On March 15, high-tech lighting and display technologist Universal Display (NASDAQ:PANL) released fourth-quarter 2006 earnings for the period ending Dec. 31.

  • While the sales growth isn't very exciting, the shift from nearly pure research grants to commercial licenses and chemicals is. The company won't make any lucre until the big contracts start rolling in from electronics manufacturers like Samsung SDI, Sony (NYSE:SNE), or maybe even Apple (NASDAQ:AAPL).
  • You can see signs of that shift in the dropping gross margin. When you actually have to make some chemicals before you can sell them, that's where you'll see the damage.
  • Patience is a virtue. Even if it takes Universal Display years to commercialize its organic light-emitting diode (OLED) patents, the company is debt-free and cash-rich, and can tread water for many a red-ink quarter.

(Figures in thousands, except per-share data)

Income Statement Highlights

Q4 2006

Q4 2005

Change

Sales

$2,544

$2,296

10.8%

Net Profit

($4,409)

($4,642)

5.0%

EPS

($0.14)

($0.16)

12.5%

Diluted Shares

31180.1

28952.0

7.7%



Get back to basics with the income statement.

Margin Checkup

Q4 2006

Q4 2005

Change*

Gross Margin

87.6%

92.4%

(4.9)

Operating Margin

(217.7%)

(238.7%)

21.0

Net Margin

(173.3%)

(202.2%)

28.9

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q4 2006

Q4 2005

Change

Cash + ST Invest.

$49,055

$47,844

2.5%

Accounts Rec.

$2,113

$1,944

8.7%

Inventory

$31

$36

(15.0%)



Liabilities

Q4 2006

Q4 2005

Change

Accounts Payable

$1,809

$1,250

44.7%

Long-Term Debt

$0

$0

N/A



The balance sheet reflects the company's health.

Cash Flow Highlights

Q4 2006

Q4 2005

Change

Cash From Ops.

($4,704)

$552

N/A

Capital Expenditures

$2,349

$2,244

4.7%

Free Cash Flow

($7,053)

($1,692)

(316.8%)

Owner Earnings

($5,913)

($6,000)

1.5%



Free cash flow is a Fool's best friend.

Related Foolishness:

Universal Display is a Motley Fool Rule Breakers selection. Read all about making money by breaking the rules with a free 30-day trial to our ultra-growth investing newsletter service.

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

At the time of publication, Anders Bylund was a Universal Display shareholder, but had no other position in any company mentioned. Fool rules are here.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.