I2 TECHNOLOGIES INC, 10-Q, 2000-11-13

I2 TECHNOLOGIES INC
10-Q, 2000-11-13
PREPACKAGED SOFTWARE

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<PAGE> 1

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended September 30, 2000

[ ] 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)

DELAWARE 75-2294945
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

One i2 Place 11701 Luna Road
Dallas, TX
75234
(Address of principal executive offices)
(Zip code)

(469) 357-1000
(Registrant's telephone number, including area code)

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.
[X] Yes [ ] No

Number of shares of registrant's $0.00025 par value common stock outstanding as
of November 10, 2000: 20,326,100.

<PAGE> 2

i2 TECHNOLOGIES, INC.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of and December 31, 1999
and September 30, 2000 2

Condensed Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1999 and 2000 3

Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 2000 4

Notes to Condensed Consolidated Financial Statements 5

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10

Item 3. Quantitative and Qualitative Disclosures About Market Risk 25

PART II OTHER INFORMATION

Item 1. Legal Proceedings 26

Item 2. Changes in Securities 26

Item 4. Submission of Matters to a Vote of Security Holders 26

Item 5. Other Information 26

Item 6. Exhibits and Reports on Form 8-K 26

SIGNATURES 27
</TABLE>

1
<PAGE> 3

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

i2 TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND SEPTEMBER 30, 2000
(UNAUDITED)
(IN THOUSANDS, EXCEPT PAR VALUE)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 454,585 $ 504,740
Short-term investments .................................... 124,806 219,151
Accounts receivable, net .................................. 157,586 263,401
Prepaid and other current assets .......................... 26,475 90,966
------------ -------------
Total current assets .................................... 763,452 1,078,258
Furniture and equipment, net ....................................... 50,483 104,752
Deferred income taxes and other assets ............................. 33,628 203,715
Intangibles and goodwill, net ...................................... 13,986 8,310,984
------------ -------------
Total assets ............................................ $ 861,549 $ 9,697,709
============ =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................... $ 20,039 $ 41,431
Accrued liabilities ....................................... 85,757 217,709
Deferred revenue .......................................... 72,617 163,564
------------ -------------
Total current liabilities ............................... 178,413 422,704
Deferred income taxes and other
long-term liabilities ................................... 968 71,454
Long term debt ............................................ 350,000 350,000
------------ -------------
Total liabilities ......................................... 529,381 844,158
------------ -------------
Stockholders' equity:
Preferred Stock, $0.001 par value,
5,000 shares authorized, none issued ...................... -- --
Common Stock, $0.00025 par value, 500,000 shares
authorized, 155,412 and 199,856 shares issued
and outstanding, respectively ............................. 39 49
Additional paid-in capital .................................... 297,879 9,845,350
Accumulated other comprehensive loss .......................... (4,126) (5,183)
Retained earnings (deficit) ................................... 38,376 (986,665)
------------ -------------
Total stockholders' equity ................................ 332,168 8,853,551
------------ -------------
Total liabilities and stockholders' equity ................ $ 861,549 $ 9,697,709
============ =============
</TABLE>

The accompanying notes are an integral part of these financial statements.

2
<PAGE> 4

i2 TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Software licenses .................................. $ 88,596 $ 201,623 $ 242,051 $ 465,451
Services ........................................... 39,293 77,098 104,388 184,451
Maintenance ........................................ 18,407 40,802 49,403 98,521
------------ ------------ ------------ ------------
Total revenues ................................. 146,296 319,523 395,842 748,423
------------ ------------ ------------ ------------
Costs and expenses:
Cost of software licenses .......................... 5,229 18,961 11,821 34,706
Cost of services and maintenance ................... 31,210 67,000 91,183 156,256
Sales and marketing ................................ 49,305 110,852 136,127 262,655
Research and development ........................... 33,024 60,967 95,106 152,005
General and administrative ......................... 13,456 22,947 39,054 60,458
Amortization of intangibles ........................ -- 772,107 -- 981,054
In process Research and Development
and acquisition-related expenses ................ 4,248 2,796 4,825 102,115
------------ ------------ ------------ ------------
Total costs and expenses ....................... 136,472 1,055,630 378,116 1,749,249
------------ ------------ ------------ ------------
Operating income (loss) .............................. 9,824 (736,107) 17,726 (1,000,826)
Other income, net .................................... 2,017 7,216 4,419 13,928
Non-cash settlement .................................. -- (22,412) -- (22,412)
------------ ------------ ------------ ------------
Income (loss) before income taxes .................... 11,841 (751,303) 22,145 (1,009,310)
Provision for income taxes ........................... 6,114 4,408 14,045 15,476
------------ ------------ ------------ ------------
Net income (loss) .................................... $ 5,727 $ (755,711) $ 8,100 $ (1,024,786)
============ ============ ============ ============

Basic and diluted earnings per common share:
Basic earnings per common share ................... $ 0.04 $ (3.83) $ 0.05 $ (5.87)
Diluted earnings per common share ................. $ 0.03 $ (3.83) $ 0.05 $ (5.87)

Weighted average common shares outstanding ........... 151,678 197,540 149,504 174,558
Weighted average diluted common shares
Outstanding ....................................... 165,398 197,540 163,418 174,558

Comprehensive income (loss)
Net income (loss) ................................... $ 5,727 $ (755,711) $ 8,100 $ (1,024,786)
Foreign currency translation adjustment,
net of income tax ................................. (1,730) (205) (2,766) (1,057)
------------ ------------ ------------ ------------
Total comprehensive income (loss) .................... $ 3,997 $ (755,916) $ 5,334 $ (1,025,843)
============ ============ ============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

3
<PAGE> 5

i2 TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................... $ 8,100 $ (1,024,786)
Adjustment to reconcile net income to net cash provided
by operating activities:
In-process research and development ............................. 1,900 101,174
Depreciation and amortization ................................... 12,232 1,001,501
Provision for doubtful accounts ................................. 6,886 9,687
Amortization of deferred compensation ........................... 411 3,182
Non-cash settlement ............................................. -- 22,412
Loss on equity investments ...................................... -- 1,309
Deferred income taxes ........................................... (24,446) (124,850)
Tax benefit of stock options .................................... 17,876 123,831
Changes in operating assets and liabilities net of acquired
balances:
Accounts receivable, net ........................................ (36,404) (85,118)
Prepaid and other assets ........................................ (7,643) (39,860)
Accounts payable ................................................ 11,070 17,369
Accrued liabilities ............................................. 27,454 59,514
Income taxes payable ............................................ 14,329 (1,021)
Deferred revenue ................................................ 15,465 60,753
------------ ------------
Net cash provided by operating activities ............... 47,230 125,097

Cash flows from investing activities:
Cash acquired in purchase of Aspect Development ................. -- 55,206
Cash acquired in purchase of SupplyBase ......................... -- 26
Direct costs of purchase transactions ........................... (500) (23,895)
Long-term investments ........................................... -- (910)
Investments in affiliates ....................................... -- (38,242)
Purchases of furniture and equipment ............................ (22,120) (58,471)
Net purchases of short-term investments ......................... (27,707) (80,839)
------------ ------------
Net cash used by investing activities ................... (50,327) (147,125)

Cash flows from financing activities:
Net payments on revolving line of credit ........................ (2,032) --
Proceeds from issuance of notes payable to
stockholders .................................................. 500 --
Payments on notes payable to stockholders ....................... (3,500) --
Proceeds from issuance of other long-term debt .................. 4,000 --
Payments on other long-term debt ................................ (4,000) --
Net proceeds from sale of common stock and
exercise of stock options ..................................... 13,808 72,501
------------ ------------
Net cash provided by financing activities ................. 8,776 72,501

Effect of exchange rates on cash .................................... (344) (318)
------------ ------------
Net increase in cash and cash equivalents ........................... 5,335 50,115
Cash and cash equivalents at the beginning of the period ............ 62,611 454,585
------------ ------------
Cash and cash equivalents at the end of the period .................. $ 67,946 $ 504,740
============ ============

Supplemental disclosure of cash flow information:
Common stock issued for acquisition of various IBM
assets ...................................................... $ -- $ 233,703
Common stock issued for acquisition of Aspect
Development ................................................. -- 8,766,352
Common stock issued for acquisition of SupplyBase ............... -- 345,452

------------ ------------
Total stock issued for acquisitions ........................ $ -- $ 9,365,508
============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

4
<PAGE> 6

i2 TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unauditied interim consolidated financial statements have
been prepared in accordance with the rules and regulations of the Securities and
Exchange Commission ("SEC"). The interim condensed consolidated financial
statements include the consolidated accounts of i2 Technologies, Inc. and its
majority owned subsidiaries with all significant intercompany transactions
eliminated.

In the opinion of management, all adjustments (consisting only of normal
recurring entries, except where noted) necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim periods
presented have been made. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles ("GAAP") have been condensed or omitted pursuant to such
SEC rules and regulations. These statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the year
ended December 31, 1999 contained in the Company's Annual Report on Form 10-K
filed with the SEC on March 22, 2000. Operating results for the three and nine
months ended September 30, 2000 are not necessarily indicative of the results
for the year ending December 31, 2000. Dollar amounts presented are in
thousands, except as otherwise noted.

Certain of the 1999 amounts in the accompanying financial statement have
been reclassified to conform to the current presentation.

2. BUSINESS COMBINATIONS

In July 1999, we acquired Sales Marketing Administration Research Tracking
Technologies, Inc., or SMART, which developed software applications that help
companies use the Internet to build and extend relationships with customers,
partners and suppliers. Under the terms of the acquisition agreement, we issued
or reserved for issuance approximately 4.2 million shares of common stock for
all of the outstanding capital stock of and options and warrants of SMART. The
SMART acquisition was accounted for as a pooling of interests and, accordingly,
the accompanying condensed consolidated financial statements give retroactive
effect to the combination and the results of SMART have been included with our
results of operations for all periods presented.

On April 28, 2000 we completed our acquisition of SupplyBase, Inc.
("SupplyBase"), a leading developer of high-end interactive database products,
services and supply chain management tools for managing custom content. We
issued or reserved for issuance approximately 1.8 million shares of our common
stock with a fair market value of $345.5 million in exchange for all outstanding
stock, options and warrants of SupplyBase. In connection with the acquisition,
we incurred transaction costs consisting primarily of professional fees of $6.8
million, resulting in a total purchase price of $352.3 million. The acquisition
was accounted for as a purchase business combination; accordingly, the results
of operations of SupplyBase have been included with our results of operations
since April 28, 2000.

The total purchase price paid for the SupplyBase acquisition was allocated
based on the estimated fair values of the assets acquired as follows:

<TABLE>
<CAPTION>
SupplyBase
------------
<S> <C>
Net assets acquired .................... $ (1,663)
Identifiable intangible assets ......... 15,700
Goodwill ............................... 331,815
In-process R&D ......................... 6,400
------------
Total .................................. $ 352,252
============
</TABLE>

A total of approximately $15.7 million of the purchase consideration was
allocated to other intangible assets, including developed technology ($2.8
million), assembled

5
<PAGE> 7

workforce ($1.2 million) and content databases ($11.7 million), with these
amounts being amortized over two to three years.

$6.4 million of the SupplyBase purchase price represents purchased
in-process technology that has not yet reached technological feasibility and has
no alternative future use. Accordingly, this amount was immediately expensed in
the Consolidated Statement of Operations upon consummation of the acquisition.
The value assigned to purchased in-process technology, based on a valuation
prepared by an independent third-party appraisal company, was determined by
identifying research projects in areas for which technological feasibility has
not been established, including new generation and web-based custom content
management products ranging from 5% to 75% complete. The value was determined by
estimating the costs to develop the purchased in-process technology into
commercially viable products, estimating the net cash flows from such projects,
and discounting the net cash flows to their present value. A discount rate of
25% was used, which includes a factor that takes into account the uncertainty
surrounding the successful development of the purchased in-process technology.

On June 9, 2000, we completed our acquisition of Aspect Development, Inc.
("Aspect") the leading developer of collaborative solutions for standardized
content management and inbound supply chain solutions for business-to-business
marketplaces. We issued or reserved for issuance 33.8 million shares of our
common stock with a fair market value of $6.4 billion and exchanged options to
purchase 14.1 million shares of our common stock with a fair value of $2.4
billion. The fair value of the exchanged options was valued using the
Black-Scholes options pricing model with the following assumptions: 1) expected
volatility of 0.84, 2) weighted-average risk-free interest rate of 5.60%, 3)
expected terms ranging from 1-4 years and 4) no expected dividends. In
connection with the acquisition, we incurred transaction costs consisting
primarily of professional fees of $39.5 million, resulting in a total purchase
price of $8.8 billion. The acquisition was accounted for as a purchase business
combination; accordingly, the results of operations of Aspect have been included
with our results of operations since June 9, 2000.

The total purchase price paid for the Aspect acquisition was allocated
based on the estimated fair values of the assets acquired, as follows:

<TABLE>
<CAPTION>
Aspect
----------
<S> <C>
Net assets acquired .................... $ 115,943
Identifiable intangible assets ......... 217,000
Goodwill ............................... 8,389,917
In-process R&D ......................... 83,000
----------
Total .................................. $8,805,860
==========
</TABLE>

A total of $217.0 million of the purchase consideration was allocated to
other intangible assets, including developed technology ($81.0 million),
assembled workforce ($10.0 million) content databases ($84.0 million) and
customer lists ($42.0 million), with these amounts being amortized over two to
three years.

$83.0 million of the Aspect purchase price represents purchased in-process
technology that has not yet reached technological feasibility and has no
alternative future use. Accordingly, this amount was immediately expensed in the
Consolidated Statement of Operations upon consummation of the acquisition. The
value assigned to purchased in-process technology, based on a valuation prepared
by an independent third-party appraisal company, was determined by identifying
research projects in areas for which technological feasibility has not been
established, including next generation and development of e-business products
ranging from 35% to 65% complete. The value was determined by estimating the
costs to develop the purchased in-process technology into commercially viable
products, estimating the net cash flows from such projects, and discounting the
net cash flows to their present value. A discount rate of 20% was used, which
includes a factor that takes into account the uncertainty surrounding the
successful development of the purchased in-process technology.

At September 30, 2000, accumulated amortization related to the goodwill and
other intangible assets acquired in the SupplyBase and Aspect acquisitions
totaled $955.5 million.

6
<PAGE> 8

The following summary, prepared on an unaudited pro forma basis, reflects
the condensed consolidated results of operations for the nine months ended
September 30, 1999 and 2000 assuming SupplyBase and Aspect had been acquired at
the beginning of the periods presented (in thousands, except per share data):

<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1999 2000
----------- -----------
<S> <C> <C>
Revenue .......................................... $ 457,776 $ 801,031

Net Loss ......................................... (2,243,741) (2,262,087)
=========== ===========
Basic net loss per share ......................... $ (12.24) $ (11.64)
=========== ===========
</TABLE>

The pro forma results are not necessarily indicative of what would have
occurred if the acquisitions had been in effect for the periods presented. In
addition they are not intended to be a projection of future results and do not
reflect any synergies that might be affected from combined operations. The
charges for in-process research and development have not been included in the
unaudited pro forma results because they are nonrecurring.

3. ASSET ACQUISITION

On March 27, 2000, we purchased from IBM various software assets,
cross-patent rights and software licenses with an aggregate value of
approximately $234 million in exchange for approximately 1.3 million shares of
our common stock. This amount was recorded as: acquired technology and cross
patent rights, software licenses, which are amortized over three to five years;
and in-process research and development; which is expensed immediately. The
value assigned to purchased in-process technology, based on a valuation prepared
by an independent third-party appraisal company, was determined by identifying
research projects in areas for which technological feasibility has not been
established including next generation forecasting and replenishment products and
next generation industry specific scheduler products ranging from 73% to 85%
complete. The value was determined by estimating the costs to develop the
purchased in-process technology into commercially viable products, estimating
the net cash flows from such projects, and discounting the net cashflows to
their present value. A discount rate of 19% was used, which includes a factor
that takes into account the uncertainty surrounding the successful development
of the purchased in-process technology. In addition, we may issue to IBM up to
an additional $250 million in shares of our common stock, valued based on a
trading average prior to the date of issuance. We could be obligated to issue
some or all of these shares in the future based on the amount of the revenue we
derive from or through IBM during four annual periods, with the first annual
period ending December 31, 2000. Issuance of this stock will be recorded as a
commission or sales discount and not as an addition to purchase price.

4. LINES OF CREDIT

In August 1999, we entered into a one-year, $30.0 million revolving credit
agreement. In August 2000, this agreement was renewed for another year. This
facility is unsecured and contains customary restrictive covenants, including
covenants requiring us to maintain certain financial ratios. The revolving
credit agreement is not subject to a borrowing base limitation and borrowings
there under bear interest at LIBOR plus 0.75% to 1.75% per annum, depending on
certain cash ratios. The maximum borrowings available under the facility are
reduced by the value of outstanding letters of credit issued by the lender on
our behalf, $8.3 million of which were outstanding at September 30, 2000. At
September 30, 2000, there were no borrowings outstanding under this agreement
and we were in compliance with all covenants.

5. BORROWINGS

On December 10, 1999, we issued an aggregate principal amount of $350
million of our 5 1/4% convertible subordinated notes due 2006, which were sold
at par less an underwriting discount of 2.75% of the principal amount of the
notes. These securities were issued and sold to Goldman, Sachs & Co., Morgan
Stanley & Co. Incorporated and

7
<PAGE> 9

Credit Suisse First Boston Corporation, as the initial purchasers for resale to
"qualified institutional buyers" in reliance on the exemption from registration
provided under Rule 144A of the Securities Act of 1933, as amended. The notes
are convertible at the option of the holder into shares of our common stock at a
conversion price of $75.99 per share at any time prior to maturity. The net
proceeds from the offering will be used for working capital and other general
corporate purposes.

6. EARNINGS PER SHARE

Earnings per share is computed in accordance with the provisions of
Statement of Financial Accounting Standards, or SFAS, No. 128, "Earnings Per
Share." Basic earnings per common share is based upon the weighted average
number of common shares outstanding. Dilutive earnings per common share includes
the effect of potentially dilutive common shares issuable upon the exercise of
stock options and warrants and upon conversion of our convertible subordinate
notes using the treasury stock method, if dilutive.

Potentially dilutive securities are excluded from the computation of
diluted earnings per common share. Exclusion of potentially dilutive securities
can occur when the exercise price of the securities exceeds the average fair
value of our common shares for a particular period or we incur a loss for the
period. For the three months and nine months ended September 30, 1999,
approximately 0.6 million and 4.2 million stock options and warrants,
respectively, were excluded from the computation of diluted earnings per common
share. For the three and nine months ended September 30, 2000 approximately 47
million stock options and warrants and 4.6 million common shares underlying our
convertible subordinated notes were excluded from the computation of diluted
earnings per common share. We incurred a net loss for the three and nine months
ended September 30, 2000. As a result, the common shares issuable upon exercise
of stock options and warrants and upon conversion of our convertible
subordinated notes would have been anti-dilutive to the net loss per share, and
were excluded from the dilutive computation for those periods.

Reconciliations of the computation of basic earnings per common share and
diluted earnings per common share, for the three and nine months ended September
30, 1999 and 2000, are as follows (amounts in thousands, except per share
amounts):

<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------- -----------------------
1999 2000 1999 2000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding ................. 151,678 197,540 149,504 174,558

Incremental shares assuming dilution ....................... 13,720 -- 13,914 --
---------- ---------- ---------- ----------
Weighted average diluted common shares outstanding ......... 165,398 197,540 163,418 174,558
========== ========== ========== ==========
Net income (loss) .......................................... $ 5,727 $ (755,711) $ 8,100 $(1,024,786)
========== ========== ========== ==========
Basic earnings per common share ............................ $ 0.04 $ (3.83) $ 0.05 $ (5.87)
========== ========== ========== ==========
Diluted earnings per common share .......................... $ 0.03 $ (3.83) $ 0.05 $ (5.87)
========== ========== ========== ==========
</TABLE>

7. STOCKHOLDERS EQUITY

On January 14, 2000, our Board of Directors approved a two-for-one stock
split. The stock split was paid as a 100% dividend on February 17, 2000. All
share and per share amounts included herein have been adjusted to reflect the
stock split as though it had occurred at the beginning of the initial period.

On October 17, 2000, our Board of Directors approved a two-for-one stock
split. The stock split is contingent on stockholder approval of a proposed
amendment to our certificate of incorporation to increase our authorized common
stock to 2,000,000,000 shares. If the proposal is approved by our stockholders
at a special meeting to be held November 28, 2000, the stock split is to be paid
as a 100% stock dividend on or about December 5, 2000 to stockholders of record
on the date of the special meeting. No share or per share amounts included
herein have been adjusted to reflect this proposed stock split.

8
<PAGE> 10
8. SEGMENT AND GEOGRAPHIC INFORMATION

Historically, substantially all revenues result from the licensing of our
software products and related consulting and customer support (maintenance)
services. Our chief operating decision-makers review financial information
presented on a consolidated basis, accompanied by disaggregated information
about revenues by geographic region for purposes of making operating decisions
and assessing financial performance. Accordingly, we consider ourselves to be in
a single industry segment, specifically the license, implementation and support
of our software applications and related services.

9. COMMITMENTS AND CONTINGENCIES

Litigation

From time-to-time, we are involved in various litigation matters arising in
the ordinary course of business. We believe that the resolution of currently
pending legal proceedings, either individually or taken as a whole, will not
have a material adverse effect on our consolidated financial condition, results
of operations or cash flow.

On October 10, 2000, we settled a lawsuit filed by a former employee,
regarding his right to exercise stock options granted to him in 1996 while he
was employed by us, prior to the our initial public offering. The settlement
resulted in the recording of a $22.4 million non-cash pretax charge for the
three months and nine months ended September 30, 2000.

10. RECENT ACCOUNTING PRONOUNCEMENTS

In April, 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - An Interpretation of APB Opinion No. 25", which provides guidance
on accounting for certain stock option transactions, including stock options
issued in a business combination, stock option repricings, and other equity
arrangements. This statement was effective July 1, 2000 and will impact the
purchase price allocation and amortization of intangibles on any business
combinations accounted for as a purchase that is closed subsequent to the
effective date. Management will periodically evaluate the impact of this
interpretation on other equity arrangements. We believe that this interpretation
will not have a significant effect on our consolidated financial position or
results of operations.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. We will adopt
SAB 101 in the fourth quarter of fiscal 2000. We believe that SAB 101 will not
have a significant effect on our consolidated financial position or results of
operations based on current interpretations. We will continue to evaluate the
impact of SAB 101 with regard to subsequent interpretations.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities."
SFAS 133 establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS 133 requires that all derivatives be
recognized at fair value in the balance sheet, and that the corresponding gains
or losses be included in comprehensive income, depending on the type of hedging
relationship that exists. SFAS 133 will be effective for fiscal years beginning
after June 15, 2000. We will be adopting SFAS 133 in the first quarter of 2001.
We are currently evaluating the impact of SFAS 133. We believe that SFAS will
not have a material effect on our consolidated financial position and results of
operations.

9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

In addition to the historical information contained herein, the discussion
in this Form 10-Q 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, future operating results or consolidated
financial position; future customer benefits attributable to our products;
developments in our 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. Such forward-looking statements are
generally accompanied by words such as "plan," "estimate," "expect," "believe,"
"should," "would," "could," "anticipate," "may" or other words that convey
uncertainty of future events or outcomes. The cautionary statements made in this
Form 10-Q should be read as being applicable to all related forward-looking
statements whenever they appear in this Form 10-Q. Our 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 "Factors That May Affect
Future Results" included in Item 2 of this Form 10-Q as well as those cautionary
statements and other factors set forth elsewhere herein.

References in this Form 10-Q 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.

OVERVIEW

We are a leading provider of marketplace solutions designed to help
enterprises optimize business processes both internally and among trading
partners. Our solutions enable enterprises to significantly improve
efficiencies, collaborate with suppliers and customers, respond to market
demands and engage in dynamic business interactions over the Internet. Our i2
TradeMatrix comprehensive suite includes content, solutions and platforms for
supply chain management, customer relationship management and supplier
relationship management. Further, i2 TradeMatrix offers content and content
management solutions as well as a platform for integration and administration of
private and public marketplaces. For purposes of this document, reference to
TradeMatrix include the solutions and products referred to above. We also
provide consulting, training and maintenance in support of these offerings.

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<PAGE> 12

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentages
that selected items in the unaudited Condensed Consolidated Statements of Income
bear to total revenues. The period-to-period comparisons of financial results
are not necessarily indicative of future results.

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, SEPTEMBER 30,
-------------------------- --------------------------
1999 2000 1999 2000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Software licenses ......................... 60.6% 63.1% 61.1% 62.2 %
Services .................................. 26.9 24.1 26.4 24.6
Maintenance ............................... 12.6 12.8 12.5 13.2
---------- ---------- ---------- ----------
Total revenues ...................... 100.0 100.0 100.0 100.0
---------- ---------- ---------- ----------
Costs and expenses:
Cost of software licenses ................. 3.6 5.9 3.0 4.6
Cost of services and maintenance .......... 21.3 21.0 23.0 20.9
Sales and marketing ....................... 33.7 34.7 34.4 35.1
Research and development .................. 22.6 19.1 24.0 20.3
General and administrative ................ 9.2 7.2 9.9 8.1
Amortization of intangibles ............... -- 241.6 -- 131.1
In process R&D and acquisition-related
expenses ................................ 2.9 0.9 1.2 13.6
---------- ---------- ---------- ----------
Total costs and expenses ............ 93.3 330.4 95.5 233.7
Operating income (loss) ...................... 6.7 (230.4) 4.5 (133.7)
Other income, net ............................ 1.4 2.3 1.1 1.9
Non-cash settlement .......................... -- (7.0) -- (3.0)
---------- ---------- ---------- ----------
Income (loss) before income taxes ............ 8.1 (235.1) 5.6 (134.9)
Provision for income taxes ................... 4.2 1.4 3.6 2.1
---------- ---------- ---------- ----------
Net income (loss) ............................ 3.9% (236.5)% 2.0% (137.0)%
========== ========== ========== ==========
</TABLE>

REVENUES

Our revenues consist of software license revenues, service revenues and
maintenance revenues. Software license revenues consist of sales of software
licenses, which are recognized in accordance with the American Institute of
Certified Public Accountants' Statement of Position SOP 97-2 ("SOP 97-2"),
"Software Revenue Recognition," as modified by SOP 98-9. Under SOP 97-2,
software license revenues are recognized upon execution of a contract and
delivery of software, provided that the license fee is not refundable or subject
to forfeiture, no significant production, modification or customization of the
software is required and collection is considered probable by management.
Subscriptions to access our Content databases are generally recognized ratably
over the term of the subscription period. 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.

Total revenues increased 118.4% to $319.5 million for the three months
ended September 30, 2000 from $146.3 million for the three months ended
September 30, 1999. Total revenue increased 89.1% to $748.4 million for the nine
months ended September 30, 2000 from $395.8 million for the comparable period in
1999. We derived substantially all of our revenues from licenses associated with
our suite of software products and content databases, as well as related
services and maintenance.

SOFTWARE LICENSES. Software license revenues increased 127.6% to $201.6
million for the three months ended September 30, 2000 from $88.6 million for the
comparable period in 1999. Software licenses revenues increased 92.3% to $465.5
million for the nine months ended September 30, 2000 from $242.1 million for the
comparable period in 1999. The increases in software license revenues for all
periods were due to

o our expanded product offerings,

o expanded sales activities resulting from an 145% increase in direct
sales reps and

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<PAGE> 13

o an increase in customer awareness and interest in e-business
product offerings.

During the three months ended September 30, 2000, approximately 49% of
our software license revenues were derived from repeat sales. Although we
believe that direct sales will continue to account for most of our software
license revenues for the foreseeable future, our strategy is to continue to
increase the level of indirect sales activities. We expect that sales of our
software products through, or in conjunction with, sales alliances,
distributors, resellers and other indirect channels will increase as a
percentage of software license revenues. However, there can be no assurance that
our efforts to expand indirect sales will be successful or will continue in the
future.

SERVICES. Service revenues increased 96.2% to $77.1 million for the three
months ended September 30, 2000 from $39.3 million for the comparable period in
1999. Service revenues increased 76.7% to $184.5 million for the nine months
ended September 30, 2000 from $104.4 million for the comparable period in 1999.
The increases in service revenues were due to an increase in the number of
marketplace solutions sold and resulting demand for consulting and
implementation services. The increases also were due to an increase in the use
of third-party consultants as subcontractors to provide implementation services
to our customers, which has allowed us to more rapidly penetrate international
markets and targeted vertical 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, consulting and
training services.

MAINTENANCE. Maintenance revenues increased 121.7% to $40.8 million for the
three months ended September 30, 2000 from $18.4 million for the comparable
period in 1999. Maintenance revenues increased 99.4% to $98.5 million for the
nine months ended September 30, 2000 from $49.4 million for the comparable
period in 1999. The increase of maintenance revenues was due to the continued
increase of license revenue agreements from prior years and quarters and the
associated maintenance agreement renewals from these licenses.

INTERNATIONAL REVENUES. Our international revenues, primarily generated
from customers located in Europe, Asia, Canada and Latin America, for the three
months ended September 30, 2000 were approximately 40% of total revenues,
compared to approximately 22% for the comparable period in 1999. For the nine
months ended September 30, 2000, international revenues represented
approximately 35% of total revenues, compared to 28% for the comparable period
in 1999. The increase in international revenue is consistent with our efforts to
expand our international presence and sales efforts. We believe that continued
growth and profitability will require further expansion in international
markets. We have utilized and will continue to utilize substantial resources to
expand existing and establish additional international operations. Managing
international businesses provides opportunities as well as increased risk. We
cannot be certain that our investments in international operations will produce
desired levels of revenues or profitability.

COSTS AND EXPENSES

COST OF SOFTWARE LICENSES. Cost of software licenses consists primarily of:

o commissions paid to third parties in connection with joint
marketing and other related agreements;

o royalty fees associated with third-party software;

o the cost of user documentation; and

o the cost of reproduction and delivery of the software.

Cost of software licenses increased 265.4% to $19 million for the three
months ended September 30, 2000 from $5.2 million for the comparable period in
1999. Cost of software licenses as a percentage of software license revenue
increased to 9.4% for the three months ended September 30, 2000 from 5.9% for
the comparable period in 1999. This increase in cost of software licenses is due
to an increase in commissions paid to third parties in connection with joint
marketing and other related agreements, and an increase in the amount of royalty
fees associated with third party software and content.

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<PAGE> 14

Cost of software licenses increased 194.1% to $34.7 million for the nine
months ended September 30, 2000 from $11.8 million for the comparable period in
1999. Cost of software licenses as a percentage of software license revenue
increased to 7.5% for the nine months ended September 30, 2000 from 4.9% for the
comparable period in 1999. This increase in cost of software licenses is due to
an increase in commissions paid to third parties in connection with joint
marketing and other related agreements and an increase in the amount of royalty
fees associated with third party software and content.

COST OF SERVICES AND MAINTENANCE. Cost of services and maintenance consists
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 telephone support and packaging and shipping
costs related to new releases of software and updated user documentation. Cost
of services and maintenance increased 114.7% to $67 million for the three months
ended September 30, 2000 from $31.2 million for the comparable period in 1999.
Cost of services and maintenance as a percentage of revenue from services and
maintenance, increased to 56.8% for the three months ended September 30, 2000,
from 54.1% for the comparable period in 1999. This increase in both dollars and
percent of revenue can be attributable to a 50% increase in the number of
consultants hired mostly toward the end of the second quarter of 2000. A newly
hired consultant requires 60 to 90 days to generate incremental revenue
resulting in an increase of cost as a percentage of revenue.

Cost of services and maintenance increased 71.4% to $156.3 millions for the
nine months ended September 30, 2000 from $91.2 million for the comparable
period in 1999. Costs of services and maintenance as a percentage of revenue
from services and maintenance decreased to 55.2% for the nine months ended
September 30, 2000 from 59.3% for the comparable period in 1999. The decrease in
cost of services and maintenance as a percentage of revenues from services and
maintenance is related to the increase of revenue as a result of a high
percentage of maintenance agreement renewals.

The increases in the dollar amount of cost of services and maintenance were
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. We expect to continue to increase the number of our consulting,
product support and training personnel in the foreseeable future as a means to
expand into different geographic and vertical markets.

SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of personnel costs, commissions, office facilities, travel, and
promotional events such as trade shows, seminars and technical conferences,
advertising and public relations programs. Sales and marketing expenses
increased 124.9% to $110.9 million for the three months ended September 30, 2000
from $49.3 million for the comparable period in 1999. Sales and marketing
expenses as a percentage of total revenues only increased to 34.7% for the three
months ended September 30, 2000 from 33.7% for the comparable period in 1999.

Sales and marketing expenses increased 92.9% to $262.7 million for the nine
months ended September 30, 2000 from $136.1 million for the comparable period in
1999. Sales and marketing costs as a percentage of total revenues increased to
35.1% for the nine months ended September 30, 2000 as compared to 34.4% for the
comparable period in 1999.

The dollar amount increases in sales and marketing expenses for all periods
presented are due to increase in:

o our direct sales force;

o sales commissions as a result of higher revenues; and

o marketing and promotional activities as a result of our expanded
suite of intelligent e-business solutions increased $4.5 million in
the three months ended September 30, 2000 and $11.7 million
in the nine months ended September 30, 2000.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist of continued software development and product enhancements to existing
software. In accordance with Statement of Financial Accounting Standards 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

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<PAGE> 15

general release to customers. To date, the establishment of technological
feasibility of our products and general release of such software has
substantially coincided. As a result, software development costs qualifying for
capitalization have been insignificant; therefore, we have not capitalized any
software development costs.

Research and development expenses increased 84.8% to $61.0 million for the
three months ended September 30, 2000 from $33.0 million for the comparable
period in 1999. Research and development expenses as a percentage of total
revenues decreased to 19.1% for the three months ended September 30, 2000 from
22.6% for the comparable period in 1999.

Research and development expenses increased 59.8% to $152.0 million for the
nine months ended September 30, 2000 from $95.1 million for the comparable
period in 1999. Research and development expenses as a percentage of total
revenue decreased to 20.3% for the nine months ended September 30 2000 from
24.0% for the comparable period in 1999. The decrease in research and
development expenses as a percentage of total revenues, is the primarily result
of increased license revenues and maintenance contract renewals and our ability
to leverage our base of resources to support a larger organization. The
increases in the dollar amount of research and development expenses were due to
an increase in research and development personnel.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
include the personnel and other costs of our finance, legal, accounting, human
resources, information systems and executive departments. General and
administrative expenses increased 69.6% to $22.9 million for the three months
ended September 30, 2000 from $13.5 million for the comparable period in 1999.
General and administrative expenses as a percentage of total revenues decreased
to 7.2% in the three months ended September 30, 2000 from 9.2% for the
comparable period in 1999.

General and administrative expenses increased 54.8% to $60.5 million in the
nine months ended September 30, 2000 from $39.1 million for the comparable
period in 1999. General and administrative expenses as a percentage of total
revenues decrease to 8.1% in the nine months ended September 30, 2000 from 9.9%
for the comparable period in 1999. The increase in the dollar amounts of general
and administrative expenses were primarily due to the cost of supporting more
personnel including an increase in the number and size of our facilities and
equipment related to the new corporate headquarters.

The decrease in general and administrative expenses as a percentage of
total revenues was due primarily to the increase in revenues and our ability to
leverage our base of resources to support a larger organization. We expect that
the dollar amount of general and administrative expenses will continue to
increase in the foreseeable future due to further growth and expansion of the
company.

AMORTIZATION OF INTANGIBLES. Historically, we have sought to expand the
depth and breadth of our product offerings through various technology or
business acquisitions. When an acquisition of a business is accounted for as a
purchase, the purchase price, net of liabilities assumed, is allocated to
intangibles, including goodwill, which is amortized over the life of the asset
(typically two to three years), and in-process research and development, which
is expensed immediately.

On April 28, 2000, we acquired SupplyBase, Inc. The acquisition was
accounted for as a purchase and we issued or reserved for issuance approximately
1.8 million shares of our common stock in exchange for all of the outstanding
capital stock of SupplyBase, including shares reserved for issuance upon the
exercise of assumed options and warrants. The excess of purchase price over net
assets was allocated to intangible assets, including goodwill, and in-process
research and development. The intangible assets are to be amortized over two to
three years.

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<PAGE> 16

On June 9, 2000, we acquired Aspect Development. The acquisition was
accounted for as a purchase and issued or reserved for issuance approximately
47.9 million shares of our common stock in exchange for all of the outstanding
capital stock of Aspect, including shares reserved for issuance upon the
exercise of assumed options. The excess of purchase price over net assets was
allocated to intangible assets, including goodwill, and in-process research and
development. The intangible assets are to be amortized over two to three years.

Amortization of intangibles, including amortization of goodwill, related to
the acquisitions noted above, amounted to $772.1 million for the three months
ended September 30, 2000 and $981.1 million for the nine months ended September
30, 2000.

IN-PROCESS RESEARCH AND DEVELOPMENT AND ACQUISITION-RELATED EXPENSES. At
the time of each acquisition, the acquisition may involve the purchase of
technology that is not yet determined to be technologically feasible and has no
alternative future use in its then-current stage of development. In such
instances, and in accordance with appropriate accounting guidelines, the portion
of the purchase price allocated to in-process research and development is
expensed immediately upon the acquisition.

For the three months ended September 30, 2000, we recorded charges of
$2.8 million. For the nine months ended September 30, 2000, we recorded charges
of $102.1 million. These charges consisted mostly of the write-off of in-process
research and development charges related to the acquisition of certain IBM
assets, SupplyBase and Aspect. For the three months ended September 30,1999, we
recorded charges of $4.2 million. For the nine-month period ended September 30,
1999 we recorded charges of $4.8 million. These charges consisted mostly of
acquisition expenses for SMART.

OTHER INCOME, NET

Other income, net typically consists of interest income on short-term
investments and overnight repurchase agreements partially offset by interest
expense. Other income, net was $7.2 million in the three months ended September
30, 2000 and $2 million for the comparable period in 1999, representing 2.3% of
total revenues in the three months ended September 30, 2000 and 1.4% of total
revenues for the comparable period in 1999. Other income, net was $13.9 million
for the nine months ended September 30, 2000 and $4.4 million for the comparable
period in 1999 representing 1.9% of total revenue in the nine months ended
September 30, 2000 and 1.1% of total revenues for the comparable period in 1999.
The increase in other income, net for the three and nine months ended September
30, 2000 was attributable to increased returns on cash, cash equivalents and
short-term investment balances due to the overall increase in cash balances in
2000 and the increase in overall market interest rates, as compared to the same
periods in 1999, offset by the interest expense incurred from the 5 1/4%
convertible notes that were issued in December 1999.

NON-CASH SETTLEMENT

On October 10, 2000, we settled a lawsuit filed by a former employee
regarding his right to exercise stock options granted to him in 1996 while he
was employed by us, prior to our initial public offering. The settlement
resulted in the recording of a non-cash pre-tax charge of $22.4 million,
representing 7% of total revenues for the three months ended September 30, 2000
and 3% of total revenues for the nine months ended September 30, 2000.

PROVISION FOR INCOME TAXES

The effective income tax rate for the three months ended September 30, 2000
was (0.6%) compared to 51.6% for the comparable period in 1999. The
effective income tax rate for the nine months ended September 30, 2000 was
(1.5%) compared to 63.4% for the comparable period in 1999. The effective income
tax rate for the three and nine months ended September 30, 2000 differed from
the U.S. statutory rate due primarily to the non-deductibility of goodwill and
acquisition-related expenses. The effective rate for 1999 was affected by the
non-deductible losses of certain subsidiaries and non-deductible in-process
research and development and certain other acquisition-related expenses.
Excluding the effects of these items, our tax rates for the three and nine
months ended September 30, 2000 and 1999 were 37.5% and 38.0%, respectively.

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<PAGE> 17

EARNINGS PER SHARE

Earnings per share are calculated in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". This method requires
calculation of both basic earnings per common share and diluted earnings per
common share. Basic earnings per common share exclude the potentially dilutive
effect of common stock equivalents such as stock options and convertible
subordinate notes. Diluted earnings per common share include such potentially
dilutive effects. Future weighted-average shares outstanding calculations will
be impacted by the following factors:

o the ongoing issuance of common stock associated with stock option
exercises;

o the issuance of common shares associated with our employee stock
purchase program;

o any fluctuations in our stock price, which could cause changes in
the number of common stock equivalents included in the diluted
earnings per common share;

o the issuance of common stock to effect business combinations should
we enter into such transactions;

o the issuance of common stock or warrants to effect joint marketing,
joint development, or other such arrangements should we enter into
such transactions; and

o assumed or actual conversions of debt into common stock with
respect to the convertible subordinate notes issued in December
1999.

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have financed our operations and met our capital
expenditure requirements primarily through cash flows from operations, long-term
borrowings and sales of equity securities. Our liquidity and financial position
consisted of $655.6 million of working capital as of September 30, 2000 compared
to $585.0 million as of December 31, 1999.

At September 30, 2000, cash and cash equivalents and short-term
investments had increased 24.9% to $723.9 million from $579.4 million at
December 31, 1999. The increase in cash and cash equivalents and short-term
investments was the result of cash collections on accounts receivable and a
change in investing strategies.

Net cash provided by operating activities increased to $125.1 million for
the nine months ended September 30, 2000 from $47.2 million for the comparable
period in 1999. Operating cash flow for the first nine months of 2000 increased
as a result of increased revenues, deferred revenues, accrued liabilities and
incomes taxes payable, partially offset by increases in accounts receivable,
deferred income taxes and prepaid assets.

Cash used in investing activities decreased to $147.1 million for the nine
months ended September 30, 2000 from $50.3 million for the comparable period in
1999. Expenditures during the first nine months of 2000 consisted mainly of net
purchases of short-term investments, purchases of furniture and equipment,
investments in affiliates and long-term investments partially offset by cash
acquired in the acquisition of SupplyBase and Aspect.

Cash provided by financing activities increased to $72.5 million for the
nine months ended September 30, 2000 from $8.8 million for the comparable period
in 1999. The increase in cash provided by financing activities was due to net
proceeds received upon the exercise of employee stock options and Employee Stock
Purchase Plan purchases.

Historically, we have made acquisitions of businesses, products and
technologies and may in the future pursue additional acquisitions of businesses,
products and technologies, or enter into joint venture arrangements, that could
complement or expand our business. Any material acquisition or joint venture
could result in a decrease to our working capital depending on the amount,
timing and nature of the consideration to be paid.

In August 1999, we entered into a one-year, $30.0 million revolving credit
agreement. In August 2000, this agreement was renewed for another year. The
facility is unsecured and contains customary restrictive covenants, including
covenants requiring us to maintain certain financial ratios. The revolving
credit agreement is not subject to a borrowing base limitation and borrowings
thereunder bear interest at LIBOR plus 0.75% to

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<PAGE> 18

1.75% per annum, depending on certain cash ratios. The maximum borrowings
available under the facility are reduced by the value of outstanding letters of
credit issued by the lender on our behalf, $8.3 million of which were
outstanding at September 30, 2000. At September 30, 2000, there were no
borrowings outstanding under this agreement and we were in compliance with all
covenants.

On December 10, 1999, we issued an aggregated principal amount of $350
million of 5 1/4% convertible subordinated notes due 2006, which were sold at
par less an underwriting discount of 2.75% of the principal amount of the notes.
The notes are convertible at the option of the holder at any time prior to
maturity into shares of common stock at a conversion price of $75.99 per share.
We will pay interest on the notes on June 15 and December 15 of each year. The
first interest payment was paid on June 15, 2000.

We believe that existing cash and cash equivalent balances, short-term
investment balances, available borrowings under the revolving credit agreement
and potential cash flows from operations will satisfy our working capital and
capital expenditure requirements for at least the next 12 months. However, any
material acquisitions of complementary businesses, products or technologies or
joint venture arrangements could require us to obtain additional equity or debt
financing. There can be no assurance that such financing would be available on
acceptable terms, if at all.

FACTORS THAT MAY AFFECT FUTURE RESULTS

You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties that we do not
presently know or that we currently deem immaterial may also impair our business
operations.

If any of the following risks actually occur, they could materially
adversely affect our business, financial condition or results of operations. In
that case, the trading price of our common stock could decline.

OUR FINANCIAL RESULTS MAY VARY SIGNIFICANTLY FROM QUARTER TO QUARTER OR WE MAY
FAIL TO MEET EXPECTATIONS, WHICH WOULD NEGATIVELY IMPACT THE PRICE OF OUR STOCK.

Our operating results have varied significantly from quarter to quarter in
the past, and we expect our operating results to continue to vary from quarter
to quarter in the future, due to a variety of factors, many of which are outside
of our control. Factors that could affect quarterly operating results include:

o volume and timing of customer orders;

o length of the sales cycle;

o customer budget constraints;

o announcement or introduction of new products or product
enhancements by us or our competitors;

o changes in prices of our products and those of our competitors;

o foreign currency exchange rate fluctuations;

o market acceptance of new products;

o mix of direct and indirect sales;

o changes in our strategic relationships; and

o changes in our business strategy.

Furthermore, customers may defer or reconsider purchasing products if they
experience a downturn in their business or if there is a downturn in the general
economy. We will continue to determine our investment and expense levels based
on expected future revenues. Significant portions of our expenses are not
variable in the short term, and

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<PAGE> 19

we cannot reduce them quickly to respond to decreases in revenues. Therefore, if
revenues are below expectations, this shortfall is likely to adversely and
disproportionately affect our operating results. In addition, we may reduce our
prices or accelerate investment in research and development efforts in response
to competitive pressures or to pursue new market opportunities. Any of these
activities may further limit our ability to adjust spending in response to
revenue fluctuations. Revenues may not grow at historical rates in future
periods, or they may not grow at all. Accordingly, we may not maintain positive
operating margins in future quarters. Any of these factors could cause our
operating results to be below the expectations of public market analysts and
investors, and affecting the price of our common stock

WE ANTICIPATE SEASONAL FLUCTUATIONS IN REVENUES, WHICH MAY CAUSE VOLATILITY IN
OUR STOCK PRICE.

The market price of our common stock has been volatile in the past, and the
market price of our common stock may be volatile in the future. Historically,
our revenues have tended to be strongest in the fourth quarter of the year. We
believe that our seasonality is due to the calendar year budgeting cycles of
many of our customers and our compensation policy that rewards sales personnel
for achieving annual revenue quotas. In future periods, these seasonal trends
may cause our quarter-to-quarter operating results to vary, which may result in
failing to meet the expectations of public market analysts and investors.

HISTORICALLY A SMALL NUMBER OF INDIVIDUAL LICENSE SALES HAVE BEEN SIGNIFICANT IN
EACH QUARTERLY PERIOD. THEREFORE, OUR OPERATING RESULTS FOR A GIVEN PERIOD COULD
SUFFER SERIOUS HARM IF WE FAIL TO CLOSE ONE OR MORE LARGE SALES EXPECTED FOR
THAT PERIOD.

We generally derive a significant portion of revenues in each quarter from a
small number of relatively large license sales. Moreover, due to customer
purchasing patterns, we typically realize a significant portion of our software
license revenues in the last few weeks of a quarter. As a result, we are subject
to significant variations in license revenues and results of operations if we
incur any delays in customer purchases. If in any future period we fail to close
one or more substantial license sales, this failure could seriously harm our
operating results for that period.

WE MAY NOT REMAIN COMPETITIVE, AND INCREASED COMPETITION COULD SERIOUSLY HARM
OUR BUSINESS.

Our competitors offer a variety of e-business solutions including enterprise
software. We segment our competition into several main categories, including:

o internal development efforts by corporate information technology
departments;

o other business application software vendors, generally consisting
of two groups:

o larger enterprise resource planning-based vendors who are
attempting to add capabilities such as supply chain planning or
business-to-business collaboration to their broad transaction
system products; and

o smaller point-solution providers who are focused on a
particular industry or set of capabilities, including vendors
of business-to-business, platform and fulfillment, design and
source, content, demand planning, transportation management or
collaboration middleware; and

o other creators or operators of electronic marketplaces, typically
focused on specific industries or offering specific services across
industries, which may compete now or in the future with
marketplaces created or powered by i2.

o Relative to us, our competitors may have one or more of the
following advantages:

o longer operating histories;

o greater financial, technical, marketing and other resources;

o better capabilities or functionality in specific areas;

o greater name recognition; o additional product offerings; or

o a larger installed base of customers.

Current and potential competitors have established, or may establish,
cooperative relationships among themselves or with third parties to enhance
their products, which may result in increased competition. In addition, we
expect to experience increasing price competition as we compete for market
share, and we may not be able to compete successfully with our existing or new
competitors. If we experience increased

18
<PAGE> 20

competition, substantial harm may result to our business, operating results and
financial condition.

OUR STRATEGY OF INCREASING OUR RECURRING REVENUE STREAMS BY SELLING MARKETPLACE
SERVICES TO E-MARKETPLACES AND THEIR PARTICIPANTS IS UNPROVEN AND MAY BE
UNSUCCESSFUL.

As part of our business strategy, we are offering electronic marketplace
services, content and the i2 TradeMatrix platform to trading communities and
participants in digital marketplaces. This strategy remains unproven. We are
currently providing only a limited portion of our intended i2 TradeMatrix
services in only a relatively small number of digital trading communities
compared to the potential market for digital trading communities. We have
limited experience developing and operating digital marketplaces, and we cannot
be certain that these trading communities will be operated effectively, that
enterprises will join and remain in these trading communities, or that we will
develop and provide successfully all intended i2 TradeMatrix services. If this
business strategy is flawed, or if we are unable to execute effectively, our
business, operating results and financial condition could be substantially
harmed.

WE DEPEND ON OUR STRATEGIC PARTNERS AND OTHER THIRD PARTIES. IF WE FAIL TO
DERIVE BENEFITS FROM OUR EXISTING AND FUTURE STRATEGIC RELATIONSHIPS, OUR
BUSINESS WILL SUFFER.

From time to time, we have collaborated with other companies, including IBM,
PricewaterhouseCoopers, and Ariba in areas such as marketing, distribution and
implementation. Maintaining these and other relationships is a meaningful part
of our business strategy. However, some of our current and potential strategic
partners are either actual or potential competitors, which may impair the
viability of these relationships. In addition, some of our relationships have
failed to meet expectations and may fail to meet expectations in the future. We
may not be able to enter into successful new strategic relationships in the
future and our business, operating results and financial condition could be
harmed.

ANY DECREASE IN DEMAND FOR OUR ENTERPRISE PRODUCTS AND SERVICES COULD
SIGNIFICANTLY REDUCE OUR REVENUES.

We derive a substantial portion of our revenues from licenses of our
enterprise products and related services. Enterprise products principally
include supply chain, logistics and other planning products. We expect license
revenues, maintenance and consulting contracts to continue to account for a
substantial portion of our revenues for the foreseeable future. As a result, our
future operating results will depend upon continued market acceptance of these
applications. However, our enterprise applications may not achieve continued
market acceptance. Competition, technological change or other factors could
decrease demand for, or market acceptance of these applications. Any decrease in
demand or market acceptance of i2's enterprise offering could substantially harm
our business, operating results and financial condition.

WE ARE INVESTING SIGNIFICANT RESOURCES IN DEVELOPING AND MARKETING OUR
E-MARKETPLACE SOLUTIONS. THE MARKET FOR THESE SOLUTIONS IS NEW AND EVOLVING,
AND, IF THIS MARKET DOES NOT DEVELOP AS WE ANTICIPATE, OR IF WE ARE UNABLE TO
DEVELOP ACCEPTABLE SOLUTIONS, SERIOUS HARM WOULD RESULT TO OUR BUSINESS.

We are investing significant resources in further developing and marketing
enhanced products and services to facilitate conducting business on line,
including public and private e-marketplaces. For the first few months after we
introduce new products and services, the demand for, and market acceptance of,
those products and services are subject to a high level of uncertainty,
especially where acquisition of our products or services requires a large
capital commitment or other significant commitment of resources. Adoption of
e-business software solutions, particularly by those individuals and enterprises
that have historically relied upon traditional means of commerce and
communication, will require a broad acceptance of new and substantially
different methods of conducting business and exchanging information. These
products and services involve a new approach to the conduct of business, and, as
a result, intensive marketing and sales efforts may be necessary to educate
prospective customers regarding the uses and benefits of these products and
services in order to generate demand. The market for this broader functionality
may not develop, competitors may develop superior products and services, or we
may not develop acceptable solutions to address this functionality. Any one of
these events could seriously harm our business, operating results and financial
condition.

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<PAGE> 21

OUR i2 TRADEMATRIX SOLUTIONS ARE HOSTED BY A VARIETY OF THIRD PARTIES AND
CUSTOMERS MAY EXPERIENCE PERFORMANCE PROBLEMS OR DELAYS AS A RESULT OF SERVICE
INTERRUPTIONS.

Our i2 TradeMatrix platform may be hosted by different companies.
Dissatisfaction or problems with the services of the third parties that host our
TradeMatrix solutions or delays or interruptions or other problems with service
due to mechanical failure, human error, security breaches, power loss and other
facility failures, natural disaster, sabotage, vandalism, or other similar
events could result in a reduction of business generated by the marketplace. In
addition, failure of any telecommunications providers to provide consistent data
communications capacity could result in interruptions in services. Each of these
service providers could experience outages, delays and other difficulties due to
system failures unrelated to our products, services and systems. Dissatisfaction
with these hosting providers could adversely affect our relationship with our
customers resulting in a loss of future sales of licenses and services to the
customer, which could have a material adverse effect on our business.

IF WE PUBLISH INACCURATE CATALOG CONTENT DATA, OUR BUSINESS COULD SUFFER.

The accurate publication of catalog content is critical to our customers'
businesses. Our i2 TradeMatrix suite offers content management tools that help
suppliers manage the collection and publication of catalog content. Any defects
or errors in these tools or the failure of these tools to accurately publish
catalog content could deter businesses from participating in the i2 TradeMatrix
marketplaces, damage our business reputation and harm our ability to win new
customers. In addition, from time to time some of our customers may submit
inaccurate pricing or other inaccurate catalog information. Even though such
inaccuracies are not caused by our work and are not within our control, such
inaccuracies could deter current and potential customers from using our products
and could harm our business, operating results and financial condition.

THE MARKETS IN WHICH WE COMPETE EXPERIENCE RAPID TECHNOLOGICAL CHANGE. IF WE DO
NOT RESPOND TO THE TECHNOLOGICAL ADVANCES OF THE MARKETPLACE, WE COULD SERIOUSLY
HARM OUR BUSINESS.

Enterprises are increasing their focus on decision-support solutions for
e-business challenges. As a result, they are requiring their application
software vendors to provide greater levels of functionality and broader product
offerings. Moreover, competitors continue to make rapid technological advances
in computer hardware and software technology and frequently introduce new
products, services and enhancements. We must continue to enhance our current
product line and develop and introduce new products and services that keep pace
with the technological developments of our competitors. We must also satisfy
increasingly sophisticated customer requirements. If we cannot successfully
respond to the technological advances of others, or if our new products or
product enhancements and services do not achieve market acceptance, these events
could impact our business, operating results and financial condition.

IF USE OF THE INTERNET FOR COMMERCE AND COMMUNICATION DOES NOT INCREASE AS WE
ANTICIPATE, OUR BUSINESS WILL SUFFER.

We are offering new and enhanced products and services, which depend on
increased acceptance and use of the Internet as a medium for commerce and
communication. Rapid growth in the use of the Internet is a recent phenomenon.
As a result, acceptance and use may not continue to develop at historical rates,
and a sufficiently broad base of business customers may not adopt or continue to
use the Internet as a medium of commerce. Demand and market acceptance for
recently introduced services and products over the Internet are subject to a
high level of uncertainty, and there exist a limited number of proven services
and products.

Our business could be seriously harmed if:

o use of the Internet and other online services does not continue to
increase or increases more slowly than expected;

o the necessary communication and computer network technology underlying
the Internet and other online services does not effectively support any
expansion that may occur;

o new standards and protocols are not developed or adopted in a timely
manner; or

o for any other reason -- such as concerns about security, reliability,
cost, ease of use, accessibility or quality of service -- the Internet
does not create a

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<PAGE> 22

viable commercial marketplace, inhibiting the development of electronic
commerce and reducing the need for and desirability of our products and
services.

FUTURE REGULATION OF THE INTERNET MAY SLOW ITS GROWTH, RESULTING IN DECREASED
DEMAND FOR OUR PRODUCTS AND SERVICES AND INCREASED COSTS OF DOING BUSINESS.

Due to increasing popularity and use of the Internet, it is possible that
state, federal and international regulators could adopt laws and regulations
that impose additional burdens on companies conducting business online. For
example, the growth and development of the market for Internet-based services
may prompt calls for more stringent consumer protection laws. Moreover, the
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales tax, libel and personal
privacy is uncertain and may take years to resolve. Any new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to our business, or the application of existing laws
and regulations to the Internet and other online services could decrease the
expansion of the Internet, causing our costs to increase and our growth to be
harmed.

CONCERNS THAT OUR PRODUCTS DO NOT ADEQUATELY PROTECT THE PRIVACY OF CONSUMERS
COULD INHIBIT SALES OF OUR PRODUCTS.

One of the principal features of our customer management software
applications is the ability to develop and maintain profiles of consumers for
use by businesses. Typically, these products capture profile information when
consumers, business customers and employees visit a Web site and volunteer
information in response to survey questions concerning their backgrounds,
interests and preferences. Our products augment these profiles over time by
collecting usage data. Although we have designed our customer management
products to enable the development of applications that permit Web site visitors
to prevent the distribution of any of their personal data beyond that specific
Web site, privacy concerns may nevertheless cause visitors to resist providing
the personal data necessary to support this profiling capability. If we cannot
adequately address consumers' privacy concerns, these concerns could seriously
harm our business, financial condition and operating results.

IF OUR ENCRYPTION TECHNOLOGY FAILS TO ENSURE THE SECURITY OF OUR CUSTOMERS'
ONLINE TRANSACTIONS, SERIOUS HARM TO OUR BUSINESS COULD RESULT.

The secure exchange of value and confidential information over public
networks is a significant concern of consumers engaging in online transactions
and interaction. Our customer management software applications use encryption
technology to provide the security necessary to affect the secure exchange of
value and confidential information. Advances in computer capabilities, new
discoveries in the field of cryptography or other events or developments could
result in a compromise or breach of the algorithms that these applications use
to protect customer transaction data. If any compromise or breach were to occur,
it could seriously harm our business, financial condition and operating results.

RAPID GROWTH IN OUR OPERATIONS COULD INCREASE DEMANDS ON OUR MANAGERIAL AND
OPERATIONAL RESOURCES.

We have experienced rapid growth. Revenues have increased to approximately
$748.4 million for the nine months ended September 30, 2000 from approximately
$395.8 million for the comparable period in 1999. Total annual revenues
increased to approximately $571.1 million in 1999, from approximately $369.2
million in 1998 and from approximately $221.8 million in 1997. Our employee
headcount has increased to approximately 5,350 at September 30, 2000, from
approximately 2,800 at December 31, 1999, and from approximately 2,350 at
December 31, 1998. We have also increased the scope of our operating and
financial systems and the geographic distribution of our operations and
customers. This growth has placed increased demands on our management and
operations, and if our rapid growth continues, may continue to place increasing
demands on our management and operations. Our officers and other key employees
will need to implement and improve our operational, customer support and
financial control systems and effectively expand, train and manage our employee
base. Further, we expect that we will be required to manage an increasing number
of relationships with various customers and other third parties. We may not be
able to manage future expansion successfully, and our inability to do so could
harm our business, operating results and financial condition.

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<PAGE> 23

WE MAY NOT SUCCESSFULLY INTEGRATE OR REALIZE THE INTENDED BENEFITS OF OUR RECENT
ACQUISITIONS.

In April 2000, we acquired SupplyBase and in June 2000, we acquired Aspect.
In addition, we have acquired other businesses and products to help broaden and
strengthen our product portfolio. The success of these acquisitions will depend
primarily on our ability to:

o retain, motivate and integrate the acquired personnel;

o integrate multiple information systems; and

o integrate acquired software with our existing products and services.

We may encounter difficulties in integrating our operations and products with
those of SupplyBase, Aspect and other acquisitions. We may not realize the
benefits that we anticipated when we made these acquisitions. Our failure to
successfully integrate our operations and products with those of SupplyBase,
Aspect and other acquisitions could seriously harm our business, operating
results and financial condition.

WE MAY MAKE FUTURE ACQUISITIONS OR ENTER INTO JOINT VENTURES THAT MAY NOT BE
SUCCESSFUL.

In the future, we may acquire additional businesses, products and
technologies, or enter into joint venture arrangements, that could complement or
expand our business. Management's negotiations of potential acquisitions or
joint ventures and management's integration of acquired businesses, products or
technologies could divert their time and resources. Future acquisitions could
cause us to issue dilutive equity securities, incur debt or contingent
liabilities, amortize goodwill and other intangibles, or write off in-process
research and development and other acquisition-related expenses that could
seriously harm our financial condition and operating results. Further, we may
not be able to properly integrate acquired businesses, products or technology
with our existing operations or train, retain and motivate personnel from the
acquired business. If we are unable to fully integrate an acquired business,
product or technology or train, retain and motivate personnel from the acquired
business, we may not receive the intended benefits of that acquisition.

WE FACE RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS THAT COULD HARM
OUR COMPANY.

Our international operations are subject to risks inherent in international
business activities. In addition, we may expand our international operations in
the future, which would increase our exposure to these risks. The risks we face
internationally include:

o difficulties and costs of staffing and managing geographically disparate
operations;

o longer accounts receivable payment cycles in certain countries;

o compliance with a variety of foreign laws and regulations;

o unexpected changes in regulatory requirements;

o overlap of different tax structures;

o greater difficulty in safeguarding intellectual property;

o import and export licensing requirements;

o trade restrictions;

o changes in tariff rates;

o political instability; and

o general economic conditions in international markets.

CHANGES IN THE VALUE OF THE U.S. DOLLAR, AS COMPARED TO THE CURRENCIES OF
FOREIGN COUNTRIES WHERE WE TRANSACT BUSINESS, COULD HARM OUR OPERATING RESULTS.

To date, our international revenues have been denominated primarily in U.S.
dollars. The majority of our international expenses and some revenues have been
denominated in currencies other than the U.S. dollar. Therefore, changes in the
value of the U.S. dollar as compared to these other currencies may adversely
affect our operating results. As our international operations expand, we will
use an increasing number of foreign currencies, causing our exposure to currency
exchange rate fluctuations to increase. Although we have implemented limited
hedging programs to mitigate our exposure to currency fluctuations, currency
exchange rate fluctuations have caused, and will continue to cause, currency
transaction gains and losses. While these transactional

22
<PAGE> 24

gains and losses have not been material to date, they may harm our business,
results of operations or financial condition in the future.

THE LOSS OF ANY OF OUR KEY PERSONNEL OR OUR FAILURE TO ATTRACT ADDITIONAL
PERSONNEL COULD SERIOUSLY HARM OUR COMPANY.

We rely upon the continued service of a relatively small number of key
technical and senior management personnel. Our future success depends on
retaining our key employees and our continuing ability to attract, train and
retain other highly qualified technical and managerial personnel. Very few of
our key technical or senior management personnel are bound by employment
agreements. As a result, our employees could leave with little or no prior
notice. We may not be able to attract, assimilate or retain other highly
qualified technical and managerial personnel in the future. Our loss of any of
our key technical and senior management personnel or our inability to attract,
train and retain additional qualified personnel could seriously harm our
business, operating results and financial condition.

IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR FACE A
CLAIM OF INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY, WE COULD LOSE OUR
INTELLECTUAL PROPERTY RIGHTS OR BE LIABLE FOR SIGNIFICANT DAMAGES.

We rely primarily on a combination of copyright, trademark and trade secret
laws, confidentiality procedures and contractual provisions to protect our
proprietary rights. In addition, we generally license enterprise products to end
users in object code (machine-readable) format, and our license agreements
generally allow the use of enterprise products solely by the customer for
internal purposes without the right to sublicense or transfer the enterprise
products. However, these measures afford only limited protection. Unauthorized
parties may attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary. Although we believe software piracy
may be a problem, we are not able to determine the extent to which piracy of our
software products exists. Policing unauthorized use of our products is
difficult, and we cannot be certain that the steps we have taken will prevent
misappropriation of our technology. This is particularly true in foreign
countries where the laws may not protect proprietary rights to the same extent
as the laws of the United States and may not provide us with an effective remedy
against piracy.

As the number of products and competitors continues to grow, the
functionality of products in different industry segments is increasingly
overlapping. As a result, we increasingly may be subject to claims of
intellectual property infringement. Although we are not aware that any of our
products infringe upon the proprietary rights of third parties, third parties
may claim infringement by us with respect to current or future products. Any
infringement claims, with or without merit, could be time-consuming, result in
costly litigation or damages, cause product shipment delays or the loss or
deferral of sales, or require us to enter into royalty or licensing agreements.
If we enter into royalty or licensing agreements in settlement of any litigation
or claims, these agreements may not be on terms acceptable to us. Unfavorable
royalty and licensing agreements could seriously harm our business, operating
results and financial condition.

We resell some software that we license from third parties. Although we may
continue this practice, third-party software licenses may not continue to be
available to us on commercially reasonable terms or as a result of infringement
claims. Our inability to maintain or obtain any of these software licenses will
delay or reduce our product shipments until we can identify, license and
integrate equivalent software. Any loss of these licenses or delay or reduction
in product shipments could harm our business, operating results and financial
condition.

OUR PRODUCTS' FAILURE TO REMAIN COMPATIBLE WITH EXISTING AND NEW COMPUTERS AND
SOFTWARE OPERATING SYSTEMS WOULD SERIOUSLY HARM OUR BUSINESS.

Our i2 TradeMatrix software can operate on a variety of hardware platforms
such as Digital Equipment/Compaq, Hewlett-Packard, IBM and Sun Microsystems and
operating systems from Sun Microsystems and Microsoft. i2 TradeMatrix can access
data from most widely-used structured query language databases, including
Informix, Oracle and Sybase. If additional hardware or software platforms gain
significant market acceptance, we may be required to attempt to adapt i2
TradeMatrix to those platforms in order to remain competitive. However, those
platforms may not be architecturally compatible with i2 TradeMatrix software
product design, and we may not be able to adapt i2 TradeMatrix to those
additional platforms on a timely basis, or at all. Any failure to maintain

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<PAGE> 25

compatibility with existing platforms or to adapt to new platforms that achieve
significant market acceptance would seriously harm our business, operating
results and financial condition.

OUR SOFTWARE IS COMPLEX AND MAY CONTAIN UNDETECTED ERRORS.

Our software programs are complex and may contain undetected errors or
"bugs." Although we conduct extensive testing, we may not discover bugs until
our customers install and use a given product or until the volume of services
that a product provides increases. On occasion, we have experienced delays in
the scheduled introduction of new and enhanced products because of bugs.
Undetected errors could result in loss of customers or reputation, adverse
publicity, loss of revenues, delay in market acceptance, diversion of
development resources, increased insurance costs or claims against us by
customers, any of which could seriously harm our business, operating results and
financial condition.

RELEASES OF AND PROBLEMS WITH NEW PRODUCTS MAY CAUSE PURCHASING DELAYS, WHICH
WOULD HARM OUR REVENUES.

Customers may delay their purchasing decisions in anticipation of our new or
enhanced products, or products of competitors. Delays in customer purchasing
decisions could seriously harm our business and operating results. Moreover,
significant delays in the general availability of new releases, significant
problems in the installation or implementation of new releases, or customer
dissatisfaction with new releases could seriously harm our business, operating
results and financial condition.

OUR FAILURE TO SUCCESSFULLY RECRUIT AND RETAIN TECHNICAL AND IMPLEMENTATION
PERSONNEL COULD REDUCE OUR LICENSE REVENUES OR LIMIT THE GROWTH OF OUR LICENSE
REVENUES.

A shortage of qualified technical sales support personnel could harm our
ability to expand sales and enter into new vertical markets. We will depend on
our trained implementation personnel or those of independent consultants to
implement our products and services. A shortage in the number of trained
implementation personnel could limit our ability to implement our software and
services on a timely and effective basis. Delayed or ineffective implementation
of our software and services may limit our ability to expand our revenues and
may result in customer dissatisfaction and harm to our reputation. Any of these
events could seriously harm our business, operating results and financial
condition.

WE MAY BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS.

Our license agreements typically seek to limit our exposure to product
liability claims from our customers. However, these contract provisions may not
preclude all potential claims. Additionally, our general liability insurance may
be inadequate to protect us from all liability that we may face. Product
liability claims could require us to spend significant time and money in
litigation or to pay significant damages. As a result, any claim, whether or not
successful, could harm our reputation and business, operating results and
financial condition.

OUR EXECUTIVE OFFICERS AND DIRECTORS HAVE SIGNIFICANT INFLUENCE OVER STOCKHOLDER
VOTES.

Our executive officers and directors together beneficially own approximately
34.1% of the total voting power of our company. Accordingly, these stockholders
will have significant influence in determining the composition of our Board of
Directors and will continue to have significant influence over our affairs.

OUR CHARTER AND BYLAWS HAVE ANTI-TAKEOVER PROVISIONS.

Provisions of our Certificate of Incorporation and our Bylaws as well as the
Delaware General Corporation Law could make it more difficult for a third party
to acquire us, even if doing so would be beneficial to our stockholders. We are
subject to the provisions of Section 203 of the Delaware General Corporation
Law, which restricts certain business combinations with interested stockholders.
The combination of these provisions may inhibit a non-negotiated merger or other
business combination.

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<PAGE> 26
OUR STOCK PRICE HISTORICALLY HAS BEEN VOLATILE, WHICH MAY MAKE IT MORE DIFFICULT
FOR YOU TO RESELL COMMON STOCK WHEN YOU WANT AT PRICES YOU FIND ATTRACTIVE.

The market price of our common stock has been volatile in the past, and the
market price of our common stock may be volatile in the future. The following
factors may significantly affect the market price of our common stock:

o quarterly variations in our results of operations;

o the announcement of new products or product enhancements by us or our
competitors;

o technological innovations by us or our competitors; and

o general market conditions or market conditions specific to particular
industries.

In particular, the stock prices of many companies in the technology and emerging
growth sectors have fluctuated widely due to events unrelated to their operating
performance. These fluctuations may harm the market price of our common stock.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information concerning market risk is contained on Page 30 of our 1999
Annual Report on Form 10-K and is incorporated herein by reference to such
annual report.

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PART II

ITEM 1. LEGAL PROCEEDINGS.

We are, from time to time, involved in various litigation matters arising
in the ordinary course of business. We believe that the resolution of currently
pending legal proceedings, either individually or taken as a whole, will not
have a material adverse effect on our consolidated financial condition, results
of operations or cash flow.

ITEM 2. CHANGES IN SECURITIES.

From July 1, 2000 to September 30, 2000, we issued approximately 271,340
shares of common stock to employees pursuant to exercises of stock options (with
exercise prices ranging from $0.01 to $3.03 per share) under our stock plans.
These issuances were deemed exempt from registration under Section 5 of the
Securities Act of 1933 in reliance upon Rule 701 thereunder. In addition, 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 restrictive
transfer legends were affixed to the share certificates issued in each such
transaction.

On September 25, 2000, we issued 109,514 shares of our common stock to
Caterpillar Inc. in exchange for various software assets, patent rights and
software licenses. These securities were issued in reliance upon Section 4(2)
of the Securities Act of 1933 and the recipient of the securities represented
its intention to acquire the securities for investment purposes only and not
with a view to, or for sale in connection with, any distribution thereof and
appropriate restrictive transfer legends were affixed to the stock certificates
issued in the transaction.

On August 24, 2000, we issued 14,189 shares of our common stock and paid
$600,000 in cash to Open First, Inc. in exchange for all of its assets. These
securities were issued in reliance upon Section 4(2) of the Securities Act of
1933 and the recipient of the securities represented its intention to acquire
the securities for investment purposes only and not with a view to, or for sale
in connection with, any distribution thereof and appropriate restrictive
transfer legends were affixed to the stock certificates issued in the
transaction.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibit Index

Number Exhibit Description

27.1 Financial Data Schedule

(b) Reports on Form 8-K

There were no reports on Form 8-K filed during the quarter ended
September 30, 2000.

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SIGNATURES

Pursuant to the requirements 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.
(Registrant)

November 10, 2000 /s/ William M. Beecher
----------------------------------------
William M. Beecher
Executive Vice President and Chief
Financial Officer
(Principal financial officer)

November 10, 2000 /s/ Nancy F. Brigham
----------------------------------------
Nancy F. Brigham
Controller
(Principal accounting officer)

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INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>