<PAGE>   1
 
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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
 
                                   FORM 10-K
 
[X]           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                       OR

[ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
            FOR THE TRANSITION PERIOD FROM __________ TO __________

                         COMMISSION FILE NUMBER 0-28030

                             i2 TECHNOLOGIES, INC.
             (Exact Name of Registrant as Specified in Its Charter)
 
<TABLE>
<S>                                       <C>
                DELAWARE                               75-2294945
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
  909 E. LAS COLINAS BLVD., 16TH FLOOR
             IRVING, TEXAS                               75039
(Address of principal executive offices)               (Zip code)
</TABLE>
 
       Registrant's telephone number, including area code: (214) 860-6000
 
          Securities registered pursuant to Section 12(b) of the Act:
 
<TABLE>
<CAPTION>
                                                           NAME OF EACH EXCHANGE
             TITLE OF EACH CLASS                            ON WHICH REGISTERED
             -------------------                           ---------------------
<S>                                            <C>
                     None                                           None
</TABLE>
 
          Securities registered pursuant to Section 12(g) of the Act:

                        COMMON STOCK, $0.00025 PAR VALUE
                                (Title of Class)
 
     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]
 
     The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of Common Stock on February
27, 1998 as reported on the Nasdaq National Market, was approximately $729
million (affiliates being, for these purposes only, directors, executive
officers and holders of more than 5% of the Registrant's Common Stock).
 
     As of February 27, 1998, the Registrant had 32,690,164 outstanding shares
of Common Stock.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the Proxy Statement for Registrant's 1998 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.
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                                     PART I
 
ITEM 1. BUSINESS
 
     In addition to the historical information contained herein, the discussion
in this Form 10-K contains certain forward-looking statements, within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, that involve risks and uncertainties, such as
statements concerning: growth and future operating results; future customer
benefits attributable to the Company's products; developments in the Company's
markets and strategic focus; new products and product enhancements; potential
acquisitions and the integration of acquired businesses, products and
technologies; strategic relationships; and future economic, business and
regulatory conditions. The cautionary statements made in this Form 10-K should
be read as being applicable to all related forward-looking statements whenever
they appear in this Form 10-K. The Company's actual results could differ
materially from the results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed under the section captioned "Additional Factors That May
Affect Future Results" in Item 1 of this Form 10-K as well as those cautionary
statements and other factors set forth elsewhere herein.
 
     References in this Form 10-K to the terms "optimal" and "optimized" and
words to that effect are not necessarily intended to connote the mathematically
optimal solution, but may connote near-optimal solutions which reflect practical
considerations such as customer requirements as to response time and precision
of the results.
 
     i2 Technologies, Inc. ("i2" or the "Company") is the leading provider of
client/server-based decision support software products for supply chain
management and related applications. Supply chain management encompasses the
planning and scheduling of manufacturing and related logistics, including demand
forecasting, raw materials procurement, work-in-process, distribution and
transportation across multiple enterprises. i2's client/server software
solution, RHYTHM, is designed to provide customers with an end-to-end supply
chain management solution, enabling customers to model complex, multi-enterprise
supply chains to rapidly generate integrated solutions to supply chain
challenges such as demand volatility, production bottlenecks, supply
interruptions and distribution alternatives. RHYTHM utilizes a unique,
constraint-based methodology which simultaneously considers a broad range of
factors -- from changing revenue forecasts to machine capacities to individual
customer commitments -- to optimize all aspects of the supply chain. RHYTHM's
advanced decision-support capabilities enable companies to make better informed
and more timely planning, scheduling and resource allocation decisions in order
to improve throughput, operating efficiency, customer satisfaction and return on
assets. The Company's software products and services are designed to enable
customers to reduce costs, increase market share and enhance their competitive
advantage.
 
     The Company's executive offices are located at 909 E. Las Colinas Blvd.,
16th Floor, Irving, Texas 75039, and its telephone number is (214) 860-6000.
 
     The Company's logo and "RHYTHM" are registered trademarks of the Company.
 
INDUSTRY BACKGROUND
 
     Today's increasingly competitive business environment has forced many
companies to increase manufacturing efficiency while improving their flexibility
and responsiveness to changing market conditions. In addition to facing higher
competitive standards with respect to product quality, variety and price,
businesses also recognize the need to shorten lead times, adjust production for
frequent changes in customer requirements and quote more accurate and reliable
delivery dates. Furthermore, a company's supply chain may span multiple
continents, tying suppliers in one part of the world with a plant in another to
serve customers in yet a third location. These forces are prompting companies to
work closely and collaborate with a broad range of suppliers and customers to
improve efficiencies across multi-enterprise supply chains. The growth of the
Internet and intranets is accelerating these changes by providing a ubiquitous,
platform-independent communications network. The combination of these forces has
created a dynamic, complex and highly interdependent business environment. In
response to these evolving market forces, many companies have
 
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sought to reengineer their business processes to reduce manufacturing cycle
times, shift from mass-production to order-driven manufacturing, increase use of
outsourcing and share information with vendors and customers. The implementation
of software solutions to manage various elements of the supply chain has become
a key component of these reengineering initiatives. The Company believes that
companies are increasingly recognizing efficient supply chain management as a
critical source of competitive advantage in this rapidly changing business
environment.
 
THE TRADITIONAL APPROACH
 
     Companies have traditionally applied information technology to supply chain
management through Manufacturing Resource Planning ("MRP") systems, which
provide limited flexibility to accommodate rapidly changing business conditions
and customer requirements. In order to respond to an increasingly competitive
business environment and related complex supply chain issues, many companies
have adopted Enterprise Resource Planning ("ERP") systems, which integrate MRP
solutions with other enterprise management applications such as financial,
accounting and human resources. Although ERP systems provide substantial
benefits primarily by integrating financial and other controls with multi-plant
manufacturing coordination, the supply chain decision support capabilities of
many ERP systems remain limited by the planning and scheduling methodologies
utilized in their MRP modules. Various ERP vendors are mitigating these
limitations by internally developing, or by acquiring or partnering with
independent developers of, advanced planning and scheduling software.
 
     Some of the significant limitations of traditional MRP systems and the MRP
modules of ERP systems are as follows:
 
          LIMITED DECISION SUPPORT. Traditional solutions collect and report
     large amounts of transactional data, rather than provide sophisticated
     analysis of relevant information to support critical business decisions in
     real-time. While these solutions help customers unify disparate information
     resources within the enterprise and contribute to business process
     reengineering efforts, the Company believes that they are not well-suited
     to enable customers to make rapid, highly complex business decisions.
 
          LIMITED REPRESENTATION OF SUPPLY CHAIN. The Company believes that
     traditional solutions lack the flexibility and functionality needed to
     create a highly accurate model of the supply chain because they often
     employ fixed assumptions regarding critical operating constraints such as
     available production capacity and supplier lead times. Since this approach
     cannot adequately capture complex real-world constraints and
     interdependencies, it may result in the development of infeasible or
     suboptimal plans. In addition, traditional solutions calculate plans and
     schedules for individual, local segments of the production and supply
     process, without considering the consequences to the entire process. For
     example, an increase in customer demand might result in the purchase of
     additional raw materials without determining whether manufacturing capacity
     is available to process those materials. This approach incorrectly assumes
     that optimizing production for an individual step within the production
     process will lead to an optimal result for the manufacturing operation or
     supply chain as a whole.
 
          SEQUENTIAL PLANNING. Traditional planning methodologies model the
     supply chain as a sequence of discrete steps. For example, traditional
     solutions begin by developing a demand forecast from which a distribution
     plan is developed to determine the distribution center, warehouse or
     factory source which will be used to manufacture/distribute the products
     without regard to transportation or manufacturing constraints. A
     transportation plan is then generated to determine the optimal
     transportation methods to be used to ship the products without addressing
     the constraints of the remaining parts of the supply chain. A master
     production schedule is then generated which is used to develop a materials
     requirement plan, which in turn is used to arrive at a capacity
     requirements plan. Because the process does not address all constraints
     simultaneously, the initial planning cycle is rarely feasible or optimal.
     Moreover, as resources become constrained, sequential planning requires
     that the entire supply chain model be completely regenerated from the
     beginning to identify and resolve conflicts. As a result, the planning
     process often requires numerous manual iterations to develop a feasible
     solution. Once an initial plan has been developed, the time-consuming
     nature of sequential planning limits a manager's ability to rapidly
 
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     evaluate subsequent changes, such as material shortages and revisions in
     customer orders. Accordingly, a manager's ability to respond to changes and
     to effect corrective action may be delayed.
 
          LIMITED INTEGRATION AND FUNCTIONALITY. Traditional solutions may
     provide selected supply chain planning modules, but generally do not
     provide integrated functionality across the entire supply chain, including
     demand forecasting, manufacturing planning, plant scheduling, distribution
     and transportation. For example, several ERP vendors have acquired planning
     products which address specific supply chain challenges, but fail to
     provide global visibility and optimization across the entire supply chain.
     In addition, traditional solutions often offer only limited functionality
     within these areas. For example, MRP and ERP systems often provide limited
     "available-to-promise" functionality by simply processing orders on a
     "first-come, first-served" basis, without considering other constraints or
     business objectives. Furthermore, traditional solutions typically assume
     complete independence of supply and demand. Often, however, the
     overabundance or scarcity of a certain product can directly or indirectly
     impact demand for that product and related products. Complex
     interrelationships and interdependencies are not adequately accounted for
     in traditional planning methodologies, leading to potentially inaccurate
     conclusions and recommendations.
 
          LENGTHY IMPLEMENTATION CYCLES. Due to the broad scope, complexity and
     associated re-engineering requirements of ERP systems, many companies have
     found the implementation of such systems to be costly and time consuming.
     Such factors often delay or limit the realization of benefits associated
     with the implementation of ERP systems.
 
THE i2 SOLUTION
 
     i2 is the leading provider of client/server-based decision support software
products for supply chain management and related applications. The Company's
RHYTHM products enable businesses to plan and schedule the principal elements of
the supply chain by simultaneously considering internal constraints, such as
manufacturing facility capacities, human resource availability, alternate cost
strategies and distribution requirements, and external constraints, such as
supplier lead times and customer requirements. RHYTHM utilizes object-oriented
technology to model specific characteristics of a customer's operations, and
focuses primarily on supply chain management functions such as raw materials
procurement, capacity planning, distribution requirements and due date
scheduling. RHYTHM also incorporates an advanced forecasting module which
provides the ability to view and manipulate multi-dimensional data and analyze
the causal relationships between customer demand and internal and external
events.
 
     RHYTHM is designed to help businesses increase throughput, reduce
inventory, decrease cycle times, improve customer delivery date performance and,
consequently, enhance return on assets. The Company's software products are also
designed to enable customers to reduce costs, increase market share and enhance
their competitive advantage. i2's approach to customer relationships is centered
on the identification of potential savings and the creation of value for
customers. As part of this dedication to providing value for customers, i2 has
established a goal of generating more than $50 billion in total value for its
customers by the year 2005 through growth and savings. Although RHYTHM is
usually deployed as a stand-alone alternative to MRP products, RHYTHM is often
implemented in conjunction with, or as a complement to, existing MRP and ERP
solutions. RHYTHM's data structures, methodologies and application logic
differentiate it from existing solutions in the following ways:
 
          DECISION SUPPORT. RHYTHM's memory-resident, object-oriented design
     allows for very rapid analysis and response to planning and scheduling
     issues. RHYTHM identifies production and scheduling problems as
     circumstances change, proposes optimal solutions and allows for automatic
     or manual corrective action. i2's software also allows managers to perform
     real-time simulations which gauge the impact of potential local actions on
     the supply chain. The Company believes that this decision support
     functionality enables customers to better manage complex supply chain
     issues in an effort to reduce costs, maximize throughput and improve return
     on assets.
 
          ACCURATE REPRESENTATION OF SUPPLY CHAIN. RHYTHM is designed to
     incorporate a broad range of specific, real-world constraints and thereby
     enhance the accuracy of the supply chain model and improve
 
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     its decision-making utility. RHYTHM distinguishes between hard constraints,
     those which are not subject to change or flexibility (e.g., a machine's
     maximum rated production capacity), and soft constraints, those which may
     be altered in order to arrive at an optimal solution (e.g., preferred
     sources for materials). RHYTHM's incorporation of object-oriented data
     structures represents a significant advance in the creation of complex
     supply chain models.
 
          CONCURRENT PLANNING. In contrast to sequential planning, concurrent
     planning views all the steps in the manufacturing process simultaneously.
     Upon identification of a planning or scheduling change, RHYTHM immediately
     propagates the effect of the change upstream and downstream, from the point
     of origin, throughout the supply chain model to derive a revised, optimal
     solution. For example, an unforeseen loss of production capacity would
     automatically signal for a reduction in raw material procurement as well as
     the potential rescheduling of customer delivery dates. Because RHYTHM
     presents an integrated model of the supply chain, from demand forecasting
     to raw material procurement, work-in-process, distribution and
     transportation to customer delivery, it is able to provide solutions which
     optimize the efficiency of the supply chain as a whole rather than summing
     a series of local optimizations.
 
          GLOBAL INTEGRATION AND ADVANCED FUNCTIONALITY. RHYTHM provides
     customers with a fully integrated, end-to-end supply chain management
     solution, from demand forecasting to manufacturing planning, plant
     scheduling, distribution and transportation. This enables customers to
     address a broad range of supply chain issues and to gain visibility across
     their entire supply chains to identify, evaluate and address these issues
     rapidly and effectively. Additionally, RHYTHM analyzes complex
     supply/demand interrelationships in order to more accurately represent
     real-world supply chain mechanics. RHYTHM's architecture is designed to
     enable easy integration with a broad range of transactional, legacy and
     other decision support software programs, enabling customers to leverage
     their investments in these systems. RHYTHM also provides advanced
     functionality for its customers across the supply chain. For example,
     RHYTHM's available-to-promise functionality allows customers to commit to
     requested delivery dates based on a global view of materials, capacity and
     related business constraints, while considering a broad range of
     pre-defined user business objectives such as maximizing sales to higher
     profit margin customers rather than assimilating them on a "first-come,
     first-served" basis. In addition, the Company's multi-dimensional demand
     forecasting module allows users to forecast, plan and influence demand by
     evaluating more than 30 potential internal and external causal
     relationships.
 
          EASE OF IMPLEMENTATION. RHYTHM is designed as a broadly applicable
     software solution which is adaptable for customers in a wide range of
     industries. In addition, RHYTHM is designed to integrate easily with many
     existing client/server and legacy MRP and ERP systems. As a result,
     functional implementation at a single site can generally be completed
     within three to four months depending on the scope and complexity of the
     installation project. The Company's goal is for the customer to realize a
     significant return on its investment within a year of licensing.
 
STRATEGY
 
     The Company's objectives are to maintain its leadership position in
decision-support supply chain management software, help create significant value
for its customers and continue to increase its market share of the supply chain
management market. The Company's strategy for achieving these objectives is as
follows:
 
  EXPAND PRODUCT OFFERINGS
 
     i2 believes that it has gained significant experience in supply chain
management methodologies through its work with its existing customer base. The
Company intends to continue to leverage this experience, together with its
expertise in advanced software technology, to expand the scope of its supply
chain management software to more fully address certain components of the supply
chain. For example, the Company is currently developing additional functionality
for RHYTHM in the areas of transportation logistics. The Company is also
focusing on selected vertical markets such as Metals, Automotive, Consumer
Packaged Goods and other industries. Although the RHYTHM software is standard
across all industries, the Company is forming groups to identify and understand
the needs of particular industries. The Company is
 
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leveraging the highly flexible nature of RHYTHM to develop a series of
preconfigured user interfaces tailored to address the requirements of such
specific industries.
 
  INVEST AGGRESSIVELY TO BUILD MARKET SHARE
 
     The Company has made and continues to make substantial investments to
expand its sales and marketing, research and development, consulting and
administrative infrastructure. i2 believes that such investments are necessary
to increase its market share and to capitalize on the growth opportunities in
the supply chain management software market.
 
  INTEROPERATE WITH A BROAD RANGE OF SOFTWARE PLATFORMS AND APPLICATIONS
 
     The Company believes that most larger companies operate in heterogeneous
computing environments, with diverse data repositories and transaction and
legacy systems. Therefore, the Company's software must be able to interact and
interoperate with a broad range of software platforms and products in order to
successfully manage complex, multi-enterprise supply chains. The Company's
strategy is to establish and maintain cooperative relationships with a broad
range of hardware and software vendors while maintaining platform-neutral
architecture. In this regard, the Company is working together with legacy and
ERP vendors such as SAP AG ("SAP"), Oracle Corporation ("Oracle"), Baan Company
N.V. ("Baan") and PeopleSoft, Inc. ("PeopleSoft") to establish and maintain the
necessary complex interfaces between the Company's software and such vendor's
transaction-based systems. In addition, the Company strives to balance its
relationships with platform and transaction system vendors to avoid becoming too
closely aligned with any individual vendor.
 
  FOCUS ON DEVELOPING COLLABORATIVE, MULTI-ENTERPRISE SOLUTIONS
 
     The Company has recently established a Global Decision Support
Architecture. This architecture has been designed to enable RHYTHM to easily
access data from a broad range of customer data repositories, enable smoother
communications and data translations between RHYTHM and disparate enterprise
software systems, provide a multi-dimensional, uniform user interface and enable
a greater level of collaborative planning across the supply chain. i2 believes
that customers must be able to integrate the variety of applications that they
use to run their business and that, over time, application integration and
collaborative, multi-enterprise planning will be critical to enable customers to
derive significant additional value from supply chain management.
 
  BUILD STRATEGIC ALLIANCES AND BROADEN DISTRIBUTION CHANNELS
 
     The Company intends to expand and seek additional strategic relationships
with MRP and ERP vendors to integrate RHYTHM with their software products to
create joint-marketing opportunities. In addition, the Company intends to
augment its sales efforts by establishing and expanding relationships with other
complementary business application software vendors and systems consulting and
integration firms. The Company is leveraging third-party implementation services
with large, international consulting firms such as Andersen Consulting, Deloitte
& Touche, Ernst & Young, KPMG Peat Marwick and Price Waterhouse to enable it to
more rapidly penetrate its target market. In addition, the Company has
established direct sales offices in international markets and intends to
continue to expand its United States and international sales forces.
 
  ACQUIRE COMPLEMENTARY BUSINESSES, PRODUCTS AND TECHNOLOGIES
 
     The Company believes that certain acquisitions will provide the opportunity
to broaden its product offerings and provide more comprehensive decision support
and supply chain management solutions. For example, the Company's acquisition in
May 1997 of Think Systems Corporation and Optimax Systems Corporation
significantly extended its capabilities in demand planning and manufacturing
scheduling. The Company may in the future pursue additional acquisitions of
businesses, products and technologies, or enter into joint venture arrangements,
which complement or expand its business.
 
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PRODUCTS
 
     RHYTHM operates as a flexible, integrated supply chain management solution
and is available in single-site and multi-site configurations. RHYTHM is
currently composed of the following modules and extensions:
 
  MODULES
 
     SUPPLY CHAIN PLANNER(TM). Supply Chain Planner ("SCP") is the base product
required for all RHYTHM applications. It coordinates and optimizes all planning
and scheduling scenarios and holds the object framework. SCP contains the logic
common to all RHYTHM modules and extensions and provides the means to control
them concurrently.
 
     DEMAND PLANNER(TM). Demand Planner is used to forecast customer demand. It
uses many statistical techniques and multiple forecast approaches to anticipate
changes in demand, including changes as a result of promotions, advertising
campaigns, pricing policies or market perceptions.
 
     FACTORY PLANNER(TM). Factory Planner ("FP") is designed to perform
single-site planning. FP manages complex manufacturing operations involving
large numbers of resources and operational steps, and is engineered to solve
common factory planning problems such as managing complex bills of materials and
alternate routings. Through FP, users can input their manufacturing forecast,
desired levels of finished goods, back-orders and other demands or constraints,
set tolerances for changes in the levels of the manufacturing forecast and set
target inventory levels. Through an interactive user interface, FP allows the
user to reallocate materials, change quantities, expedite purchases, move
quantities and perform "what if" simulations under modified constraints to
produce a master production schedule.
 
     MASTER PLANNER(TM). Master Planner ("MP") integrates two or more Factory
Planner modules implemented at multiple sites. MP controls and enables
multi-site scheduling, sourcing, allocation and forecasting. MP facilitates the
development of an optimal solution for multi-site installations.
 
     ADVANCED SCHEDULER(TM). Advanced Scheduler ("AS") provides additional
scheduling functionality for plans produced by Factory Planner or Master
Planner. AS outputs a detailed schedule and sequencing plan which considers
set-up times, material availability and other user-defined constraints. AS'
planning algorithms include constraint-based routines to recommend sequencing of
work loads to optimize the user's key resources.
 
     SEQUENCER(TM). Sequencer is used to schedule assembly lines and other
sequential production facilities. Sequencer utilizes genetic algorithms to
optimize the sequence of orders through manufacturing operations to increase
throughput, balance workloads and achieve other optimization goals.
 
     DISTRIBUTION PLANNER(TM). Distribution Planner ("DP") integrates
manufacturing and distribution planning and scheduling. DP enables
implementation of automated allocation, sourcing and transportation solutions
and provides planners with the ability to manipulate distribution requirements
to achieve strategic customer service goals.
 
     TRANSPORTATION PLANNER(TM). Transportation Planner ("TP") determines the
most feasible plan of utilizing transportation resources to move inventory from
one location in the supply chain to another. TP allows users to consolidate
orders or shipments into loads, select the appropriate mode and carrier, as well
as schedule and route the loads in order to determine the most efficient method
of shipping inventory. TP is currently provided by a third-party software
provider.
 
  EXTENSIONS
 
     AVAILABLE-TO-PROMISE(TM). Available-to-Promise ("ATP") automatically
determines the quantity of goods deliverable by a requested date, as well as the
date upon which a complete order may be delivered based upon materials,
capacity, distribution capability, customer allocations, supplier allocations
and related business constraints. ATP is used to quote delivery dates to
customers on a real-time basis.
 
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     STRATEGY-DRIVEN PLANNER(TM). Strategy-Driven Planner ("SDP") allows users
to specify business rules on how RHYTHM will resolve problems found within the
supply chain. SDP incorporates "trade-off" logic which takes into account the
users' preferences regarding operational, financial and other measures.
 
     RHYTHMLINK(TM). RhythmLink facilitates communication and data exchange
between RHYTHM and other applications such as databases, report writers and ERP
solutions by using industry accepted standard technologies and interfaces.
RhythmLink is designed to enable companies to rapidly integrate and implement
the RHYTHM products with its existing information resources.
 
     All of the Company's products are currently available in English and many
of the products are available in German, French, Japanese and Spanish.
 
     During the last twelve months, the sales prices for RHYTHM software
packages, other than for three significantly large sales, generally ranged from
approximately $100,000 to approximately $5.5 million. The price for an
individual RHYTHM product package is determined based upon a number of factors,
including the RHYTHM modules and extensions purchased, the number of servers,
users and sites in the customer's system, as well as the complexity of the
customer's supply chain.
 
     RHYTHM is a client/server solution which can operate on hardware platforms
from Digital Equipment, Hewlett-Packard, IBM and Sun Microsystems using
Microsoft's Windows NT operating system or the UNIX variant supported by each
hardware platform. RHYTHM is written in C++ language and utilizes a fully
object-oriented data structure for representing operations, resources and
constraints in supply chains. Once a model is defined, the entire representation
is loaded into random access memory ("RAM") and all processing by RHYTHM takes
place in RAM. A typical supply chain model implemented in the Company's system
may occupy as much as two gigabytes of RAM. RHYTHM reads and writes data to a
wide variety of databases and data structures, and is operable in conjunction
with a wide variety of ERP systems. The Company believes that the combination of
its object-oriented and memory-resident technologies permit RHYTHM to achieve
accuracy and speed advantages over traditional planning and scheduling
solutions.
 
PRODUCT DEVELOPMENT
 
     The Company originally introduced its RHYTHM software in 1992 and has
subsequently released a number of product enhancements as well as acquired
significant products. The Company has adopted a strategy of periodically
reinventing its products in order to meet its customers' needs, and strives to
ensure that each new generation of RHYTHM is compatible with previous releases.
On-going product development efforts are focused on broadening the functionality
of RHYTHM to more fully address certain areas of supply chain management,
including transportation logistics. The Company also licenses certain
third-party software including an advanced transportation module.
 
     In October 1997, the Company announced several products in various stages
of development, each of which is designed for multi-enterprise supply chain
collaboration. Within this broader line of products under development, the
Company has released a decision support architecture that will enable customers
to implement comprehensive planning and decision support solutions that exchange
information in diverse environments regardless of data structures and platforms
employed. The Company also has released a product which will provide a single
graphical model of an organization's entire supply chain and present a real-time
view of the performance of individual elements of the supply chain as well as
the supply chain as a whole. There can be no assurance that the Company will be
successful in further developing these or any other new products, that the
Company will not experience difficulties that could delay or prevent successful
development, introduction and sales of these products, or that its new products
and enhancements will adequately meet the requirements of the marketplace and
achieve market acceptance.
 
     RHYTHM products have been developed by the Company's internal developmental
staff through small project teams focused on independent components of the
software under development. The Company maintains product release planning
procedures to ensure integration, testing and version control among the
different project development teams. The Company operates its research and
development department in a "technology neutral" environment which makes it
possible to operate within industry standards and yet be
 
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independent of particular database formats, hardware platforms, network
protocols and interfaces. The Company maintains significant development centers
in Bangalore and Mumbai, India; Cambridge, Massachusetts; Dallas, Texas;
Parsippany, New Jersey; and Toronto, Ontario.
 
     Research and development expenses have increased significantly in recent
periods as the Company has continued to focus on development of new and enhanced
products. Research and development expenses were $5.5 million, $17.0 million and
$44.1 million in 1995, 1996 and 1997, representing 18.0%, 19.3% and 22.0% of
total revenues, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations -- Costs
and Expenses -- Research and Development" in Item 7 of this Form 10-K.
 
CUSTOMER SERVICE AND SUPPORT
 
     The Company believes that providing a high level of customer service and
technical support is necessary to achieve rapid product implementation which, in
turn, is essential to customer satisfaction and continued license sales and
revenue growth. During 1996 and 1997, the Company expanded its service and
support centers geographically and now has support centers across the United
States and in Australia, Belgium, Canada, Denmark, France, Germany, India,
Japan, Mexico, Singapore and the United Kingdom. Accordingly, the Company is
committed to continue recruiting and maintaining a high-quality technical
support team. The Company's customer service and support activities consist of
the following:
 
  TRAINING
 
     The Company offers an intensive education and training program for its
customers and its third-party implementation providers. Classes are offered at
in-house facilities at certain of the Company's offices and at customer
locations. These classes focus on supply chain management principles as well as
the implementation and use of RHYTHM products.
 
  CONSULTING
 
     The Company offers its customers on-site consulting services aimed at
assisting in the implementation of RHYTHM and integration with the customers'
existing systems. The Company receives hourly fees for these services. These
consulting services are concentrated on making implementation cost-effective for
customers by enabling them to independently perform as many of the integration
tasks as possible. The Company also leverages the use of third-party consulting
firms to more rapidly penetrate its target market.
 
  MAINTENANCE AND PRODUCT UPDATES
 
     The Company provides ongoing product support services under its license
agreements. Maintenance contracts are typically sold to customers for a one-year
term at the time of the initial RHYTHM license and may be renewed for additional
periods. Under its maintenance agreements with its customers, the Company
provides, without additional charge, product updates and enhancements to the
RHYTHM products previously purchased by the customer. Customers that do not
renew their maintenance agreements but wish to obtain product updates and new
version releases are generally required to purchase such items from the Company
at market prices. Ongoing support and maintenance services are provided on up to
a seven-day week, 24-hour day basis.
 
SALES AND MARKETING
 
     The Company markets its software and services primarily through its direct
sales organization augmented by other sales channels, including business
application software vendors and systems consulting and integration firms. At
December 31, 1997, the Company conducted sales and other activities through
several offices in the United States and additional offices in Australia,
Belgium, Brazil, Canada, Denmark, France, Germany, Italy, Japan, Korea,
Singapore and the United Kingdom. The Company's direct sales organization
consists of regionally based sales representatives and sales engineers supported
by personnel with experience in
 
                                        8
<PAGE>   10
 
the aerospace, apparel, automotive, consumer products, furniture, high-tech,
industrial, metals, paper, pharmaceuticals, process, retail and textiles
industries.
 
     The Company currently has joint-marketing agreements with a number of
business application software vendors, including SAP and System Software
Associates, Inc. ("SSA"), and several systems consulting and integration firms.
These joint-marketing agreements generally provide the vendors with
non-exclusive rights to market RHYTHM products and access to marketing materials
and product training. Furthermore, the vendors receive a specified commission
for license revenues generated by the vendor during the term of the agreement,
which commissions vary from zero to 40% of the sales price of the license. In
addition, the Company and Oracle recently entered into a development and
distribution agreement pursuant to which the parties will jointly develop an
enhanced interface between RHYTHM and Oracle's enterprise resource planning
solutions. Under this agreement, the Company also granted to Oracle a
non-exclusive right to sublicense i2's RHYTHM products to end users as standard
Oracle applications. By using these indirect sales channels, the Company is
seeking to capitalize on the installed base of other software vendors and obtain
favorable product recommendations from systems consulting and integration firms,
thereby increasing RHYTHM's market coverage. There can be no assurance that any
of these joint-marketing and development agreements will be beneficial to the
Company or that such relationships will be sustained.
 
CUSTOMERS
 
     As of December 31, 1997, the Company had licensed RHYTHM products to
approximately 220 customers. The following is a partial list of companies that
have licensed more than $750,000 of RHYTHM products since December 31, 1994:
 
<TABLE>
<S>                           <C>                        <C>
CONSUMER ELECTRONICS/         METALS                     PAPER
HIGH TECHNOLOGY               Altos Hornos Mexico        CSS Industries
American Microsystems         Bethlehem Steel            Fletcher Challenge
AST Research                  British Steel              Sonoco
AVEX Electronics              Broken Hill Proprietary                             
Compaq Computer               Iscor Limited              CONSUMER PACKAGED GOODS  
Dell Computer                 Mannesmann                 3M                       
Digital Equipment             Sidmar                     British American Tobacco 
Fujitsu                       Timken                     Consumer Packaging       
Hewlett-Packard               US Steel                   E&J Gallo Winery         
IBM                           Wheeling Pittsburgh        EMI Compact Disk         
Integrated Device Technology                                                      
Komag                         MEDICAL/PHARMACEUTICAL     OTHER                    
Lucent Technologies           Abbot Laboratories         Baker Hughes INTEQ       
Motorola                      Bristol-Myers Squibb       Ford Motor Company       
Philips Semiconductors        Johnson & Johnson Medical  GE Capital               
Samsung                       Leiner Health Products     Haworth                  
SGS Thomson Microelectronics  Rhone Poulenc Rorer        Herman Miller            
Siemens Semiconductors        US Surgical                Newport News Shipbuilding
Texas Instruments                                        Occidental Chemical      
Toshiba                                                  Sara Lee Knit Products   
                                                         VF Services              
</TABLE>
 
     The Company provides its software products to customers under
non-exclusive, non-transferable license agreements. As is customary in the
software industry, in order to protect its intellectual property rights, the
Company does not sell or transfer title to its products to its customers. Under
the Company's current standard form of license agreement, licensed software may
be used solely for the customer's internal operations.
 
                                        9
<PAGE>   11
 
COMPETITION
 
     The markets in which the Company operates are highly competitive. The
Company's competitors are diverse and offer a variety of solutions directed at
various segments of the supply chain as well as the enterprise as a whole.
Competitors include: (i) enterprise resource application software vendors such
as SAP, PeopleSoft, Oracle and Baan, each of which currently offers
sophisticated ERP solutions that currently or may in the future incorporate
supply chain management modules or advanced planning and scheduling software;
(ii) other suppliers of supply chain software including Manugistics Group, Inc.
and Logility, Inc.; (iii) other business application software vendors who may
broaden their product offerings by internally developing, or by acquiring or
partnering with independent developers of, advanced planning and scheduling
software; (iv) internal development efforts by corporate information technology
departments; and (v) companies offering standardized or customized products for
mainframe and/or mid-range computer systems.
 
     In connection with specific customer solicitations, a number of ERP vendors
have from time to time jointly marketed the Company's products as a complement
to their own systems. The Company believes that as its market share increases,
and as the ranges of products offered by the Company and these ERP vendors
expand and increasingly overlap, relationships which were cooperative in the
past will become more competitive, thereby increasing the overall level of
competition the Company faces. Specifically, the Company and SAP recently
terminated a license and distribution agreement, and SAP has announced its
intention to develop a suite of advanced planning and scheduling products which
are expected to be directly competitive with RHYTHM. The Company believes that
additional ERP vendors are focusing significant resources on increasing the
functionality of their own planning and scheduling modules, and at least two ERP
vendors have recently acquired independent developers of advanced planning and
scheduling software which compete with RHYTHM.
 
     Many of the Company's competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
greater name recognition, a broader range of products to offer and a larger
installed base of customers than the Company, each of which could provide them
with a significant competitive advantage over the Company. In addition, the
Company expects to experience increasing price competition as the Company and
its competitors compete for market share. There can be no assurance that the
Company will be able to compete successfully with existing or new competitors or
that competition will not have a material adverse effect on the Company's
business, operating results and financial condition.
 
PROPRIETARY RIGHTS AND LICENSES
 
     The Company relies primarily on a combination of copyright, trademark and
trade secret laws, confidentiality procedures and contractual provisions to
protect its proprietary rights. In addition, the Company generally licenses
RHYTHM products to end users in object code (machine-readable) format, and the
Company's license agreements generally allow the use of RHYTHM products solely
by the customer for internal purposes without the right to sublicense or
transfer the RHYTHM products. However, the Company believes that the foregoing
measures afford only limited protection. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of the Company's products or to obtain and use information that the Company
regards as proprietary. Policing unauthorized use of the Company's products is
difficult, and while the Company is unable to determine the extent to which
piracy of its software products exist, software piracy can be expected to be a
problem. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as the laws of the United
States. Furthermore, there can be no assurance that the Company's competitors
will not independently develop technology similar to that of the Company. The
Company may increasingly be subject to claims of intellectual property
infringement as the number of products and competitors in the Company's industry
segment grows and the functionality of products in different industry segments
overlaps. Although the Company is not aware that any of its products infringes
upon the proprietary rights of third parties, there can be no assurance that
third parties will not claim infringement by the Company with respect to current
or future products. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or
 
                                       10
<PAGE>   12
 
licensing agreements, if required, may not be available on terms acceptable to
the Company, which could have a material adverse effect upon the Company's
business, operating results and financial condition.
 
     The Company has in the past and may in the future resell certain software
which it licenses from third parties. There can be no assurance that these
third-party software licenses will continue to be available to the Company on
commercially reasonable terms. The loss of or inability to maintain or obtain
any of these software licenses could result in delays or reductions in product
shipments until equivalent software could be identified, licensed and
integrated, which could adversely affect the Company's business, operating
results and financial condition.
 
EMPLOYEES
 
     As of December 31, 1997, the Company had 1,006 full-time employees,
including 397 primarily engaged in research and development activities and 258
engaged in sales and marketing activities. The Company's future success depends
in significant part upon the continued service of its key technical and senior
management personnel and its continuing ability to attract and retain highly
qualified technical and managerial personnel. Competition for such personnel is
intense and there can be no assurance that the Company can retain its key
managerial and technical employees or that it can attract, assimilate or retain
other highly qualified technical and managerial personnel in the future. None of
the Company's employees are represented by collective bargaining units and the
Company has never experienced a work stoppage. The Company believes that its
employee relations are very good.
 
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
 
     In addition to the other information in this Form 10-K, the following
factors should be considered in evaluating the Company and its business.
 
  POTENTIAL FOR SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS; DEPENDENCE ON
SIGNIFICANT INDIVIDUAL SALES
 
     The Company's quarterly revenues, expenses and operating results have
varied significantly in the past and are likely to vary significantly from
quarter to quarter in the future. Because the purchase of a supply chain
management software solution generally involves a significant commitment of
capital, the sales cycle associated with the purchase of the Company's products
varies substantially and is subject to a number of significant risks, including
customers' budgetary constraints, timing of budget cycles and concerns about the
pricing or introduction of new products by the Company or its competitors,
factors over which the Company has little or no control. Additional factors
include foreign currency exchange rate fluctuations, the mix of direct or
indirect sales, changes in joint-marketing relationships, and changes in the
Company's strategy. Furthermore, purchases of the Company's products may be
deferred or canceled in the event of a downturn in any potential customer's
business or the economy in general.
 
     The amount of revenues associated with particular licenses can vary
significantly based upon the number of software modules purchased and the number
of sites and users involved in the installation. The Company generally derives a
significant portion of its software license revenues in each quarter from a
small number of relatively large sales. For example, in each quarter of 1996 and
1997, one or more customers each accounted for at least 15% of total software
license revenues in such quarter. While the Company believes that the loss of
any of these particular customers would not have an adverse effect, an inability
to consummate one or more substantial license sales in any future period could
have a material adverse effect on the Company's operating results for that
period. Moreover, similar to many other software companies, the Company
typically realizes a significant portion of its software license revenues in the
last month or even the last week of a quarter. The Company also believes that
the tendency of customers to delay placing orders for software products until
near the end of a quarter has become more pronounced in recent periods. As a
result, small delays in customer orders can cause significant variability in the
Company's license revenues and results of operations for any particular period.
For all of the foregoing reasons, revenues are difficult to forecast.
 
     The Company intends to continue to invest heavily in its sales and
marketing, consulting and research and development organizations, and sets
investment and expense levels based on expected future revenues. If
                                       11
<PAGE>   13
 
revenues are below expectations, operating results and net income are likely to
be adversely and disproportionately affected because a significant portion of
the Company's expenses are not variable in the short term, and cannot be quickly
reduced to respond to decreases in revenues. In addition, the Company may reduce
prices or accelerate its investment in research and development efforts in
response to competition or to pursue new market opportunities. Any one of these
activities may further limit the Company's ability to adjust spending in
response to fluctuations in revenue levels. There can be no assurance that
revenues will grow in future periods, that they will grow at historical rates,
or that the Company will maintain positive operating margins in future quarters.
 
     The Company's quarterly results of operations are subject to certain
seasonal fluctuations. Historically, the Company's revenues have tended to be
strongest in the fourth quarter of the year and to increase only modestly in the
first quarter of the following year. The Company believes that this seasonality
is due to the calendar year budgeting cycles of many of its customers and to
compensation policies that tend to compensate sales personnel for achieving
annual revenue quotas. The Company expects that in future periods these seasonal
trends may cause first quarter revenues to remain consistent with, or decrease
from, the level achieved in the preceding quarter.
 
  MANAGEMENT OF GROWTH
 
     The Company's business has grown rapidly in recent years, with revenues
increasing from $30.5 million in 1995 to $87.9 million in 1996 and to $200.7
million in 1997. The Company's recent expansion has resulted in substantial
growth in the number of its employees (from 260 at December 31, 1995 to 582 at
December 31, 1996 to 1,006 at December 31, 1997), the scope of its operating and
financial systems and the geographic distribution of its operations and
customers. This recent rapid growth has placed, and if continued will continue
to place, a significant strain on the Company's management and operations.
Accordingly, the Company's future operating results will depend on the ability
of its officers and other key employees to continue to implement and improve its
operational, customer support and financial control systems, and to effectively
expand, train and manage its employee base. There can be no assurance that the
Company will be able to manage any future expansion successfully, and any
inability to do so would have a material adverse effect on the Company's
business, operating results and financial condition.
 
  PRODUCT CONCENTRATION; DEPENDENCE ON PRODUCT LINE EXPANSION
 
     The Company currently derives all of its revenues from RHYTHM licenses and
related services. The Company expects that RHYTHM-related revenues, including
maintenance and consulting contracts, will continue to account for substantially
all of the Company's revenues for the foreseeable future. As a result, the
Company's future operating results are dependent upon continued market
acceptance of RHYTHM and enhancements thereto. There can be no assurance that
RHYTHM will achieve continued market acceptance. A decline in demand for, or
market acceptance of, RHYTHM as a result of competition, technological change or
other factors would have a material adverse effect on the Company's business,
operating results and financial condition.
 
     As enterprises increasingly focus on decision support for supply chain
management challenges, they are requiring greater levels of functionality and
broader product offerings from their application software vendors. Moreover, the
market for the Company's software products is characterized by rapid
technological advances, evolving industry standards in computer hardware and
software technology, and frequent product introductions and enhancements. The
Company's future success will depend upon its ability to continue to enhance its
current product line and to develop and introduce new products that keep pace
with technological developments, satisfy increasingly sophisticated customer
requirements and achieve market acceptance. There can be no assurance that the
Company will be successful in developing and marketing, on a timely and cost-
effective basis, fully functional product enhancements or new products that
respond to technological advances by others, or that its new products will
achieve market acceptance. The Company's failure to successfully develop and
market product enhancements or new products could have a material adverse effect
on the Company's business, operating results and financial condition.
 
                                       12
<PAGE>   14
 
  INTEGRATION OF RECENT ACQUISITIONS; POTENTIAL FUTURE ACQUISITIONS
 
     In April 1997, the Company completed the acquisition of the Operations
Planning Group ("OPG"), a business activity of Computer Sciences Corporation. In
May 1997, the Company acquired Think Systems Corporation, a New Jersey
corporation ("Think"), and Optimax Systems Corporation, a Delaware corporation
("Optimax"). In November 1997, the Company acquired the remaining interest in a
minority owned subsidiary, M-Star Systems Limited ("M-Star"). The success of
acquisitions depends primarily on the Company's ability to (i) retain, motivate
and integrate the acquired personnel with the Company's operations, (ii)
integrate multiple information systems and (iii) integrate acquired software
with RHYTHM. No assurance can be given that the Company will not encounter
difficulties in integrating the respective operations and products of the
Company, OPG, Think, Optimax and M-Star or that the benefits expected from such
integration will be realized. Failure to successfully integrate OPG's, Think's,
Optimax's and M-Star's respective operations and products into the Company's
operations and products could have a material adverse effect on the Company's
business, operating results and financial condition.
 
     The Company may in the future pursue additional acquisitions of businesses,
products and technologies, or enter into joint venture arrangements, that could
complement or expand the Company's business. The negotiation of potential
acquisitions or joint ventures as well as the integration of an acquired
business, product or technology could cause diversion of management's time and
resources. Future acquisitions by the Company could result in potentially
dilutive issuances of equity securities, the incurrence of debt and contingent
liabilities, amortization of goodwill and other intangibles, research and
development write-offs and other acquisition-related expenses. Further, no
assurances can be given that any acquired business will be successfully
integrated with the Company's operations. If any such acquisition were to occur,
there can be no assurance that the Company will receive the intended benefits of
the acquisition. Future acquisitions, whether or not consummated, could have a
material adverse effect on the Company's business, operating results and
financial condition.
 
  INTERNATIONAL OPERATIONS AND CURRENCY FLUCTUATIONS
 
     The Company derived approximately 7%, 23% and 33% of its total revenues
from customers located outside of the United States in 1995, 1996 and 1997,
respectively. The Company believes that continued growth and profitability will
require expansion of its sales in international markets. Further penetration of
international markets will require the Company to expand existing foreign
operations, to establish additional foreign operations and to translate its
software and manuals into additional foreign languages. This expansion may be
costly and time-consuming and may not generate returns for a significant period
of time, if at all. To the extent that the Company is unable to expand its
international operations or translate its software and manuals into foreign
languages in a timely manner, the Company's ability to further penetrate
international markets would be adversely affected, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
 
     The Company's international operations are subject to risks inherent in
international business activities, including: difficulty in staffing and
managing geographically disparate operations; longer accounts receivable payment
cycles in certain countries; compliance with a variety of foreign laws and
regulations; unexpected changes in regulatory requirements; overlap of different
tax structures; greater difficulty in safeguarding intellectual property; import
and export licensing requirements; trade restrictions; changes in tariff rates;
and general economic conditions in international markets. In particular,
countries in the Asia Pacific region have recently experienced weaknesses in
their currency, banking and equity markets. In the future, these weaknesses
could adversely affect the demand for the Company's products, the U.S. dollar
value of the Company's foreign currency denominated sales and ultimately the
Company's results of operations. There can be no assurance that the Company's
business, results of operations or financial condition will not be adversely
affected by these or other factors that may affect international operations.
 
     To date, the Company's revenues from international operations have
primarily been denominated in United States dollars. As a result, the Company's
sales in international markets may be adversely affected by a strengthening
United States dollar. Certain sales and the majority of the expenses incurred by
the Company's
 
                                       13
<PAGE>   15
 
international operations are denominated in currencies other than the United
States dollar. In addition, with the expansion of international operations, the
number of foreign currencies in which the Company must operate will increase,
resulting in increased exposure to exchange rate fluctuations. The Company has
implemented limited hedging programs to mitigate its exposure to currency
fluctuations. Notwithstanding these hedging programs, exchange rate fluctuations
have caused and will continue to cause currency transaction gains and losses.
While such currency transaction gains and losses have not been material to date,
there can be no assurance that currency transaction losses will not have a
material adverse effect on the Company's business, results of operations or
financial condition in future periods.
 
  RISKS ASSOCIATED WITH STRATEGIC RELATIONSHIPS
 
     The Company has from time to time established relationships with other
companies, including Oracle and SSA, involving collaboration in areas such as
product development, marketing, distribution and implementation. The maintenance
of these relationships and the development of other such relationships is a
meaningful part of the Company's business strategy. However, most of the
Company's current and potential strategic partners are either potential
competitors of the Company or are currently competitive with the Company to some
degree. In addition, certain of the Company's cooperative relationships have
failed to meet expectations, such as the Company's terminated license and
distribution relationship with SAP. There can be no assurance that the Company's
current collaborative relationships will be beneficial to the Company, that such
relationships will be sustained, or that the Company will be able to enter into
successful new strategic relationships in the future.
 
  DEPENDENCE UPON KEY PERSONNEL
 
     The Company's future operating results depend in significant part upon the
continued service of a relatively small number of key technical and senior
management personnel, few of whom are bound by an employment agreement. The
Company's future success also depends on its continuing ability to attract,
train and retain other highly qualified technical and managerial personnel.
Competition for such personnel is intense, and the Company has at times in the
past experienced difficulty in recruiting qualified personnel. There can be no
assurance that the Company will retain its key technical and managerial
employees or that it will be successful in attracting, assimilating and
retaining other highly qualified technical and managerial personnel in the
future. Kanna (Ken) N. Sharma, the Company's Vice Chairman of the Board and
Executive Vice President, has recently been diagnosed with a brain tumor. While
Mr. Sharma is currently providing services to the Company, there can be no
assurance as to how long he will be able to continue to do so. The loss of any
member of the Company's key technical and senior management personnel or the
inability to attract and retain additional qualified personnel could have a
material adverse effect on the Company's business, operating results and
financial condition.
 
  COMPLEXITY OF SOFTWARE PRODUCTS; RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
 
     RHYTHM is a client/server solution which can operate on hardware platforms
from Digital Equipment, Hewlett-Packard, IBM and Sun Microsystems and operating
systems from Sun Microsystems and Microsoft, and can access data from most
widely used SQL (structured query language) databases, including Informix,
Oracle and Sybase. To the extent that additional hardware or software platforms
gain significant market acceptance, the Company may be required to port RHYTHM
to such platforms in order to remain competitive. Such platforms may not be
architecturally compatible with RHYTHM's software product design, and there can
be no assurance that the Company will be able to port RHYTHM to such additional
platforms on a timely basis or at all. Any failure to maintain compatibility
with existing platforms or to port to new platforms that achieve significant
market acceptance would have a material adverse effect on the Company's
business, operating results and financial condition.
 
     As a result of the complexities inherent in client/server computing
environments and the broad functionality and performance demanded by customers
for supply chain management products, major new products and product
enhancements can require long development and testing periods. In addition,
software programs as complex as those offered by the Company may contain
undetected errors or "bugs" when first
                                       14
<PAGE>   16
 
introduced or as new versions are released that, despite testing by the Company,
are discovered only after a product has been installed and used by customers.
While the Company has on occasion experienced delays in the scheduled
introduction of new and enhanced products and products containing bugs, to date
the Company's business has not been materially adversely affected by delays or
the release of products containing errors. There can be no assurance, however,
that errors will not be found in future releases of the Company's software, or
that any such errors will not impair the market acceptance of these products and
adversely affect the Company's business, operating results and financial
condition.
 
     While the Company generally takes steps to avoid interruptions of sales
often associated with the pending availability of new products, customers may
delay their purchasing decisions in anticipation of the general availability of
new or enhanced RHYTHM products, which could have a material adverse effect on
the Company's business and operating results. Moreover, significant delays in
the general availability of such new releases, significant problems in the
installation or implementation of such new releases, or customer dissatisfaction
with such new releases, could have a material adverse effect on the Company's
business, operating results and financial condition.
 
  DEPENDENCE ON TECHNICAL AND IMPLEMENTATION PERSONNEL
 
     The sales of RHYTHM typically involve the utilization of highly qualified
technical sales support personnel. A limitation on the number of qualified
technical sales support personnel could have a material adverse effect on the
Company's ability to expand sales and enter into new vertical markets. The
implementation of RHYTHM requires the services of highly trained implementation
personnel working directly for the Company or for independent consultants. A
shortage in the number of trained implementers, either within the Company or
with third-party consulting firms, could limit the Company's ability to
implement its software on a timely and effective basis. Delayed or ineffective
implementation of the Company's software may limit the Company's ability to
expand its revenues and may result in customer dissatisfaction and damage the
Company's reputation, each of which could have a material adverse effect on the
Company's business, operating results and financial condition.
 
  YEAR 2000 COMPLIANCE
 
     Many older computer systems and software products currently in use are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. As a result, in less than two years, computer systems
and/or software used by many companies may need to be upgraded to comply with
such "Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential effects associated with such compliance.
Although the Company currently offers software products that are designed to be
Year 2000 compliant, Year 2000 problems inherent in a customer's transactional
software programs might significantly limit that customer's ability to realize
the intended benefits offered by RHYTHM.
 
     The Company believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues in a variety of ways.
Many companies are expending significant resources to correct or patch their
current hardware and software systems for Year 2000 compliance. These
expenditures may result in reduced funds available to purchase software products
such as those offered by the Company. Any of the foregoing could result in a
material adverse effect on the Company's business, operating results and
financial condition.
 
     The Company utilizes third-party vendor equipment, telecommunication
products and software products which may or may not be Year 2000 compliant.
Although the Company is currently taking steps to address the impact, if any, of
the Year 2000 compliance issue surrounding such third-party products, failure of
any critical technology components to be Year 2000 compliant may have an adverse
impact on business operations or require the Company to incur unanticipated
expenses to remedy any problems.
 
                                       15
<PAGE>   17
 
  PRODUCT LIABILITY
 
     While the Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims, it is possible that such limitation of liability provisions
may not be effective under the laws of certain jurisdictions. Although the
Company has not experienced any product liability claims to date, there can be
no assurance that the Company will not be subject to such claims in the future.
A successful product liability claim brought against the Company could have a
material adverse effect on the Company's business, operating results and
financial condition. Moreover, defending such a suit, regardless of its merits,
could entail substantial expense and require the time and attention of key
management personnel, either of which could have a material adverse effect on
the Company's business, operating results and financial condition.
 
  VOLATILITY OF STOCK PRICE
 
     The market price of the Common Stock has been volatile at times and in the
future can be expected to be significantly affected by factors such as quarterly
variations in the Company's results of operations, the announcement of new
products or product enhancements by the Company or its competitors,
technological innovations by the Company or its competitors, and general market
conditions or market conditions specific to particular industries. In
particular, the stock prices for many companies in the technology and emerging
growth sectors have experienced wide fluctuations which have often been
unrelated to the operating performance of such companies. Such fluctuations may
adversely affect the market price of the Common Stock.
 
  CONTROL BY MANAGEMENT
 
     As of December 31, 1997, the Company's executive officers beneficially
owned approximately 58.3% of the Company's outstanding Common Stock.
Consequently, the Company's executive officers are able to control the outcome
of all matters submitted for stockholder action, including the election of
members to the Company's Board of Directors and the approval of significant
change in control transactions, and effectively control the management and
affairs of the Company, which may have the effect of delaying or preventing a
change in control of the Company. In addition, Messrs. Sanjiv S. Sidhu, Chairman
of the Board and Chief Executive Officer, Kanna (Ken) N. Sharma, Vice Chairman
of the Board, Executive Vice President and Secretary and Sandeep (Sandy) R.
Tungare, President, Demand Management, constitute three of the five members of
the Board of Directors and, therefore, have significant influence in directing
the actions of the Board of Directors.
 
  ANTI-TAKEOVER PROVISIONS
 
     The Company's Certificate of Incorporation, as amended (the "Charter"), and
Bylaws, as amended (the "Bylaws"), contain certain provisions that may have the
effect of discouraging, delaying or preventing a change in control of the
Company or unsolicited acquisition proposals that a stockholder might consider
favorable, including provisions: authorizing the issuance of "blank check"
preferred stock; providing for a Board of Directors with staggered, three-year
terms; requiring super-majority voting to effect certain amendments to the
Charter and Bylaws; limiting the persons who may call special meetings of
stockholders; prohibiting stockholder action by written consent; and
establishing advance notice requirements for nominations for election to the
Board of Directors or for proposing matters that can be acted upon at
stockholder meetings. Certain provisions of Delaware law and the Company's stock
incentive plans may also have the effect of discouraging, delaying or preventing
a change in control of the Company or unsolicited acquisition proposals.
 
ITEM 2. PROPERTIES
 
     The Company's primary offices are located in approximately 91,000 square
feet of space in Irving, Texas and approximately 23,000 square feet in Dallas,
Texas under leases expiring in October 2000 and December 1998, respectively. The
Company also leases space for its other offices in the United States, Australia,
 
                                       16
<PAGE>   18
 
Belgium, Canada, Denmark, France, Germany, India, Japan, Singapore and the
United Kingdom. These leases expire at various dates through 2003.
 
ITEM 3. LEGAL PROCEEDINGS
 
     None.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     None.
 
                                       17
<PAGE>   19
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The Common Stock has been quoted on the Nasdaq National Market under the
symbol "ITWO" since its initial public offering on April 25, 1996. Prior to the
initial public offering, there had been no public market for the Common Stock.
The following table lists the high and low per share sales prices for the Common
Stock as reported by the Nasdaq National Market for the periods indicated:
 
<TABLE>
<CAPTION>
                                                      HIGH      LOW
                                                      ----      ---
<S>                                                  <C>       <C>
Fourth quarter of 1997.............................  $55.63    $40.25
Third quarter of 1997..............................   56.00     31.50
Second quarter of 1997.............................   50.00     26.00
First quarter of 1997..............................   45.75     25.75

Fourth quarter of 1996.............................  $44.50    $33.00
Third quarter of 1996..............................   43.50     23.75
Second quarter of 1996.............................   58.50     20.00
</TABLE>
 
     As of February 27, 1998, there were 32,690,164 shares of the Common Stock
outstanding held by 394 stockholders of record. The Company believes there are
approximately 4,000 beneficial owners of the Common Stock.
 
     The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends in the foreseeable future. Future
dividends, if any, will be determined by the Company's Board of Directors.
 
     During 1997, the Company issued an aggregate 890,260 shares of its Common
Stock to employees pursuant to exercises of stock options (with exercise prices
ranging from $0.0175 to $12.11 per share) under the Company's 1992 Stock Plan
and 1995 Stock Option/Stock Issuance Plan which were deemed exempt from
registration under Section 5 of the Securities Act of 1933 in reliance upon Rule
701 thereunder. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to, or for sale in connection with, any distribution thereof and
appropriate legends were affixed to the share certificates issued in each such
transaction.
 
                                       18
<PAGE>   20
 
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
 
     The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Item 7 of this Form 10-K and the consolidated
financial statements and notes thereto included in Item 14 of this Form 10-K.
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                               ------------------------------------------------
                                                1993      1994      1995      1996       1997
                                               -------   -------   -------   -------   --------
                                                    (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                            <C>       <C>       <C>       <C>       <C>
STATEMENT OF INCOME DATA:
Revenues:
  Software licenses..........................  $ 4,324   $ 9,833   $20,535   $57,508   $134,725
  Services...................................    1,957     3,334     6,767    22,230     46,673
  Maintenance................................      318     1,036     3,225     8,178     19,308
                                               -------   -------   -------   -------   --------
          Total revenues.....................    6,599    14,203    30,527    87,916    200,706
                                               -------   -------   -------   -------   --------
Costs and expenses:
  Cost of software licenses..................       76        95       135       151      3,384
  Cost of services and maintenance...........    1,360     2,200     5,606    18,631     41,509
  Sales and marketing........................    1,529     4,381     9,866    33,724     69,928
  Research and development...................    1,251     2,483     5,506    17,005     44,120
  General and administrative.................    1,144     1,931     4,628     8,734     18,645
  In-process research and development and
     acquisition costs.......................       --        --        --        --      9,306(1)
                                               -------   -------   -------   -------   --------
          Total costs and expenses...........    5,360    11,090    25,761    78,245    186,892
                                               -------   -------   -------   -------   --------
Operating income.............................    1,239     3,113     4,766     9,671     13,814(1)
Other income (expense), net..................      (74)      (83)     (117)    1,805      3,068
                                               -------   -------   -------   -------   --------
Income before income taxes...................    1,165     3,030     4,649    11,476     16,882
Provision for income taxes...................      456     1,294     1,584     4,274      9,661
                                               -------   -------   -------   -------   --------
Net income...................................  $   709   $ 1,736   $ 3,065   $ 7,202   $  7,221(1)
                                               =======   =======   =======   =======   ========
Net income per share.........................  $  0.04   $  0.09   $  0.15   $  0.26   $   0.24(1)
Net income per share, assuming dilution......  $  0.03   $  0.07   $  0.11   $  0.23   $   0.21(1)
Shares used in computing net income per
  share......................................   19,846    20,383    20,582    27,714     29,746
Shares used in computing net income per
  share, assuming dilution...................   23,882    26,002    28,189    31,701     33,852
</TABLE>
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                -----------------------------------------------
                                                 1993     1994     1995       1996       1997
                                                ------   ------   -------   --------   --------
                                                                (IN THOUSANDS)
<S>                                             <C>      <C>      <C>       <C>        <C>
BALANCE SHEET DATA:
Working capital...............................  $  265   $1,900   $ 6,185   $ 58,824   $162,444
Total assets..................................   3,844    9,597    23,322    101,133    239,202
Total stockholders' equity....................     780    2,516     8,677     68,648    180,417
</TABLE>
 
- ---------------
 
(1)  During 1997, the Company incurred approximately $9.3 million in certain
     acquisition-related expenses in connection with the business combinations
     involving Optimax Systems Corporation, Think Systems Corporation, the
     Operations Planning Group of Computer Sciences Corporation and M-Star
     Systems Limited, of which $4.6 million represents the write-off of
     in-process research and development. The remaining costs include, among
     other things, investment banking, legal and accounting fees and expenses.
     The acquisition-related expenses resulted in a one-time charge to the
     Company's operating results.
 
                                       19
<PAGE>   21
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS
 
OVERVIEW
 
     The Company is the leading provider of client/server-based decision support
software products for supply chain management and related applications. The
Company also provides services such as consulting, training and maintenance
related to these products. Supply chain management encompasses the planning and
scheduling of manufacturing and related logistics, including demand forecasting,
raw materials procurement, work-in-process, distribution and transportation
across multiple enterprises. i2's client/server software solution, RHYTHM, is
designed to provide customers with an end-to-end supply chain management
solution, enabling customers to model complex, multi-enterprise supply chains to
rapidly generate integrated solutions to supply chain challenges such as demand
volatility, production bottlenecks, supply interruptions and distribution
alternatives. RHYTHM utilizes a unique, constraint-based methodology which
simultaneously considers a broad range of factors -- from changing revenue
forecasts to machine capabilities to individual customer commitments -- to
optimize all aspects of the supply chain.
 
     Since inception, the Company has significantly increased its investment in
sales and marketing, service and support, research and development and general
and administrative staff and accelerated such investment beginning in the last
quarter of 1995. As a result of the increased staffing, the Company has
experienced decreases in operating margins in 1995 and 1996. Operating margins
for 1997 decreased primarily due to costs and expenses related to acquisitions.
As a result of these investments, together with the increasing awareness of the
benefits of supply chain management in general and increased market acceptance
of the Company's products in particular, the Company's revenues in 1996 and the
1997 were substantially higher than the levels achieved in prior years. In order
to capture additional market share, the Company expects to continue to increase
staffing levels and incur additional associated costs in future periods through
both direct efforts and potential acquisitions. However, there can be no
assurance that the Company's revenues will grow in future periods or that the
Company will maintain the substantial growth rates in revenues it realized in
1996 and 1997.
 
     The sales cycle for the Company's products is typically six to nine months,
and license fee revenues for a particular period are substantially dependent on
orders received and software functionality delivered in that period.
Furthermore, the Company has experienced, and expects to continue to experience,
significant variation in the size of individual sales. As a result of these and
other factors, the Company's results have varied significantly in the past and
are likely to be subject to significant fluctuations in the future. Accordingly,
the Company believes that period-to-period comparisons of its results of
operations are not necessarily indicative of the results to be expected for any
future period. See "Business -- Additional Factors That May Affect Future
Results -- Potential for Significant Fluctuations in Quarterly Results;
Dependence on Significant Individual Sales" in Item 1 of this Form 10-K.
 
     In May 1997, the Company acquired Think Systems Corporation, a New Jersey
corporation ("Think"). Think provides premium demand chain solutions, including
an integrated line of flexible, client/server-based software applications, for
sales, marketing and logistics departments representing a variety of industries,
including consumer packaged goods, high technology, pharmaceutical, apparel,
automotive and other product-driven specializations. The Think merger culminates
an ongoing relationship commenced pursuant to a January 1996 agreement between
the Company and Think to integrate Think's demand management decision support
software and the Company's RHYTHM suite of planning and optimization software
products. Approximately 3.8 million shares of Common Stock have been issued or
are issuable to the former Think shareholders and optionholders in exchange for
all of the capital stock of Think and all unexpired and unexercised options to
acquire Think capital stock.
 
     Also in May 1997, the Company acquired Optimax Systems Corporation, a
Delaware corporation ("Optimax"). Optimax develops, markets and implements
supply chain sequencing software using unique genetic algorithms for
customer-driven, make-to-order manufacturing. Approximately 1.4 million shares
of Common Stock have been issued or are issuable to the former Optimax
stockholders and optionholders in
 
                                       20
<PAGE>   22
 
exchange for all of the capital stock of Optimax and all unexpired and
unexercised options to acquire Optimax capital stock.
 
     For accounting purposes, the Think and Optimax acquisitions were each
treated as a pooling of interests. Accordingly, the Company's consolidated
financial statements have been restated to give retroactive effect to the Think
and Optimax acquisitions and include the combined operations of the Company,
Think and Optimax for all periods presented. The following discussion and
analysis should be read in conjunction with such consolidated financial
statements.
 
     In April 1997, the Company acquired the Operations Planning Group ("OPG"),
a business activity of Computer Sciences Corporation, for a cash purchase price
of $1.0 million. OPG provides operation planning environment optimization
software for planning and scheduling for customers in the consumer packaged
goods industry. In November 1997, the Company acquired the remaining interest in
a minority owned subsidiary, M-Star Systems Limited ("M-Star"), for an aggregate
purchase price of $3.75 million. M-Star provides logistics software designed to
present a global view of a company's supply network on a real-time basis by
accessing the company's existing data resources. The acquisitions of OPG and
M-Star were accounted for under the purchase accounting method.
 
     In the second quarter of 1997, the Company incurred approximately $5.6
million in certain expenses related to the Think, Optimax and OPG acquisitions.
In the fourth quarter of 1997, the Company incurred approximately $3.7 million
in certain expenses related to the acquisition of M-Star. Of these expenses,
$4.6 million represents the write-off of in-process research and development.
The remaining costs included, among other things, investment banking, legal and
accounting fees and expenses. See "Business -- Additional Factors That May
Affect Future Results -- Integration of Recent Acquisitions; Potential Future
Acquisitions" in Item 1 of this Form 10-K.
 
RESULTS OF OPERATIONS
 
     The following table sets forth, for the periods indicated, the percentages
of total revenues represented by certain items reflected in the Company's
consolidated statements of income:
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                               1995     1996     1997
                                                              ------   ------   ------
<S>                                                           <C>      <C>      <C>
Revenues:
  Software licenses.........................................   67.2%    65.4%    67.1%
  Services..................................................   22.2     25.3     23.3
  Maintenance...............................................   10.6      9.3      9.6
                                                              -----    -----    -----
          Total revenues....................................  100.0    100.0    100.0
Costs and expenses:
  Cost of software licenses.................................    0.5      0.2      1.7
  Cost of services and maintenance..........................   18.4     21.2     20.7
  Sales and marketing.......................................   32.3     38.4     34.8
  Research and development..................................   18.0     19.3     22.0
  General and administrative................................   15.2      9.9      9.3
  In-process research and development and acquisition
     costs..................................................     --       --      4.6
                                                              -----    -----    -----
          Total costs and expenses..........................   84.4     89.0     93.1
                                                              -----    -----    -----
Operating income............................................   15.6     11.0      6.9
Other income (expense), net.................................   (0.4)     2.1      1.5
                                                              -----    -----    -----
Income before income taxes..................................   15.2     13.1      8.4
Provision for income taxes..................................    5.2      4.9      4.8
                                                              -----    -----    -----
Net income..................................................   10.0%     8.2%     3.6%
                                                              =====    =====    =====
</TABLE>
 
                                       21
<PAGE>   23
 
  REVENUES
 
     The Company's revenues consist of software license revenues, service
revenues and maintenance revenues. Software license revenues consist of sales of
software licenses which were recognized upon execution of a contract and
shipment of the software, provided that no significant vendor obligations
remained outstanding, amounts were due within one year and collection was
considered probable by management. As discussed in the following paragraph,
software license revenue recognition for future periods has been revised.
Service revenues are primarily derived from fees for implementation, consulting
and training services and are recognized as the services are performed.
Maintenance revenues are derived from customer support agreements generally
entered into in connection with initial license sales and subsequent renewals.
Maintenance revenues are recognized ratably over the term of the maintenance
period. Payments for maintenance fees are generally made in advance.
 
     In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition," which
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions. Under SOP 97-2, software license
revenues will be recognized upon execution of a contract and delivery of
software, provided that the license fee is fixed and determinable, no
significant production, modification or customization of the software is
required and collection is considered probable by management. The provisions of
SOP 97-2 are effective for the Company for transactions entered into after
December 31, 1997. The Company does not currently believe that the application
of SOP 97-2 will have a material impact on its consolidated financial
statements. However, because SOP 97-2 does not give specific implementation
guidance and no industry practice has been established regarding the provisions
of SOP 97-2, there can be no assurance that SOP 97-2 will not have a material
impact on the Company's revenue recognition practices, which could be material
to the Company's consolidated financial statements.
 
     Total revenues increased 128.3% to $200.7 million in 1997 from $87.9
million in 1996, and increased 188.0% in 1996 from $30.5 million in 1995. The
Company currently derives substantially all of its revenues from RHYTHM licenses
and related services and maintenance. The Company expects that RHYTHM related
revenues will continue to account for substantially all of the Company's
revenues in the foreseeable future. As a result of the Company's dependence on
the continued market acceptance of RHYTHM and enhancements thereto, there can be
no assurance that total revenues will continue to increase at the rates
experienced in prior periods, if at all. See "Business -- Additional Factors
That May Affect Future Results -- Product Concentration; Dependence on Product
Line Expansion" in Item 1 of this Form 10-K.
 
     SOFTWARE LICENSES. Revenues from software licenses increased 134.3% to
$134.7 million in 1997 from $57.5 million in 1996, and increased 180.0% in 1996
from $20.5 million in 1995. Software license revenues constituted 67.1%, 65.4%
and 67.2% of total revenues in 1997, 1996 and 1995, respectively. The
significant increases in the dollar amount of software license revenues were
primarily due to an increased awareness of the benefits of supply chain
management, growing market acceptance of the Company's software products, a
substantial investment in the Company's infrastructure and continued expansion
into new geographic and vertical markets. To date, sales of software licenses
have principally been derived from direct sales to customers. Although the
Company believes that direct sales will continue to account for a majority of
software license revenues, the Company's strategy is to increase the level of
indirect sales activities. The Company expects that sales of its software
products through sales alliances, distributors, resellers and other indirect
channels will increase as a percentage of software license revenues. However,
there can be no assurance that the Company's efforts to expand indirect sales
will be successful. See "Business -- Sales and Marketing" in Item 1 of this Form
10-K.
 
     SERVICES. Revenues from services increased 110.0% to $46.7 million in 1997
from $22.2 million in 1996, and increased 228.5% in 1996 from $6.8 million in
1995. Service revenues constituted 23.3%, 25.3% and 22.2% of total revenues in
1997, 1996, and 1995, respectively. The significant increases in the dollar
amount of service revenues were primarily due to the significant increase in the
number of RHYTHM licenses sold and a significant investment in the Company's
consulting organization as a result of the increased demand for the Company's
products. The increases were also due to an increase in the use of third-party
consultants to
 
                                       22
<PAGE>   24
 
provide implementation services to the Company's customers which has allowed the
Company to more rapidly penetrate international markets. Service revenues as a
percentage of total revenues have fluctuated, and are expected to continue to
fluctuate on a period-to-period basis based upon the demand for implementation,
training and consulting services.
 
     MAINTENANCE. Revenues from maintenance increased 136.1% to $19.3 million in
1997 from $8.2 million in 1996, and increased 153.6% in 1996 from $3.2 million
in 1995. Maintenance revenues constituted 9.6%, 9.3% and 10.6% of total revenues
in 1997, 1996 and 1995, respectively. The significant increases in the dollar
amount of maintenance revenues were primarily due to the continued increase in
the number of RHYTHM licenses sold and a high percentage of maintenance
agreement renewals. The Company expects that the dollar amount of maintenance
revenues will continue to increase, but maintenance revenues as a percentage of
total revenues should not vary significantly from the percentage of total
revenues achieved in 1997.
 
     CONCENTRATION OF REVENUES. During 1997, no individual customer accounted
for more than 10% of total revenues. During 1996, one customer accounted for
approximately 13% of total revenues. During 1995, this same customer accounted
for approximately 11% of total revenues, while one other customer accounted for
approximately 10% of total revenues. The Company believes that the loss of any
of these particular customers would not have a material adverse effect upon the
Company's business, operating results or financial condition.
 
     INTERNATIONAL REVENUES. The Company recognized $65.4 million, $20.6 million
and $2.2 million of revenues from international sources in 1997, 1996 and 1995,
representing approximately 33%, 23% and 7% of total revenues, respectively. The
Company's revenues from international sources were primarily generated from
customers located in Asia, Canada and Europe. In 1997, revenues from customers
located in Europe and Asia accounted for approximately 17% and 10% of total
revenues, respectively. In 1996, revenues from customers located in Europe
accounted for approximately 13% of total revenues. The significant increases in
revenues from international sources were primarily due to the continued
expansion of the Company's international sales and consulting operations as well
as software localization efforts. The Company believes that continued growth and
profitability will require expansion of its sales in international markets. In
order to successfully increase international sales, the Company has utilized and
will continue to utilize substantial resources to expand existing international
operations, establish additional international operations and hire additional
personnel. See "Business -- Additional Factors That May Affect Future
Results -- International Operations and Currency Fluctuations" in Item 1 of this
Form 10-K.
 
     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for the way
that public business enterprises report information about operating segments and
for related disclosures about products and services, geographic areas and major
customers. The provisions of SFAS No. 131 are effective for the Company
beginning in 1998. Although the Company currently operates in only one industry
segment, the Company is evaluating the potential impact of SFAS No. 131 on its
reporting requirements.
 
  COSTS AND EXPENSES
 
     COST OF SOFTWARE LICENSES. Cost of software licenses consists primarily of
(i) commissions paid to third parties in connection with joint marketing and
other related agreements, (ii) royalty fees associated with third-party software
included with the sales of RHYTHM, (iii) the cost of user documentation and (iv)
the cost of reproduction and delivery of the software. Cost of software licenses
was $3.4 million, $151,000 and $135,000 in 1997, 1996 and 1995, representing
2.5%, 0.3% and 0.7% of software license revenues, respectively. The significant
increase in cost of software licenses in 1997, both in dollar amount and as a
percentage of software license revenues, was primarily due to an increase in
commissions paid to third parties in connection with joint marketing and other
related agreements. Cost of software licenses decreased significantly in the
second half of 1997 as compared to the first half of 1997 as a result of the
termination of the license and distribution agreement with SAP pursuant to which
the Company was required to pay SAP a commission on RHYTHM products sold to
SAP's customers. The Company expects cost of software licenses to vary in the
future depending upon the amount of commissions due to other third parties in
connection with joint
 
                                       23
<PAGE>   25
 
marketing and other related agreements and the amount of royalty fees associated
with third-party software included with the sales of RHYTHM.
 
     COST OF SERVICES AND MAINTENANCE. Cost of services and maintenance consists
primarily of costs associated with implementation, consulting and training
services. Cost of services and maintenance also includes the cost of providing
software maintenance to customers such as hotline telephone support and
packaging and shipping costs related to new releases of software and updated
user documentation, none of which costs have been significant to date. Cost of
services and maintenance was $41.5 million, $18.6 million and $5.6 million in
1997, 1996 and 1995, representing 62.9%, 61.3% and 56.1% of total services and
maintenance revenues, respectively. The increases in cost of services and
maintenance both in dollar amount and as a percentage of total services and
maintenance revenues were primarily due to the increase in the number of
consultants, product support and training staff and the increased use of
third-party consultants to provide implementation services. In addition,
consulting and support centers were established and expanded in Canada, Europe
and Japan in the last three months of 1996 and during 1997. The Company expects
to continue to increase the number of its consulting, product support and
training personnel in the foreseeable future as a means to expand into different
geographic and vertical markets. To the extent that the Company's license sales
do not increase at anticipated rates, the hiring of additional personnel could
adversely affect the Company's gross margins.
 
     SALES AND MARKETING. Sales and marketing expenses consist primarily of
personnel costs, commissions, office facilities, travel, promotional events such
as trade shows, seminars and technical conferences, advertising and public
relations programs. Sales and marketing expenses were $69.9 million, $33.7
million and $9.9 million in 1997, 1996 and 1995, representing 34.8%, 38.4% and
32.3% of total revenues, respectively. The increases in the dollar amount of
sales and marketing expenses were primarily due to (i) increased staffing as the
Company established new domestic and international sales offices and expanded
its existing direct sales force, (ii) increased sales commissions as a result of
significantly higher revenues and (iii) increased marketing and promotional
activities. The decrease in sales and marketing expenses as a percentage of
total revenues in 1997 as compared to 1996 was primarily due to the Company's
ability to leverage its growing base of sales and marketing resources to
significantly increase revenues. The Company expects to continue to increase its
sales and marketing activities in order to expand its international sales
operations and to enter into new vertical markets. As a result, the Company
believes that the dollar amount of sales and marketing expenses will continue to
increase.
 
     RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of the personnel and related costs associated with the Company's
research and development activities. Research and development expenses were
$44.1 million, $17.0 million and $5.5 million in 1997, 1996 and 1995,
representing 22.0%, 19.3% and 18.0% of total revenues, respectively. The
increases in research and development expenses both in dollar amount and as a
percentage of total revenues were primarily due to the hiring of additional
research and development personnel and other related costs incurred in
connection with expanding the Company's research and development centers,
particularly its international development facilities. The Company expects that
the dollar amount of research and development expenses will continue to increase
as the Company continues to invest in developing new products, applications and
product enhancements for new vertical markets.
 
     In accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed," software development costs
are expensed as incurred until technological feasibility has been established,
at which time such costs are capitalized until the product is available for
general release to customers. To date, the establishment of technological
feasibility of the Company's products and general release of such software have
substantially coincided. As a result, software development costs qualifying for
capitalization have been insignificant, and therefore, the Company has not
capitalized any software development costs.
 
     GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of the personnel and other costs of the finance, human resources,
information systems, administrative and executive departments of the Company and
the fees and expenses associated with legal, accounting and other services.
 
                                       24
<PAGE>   26
 
General and administrative expenses were $18.6 million, $8.7 million and $4.6
million in 1997, 1996 and 1995, representing 9.3%, 9.9% and 15.2% of total
revenues, respectively. The increases in the dollar amount of general and
administrative expenses were primarily the result of increased staffing and
related costs associated with the growth of the Company's business during these
periods. The decreases in general and administrative expenses as a percentage of
total revenues were primarily due to the substantial increase in total revenues
and the Company's ability to leverage its base of resources to support a larger
organization. The Company expects that the dollar amount of general and
administrative expenses will continue to increase in the foreseeable future.
 
     IN-PROCESS RESEARCH AND DEVELOPMENT AND ACQUISITION COSTS. The Company
incurred approximately $9.3 million in certain acquisition-related expenses in
connection with the acquisitions of Think, Optimax and OPG which were recorded
in the second quarter of 1997 and in connection with the acquisition of M-Star
which was recorded in the fourth quarter of 1997. Of these expenses, $4.6
million represents the write-off of in-process research and development. The
remaining costs included, among other things, investment banking, legal and
accounting fees and expenses.
 
  OTHER INCOME (EXPENSE)
 
     Other income (expense) consists primarily of interest income on short-term
investments and overnight repurchase agreements offset by interest expense on
the Company's debt. Other income (expense) was $3.1 million, $1.8 million and
($117,000) in 1997, 1996 and 1995, representing 1.5%, 2.1% and (0.4%) of total
revenues, respectively. The increases in the dollar amount of other income
(expense) were primarily due to interest earned on higher balances of cash, cash
equivalents and short-term investments resulting from net proceeds of the public
offerings of the Company's common stock which were completed in May 1996 and
December 1997, and a decrease in interest expense due to the repayment of a
majority of the Company's outstanding debt in June 1996.
 
  PROVISION FOR INCOME TAXES
 
     The Company recorded income tax expense of $9.7 million, $4.3 million and
$1.6 million in 1997, 1996 and 1995, respectively. The Company's effective
income tax rates were 57.2%, 37.2% and 34.1% in 1997, 1996 and 1995,
respectively. The Company's effective income tax rate was higher in 1997 than in
1996 primarily due to the non-deductibility of certain of the
acquisition-related expenses. The Company's effective income tax rate was higher
in 1996 than in 1995 due to the non-deductibility of the amortization of
deferred compensation expense and higher effective state income tax rates.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Since its inception, the Company has primarily financed its operations and
met its capital expenditure requirements through cash flows from operations,
long-term borrowings and sales of equity securities. Cash flows from operations
were $5.8 million, $6.7 million and $3.4 million in 1997, 1996 and 1995,
respectively. Operating cash flows decreased in 1997 as compared to 1996
primarily due to an increase in accounts receivable partially offset by
increases in the tax benefit from stock option activity, accrued liabilities and
accrued compensation and related expenses. Operating cash flows increased in
1996 as compared to 1995 primarily due to the tax benefit from stock option
activity and increases in net income, accounts payable, accrued liabilities,
accrued compensation and related expenses and deferred revenue, partially offset
by an increase in accounts receivable. The tax benefit from stock option
activity is primarily the result of disqualifying dispositions of stock acquired
under the Company's stock plans.
 
     Accounts receivable, net of allowance for doubtful accounts, increased to
$71.2 million at December 31, 1997 from $33.6 million at December 31, 1996,
primarily due to a continued significant increase in revenues. Based upon the
nature of the Company's customers and its past collection experience, the
Company does not expect to encounter collection difficulties with respect to
such accounts that would have a material effect on the Company's financial
position or results of operations.
 
                                       25
<PAGE>   27
 
     Average days' sales outstanding was 85 days for 1997 as compared to 76 days
for 1996. The increase in days' sales outstanding was primarily due to a
significant increase in receivables from international customers which tend to
have longer payment terms compared to customers located in the United States.
Additionally, the Company continues to experience larger sales for which some
amounts are not due upon execution of the contract. Average days' sales
outstanding can fluctuate for a variety of reasons including the timing and
billing of receivables for which the related revenues may not yet be
recognizable.
 
     Cash used in investing activities was $9.7 million for 1997 as compared to
$26.9 million for 1996. Cash used in investing activities was higher in 1996
than in 1997 primarily due to the initial investment of the net proceeds from
the initial public offering of the Company's common stock which was completed in
May 1996. Proceeds from the public offering of the Company's common stock which
was completed in December 1997 were invested primarily in financial instruments
classified as cash equivalents. At December 31, 1997, the Company did not have
any material commitments for capital expenditures.
 
     Cash provided by financing activities was $93.6 million for 1997 as
compared to $48.9 million for 1996. Cash provided by financing activities for
1997 includes the Company's net proceeds of $89.4 million from its December 1997
public offering of common stock. Cash provided by financing activities for 1996
includes the Company's net proceeds of $43.7 million from its initial public
offering of common stock which was completed in May 1996.
 
     As of December 31, 1997, the Company had $162.4 million of working capital,
including $125.9 million in cash and cash equivalents and $14.5 million in
short-term investments as compared to $58.8 million of working capital as of
December 31, 1996, including $36.1 million in cash and cash equivalents and
$18.0 million in short-term investments.
 
     The Company may in the future pursue additional acquisitions of businesses,
products and technologies, or enter into joint venture arrangements, that could
complement or expand the Company's business. Any material acquisition or joint
venture could result in a decrease to the Company's working capital depending on
the amount, timing and nature of the consideration to be paid.
 
     The Company has a revolving credit agreement with NationsBank of Texas,
N.A. (the "Lender") which expires in June 1998, is unsecured and contains
customary restrictive covenants, including covenants requiring the Company to
maintain certain financial ratios. The revolving credit agreement is not subject
to a borrowing base limitation and the borrowings thereunder bear interest at
the Lender's prime lending rate. At December 31, 1997, the Company had no
borrowings outstanding under the revolving credit agreement.
 
     The Company is currently evaluating what actions, if any, will be necessary
to make its internal systems Year 2000 compliant. Although any expenses
associated with these actions cannot presently be determined, the Company does
not currently expect such expenses to materially adversely affect its financial
position or results of operations.
 
     The Company believes that existing cash and cash equivalent balances,
short-term investment balances, available borrowings under the revolving credit
agreement and potential cash flow from operations will satisfy the Company's
working capital and capital expenditure requirements for at least the next 12
months. However, any material acquisitions of complementary businesses, products
or technologies could require the Company to obtain additional equity or debt
financing. There can be no assurance that such financing will be available on
acceptable terms, it at all.
 
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The information required by this item is included in Part IV Item 14 (a)
(1) and (2).
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
     None.
 
                                       26
<PAGE>   28
 
                                    PART III
 
     Certain information required by Part III is omitted from this Form 10-K
because the Company will file a definitive Proxy Statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Form 10-K, and certain information to be
included therein is incorporated herein by reference.
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The information required by this Item is incorporated by reference to the
Proxy Statement under the sections captioned "Proposal 1 -- Election of
Director," "Executive Compensation -- Directors and Executive Officers" and
"Compliance with Section 16 (a) of the Securities Exchange Act of 1934."
 
ITEM 11. EXECUTIVE COMPENSATION
 
     The information required by this Item is incorporated by reference to the
Proxy Statement under the section captioned "Executive Compensation."
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information required by this Item is incorporated by reference to the
Proxy Statement under the section captioned "Principal Stockholders."
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information required by this Item is incorporated by reference to the
Proxy Statement under the section captioned "Executive Compensation -- Certain
Transactions with Management."
 
                                       27
<PAGE>   29
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
     (a) The following documents are filed as part of this Form 10-K:
 
         1.  Consolidated Financial Statements. The following consolidated
             financial statements of i2 Technologies, Inc. are filed as part of
             this Form 10-K on the pages indicated:
 
<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
        <S>  <C>                                                           <C>  <C>
             Report of Independent Auditors..............................  F-1
 
             Covered by Report of Independent Auditors:
             Consolidated Balance Sheets at December 31, 1996 and 1997...  F-2
             Consolidated Statements of Income for the years ended
               December 31, 1995, 1996 and 1997..........................  F-3
             Consolidated Statements of Stockholders' Equity for the
               years ended December 31, 1995, 1996 and 1997..............  F-4
             Consolidated Statements of Cash Flows for the years ended
               December 31, 1995, 1996 and 1997..........................  F-5
             Notes to Consolidated Financial Statements (except Note
               13).......................................................  F-6
 
             Not Covered by Report of Independent Auditors:
             Note 13 of the Notes to Consolidated Financial Statements...  F-18

         2.  Consolidated Financial Statement Schedules:
             Schedule II -- Valuation and Qualifying Accounts............  S-1
 
             Schedules other than the one listed above are omitted as the required
             information is inapplicable or the information is presented in the
             consolidated financial statements or related notes.

         3.  Exhibits. The exhibits to this Form 10-K have been included only with
             the copy of this Form 10-K filed with the Securities and Exchange
             Commission. Copies of individual exhibits will be furnished to
             stockholders upon written request to the Company and payment of a
             reasonable fee.
</TABLE>
 
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
          2.1*           -- Agreement and Plan of Merger, dated May 15, 1997, by and
                            among the Company, TSC Acquisition Corporation and Think
                            Systems Corporation (filed as Exhibit 2.1 to the
                            Company's Current Report on Form 8-K dated May 15, 1997
                            (the "May 1997 8-K"))
          2.2*           -- Agreement and Plan of Merger, dated May 15, 1997, by and
                            among the Company, OSC Acquisition Corporation and
                            Optimax Systems Corporation (filed as Exhibit 2.2 to the
                            May 1997 8-K)
          3.1*           -- Certificate of Incorporation, as amended (filed as
                            Exhibit 3.1 to the Company's Registration Statement on
                            Form S-1 (Reg. No. 333-1752) (the "Form S-1")
          3.2            -- Bylaws, as amended
          4.1*           -- Specimen Common Stock certificate (filed as Exhibit 4.1
                            to the Form S-1)
         10.1*           -- Form of Registration Rights Agreement, dated April 1,
                            1996, among the Company, Sanjiv S. Sidhu and Sidhu-Singh
                            Family Investments, Ltd. (filed as Exhibit 10.2 to the
                            Form S-1)
         10.2*+          -- 1995 Stock Option/Stock Issuance Plan (filed as Exhibit
                            10.3 to the Form S-1)
         10.3*           -- Form of Indemnification Agreement between the Company and
                            each of its officers and directors (filed as Exhibit 10.4
                            to the Form S-1)
         10.4*           -- Loan Agreement, dated August 11, 1994, between the
                            Company and NationsBank of Texas, N.A. (filed as Exhibit
                            10.5 to the Form S-1)
</TABLE>
 
                                       28
<PAGE>   30
 
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.5*           -- Loan Increase and First Modification Agreement, between
                            the Company and NationsBank of Texas, N.A., and
                            acknowledged and consented to by Sanjiv S. Sidhu and
                            Lekha Singh (filed as Exhibit 10.6 to the Form S-1)
         10.6*           -- Second Modification Agreement, dated December 31, 1995,
                            between the Company and NationsBank of Texas, N.A., and
                            acknowledged and consented to by Sanjiv S. Sidhu and
                            Lekha Singh (filed as Exhibit 10.7 to the Form S-1)
         10.7*           -- Form of Employee Proprietary Information Agreement
                            between the Company and each of its employees (filed as
                            Exhibit 10.9 to the Form S-1)
         10.8*           -- Lease Agreement, dated July 14, 1995, between the Company
                            and TRST Irving, Inc. (filed as Exhibit 10.10 to the Form
                            S-1)
         10.9*           -- Lease Agreement, dated June 29, 1990, as amended, between
                            the Company and Park West E-2 Associates (filed as
                            Exhibit 10.11 to the Form S-1)
         10.10*#         -- Software License Agreement, dated August 31, 1995,
                            between the Company and Minnesota Mining and
                            Manufacturing (filed as Exhibit 10.12 to the Form S-1)
         10.11*          -- Second Amendment of Lease Agreement between the Company
                            and TRST Irving, Inc. dated as of February 23, 1996
                            (filed as Exhibit 10.1 to the Company's Quarterly Report
                            on Form 10-Q for the quarter ended March 31, 1996)
         10.12*          -- Third Modification Agreement, dated April 26, 1996,
                            between the Company and NationsBank of Texas, N.A. (filed
                            as Exhibit 10.1 to the Company's Quarterly Report on Form
                            10-Q for the quarter ended June 30, 1996 (the "June 1996
                            10-Q"))
         10.13*          -- Fourth Modification Agreement, dated June 26, 1996,
                            between the Company and NationsBank of Texas, N.A. (filed
                            as Exhibit 10.2 to the June 1996 10-Q)
         10.14*          -- Fifth Extension and Modification Agreement, dated June
                            30, 1996, between the Company and NationsBank of Texas,
                            N.A. (filed as Exhibit 10.3 to the June 1996 10-Q)
         10.15*          -- Third Amendment to Lease Agreement between the Company
                            and TRST Irving, Inc. dated as of July 25, 1996 (filed as
                            Exhibit 10.1 to the Company's Quarterly Report for the
                            quarter ended September 30, 1996 (the "September 1996
                            10-Q"))
         10.16*          -- Fifth Amendment to Lease Agreement between the Company
                            and Principal Mutual Life Insurance Company dated as of
                            August 29, 1996 (filed as Exhibit 10.2 to the September
                            1996 10-Q)
         10.17*          -- Fourth Amendment to Lease Agreement between the Company
                            and TRST Irving, Inc. dated as of December 19, 1996
                            (filed as Exhibit 10.17 to the Company's Annual Report on
                            Form 10-K for the year ended December 31, 1996)
         10.18*          -- Registration Rights Agreement, dated May 15, 1997, by and
                            among the Company and each of the former shareholders of
                            Think Systems Corporation (filed as Exhibit 99.3 to the
                            May 1997 8-K)
         10.19*          -- Registration Rights Agreement, dated May 15, 1997, by and
                            among the Company and each of the former shareholders of
                            Optimax Systems Corporation (filed as Exhibit 99.4 to the
                            May 1997 8-K)
         10.20*          -- Employee Stock Purchase Plan (filed as Exhibit 99.8 to
                            the Company's Registration Statement on Form S-8 (Reg.
                            No. 333-03703))
         10.21*          -- International Employee Stock Purchase Plan (filed as
                            Exhibit 99.1 to the Company's Registration Statement on
                            Form S-8 (Reg. No. 333-27009))
</TABLE>
 
                                       29
<PAGE>   31
 
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.22*          -- Think Systems Corporation 1996 Incentive Stock Plan
                            (filed as Exhibit 99.3 to the Company's Registration
                            Statement on Form S-8 (Reg. No. 333-28147) (the
                            "Think/Optimax S-8"))
         10.23*          -- Think Systems Corporation 1997 Incentive Stock Plan
                            (filed as Exhibit 99.1 to the Think/Optimax S-8)
         10.24*          -- Optimax Systems Corporation Stock Option Plan (filed as
                            Exhibit 99.10 to the Think/Optimax S-8)
         21.1            -- List of subsidiaries
         23.1            -- Consent of Ernst & Young LLP
         24.1            -- Power of Attorney, pursuant to which amendments to this
                            Form 10-K may be filed, is included on the signature page
                            contained in Part IV of this Form 10-K.
         27.1            -- Financial Data Schedule
</TABLE>
 
- ---------------
 
*    Incorporated herein by reference to the indicated filing.
 
+    Management contract or compensation plan.
 
#    Confidential treatment previously granted.
 
     (b) Reports on Form 8-K.
 
         During the quarter ended December 31, 1997, the Company filed the
         following Current Reports on Form 8-K:
 
         1. The Company filed a Form 8-K dated November 21, 1997 (Item 5)
            reporting the execution of a Development and Distribution Agreement
            between the Company and Oracle Corporation.
 
         2. The Company filed a Form 8-K dated December 5, 1997 (Item 5)
            reporting the pricing of a public offering of 3,000,000 shares of 
            its common stock.
 
                                       30
<PAGE>   32
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                            i2 TECHNOLOGIES, INC.
 
Dated: March 10, 1998                       By:      /s/ DAVID F. CARY
                                              ----------------------------------
                                                        David F. Cary
                                              Vice President and Chief Financial
                                                            Officer
 
                               POWER OF ATTORNEY
 
     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints, Sanjiv S. Sidhu and
David F. Cary, and each or any of them, his true and lawful attorney-in-fact and
agent, each with the power of substitution and resubstitution, for him in any
and all capacities, to sign any and all amendments to this Annual Report (Form
10-K) and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                    DATE
                      ---------                                     -----                    ----
<C>                                                    <S>                              <C>
 
                 /s/ SANJIV S. SIDHU                   Chairman of the Board and Chief  March 10, 1998
- -----------------------------------------------------    Executive Officer (Principal
                   Sanjiv S. Sidhu                       executive officer)
 
                 /s/ KANNA N. SHARMA                   Vice Chairman of the Board,      March 10, 1998
- -----------------------------------------------------    Executive Vice President and
                   Kanna N. Sharma                       Secretary
 
               /s/ SANDEEP R. TUNGARE                  Director and President, Demand   March 10, 1998
- -----------------------------------------------------    Management
                 Sandeep R. Tungare
 
                  /s/ DAVID F. CARY                    Vice President and Chief         March 10, 1998
- -----------------------------------------------------    Financial Officer (Principal
                    David F. Cary                        finance and accounting
                                                         officer)
 
                 /s/ HARVEY B. CASH                    Director                         March 10, 1998
- -----------------------------------------------------
                   Harvey B. Cash
 
               /s/ THOMAS J. MEREDITH                  Director                         March 10, 1998
- -----------------------------------------------------
                 Thomas J. Meredith
</TABLE>
 
                                       31
<PAGE>   33
 
                         REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors
i2 Technologies, Inc.
 
     We have audited the accompanying consolidated balance sheets of i2
Technologies, Inc. and its subsidiaries (the Company) as of December 31, 1996
and 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. Our audits also included the financial statement schedule listed in
the index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of i2
Technologies, Inc. and its subsidiaries at December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
 
                                            /s/ ERNST & YOUNG LLP
 
Dallas, Texas
January 21, 1998
 
                                       F-1
<PAGE>   34
 
                             i2 TECHNOLOGIES, INC.
 
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                1996        1997
                                                              --------    --------
<S>                                                           <C>         <C>
 
                                      ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 36,078    $125,853
  Short-term investments....................................    18,031      14,538
  Accounts receivable, net of allowance for doubtful
     accounts of $1,269 and $4,059, respectively............    33,615      71,209
  Notes receivable -- stockholders..........................     1,000          --
  Prepaid and other current assets..........................     2,219       3,363
  Income tax receivable.....................................        --       1,097
  Deferred income taxes.....................................        --       3,823
                                                              --------    --------
          Total current assets..............................    90,943     219,883
Furniture and equipment, net................................     8,934      18,592
Deferred income taxes and other assets......................     1,256         727
                                                              --------    --------
          Total assets......................................  $101,133    $239,202
                                                              ========    ========
 
                       LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
  Accounts payable..........................................  $  4,583    $  6,855
  Accrued liabilities.......................................     4,390      10,412
  Accrued compensation and related expenses.................     3,794      13,575
  Current portion of deferred revenue.......................    18,932      26,367
  Income taxes payable......................................       363          --
  Deferred income taxes.....................................        57         230
                                                              --------    --------
          Total current liabilities.........................    32,119      57,439
Long-term debt..............................................       100          --
Deferred revenue............................................       266         518
Deferred income taxes.......................................        --         828
                                                              --------    --------
          Total liabilities.................................    32,485      58,785
                                                              --------    --------
Stockholders' equity:
  Preferred Stock, $0.001 par value, 5,000,000 shares
     authorized, none issued................................        --          --
  Common Stock, $0.00025 par value, 50,000,000 shares
     authorized, 28,883,410 and 32,325,554 shares issued and
     outstanding, respectively..............................         7           8
  Additional paid-in capital................................    58,074     161,881
  Deferred compensation.....................................    (1,865)     (1,125)
  Retained earnings.........................................    12,432      19,653
                                                              --------    --------
          Total stockholders' equity........................    68,648     180,417
                                                              --------    --------
          Total liabilities and stockholders' equity........  $101,133    $239,202
                                                              ========    ========
</TABLE>
 
                            See accompanying notes.
 
                                       F-2
<PAGE>   35
 
                             i2 TECHNOLOGIES, INC.
 
                       CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                               1995       1996        1997
                                                              -------    -------    --------
<S>                                                           <C>        <C>        <C>
Revenues:
  Software licenses.........................................  $20,535    $57,508    $134,725
  Services..................................................    6,767     22,230      46,673
  Maintenance...............................................    3,225      8,178      19,308
                                                              -------    -------    --------
          Total revenues....................................   30,527     87,916     200,706
                                                              -------    -------    --------
Costs and expenses:
  Cost of software licenses.................................      135        151       3,384
  Cost of services and maintenance..........................    5,606     18,631      41,509
  Sales and marketing.......................................    9,866     33,724      69,928
  Research and development..................................    5,506     17,005      44,120
  General and administrative................................    4,648      8,734      18,645
  In-process research and development and acquisition
     costs..................................................       --         --       9,306
                                                              -------    -------    --------
          Total costs and expenses..........................   25,761     78,245     186,892
                                                              -------    -------    --------
Operating income............................................    4,766      9,671      13,814
Other income (expense), net.................................     (117)     1,805       3,068
                                                              -------    -------    --------
Income before income taxes..................................    4,649     11,476      16,882
Provision for income taxes..................................    1,584      4,274       9,661
                                                              -------    -------    --------
Net income..................................................  $ 3,065    $ 7,202    $  7,221
                                                              =======    =======    ========
Net income per share........................................  $  0.15    $  0.26    $   0.24
Net income per share, assuming dilution.....................  $  0.11    $  0.23    $   0.21
Weighted average common shares outstanding..................   20,582     27,714      29,746
Weighted average common shares outstanding, assuming
  dilution..................................................   28,189     31,701      33,852
</TABLE>
 
                            See accompanying notes.
 
                                       F-3
<PAGE>   36
 
                             i2 TECHNOLOGIES, INC.
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                         COMMON STOCK        ADDITIONAL                                       TOTAL
                                      -------------------      PAID-IN        DEFERRED       RETAINED     STOCKHOLDERS'
                                       SHARES      AMOUNT      CAPITAL      COMPENSATION     EARNINGS        EQUITY
                                      ---------    ------    -----------    ------------    ----------    -------------
<S>                                   <C>          <C>       <C>            <C>             <C>           <C>
Balance at December 31, 1994........     19,342    $   5     $       176     $       --     $    2,335     $     2,516
  Exercise of stock options.........      5,703        1             323             --             --             324
  Deferred compensation related to
    stock options...................         --       --           1,810         (1,810)            --              --
  Amortization of deferred
    compensation....................         --       --              --             71             --              71
  Issuance of Think and Optimax
    preferred stock which was
    exchanged for common stock in
    merger..........................        652       --           2,871             --             --           2,871
  Distributions to Think
    stockholders....................         --       --              --             --           (170)           (170)
  Net income........................         --       --              --             --          3,065           3,065
                                      ---------    -----     -----------     ----------     ----------     -----------
Balance at December 31, 1995........     25,697        6           5,180         (1,739)         5,230           8,677
  Exercise of stock options and
    issuance under stock purchase
    plan............................        519       --           1,816             --             --           1,816
  Common stock issued, net of
    offering costs of $4,288........      2,390        1          43,715             --             --          43,716
  Tax benefit of stock options......         --       --           1,353             --             --           1,353
  Deferred compensation related to
    stock options...................         --       --             910           (910)            --              --
  Amortization of deferred
    compensation....................         --       --              --            784             --             784
  Issuance of Think preferred stock
    which was exchanged for common
    stock in merger.................        277       --           5,100             --             --           5,100
  Net income........................         --       --              --             --          7,202           7,202
                                      ---------    -----     -----------     ----------     ----------     -----------
Balance at December 31, 1996........     28,883        7          58,074         (1,865)        12,432          68,648
  Exercise of stock options and
    issuance under stock purchase
    plan............................      1,443       --           4,274             --             --           4,274
  Common stock issued, net of
    offering costs of $3,573........      2,000        1          89,427             --             --          89,428
  Tax benefit of stock options......         --       --          10,106             --             --          10,106
  Amortization of deferred
    compensation....................         --       --              --            740             --             740
  Net income........................         --       --              --             --          7,221           7,221
                                      ---------    -----     -----------     ----------     ----------     -----------
Balance at December 31, 1997........     32,326    $   8     $   161,881     $   (1,125)    $   19,653     $   180,417
                                      =========    =====     ===========     ==========     ==========     ===========
</TABLE>
 
                            See accompanying notes.
 
                                       F-4
<PAGE>   37
 
                             i2 TECHNOLOGIES, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                      -------------------------------
                                                       1995        1996        1997
                                                      -------    --------    --------
<S>                                                   <C>        <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income........................................  $ 3,065    $  7,202    $  7,221
  Adjustments to reconcile net income to net cash
     provided by operating activities:
     Depreciation and amortization..................    1,059       2,611       4,500
     Provision for losses on receivables............      499         971       3,774
     Amortization of deferred compensation..........       71         784         740
     Deferred income taxes..........................     (646)         (3)     (1,911)
     Tax benefit of stock options...................       --       1,353      10,106
     Changes in operating assets and liabilities:
       Accounts receivable..........................   (6,646)    (24,617)    (41,368)
       Income tax receivable........................   (1,151)        535      (1,097)
       Prepaid and other assets.....................     (365)     (1,706)     (1,526)
       Accounts payable.............................      561       3,380       2,272
       Accrued liabilities..........................      310       3,396       6,022
       Accrued compensation and related expenses....      905       2,483       9,781
       Income taxes payable.........................      324         (59)       (363)
       Deferred revenue.............................    5,384      10,361       7,687
                                                      -------    --------    --------
          Net cash provided by operating
            activities..............................    3,370       6,691       5,838
                                                      -------    --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Notes receivable -- stockholders..................       --      (1,000)      1,000
  Purchases of furniture and equipment..............   (3,034)     (7,819)    (14,158)
  Purchases of short-term investments...............       --     (37,531)    (27,007)
  Proceeds from sale of short-term investments......       --      19,500      30,500
                                                      -------    --------    --------
          Net cash used in investing activities.....   (3,034)    (26,850)     (9,665)
                                                      -------    --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from revolving line of credit............      500          --          --
  Payments on revolving line of credit..............     (850)         --          --
  Proceeds from long-term debt......................    3,110         400          --
  Payments on long-term debt........................   (2,642)     (1,653)       (100)
  Advances from stockholders, net...................      165        (525)         --
  Distributions to stockholders.....................     (170)         --          --
  Issuance of Think and Optimax preferred stock
     which was exchanged for common stock in
     merger.........................................    2,871       5,100          --
  Net proceeds from sale of common stock and
     exercise of stock options......................      324      45,532      93,702
                                                      -------    --------    --------
          Net cash provided by financing
            activities..............................    3,308      48,854      93,602
                                                      -------    --------    --------
Net increase in cash and cash equivalents...........    3,644      28,695      89,775
Cash and cash equivalents at beginning of period....    3,739       7,383      36,078
                                                      -------    --------    --------
Cash and cash equivalents at end of period..........  $ 7,383    $ 36,078    $125,853
                                                      =======    ========    ========
</TABLE>
 
                            See accompanying notes.
 
                                       F-5
<PAGE>   38
 
                             i2 TECHNOLOGIES, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. THE COMPANY
 
     i2 Technologies, Inc. (the "Company"), incorporated in 1989, develops,
markets and sells client/server-based decision support software products for
supply chain management and related applications. The Company also provides
services such as consulting, training and maintenance. The Company's products
and services are primarily provided to large and medium sized manufacturing and
distribution companies which operate in many industries located throughout the
world.
 
     In May 1997, the Company acquired Think Systems Corporation ("Think"), a
demand planner software company and Optimax Systems Corporation ("Optimax"), a
scheduling and sequencing software company. Each of these business combinations
was accounted for as a pooling of interests, and accordingly, the accompanying
consolidated financial statements give retroactive effect to the combinations
and include the combined operations of i2 Technologies, Think and Optimax for
all periods presented (see Note 3).
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
 
     USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
 
     CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS. Cash equivalents are
highly liquid investments with insignificant interest rate risk and original
maturities of 90 days or less and are stated at amounts which approximate fair
value, based on quoted market prices. Cash equivalents consist principally of
overnight repurchase agreements and highly liquid debt securities of
corporations, municipalities and the U.S. Government.
 
     The Company accounts for its cash equivalents and short-term investments
under Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Management determines
the appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each subsequent balance sheet date. The
Company considers its debt securities as "available-for-sale" and, in accordance
with SFAS No. 115, would record its investments at fair value. However, as the
difference between cost and fair value was immaterial at December 31, 1997, no
adjustment has been made to the historical carrying value of the investments and
no unrealized gains or losses have been recorded as a separate component of
stockholders' equity. Realized gains and losses to date have not been material.
The cost of debt securities sold is based on the specific identification method.
 
     The Company's debt securities include the following (in thousands):
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           -------------------
                                                            1996        1997
                                                           -------    --------
<S>                                                        <C>        <C>
U.S. Government..........................................  $14,500    $ 11,500
State and Local Municipalities...........................   16,700      55,000
Corporations.............................................    9,000      40,600
                                                           -------    --------
                                                           $40,200    $107,100
                                                           =======    ========
</TABLE>
 
     Debt securities held at December 31, 1996 and 1997 all had maturity dates
within one year. At December 31, 1996 and 1997, $22.2 million and $92.6 million
of debt securities were included in cash
 
                                       F-6
<PAGE>   39
                             i2 TECHNOLOGIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
equivalents, respectively. Interest income earned in 1995, 1996 and 1997 was
$179,000, $1.9 million and $3.1 million, respectively.
 
     FINANCIAL INSTRUMENTS. Financial instruments which potentially subject the
Company to a concentration of credit risk principally consist of accounts
receivable. As of December 31, 1996, approximately 27% of accounts receivable
were concentrated with three customers. As of December 31, 1997, approximately
31% of accounts receivable were concentrated with one of these same customers
and two different customers. The Company generally does not require collateral
on accounts receivable as the Company's customers are generally large, well
established companies. The Company periodically performs credit evaluations of
its customers and maintains reserves for potential losses. The Company has used
in the past and expects to use in the future foreign exchange contracts to hedge
the risk that receivables denominated in foreign currencies may be adversely
affected by changes in foreign currency exchange rates. The Company's foreign
exchange contracts outstanding at December 31, 1997 are immaterial. Gains and
losses on foreign exchange contracts have not been material to date.
 
     FURNITURE AND EQUIPMENT. Furniture and equipment are stated at cost.
Depreciation expense is calculated using the straight-line method over seven
years for office furniture and fixtures and three years for computer equipment.
 
     REVENUE RECOGNITION. The Company's revenues consist of software license
revenues, service revenues and maintenance revenues. Software license revenues
consist of sales of software licenses which were recognized upon execution of a
contract and shipment of the software, provided that no significant vendor
obligations remained outstanding, amounts were due within one year and
collection was considered probable by management. As discussed in the following
paragraph, software license revenue recognition for future periods has been
revised. Service revenues are primarily derived from fees for implementation,
consulting and training services and are recognized as the services are
performed. Maintenance revenues are derived from customer support agreements
generally entered into in connection with initial license sales and subsequent
renewals. Maintenance revenues are recognized ratably over the term of the
maintenance period. Payments for maintenance fees are generally made in advance.
 
     In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition," which
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions. Under SOP 97-2, software license
revenues will be recognized upon execution of a contract and delivery of
software, provided that the license fee is fixed and determinable, no
significant production, modification or customization of the software is
required and collection is considered probable by management. The provisions of
SOP 97-2 are effective for the Company for transactions entered into after
December 31, 1997. The Company does not currently believe that the application
of SOP 97-2 will have a material impact on its consolidated financial
statements. However, because SOP 97-2 does not give specific implementation
guidance and no industry practice has been established regarding the provisions
of SOP 97-2, there can be no assurance that SOP 97-2 will not have a material
impact on the Company's revenue recognition practices, which could be material
to the Company's consolidated financial statements.
 
     Customer payment terms vary. Amounts received in advance of satisfying
revenue recognition criteria are classified in current and long-term liabilities
as deferred revenue in the accompanying consolidated balance sheets.
 
     The Company generally warrants that its products will function
substantially in accordance with documentation provided to customers for
approximately six to twelve months following initial shipment to the customer.
As of December 31, 1997, the Company had not incurred any significant expenses
related to warranty claims.
 
                                       F-7
<PAGE>   40
                             i2 TECHNOLOGIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     SOFTWARE DEVELOPMENT COSTS. In accordance with SFAS No. 86, "Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed,"
software development costs are expensed as incurred until technological
feasibility has been established, at which time such costs are capitalized until
the product is available for general release to customers. To date, the
establishment of technological feasibility of the Company's products and general
release of such software have substantially coincided. As a result, software
development costs qualifying for capitalization have been insignificant and
therefore, the Company has not capitalized any software development costs.
 
     NET INCOME PER SHARE. The Company computes net income per share in
accordance with the provisions of SFAS No. 128, "Earnings per Share." Net income
per share is based upon the weighted average number of common shares outstanding
and excludes the effect of dilutive potential common stock from the exercise of
stock options. Net income per share, assuming dilution, includes the effect of
dilutive potential common stock from the exercise of stock options using the
treasury stock method. In accordance with Securities and Exchange Commission
Staff Accounting Bulletins and Staff Policy, common shares and potential common
shares issued prior to the date of the initial filing of the Company's
Registration Statement on Form S-1 have been included in the net income per
share calculations for 1995 as if they were outstanding for the entire period.
Share and per share amounts for 1995 have been adjusted to reflect two stock
splits during 1995 (see Note 7). The computations give retroactive effect to the
exchange of common shares in connection with the Think and Optimax acquisitions
(see Note 3). Reconciliations of the net income per share computations for the
years ended December 31, 1995, 1996 and 1997 are included in Note 7.
 
     STOCK-BASED COMPENSATION PLANS. The Company has elected to continue to
account for its stock-based compensation plans utilizing the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," because, as discussed in Note 7, the alternative fair value
accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. However, SFAS No. 123 requires
disclosure of pro forma information regarding net income and net income per
share based on fair value accounting for stock-based compensation plans.
 
     FOREIGN CURRENCY TRANSLATION. The Company has determined that the
functional currency of the majority of its foreign subsidiaries is the local
currency. The financial statements of its foreign subsidiaries are translated
into U.S. dollars using the current rate method in accordance with SFAS No. 52,
"Foreign Currency Translation." To date, translation adjustments and foreign
currency gains and losses have not been significant and accordingly, have not
been separately presented.
 
     RECLASSIFICATIONS. Certain prior year financial statement items have been
reclassified to conform to the current year's format.
 
3. BUSINESS COMBINATIONS
 
     In May 1997, the Company acquired Think and Optimax. Under the terms of
these agreements, the Company has agreed to issue up to approximately
3.8 million shares and approximately 1.4 million shares of its common stock for
all the outstanding capital stock and all unexpired and unexercised options of
Think and Optimax, respectively.
 
     Think provides premium demand chain solutions, including an integrated line
of flexible, client/server-based software applications, for sales, marketing and
logistics departments representing a variety of industries including consumer
packaged goods, high technology, pharmaceutical, apparel, automotive and other
product driven specializations. Optimax develops, markets and implements supply
chain sequencing software using unique genetic algorithms for customer-driven,
make-to-order manufacturing.
 
     In April 1997, the Company completed the acquisition of the Operations
Planning Group ("OPG"), a business activity of Computer Sciences Corporation
("CSC"), for a cash purchase price of $1.0 million. OPG
                                       F-8
<PAGE>   41
                             i2 TECHNOLOGIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
provides operation planning environment ("OPE") optimization software for
planning and scheduling for customers in the consumer packaged goods industry.
The Company assumed the contractual obligations of the OPE customer base in
return for $271,000 representing prepaid maintenance revenue. The acquisition
was accounted for under the purchase accounting method, and a substantial
portion of the purchase price was recorded as in-process research and
development and expensed during the second quarter of 1997. Additionally, the
Company has agreed to make available a certain amount of consulting revenue
opportunities to CSC within a three-year period from the date of the
acquisition. If the agreed upon consulting revenue opportunities are not made
available to CSC, the Company will be required to make an additional cash
payment to CSC at the end of the three-year period equal to the gross profit
typically realized on such consulting revenue. Such payment, if any, would be
recorded as an increase in the purchase price, a substantial portion of which
could be written off as in-process research and development.
 
     In November 1997, the Company acquired the remaining interest in a minority
owned subsidiary, M-Star Systems Limited ("M-Star"), for an aggregate purchase
price of $3.75 million. M-Star provides logistics software which can present a
global view of a company's supply network on a real-time basis by accessing the
company's existing data resources. The acquisition of M-Star was accounted for
under the purchase accounting method, and a substantial portion of the purchase
price was recorded as in-process research and development and expensed during
the fourth quarter of 1997.
 
     During 1997, the Company incurred approximately $9.3 million in certain
acquisition-related expenses in connection with the business combinations
involving Think, Optimax, OPG and M-Star, of which $4.6 million represents the
write-off of in-process research and development. The remaining costs included,
among other things, investment banking, legal and accounting fees and expenses.
 
4. FURNITURE AND EQUIPMENT
 
     Furniture and equipment consists of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                            1996       1997
                                                           -------    -------
<S>                                                        <C>        <C>
Computer equipment.......................................  $10,498    $23,756
Furniture and fixtures...................................    2,563      4,067
                                                           -------    -------
                                                            13,061     27,823
Less accumulated depreciation............................   (4,127)    (9,231)
                                                           -------    -------
                                                           $ 8,934    $18,592
                                                           =======    =======
</TABLE>
 
5. BORROWINGS
 
     The Company has a revolving credit agreement with NationsBank of Texas,
N.A. (the "Lender") which expires in June 1998, is unsecured and contains
customary restrictive covenants, including covenants requiring the Company to
maintain certain financial ratios. The revolving credit agreement is not subject
to a borrowing base limitation and the borrowings thereunder bear interest at
the Lenders' prime lending rate. At December 31, 1996, the Company had $100,000
in borrowings outstanding under the revolving credit agreement. At December 31,
1997, the Company had no borrowings outstanding under the revolving credit
agreement.
 
     Cash paid for interest in 1995, 1996 and 1997 was approximately $255,000,
$248,000 and $15,000, respectively.
 
                                       F-9
<PAGE>   42
                             i2 TECHNOLOGIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
6. COMMITMENTS
 
     The Company leases its office facilities and certain office equipment under
operating leases which expire at various dates through 2003. The Company has
renewal options for most of its operating leases. Total rent expense incurred
during 1995, 1996 and 1997 was approximately $580,000, $2.1 million and $3.9
million, respectively.
 
     Future minimum lease payments under all noncancellable operating leases as
of December 31, 1997 are as follows (in thousands):
 
<TABLE>
<S>                                                  <C>
1998...............................................  $ 5,726
1999...............................................    4,964
2000...............................................    3,149
2001...............................................    1,378
2002...............................................    1,276
Thereafter.........................................      455
                                                     -------
Total minimum lease payments.......................  $16,948
                                                     =======
</TABLE>
 
7. STOCKHOLDERS' EQUITY
 
     PUBLIC OFFERINGS. In May 1996, the Company completed the initial public
offering of 2,530,000 shares of its common stock. A total of 2,390,400 of those
shares of common stock were sold by the Company resulting in net proceeds to the
Company of $43.7 million after deducting offering expenses and the underwriting
discount of $4.3 million. In December 1997, the Company completed a public
offering of 3,000,000 shares of its common stock. A total of 2,000,000 of those
shares of common stock were sold by the Company resulting in net proceeds to the
Company of $89.4 million after deducting offering expenses and the underwriting
discount of $3.6 million.
 
     STOCK SPLITS. In April 1995 and again in December 1995, the Company's
common stock was split two-for-one. All share and per share amounts have been
adjusted to reflect both stock splits as though they had occurred at the
beginning of the initial period presented.
 
                                      F-10
<PAGE>   43
                             i2 TECHNOLOGIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     NET INCOME PER SHARE. Reconciliations of the net income per share and net
income per share, assuming dilution, computations for the years ended December
31, 1995, 1996 and 1997 are as follows (amounts in thousands, except per share
amounts):
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                              ---------------------------
                                                               1995      1996      1997
                                                              -------   -------   -------
<S>                                                           <C>       <C>       <C>
NET INCOME PER SHARE:
Weighted-average common shares outstanding..................   19,542    27,714    29,746
Common shares related to SAB No. 98(2)......................    1,040        --        --
                                                              -------   -------   -------
Weighted-average common shares outstanding, adjusted for
  common shares related to SAB No. 98.......................   20,582    27,714    29,746
                                                              =======   =======   =======
Net income..................................................  $ 3,065   $ 7,202   $ 7,221
                                                              =======   =======   =======
Net income per share........................................  $  0.15   $  0.26   $  0.24
                                                              =======   =======   =======
NET INCOME PER SHARE, ASSUMING DILUTION:
Weighted-average common shares outstanding..................   19,542    27,714    29,746
Common shares issuable on exercise of stock options, net of
  shares assumed to be repurchased at the average market
  price(1)..................................................    7,607     3,987     4,106
Common shares related to SAB No. 98(2)......................    1,040        --        --
                                                              -------   -------   -------
Weighted-average common shares outstanding, assuming
  dilution..................................................   28,189    31,701    33,852
                                                              =======   =======   =======
Net income..................................................  $ 3,065   $ 7,202   $ 7,221
                                                              =======   =======   =======
Net income per share, assuming dilution.....................  $  0.11   $  0.23   $  0.21
                                                              =======   =======   =======
</TABLE>
 
- ---------------
 
(1) In computing these amounts, the funds used in applying the treasury stock
    method include the compensation related to stock options which will be
    charged to expense in the future.
 
(2) Common shares and potential common shares issued prior to the initial filing
    of the Company's Registration Statement on Form S-1 are included in this
    line item for the year ended December 31, 1995. See Note 2.
 
     EMPLOYEE STOCK PURCHASE PLAN. In March 1996, the Board adopted and the
stockholders approved an Employee Stock Purchase Plan. In November 1996, the
Board adopted an International Employee Stock Purchase Plan for employees of its
wholly-owned subsidiaries. The Employee Stock Purchase Plan and the
International Employee Stock Purchase Plan (collectively, the "Purchase Plans")
are designed to allow eligible employees of the Company to purchase shares of
Common Stock through periodic payroll deductions. The Company has reserved
500,000 shares of Common Stock for issuances under the Purchase Plans.
 
     Payroll deductions may not exceed the lesser of 15% of a participant's base
salary or $25,000 per year, and employees may purchase a maximum of 1,000 shares
per purchase period under the Purchase Plans. The purchase price per share will
be 85% of the lesser of the fair market value of the Common Stock on the start
of the purchase period or the fair market value at the end of the purchase
period. Participation may be terminated at any time by the employee and
automatically ends upon termination of employment with the Company. Six-month
offering periods will commence on each November 1 and May 1, except for the
initial offering period which commenced on April 25, 1996 and ended on October
31, 1996. Under the Purchase Plans, 60,145, 32,998 and 43,962 shares were issued
in connection with the offering periods ended October 31, 1996, April 30, 1997
and October 31, 1997, respectively.
 
     1992 STOCK PLAN. Under the Company's 1992 Stock Plan, the Company's Board
of Directors (the "Board") granted incentive stock options to employees of the
Company and nonqualified options to a
 
                                      F-11
<PAGE>   44
                             i2 TECHNOLOGIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
consultant of the Company. The options generally vest over a four-year period
commencing on or before the date of grant.
 
     1995 STOCK OPTION/STOCK ISSUANCE PLAN. In September 1995, the stockholder
and the Board approved the 1995 Stock Option/Stock Issuance Plan (the "1995
Plan") which replaced the 1992 Stock Plan. All options outstanding under the
1992 Stock Plan were incorporated into the 1995 Plan. Under the 1995 Plan, the
amount of shares of Common Stock originally reserved for issuance was 10,000,000
shares which was subsequently increased to 12,000,000 shares. The amount of
shares of Common Stock reserved for issuance was increased to 15,500,000 shares,
subject to the approval of the Company's stockholders. The 1995 Plan is divided
into the following three equity programs: (i) the Discretionary Option Grant
Program, (ii) the Stock Issuance Program and (iii) the Automatic Option Grant
Program.
 
     The Discretionary Option Grant Program provides for the grant of incentive
stock options ("Incentive Options") to employees of the Company and for the
grant of nonqualified stock options to employees, directors and consultants of
the Company. Exercise prices may not be less than 100% and 85% of the fair
market value at the date of grant for Incentive Options and nonqualified
options, respectively. Options granted under the Discretionary Option Grant
Program generally vest in four equal annual increments and expire after ten
years. Some options granted under the Discretionary Option Grant Program are
immediately exercisable, subject to a right of repurchase by the Company at the
original exercise price for all unvested shares.
 
     Under the Stock Issuance Program, the Board or a committee of the Board
(the "Plan Administrator") may grant shares of the Company's Common Stock to any
person at any time, at such price and on such terms as established by the Plan
Administrator. The purchase price per share cannot be less than 85% of the fair
market value of the Company's Common Stock on the issuance date.
 
     Under the Automatic Option Grant Program, each person who is first elected
or appointed as a non-employee Board member shall automatically be granted a
nonqualified option to purchase 1,000 common shares of the Company at the fair
market value on the date of grant. On the date of each Annual Stockholders
Meeting each non-employee Board member shall automatically be granted an
additional option to purchase 1,000 shares of the Company's Common Stock,
subject to certain conditions.
 
     THINK STOCK OPTION PLANS. Think's Board of Directors have adopted and its
shareholders have approved stock option plans for employees, directors and
consultants of Think (the "Think Plans"). Under the Think Plans, the Think Board
of Directors granted incentive and nonqualified stock options to employees,
directors and consultants at prices not less than the estimated fair market
value of Think's common stock at the date of grant. In connection with the
acquisition of Think, all of the options outstanding under the Think Plans were
assumed by the Company.
 
     OPTIMAX STOCK OPTION PLAN. During 1996, Optimax's Board of Directors
adopted and its shareholders approved the Optimax Systems Corporation Stock
Option Plan (the "Optimax Stock Option Plan"). Under the Optimax Stock Option
Plan, the Optimax Board of Directors granted nonqualified stock options to
employees of Optimax at prices equal to the estimated fair market value of
Optimax's common stock on the date of grant. The options generally vest over a
five-year period commencing on or before the date of grant. In connection with
the acquisition of Optimax, all such options were assumed by the Company.
 
                                      F-12
<PAGE>   45
                             i2 TECHNOLOGIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Option activity under the Company's stock option plans, including the Think
and Optimax plans, is as follows:
 
<TABLE>
<CAPTION>
                                                                OPTIONS OUTSTANDING
                                                           ------------------------------
                                               SHARES                       WEIGHTED-
                                             AVAILABLE       NUMBER          AVERAGE
                                             FOR GRANT     OF SHARES      EXERCISE PRICE
                                             ----------    ----------    ----------------
<S>                                          <C>           <C>           <C>
Balance, December 31, 1994.................     146,536     8,250,312         $ 0.03
  Authorized...............................   1,603,152            --             --
  Granted..................................  (1,125,667)    1,125,667           0.63
  Exercised................................          --    (5,703,242)          0.06
  Canceled.................................      23,300       (23,300)          0.05
                                             ----------    ----------
Balance, December 31, 1995.................     647,321     3,649,437           0.17
  Authorized...............................   2,683,125            --             --
  Granted..................................  (1,606,317)    1,606,317           9.71
  Issued...................................        (615)           --          14.33
  Exercised................................          --      (458,058)          1.66
  Canceled.................................      87,672       (87,672)         11.71
                                             ----------    ----------
Balance, December 31, 1996.................   1,811,186     4,710,024           3.07
  Authorized...............................   3,500,000            --             --
  Granted..................................  (3,031,830)    3,031,830          30.98
  Exercised................................          --    (1,371,194)          1.24
  Canceled.................................     277,076      (277,076)         30.96
                                             ----------    ----------
Balance, December 31, 1997.................   2,556,432     6,093,584          16.10
                                             ==========    ==========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                OPTIONS EXERCISABLE
                                                           -----------------------------
                                                                           WEIGHTED-
                                                            NUMBER          AVERAGE
                                                           OF SHARES     EXERCISE PRICE
                                                           ---------    ----------------
<S>                                                        <C>          <C>
December 31, 1995........................................  2,467,172         $0.16
                                                           =========
December 31, 1996........................................  3,052,412          1.08
                                                           =========
December 31, 1997........................................  3,017,011          1.69
                                                           =========
</TABLE>
 
     Under the 1995 Plan, each outstanding option and unvested stock issuance
will be subject to accelerated vesting under certain circumstances upon an
acquisition of the Company in a merger or asset sale, except to the extent the
Company's repurchase rights with respect to the underlying shares are to be
assigned to the successor corporation. In addition, the Plan Administrator has
the discretion to accelerate vesting of outstanding options upon consummation of
any other transaction which results in a change in control of the Company.
 
     All options outstanding at December 31, 1997 are Incentive Options except
for 1,409,739 options which are nonqualified options.
 
                                      F-13
<PAGE>   46
                             i2 TECHNOLOGIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Other information regarding options outstanding and options exercisable as
of December 31, 1997 is as follows:
 
<TABLE>
<CAPTION>
                               OPTIONS OUTSTANDING                 OPTIONS EXERCISABLE
                    -----------------------------------------   --------------------------
                                                   WEIGHTED
                                                   AVERAGE
                                   WEIGHTED       REMAINING                    WEIGHTED
RANGE OF EXERCISE   NUMBER OF      AVERAGE       CONTRACTUAL    NUMBER OF      AVERAGE
     PRICES          SHARES     EXERCISE PRICE   LIFE (YEARS)    SHARES     EXERCISE PRICE
- -----------------   ---------   --------------   ------------   ---------   --------------
<S>                 <C>         <C>              <C>            <C>         <C>
$0.0175 - $12.11    3,318,147       $ 1.34           6.10 yrs.  2,975,499       $ 1.33
 24.375 - 35.75     1,749,343        29.42           9.32          40,512        27.57
  36.00 - 52.75     1,026,094        41.11           9.90           1,000        37.25
                    ---------                                   ---------
     Total          6,093,584        16.10           7.66       3,017,011         1.69
                    =========                                   =========
</TABLE>
 
     The Company recorded deferred compensation expense of $1.8 million and
$910,000 in 1995 and in the first quarter of 1996, respectively, for the
difference between the grant price and the deemed fair market value of the
Company's Common Stock underlying certain options granted. These amounts are
being amortized over the vesting period of the individual options, generally
four years. The income tax benefits from disqualifying dispositions related to
employee stock transactions have been recorded as an increase in additional
paid-in capital. As a result of these disqualifying dispositions, the Company
has an income tax receivable balance of $1.1 million at December 31, 1997.
 
     PRO FORMA NET INCOME AND NET INCOME PER SHARE. Pro forma information
regarding net income and net income per share has been determined as if the
Company had accounted for its employee stock options and shares issued under the
Purchase Plans using the fair value method of SFAS No. 123. The fair value for
the stock options issued under the 1995 Plan was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1995, 1996 and 1997, respectively: risk-free interest rates of
6.3%, 6.2% and 6.2%; volatility factors of the expected market price of the
Company's Common Stock of 0.46, 0.46 and 0.66; a weighted-average expected life
of the options of 4 years; and no dividend yields. The fair value of the stock
options issued under the Think Plans was estimated at the date of grant using
the minimum value method for non-public companies permitted by SFAS No. 123 with
the following assumptions for 1996 and 1997, respectively: weighted-average
risk-free interest rates of 6.5% and 6.2%; no dividends; and a weighted-average
expected life of the options of 7 years. The fair value of stock options issued
under the Optimax Stock Option Plan is not presented as the impact is
immaterial.
 
     The fair value for the shares issued under the Purchase Plans was estimated
as of the initial day of the purchase period using a Black-Scholes option
pricing model with the following weighted-average assumptions for 1996 and 1997,
respectively: risk free interest rates of 5.2% and 5.4%; volatility factors of
the expected market price of the Company's Common Stock of 0.46 and 0.66; a
weighted-average expected life of the purchase right of 0.5 years; and no
dividend yields. The weighted-average fair values of the purchase rights granted
under the Purchase Plans during 1996 and 1997 were $6.15 and $12.12,
respectively.
 
     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options and Purchase Plan
shares.
 
                                      F-14
<PAGE>   47
                             i2 TECHNOLOGIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period and the
estimated fair value of the Purchase Plan shares is amortized to expense over
the purchase period.
 
     The Company's pro forma information follows (in thousands, except per share
amounts):
 
<TABLE>
<CAPTION>
                                                            1995      1996      1997
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
Pro forma net income.....................................  $3,083    $6,281    $1,540
Pro forma net income per share...........................    0.15      0.23      0.05
Pro forma net income per share, assuming dilution........    0.11      0.20      0.05
</TABLE>
 
     The pro forma disclosures only include the effect of options granted
subsequent to January 1, 1995. Accordingly, the effects of applying SFAS No. 123
for the pro forma disclosures are not indicative of future effects of such
application.
 
     Information regarding exercise prices and fair values of options granted is
as follows:
 
<TABLE>
<CAPTION>
                                                    1995         1996          1997
                                                  --------    ----------    ----------
<S>                                               <C>         <C>           <C>
Number of options issued at fair market value of
  stock.........................................   181,800     1,296,047     3,031,830
Weighted-average exercise price per share.......     $0.13        $11.15        $30.98
Weighted-average fair value of options..........      0.06          4.55         17.03
Number of options issued at less than fair
  market value of stock.........................   943,867       310,270            --
Weighted-average exercise price per share.......     $0.72        $ 3.69            --
Weighted-average fair value of options..........      2.10          4.21            --
</TABLE>
 
8. INCOME TAXES
 
     The Company's provision for income taxes consists of the following (in
thousands):
 
<TABLE>
<CAPTION>
                                                           1995      1996      1997
                                                          ------    ------    -------
<S>                                                       <C>       <C>       <C>
Current:
  Federal...............................................  $1,730    $3,630    $ 9,702
  State.................................................     455       390      1,224
  Foreign...............................................      37       264        646
Deferred
  Federal...............................................    (477)      272     (1,629)
  State.................................................    (101)      (79)       (40)
  Foreign...............................................     (60)     (203)      (242)
                                                          ------    ------    -------
          Total.........................................  $1,584    $4,274    $ 9,661
                                                          ======    ======    =======
</TABLE>
 
                                      F-15
<PAGE>   48
                             i2 TECHNOLOGIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The Company's provision for income taxes reconciles to the amount computed
by applying the statutory U.S. federal rate of 34% for 1995 and 1996 and 35% for
1997 to income before income taxes as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                            1995      1996      1997
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
Expense computed at statutory rate.......................  $1,581    $3,902    $5,909
Non-deductible in-process research and development and
  acquisition costs......................................      --        --     3,164
State taxes, net of federal tax benefit..................     139       266       770
Stock option compensation................................      --       215       200
Research and development tax credits.....................    (175)     (144)     (207)
Other....................................................      39        35      (175)
                                                           ------    ------    ------
          Provision for income taxes.....................  $1,584    $4,274    $9,661
                                                           ======    ======    ======
</TABLE>
 
     Deferred tax assets and liabilities at December 31, 1996 and December 31,
1997 are comprised of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                               1996       1997
                                                              -------    ------
<S>                                                           <C>        <C>
Deferred tax assets:
  Foreign tax credits.......................................  $   612    $  617
  Deferred revenue..........................................      848       578
  Accrued liabilities.......................................      136       570
  Bad debt allowance........................................      229     1,349
  Research and development tax credits......................       78       220
  Other.....................................................      648       295
                                                              -------    ------
          Total deferred tax asset..........................    2,551     3,629
                                                              -------    ------
Deferred tax liabilities:
  Depreciation..............................................     (127)     (379)
  State income taxes........................................      (28)       --
  Cash method of accounting, net............................   (1,212)       --
  Other.....................................................      (68)     (223)
                                                              -------    ------
          Total deferred tax liability......................   (1,435)     (602)
                                                              -------    ------
          Net deferred tax asset............................  $ 1,116    $3,027
                                                              =======    ======
</TABLE>
 
     The Company considers the earnings of foreign subsidiaries to be
permanently reinvested outside the United States. Accordingly, no United States
income tax on these earnings has been provided. The Company believes that any
United States income taxes due upon the repatriation of such earnings would be
fully offset by foreign tax credits.
 
     The Company paid income taxes of approximately $3.1 million, $2.0 million
and $2.6 million in 1995, 1996 and 1997, respectively.
 
9. EMPLOYEE RETIREMENT PLAN
 
     The Company has established 401(k) retirement plans (the "Retirement
Plans") that cover a majority of the Company's employees. Eligible employees may
contribute up to 18% of their compensation, subject to certain limitations, to
the Retirement Plans. The Company may make contributions to the Retirement Plans
at the discretion of the Board. As of December 31, 1997, no contributions had
been made by the Company.
 
                                      F-16
<PAGE>   49
                             i2 TECHNOLOGIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
10. SEGMENT INFORMATION AND INTERNATIONAL OPERATIONS
 
     The Company operates in one industry segment, which is the development,
marketing, licensing and support of client/server-based decision support
software products for supply chain management and related applications. Revenues
from international sources were approximately $2.2 million, $20.6 million and
$65.4 million in 1995, 1996 and 1997, respectively. The Company's revenues from
international sources were primarily generated from customers located in Asia,
Canada and Europe. In 1996, revenues from customers located in Europe accounted
for 13% of total revenues. In 1997, revenues from customers located in Europe
and Asia accounted for approximately 17% and 10% of total revenues,
respectively. Total assets from international operations, composed primarily of
accounts receivable, were $11.4 million or 11% of total assets as of December
31, 1996 and were $38.0 million or 16% of total assets as of December 31, 1997.
 
     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way that public business enterprises report
information about operating segments and for related disclosures about products
and services, geographic areas and major customers. The provisions of SFAS No.
131 are effective for the Company beginning in 1998. Although the Company
currently operates in only one industry segment, the Company is evaluating the
potential impact of SFAS No. 131 on its reporting requirements.
 
11. MAJOR CUSTOMERS
 
     During 1995, two customers accounted for approximately 11% and 10% of total
revenues. During 1996, one customer accounted for approximately 13% of total
revenues. This customer also accounted for approximately 11% of total revenues
in 1995. During 1997, no customer accounted for more than 10% of total revenues.
 
12. RELATED PARTY TRANSACTIONS
 
     As of December 31, 1996, the Company had $1.0 million of notes receivable
from certain of its common stockholders. These notes bore interest at 6.78% and
were repaid in May 1997.
 
                                      F-17
<PAGE>   50
                             i2 TECHNOLOGIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
13. QUARTERLY INFORMATION (UNAUDITED)
 
     Summarized quarterly consolidated financial information for 1996 and 1997
is as follows (in thousands, except per share amounts):
 
<TABLE>
<CAPTION>
                                                                     QUARTER ENDED
                                                    -----------------------------------------------
                                                    MARCH 31   JUNE 30   SEPTEMBER 30   DECEMBER 31
                                                    --------   -------   ------------   -----------
<S>                                                 <C>        <C>       <C>            <C>
1996
  Total revenues..................................  $15,394    $17,802     $23,967        $30,753
  Operating income................................    2,298        570       2,149          4,654
  Net income......................................    1,526        648       1,714          3,314
  Net income per share............................     0.06       0.02        0.06           0.12
  Net income per share, assuming dilution.........     0.05       0.02        0.05           0.10
  Shares used in computing net income per share...   25,798     27,736      28,459         28,757
  Shares used in computing net income per share,
     assuming dilution............................   29,338     31,760      32,621         32,979
1997
  Total revenues..................................  $35,765    $48,023     $54,862        $62,056
  In-process research and development and
     acquisition costs............................       --      5,649          --          3,657
  Operating income (loss).........................    1,691     (1,033)      7,112          6,044
  Net income (loss)...............................    1,491       (390)      4,210          1,910
  Net income (loss) per share.....................     0.05      (0.01)       0.14           0.06
  Net income (loss) per share, assuming
     dilution.....................................     0.04      (0.01)       0.12           0.06
  Shares used in computing net income (loss) per
     share........................................   29,007     29,259      29,782         30,832
  Shares used in computing net income (loss) per
     share, assuming dilution.....................   33,344     29,259      33,878         34,638
</TABLE>
 
                                      F-18
<PAGE>   51
 
                             i2 TECHNOLOGIES, INC.
 
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
 
<TABLE>
<CAPTION>
                                                      BALANCE AT   CHARGED TO                BALANCE AT
                                                      BEGINNING    COSTS AND                    END
                                                      OF PERIOD     EXPENSES    WRITE-OFFS   OF PERIOD
                                                      ----------   ----------   ----------   ----------
                                                                       (IN THOUSANDS)
<S>                                                   <C>          <C>          <C>          <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year Ended December 31, 1997........................    1,269        3,774         (984)       4,059
Year Ended December 31, 1996........................      925          971         (627)       1,269
Year Ended December 31, 1995........................      436          499          (10)         925
</TABLE>
 
                                       S-1
<PAGE>   52
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
     EXHIBIT NUMBER                              DESCRIPTION
     --------------                              -----------
<C>                      <S>
           3.2           -- Bylaws, as amended
          21.1           -- List of subsidiaries
          23.1           -- Consent of Ernst & Young LLP
          24.1           -- Power of Attorney, pursuant to which amendments to this
                            Form 10-K may be filed, is included on the signature page
                            contained in Part IV of this Form 10-K.
          27.1           -- Financial Data Schedule
</TABLE>

<PAGE>   1
                                                                     EXHIBIT 3.2




                                     BYLAWS


                                       OF


                             i2 TECHNOLOGIES, INC.


                            (A DELAWARE CORPORATION)
<PAGE>   2
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                     Page
                                                                                                                     ----
<S>                <C>                                                                                                 <C>
ARTICLE I          CORPORATE OFFICES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
         1.1       REGISTERED OFFICE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
         1.2       OTHER OFFICES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1

ARTICLE II         MEETINGS OF STOCKHOLDERS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1

         2.1       PLACE OF MEETINGS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
         2.2       ANNUAL MEETING   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
         2.3       SPECIAL MEETINGS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2
         2.4       NOTICE OF STOCKHOLDERS' MEETINGS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2
         2.5       ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS  . . . . . . . . . . . . . . . . .   2
         2.6       MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE   . . . . . . . . . . . . . . . . . . . . . . . . . .   3
         2.7       QUORUM   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   4
         2.8       ADJOURNED MEETING; NOTICE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   4
         2.9       VOTING   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   4
         2.10      WAIVER OF NOTICE   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   5
         2.11      STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING  . . . . . . . . . . . . . . . . . . . . .   5
         2.12      RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS  . . . . . . . . . . . . . . . . . . .   5
         2.13      PROXIES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   6
         2.14      LIST OF STOCKHOLDERS ENTITLED TO VOTE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   6
         2.15      CONDUCT OF BUSINESS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   6

ARTICLE III        DIRECTORS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   7
         3.1       POWERS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   7
         3.2       NUMBER OF DIRECTORS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   7
         3.3       ELECTION QUALIFICATION AND TERM OF OFFICE OF DIRECTORS   . . . . . . . . . . . . . . . . . . . . .   7
         3.4       RESIGNATION AND VACANCIES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   8
         3.5       PLACE OF MEETINGS; MEETINGS BY TELEPHONE   . . . . . . . . . . . . . . . . . . . . . . . . . . . .   9
         3.6       FIRST MEETINGS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   9
         3.7       REGULAR MEETINGS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   9
         3.8       SPECIAL MEETINGS; NOTICE   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   9
         3.9       QUORUM   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
         3.10      WAIVER OF NOTICE   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
         3.11      ADJOURNED MEETING; NOTICE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
         3.12      CONDUCT OF BUSINESS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
</TABLE>





                                      -i-
<PAGE>   3
<TABLE>
<S>                <C>                                                                                                 <C>
         3.13      BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING  . . . . . . . . . . . . . . . . . . . . . . . .  11
         3.14      FEES AND COMPENSATION OF DIRECTORS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11
         3.15      APPROVAL OF LOANS TO OFFICERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11
         3.16      REMOVAL OF DIRECTORS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

ARTICLE IV         COMMITTEES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
         4.1       COMMITTEES OF DIRECTORS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
         4.2       COMMITTEE MINUTES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
         4.3       MEETINGS AND ACTION OF COMMITTEES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13

ARTICLE V          OFFICERS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
         5.1       NUMBER OF OFFICERS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
         5.2       ELECTION OF OFFICERS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
         5.3       REMOVAL AND RESIGNATION OF OFFICERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
         5.4       CHAIRMAN OF THE BOARD  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
         5.5       VICE CHAIRMAN OF THE BOARD   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
         5.6       CHIEF EXECUTIVE OFFICER  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
         5.7       PRESIDENTS AND VICE PRESIDENTS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
         5.8       SECRETARY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
         5.9       CHIEF FINANCIAL OFFICER  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
         5.10      ASSISTANT SECRETARY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
         5.11      CONTROLLER AND ASSISTANT FINANCIAL OFFICER   . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
         5.12      AUTHORITY AND DUTIES OF OFFICERS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16

ARTICLE VI         INDEMNITY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
         6.1       INDEMNIFICATION OF DIRECTORS AND OFFICERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
         6.2       INDEMNIFICATION OF OTHERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
         6.3       INSURANCE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17

ARTICLE VII        RECORDS AND REPORTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
         7.1       MAINTENANCE AND INSPECTION OF RECORDS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
         7.2       INSPECTION BY DIRECTORS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
         7.3       REPRESENTATION OF SHARES OF OTHER CORPORATIONS   . . . . . . . . . . . . . . . . . . . . . . . . .  18

ARTICLE VIII       GENERAL MATTERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
         8.1       STOCK CERTIFICATES; PARTLY PAID SHARES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
         8.2       LOST CERTIFICATES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
         8.3       CONSTRUCTION; DEFINITIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
         8.4       DIVIDENDS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
         8.5       FISCAL YEAR  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
         8.6       SEAL   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
         8.7       TRANSFER OF STOCK  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
</TABLE>





                                      -ii-
<PAGE>   4
<TABLE>
<S>                <C>                                                                                                 <C>
         8.8       STOCK TRANSFER AGREEMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
         8.9       REGISTERED STOCKHOLDERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20

ARTICLE IX         AMENDMENTS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21

ARTICLE X          DISSOLUTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21

ARTICLE XI         CUSTODIAN  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
         11.1      APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES  . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
         11.2      DUTIES OF CUSTODIAN  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
</TABLE>





                                     -iii-
<PAGE>   5
                                     BYLAWS

                                       OF

                             i2 TECHNOLOGIES, INC.


                                   ARTICLE I

                               CORPORATE OFFICES

1.1      REGISTERED OFFICE

         The registered office of the corporation in the State of Delaware
shall be in the City of Wilmington, County of New Castle, State of Delaware.
The name of the registered agent of the corporation at such location is
Corporation Trust Company.

1.2      OTHER OFFICES

         The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.


                                   ARTICLE II

                            MEETINGS OF STOCKHOLDERS

2.1      PLACE OF MEETINGS

         Meetings of stockholders shall be held at the principal executive
offices of the corporation, or at any other place, within or outside the State
of Delaware, designated by the board of directors.  In the absence of any such
designation, stockholders' meetings shall be held at the principal executive
offices of the corporation.

2.2      ANNUAL MEETING

         An annual meeting of stockholders shall be held for the election of
directors at such date, time and place, either within or without the State of
Delaware, as may be designated by resolution of the board of directors from
time to time.  Any other proper business may be transacted at the annual
meeting.
<PAGE>   6
2.3      SPECIAL MEETINGS

         A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, by the president or by the
chief executive officer, or by one or more stockholders holding shares in the
aggregate entitled to cast not less than ten percent of the votes at that
meeting (the "10% Stockholders"); provided that, notwithstanding the above and
any provision contained in these Bylaws to the contrary, effective upon the
closing of a public offering of the Corporation's Capital Stock pursuant to an
effective registration statement filed under the Securities Act of 1933, as
amended (a "Public Offering"), the 10% Stockholders shall no longer be entitled
to call such meeting.

         If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of
such meeting and the general nature of the business proposed to be transacted,
and shall be delivered personally or sent by registered mail or by telegraphic
or other facsimile transmission to the chairman of the board, the president,
chief executive officer, or the secretary of the corporation.  No business may
be transacted at such special meeting otherwise than specified in such notice.
The officer receiving the request shall cause notice to be promptly given to
the stockholders entitled to vote, in accordance with the provisions of
Sections 2.4 and 2.5, that a meeting will be held at the time requested by the
person or persons who called the meeting, not less than thirty-five (35) nor
more than sixty (60) days after the receipt of the request.  If the notice is
not given within twenty (20) days after the receipt of the request, the person
or persons requesting the meeting may give the notice.  Nothing contained in
this paragraph of this Section 2.3 shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the board
of directors may be held.

2.4      NOTICE OF STOCKHOLDERS' MEETINGS

         All notices of meetings with stockholders shall be in writing and
shall be sent or otherwise given in accordance with Section 2.6 of these bylaws
not less than ten (10) nor more than sixty (60) days before the date of the
meeting to each stockholder entitled to vote at such meeting.  The notice shall
specify the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.

2.5      ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS

         To be properly brought before an annual meeting or special meeting,
nominations for the election of director or other business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the board of directors, (b) otherwise properly brought before
the meeting by or at the direction of the board of directors, or (c) otherwise
properly brought before the meeting by a stockholder.  For such nominations or
other business to be considered properly brought before the meeting by a
stockholder, such stockholder must





                                       2
<PAGE>   7
have given timely notice and in proper form of his intent to bring such
business before such meeting.  To be timely, such stockholder's notice must be
delivered to or mailed and received by the secretary of the corporation not
less than ninety (90) days prior to the meeting; provided, however, that in the
event that less than one-hundred (100) days notice or prior public disclosure
of the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made.  To be in proper
form, a stockholder's notice to the secretary shall set forth:

                  (i)     the name and address of the stockholder who intends
                  to make the nominations or propose the business and, as the
                  case may be, the name and address of the person or persons to
                  be nominated or the nature of the business to be proposed;

                  (ii)    a representation that the stockholder is a holder of
                  record of stock of the corporation entitled to vote at such
                  meeting and, if applicable, intends to appear in person or by
                  proxy at the meeting to nominate the person or persons
                  specified in the notice or introduce the business specified
                  in the notice;

                  (iii)   if applicable, a description of all arrangements or
                  understandings between the stockholder and each nominee and
                  any other person or persons (naming such person or persons)
                  pursuant to which the nomination or nominations are to be
                  made by the stockholder;

                  (iv)    such other information regarding each nominee or each
                  matter of business to be proposed by such stockholder as
                  would be required to be included in a proxy statement filed
                  pursuant to the proxy rules of the Securities and Exchange
                  Commission had the nominee been nominated, or intended to be
                  nominated, or the matter been proposed, or intended to be
                  proposed by the board of directors; and

                  (v)     if applicable, the consent of each nominee to serve
                  as director of the corporation if so elected.

         The chairman of the meeting may refuse to acknowledge the nomination
of any person or the proposal of any business not made in compliance with the
foregoing procedure.

2.6      MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE

         Written notice of any meeting of stockholders, if mailed, is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.  An
affidavit of the secretary or an assistant secretary or of the





                                       3
<PAGE>   8
transfer agent of the corporation that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.

2.7      QUORUM

         The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation.  If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) the chairman of the meeting or
(ii) the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented.  At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.

         When a quorum is present or represented at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provisions of the statutes or
of the certificate of incorporation, a different vote is required, in which
case such express provision shall govern and control the decision of the
question.

2.8      ADJOURNED MEETING; NOTICE

         When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the
adjournment is taken.  At the adjourned meeting the corporation may transact
any business that might have been transacted at the original meeting.  If the
adjournment is for more than thirty (30) days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled vote at the
meeting.

2.9      VOTING

         The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.12 and Section
2.14 of these bylaws, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners of stock and to voting trusts and other voting
agreements).

         Except as may otherwise be provided in the certificate of
incorporation or the last paragraph of this Section 2.9, each stockholder shall
be entitled to one vote for each share of capital stock held by such
stockholder.





                                       4
<PAGE>   9
         At a stockholders' meeting at which directors are to be elected, or at
elections held under special circumstances, a stockholder shall be entitled to
cumulate votes (i.e., cast for any candidate a number of votes greater than the
number of votes which such stockholder normally is entitled to cast). Each
holder of stock of any class or series who elects to cumulate votes shall be
entitled to as many votes as equals the number of votes which (absent this
provision as to cumulative voting) he would be entitled to cast for the
election of directors with respect to his shares of stock multiplied by the
number of directors to be elected by him, and he may cast all of such votes for
a single director or may distribute them among the number to be voted for, or
for any two or more of them, as he may see fit, so long as the name of the
candidate for director shall have been placed in nomination prior to the voting
and the stockholder, or any other holder of the same class or series of stock,
has given notice at the meeting prior to the voting of the intention to
cumulate votes; provided that, except as may otherwise be provided in the
certificate of incorporation, effective upon a Public Offering the cumulative
voting rights set forth in this Section 2.9 shall terminate.

2.10     WAIVER OF NOTICE

         Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time Stated therein, shall be deemed
equivalent to notice.  Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.  Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the certificate of incorporation or
these bylaws.

2.11     STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING

         Effective upon a Public Offering, the stockholders of the corporation
may not take action by written consent without a meeting but must take any such
actions at a duly called annual or special meeting.

2.12     RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS

         In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof or entitled to express consent or dissent to corporate action in
writing without a meeting (it otherwise permitted by these bylaws and the
corporation's certificate of incorporation), or entitled to receive payment of
any dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the board of directors may fix,
in advance, a record date, which shall be not more than





                                       5
<PAGE>   10
sixty (60) nor less than ten (10) days before the date of such meeting, nor
more than sixty (60) days prior to any other action.

         If the board of directors does not so fix a record date, the fixing of
such record date shall be governed by the provisions of Section 213 of the
General Corporation Law of Delaware.

         A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.

2.13     PROXIES

         Each stockholder entitled to vote at a meeting of stockholders or
entitled to express consent or dissent to corporate action in writing without a
meeting (if otherwise permitted by these bylaws and the corporation's
certificate of incorporation) may authorize another person or persons to act
for him by a written proxy, signed by the stockholder and filed with the
secretary of the corporation, but no such proxy shall be voted or acted upon
after three (3) years from its date, unless the proxy provides for a longer
period.  A proxy shall be deemed signed if the stockholder's name is placed on
the proxy (whether by manual signature, typewriting, telegraphic transmission
or otherwise) by the stockholder or the stockholder's attorney-in-fact.  The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(c) of the General Corporation Law of
Delaware.

2.14     LIST OF STOCKHOLDERS ENTITLED TO VOTE

         The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder.  Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held.  The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.  The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the corporation, or to vote in person or by proxy
at any meeting of stockholders and of the number of shares held by each such
stockholder.

2.15     CONDUCT OF BUSINESS

         Meetings of stockholders shall be presided over by the chairman of the
board, if any, or in his absence by the president, or in his absence by a vice
president, or in the absence of the





                                       6
<PAGE>   11
foregoing persons by a chairman designated by the board of directors, or in the
absence of such designation by a chairman chosen at the meeting.  The secretary
shall act as secretary of the meeting, but in his absence the chairman of the
meeting may appoint any person to act as secretary of the meeting.  The
chairman of any meeting of stockholders shall determine the order of business
and the procedures at the meeting, including such matters as the regulation of
the manner of voting and conduct of business.


                                 ARTICLE III

                                  DIRECTORS
3.1      POWERS

         Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction
of the board of directors.

3.2      NUMBER OF DIRECTORS

         The number of directors of the corporation is fixed at three (3).  No
reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.

3.3      ELECTION QUALIFICATION AND TERM OF OFFICE OF DIRECTORS

         Except as provided in Section 3.4 of these bylaws, at each annual
meeting of stockholders, directors of the corporation shall be elected to hold
office until the expiration of the term for which they are elected, and until
their successors have been duly elected and qualified; except that if any such
election shall not be so held, such election shall take place at a
stockholders' meeting called and held in accordance with the Delaware General
Corporation Law.  At the annual meeting of stockholders following a Public
Offering, the directors of the corporation shall be divided into three classes
as nearly equal in size as is practicable, hereby designated Class I, Class II
and Class III.  The term of office of the initial Class I directors shall
expire at the next succeeding annual meeting of stockholders, the term of
office of the initial Class II directors shall expire at the second succeeding
annual meeting of stockholders and the term of office of the initial Class III
directors shall expire at the third succeeding annual meeting of stockholders.
For the purposes hereof, the initial Class I, Class II and Class III directors
shall be those directors so designated and elected at the first annual meeting
of stockholders following a Public Offering.  At each annual meeting after the
annual meeting of stockholders scheduled to be held thereafter, directors to
replace those of a Class office whose terms, expire at such annual meeting
shall be elected to hold office until the third succeeding annual meeting





                                       7
<PAGE>   12
and until their respective successors shall have been duly elected and
qualified.  If the number of directors is hereafter changed, any newly created
directorships or decrease in directorships shall be so apportioned among the
classes as to make all classes as nearly equal in number as is practicable.

         Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed.  Election of directors need not be by written
ballot.

3.4      RESIGNATION AND VACANCIES

         Any director may resign at any time upon written notice to the
corporation. Stockholders may remove directors with or without cause.  Any
vacancy occurring in the board of directors with or without cause may be filled
by a majority of the remaining members of the board of directors, although such
majority is less than a quorum, or by a plurality of the votes cast at a
meeting of stockholders, and each director so elected shall hold office until
the expiration of the term of office of the director whom he has replaced.

         Unless otherwise provided in the certificate of incorporation or these
bylaws:

                  (i)     Vacancies and newly created directorships resulting
         from any increase in the authorized number of directors elected by all
         of the stockholders having the right to vote as a single class may be
         filled by a majority of the directors then in office, although less
         than a quorum, or by a sole remaining director.

                  (ii)    Whenever the holders of any class or classes of stock
         or series thereof are entitled to elect one or more directors by the
         provisions of the certificate of incorporation, vacancies and newly
         created directorships of such class or classes or series may be filled
         by a majority of the directors elected by such class or classes or
         series thereof then in office, or by a sole remaining director so
         elected.

         If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder may apply to the Court of Chancery for a
decree summarily ordering an election as provided in Section 211 of the General
Corporation Law of Delaware.

         If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by





                                       8
<PAGE>   13
the directors then in office as aforesaid, which election shall be governed by
the provisions of Section 211 of the General Corporation Law of Delaware as far
as applicable.

3.5      PLACE OF MEETINGS; MEETINGS BY TELEPHONE

         The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.

         Unless otherwise restricted by the certificate of incorporation or
these bylaws, members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of the board of directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.

3.6      FIRST MEETINGS

         The first meeting of each newly elected board of directors shall be
held at such time and place as shall be fixed by the vote of the stockholders
at the annual meeting and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present.  In the event of the failure of the stockholders to
fix the time or place of such first meeting of the newly elected board of
directors, or in the event such meeting is not held at the time and place so
fixed by the stockholders, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the board of directors, or as shall be specified in a written
waiver signed by all of the directors.

3.7      REGULAR MEETINGS

         Regular meetings of the board of directors may be held without notice
at such time and at such place, within or without the State of Delaware, as
shall from time to time be determined by the board.

3.8      SPECIAL MEETINGS; NOTICE

         Special meetings of the board of directors may be held at such time
and at such place, within or without the State of Delaware, whenever called by
the chairman of the board, the president, the secretary or any two directors.

         Notice of the time and place of special meetings shall be delivered
personally or by telephone or facsimile to each director or sent by first-class
mail or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation.  If the
notice is mailed, it shall be deposited in the United States mail at least four





                                       9
<PAGE>   14
(4) days before the time of the holding of the meeting.  If the notice is
delivered personally or by telephone, facsimile or by telegram, it shall be
delivered personally or by telephone, facsimile or to the telegraph company at
least forty-eight (48) hours before the time of the holding of the meeting.
Any oral notice given personally or by telephone may be communicated either to
the director or to a person at the office of the director who the person giving
the notice has reason to believe will promptly communicate it to the director.
The notice need not specify the place of the meeting, if the meeting is to be
held at the principal executive office of the corporation.

3.9      QUORUM

         At all meetings of the board of directors, a majority of the number of
authorized directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which
there is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation.

3.10     WAIVER OF NOTICE

         Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice.  Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.  Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so required
by the certificate of incorporation or these bylaws.

3.11     ADJOURNED MEETING; NOTICE

         If a quorum is not present at any meeting of the board of directors,
then the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.

3.12     CONDUCT OF BUSINESS

         Meetings of the board of directors shall be presided over by the
chairman of the board, if any, or in his absence by the president, or in their
absence by a chairman chosen at the meeting.  The secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.  The chairman of any
meeting shall determine the order of business and the procedures at the
meeting.





                                       10
<PAGE>   15
3.13     BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING

         Unless otherwise restricted by the certificate of incorporation or
these bylaws, any action required or permitted to be taken at any meeting of
the board of directors, or of any committee thereof, may be taken without a
meeting if all members of the board or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the board or committee.

3.14     FEES AND COMPENSATION OF DIRECTORS

         Unless otherwise restricted by the certificate of incorporation or
these bylaws, the board of directors shall have the authority to fix the
compensation of directors.  The directors may be paid their expenses, if any,
of attendance at each meeting of the board of directors and may be paid a fixed
sum for attendance at each meeting of the board of directors or a stated salary
as director.  No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.  Members
of special or standing committees may be allowed like compensation for
attending committee meetings.

3.15     APPROVAL OF LOANS TO OFFICERS

         The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation.  The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation.  Nothing in this section shall be deemed to deny,
limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.

3.16     REMOVAL OF DIRECTORS

         Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that, so long as stockholders of the corporation are entitled to cumulative
voting, if less than the entire board is to be removed, no director may be
removed without cause if the votes cast against his or her removal would be
sufficient to elect him or her if then cumulatively voted at an election of the
entire Board of Directors.  If at any time a class or series of shares is
entitled to elect one or more directors, the provisions of this Article 3.16
shall apply to the vote of that class or series and not to the vote of the
outstanding shares as a whole.





                                       11
<PAGE>   16
         No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.


                                   ARTICLE IV

                                   COMMITTEES

4.1      COMMITTEES OF DIRECTORS

         The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist
of one or more of the directors of the corporation.  The board may designate
one or more directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee.  In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
board of directors to act at the meeting in the place of any such absent or
disqualified member.  Any such committee, to the extent provided in the
resolution of the board of directors or in the bylaws of the corporation, shall
have and may exercise all the powers and authority of the board of directors in
the management of the business and affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all papers that may
require it; but no such committee shall have the power or authority to (i)
amend the certificate of incorporation (except that a committee may, to the
extent authorized in the resolution or resolutions providing for the issuance
of shares of stock adopted by the board of directors as provided in Section
151(a) of the General Corporation Law of Delaware, fix any of the preferences
or rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares or any other class or classes or any other
series of the same or any other class or classes of stock of the corporation),
(ii) adopt an agreement of merger or consolidation under Section 251 or 252 of
the General Corporation Law of Delaware, (iii) recommend to the stockholders
the sale, lease or exchange of all or substantially all of the corporation's
property and assets (iv) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution, or (v) amend the bylaws of the
corporation; and, unless the board resolution establishing the committee, the
bylaws or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock, or to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of Delaware.

4.2      COMMITTEE MINUTES

         Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.





                                       12
<PAGE>   17
4.3      MEETINGS AND ACTION OF COMMITTEES

         Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws,
Section 3.5 (place of meetings and meetings by telephone), Section 3.7 (regular
meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum),
Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of
adjournment), Section 3.12 (conduct of business) and Section 3.13 (action
without a meeting), with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may also be called by resolution of the board of directors and
that notice of special meetings of committees shall also be given to all
alternate members, who shall have the right to attend all meetings of the
committee.  The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.


                                   ARTICLE V

                                    OFFICERS

5.1      NUMBER OF OFFICERS

         The officers of the corporation shall be a chief executive officer, a
secretary and a chief financial officer.  The corporation may also have, at the
discretion of the board of directors, a chairman of the board, a vice chairman
of the board, one or more presidents of designated function, one or more vice
presidents, assistant vice presidents, assistant secretaries, controllers,
assistant financial officers, and any such other officers as may be appointed
in accordance with the provisions of Section 5.2 of these bylaws.  Any number
of offices may be held by the same person.

5.2      ELECTION OF OFFICERS

         Except as otherwise provided in this Section 5.2, the officers of the
corporation shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment.  The board of directors
may appoint, or empower the chief executive officer to appoint (whether or not
such officer is described in this Article V), such officers and agents of the
business as the corporation may require, each of whom shall hold office for
such period, have such authority, and perform such duties as are provided in
these bylaws or as the board of directors may from time to time determine.  Any
vacancy occurring in any office of the corporation shall be filled by the board
of directors or may be filled by the chief executive officer (if the chief
executive officer appointed such officer).





                                       13
<PAGE>   18
5.3      REMOVAL AND RESIGNATION OF OFFICERS

         Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors or, in the case of an officer appointed by
the chief executive officer, by the chief executive officer.

         Any officer may resign at any time by giving written notice to the
corporation.  Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective.  Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.

5.4      CHAIRMAN OF THE BOARD

         The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws.  If there is no
chief executive officer, then the chairman of the board shall also be the chief
executive officer of the corporation and shall have the powers and duties
prescribed in Section 5.5 of these bylaws.

5.5      VICE CHAIRMAN OF THE BOARD

         In the absence or disability of the chairman of the board, the vice
chairman of the board, if such an officer be elected, shall perform all the
duties of the chairman of the board.  The vice chairman of the board shall have
such other powers and perform such other duties as from time to time may be
prescribed by the board of directors, these bylaws or the chairman of the
board.

5.6      CHIEF EXECUTIVE OFFICER

         Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the chief executive officer, unless otherwise determined by the board of
directors, shall be the senior executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business, officers and affairs of the
corporation.  He shall preside at all meetings of the stockholders and, in the
absence or nonexistence of a chairman of the board and a vice chairman of the
board, at all meetings of the board of directors.  He shall have the general
powers and duties of management usually vested in the office of a chief
executive officer or president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.





                                       14
<PAGE>   19
5.7      PRESIDENTS AND VICE PRESIDENTS

         The board of directors may, in its discretion, designate one or more
presidents and one or more vice presidents, and furthermore, may identify in
such designation the function of such officers.  The presidents and vice
presidents, if designated, shall have such powers and perform such duties as
from time to time may be prescribed for them, respectively, by the board of
directors, these bylaws, the chief executive officer or the chairman of the
board.

5.8      SECRETARY

         The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders.  The  minutes shall show
the time and place of each meeting, whether regular or special (and, if
special, how authorized and the notice given), the names of those present at
directors' meetings or committee meetings, the number of shares present or
represented at stockholders' meetings, and the proceedings thereof.

         The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names
of all stockholders and their addresses, the number and classes of shares held
by each, the number and date of certificates evidencing such shares, and the
number and date of cancellation of every certificate surrendered for
cancellation.

         The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law
or by these bylaws.  He shall keep the seal of the corporation, if one to be
adopted, in a safe custody and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or these bylaws.

5.9      CHIEF FINANCIAL OFFICER

         The chief financial officer shall have the general powers and duties
of management usually vested in the office of treasurer of a corporation.  The
chief financial officer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares.  The books of account shall at all reasonable
times be open to inspection by any director.

         The chief financial officer shall deposit all money and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the board of directors.  He shall disburse
the funds of the corporation as may be ordered by the board of directors, shall
render to the chief executive officer and directors, whenever they request it,
an





                                       15
<PAGE>   20
account of all of his transactions as chief financial officer and of the
financial condition and affairs of the corporation, and shall have such other
powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.

5.10     ASSISTANT SECRETARY

         The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.

5.11     CONTROLLER AND ASSISTANT FINANCIAL OFFICER

         The controller or other assistant financial officer, or, if there is
more than one, the controllers and assistant financial officers, in the order
determined by the stockholders or the board of directors (or if there be no
such determination, then in the order of their election), shall, in the absence
of the chief financial officer or in the event of his or her inability or
refusal to act, perform the duties and exercise the powers of the chief
financial officer and shall perform such other duties and have such other
powers as the board of directors, the stockholders, the chief executive officer
or the chief financial officer may from time to time prescribe.

5.12     AUTHORITY AND DUTIES OF OFFICERS

         In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from
time to time by the board of directors or the stockholders.


                                   ARTICLE VI

                                   INDEMNITY

6.1      INDEMNIFICATION OF DIRECTORS AND OFFICERS

         The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceedings, arising by reason of the fact that such person
is or was an agent of the corporation.  For purposes of this Section 6.1, a
"director" or "officer" of the corporation includes any person (i) who is or
was a director or officer of the





                                       16
<PAGE>   21
corporation, (ii) who is or was serving at the request of the corporation as a
director or officer of another corporation, partnership,  joint venture, trust
or other enterprise, including, without limitation, any direct or indirect
subsidiary of the corporation, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of
another enterprise at the request of such predecessor corporation.

6.2      INDEMNIFICATION OF OTHERS

         The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceedings, arising by
reason of the fact that such person is or was an agent of the corporation.  For
purposes of this Section 6.2, an "employee" or "agent" of the corporation
(other than a director or officer) includes any person (i) who is or was an
employee or agent of the corporation, (ii) who is or was serving at the request
of the corporation as an employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, including, without limitation, any
direct or indirect subsidiary of the corporation, or (iii) who was an employee
or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.

6.3      INSURANCE

         The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.


                                  ARTICLE VII

                              RECORDS AND REPORTS

7.1      MAINTENANCE AND INSPECTION OF RECORDS

         The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.





                                       17
<PAGE>   22
         Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom.  A proper purpose shall mean
a purpose reasonably related to such person's interest as a stockholder.  In
every instance where an attorney or other agent is the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent to
so act on behalf of the stockholder.  The demand under oath shall be directed
to the corporation at its registered office in Delaware or at its principal
place of business.

7.2      INSPECTION BY DIRECTORS

         Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director.  The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether
a director is entitled to the inspection sought.  The Court may summarily order
the corporation to permit the director to inspect any and all books and
records, the stock ledger, and the stock list and to make copies or extracts
therefrom.  The Court may, in its discretion, prescribe any limitations or
conditions with reference to the inspection, or aware such other and further
relief as the Court may deem just and proper.

7.3      REPRESENTATION OF SHARES OF OTHER CORPORATIONS

         The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation.  The authority
granted herein may be exercised either by such person directly or by any other
person authorized to do so by proxy or power of attorney duly executed by such
person having the authority.


                                  ARTICLE VIII

                                GENERAL MATTERS

8.1      STOCK CERTIFICATES; PARTLY PAID SHARES

         The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares.  Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the





                                       18
<PAGE>   23
corporation.  Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and, upon request,
every holder of uncertificated shares, shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman
of the board of directors, or the president or vice-president, and by the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of such corporation representing the number of shares registered in certificate
form.  Any or all of the signatures on the certificate may be a facsimile.  In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue.

         The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor.  Upon the face or back of each stock certificate issued to
represent any such partly paid shares, or upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefore and the amount paid thereon shall be
stated.  Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.

8.2      LOST CERTIFICATES

         Except as provided in this Section 8.2, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time.  The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claims that may be made against it
on account of the alleged loss, theft or destruction of any such certificate or
the issuance of such new certificate or uncertificated shares.

8.3      CONSTRUCTION; DEFINITIONS

         Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws.  Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.





                                       19
<PAGE>   24
8.4      DIVIDENDS

         The directors of the corporation, subject to any restrictions
contained in the certificate of incorporation, may declare and pay dividends
upon the shares of its capital stock pursuant to the General Corporation Law of
Delaware.  Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.

         The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve.

8.5      FISCAL YEAR

         The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.

8.6      SEAL

         The corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.

8.7      TRANSFER OF STOCK

         Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.

8.8      STOCK TRANSFER AGREEMENTS

         The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock
of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.

8.9      REGISTERED STOCKHOLDERS

         The corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends
and to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such





                                       20
<PAGE>   25
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.


                                   ARTICLE IX

                                   AMENDMENTS

         The original or other bylaws of the corporation may be adopted,
amended or repealed by the stockholders entitled to vote; provided, however,
that the corporation may, in its certificate of incorporation, confer the power
to adopt, amend or repeal bylaws upon the directors.  The fact that such power
has been so conferred upon the directors shall not divest the stockholders of
the power, nor limit their power to adopt, amend or repeal bylaws.

         Notwithstanding any other provision of these bylaws or any provision
of law which might otherwise permit a lesser vote or no vote, but in addition
to any affirmative vote of the holders of the capital stock required by law or
by these bylaws, the affirmative vote of at least two-thirds (2/3) of the
combined voting power of all of the then- outstanding shares of the corporation
entitled to vote shall be required to alter, amend or repeal Article II,
Section 2.9 or Section 2.11 of these bylaws or this Article IX or any provision
thereof, or to add or amend any other bylaw in order to change or nullify the
effect of such provisions, unless such amendment shall be approved by a
majority of the directors of the corporation not affiliated or associated with
any person or entity holding (or which has announced an intent to obtain) 26%
or more of the voting power of the corporation's outstanding capital stock.


                                   ARTICLE X

                                  DISSOLUTION

         If it should be deemed advisable in the judgment of the board of
directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.

         At the meeting a vote shall be taken for and against the proposed
dissolution.  If a majority of the outstanding stock of the corporation
entitled to vote thereon votes for the proposed dissolution, then a certificate
stating that the dissolution has been authorized in accordance with the
provisions of Section 275 of the General Corporation Law of Delaware and
setting forth the names and residences of the directors and officers shall be
executed, acknowledged, and filed and shall become effective in accordance with
Section 103 of the General Corporation Law of Delaware.  Upon such
certificate's becoming effective in





                                       21
<PAGE>   26
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved.


                                   ARTICLE XI

                                   CUSTODIAN

11.1     APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES

         The Court of Chancery, upon application of any stockholder, may
appoint one or more persons to be custodians and, if the corporation is
insolvent, to be receivers, of and for the corporation when:

                  (i)     at any meeting held for the election of directors the
         stockholders are so divided that they have failed to elect successors
         to directors whose terms have expired or would have expired upon
         qualification of their successors; or

                  (ii)    the business of the corporation is suffering or is
         threatened with irreparable injury because the directors are so
         divided respecting the management of the affairs of the corporation
         that the required vote for action by the board of directors cannot be
         obtained and the stockholders are unable to terminate this division;
         or

                  (iii)   the corporation has abandoned its business and has
         failed within a reasonable time to take steps to dissolve, liquidate
         or distribute its assets.

11.2     DUTIES OF CUSTODIAN

         The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.





                                       22
<PAGE>   27


                             i2 TECHNOLOGIES, INC.

                              Amendment to Bylaws
                          Effective as of May 14, 1997



         Article III, Section 3.2 of the Bylaws of i2 Technologies, Inc. shall
be amended in its entirety to read as follows:



                 "3.2     NUMBER OF DIRECTORS

                          The number of directors of the corporation is fixed
                 at five (5).  No reduction of the authorized number of
                 directors shall have the effect of removing any director
                 before that director's term of office expires."



<PAGE>   1
                                                                   EXHIBIT 21.1



                             i2 TECHNOLOGIES, INC.
                              LIST OF SUBSIDIARIES

<TABLE>
<CAPTION>
                                                     JURISDICTION
                                                      IN WHICH
     NAME OF SUBSIDIARY                               ORGANIZED
- -------------------------------             -----------------------------
<S>                                         <C> 
i2 Technologies Pty Ltd.                    Australia
iTWO Technologies Exports, Inc.             Barbados
i2 Technologies N.V./S.A.                   Belgium
i2 Technologies do Brasil Ltda.             Brazil
i2 Technologies (Canada), Inc.              Canada
i2 Technologies (Cayman Islands) Ltd.       Cayman Islands
i2 Technologies A/S                         Denmark
i2 Technologies SARL                        France
i2 Technologies, GmbH                       Germany
Think Systems Private Limited               India
i2 Technologies Srl                         Italy
i2 Technologies Japan, Inc.                 Japan
i2 Technologies (Netherlands) B.V.          Netherlands
i2 Technologies (N.A.) N.V.                 Netherlands Antilles
i2 Technologies PTE Limited                 Singapore
i2 Technologies, Limited                    United Kingdom
</TABLE>

<PAGE>   1





                                                                    EXHIBIT 23.1



                        CONSENT OF INDEPENDENT AUDITORS


We consent to the incorporation by reference in the Registration Statements on
Form S-8 (File Nos. 333-03703, 333-27009 and 333-28147) and on Form S-3 (File
Nos. 333-29339 and 333-29341) of i2 Technologies, Inc. of our report dated
January 21, 1998, with respect to the consolidated financial statements and
schedule of i2 Technologies, Inc. included in its Annual Report (Form 10-K) for
the year ended December 31, 1997 filed with the Securities and Exchange
Commission.




                                                          /s/  ERNST & YOUNG LLP


Dallas, Texas
March 5, 1998

<TABLE> <S> <C>

<ARTICLE> 5
       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-START>                             JAN-01-1997
<PERIOD-END>                               DEC-31-1997
<CASH>                                         125,853
<SECURITIES>                                    14,538
<RECEIVABLES>                                   75,268
<ALLOWANCES>                                   (4,059)
<INVENTORY>                                          0
<CURRENT-ASSETS>                               219,883
<PP&E>                                          27,823
<DEPRECIATION>                                 (9,231)
<TOTAL-ASSETS>                                 239,202
<CURRENT-LIABILITIES>                           57,439
<BONDS>                                              0
                                0
                                          0
<COMMON>                                             8
<OTHER-SE>                                     180,409
<TOTAL-LIABILITY-AND-EQUITY>                   180,417
<SALES>                                        134,725
<TOTAL-REVENUES>                               200,706
<CGS>                                            3,384
<TOTAL-COSTS>                                  186,892
<OTHER-EXPENSES>                               (3,068)
<LOSS-PROVISION>                                 3,774
<INTEREST-EXPENSE>                                  15
<INCOME-PRETAX>                                 16,882
<INCOME-TAX>                                     9,661
<INCOME-CONTINUING>                              7,221
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     7,221
<EPS-PRIMARY>                                     0.24
<EPS-DILUTED>                                     0.21
        

</TABLE>



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