['n', '1986,', 'American', 'Brands', 'made', 'progress', 'to', 'increase', 'long-term', 'profitability,', 'strengthen', 'operations', 'and', 'enhance', 'its', 'ability', 'to', 'achieve', 'growth', 'objectives.', 'Record', 'Sales', 'Reflecting', 'record', 'sales', 'in', 'cach', 'quarter,', '1986', 'net', 'sales', 'set', 'a', 'new', 'high', 'of', '$8.5', 'billion,', 'up', '16%', 'from', '$73', 'billion.', 'Had', 'financial', 'services,', 'accounted', 'for', 'by', 'the', 'equity', 'method,', 'been', 'inchuded,', 'total', 'revenues', 'would', 'have', 'risen', 'to', '$94', 'billion,', 'from', '$8.2', 'billion', 'in', '1985.', 'Enhanced', 'Productivity', 'Record', 'operating', 'income', 'levels', 'in', 'the', 'first.', 'second', 'and', 'fourth', 'quarters', 'were', 'partially', 'offset', 'by', '$159', 'million', 'of', 'third', 'quarter', 'restructuring,', 'charges.', 'As', 'a', 'result,', '1986', 'operating', 'income', 'declined', '6%', 'to', '$847.3', 'million', 'from', '$898.3', 'million.', 'The', 'impact', 'of', 'the', 'writeoff', 'on', 'net', 'income', 'was', '$109', 'million,', 'or', '99', 'cents', 'per', 'share,', 'Net', 'income', 'declined', '13%', 'to', '$365.3', 'million,', 'or', '$3.18', 'per', 'share,', 'from', '$420.9', 'million.', 'or', '$3.67', 'per', 'share.', 'The', 'writeoff', 'was', 'primarily', 'in', 'connection', 'with', 'long-term', 'productivity', 'enhancement', 'programs', 'in', 'the', 'tobacco', 'sector,', 'where', 'two', 'plants', 'are', 'being', 'phased', 'out', 'and', 'production', 'shifted', 'to', 'two', 'expanded,', 'more', 'efficient', 'facilities.', 'The', 'balance', 'of', 'the', 'writeoff', 'was', 'mainly', 'a', 'reduction', 'of', 'goad-', 'will', 'in', 'the', 'office', 'products', 'segment.', 'Core', 'Businesses', 'Strategy', 'For', 'the', 'past', '20', 'years,', 'a', 'consistent', 'strategy', 'has', 'been', 'pursued', 'combining', 'acquisitions', 'with', 'inter-', 'nal', 'growth', 'to', 'capitalize', 'on', 'marketing', 'and', 'distri-', 'bution', 'capabilities.', 'This', 'strategy', 'has', 'been', 'refined', 'to', 'identify', 'acquisition', 'candidates', 'most', 'compat-', 'ible', 'with', 'our', 'existing', 'lines', 'of', 'business.', 'Today,', 'American', 'Brands', "is'a", 'broad-based', 'worldwide', 'holding', 'company', 'strongly', 'positioned', 'in', 'two', 'core', 'businesses.', 'packaged', 'consumer', 'goods', 'and', 'financial', 'services.', 'Packaged', 'Consumer', 'Goods', 'Our', '1986', 'worldwide', 'tabacco', 'sales', 'rose', '18%', 'to', '$5.2', 'billion.', 'In', '1966,', 'when', 'the', 'diversification', 'program', 'began,', 'tobacco', 'sales', 'totaled', '$1.2', 'billion,', '  ', ' ', ' ', 'Our', 'Stockholders', 'In', '1986,', 'American', 'Tobacco’s', 'great', 'Lucky', 'Strike', 'franchise', 'continued', 'to', 'do', 'well,', 'growing', 'in', 'unit', 'sales', 'for', 'the', 'second', 'straight', 'ycar', 'as', 'sales', 'of', 'the', 'Lucky', 'filter', 'line', 'rose', '20%.', 'Its', 'Carlton', 'brand', 'Jeads', 'all', 'ultra-low-tar', 'brands', 'in', 'the', 'U.S.', 'and', 'made', 'important', 'sales', 'gains', 'in', 'Japan.', 'International', 'tobacco', 'operations', 'performed', 'exceptionally', 'well.', 'Gallaher', 'increased', 'its', 'share', 'of', 'the', 'ULK.', 'cigarette', 'market', 'by', 'more', 'than', 'lwo', 'points', 'to', 'over', '35%,', 'Currently', 'the', 'second', 'largest', 'tobacco', 'company', 'in', 'the', 'ULK.,', 'it', 'should', 'continue', 'to', 'report', 'progress.', 'Sales', 'of', 'other', 'consumer', 'product', 'subsidiaries,', 'each', 'with', 'great', 'trademarks', 'and', 'brand', 'fran-', 'chises,', 'increased', '13%', 'to', 'a', 'record', '$3.3', 'billion', 'in', '1986.', 'Master', 'Lock,', 'Jergens,', 'and', 'Acushnet.', 'with', 'its', 'Titleist.', 'Pinnacle', 'and', 'FootJoy', 'golf', 'products,', 'each', 'had', 'record', 'sales', 'and', 'operating', 'income,', 'dn', '1986,', 'record', 'sales', 'were', 'also', 'reported', 'by', 'Sunshine', 'Biscuits', '(the', 'first', 'company', 'acquired},', 'the', 'office', 'products', 'segment', '(which', 'consists', 'of', 'Ofrex', 'in', 'the', 'U.K.', 'and', 'Swingline', 'and', 'Wilson', 'Jones', 'in', 'the', 'U.S.)', 'and', 'Beam,', 'the', 'leading', 'marketer', 'of', 'bourbon.', 'Financial', 'Services', 'Financial', 'services,', 'our', 'second', 'core', 'business', 'is', 'comprised', 'of', 'Franklin', 'Life', 'Insurance,', 'Southland', 'Life', 'Insurance', 'and', 'Frankiin', 'United', 'of', 'New', 'York,', 'In', '1986,', 'the', 'sector', 'reported', 'record', 'revenues', 'of', '$960.3', 'million', 'and', 'a', 'record', 'operating', 'prafit', 'of', '$176.1', 'million.', 'Growth', 'Through', 'Diversification', 'Despite', 'the', 'writeoff,', 'operating', 'income', 'in', '1986', 'was', 'five', 'times', 'the', 'level', 'it', 'was', 'in', '1965,', 'the', 'year', 'before', 'the', 'diversification', 'program', 'began,', 'Importantly,', 'the', 'market', 'value', 'of', 'our', 'Common', 'stock', 'has', 'risen', '432%', 'in', 'the', 'past', 'twenty', 'years,', 'and', 'dividends', 'paid', 'to', 'stockholders', 'have', 'increased', '353%,', 'Acquired', 'businesses', 'provided', '$495', 'million,', 'or', '$8%,', 'of', 'operating', 'income', 'during', '1986,', 'In', 'July,', 'NSS', 'Newsagents', 'PLC', 'was', 'acquired', 'for', '$126', 'million,', 'more', 'than', 'doubling', 'the', 'size', 'of', 'our', 'newspaper,', 'confectionery', 'and', 'tobacco', 'chain', 'in', 'the', 'United', 'Kingdom', 'where', 'we', 'naw', 'own', 'and', 'operate', 'more', 'than', '1,000', 'ontlers.', 'We', 'also', 'acquired', 'several', 'smaller', 'companies,', 'which', 'complement', 'existing', 'businesses.', 'In', 'November,', 'we', 'offered', 'to', 'acquire', 'Chesebrough-', 'Pond’s', 'Inc.', 'However,', 'in', 'the', 'face', 'of', 'a', 'higher', 'competing', 'bid,', 'we', 'decided', 'to', 'withdraw', 'our', 'offer.', 'Stock', 'Split', 'and', 'Dividend', 'increases', 'Effective', 'September', '10,', '1986,', 'the', 'Corman', 'stock', 'was', 'split', 'two-for-one,', 'in', 'the', 'form', 'of', 'a', '160%', 'slock', 'dividend,', 'increasing', 'the', 'numtber', 'of', 'Com-', 'mon', 'shares', 'outstanding', 'to', 'nearly', '110', 'million.', ' ', 'In', 'keeping', 'with', 'our', 'tradition', 'of', 'sharing', 'earnings', 'growth', 'with', 'stockholders,', 'the', 'Board', 'of', 'Directors']