A homebuilder had first quarter numbers out. "D.R. Horton Inc., the No. 1 U.S. home builder, on Tuesday said quarterly orders rose about 10 percent, but the average sale price fell on softer demand for more expensive homes. The decline in new order prices was a further reflection of a softening U.S. housing market and the company's focus on volume versus price, analysts said."

"'We attribute the lack of price appreciation to the weaker market conditions and Horton's efforts to maintain a strong pace of sales,' securities analyst Daniel Oppenheim wrote. Oppenheim warned he expects earnings declines in 2007 and 2008 based on margin erosion. 'We believe that the focus on developing and pricing homes to maintain a high level of affordability will limit the decline in earnings relative to other homebuilders,' he said."

"'A moderation in sales of $1 million-plus homes in California and lower-priced products in (Las) Vegas, New Jersey and (Washington) D.C., contributed to the West's and Mid-Atlantic's declines,' Janalyst Michael Rehaut wrote. The value of the new orders rose 7 percent to $4.4 billion. Yet, the average sales price fell 3 percent."

"Some expect order growth to become more difficult for home builders, such as D.R. Horton, which have seen gains slip from 26 percent to 16 percent to 10 percent in the past three quarters. Additionally, many home builders have reported declines or small increases in first-quarter orders."

The first quarter financials aren't available yet, but a look at the previous quarter is instructive. At the end of 2005, the firm had $225 million in cash, and had accounts payable of $1.9 billion. Small wonder they are doing this. "D.R. Horton, Inc. sold $750 million in two-part notes, UBS Investment Bank said on Tuesday. The size of the deal was increased from an originally planned $500 million."

Inventory had surged over $1.5 billion in ththe last three months of 2005, up to $10 billion. A look at this statement shows that cash outflow for 'change in inventory' made up the entire gain, and dwarfed all other cash catagories.

And with over $7 billion in debt, the small $21 million in recorded interest expense reminds us that the homebuilders capitalize the interest by adding it to the inventory, rather than reduce net income.