Pultegroup, Inc. · NYSE:PHM
Pultegroup — Pulte Homes — Investor Day (February 2002)
114 slides from Pultegroup's investor day presentation, Feb 25, 2002
Slide 1: Investor
Investor February 25, 2002
Slide 2: Forward Looking Language
Forward) Looking Language As a cautionary note to investors, except for historical information of Pulte Homes contained herein, certain estimates discussed in this presentation are “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward l
Slide 3: Mark O'Brien, President and Chief Executive Officer
Mark O’Brien President and Chief Executive Officer,
Slide 4: Do You Know Us?
Do You Know Us?
Slide 5: We're the Nation's Largest, Most Diversified Homebuilder
We're the Nation’s Largest, Most Diversified Homebuilder
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Slide 7: Touching More Price Points
Touching More Price Points Home Sales by Price Segment 1990 2001 Under $100k 6% 2% $100-$200k 82% 67% $201-$300k 11% 21% $301-$400k 1% 5% Above $401k 0% 5%
Slide 8: With an Unmatched Record of Accomplishments
With an Unmatched Record) of Accomplishments * 91 consecutive years of profitability * Track record over past 10 years: » Revenues — 20% CAGR > EPS — 26% CAGR’ » Strong financial foundation: + Solid balance sheet + well-capitalized|
Slide 9: What Wall Street is Saying...
What Wall Street is Saying... Stock trades at a discount to peers. Why? » “Viewed as a plain vanilla homebuilder...” >» “It needs to clearly articulate its strategy.” » “Poor returns in the early “SOs, investors aren't convinced they ve really changed direction.” > “How much value is there in the De
Slide 10: Speakers and Agenda
Speakers and Agenda Mark O’Brien, President and CEO. Roger Cregg Senior VP and'CFO) Alan Laing VP, Supply Chain & Customer Satistaction: Bob Halso, President - Midwest Group Anne Mariucci President — De Webb. The Market Opportunity Positioned for Success, Financial| Overview. Business Leverage Pulte
Slide 11: Today's a Success If You Get a Better Understanding of:
Today's a Success If You Get a Better Understanding of: * The Housing Market Opportunity, > Macro factors support stable demand for housing, > Very positive changes in industry dynamics. « Pulte's Competitive Strengths. > Strategic positioning within markets > Operationally, > Financially « Pulte's
Slide 12: The Dynamics of Homebuilding
The Dynamics of Homebuilding
Slide 13: Big Ticket Consumer Products
Big| Ticket Consumer Products * Part of the American Dream * No need|to create demand * Selling a big-ticket consumer product * Largest homebuilders moving into a new stage — growth cyclicals
Slide 14: Foundation of Solid Demand
Foundation of Solid) Demand * Desire to own remains very strong » Development of a sophisticated mortgage market » Financial benefits of ownership. » Demographics * Immigration (stealth demand), Source: US Bureau of the Census, NAHB-Homebuilder Forecast
Slide 15: Size and Scale Provide Competitive Advantages
Size and| Scale Provide Competitive Advantages * Better access to capital « Land| control is vital; entitlement process getting tougher « Consumer demands for quality * Geographic diversification creates opportunity and helps to minimize risk
Slide 16: The Big are Getting Bigger
The Big are Getting Bigger . Big Biden advantages ie Market Share of Top 5 Builders > Lower capital costs > Balance sheet to support my land| control ah] > Economies: operating and 0, overhead costs 91: '92 93 ‘94 95 ‘96 97 ‘98 99 ‘00 1 « By 2011, top 20 builders will account for 75% of US. home sal
Slide 17: Pulte Rapidly Gaining Market Share
Pulte Rapidly Gaining Market Share 4.00% Share of New, Single Family Home Sales 3.00% 2.00% 1.00%, 0.00% ‘91 ‘92
Slide 18: Not Just Getting Bigger...Getting Better
Not Just Getting Bigger...Getting Better
Slide 19: Unmatched Business Profile
Unmatched Business Profile * Largest domestic homebuilder > Domestic deliveries 22,915, with a run rate above 27,000) » Operating in 44 markets, 450 communities: » Strong market and land| position in fastest growing fegions of the country, * Sejving alll customer segments: > first time/affordable. >
Slide 20: Leader in Quality and Customer Satisfaction
Leader in Quality and Customer Satisfaction, - Unmatched success in the: JD) Power 2001 builder, survey > Ranked or tied for first in 4. markets > Ranked among the top three: homebuilders in seven of the 10\markets: > No other market winner among nation’s top 30) builders - Named Builder of the Year
Slide 21: Entering 2002 with Momentum
Entering 2002 with Momentum, 2002) 2000 ‘Increase 2001) = Targets = Increase Consolidated) Revenues (millions) $4,244 Net Income (millions) $218 EPS (diluted) $5.18 Shares (millions) 42.2 Domestic Closings 19,799 27% 16% $5,382 $302 $6.01) 5013 22,915 $7,000, $400%, $6.75 -$7 61.0 28,000)
Slide 22: Growth Phase — Product Line Expansion
Growth Phase 2 — Product Line Expansion « Advantages of product diversity > Increases growth opportunities > Larger universe of potential customers > Expanded|land use options « Reduces risk profile Domestic Closings 28,000 LT 20,000 eel \m Active Adult 18,000 || 2nd Trade Up — 000| me , az | lu 4st
Slide 23: Next Phase of Value Growth: Concentration and Leverage
Next Phase of Value Growth Concentration and Leverage
Slide 24: Top Line Growth
Top Line Growth, Welget Revenues, $ Billions, SE $10 Billion $10 $8 $5 Billion, $6 $4 $2 $0 2001 2004 Opportunity; revenue growth above 20% annually
Slide 25: Operating Leverage
Operating Leverage omesuilaing) ESI i 9 15% om 13+% 12% 10.9% 9% 6% 3% 0% + 2001 2004 Opportunity; 200 to 300 basis points in operating margin
Slide 26: Bottom Line Results
Bottom Line Results Eeinings Pen Shete larget $12.00 $10.00) $10.00 a $8.00 $6.01) $6.00 $4.00 $2.00 $0.00 + 2001 2004 Opportunity: Earn 310.00 per share
Slide 27: Where Will the Buyers Be?
Where Will the Buyers Be? States Adding Greatest # of People 2000)- 2070) (in thousands) California 4,938 | South Carolina 595 Texas 3,833 | Michigan 589) Florida 3,510) | Minnesota 587, Georgia 1464 | Utah 559) Arizona 4379) | Nevada 530) North Carolina 4481 | Maryland 520) Washington’ 4,418 | Oreg
Slide 28: Pulte Focus on Driving Growth in Major Markets
Pulte Focus on Driving Growth in Major Markets Permits Permits 46,778 Raleigh 12,598 34,089 Sementain 12,433 Atlanta Phoenix 29790 Baltimore 9,679 27,083 Austin 9,584 75,483 kansas City 9,387 : Nashville 8,851 Washington Chicago Dallas Houston 23,769 23,181 18,988 16,652 16,414 Greensboro 11g San An
Slide 29: Accelerates Market Share Gains
Accelerates Market Share Gains 1st Move m Afford. mActive Adult — m2nd Move *Market share information represents management's best estimates of key buyer segments
Slide 30: The Power of Concentration and Leverage
The Power of Concentration and Leverage « Pulte's existing markets represent approximately, 475,000 permits annually > Top 20 markets represent almost 400,000\permits. « Pulte's average market share is below 6% « Across top 20 markets, 1% point in market share = > 4,000 deliveries > Almost $1.0 bill
Slide 31: Expanding Presence in All Price Points
Expanding Presence in All Price Points 45,000 Domestic Closings css, m Active Adult 36,000 — 2nd Trade Up Bist Trade Up B 1st Time/Afford. + 7CG analysis supports market growth opportunities > Regulatory hurdles limit margin and growth opportunities « Accelerating growth in active adult > Age-restri
Slide 32: Concentration Drives Operating Efficiencies
Concentration Drives Operating Efficiencies * Greater leverage with local contractor base * Opportunity to introduce manufacturing processes into operations to drive performance » Pulte Home Sciences: « Improve quality: Reduce costs « Accelerate house turns » Leverage existing overheads
Slide 33: Achieving Our Financial Goals
Achieving Our Financial Goals Roger Cregg Senior VP) Chief Financial Officer,
Slide 34: Value-Driven Operating Philosophy
Value-Driven Operating Philosophy * Decentralized » Group President has P&L responsibility = Local owner-operator mindset * Centralize activities where appropriate * Performance-Based| Incentives » Based on 21% hurdle rate » Economic Profit * Resulting in solid operating results...
Slide 35: Strong Top-Line Growth
Strong Top-Line Growth Revenues Closings $8,000 mm Revenues (6 millions) 30,000 Closings 25,000 $6,000 20,000 $4,000 15,000 $2,000 a . 10.000 , = 5,000 $0 0 1997 1998 = 1999) 2000 2001'S 2002 CAGR Closings —— 13% CAGR Revenues sossnnsnn| > 22%
Slide 36: Driving More to the Bottom Line
Driving More to th $ Millions $500 Net Income (continuing operations) $400 $300 $200 $100 $0. 1997 1998 1999 2000 2001 -2002e $1.13 $2.30 $4.07 $5.18 $6.01 $6.75 - $7.00 cara
Slide 37: Higher Returns to the Shareholder
Higher Returns to the Shareholder After Tax Return on Equity 25% 20% 5 15% 10% 5% 1997, 1998 1999 2000 2001 2002e
Slide 38: While Maintaining a Strong Balance Sheet
While Maintaining a Strong Balance Sheet 50% Debt to Cap Industry Average 45% 40% 35% 30% 1997 1998 1999 2000 2001 2002e Book Value $19.10 $21.35 $25.27 $30.02 $38.43 $45.00
Slide 39: Snapshot of Today's Operations
Snapshot of Today’s Operations
Slide 40: Operations in Markets
Operations in 44 Markets
Slide 41: Northeast Detail
Units: Revenues: Markets: Communities Investment Northeast Detail 10%,
Slide 42: Southeast Detail
Southeast Detail Units: Revenues: Markets: Communities Investment 28% 23% 14 127 18%,
Slide 43: Midwest Detail
Units: Revenues: Markets: Communities Investment Midwest Detail | 12%,
Slide 44: Central Detail
Central Detail Units. 16% Revenues 12% Markets, ts) Communities 96 Investment 8%
Slide 45: West Detail
Units: Revenues: Markets: Communities Investment West Detail
Slide 46: Building Long-Term Financial Success
Building Long-Term Financial Success
Slide 47: Drive Top Line Growth
Drive Top Line Growth * Plan 2004 revenues: $10 Billion » Increase domestic unit closings - Focus on existing markets - Expand) product line: » Average sales price will trend higher - Geographic mix - Product mix
Slide 48: Market Share Gains Drive Top Line
Market Share Gains Drive Top Line Closings Market Share 45,000 5% 40,000 fmm Closings ~e Market Share 35,000 4% 30,000 ; 25,000 3% 20,000 % 15,000 10,000 1% 5,000 oS, SS, a + 0% 1997 1998 1999 2000 2001 2002 2003 2004
Slide 49: Key Leverage Points for Increasing Homebuilding Operating Performance
Key Leverage Points for Increasing Homebuilding Operating Performance 14% Homebuilding EBIT 13.04% 12%) 10.9% 10% Lower Manufacturing Overhead Product’ Materia’ Efficiencies Efficiency Segment Labor Mix 8% Costs 6% 2001 2004 Target
Slide 50: Materials
Materials * Significant opportunities to reduce material costs on a $2 billion annual spend » Volume purchasing on combined PulteWelb units » Specification rationalization » Vendor consolidation
Slide 51: Labor
Labor * Breaking out labor and material component costs * Local market leverage in high volume markets * Expanded) use of technology to improve scheduling efficiencies
Slide 52: Pulte Home Sciences
Pulte Home Sciences + High volumes support more process/manufacturing approach to construction, * R&D plant in Detroit has proven concept for integration of custom components. > Basements » Floor decks. > Wall systems + Depending upon house size, savings could reach $3,000 to $4,000) per house:
Slide 53: Overhead Leverage from Market Concentration
Overhead Leverage from Market Concentration * SG&A Leverage/ Efficiency » Leverage existing Webb (standalone) 14.2% group/market overheads: Pulte (stand alone) 9.3% » Continue to rationalize |Combined Avg. 10.8% Webb costs: Ratio 2002 Target < 9.0%
Slide 54: Homebuilding EBIT Margin
14.0% 13.0% 12.0% 11.0% 10.0% 9.0% Homebuilding EBIT Margin 2000 2001 2002E 2003E 2004E
Slide 55: Land Pipeline Supports Continued Growth
Land Pipeline Supports Continued Growth Lots Owned or Controlled 140,000 120,000 im Optioned — im Owned = 100,000 80,000 1 4; 60,000 40,000 20,000 i} ‘98. ‘99 ‘00 ‘or * Includes 99,000 Del Webb lots
Slide 56: Driving Improved Inventory Turns
Driving Improved Inventory Turns 2000 2001 2002E 2003E 2004E
Slide 57: Pulte Mortgage
Pulte Mortgage Favorable cost structure. > Low cost originator in recent industry reviews (MORPRO Study), Aligned| with homebuilding operations. > Supports home sale and|closing process. Lower risk, stable cash flows > No exposure to large servicing portfolio > Conservative positions in hedging expo
Slide 58: International Homebuilding Operations
International Homebuilding Operations Buenos Aires Mexico City San Juan
Slide 59: International Operations
. International Operations Approximately 7,480 units in 2001) Targeting breakeven near term Consolidation of Mexico operations: > How to “monetize” the value created) Current freeze on Argentina operations » Hunker down for the near term, » Develop stay vs. exit strategies
Slide 60: Improving Returns on Equity
Improving Returns on Equity Increase margins ROE Higher inventory, tums > Improve construction cycle times Capital allocation (reinvestment) into higher growth markets and customer segments
Slide 61: Capitalization
Capitalization 2001, 2002 2003 Debt (billions) $1.9 $1.8) $1.8) Equity $billions) $2.2 $27 $3.3 Debt-to-cap, 45% 40% =40% Book Value Per Share: $38.43 $45.00 $53:00, 2004 $1.8) $319 =40% $63.00
Slide 62: Liquidity 2002 - 2004
Liquidity 2002 - 2004 Land Amortization Projection Net Income Leverage (Maintaining 40% Debt-to-cap) Total Available for Investment $5.8 Billion 1.6 Billion .9 Billion $8.3 Billion
Slide 63: Monitoring All the Gauges
Monitoring All the Gauges Profitability Returns Time Assets Debt Investments Shareholder Value Velocity
Slide 64: Driving Improvement Throughout the Business
Driving Improvement Throughout the Business 2004) Domestic Deliveries 22,915, Revenues (billions), $5.4! Homebuilder EBIiT Margin 10.9% Net Income (millions), $301) EPS $6.01 Inventory Turns 1.3%. Community Count 440 ROE 18% Debt-to-Capitall| 45% 2004 Targets 38-42,000) $10 134% $620, $10.00) 15x. 6
Slide 65: Alan Laing, Vice President, Supply Chain and Customer Satisfaction
Alan Laing Vice President, Supply Chain and Customer Satisfaction
Slide 66: Driving Down Costs
Driving Down) Costs, Percentage of Estimated Sales in 2001 Spend in 2002 Materials 28% 1.9 billion Labor 25% 1.7 billion Total 3.6 billion
Slide 67: House Costs as Percent of Sales
House Costs as Percent of Sales Trends 96 ~ 01 60% | 58.9% 52 506 58% 56.7% fe} 56% 55.2% 5) gop 54% 7 2% 52% 50% | ‘979899 "96 7)
Slide 68: Lowering Total Costs - $100 Million Opportunity in 2002
Lowering Total Costs - $100 Million Opportunity in 2002 ¢ Reduce number of vendor relationships: national, multi- group, group and market levels — Changing Environment > Cabinets: > Drive total cost and technology efficiencies: ¢ Minimize unnecessary variation, > Create home “series” and|use across
Slide 69: Lowering Total Costs (Continued)
Lowering Total Costs (Continued), « Expand) use ofjtechnology to improve supply chain, performance > Eschedule, E-semice, E-bid) » Extend demand visibility — Just in time vs. Justin case » Improved inventory tums » More efficient ordering and logistics » Improved Supplier metrics > Improved cost man
Slide 70: Lowering Total Costs — 2002 and Beyond
Lowering Total Costs — 2002 and Beyond « Implementing Purchasing best practices for top 20) spend items » Purchasing and) sourcing) opportunity/spend driven + Roof trusses - $80\million annual spend] (material only), + Insulation - $42 million annual spend (installed), + Drywall - $100 million annua
Slide 71: Challenges Facing the Housing Industry Production Systems
Challenges Facing the Housing Industry Production Systems Shrinking| poo! of skilled contractors. Increasing customer expectations Need to differentiate trom the competition Opportunity to improve business results: > Improve house production cycle times. + Improvedjreturns, > Lower Costs + Improved
Slide 72: Turning a Challenge into a Competitive Advantage
Turning a Challenge into a Competitive Advantage + Pulte Home Sciences (PHS) developed to vastly improve home quality and) performance » Improved Energy efficiency, » Reduced) sound and noise. > Better physical product quality » Lower maintenance requirements Develop and|take advantage of new produc
Slide 73: Development of PHS
Development of PHS: * Established) pilot plant in Detroit in 1998 ¢ Adaptation of new technology to streamline home construction) » Pre-cast concrete foundations: » Panelized| flooring decks: > Insulated| exterior walls (SIPs) » Steel-stud interior walls * Opportunity to drive faster cycle times, hi
Slide 74: Component Manufacturing Strategy — Pulte Home Sciences
Component Manufacturing Strategy — Pulte Home Sciences Purchasing leverage: reduce materials costs, buy . direct Goals: Standardize components: 7 Reduce ied faster cycle time, reduced ea skilled labor y Reduce cycle time by 15 days SooGrsule targeting: areas volume. ELE LOe DS tion y Improve custome
Slide 75: Let's Go to the Video Tape....
Let’s Go to the Video Tape....
Slide 76: Near-Term Opportunities
Near-Term Opportunities 2002 * Expand PHS in Detroit » 790 Foundations and decks » 450 SIP homes: » 250 Steel interior walls: 2003 * Full implementation in Detroit ¢ Enter 1 to 3 additional markets, based on continued positive results.
Slide 77: Robert Halso, Group President - Midwest
Robert Halso Group President - Midwest
Slide 78: Managing Land
Managing Land Department Marketing Marketing/Land All All land) land) land) Process Targeted Consumer Groups: Land) Mapping, Strategic Plan (3-year), Individual| Feasibility Acquisition Entitlement: Development
Slide 79: Creating Targeted Consumer Groups (TCGs)
Creating Targeted Consumer Groups (TCGs) « 1CG's are formed by bringing together consumers: that share similar HOUSING wants and needs, resulting) in groups that can be easily distinguished from) one another * wo powerful predictors of wants, needs and abilities: > Aperson’s stage of life > Income (
Slide 80: Building the TCG's: Life Stage Segmentation
Building the TCG’s: Life Stage Segmentation CONSUMER SEGMENTS <§25K —§25-34.9K $3544.91 $4554 9K § 55-874. 9 §75-995,91 §1 005124 §125K+ EMPTY NESTERS 6362 2072 1,540 1,834 1,882 2,730 By Income Group 4260% 20.10% 18.90% 26.80% 16.00% 38.20% By Consumer Group 27.90% 10.80% 800% 950% 820% 14.20% NOT
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