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Slide 1: Building on Operational Excellence Annual Report ’03
Slide 2: FINANCIAL HIGHLIGHTS ($000’s omitted, except per share data) 2003 2002 2001 (a) 2000 1999 Consolidated Results Revenues Income from continuing operations Net income Per share data: (b) Earnings per share—basic: Continuing operations Net income Earnings per share—assuming dilution: Continuing operations Net income Cash dividends per share Total assets Senior notes and subordinated notes Debt-to-capital ratio Shareholders’ equity Return on average shareholders’ equity Book value per share Number of employees Domestic Homebuilding Results Revenues Pre-tax income Settlements (units) Net new orders (units) (c) Backlog (units) Total markets, at year end Active communities, at year end Average selling price Gross profit margin from home sales (d) $8,701,661 998,822 32,693 34,989 13,952 44 535 $ 259 20.6% $7,167,915 719,010 28,903 30,830 10,605 44 460 $ 242 19.4% $5,274,660 514,675 22,915 22,163 8,678 43 440 $ 225 19.1% $4,168,516 383,255 19,799 19,844 5,477 41 396 $ 206 18.0% $3,689,255 306,130 19,569 19,367 5,432 41 388 $ 187 17.0% $9,048,926 617,322 624,634 $7,471,819 444,601 453,645 $5,389,261 302,425 301,393 $4,246,977 218,384 188,513 $3,768,223 178,287 178,165 5.05 5.11 4.91 4.97 .11 $8,063,352 2,150,972 38.42% $3,448,123 20.58% $ 27.55 10,800 3.68 3.75 3.60 3.67 .08 $6,872,087 1,913,268 40.94% $2,760,426 18.18% $ 22.58 9,200 3.08 3.07 3.00 2.99 .08 $5,710,893 1,722,864 44.80% $2,276,665 18.11% $ 19.22 9,400 2.64 2.28 2.59 2.24 .08 $2,886,483 666,296 35.19% $1,247,931 16.58% $ 15.01 5,200 2.06 2.06 2.03 2.03 .08 $2,487,351 508,690 32.48% $1,093,319 17.69% $ 12.64 5,000 (a) Del Webb operations were merged effective July 31, 2001. (b) All share and per share amounts have been restated to retroactively reflect the two-for-one stock split announced on December 11, 2003 and effected January 2, 2004. (c) Total net new orders for the years ended December 31, 2003 and 2001, do not include 1,051 units and 3,953 units, respectively, of acquired backlog. (d) Domestic Homebuilding interest expense, which represents the amortization of capitalized interest, has been reclassified to home cost of sales. Revenues Dollars in Billions Earnings Per Share, Assuming Dilution, from Continuing Operations In Dollars $4.91 $9.0 $7.5 $3.00 Book Value Per Share In Dollars $27.55 $22.58 $19.22 $15.01 $12.64 $3.60 $5.4 $3.8 $4.2 $2.03 $2.59 ’99 ’00 ’01 ’02 ’03 ’99 ’00 ’01 ’02 ’03 ’99 ’00 ’01 ’02 ’03
Slide 3: M A R K E T S S E RV E D BY Pulte Homes Del Webb Divosta Pulte Homes C O M PA N Y P RO F I L E For more than 50 years, Pulte Homes has been helping individuals, couples and families build a better life. Today, the Company’s operations span more than 40 markets throughout the United States. Through its Del Webb brand, the Company is the country’s leading builder of Active Adult communities. In building more than 370,000 homes in its history, Pulte Homes has been honored as “America’s Best Builder,” and named Builder of the Year 2002. Providing excellent customer service and offering a wide variety of loan products, Pulte Mortgage LLC, Pulte Homes’ national mortgage company, meets the financing needs of Pulte Homes’ customers throughout the country. Whether it’s a first-time buyer or a growing family, Pulte Homes’ commitment to quality is reflected in the way it builds homes, demonstrated in the way it treats customers and evident in the 11,000 employees who provide customers with exceptional value and a buying experience that exceeds their expectations. [ one ]
Slide 4: Letter to P U L T E H O M E S S H A R E H O L D E R S , C U S T O M E R S , A S S O C I AT E S AND B U S I N E S S PA R T N E R S : At points during the past year, we conducted the modern-day equivalent of a whistle stop tour, visiting Pulte offices across the country. Spending time with the talented people who run our business gives us tremendous confidence for its continued success. The intelligence, energy and passion these individuals bring to the business every day are among Pulte’s greatest competitive strengths. expansion through segmentation, operational excellence, people development and financial discipline. We’ll provide details about these initiatives in a minute, but for now, understand that they are enabling Pulte Homes to get bigger and, more importantly, better as a company. In terms of getting bigger, 2003 consolidated revenues increased 21 percent to a record $9.0 billion. In terms of getting better, income from continuing operations was $617 million, as compared to $445 million in 2002. Adjusting for the two-for-one stock split we implemented effective January 2, 2004, earnings per share from continuing operations for 2003 increased 36 percent to $4.91, while book value per share increased 22 percent to $27.55. For the year, our return on equity surged more than 200 basis points to 21 percent. The growing strength of our operations enabled us to raise the dividend rate by 150 percent to $0.20 per share annually. The biggest driver of performance was our domestic homebuilding operations where settlement and land sale revenues for the year increased 21 percent to $8.7 billion. Domestic closings for the year gained 13 percent to a record 32,693 homes, while we ended 2003 with a record backlog of 13,952 homes, valued at $4.1 billion. We also ended 2003 with a land pipeline of 257,000 lots under control (47 percent owned, 53 percent optioned and pending), which is vital given the scarcity of this key resource. It cannot be overstated that the supply of land in this country is becoming increasingly constrained. In market after market, the land entitlement process has become so restrictive as to severely limit the supply of land upon which new homes can be built. Obviously, for a homebuilder there is no more critical resource than land, which is why we view our ability to control and entitle our large land position as an important competitive advantage. Income from Continuing Operations Dollars in Millions $625 $454 $301 $178 $189 Lots Under Control 300,000 250,000 Lots Optioned and Pending Lots Owned ’99 ’00 ’01 ’02 ’03 The purpose of these visits was to ensure alignment throughout the organization with the four key business initiatives we have established to drive improved operating and financial performance: market share 200,000 150,000 100,000 50,000 0 ’99 ’00 ’01 ’02 ’03 [ two ]
Slide 5: Our financial services operations also delivered a strong performance in 2003, as pretax income rose to a record $69 million. Higher homebuilding volumes and an increase in our mortgage capture rate to 83% were the key drivers as we originated a record 28,655 mortgages, valued at $5.0 billion. Our mortgage operations are extremely profitable, but even more important they are critical to ensuring that the house closes on the date promised and, in turn, to delivering an overall unmatched home buying experience. While our domestic operations continue to realize accelerating gains, our International operations are moving at a slower pace. Pretax income of $3.3 million was down from the prior year; so while we are making money, returns remain well below our expectations. As such, we have commenced a process to evaluate various long-term strategic alternatives with regard to our International operations. Overall, 2003 was a tremendous year with a lot to be proud of, but it’s past. Our challenge and opportunity is to build on that success to make Pulte Homes even better, and likely bigger, in 2004 and beyond. As we will explain, achieving better operating performance requires successful implementation of our four key business initiatives. According to industry experts, housing demand should remain robust as annual household formations average 1.2 million and immigration adds upwards of one million people per year. There will be interim periods of stronger or weaker demand influenced by mortgage rates, employment and Sales by Buyer Group 100% 80% Active Adult 60% Second Move Up 40% First Move Up 20% First Time 0% major buyer groups: first time, first move up, second move up and active adult. We have actually identified 11 different Target Consumer Groups (TCG), each with its own distinct set of wants and needs. Through our diversified product line, Pulte can serve the biggest universe of potential customers. Serving one TCG can be more efficient in the short run, but over time it severely limits a company’s ability to grow. Even if a company could capture 100 percent of a segment, it may be serving only 30 percent of a market. To our way of thinking, it just doesn’t make sense to leave all those buyers for someone else to serve. Embedded in our segmentation strategy is extending our leadership position in serving the active adult (age 55 and better) segment through our Del Webb brand. We have covered a lot of ground in the 30 months since completing the merger with Del Webb. All of the Webb communities operating at the time of the merger achieved record performance in 2003 in terms of unit sales and/or pretax earnings. We also announced 10 new Webb-branded communities that helped drive record active adult sales. Even more exciting, over 20 new Webbbranded communities could be announced in 2004, including new market penetrations in Colorado, Connecticut, Michigan, New Jersey and Virginia. consumer confidence, but overall, housing demand is expected to remain stable. Within a stable demand environment, growth is about expanding market share. In other words, since the pie is not getting bigger, we have to find ways of grabbing a larger slice. In this battle for market share, Pulte Homes possesses some unique competitive advantages. First is our segmentation strategy. We are the only national builder serving all [ three ]
Slide 6: Overall, 2003 was a tremendous year with a lot to be proud of, but it’s past. Our challenge and opportunity is to build on that success to make Pulte Homes even better, and likely bigger, in 2004 and beyond. At approximately 50 million people, active adults comprise the largest customer group in the country today. They also represent the fastest growing segment, forecast to reach almost 80 million people by the year 2020. More affluent than any demographic group in history, active adults are an incredibly stable buyer group, with 50 percent purchasing homes for cash. Like a champion surfer, the Webb brand is set to ride the active adult wave for years to come. Beyond our segmentation model, we maintain another critical edge in the market share battle—quality. Reaping the benefits of a journey begun over a decade ago, Pulte Homes ranked first in 12 of the 20 markets where our customers were surveyed in the J.D. Power and Associates 2003 Customer Satisfaction Study. History is very clear on this point: better quality attracts customers, supports premium pricing and reduces future service costs and risks. Unique to our industry, we are also discovering that our reputation for quality and customer satisfaction facilitates access to and entitlement of critical land positions. Through success in delivering an unmatched customer experience, our goal is to build a brand that rivals recognized quality leaders such as Lexus, Ritz Carlton and FedEx. We will take this a step further. As the industry leader, we have an obligation to raise the bar on quality and to deliver an outstanding home and home buying experience. After all, our customers are trusting us with what is likely the largest single purchase of their lifetime. As we deliver more homes, we need to drive more of every revenue dollar to our bottom line, which is what our second initiative, Operational Excellence, is all about. Over the past five years, pretax margins in our domestic homebuilding operations have expanded by 300 basis points through a combination of higher prices, improved product mix and operational efficiencies. [ four ]
Slide 7: 12 of our divisions ranked highest in customer satisfaction in the J.D. Power and Associates 2003 New Home Builder Customer Satisfaction Study. The divisions ranking highest in their respective markets were Dallas/Fort Worth (tie), Houston, Las Vegas, Minneapolis/St. Paul, San Francisco Bay Area, Phoenix, Raleigh/Durham, Sacramento (tie), Southern California (tie), Tampa (tie), Tucson and Palm Beach. Although difficult to quantify, we estimate there may be 200 to 300 basis points of additional pretax margin to be captured by being smarter in how we run the business. From how our houses are designed and built, to advanced supply chain management and a greater focus on overhead leverage, we can take costs out of the system. Under the banner of operational excellence, we are also advancing a number of innovative building practices to strengthen our leadership position in the industry: • In 2004, Pulte Home Sciences (PHS) will open its first commercial production plant located in Manassas, Virginia. Through efficient manufacturing of concrete basement wall sections, floor decks, structural insulated panels (SIPs) and steel stud interior walls, PHS can erect an enclosed shell of a home in as little as five days. The goals of PHS are to deliver a better quality home, faster and at comparable or reduced costs to traditional building practices. • In 1998, we acquired DiVosta and Company, a Florida-based builder that delivers unmatched quality, with an industry-leading 47-day build cycle. We are now exporting DiVosta’s best practices on scheduling and efficient building to other Pulte markets across the country, including parts of Southern California, where we took 50 days out of the building cycle. Ongoing implementation of the DiVosta system further reduced that construction time by an additional five days, taking our build times to 50 days. • In January 2004, Pulte announced a joint venture with Pratte Development to provide material and labor for concrete foundations and flatwork, underground plumbing, framing and trim for our houses built in Arizona and Nevada. The venture provides opportunities to capture additional margin and to reduce cycle times, while lowering costs through enhanced value engineering, manufacturer-direct purchasing, better scheduling and greater regional operating leverage. Through the development of more innovative building processes, we are taking a leadership role in advancing building science with the ultimate goals of delivering higher quality homes and better financial results. We are often asked what is the most pressing issue we face, to which we answer “people.” The ability to attract, hire and retain the best people is possibly Pulte’s greatest opportunity, which is why People Development is our third key initiative. Today, Pulte Homes employs almost 11,000 individuals. Given our expected growth, this number needs to increase significantly, which is why we maintain leading-edge training and development programs. A critical source of new talent is our college-recruiting program through which we hired over 675 graduates in 2003. Once on board, these individuals and all our employees benefit from our emphasis on continued development through such innovative programs as our Top Gun and Emerging Leaders training. Our focus on people development is yet another way we are differentiating Pulte Homes and speaks to our commitment to managing for long-term success. In truth, competitors can copy our house designs, mimic our communities and attempt to match our quality. In the end, it is our people who will make the difference. It may be a commentary on our times that a company needs to publicly affirm its commitment to fiscal and corporate responsibility. That is, however, exactly what we are doing through our fourth initiative, Financial Discipline. All of our employees understand that we will continue the conservative [ five ]
Slide 8: William J. Pulte Richard J. Dugas, Jr. operating, financial and reporting practices that have been a part of Pulte’s core values for the past 53 years. From our commitment to a strong balance sheet, to our stringent project-underwriting criteria, we understand that there are no short cuts to achieving long-term success. It is, however, much more than just signing quarterly certifications with confidence; it’s about a culture that encourages honesty and integrity in all business practices. Reflective of this culture, in 2003 our corporate governance score, as calculated by Institutional Shareholder Services, ranked higher than 95 percent of companies in the S&P 500. These scores are based on a number of factors, including a Board of Directors with a majority of independent outside members, providing for outside directors to meet regularly with- out management present, and for publicly disclosing governance guidelines which we proudly post on our corporate website at www.pulte.com. Bill and I, speaking on behalf of the Board of Directors and the entire management team, recognize our fiduciary responsibilities and take our commitment to shareholders very seriously. As a management team, it is our responsibility to always be looking ahead. As of today, the expectation is that interest rates are more likely to rise than decline in the coming quarters. From such a low starting point, however, we believe that an increase of 25, 50 or even 100-basis points in rates would not have a meaningful impact on overall housing demand, especially in light of the supply constraints that exist in many markets today. To best position Pulte Homes, we have developed a robust land pipeline that is supported by a strong balance sheet. We have challenged our management teams to find opportunities to grow, while attacking our labor and material costs. In other words, since the future is always uncertain, we are prepared to capitalize on the market opportunities that develop in any given economic climate. In conclusion, we are very proud of our results, but in no way are we satisfied. With the support of our customers and shareholders, and the continued passion and effort of our associates and business partners, we are confident that we can deliver even greater performance in the future. Sincerely, WILLIAM J. PULTE Founder and Chairman of the Board RICHARD J. DUGAS, JR. President and Chief Executive Officer [ six ]
Slide 91: C O R P O R AT E O F F I C E R S William J. Pulte Chairman of the Board Cristopher D. Cash Vice President, Construction Gregory M. Nelson Vice President and Assistant Secretary Richard J. Dugas, Jr. President and Chief Executive Officer Thomas M. Chisholm Vice President, Sales and Marketing Erik R. Pekarski Vice President, Customer Relations Steven C. Petruska Executive Vice President and Chief Operating Officer Sean J. Degen Vice President, Architectural Services Bruce E. Robinson Vice President and Treasurer Roger A. Cregg Executive Vice President and Chief Financial Officer Vincent J. Frees Vice President and Controller Robert P. Schafer Vice President, Finance and Homebuilding Operations Leo J. Taylor Executive Vice President, Human Resources Elaine A. Kramer Vice President, Leadership Development and Training David G. Schreiner Vice President, Active Adult Development John R. Stoller Senior Vice President, General Counsel and Secretary Daniel P. Lynch Vice President, Compensation and Process Improvement Wayne B. Williams Vice President, Manufacturing Services Jerry R. Batt Vice President, Chief Information Officer Norma J. Machado Vice President, H.R. Planning and Development James P. Zeumer Vice President, Investor and Corporate Communications Steven A. Burch Vice President, Segmentation Reginald C. McCoy Vice President, Supply Chain and Purchasing AREA MANAGEMENT Patrick J. Beirne REGIONAL PRESIDENT—WEST Jeffrey K. Parsigian REGIONAL PRESIDENT — EAST Arizona Area ARIZONA AREA PRESIDENT John J. Chadwick Phoenix Active Adult Benjamin S. Redman—President Phoenix Lifestyles Curtis H. VanHyfte—President Phoenix Traditional Michael H. Nuessle—President Tucson President Joseph L. Whatley—President Rocky Mountain Area ROCKY MOUNTAIN AREA PRESIDENT C. Dean Amann II Colorado Bruce F. Stokes—President Kansas City Todd Lipschutz—President Minnesota Keith W. Tomlinson—President New Mexico Gerardo Sanchez—President Florida Area FLORIDA AREA PRESIDENT James C. Leiferman DiVosta Harmon D. Smith—President Fort Meyers Gregory G. Wolpert—President Jacksonville David A. Smith—President Orlando Marc Tindall—President Spruce Creek Jay A. Thompson—President Tampa Scott H. Campbell—President Northeast Area NORTHEAST AREA PRESIDENT Richard D. DiBella Baltimore G. Louis Baker, III—President Delaware Valley William E. Reiser, Jr.—President Fredericksburg Christopher J. Ryan—President Long Island Donald Cowdell—President Metro NY/NJ William E. Weber—President New England James R. McCabe—President Washington David R. Graham—President Nevada Area NEVADA AREA PRESIDENT Sheryl D. Palmer Las Vegas Active Adult Christopher Haines—President Las Vegas Traditional Randall M. Bury—President Southern California Area SOUTHERN CALIFORNIA AREA PRESIDENT Igor M. Noriega N. Inland Empire Ronald J. Rakunas—President N. LA/Ventura County Roderick C. Flint—President San Diego Leonard Steinberg—President S. Riverside/Orange County L.J. Edgecomb—President Great Lakes Area GREAT LAKES AREA PRESIDENT Peter Keane Chicago Active Adult Karen L. Brunhofer—President Chicago Traditional Brian M. Brunhofer—President Cleveland Gregory J. Schmidt—President Grand Rapids Jeffrey D. Chamberlain—President Indianapolis Greg Huff—President Metro Detroit James J. Bagley, Jr.—President Southeast Area SOUTHEAST AREA PRESIDENT Greg Duriez Charlotte Thomas W. Bruce—President Georgia Casey Hill—President Nashville Joseph S. Bars, Jr.—President Raleigh Stephen P. Schlageter—President Sun City Hilton Head Kenneth R. Hull—President Northern California Area NORTHERN CALIFORNIA AREA PRESIDENT Matthew W. Koart Central Valley Christopher C. Schimunek—President N. California J. Steven Kalmbach—President Sacramento Christopher B. Cady—President Sacramento Active Adult Mark E. Kaushagen—President Texas Area TEXAS AREA PRESIDENT Mark A. Thomas Austin Arra Yerganian—President Dallas Richard B. Dix—President Houston Steven S. Atchison—President San Antonio Bart J. Swider—President Sun City Texas Gary L. Newman—President Pulte Mortgage LLC Roger C. Pastore President and Chief Executive Officer Debra W. Still Executive Vice President and Chief Operating Officer International INTERNATIONAL Argentina Mexico Carlos D. Bordo Juan C. Diaz Enrique Solari Puerto Rico Francisco J. Arrivi
Slide 92: C O R P O R AT E I N F O R M AT I O N Senior Corporate Officers William J. Pulte Chairman of the Board Operating Subsidiaries Pulte Homes, Inc. 100 Bloomfield Hills Parkway Suite 300 Bloomfield Hills, Michigan 48304 Pulte Mortgage LLC 7475 South Joliet Street Englewood, Colorado 80112 Investor Information Information Requests The Company’s annual report to stockholders and proxy statement together contain substantially all the information presented in the Form 10-K report filed with the Securities and Exchange Commission. Individuals interested in receiving the annual report, Form 10-K, Form 10-Qs or other printed corporate literature should write to the Investor Relations Department at the corporate office or call (248) 647-2750. Investor Inquiries Shareholders, securities analysts, portfolio managers and others with inquiries about the Company should contact James P. Zeumer, Vice President of Investor and Corporate Communications, at the corporate office or call (248) 433-4597. Shareholders with inquiries relating to shareholder records, stock transfers, change of ownership, change of address and dividend payments should contact: State Street Bank and Trust Company EquiServe 150 Royall Street Canton, MA 02021 (877) 282-1168 www.equiserve.com Internet Address Additional information about Pulte Homes may be obtained by visiting our website at http://www.pulte.com. Annual Meeting of the Shareholders The annual meeting of shareholders of Pulte Homes, Inc., will be held at 8:30 a.m. (EDT), Thursday, May 13, 2004, at the Hilton Northfield in Troy, Michigan. Common Stock Information Ticker Symbol: PHM Pulte Homes, Inc., is a component of the S&P 500 Composite Stock Price Index. Common stock of Pulte Homes, Inc., is listed and traded on the New York Stock Exchange, which is the principal market for the common stock, and is also traded on the Boston, Cincinnati, Midwest, Pacific and Philadelphia stock exchanges. Option trading in Pulte is conducted on the Chicago Board of Exchange. Richard J. Dugas, Jr. President and Chief Executive Officer Steven C. Petruska Executive Vice President and Chief Operating Officer Roger A. Cregg Executive Vice President and Chief Financial Officer Leo J. Taylor Executive Vice President, Human Resources John R. Stoller Senior Vice President, General Counsel and Secretary Directors D. Kent Anderson, Chairman(2) Beacon Management Corporation Richard J. Dugas, Jr. President and Chief Executive Officer Debra Kelly-Ennis(1)(3) President/COO Saab Cars USA, Inc. David N. McCammon(1)(3) Senior Partner Strength Capital Management Retired Vice President of Finance Ford Motor Company William J. Pulte Chairman of the Board & Founder Pulte Homes, Inc. Bernard W. Reznicek(1)(2) President/CEO Premier Enterprises, Inc. Michael E. Rossi(1) Retired Vice Chairman, Bank of America Alan E. Schwartz Partner Honigman, Miller, Schwartz and Cohn, Attorneys Counsel to the Company Francis J. Sehn(2)(3) Chief Executive Officer The Fran Sehn Company, Inc. John J. Shea(2)(3) Retired Vice Chairman, President and Chief Executive Officer Spiegel, Inc. William B. Smith(2) Advisory Director Morgan Stanley Dean Witter & Co. (1) Audit Committee Member (2) Compensation Committee Member (3) Nominating Committee Member Designed by Curran & Connors, Inc. / www.curran-connors.com
Slide 93: Join our growing family of satisfied customers. Together, Pulte Homes, Del Webb and DiVosta form a family of builders that’s dedicated to satisfying customers. And thanks to our homeowners, we have been honored in return with 21 recent J.D. Power and Associates Customer Satisfaction Awards, far more than any other homebuilder. Visit us online to find out more about who we are and where we build. When you work with us, you’ll find that we’re not satisfied until you are. delwebb.com pulte.com divosta.com Pulte Homes ranked Highest in Customer Satisfaction With New Home Builders in Las Vegas, Four Years in a Row; Houston, Minneapolis/St Paul, San Francisco Bay Area, Two Years in a Row; Phoenix, Two Years in a Row (Tied in 2002); Raleigh/Durham, Tucson; Dallas/Ft Worth (in a tie) and Tampa Bay (in a tie). • Del Webb ranked Highest in Customer Satisfaction With New Home Builders in Southern California (Tied Three Years in a Row); Sacramento (in a tie). • DiVosta Homes ranked Highest in Customer Satisfaction With New Home Builders in Palm Beach. • Pulte Homes ranked in the Top 3 for Customer Satisfaction With New Home Builders in Chicago, Two Years in a Row; Austin, Charlotte, Philadelphia, and Washington D.C. • Del Webb ranked in the Top 3 for Customer Satisfaction With New Home Builders in Chicago, Las Vegas and Phoenix, Three Years in a Row, and Tucson (in a tie). J.D. Power and Associates 2000-2004 New Home Builder Customer Satisfaction StudiesSM. 2003 study based on responses from 71,312 buyers of newly constructed homes in 21 of the largest U.S. markets. For counties in each market, visit www.jdpower.com. P u l t e H o m e s , I n c . / / 1 0 0 B l o o m f i e l d H i l l s P a r k w a y / / B l o o m f i e l d H i l l s , M i c h i g a n 4 8 3 0 4 / / w w w. p u l t e . c o m