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Manugistics (MANU) - Get Manchester United Plc Class A Report reported its third fiscal quarter earnings Tuesday after the close -- and a few hours after my column raised some warning flags. It was a strong quarter. Total revenues increased 96% year-over-year, and the company earned a profit of 5 cents a share vs. the consensus estimates of 3 cents. The stock, which was up in after-hours trading last night, and was nearly $3 a share higher this morning, is falling once again.

In terms of the three warning flags I raised (declining allowance for doubtful accounts, increasing accounts receivable, and negative and declining free cash flow), the news was mixed. Though it wasn't in the earnings release, the company reported during the conference call that its allowance for doubtful accounts was $5.5 million, equal to 7.1% of gross accounts receivable. This is a big jump from the previous quarter's 3.7%. Maybe it's good to be conservative, but it makes you wonder whether the company was overly aggressive in the past two quarters. Also, I don't like the way this number bounces around so erratically.

Days' Sales Outstanding

, or DSOs, fell to 94.0 days, an improvement from 100.8 last quarter.

Herb Greenberg

raises a good question, however, when he asks what happened to the $2.5 million that Manugistics received from


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(and may have to return). Herb notes that it went into cash on the asset side of the balance sheet, but the company won't say where it went on the other side of the ledger. Herb says that shorts think that it went as a credit to receivables, in which case DSOs would be increased to 97.7 days, not 94.0 days.

We won't know what free cash flow was until the 10-Q is released, but a quick comparison of the second fiscal quarter and third fiscal quarter balance sheets doesn't appear to show any major shifts that would affect cash flows. Overall, the balance sheet seems to have improved somewhat from the previous quarter, but it's still weaker than it was in the fourth fiscal quarter of 2000 (ended Feb. 29, 2000), and the first fiscal quarter of 2001 (ended last May).

Two items did catch my eye: marketable securities rose from $11.1 million last quarter to $255 million in this quarter, while long-term liabilities rose from $200,000 to $250.1 million. It appears that the company took on roughly $250 million of debt and, for now anyway, it's sitting on the cash.

Also, diluted shares outstanding rose an enormous 15.6% from last quarter. Interestingly, for the first time, basic shares outstanding and diluted shares outstanding diverged (in this quarter, basic shares outstanding numbered 58.0 million and diluted 66.2 million. Last quarter, adjusted for the stock split, basic and diluted shares were identical, at 57.3 million).

These are questions I will ask the company if they return my email, and will talk to me. I understand they're mighty annoyed that a good chunk of yesterday's conference call was consumed answering questions that Herb and I had raised.

Whitney Tilson is Managing Partner of Tilson Capital Partners, LLC, a New York City-based money management firm. At time of publication, Tilson Capital Partners held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Mr. Tilson appreciates your

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