for each of the indicated years for the property-casualty insurance subsidiaries only. Similar reserves for the life insurance subsidiary, which are immaterial, are excluded. This liability represents the estimated amount of losses and LAE for claims arising in all prior years that are unpaid at the balance sheet date, including losses that had been incurred but not reported.
The upper section of the table shows the cumulative amount paid with respect to the previously recorded liability as of the end of each succeeding year. The lower portion of the table shows the re-estimated amount of the previously recorded liability based on experience as of the end of each succeeding year. The estimate is increased or decreased as more information becomes known about the frequency and severity of claims for individual years. For example, as of December 31, 1995 the companies had paid $263.2 million of the currently estimated $286.7 million of losses and LAE that had been incurred through the end of 1986; thus an estimated $23.5 million of losses incurred through 1986 remain unpaid as of the current financial statement date.
The "Cumulative Redundancy (Deficiency)" represents the aggregate change in the estimates over all prior years. For example, the 1985 liability has developed a $1.0 million deficiency over ten years. That amount has been reflected in income over the ten years and did not have a significant effect on the income of any one year. The effects on income during the past three years due to changes in estimates of the liabilities for losses and LAE is shown in the reconciliation table on page 8 as the "prior years" provision for incurred losses and LAE.
In evaluating this information, note that each cumulative redundancy (deficiency) amount includes the effects of all changes in amounts during the current year for prior periods. For example, the amount of the redundancy related to losses settled in 1988, but incurred in 1985, will be included in the cumulative deficiency or redundancy amount for years 1985, 1986 and 1987. Conditions and trends that have affected development of the liability in the past may not necessarily occur in the future. Accordingly, it may not be appropriate to extrapolate future redundancies or deficiencies based on this table.
The Analysis of Loss and Loss Adjustment Expenses Development table on page 9 is constructed from Schedule P, Part-1, from the 1990 through 1995 Consolidated Annual Statements, as filed with the state insurance departments, and Schedules O and P filed for years prior to 1989. This development table differs from the development displayed in Schedule P, Part-2 due to the fact Schedule P, Part-2 excludes unallocated loss adjustment expenses and reflects the change in the method of accounting for salvage and subrogation for 1994 and prior.
(d) Financial Information about Foreign and Domestic Operations
The Company operates throughout the United States and in Canada. The amount of Canadian revenues and assets are approximately two percent of the Company's consolidated revenues and assets. The amount of operating income (loss) generated by its Canadian operations is immaterial with respect to the Company's consolidated operating income.
ITEM 2.

ITEM 2. PROPERTIES
OWNED PROPERTIES
In 1994, the Company completed its new corporate office complex on a 42-acre parcel in Mayfield Village, Ohio, owned by a subsidiary. The new facility consists of 517,800 square feet of space and replaces office space held under leases in a number of locations in the Cleveland, Ohio area. The project's cost of $75.5 million was funded through operating cash flows. The Company's central data processing facility occupies a modern, three-story brick, building containing approximately 107,000 square feet of office space, on this same parcel.
The Company owns two adjacent two-story brick buildings in Highland Heights, Ohio, which contain an aggregate of 233,000 square feet of office and warehouse space. The property was purchased in August 1994 for approximately $6.7 million. The buildings are currently being renovated to accommodate the Company's operations.
The Company owns a modern three-story building containing approximately 96,700 square feet of office space in Mayfield Heights, Ohio. The property was purchased in December 1993 for approximately $6.5 million, and is occupied by the Company's Northeast Division.
The Company's Florida Division is headquartered in a modern, two-story building containing approximately 60,000 square feet of office space in Tampa, Florida. The property was financed with, and is owned subject to a mortgage granted in connection with, industrial development revenue bonds bearing interest equal to 79.45% of a specified prime commercial lending rate. The remaining annual principal amounts payable are $368,000 in 1996 and 1997 and $92,000 in 1998.
The Company owns a modern 26,400 square foot building in Tampa, Florida, used for post-processing document assembly and mailing. The property was purchased on March 31, 1995, for approximately $1.4 million.
The Company owns a modern, two-story building containing approximately 39,000 square feet of office space in Tampa, Florida; this building is leased to a non-affiliated tenant.
The Company also owns a one-story brick building containing approximately 92,000 square feet of training facilities, office and warehouse space in Mayfield Village, Ohio.
LEASED PROPERTIES
The Company leases approximately 590,000 square feet of modern office space at various locations throughout the United States for its other business units and staff functions. In addition, the Company leases approximately 288 processing and claim offices at various locations throughout the United States. Two offices are leased in Canada. These leases are generally short-term to medium-term leases of standard commercial office space.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
Incorporated by reference from Note 4, Litigation, on page 41 of the Company's Annual Report.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from information with respect to executive officers of The Progressive Corporation and its subsidiaries set forth in Item 10 of this Annual Report on Form 10-K.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Shares are traded on the New York Stock Exchange under the symbol PGR. The high and low prices set forth below are as reported on the consolidated transaction reporting system.
The closing price of the Company's Common Shares on February 29, 1996 was $46.00.
(b) Holders
There were 4,770 shareholders of record on February 29, 1996.
(c) Dividends
Statutory policyholders' surplus was $1,055.1 million and $945.1 million at December 31, 1995 and 1994, respectively. Generally, under state insurance laws, the net admitted assets of insurance subsidiaries available for transfer to a corporate parent are limited to those net admitted assets, as determined in accordance with SAP, which exceed minimum statutory capital requirements. At December 31, 1995, $121.5 million of statutory policyholders' surplus represents net admitted assets of the insurance subsidiaries that are required to meet minimum statutory surplus requirements in the subsidiaries' states of domicile. Furthermore, state insurance laws limit the amount that can be paid as a dividend or other distribution in any given year without prior regulatory approval and adequate policyholders' surplus must be maintained to support premiums written. Based on the dividend laws currently in effect, the insurance subsidiaries may pay aggregate dividends of $179.2 million in 1996 out of statutory policyholders' surplus, without prior approval by regulatory authorities.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
(millions - except per share amounts)
All per share amounts have been adjusted for the December 8, 1992 3-for-1 stock split.
(1)Total revenues for 1992 include $106.0 million ($70.0 million after taxes), or $.97 per share, for the Company's California Proposition 103 reserve reduction.
(2)During 1994, based on a review of the adequacy of its total loss reserves, the Company eliminated its $71.0 million "supplemental reserve" ($46.2 million after tax), resulting in a one-time increase in earnings of $.62 per share. See Management Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Progressive Corporation is a holding company and does not have any revenue producing operations of its own. It receives cash through borrowings, equity sales, subsidiary dividends and other transactions, and may use the proceeds to contribute to the capital of its insurance subsidiaries in order to support premium growth, to repurchase its Common Shares and other outstanding securities, to redeem its outstanding securities and for other business purposes. During 1995, the Company repurchased .1 million of its 9 3/8% Serial Preferred Shares, Series A, at a cost of $2.3 million.
During the three-year period ended December 31, 1995, the Company sold 4,950,000 Common Shares for net proceeds of $177.0 million and repurchased 1.2 million Common Shares at a total cost of $36.4 million (average cost of $31.92 per share) and .6 million of its 9 3/8% Serial Preferred Shares, Series A, at a total cost of $14.4 million (average cost $27.08 per share). The Company also sold $350.0 million of notes, repaid $170.0 million borrowed under its credit facilities, and redeemed the entire $70.0 million of its 8 3/4% Debentures. During the same period, The Progressive Corporation received $254.3 million from its insurance subsidiaries, net of capital contributions made to these subsidiaries. The regulatory restrictions on subsidiary dividends are described in Item 5(c) on page 12 herein.
The Company has substantial capital resources and is unaware of any trends, events or circumstances that are reasonably likely to affect its capital resources in a material way. The Company also has available a $20.0 million revolving credit agreement. Given its 31% debt to equity ratio, the Company believes it has sufficient borrowing capacity and other capital resources to support current and anticipated growth.
The Company's insurance operations create liquidity by collecting and investing premiums from new and renewal business in advance of paying claims. For the three years ended December 31, 1995, operations generated a positive cash flow of $1,305.4 million, and cash flow is expected to be positive in both the short-term and reasonably foreseeable future. The Company's substantial investment portfolio is highly liquid, consisting almost entirely of readily marketable securities. On or after May 31, 1996, the Company's 9 3/8% Serial Preferred Shares, Series A, are redeemable at the Company's option at the price of $25 per share plus accrued dividends to the redemption date. If the Company elects to redeem these securities, the redemption could be funded through operating cash flows or, if market conditions warrant, funds could be raised externally on the debt or equity markets. The Company does not expect any material changes in its cash requirements and is not aware of any trends, events or uncertainties that are reasonably likely to have a material effect on its liquidity.
Total capital expenditures for the three years ended December 31, 1995, aggregated $156.5 million. In 1994, the Company completed its new corporate office complex in Mayfield Village, Ohio. The cost of the project was $75.5 million and was funded through operating cash flows.
INVESTMENTS
The Company invests in fixed-maturity, equity and short-term securities. The Company's investment strategy recognizes its need to maintain capital adequate to support its insurance operations and commitment to risk adverse investment policies. Therefore, the Company evaluates the risk/reward trade-offs of investment opportunities, measuring their effects on stability, diversity, overall quality and liquidity of the investment portfolio. The majority of the portfolio is invested in high-grade, fixed-income securities, of which short- and intermediate-term securities represented $2,876.2 million, or 76.4%, in 1995 and $2,319.4 million, or 72.9%, in 1994. Long-term securities were $191.9 million, or 5.1%, in 1995 and $245.0 million, or 7.7%, in 1994. The duration of the fixed-income portfolio was 2.2 years at December 31, 1995. Early in 1995, the Company eliminated a substantial portion of its municipal securities with maturities longer than 5 years in response to the proposal of a "flat tax," which would effectively eliminate the tax advantage of these securities.
A relatively small portion of the investment portfolio was invested in marketable equity securities providing risk/reward balance and diversification. Common stocks represented $310.0 million, or 8.2%, in 1995 and $106.2 million, or 3.4%, in 1994. The increase in common stocks reflects the Company's objective to increase its position in common stock investments to 15% of the entire portfolio and to optimize value and further diversify the portfolio through foreign equity investments. The foreign equity portfolio, which may utilize stock index futures and foreign currency forwards, comprised $52.6 million of the common stock portfolio at December 31, 1995. The remainder of the equity portfolio of $382.3 million, or 10.1%, in 1995 and $370.1 million, or 11.6%, in 1994, was comprised of over 90% of fixed-rate preferred stocks with mechanisms that may provide an opportunity to liquidate at par.
Consistent with the Company's objective to increase its common stock investments, the Company liquidated its high-yield portfolio, reducing it to .2% of the portfolio at December 31, 1995, from 4.4% at December 31, 1994, resulting in a net gain of $6.6 million.
In conjunction with guidance issued by the FASB, the Company reclassified $248.4 million of its held-to-maturity securities to available-for-sale, recognizing $10.4 million in gross unrealized gains. The Company had no held-to-maturity securities at December 31, 1995.
As of December 31, 1995, the Company's portfolio had $78.7 million in unrealized gains, compared to $41.1 million in unrealized losses in 1994. This increase in value was the result of falling interest rates and rising prices in the bond and stock market. The weighted average fully taxable equivalent book yield of the portfolio was 6.9%, 6.7% and 6.8% for the years ended December 31, 1995, 1994 and 1993, respectively.
The quality distribution of the fixed-income portfolio is as follows:
Investments in the Company's portfolio have varying degrees of risk. Equity securities generally have greater risks than the non-equity portion of the portfolio since these securities are subordinate to rights of debt holders and other creditors of the issuer. Financial instruments with off-balance-sheet risk are used to manage the risks and enhance the yields of the available-for-sale portfolio. This is accomplished by modifying the basis, duration, interest rate or foreign currency characteristics of the portfolio or hedged securities. Net cash requirements are limited to changes in market values which may vary based upon changes in interest rates and other factors. Exposure to credit risk is limited to the carrying value; unless otherwise noted, collateral is not required to support the credit risk. During 1995, the Company added a government bond trading portfolio to benefit from short-term market rate opportunities. The Company has stringent restrictions on the amount of open positions in the trading portfolio limiting its exposure to acceptable levels. At December 31, 1995, there were no trading securities or off-balance-sheet trading positions.
As of December 31, 1995, the Company held $729.1 million of asset-backed securities which represented 19.3% of the total investment portfolio. The portfolio included collateralized mortgage obligations (CMOs) and commercial mortgage-backed obligations (CMBs) totaling $335.2 million and $117.2 million, respectively. As of December 31, 1995, the CMO portfolio included sequential bonds representing 65.9% of the CMO portfolio ($221.0 million) with an average life of 3.1 years, and planned amortization class bonds representing 34.1% of the CMO portfolio ($114.2 million) with an average life of 1.6 years. One hundred percent of the CMOs held by the Company are rated AAA by Moody's or Standard & Poor's. At December 31, 1995, the CMB portfolio had an average life of 7.4 years and a weighted average Moody's or Standard & Poor's rating of A. At December 31, 1995, the CMO and CMB portfolios had unrealized gains of $3.9 million and $1.1 million, respectively. The single largest unrealized loss in any CMO security was $.1 million, or .5% of such position, and there were no unrealized losses in any CMB security at December 31, 1995. Both the CMO and CMB portfolios are highly liquid with readily available quotes and contain no residual interests. The remainder of the asset-backed portfolio is invested primarily in auto loan and credit card-backed securities.
The Company regularly reviews the individual holdings in its portfolio for evidence of impairment. Changes in market value are evaluated to determine the extent to which such changes are attributable to: (i) interest rates, (ii) market-related factors other than interest rates and (iii) financial conditions, business prospects and other fundamental factors specific to the issuer. Declines attributable to issuer fundamentals are reviewed in further detail. Available evidence is considered to estimate the realizable value of the investment. When a security in the Company's investment portfolio has a decline in market value which is other than temporary, the Company is required by GAAP to reduce the carrying value of such security to its net realizable value. It is the Company's general policy to dispose of securities when the Company determines that the issuer is unable to reverse its deteriorating financial condition and the prospects for its business within a reasonable period of time. In less severe circumstances, the Company may decide to dispose of a portion of its holdings in a specific issuer when the risk profile of the investment becomes greater than its tolerance for such risk.
RESULTS OF OPERATIONS
Operating income, which excludes net realized gains and losses from security sales and one-time items, was $220.1 million, or $2.84 per share, in 1995, $212.7 million, or $2.76 per share, in 1994 and $197.3 million, or $2.61 per share, in 1993. The GAAP combined ratio was 94.3 in 1995, 91.7 (88.5 including the elimination of the "supplemental reserve" discussed below) in 1994 and 89.3 in 1993.
Direct premiums written increased 16% to $3,068.9 million in 1995, compared to $2,645.1 million in 1994 and $1,966.4 million in 1993. Net premiums written increased 19% to $2,912.8 million, compared to $2,457.2 million in 1994 and $1,819.2 million in 1993. The difference between direct and net premiums written is largely attributable to premiums written under state-mandated involuntary Commercial Auto Insurance Procedures (CAIP), for which the Company retains no indemnity risk, of $105.4 million in 1995, $115.4 million in 1994 and $98.0 million in 1993. During the three years ended December 31, 1995, the Company provided policy and claim processing services to 28 state CAIPs. Premiums earned, which are a function of the amount of premiums written in the current and prior periods, increased 24% in 1995, compared to 31% in 1994 and 17% in 1993.
The Company's Core divisions' net premiums written grew 21%, 38% and 25% for 1995, 1994 and 1993, respectively, primarily driven by an increase in unit sales. In 1995, the Company raised rates an average of 6.5%, compared to no rate changes in 1994 and a rate decrease of .8% in 1993. The Company continues to write standard and preferred auto risks which represented between 5% and 10% of total Core business volume. The Company anticipates continued growth in its Core business in 1996, which could result from the number of states in which the Company seeks to insure all auto risks, from working with independent agents dedicated to regaining market share and from integrating other buying options. The Core divisions generated underwriting profit margins of 5% in 1995, 7% in 1994 and 10% in 1993; the Company's strategy is to achieve a 4% underwriting margin.
Claim costs, the Company's most significant expense, represent actual payments made and changes in estimated future payments to be made to or on behalf of its policyholders, including expenses required to settle claims and losses. These costs include a loss estimate for future assignments and assessments, based on current business, under state-mandated involuntary automobile programs. Claims costs are influenced by inflation and loss severity and frequency, the impact of which is mitigated by adequate pricing. Increases in the rate of inflation increase loss payments, which are made after premiums are collected. Accordingly, anticipated rates of inflation are taken into account when the Company establishes premium rates and loss reserves. Claim costs, expressed as a percentage of premiums earned, were 71% in 1995, compared to 67% (excluding the elimination of the "supplemental reserve") in 1994 and 62% in 1993. The Company has allowed loss costs to rise at a faster pace than rates, reflecting the Company's intent to maintain rates at competitive levels.
During 1994, based on a review of the adequacy of its total loss reserves, the Company eliminated its $71.0 million "supplemental reserve," resulting in a one-time increase in earnings of $.62 per share, a 3.2 point increase in the underwriting profit margin and a $46.2 million increase in capital. The Company historically established case and IBNR reserves by product with the objective of being accurate to within plus or minus 2%. Pricing has been based on these estimates of reserves by product. Because the Company desired a very high degree of comfort that aggregate reserves were adequate, aggregate reserves were established near the upper end of the reasonable range of reserves, and the difference between such aggregate reserves and the midpoint of the reasonable range of case and IBNR reserves was called the "supplemental reserve." The Company concluded, after examining its historical aggregate reserves, that the practice of setting aggregate reserves at the upper end of the range of reasonable reserves provided an unnecessarily high level of comfort. At December 31, 1994, even without the high level of comfort provided by the "supplemental reserve," the Company's reserves would have been redundant by approximately 2% to 4% over the previous 5 years. The Company believes that this change in the estimate of its reserves placed it more in line with the practices of other companies in the industry.
Because the Company is primarily an insurer of motor vehicles, it has limited exposure for environmental, product and general liability claims. The Company has established reserves for these exposures, in amounts which it believes to be adequate based on information currently known by it. The Company does not believe that these claims will have a material impact on the Company's liquidity, results of operation, cash flows or financial condition.
During 1994, the Company settled the dispute, arising out of its 1985 acquisition of American Star Insurance Company (since renamed National Continental Insurance Company), over the seller's refusal to pay certain losses on pre-sale business written by American Star. Under the settlement, National Continental received $10.1 million from the seller and agreed to be solely responsible for the next $20 million of gross losses. The seller will thereafter be responsible for half the losses, net of reinsurance, if it achieves certain minimum net worth requirements. In addition to the $10.1 million, National Continental will be entitled to the proceeds of various treaty and facultative reinsurance policies that had been purchased by American Star. National Continental has established reserves for these exposures, which are mainly for product liability and environmental claims, in amounts it believes to be adequate based on information currently available to it, including a study by independent actuaries for the seller. Total reserves on this business are $27.9 million, of which $8.8 million is recoverable from reinsurers. The Company will continue to monitor these exposures, adjust the related reserves appropriately as additional information becomes known and disclose any material developments.
Policy acquisition and other underwriting expenses as a percentage of premiums earned were 23% in 1995, compared to 25% in 1994 and 28% in 1993. The decrease primarily reflects process improvement initiatives and lower commission programs.
Service businesses generated a pretax operating profit of $8.7 million in 1995, compared to $10.0 million in 1994 and $6.8 million in 1993.
Recurring investment income (interest and dividends) increased 26% to $199.1 million in 1995, compared to $158.5 million in 1994 and $134.5 million in 1993, primarily due to an increase in the average investment portfolio and a mix shift in the portfolio to taxable securities. Net realized gains on security sales were $46.7 million in 1995, $23.8 million in 1994 and $107.9 million in 1993. A significant portion of the 1993 realized gains resulted from the sale of certain equity securities held in the Company's investment portfolio.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company, along with the related notes, supplementary data and report of independent accountants, are incorporated by reference from the Company's 1995 Annual Report, pages 33 through 46 and pages 50 through 55.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A description of the directors, all of whom have been nominated for election as directors at the 1996 Annual Meeting of Shareholders of the Registrant, is incorporated herein by reference from the section entitled "Election of Directors" in the Proxy Statement, pages 2 and 3.
A description of the executive officers of the Registrant and its subsidiaries follows. These descriptions reflect the Company's termination of its officership program and consequent elimination of many officer positions, effective December 31, 1993. Unless otherwise indicated, the executive officer has held the position(s) indicated for at least the last five years.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the section of the Proxy Statement entitled "Executive Compensation," pages 7 through 17.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the section of the Proxy Statement entitled "Security Ownership of Certain Beneficial Owners and Management," pages 4 through 6.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Listing of Financial Statements
The following consolidated financial statements of the Registrant and its subsidiaries, included in the Registrant's Annual Report, are incorporated by reference in Item 8:
Report of Independent Accountants
Consolidated Statements of Income - December 31, 1995, 1994 and 1993
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity - December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows - December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Supplemental Information*
*Not covered by Report of Independent Accountants.
(a)(2) Listing of Financial Statement Schedules
The following financial statement schedules of the Registrant and its subsidiaries, Report of Independent Accountants and Consent of Independent Accountants are included in Item 14(d):
Schedules
Report of Independent Accountants
Consent of Independent Accountants
Schedule I - Summary of Investments - Other than Investments in Related Parties
Schedule II - Condensed Financial Information of Registrant
Schedule III - Supplementary Insurance Information
Schedule IV - Reinsurance
Schedule VI - Supplemental Information Concerning Property-Casualty Insurance Operations
No other schedules are required to be filed herewith pursuant to Article 7 of Regulation S-X.
(a)(3) Listing of Exhibits
See exhibit index contained herein at pages 36 through 39. Management contracts and compensatory plans and arrangements are identified in the Exhibit Index as Exhibit Nos. (10)(A) through (10)(J).
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits in response to this portion of Item 14 are submitted concurrently with this report.
(d) Financial Statement Schedules
The response to this portion of Item 14 is located at pages 27 through 35.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
THE PROGRESSIVE CORPORATION
March 15, 1996 BY: /s/ Peter B. Lewis ------------------ Peter B. Lewis Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
/s/ Peter B. Lewis Chairman, President, Chief Executive March 15, 1996 - ---------------------- Officer and a Director Peter B. Lewis
/s/ Charles B. Chokel Treasurer and Chief Financial Officer March 15, 1996 - ---------------------- Charles B. Chokel
/s/ Jeffrey W. Basch Chief Accounting Officer March 15, 1996 - ---------------------- Jeffrey W. Basch
Milton N. Allen* Director March 15, 1996 - ---------------------- Milton N. Allen
B. Charles Ames* Director March 15, 1996 - ---------------------- B. Charles Ames
Stephen R. Hardis* Director March 15, 1996 - ---------------------- Stephen R. Hardis
Janet Hill* Director March 15, 1996 - ---------------------- Janet Hill
Norman S. Matthews* Director March 15, 1996 - ---------------------- Norman S. Matthews
Donald B. Shackelford* Director March 15, 1996 - ---------------------- Donald B. Shackelford
Paul B. Sigler* Director March 15, 1996 - ---------------------- Paul B. Sigler
* DAVID M. SCHNEIDER, by signing his name hereto, does sign this document on behalf of the persons indicated above pursuant to a power of attorney duly executed by such persons.
By /s/ David M. Schneider March 15, 1996 ------------------------ David M. Schneider Attorney-in-fact
ANNUAL REPORT ON FORM 10-K
ITEM 14(d)
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1995
THE PROGRESSIVE CORPORATION
MAYFIELD VILLAGE, OHIO
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders, The Progressive Corporation:
Our report on the consolidated financial statements of The Progressive Corporation and subsidiaries has been incorporated by reference in this Form 10-K from page 33 of the 1995 Annual Report to Shareholders of The Progressive Corporation. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the index on pages 20 and 21 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Cleveland, Ohio January 24, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders, The Progressive Corporation:
We consent to the incorporation by reference in the Registration Statement of The Progressive Corporation on Form S-8 (File No. 33-57121) filed December 29, 1994, the Registration Statement on Form S-8 (File No. 33-64210) filed June 10, 1993, the Registration Statement on Form S-8 (File No. 33-51034) filed August 20, 1992, the Registration Statement on Form S-8 (File No. 33-46944) filed April 3, 1992, the Registration Statement on Form S-8 (File No. 33-38793) filed February 4, 1991, the Registration Statement on Form S-8 (File No. 33-38107) filed December 6, 1990, the Registration Statement on Form S-8 (File No. 33-37707) filed November 9, 1990, the Registration Statement on Form S-8 (File No. 33-33240) filed January 31, 1990, and the Registration Statement on Form S-8 (File No. 33-16509) filed August 14, 1987, of our reports dated January 24, 1996, on our audits of the consolidated financial statements and financial statement schedules of The Progressive Corporation and subsidiaries as of December 31, 1995 and 1994, and for each of the three years in the period ended December 31, 1995, which reports are included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Cleveland, Ohio March 14, 1996
SCHEDULE I -- SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
THE PROGRESSIVE CORPORATION AND SUBSIDIARIES (millions)
The Company did not have any securities of one issuer with an aggregate cost or market value exceeding 10% of total shareholders' equity at December 31, 1995.
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF INCOME
THE PROGRESSIVE CORPORATION (PARENT COMPANY) (millions)
*Eliminated in consolidation.
(1) Represents a $4.0 million charge on extinguishment of the 8 3/4% Debentures due 2017.
See notes to condensed financial statements.
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
CONDENSED BALANCE SHEETS
THE PROGRESSIVE CORPORATION (PARENT COMPANY) (millions)
*Eliminated in consolidation.
See notes to condensed financial statements.
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
THE PROGRESSIVE CORPORATION (PARENT COMPANY) (millions)
See notes to condensed financial statements.
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements of The Progressive Corporation (the "Registrant") should be read in conjunction with the consolidated financial statements and notes thereto of The Progressive Corporation and subsidiaries included in the Registrant's 1995 Annual Report.
STATEMENTS OF CASH FLOWS -- For the purpose of the Statements of Cash Flows, cash includes only bank demand deposits. The Registrant paid income taxes of $75.5 million, $89.8 million, and $91.0 million in 1995, 1994 and 1993, respectively. Total interest paid was $56.5 million for 1995, $49.8 million for 1994 and $40.9 million for 1993.
DEBT -- Funded debt at December 31 consisted of:
Funded debt is the amount the Registrant has borrowed and contributed to the capital of its insurance subsidiaries or borrowed for other long-term purposes.
In May 1990, the Registrant entered into a revolving credit arrangement with National City Bank, which is reviewed by the bank annually. Under this agreement, the Registrant had the right to borrow up to $50.0 million. In February 1994, the Registrant reduced this revolving credit arrangement to $20.0 million. By selecting from available credit options, the Registrant may elect to pay interest at rates related to the London interbank offered rate, the bank's base rate or at a money market rate. A commitment fee is payable on any unused portion of the committed amount at the rate of .125% per annum. At December 31, 1995 and 1994, the Registrant had no borrowings under this arrangement.
In January 1994, the Registrant sold $200.0 million of noncallable 6.60% Notes due 2004 with interest payable semiannually. The fair value of the Notes was $203.6 million and $174.2 million at December 31, 1995 and 1994, respectively.
In October 1993, the Registrant sold $150.0 million of noncallable 7% Notes due 2013 with interest payable semiannually. The fair value of these Notes was $156.6 million and $124.6 million at December 31, 1995 and 1994, respectively.
In May 1989, the Registrant issued $30.0 million of 8 3/4% Notes due 1999 in exchange for $30.0 million of the 8 3/4% Debentures due 2017. These Notes are noncallable and interest is payable semiannually. The fair value of these Notes was $32.7 million and $30.3 million at December 31, 1995 and 1994, respectively.
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS
In December 1988, the Registrant sold $150.0 million of 10% Notes due 2000 and $150.0 million of 10 1/8% Subordinated Notes due 2000. All such Notes are noncallable with interest payable semiannually on both issues. The fair value of the 10% Notes and 10 1/8% Subordinated Notes were $175.9 million and $176.1 million, respectively, at December 31, 1995, and $159.8 million and $159.7 million, respectively, at December 31, 1994.
In February 1987, the Registrant sold $100.0 million ($70.0 million after the May 1989 debt exchange) of 8 3/4% Debentures due 2017 with interest payable semiannually. In December 1993, the Registrant redeemed the entire $70.0 million principal amount of these Debentures. The Registrant redeemed the Debentures at 105.425% of the principal amount, plus accrued interest, with the proceeds of the sale of certain securities in its investment portfolios. A $4.0 million charge on debt extinguishment was recorded as a "non-recurring item."
As of December 31, 1995, the Registrant was in compliance with its debt covenants.
Aggregate principal payments on funded debt outstanding at December 31, 1995 are $0 for 1996 through 1998, $30.0 million for 1999 and $300.0 million for 2000 and $350.0 million thereafter.
INCOME TAXES -- The Registrant files a consolidated Federal income tax return with all subsidiaries. The Federal income taxes in the accompanying Condensed Balance Sheets represent amounts recoverable from the Internal Revenue Service by the Registrant as agent for the consolidated tax group. The Registrant and its subsidiaries have adopted, pursuant to a written agreement, a method of allocating consolidated Federal income taxes. Amounts allocated to the subsidiaries under the written agreement are included in Intercompany Receivable from Subsidiaries in the accompanying Condensed Balance Sheets.
INVESTMENTS IN CONSOLIDATED SUBSIDIARIES -- The Registrant, through its investment in consolidated subsidiaries, recognizes the changes in unrealized gains (losses) on equity securities of the subsidiaries. These amounts were:
OTHER MATTERS -- The information relating to incentive compensation plans is incorporated by reference from Note 8, Employee Benefit Plans, "Incentive Compensation Plans" on page 45 of the Registrant's 1995 Annual Report.
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
(1)Excluding investment expenses of $8.1 million in 1995, $8.7 million in 1994, and $10.2 million in 1993.
(2)During 1994, based on a review of the adequacy of its total loss reserves, the Company eliminated its $71.0 million "supplemental reserve." See Management's Discussion and Analysis of Financial Condition and Results of Operations beginning on page 14 for further discussion.
SCHEDULE IV -- REINSURANCE
THE PROGRESSIVE CORPORATION AND SUBSIDIARIES (millions)
SCHEDULE VI -SUPPLEMENTAL INFORMATION CONCERNING PROPERTY - CASUALTY INSURANCE OPERATIONS
THE PROGRESSIVE CORPORATION AND SUBSIDIARIES (millions)
Pursuant to Rule 12-18 of Regulation S-X. See Schedule III, page 33, for the additional information required in Schedule VI.
(1)During 1994, based on a review of the adequacy of its total loss reserves, the Company eliminated its $71.0 million "supplemental reserve." See Management's Discussion and Analysis of Financial Condition and Results of Operations beginning on page 14 for further discussion.
EXHIBIT INDEX
EXHIBIT INDEX
EXHIBIT INDEX
EXHIBIT INDEX
No other exhibits are required to be filed herewith pursuant to Item 601 of Regulation S-K.


ITEM 1. BUSINESS.
The Registrant, Standard Commercial Corporation, ("Standard" or "the Company") is engaged principally in the business of purchasing, processing and selling leaf tobacco for sale to domestic and foreign manufacturers of cigarettes and other tobacco products.
From its beginning in 1910 as a small dealer in oriental tobacco, the Company has expanded through internal growth and acquisitions to become one of the world's largest leaf tobacco dealers. The Company itself does not manufacture cigarettes or other consumer tobacco products. For many years prior to 1978, the Company's operations were conducted almost exclusively outside of the United States. In fiscal 1995, tobacco operations accounted for 97.7% of total revenues, and approximately 35.6% of tobacco revenues resulted from sales by U.S. subsidiaries. The majority of tobacco sales consists of exports from the country of origin.
Following a policy decision in January 1995 to divest its wool operations as a part of the Company's strategy to deleverage its balance sheet and to enable it to redeploy equity back into the tobacco business, the Company entered into an agreement in principle to sell its entire wool business other than the small specialty fibre unit to Chargeurs of Paris, France. The effective date of sale will be as of April 1, 1995 and it is anticipated that the sale will be completed in August 1995. Consequently, the wool business has been shown as discontinued operations as described fully in the Management's Discussion and Analysis of Results of Operations and Financial Condition and Note 2 to the Notes to Consolidated Financial Statements which are incorporated herein by reference.
Other than the agreement to sell the wool business there have been no significant changes in business segments since April 1, 1994. Contributions to restated gross revenue from businesses other than tobacco for the past three years have not been material. See "Other Operations and Investments."
The Company's operations are subject to the usual international business risks, including changing political conditions and currency fluctuations, and exchange controls and import/export restrictions in some countries. The Company takes these factors into account in making its business decisions.
TOBACCO OPERATIONS
TRENDS IN TOBACCO CONSUMPTION
In recent years, American-blend cigarettes have gained market share in several major foreign markets, including Asia (particularly Japan and other Pacific Rim countries), Europe and the Middle East. In Asia, local manufacturers have imported increasing quantities of flue-cured and burley tobacco in order to produce cigarettes to compete with the growing market for imported American-or light-blend cigarettes. In addition, American-or light-blend cigarettes have gained market share in Western Europe. In Eastern Europe, several cigarette manufacturing facilities that were previously state-owned have been sold to multinational cigarette manufacturers, thereby creating new opportunities for leaf merchants.
Following a period in 1992 and 1993 of significantly increased consumer demand for discount or value-priced cigarettes in the United States and certain other major markets, the U.S. market has stabilized with premium brands having regained market share. Price competition among cigarette manufacturers has remained intense, forcing independent leaf tobacco dealers to expand their ability to obtain less-expensive, foreign-grown tobacco of export quality. Accordingly, sales of foreign grown tobaccos have increased in relation to sales of United States tobaccos. The increased demand for light-blend cigarettes and less expensive tobacco has caused cigarette manufacturers to place greater reliance on the services of internationally strong leaf tobacco dealers that have the ability to purchase, process and sell tobacco on a global basis.
While worldwide production of American-or light-blend cigarettes is increasing as described above, consumption of cigarettes has declined in certain countries in recent years, especially in the United States and certain other industrialized countries.
Worldwide cigarette production largely determines the level of demand for leaf tobacco. In recent years, the consumption of cigarettes has stabilized or declined in many industrialized nations but has continued to grow in most developing countries. There has also been increased demand for higher quality cigarettes in Eastern European countries, Turkey and Russia and the other states of the former Soviet Union. Reports regarding the alleged harmful effects of cigarette smoking have been publicized for many years and, together with restrictions on cigarette advertising and smoking in public places, mandatory warning statements and increased taxes on tobacco products, have had and continue to have a negative impact on sales of tobacco products in certain markets. However, the Company believes that its broad customer base and sources of supply help to mitigate the effects of declines in consumption in particular areas of the world, as it has a large amount of business in areas where consumption is on the rise and with established customers who are catering to the increasing demand for light-blend cigarettes by consumers in Asia, Europe and the Middle East.
PURCHASING
The tobacco in which the Company deals is grown in approximately 30 countries. Management believes that its diversity in sources of supply, combined with a relatively broad customer base, places it in a particularly strong position worldwide within its industry. The Company relies primarily on revolving lines of bank credit and internal resources to finance its purchases. Quite often the tobacco serves as collateral for the credit. The period of exposure, with some exceptions, generally is limited to a tobacco season lasting only a few months.
Although most purchases of tobacco are made against specific customer orders or indications of interest, the Company has from time to time purchased tobacco for its own inventory when it believed there was a reasonable opportunity to resell the tobacco at a profit, or when it anticipated its customers' needs before receiving firm orders or indications of interest. Purchases for inventory are generally made in foreign markets. The Company rarely purchases tobacco in the United States without a firm order or indication of interest. All tobacco purchases are being monitored closely with a goal of reducing the Company's exposure to price fluctuations and to reducing its costs of carrying inventory. For the most part, there are no formal contracts between the Company and its various suppliers of tobacco.
The Company generally employs its own buyers to purchase tobacco on auction markets, directly from growers and pursuant to marketing agreements with government monopolies. Tobacco is generally sold in the United States to the highest bidder at public auction. At present, the greatest amounts of tobacco purchased by the Company outside the United States come from Argentina, Brazil, China, Greece, Malawi, Thailand, Turkey and Zimbabwe.
Approximately 60-70% of the Company's tobacco purchases are made against customer orders or indications of interest. This committed inventory should normally total approximately $110-$150 million and the carrying costs are normally reimbursed by the customer. The orders or indications of interest may be written or oral. Historically, tobacco customers have been extremely reliable in honoring these commitments, and the Company believes that its position in respect of its committed tobacco inventories is adequately protected. By the end of fiscal 1995 the Company's committed tobacco inventory was $109 million which is consistent with somewhat lower carrying values and a conscious effort to reduce inventories.
Argentina, Brazil, China, Greece, Turkey and Thailand are major tobacco producers, but there are no tobacco auctions in these markets. In these markets, with the exception of Brazil where the Company acts as export agent for British-American Tobacco Company (BAT), the Company buys tobacco directly from farmers or agricultural cooperatives in advance of firm orders or indications of interest although such purchases are usually made with some knowledge of its customers' requirements. The Company engages in this type of uncommitted transaction because of the strategic importance of these markets in the tobacco supply system. In order to serve its customers properly, the Company must have a presence in these markets. During fiscal 1995 the Company substantially reduced uncommitted tobacco inventories and its goal is to reduce them further. The Company's uncommitted inventory at March 31, 1995 of $60 million (excluding $25 million of unprocessed tobacco and packing material) was at the high end of the estimated range of $30-$60 million (depending on prevailing market conditions) needed to conduct normal business operations.
PROCESSING
Tobacco purchased by the Company generally is perishable and must be processed within a relatively short period of time to prevent deterioration in quality. Consequently, processing facilities are usually located near the areas where the tobacco is purchased. Prior to processing, steps are taken to ensure consistent quality of the tobacco. These steps include regrading and removing undesirable leaves, dirt and other foreign matter. Most of the tobacco is then blended and threshed; however, some of it is processed in whole-leaf form. Threshing involves mechanically separating the stem from the tissue portions of the leaf, which are called strips, and sieving out small scrap. Considerable expertise is required to produce strips of large particle size and to minimize scrap.
Strips and stems are redried and packed separately. Redrying involves further reducing the natural moisture left in the tobacco after it has been cured by the growers. The objective is to pack tobacco at safe moisture levels so that it can be held by the customer in storage for long periods of time. Quality control checks are continually performed during processing to ensure that the product meets customer specifications as to yield, particle size, moisture content and chemistry. Customers are frequently in attendance at the factory to monitor results while their tobacco is being processed.
Redried tobacco is packed in hogsheads, cartons, cases or bales for storage and shipment. Packed tobacco generally is transported in the country of origin by truck or rail, and exports are moved by ocean container vessels or freighters.
As of the end of fiscal 1995, Standard processed its tobacco in three wholly owned plants in the United States and 11 other facilities around the world owned or leased by subsidiaries and affiliates. In addition, Standard has access to other processing plants in which it has no ownership interest. In all cases, tobacco processing is under the direct supervision of Company personnel. From time to time the Company purchases and sells tobacco processed by others. Modern laboratory facilities are maintained by the Company to assist in selecting tobacco for purchase and to test tobacco during and after processing. In addition, Standard does laboratory testing for a number of its customers and others.
The Company believes that its plants are highly efficient and are adequate for its purposes. The Company also believes that tobacco throughput could be increased without major capital expenditures.
SELLING
Standard's customers include most of the world's leading manufacturers of cigarettes and other consumer tobacco products. These customers are located in some 85 countries throughout the world. Standard employs its own salesmen, who travel extensively to visit customers and to attend tobacco markets worldwide with these customers, and it also uses agents for sales to customers in certain countries. Sales are made on open account to customers who qualify based on experience or are made against letters of credit opened by the customer prior to shipment. Virtually all sales are made in United States dollars. Payment for most tobacco sold by the Company is received after the tobacco has been processed and shipped. However, some customers pay the Company before the tobacco has been processed and shipped.
In fiscal 1995, the Company's five largest customers accounted for approximately 56% of total sales from continuing operations, of which Philip Morris Companies, Inc. and Japan Tobacco, Inc. each accounted for more than 10%. Also, in fiscal 1994, Japan Tobacco and Philip Morris Companies each accounted for more than 10% of the Company's total restated sales. BAT was the Company's largest customer in fiscal 1993, and accounted for more than 10% of total restated sales.
Although there are no formal purchase contracts with any of these customers, the Company has done business with most of them for many years. In the unlikely event that the Company were to lose two or more of its larger customers, it could have a material adverse effect on the Company's business.
At March 31, 1995 and 1994, the Company had outstanding orders of approximately $109 million and $170 million, respectively, for tobacco in inventory.
REGULATION
Reports with respect to the allegedly harmful physical effects of cigarette smoking have been publicized for many years and, together with restrictions on cigarette advertisements, requirements that warning statements be placed on cigarette packaging and in advertising, increased taxes on tobacco products and controls in certain countries on imports, production and prices, have had and continue to have an adverse impact on sales of tobacco products in many world markets. In addition, litigation is pending against some of the leading United States manufacturers of consumer tobacco products seeking damages for health problems alleged to have resulted from the use of tobacco in various forms. It is not possible to predict the outcome of such litigation or what effect adverse developments in pending or future litigation against manufacturers might have on the business of the Company.
Although the consumption of cigarettes has decreased in the United States and some other countries in recent years, cigarette consumption in many countries to which the Company makes considerable sales has increased during the same period. In addition, the consumption of American-or light-blend cigarettes has increased in both Western and Eastern Europe, even though total cigarette consumption has not. Exports of cigarettes from the United States have increased significantly in recent years as well. The Company believes that any materially adverse effect on its business from a significant decrease in consumption in any area in which it does business will be reduced by its worldwide customer base though it is impossible to predict the extent to which any such decrease will affect the Company's business. In addition, governments in many countries continue to raise the excise tax on cigarettes and other tobacco products.
During fiscal 1995 import quotas were introduced in the United States to aid domestic producers of tobacco. This action coincided with the elimination of the domestic content law enacted in the United States in July 1993 (effective January 1, 1994) which was determined to be in violation of GATT. While in effect, the domestic content law dramatically reduced the demand for tobaccos grown outside of the United States and contributed to the decline in world tobacco prices in 1993. Since foreign tobacco tends to be considerably cheaper than tobacco grown in the United States, this law resulted in a significant cost to domestic cigarette producers. It also disrupted the existing supply and demand balance and resulted in an oversupply of foreign tobacco in the world. In addition, there were several proposals before Congress to increase the federal excise tax imposed on a pack of cigarettes as much as $2.00 per pack. The likelihood of a tax increase of this magnitude in the near term now appears remote.
COMPETITION
Competition among independent leaf tobacco dealers is based primarily on the price charged for products and services, the ability to meet customer demands and specifications in sourcing, purchasing, blending, processing and financing tobacco and the ability to develop and maintain long-standing customer relationships by demonstrating a knowledge of customer preferences and requirements. Although most of the Company's principal customers also purchase tobacco from the Company's major competitors, the Company's relationships with its largest customers span many years and the Company believes that it has the personnel, expertise, facilities and technology to remain successful in the industry.
Competition for purchasing tobacco varies depending on the market involved. Normally, there are from six to eight buyers at each of the United States flue-cured and burley auctions, representing both leaf tobacco dealers and buying staffs of certain cigarette manufacturers. The number of competitors in foreign markets varies from country to country, but there is competition in all areas to purchase the available tobacco. Among independent leaf tobacco dealers, the principal competitors are Universal Corporation, DIMON Incorporated (formed by the April 1, 1995 merger of Dibrell and Monk-Austin) and Intabex Services Ltd. Of the independent leaf tobacco dealers, the Company believes it ranks third in worldwide market share.
SEASONALITY
The Company's tobacco business is dependent on agricultural cycles and is seasonal in nature. For example, the Company purchases flue-cured tobacco grown in the United States during the five-month period beginning in July and ending in November, while burley tobacco grown in the United States is purchased from late November until January or February. Tobacco in Brazil is purchased from January through May. Tobacco in Malawi and Zimbabwe is purchased from April through October. Other markets around the world last for similar periods at varying times of the year. Accordingly, while the leaf tobacco business is seasonal in any given region and such seasonality may impact the Company's quarterly results of operations, the global nature of the Company's business enables it to be involved in purchasing, processing and selling tobacco throughout the year and reduces the overall effect of seasonality on the Company's business.
The processing cycle for leaf tobacco is relatively short. Processing is conducted throughout the tobacco purchasing season and is usually complete within two to three months following purchase of the tobacco. Consequently, the components of the Company's working capital relating to purchasing, processing and selling leaf tobacco (for example, tobacco inventory, advances to suppliers and current liabilities such as seasonal lines of credit and accounts payable) reach their peak in the second and third fiscal quarters and accounts receivable, revenues and operating income peak in the third and fourth fiscal quarters. The Company customarily invoices tobacco when it is delivered in accordance with the terms of the contract. Therefore, tobacco inventory will vary from quarter to quarter depending on fluctuations in shipping schedules and the seasonality of the Company's business.
OTHER OPERATIONS AND INVESTMENTS
The Company is engaged in several other smaller activities: Carolina Home Center, a wholesale/retail building materials and home supply center located in Wilson, North Carolina; and Bela Duty Free Import-Export (89% owned), which is the principal supplier of goods to 50 duty free shops (in which it has interests from 25% to 50%) catering to cross-border travelers in Eastern Europe.
EMPLOYEES
At March 31, 1995, the Company had a total of approximately 2,005 full-time employees (including approximately 495 in the United States) and approximately 2,595 employed by affiliated tobacco companies. Of the Company's full-time employees, approximately 1,275 are in the tobacco business, approximately 690 are in the wool business and approximately 40 have duties relating to other operations. The tobacco business typically employs an additional 7,000 to 7,700 part-time employees during peak production periods.
The Company's principal subsidiary in the United States has a collective bargaining agreement with a union covering the majority of its hourly employees, many of whom are seasonal. The agreement expires on May 31, 1996. The Company believes its relations with employees covered by this agreement are good. Employees at the French wool plant are also represented by a labor union under an agreement subject to renewal every December 31. The Company believes that its relations with its employees in France are good.
GENERAL
The Company does not own any material patents, trademarks, licenses, franchises or concessions, nor does it engage in any significant research activity.
Compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment have not had, and are not anticipated to have, any material effect upon the competitive position of the Company. The Company has initiated programs to comply with regulations not being enforced in certain foreign countries concerning effluent control at its wool mills.
The Company's consolidated operations are conducted mainly by companies registered in the United States and Europe. Segment information is shown in Note 19 of the Notes to the Consolidated Financial Statements and is incorporated herein by reference.
ITEM 2.

ITEM 2. PROPERTIES.
Standard's principal corporate offices and the headquarters for its United States tobacco operations are located in Wilson, North Carolina. It also has administrative offices in Godalming (south of London), England.
The Company generally conducts its tobacco processing operations in facilities near the area of production in the case of tobacco and near its customers in the case of wool. In certain places, long-standing arrangements exist with local companies to process tobacco in their plants under the supervision of Company personnel.
The Company believes the properties it uses are generally well-maintained and in good operating condition and are suitable and adequate for the normal growth of its business.
A current summary showing the principal operating properties owned or leased (as indicated by *) by the Company or its affiliates is shown below:
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
The Company has received notice of investigations by Canadian and United States authorities into alleged violations of law relating to the importation, exportation and taxation of tobacco, and has been notified that two of its
employees have been charged with violations of Canadian law. The investigation is ongoing and, although the Company has not been notified that it is a target, it has been requested to provide certain documents relating to specified transactions and it is cooperating fully in that regard. The Company does not foresee any claim arising from the proceedings which would have a material effect on its consolidated financial position.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the quarter ended March 31, 1995.
EXECUTIVE OFFICERS OF THE COMPANY AT MARCH 31, 1995
NAME AGE POSITIONS
Ery W. Kehaya 71 Chairman of the Board J. Alec G. Murray 58 President and Chief Executive Officer and Acting Chief Financial Officer Marvin W. Coghill 61 Chairman - Tobacco Division J. Anthony Johnston 60 Chairman - Wool Division Henry R. Grunzke 63 Commercial Director - Wool Division Thomas M. Evins, Jr. 55 Regional Manager - North & Central America Tobacco Operations Guy M. Ross 62 Vice President and Secretary Ery W. Kehaya II 42 Vice President and Operations Director - Tobacco Division Mark W. Kehaya 27 Vice President Krishnamurthy Rangarajan 52 Vice President Keith H. Merrick 41 Treasurer and Assistant Secretary Hampton R. Poole, Jr. 43 Controller and Assistant Treasurer
Information concerning executive officers who are also directors is contained in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 8, 1995 which, except for the material under the headings "Compensation Committee Report" and "Performance Graph" is incorporated herein by reference and made a part hereof. Business experience during the past five years of other executive officers is set forth below:
Mr. Johnston resigned as a director of the Company effective March 1995. He continues to serve as Chairman and Chief Executive Officer of the Wool Division pending completion of sale of the wool business.
Mr. Ross became Treasurer in 1980 and Secretary in 1981 following the Company's purchase of the American leaf business of Imperial Tobacco Ltd. (UK). He was employed by Imperial for 14 years including 10 as Vice President of Finance and Administration. He became a Vice President of the Company in 1992.
Ery W. Kehaya II was appointed Vice President in 1992. He became Operations Director - Tobacco Division in 1995 after being named Sales Director in 1993. He has been an officer of Standard Commercial Tobacco Co., Inc., a subsidiary, for more than five years, serving as Executive Vice President since 1992 and as Senior Vice President-Sales before that. He is the son of Ery W. Kehaya, Chairman of the Board.
Mark W. Kehaya was appointed Vice President in 1994. Prior to joining the Company in 1993 he was employed at Bankers Trust Company and Fieldstone Private Capital Group as an associate and attended Duke University Fuqua School of Business. He is the son of Ery W. Kehaya, Chairman of the Board.
Mr. Rangarajan was employed by the Company in 1978 after qualifying as a chartered accountant. He became Chief Accountant in 1981, an Assistant Vice President in 1986 and Vice President in 1988.
Mr. Merrick was employed by the Company in 1992 and became Treasurer in 1993 after being named Assistant Treasurer and Assistant Secretary in 1992. He is also a Vice President of Standard Commercial Tobacco Co., Inc., a subsidiary. He was formerly a Vice President of First Union National Bank of North Carolina.
Mr. Poole Jr. was appointed Controller and Assistant Treasurer in 1993. He has been an officer of Standard Commercial Tobacco Co., Inc., a subsidiary, for more than five years and is currently serving as Secretary-Treasurer.
The above persons will remain in office until the directors' meeting following the annual meeting of shareholders on August 8, 1995.
PART II
ITEM 5

ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
ITEM 6

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information called for by Items 5, 6 and 7 is contained in the Company's 1995 Annual Report to Shareholders as detailed below and incorporated herein by reference and made a part hereof.
ITEM CAPTION IN ANNUAL REPORT PAGE NO.
5 Quarterly Financial Data (Unaudited) 23 6 Selected Financial Data 23 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 7-10
ITEM 8

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The data appearing on pages 11 through 21 of the Company's 1995 Annual Report to Shareholders, and the Independent Auditors' Report on page 22, are incorporated herein by reference and made a part hereof.
ITEM 9

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11

ITEM 11 - EXECUTIVE COMPENSATION
ITEM 12

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by items 10, 11, 12 and 13 is included in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 8, 1995 and is incorporated herein by reference, except for the material under the heading "Compensation Committee Report" and "Performance Graph." The information concerning executive officers of the Company follows Item 4 of Part 1 of this Report.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements: See Item 8.
2. Financial Statement Schedules: The financial statement schedules called for under Regulation S-X are either not applicable or the information is included in the data mentioned in Item 8 and incorporated herein by reference.
(b) Reports on Form 8-K: No report on Form 8-K was filed during the quarter ended March 31, 1995.
(c) The following exhibits are filed as part of this Report:
3. (i) There is incorporated by reference herein the Company's Restated Articles of Incorporation and the amendment thereof designating the rights, preferences and limitations of the Company's Series A Preferred Stock filed as Exhibits 4(a)(i) and (ii) to the Company's Registration on Form S-8 #33-59760.
(ii) There is incorporated by reference herein the Company's amended Bylaws filed as Exhibit 3(ii) to the Company's report on Form 10-K for the year ended March 31, 1994.
4. (i) There is incorporated by reference herein the Company's Shareholder Protection Rights Agreement filed as Exhibit (4) to the Company's Report on Form 8-K dated April 5, 1994.
(ii) Master Facilities Agreement dated May 5, 1995 between the Company and certain subsidiaries and Deutsche Bank A.G. and a number of other banks.
(iii) Loan and Security Agreement dated as of May 2, 1995 between Standard Commercial Tobacco Co., Inc., a subsidiary of the Company, and NationsBank of Georgia, N.A.
(iv) Company Guaranty Agreement dated as of May 2, 1995 with respect to the loan referred to in 4(iii) above.
10. Agreement dated May 2, 1995 between the Company and Ery W. Kehaya.
11. Computation of Earnings per Common Share.
13. The Company's Annual Report to Shareholders for the year ended March 31, 1995 which, except for information expressly incorporated by reference into Items 1, 5, 6, 7 and 8 is not deemed to be "filed" as a part of this Report.
21. List of subsidiaries.
23. Consent of Independent Public Accountants.
27. Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Standard has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
STANDARD COMMERCIAL CORPORATION
June 16, 1995 By: /s/ J ALEC G MURRAY J Alec G Murray, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on June 16, 1995 by the following persons on behalf of the Registrant in the capacities indicated.
/s/ J ALEC G MURRAY President and Director J Alec G Murray (Chief Executive Officer and Acting Chief Financial Officer)
/s/ GUY M ROSS Vice President Guy M Ross (Principal Accounting Officer)
/s/ ERY W KEHAYA Ery W Kehaya Chairman of the Board of Directors
/s/ MARVIN W COGHILL Marvin W Coghill Director
/s/ WILLIAM A ZIEGLER William A Ziegler Director
Henry R Grunzke Director
/s/ WILLIAM S BARRACK JR William S Barrack Jr Director
/s/ THOMAS M EVINS JR Thomas M Evins Jr Director
/s/ CHARLES H MULLEN Charles H Mullen Director
/s/ DANIEL M SULLIVAN Daniel M Sullivan Director