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Timothy R. Wallace   |
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Trinity experienced another year of significant growth during 2006, achieving several key milestones. Revenues increased over 18% to more than $3.2 billion, the highest in the Company's history. Our 2006 revenue growth of more than $500 million followed two consecutive years of annual growth of approximately $700 million. Net income also reached an all-time high: $230.1 million, or $2.90 per diluted share, for the year ended December 31, 2006, as compared to $83.1 million, or $1.13 per diluted share, during 2005. Trinity's businesses achieved these record figures through internal expansion initiatives rather than acquisitions. In 2006, we continued to focus our resources on improving our Company's Return on Equity (Net Income divided by average Stockholders' Equity). I am very pleased to report that our Return on Equity improved from approximately 8% in 2005 to more than 17% in 2006. In addition, all of Trinity's businesses experienced double-digit percentage revenue and profitability growth during 2006. Our improvements and expansion were driven by a number of factors, including a steady North American economy, favorable federal transportation and energy legislation, increasing interest in alternative energy sources, and better than normal weather conditions. The need to replace aging transportation equipment also drove demand. Our continuing emphasis on internal productivity improvements positively impacted profitability growth. A key factor in our overall success was the ability of Trinity's businesses to shift production capacity between product lines on an enterprise-wide basis. Our businesses have done an outstanding job mastering this challenging task, enabling us to meet changing demand for specific product types. This is particularly beneficial in capacity constrained markets like the 2006 market. Our conversions have enabled us to meet demand in the fast-growing renewable fuels market. In addition, our businesses worked aggressively and synergistically to identify sales opportunities Company-wide. I am very pleased with the way they cooperated to pursue orders that enhanced our profitability.
Our Rail Group had a very strong year during 2006. The businesses within this Group increased their margins, launched new production lines in Mexico, and enhanced production flexibility. Demand for railcars in North America continued to be robust. Industry orders totaled 93,889 railcars in 2006, the highest number of orders placed for railcars in North America since 1979. In comparison, industry orders for 2001 and 2005 totaled 19,780 and 80,970. The renewable fuels market accounted for a significant number of railcar orders in 2006. When it became apparent that this industry would be viable on an ongoing basis, Trinity's Rail Group put into motion a plan to convert additional facilities to manufacture railcars that transport ethanol and its co-product, distillers' dried grain. Our Rail Group did a fantastic job obtaining orders for railcars in 2006 and in shipping products to customers. This Group booked orders for 42,410 railcars, resulting in a record backlog of approximately 35,930 railcars by year-end. The backlog positions our rail businesses to focus on additional productivity improvements in the future. Railcar shipments in 2006 totaled approximately 25,240 railcars, representing the fourth consecutive year of increased shipments and a 10% increase over 2005. The team efforts of our railcar personnel allowed the Rail Group to increase its operating profit to approximately $254 million in 2006 from $135 million in 2005. In the first quarter of 2005, we broke ground on a new railcar manufacturing plant in Mexico. Approximately 14 months later, we produced the first railcar at our new factory. I am pleased to report that this factory was contributing profits prior to the end of 2006, a positive testimonial to the expertise of our teams. In 2006, we shipped approximately 9,000 units from Mexico. As a point of reference, we shipped approximately 3,200 units from Mexico in 2003. I am very pleased with our expansion efforts in Mexico. During 2007, we expect to add more low-cost Mexico railcar manufacturing capacity. Strong North American railcar demand also benefited Trinity's railcar parts and components businesses. Our railcar castings businesses improved their productivity during 2006, positively impacting profitability. We are investing additional resources this year to improve our foundry operations. Trinity's Railcar Leasing and Management Services Group continued to provide significant value to our Company. This Group is in the middle of a multi-year expansion program. During 2006, a record 7,800 new railcars manufactured by TrinityRailª were added to the railcar lease fleet, bringing the total number of railcars to 30,550. This compares with approximately 24,900 railcars at the end of 2005. Since 2001, Trinity's lease fleet has grown 130%, revenues have increased 166% and operating profit has increased 180% to more than $106 million. Fleet utilization rates remain high - more than 99% at the end of 2006. Our lease fleet continues to play a vital role in diversifying our Company's future revenues and earnings. It also provides a strong link to the end users of our railcars. We expect the entire Leasing and Management Services Group to serve as a buffer to the cyclicality of the railcar manufacturing industry.
Our Inland Barge Group also achieved record revenue and profitability during 2006. Demand for inland barges in the United States remained steady during 2006 and is not showing signs of slowing down as we enter the first part of 2007. Revenues for the Inland Barge Group increased by 54%. During the last down cycle, this business focused on cost reductions. These reductions, combined with price increases and productivity improvements associated with long production runs, helped operating profit for this business grow from approximately $16 million in 2005 to more than $44 million in 2006. Our barge backlog increased from more than $335 million at the end of 2005 to approximately $464 million at the end of 2006. By the end of fiscal year 2006, our production capacity for barges was fully booked for 2007 and we were selling barges for 2008. Our barge company's management and technical experts continue to explore ways to generate additional productivity improvements and minimize cyclical downturns. One mitigator is long-term contracts with key customers. In January 2006, Trinity Marine announced a large, multi-year order by Ingram Barge Company that is providing Trinity's Barge Group with a profitable production base load. Today, Trinity's barge business remains positioned as the premier inland barge builder in the United States. Trinity's Construction Products Group generated record revenue and operating profit during 2006. Construction-friendly weather contributed to this Group's success. Our concrete and aggregates business continued its steady string of profitable years due to a relatively strong economy in the southwestern United States where our operations are located. In addition, both our concrete and aggregate businesses and our highway products businesses began seeing positive impacts from the $286.4 billion federal highway bill passed in 2005. We expect our line of proprietary highway products Ñ as well as the entire Construction Products Group Ñ to continue to benefit as transportation funds reach projects in which we are participating. Strong demand, a diversified customer base and Construction Products' ability to react quickly to new opportunities, continues to position this Group for ongoing success. Trinity's Energy Equipment Group performed well during 2006, in large part due to the consolidation of our LPG tank businesses and growing demand for structural wind towers. Our Energy Equipment Group's revenues grew from approximately $235 million in 2005 to more than $336 million in 2006, representing a 43% increase. Operating profit for the year also increased 43%, or approximately $14 million, to exceed $45 million in 2006. The outlook for this Group is positive in light of increased interest in alternative energy sources and energy and tax credits for wind energy that extend through 2008. During 2006, we took steps to enhance Trinity's balance sheet. We successfully completed several key financing transactions that will allow us to pursue growth opportunities as well as continue the organic expansion of our railcar lease fleet. In May 2006, we issued $355 million in secured railcar equipment notes that provide long-term financing at attractive terms. In June 2006, we issued $450 million of convertible subordinated notes. These notes provided a coupon of 3 7/8% and a convertible feature that represented a substantial premium to the market price of our stock at the time of issuance. In addition to these transactions, we converted our Series B preferred stock into approximately 2.7 million common shares and eliminated the non-deductible 4.5% dividend.
On May 15, 2006, our Board of Directors declared a 3-for-2 stock split on our common shares. The stock split was issued in the form of a 50% stock dividend. The record date for the stock dividend was May 26, 2006, and the additional shares were distributed to all shareholders on June 9, 2006. The Company also increased its quarterly cash dividend more than 28% to 6 cents per share during the third quarter. During January of 2007, the Company paid its 171st consecutive dividend. Trinity's continued success during 2006 can be attributed to several factors, the most important of which is our people. Trinity is fortunate to have a large number of skilled, seasoned employees with significant tenure and experience. The extraordinary capabilities of our people help differentiate our Company. From our production line workers to our sales force to our management teams, Trinity's employees worked diligently during 2006 to produce strong results. They looked for new ways to improve productivity, diversify our products and expand our customer base. And they did so with the utmost integrity, committed to doing the right thing all the time, every day. I am very proud of the way our employees continue to position Trinity for success in the coming years. We continue to invest in a variety of ways in our human resources potential - essential to ensure our team is prepared on an ongoing basis to execute on key initiatives and capitalize on new opportunities. During 2006, we launched an employee development initiative aimed at taking Trinity's organizational effectiveness to the next level. This initiative was led by Dr. Ginny Gray of Vehicles for Change. In February 2007, Dr. Gray joined Trinity as our Vice President for Organizational Development. She will work with our leaders to implement a variety of employee development programs. During 2006, we also divested two businesses. In June, we completed the stock sale of our weld pipe fittings business, and in August we sold our European railcar manufacturing business. The completion of the sale of our European railcar business allows us to dedicate more of our resources and assets to opportunities in North America. During 2006, Mr. Barry Galt, a member of our Board of Directors, elected to retire from our Board. We appreciate his years of service and wish him well. In December 2006, Mr. Adrian Lajous of Mexico City joined our Board of Directors. We are honored to have Mr. Lajous on our Board and welcome him. In summary, 2006 was a very successful year for Trinity. As I look to the future, I remain optimistic about our opportunities. We will not become complacent. We will continue to take steps to maximize our current earnings while implementing strategies designed to enhance our leadership positions and diversify our long-term earnings. We have a large number of initiatives in place, designed to raise the level of performance throughout our Company. We will continue to focus our resources on growing our Company organically and by deploying a persistent and patient acquisition strategy. I am very proud of the fact that we have strong support from our employees, vendors and customers, and I personally want to thank our shareholders for their loyal support. I look forward to providing additional updates in the future. Sincerely,
Timothy R. Wallace |
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