Edgar Filing: I2 TECHNOLOGIES INC

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

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 Identification No.)
incorporation or organization)
ONE i2 PLACE 75234
11701 LUNA ROAD (Zip code)
DALLAS, TEXAS
(Address of principal executive offices)

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

Securities registered pursuant to Section 12(b) of the Act:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------

None None

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.00025 PAR VALUE
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of Common Stock on March 26,
2001 as reported on the Nasdaq National Market, was approximately $4.3 billion
(affiliates being, for these purposes only, directors, executive officers and
holders of more than 5% of the Registrant's Common Stock).

As of March 26, 2001, the Registrant had 410,735,877 outstanding shares of
Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Registrant's 2001 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.

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ITEM 1. BUSINESS

The disclosures set forth in this report are qualified by the sections
captioned "Forward-Looking Statements" and "Factors That May Affect Future
Results" in Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, of this report, and other cautionary statements set
forth elsewhere in this report.

OUR COMPANY

i2 is a leading provider of e-business and marketplace software solutions
that may be used by enterprises to optimize business processes both internally
and among trading partners. Our solutions are designed to help enterprises
improve efficiencies, collaborate with suppliers and customers, respond to
market demands and engage in dynamic business interactions over the Internet.
Our i2 TradeMatrix products consider the conditions of companies to optimize key
business processes -- from product design to customer relationships. Our
products are designed to help customers, partners, suppliers and service
providers conduct business together and offer a technology infrastructure
supporting collaboration, commerce and content. Our product suites include
software solutions for supply chain management, supplier relationship management
and customer relationship management. We also provide content and content
management solutions as well as a platform for integration and administration of
private and public electronic marketplaces. Our product suites may be used by
our customers to align their value chain to serve their customers. We also
provide services such as consulting, training and maintenance in support of
these offerings.

As part of our strategic plan, we have invested in companies to acquire
software and other products that complement ours. On June 9, 2000, we completed
the acquisition of Aspect Development, Inc. (Aspect), a developer of
collaborative solutions for business-to-business marketplaces. Prior to the
acquisition of Aspect, we acquired SupplyBase, Inc. (SupplyBase), a developer of
interactive database products, services and supply chain management tools on
April 28, 2000. These acquisitions were accounted for using the purchase method
and have enabled us to quickly advance our content market offering.

On December 27, 2000, we entered into a definitive agreement to acquire
Trade Services Corporation, a leading provider of maintenance, repair and
overhaul (MRO) content and its affiliate EC Content, Inc., which develops and
manages content for digital marketplaces, e-procurement and supplier
syndication. Pursuant to the amended agreement, we purchased all the outstanding
stock of both companies for approximately $75.0 million, including acquisition
related costs. The total purchase price includes $5.0 million in cash, 800,000
shares of our common stock, and a convertible promissory note maturing in
September 2003. This acquisition closed on March 23, 2001 and will be accounted
for using the purchase method.

On March 8, 2001, we entered into a definitive agreement to acquire
Rightworks Corporation, a developer of software that is designed to enable
companies to manage procurement across multiple enterprises for both direct and
indirect materials, and support buying models, from negotiated procurements to
auctions. In connection with the acquisition, we will exchange approximately 5.3
million shares of our common stock for all the outstanding stock of Rightworks.
The transaction is expected to close in the second quarter of 2001 and will be
accounted for using the purchase method.

We provide dynamic software solutions to leading companies in industries
such as aerospace and defense, automotive, chemicals, durable and non-durable
consumer goods, high-tech hardware, software and electronics, industrial
equipment, logistics, metals, pulp and paper, pharmaceuticals, retail,
semiconductors, textiles

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and apparel, and telecommunications. We have over 1,000 global customers in a
wide variety of industries. Our customers include:

Apple Computer Avnet Barnes & Noble Bax Global
Bristol-Myers Squibb British American Tobacco Case Cannon
Caterpillar Corning Corus (formerly British Steel) Dana Corporation
Dell Dole Ericsson Emerson
Ford Frito-Lay General Electric General Motors
Hewlett-Packard Hitachi IBM Johnson and Johnson
K-Mart Merck 3M Mitsubishi
Motorola NEC Nokia Nortel
Penske Logistics Philips Samsung Siemens
Sony Texas Instruments Timex Toshiba
UPS US Steel VF Corporation Whirlpool

Our executive offices are located at One i2 Place, 11701 Luna Road, Dallas,
Texas 75234, and our telephone number is (469) 357-1000.

INDUSTRY BACKGROUND

Today's increasingly competitive business environment has forced many
companies in diverse industries to increase efficiencies while improving
flexibility and responsiveness to changing market conditions. In addition to
facing higher competitive standards with respect to product quality, variety and
price, businesses also recognize the need to shorten lead times, adjust
production for frequent changes in customer requirements and quote more accurate
and reliable delivery dates. Furthermore, a company's trading network may span
multiple continents, requiring suppliers in one part of the world to collaborate
with a plant in another to serve customers in yet a third location. These forces
are prompting companies to collaborate with a broad range of suppliers and
customers to improve efficiencies across multi-enterprise value chains and
marketplaces.

In the past, companies have sought to address the changing business
environment by investing in enterprise resource planning (ERP) systems and first
generation e-commerce systems; however, these systems do not provide the forward
visibility and high-speed decision-support capabilities required by many
businesses today. To increase competitiveness, many companies are looking for a
comprehensive suite of products that provide tools for improved visibility, fast
and accurate decision-making, and execution across all critical processes.

The growth of the Internet and the proliferation of software applications,
such as applications for supply chain management, supplier relationship
management, and customer relationship management, are accelerating many
companies' efforts to increase efficiencies by enabling a platform-independent
communications network. This platform independence has prompted demands for a
dynamic, open and integrated environment among customers, suppliers, and
designers. In response to these evolving market forces, many companies have
sought to re-engineer their business processes to reduce manufacturing cycle
times, shift from mass production to order-driven manufacturing, increase the
use of outsourcing and share information more readily with vendors and customers
over the Internet.

THE i2 SOLUTION

We provide our customers with dynamic software solutions and services
designed to optimize and integrate key business processes including supply chain
management, customer relationship management and supplier relationship
management. Our solutions are also capable of web-based, real-time collaboration
and order fulfillment capabilities in both business-to-business and
business-to-consumer exchanges. Customers are

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using our solutions to design or re-engineer their business models in pursuit of
increased market share and enhanced competitiveness.

Our i2 TradeMatrix products are built upon our foundation of advanced
planning, optimization and execution capabilities. Our products can help build
competitive advantage and profitability by combining operational excellence,
customer intimacy and product leadership.

Our approach to customer relationships is centered on the creation of value
for our customers. As part of this dedication to providing value for our
customers, in 1995, we established a goal of generating more than $50 billion in
total value through growth and savings for our customers by 2005. In 2000, we
increased our goal to provide $75 billion in total value by 2005. We have
reported over $16 billion of value delivered to date toward this goal.

i2 -- A HISTORY OF INNOVATION

We have offered supply chain management solutions since the company was
founded 13 years ago. Our founders, Sanjiv Sidhu and Ken Sharma, developed a
dynamic solution to optimize the flow of materials within a factory. This
solution, Factory Planner, was our flagship product and it has assisted our
customers in maximizing the profitability of their factories while reducing
their materials and inventory costs.

We then expanded this solution to the extended supply chain, which includes
multiple factories, distribution centers, warehouses and logistics, and added
solutions for demand planning and fulfillment. We have continued to apply
innovative solutions to the extended supply chain, supplier relationship and
customer relationship processes and functions. To facilitate the design of new
products, we provide customers with solutions that are able to more efficiently
source and procure materials and components from suppliers, contract with
suppliers, and make design decisions knowing how they will affect existing
products and the total product portfolio supply chain. We offer solutions for
managing the order-to-cash cycle in customer relationship management, aimed at
customer concerns regarding product selection, prices, availability of products,
order management and settlement on orders.

As the business environment evolved, we introduced marketplace services
consisting of a portfolio of shared information services to enable public and
private digital trading communities to optimize both planning and trading
processes. These services are designed to provide enhanced decision making and
transaction execution within business-to-business and business-to-consumer
environments, from collaboration with strategic partners to fulfilling and
tracking multi-vendor orders for customers. Private trading communities address
a known set of participants, such as a company and its customers, suppliers or
service providers. Public trading communities offer open participation for a
target industry.

PRODUCTS

Our i2 TradeMatrix products operate as flexible, integrated solutions and
are available in single and multi-site configurations, with various extensions.
Our solutions are designed to assist our customers in improving current business
processes, return on assets, profitability and customer service levels. As a
result of these and other advantages, our solutions are designed to help
customers increase market share, enhance their competitive advantage and deliver
on their promises to their customers. Our primary products are contained in the
following groups: i2 Supply Chain Management, i2 Customer Relationship
Management, i2 Supplier Relationship Management, i2 Content, i2 TradeMatrix
Platform, and TradeMatrix Network.

i2 Supply Chain Management(TM) (SCM). The i2 SCM suite helps businesses
coordinate the movement of goods and materials through the supply chain, to
product delivery and to the customer. Using the i2 SCM suite, a business can
estimate future demand for its products to enable planners to more accurately
estimate future supply needs. As a result, businesses can make better decisions
about how much of what products to make, when, and what parts to have in
inventory to make those products. The i2 SCM suite also extends to the planning
of procurement, production, logistics and services. We also recently announced
i2 TradeMatrix Pronto(TM) as a part of our SCM product group. Pronto is a
supplier enablement solution for mid-market

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companies that allows suppliers to participate in the extended supply chain with
their customers. Pronto is designed to enable suppliers to respond to their
customers with reliable and profitable supply commitments.

i2 Customer Relationship Management(TM)(CRM). The foundation of the i2 CRM
suite drives the order management and fulfillment processes of managing customer
relationships, providing visibility into inventory so a company can make
accurate promises and deliver in the fastest way at the lowest cost. From this
base, the i2 CRM suite provides solutions for marketing, sales and service,
including such functionality as campaign management, opportunity qualification
and management, product configuration, pricing, order management, service asset
management, service scheduling and dispatch.

i2 Supplier Relationship Management(TM) (SRM). The i2 SRM suite is an
integrated suite of business-to-business design, sourcing and procurement
capabilities that enables companies and their suppliers to collaboratively
create and manufacture better products faster, at lower cost. The strategic
solutions in the i2 SRM suite provide decision-support and optimization tools
that help companies improve decision-making on supplies and the parts to use in
products. During product development, the i2 SRM suite optimizes designs by
considering sourcing and supply chain constraints, as well as allowing design
collaboration when outsourcing manufacturing or custom parts. During
procurement, the i2 SRM suite enables companies to define sourcing strategy to
reduce supply risks and costs, negotiate terms and streamline the requisitioning
and buying of both direct and indirect materials.

i2 Content. Content is the knowledge behind e-business decisions and the
information about items and suppliers that can be used to describe, search,
compare, buy or select an item. Without content, e-commerce is impossible. The
i2 Content solution consists of content management software, content services
and reference content. Our content management software provides publication,
subscription, management and syndication functionality for marketplaces and
enables the searching of multiple marketplaces, the identification of parts or
services that match both technical and price criteria and the delivery of
business-to-business content services via the Internet. Additionally, our
content management software provides a standards-based method for content
exchange and collaboration among trading partners and marketplaces.

Content services provided with i2 Content include legacy data conversion
services and custom content creation-capabilities that enable enterprises and
marketplaces to access needed part, component and supplier data.

Our reference content contains over 20 million part, component, and
item-specific records from thousands of suppliers worldwide and provides
detailed technical and pricing information about the available products and the
suppliers that are connected to the marketplace. Our reference content also
provides technical information to select parts -- searchable by form, fit, or
function.

i2 TradeMatrix Platform.(TM) The i2 TradeMatrix Platform enables companies
to design, deploy, operate and monitor e-marketplaces with security, reliability
and scalability. It is a flexible, open, standards-compliant, integrated system
that provides the infrastructure, administration services and intelligence for
marketplace owners. The i2 TradeMatrix Platform supports e-business interactions
from auctions, to collaboration, to inter-enterprise planning; provides a
multi-enterprise supply chain model to enable collaborative decision-support
across multiple business partners; provides open, standard messaging; and
leverages existing information technology infrastructures.

TradeMatrix Network.(TM) TradeMatrix Network is a web of private and
public marketplaces whereby participants can gain access to an expanded
population of business partners and customers as well as an expanded set of
e-business services. TradeMatrix Network is intended to address the
e-marketplace and partner connectivity challenges faced by businesses.
TradeMatrix Network extends the i2 SRM, SCM and CRM solutions to gain access to
real-time information from trading partners and marketplaces.

PRODUCT DEVELOPMENT

We originally introduced our RHYTHM software in 1992 and subsequently have
added many new products and product enhancements. We rebranded RHYTHM solutions
as i2 TradeMatrix solutions in 2000, unifying it within the i2 TradeMatrix
framework. We have adopted a strategy of periodically reinventing our
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products to meet our customers' needs and we strive to ensure that each new
generation of our products is compatible with previous releases. We focus our
ongoing product development efforts on broadening or deepening the functionality
of our core products and services to address new industries, marketplaces and
geographic markets. These services and solutions are evolving and have been
developed using an architecture for e-business that is (1) modular, so
components may be easily substituted; (2) flexible, to quickly respond to
changing business conditions; (3) open, to support multiple protocols; and (4)
scalable, to handle the large volumes of queries and transactions that are
typical in a business environment.

Our internal development staff has developed our products through project
teams focused on independent components of the software under development. We
maintain product release planning procedures to ensure integration, testing and
version control among the different project development teams. We maintain
development centers in various cities in the U.S. and in Canada, Finland, India
and the United Kingdom.

Research and development expenses totaled $217.9 million in 2000, $132.3
million in 1999 and $94.2 million in 1998. While we have continued to focus on
development of new and enhanced products, research and development expenses have
declined as a percentage of revenues in recent periods. Research and development
expenses were 19.3% of total revenues in 2000, down from 23.2% in 1999 and 25.5%
in 1998.

CUSTOMER SERVICE AND SUPPORT

We believe that providing high levels of customer service and technical
support are necessary to achieve customer satisfaction and continued license
sales and revenue growth. We have expanded our service and support centers
geographically and now have support centers in the U.S. and in Australia,
Belgium, Brazil, Canada, Denmark, France, Germany, India, Japan, Mexico,
Singapore, South Africa, Taiwan and the United Kingdom. Accordingly, we are
committed to continue recruiting and maintaining a high-quality technical
support team. Our customer service and support activities consist of the
following:

Consulting. We offer our customers on-site consulting services aimed at
assisting in the implementation of our solutions and services and integration
with the customers' existing systems. These consulting services are concentrated
on making implementation cost-effective for customers by enabling them to
independently perform as many of the integration tasks as possible. We also
leverage the use of global third-party consulting firms to more rapidly
penetrate our target markets.

Training. We offer education and training programs for our customers and
our third-party implementation providers. Classes are offered at our offices and
at customer locations. These classes focus on the fundamental principles of our
software products as well as implementation and use.

Maintenance and Product Updates. We provide ongoing product support
services for our solution suites. Maintenance contracts are typically sold to
customers at the time of the initial license and may be renewed for additional
periods. Our maintenance agreements with our customers provide product updates
and enhancements to the products purchased by the customer. Ongoing support and
maintenance services are available on a seven-day week, 24-hour day basis, if
desired.

Hosting Services. Customers can choose to have certain i2 software hosted
through a third party, including our current certified hosting providers, IBM
and Sabre. We offer a variety of services to our customers using third-party
hosting providers, including the initial configuration, upgrades and managed
services for the hosted environment.

SALES AND MARKETING

We sell our software and services through our direct sales organization
augmented by other sales channels, including e-business providers and systems
consulting and integration firms. Our direct sales organization consists of
sales representatives and pre-sales consultants supported by personnel with
industry experience in aerospace and defense, automotive, chemicals, durable and
non-durable consumer goods, high-tech hardware and electronics, industrial
equipment, logistics, metals, pulp and paper, pharmaceuticals, retail,
semiconductors, textiles and apparel and telecommunications.

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We currently have joint marketing agreements with over 60 software vendors
and e-business providers, including Broadvision, IBM and Siebel, and nearly 80
systems consulting and integration firms, including Accenture, A. T. Kearney,
Cap Gemini Ernst & Young, EDS, Deloitte & Touche, IBM Global Services and
PricewaterhouseCoopers. These joint marketing agreements generally provide the
vendors with non-exclusive rights to market our products and access to our
marketing materials and product training. By using these indirect sales
channels, we seek to capitalize on the installed base of other e-business
providers and obtain favorable product recommendations from systems consulting
and integration firms, thereby increasing the market coverage of our products.
We have also negotiated contracts to receive a specified fee from other software
providers when these companies offer their products to customers through our i2
TradeMatrix Platform.

INTERNATIONAL OPERATIONS

We have international offices in Australia, Belgium, Brazil, Canada, China,
Denmark, Finland, France, Germany, India, Italy, Japan, Korea, Malaysia, Mexico,
Netherlands, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan and the
United Kingdom. Total assets related to our international operations accounted
for 3.8% of our total consolidated assets (20.2% of total consolidated assets
excluding intangible assets) as of December 31, 2000. In 2000, international
revenues accounted for 34.9% of total revenues.

COMPETITION

The markets in which we operate are highly competitive. Our competitors are
diverse and offer a variety of solutions targeting various segments of the
extended supply chain as well as the enterprise as a whole. Some competitors
compete with suites of applications designed to offer out-of-the-box
integration, while most offer point solutions designed specifically to target
particular functions or industries. We attempt to bring together best-of-breed
applications in an integrated environment to capture the advantages of both
approaches, and to offer our customers a one-stop shop for critical e-business
solutions. More specifically, we compete with:

- Large ERP software vendors, including Oracle and SAP, who have added or
are attempting to add capabilities for supply chain planning or
business-to-business collaboration to their transaction system products.

- Companies such as Adexa, Manugistics and others that compete principally
with our supply chain management applications.

- Companies such as Agile, Commerce One and others that compete principally
with our supplier relationship management applications.

- Companies such as Trilogy and others that compete principally with our
customer relationship management applications.

- Companies such as RTI, Saqqara and others that compete principally with
our content and content management applications.

- Other vendors who establish electronic marketplaces and indirect
procurement capabilities that may compete now or in the future with
marketplaces created or powered by us.

- Other business application software vendors that may offer or partner
with independent developers of advanced planning and scheduling software.

- Internal development efforts by corporate information technology
departments.

PROPRIETARY RIGHTS AND LICENSES

We regard our trademarks, copyrights, trade secrets, technology and other
proprietary rights as critical to our business. To protect our proprietary
rights, we primarily rely on a combination of copyright, trademark and trade
secret laws, confidentiality procedures, license agreements and contractual
provisions. We license our software products in object code (machine-readable)
format to customers under license agreements and we do

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not sell or otherwise transfer title of our software products to our customers.
Our non-exclusive license agreements generally allow the use of our software
products solely by the customer for specified purposes without the right to
sublicense or transfer our software products.

Trademarks are important to our business as we use them in our marketing
and promotional activities as well as with the delivery of our software
products. Our registered trademarks include i2, i2 Technologies and Design,
RHYTHM and PLANET. Other trademarks of i2 include TRADEMATRIX, i2 TRADEMATRIX,
IN2ACTION, TRADEMATRIX NETWORK, INFINITE CONTENT and DESIGN and POWERING THE
BOTTOM LINE.

We hold a number of U.S. patents that predominantly relate to planning
systems and interactive report generation. These patents expire at various times
through 2018. We also depend on trade secrets and proprietary know-how for
certain unpatented aspects of our business. To protect our proprietary
information, we enter into confidentiality agreements with our employees,
consultants and licensees, and generally control access to and distribution of
our proprietary information. We resell some software that we license from third
parties and incorporate in, or sell in conjunction with, our products.

EMPLOYEES

As of February 28, 2001, we had approximately 6,000 full-time employees,
including approximately 1,950 primarily engaged in research and development
activities and approximately 1,700 engaged in sales and marketing activities.
Our future success depends in significant part upon the continued service of our
key technical and senior management personnel and our ability to attract and
retain highly qualified technical and managerial personnel. None of our
employees are represented by collective bargaining agreements and we have never
experienced a work stoppage. We believe employee relations are very good.

ITEM 2. PROPERTIES

Our primary offices are located in Dallas, Texas and are held under lease
contracts that expire at various dates through 2011. These facilities house our
executive and primary administrative offices as well as sales, marketing,
research and development and consulting personnel. We also lease space for our
other offices in the U.S., Australia, Belgium, Brazil, Canada, China, Denmark,
Finland, France, Germany, India, Italy, Japan, Korea, Malaysia, Mexico,
Netherlands, Singapore, Spain, South Africa, Sweden, Switzerland, Taiwan and the
United Kingdom primarily to provide sales, customer support, consulting services
and research and development activities.

We consider our properties to be suitable and adequate for our present
needs. We maintain options to lease additional space in areas near our current
facilities to the extent necessary based on our current and expected future
level of facility utilization.

ITEM 3. LEGAL PROCEEDINGS

On October 10, 2000, we settled a lawsuit filed by a former employee
alleging his right to exercise stock options granted to him in 1996 while he was
employed by us, prior to the initial public offering of our stock. The
settlement resulted in the recognition of a $22.4 million non-cash, pre-tax
charge during the third quarter of 2000. In a separate matter, an employee of a
company we acquired in 1998 is currently disputing the cancellation of stock
options received at the time of the acquisition. Vesting of these options was
dependent upon continued employment; however, the employment was terminated in
2000. We maintain the former employee was not entitled to unvested stock
options.

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during various periods ranging from October 18, 2000 to February 26, 2001. As
these suits have just been filed, we have not had the opportunity to adequately
review the claims or respond. Although the ultimate outcome and liability, if
any, cannot be determined, we believe the facts in these class actions do not
support the plaintiffs' claims and we and our officers have meritorious
defenses.

We are subject to various other claims and legal actions arising in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, the ultimate disposition of these matters is not expected to
have a material effect on our business, financial condition or results of
operations.

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

At a special meeting of stockholders held on November 28, 2000, our
stockholders voted on a proposed amendment to our Restated Certificate of
Incorporation to increase the number of authorized shares of our common stock
from 0.5 billion to 2.0 billion. This amendment was approved.

Number of votes for......................................... 162,987,285
Number of votes against..................................... 8,882,790
Number of abstentions and broker non-votes.................. 50,768

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded on the Nasdaq National Market under the symbol
"ITWO." The following table lists the high and low per share intra-day sales
prices for our common stock as reported by the Nasdaq National Market for the
periods indicated. All share and per share data in this report reflect the
two-for-one stock splits of our common stock paid as 100% stock dividends on
June 2, 1998, February 17, 2000 and December 5, 2000.

HIGH LOW
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2000
Fourth quarter.............................................. $96.13 $36.00
Third quarter............................................... 99.44 49.13
Second quarter.............................................. 71.38 34.50
First quarter............................................... 111.75 35.08

1999
Fourth quarter.............................................. $54.50 $ 9.35
Third quarter............................................... 12.10 6.53
Second quarter.............................................. 10.89 4.44
First quarter............................................... 9.00 5.63

As of March 26, 2001, there were 410,735,877 shares of our common stock
outstanding held by 1,011 holders of record.

We have never declared or paid cash dividends on our capital stock. We
currently intend to retain any earnings for use in our business and do not
anticipate paying any cash dividends in the foreseeable future. Future
dividends, if any, will be determined by our Board of Directors.

On March 9, 2001, we announced a voluntary stock option exchange program
for the benefit of our employees. Under the program, our employees have the
option to cancel certain outstanding stock options previously granted to them
for new stock options to be granted no earlier than October 8, 2001. The new
options will be granted with a strike price to be set at the fair market value
of our stock at the date of grant. Employees will receive 1.1 new stock options
for each stock option cancelled. The exchange program has been organized to
comply with applicable accounting standards and, accordingly, no compensation
charges related
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to this program will result. Members of our Board of Directors, executive
officers, and certain members of the senior management team are not eligible to
participate in this program.

During the fourth quarter of 2000, we issued an aggregate of 842,536 shares
of our common stock to employees pursuant to exercises of stock options that
were granted prior to April 26, 1996 with exercise prices ranging from $0.0022
to $1.51 per share. These issuances were deemed exempt from registration under
Section 5 of the Securities Act of 1933 in reliance upon Rule 701 thereunder.
The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to,
or for sale in connection with, any distribution thereof and appropriate legends
were affixed to the share certificates issued in each such transaction.

On December 10, 1999, we issued an aggregate principal amount of $350.0
million of our 5.25% convertible subordinated notes due 2006. The notes are
convertible, at the option of the holder, into shares of our common stock at a
conversion price of $38.00 per share at any time prior to maturity. On or after
December 20, 2002, we have the option to redeem, in cash, all or a portion of
the notes that have not been previously converted. As of December 31, 2000, none
of the notes have been converted to common stock.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following summary of consolidated financial data is derived from our
audited financial statements as of and for the five years ended December 31,
2000. The following consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Consolidated Financial Statements and related notes included
elsewhere in this report. As discussed in Note 2 -- Business Combinations in the
Notes to Consolidated Financial Statements, our acquisitions of SupplyBase on
April 28, 2000 and Aspect on June 9, 2000, were accounted for using the purchase
method. Accordingly, the operating results of SupplyBase and Aspect are included
with our results of operations since their respective dates of acquisition.
Amounts shown are in thousands, except per share data.

YEAR ENDED DECEMBER 31,
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2000 1999 1998 1997 1996
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STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses............... $ 709,177 $352,597 $234,316 $141,766 $ 62,063
Services........................ 271,009 147,893 91,726 58,218 30,569
Maintenance..................... 146,139 70,620 43,115 21,792 8,881
----------- -------- -------- -------- --------
Total revenues.......... 1,126,325 571,110 369,157 221,776 101,513
Costs and expenses:
Cost of software licenses....... 53,331 17,981 7,967 2,746 260
Cost of services and
maintenance.................. 234,191 125,934 77,459 48,422 21,761
Sales and marketing............. 390,111 194,752 129,978 77,071 35,484
Research and development........ 217,938 132,278 94,199 57,392 23,559
General and administrative...... 86,888 53,188 38,191 24,984 11,108
Amortization of intangibles..... 1,753,605 -- -- -- --
In-process research and
development and acquisition-
related expenses............. 102,373 6,552 7,618 9,306 1,133
----------- -------- -------- -------- --------
Total costs and
expenses.............. 2,838,437 530,685 355,412 219,921 93,305
----------- -------- -------- -------- --------
Operating income.................. (1,712,112) 40,425 13,745 1,855 8,208
Other income, net................. 18,227 7,642 8,753 3,309 1,671
Non-cash settlement............... (22,412) -- -- -- --
----------- -------- -------- -------- --------
Income (loss) before income
taxes........................... (1,716,297) 48,067 22,498 5,164 9,879
Provision for income taxes........ 35,716 24,552 17,279 6,916 4,705
----------- -------- -------- -------- --------
Net income (loss)................. $(1,752,013) $ 23,515 $ 5,219 $ (1,752) $ 5,174
=========== ======== ======== ======== ========
Basic and diluted earnings (loss)
per common share:
Basic earnings (loss) per common
share........................ $ (4.83) $ 0.08 $ 0.02 $ (0.01) $ 0.02
Diluted earnings (loss) per
common share................. $ (4.83) $ 0.07 $ 0.02 $ (0.01) $ 0.02
Weighted-average common shares
outstanding..................... 362,723 300,838 287,176 257,768 239,160
Weighted-average diluted common
shares outstanding.............. 362,723 335,678 314,120 257,768 272,464

AS OF DECEMBER 31,
-----------------------------------------------------------
2000 1999 1998 1997 1996
----------- -------- -------- -------- --------

BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments.......... $ 823,327 $579,391 $155,998 $151,889 $ 59,694
Working capital................... 776,727 585,039 182,778 167,877 62,636
Total assets...................... 9,225,826 860,194 344,808 264,923 113,546
Total debt........................ 350,000 350,000 5,032 2,114 600
Total stockholders' equity........ 8,453,447 332,168 228,986 192,964 75,236

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The following tables set forth unaudited consolidated selected quarterly
statement of operations data for the years ended December 31, 2000 and 1999.
Amounts shown are in thousands, except per share data.

YEAR ENDED DECEMBER 31, 2000
--------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------

UNAUDITED SELECTED STATEMENT OF OPERATIONS
DATA:
Revenues................................... $186,280 $ 242,622 $ 319,523 $ 377,900
Costs and expenses......................... 169,658 523,963 1,055,630 1,089,186
-------- --------- ---------- ----------
Operating income (loss).................... 16,622 (281,341) (736,107) (711,286)
Other income, net.......................... 2,499 4,213 7,216 4,299
Non-cash settlement........................ -- -- (22,412) --
-------- --------- ---------- ----------
Income (loss) before income taxes.......... 19,121 (277,128) (751,303) (706,987)
Provision for income taxes................. 7,380 3,688 4,408 20,240
-------- --------- ---------- ----------
Net income (loss).......................... $ 11,741 $(280,816) $ (755,711) $ (727,227)
======== ========= ========== ==========
Basic and diluted earnings (loss) per
common share:
Basic earnings (loss) per common share... $ 0.04 $ (0.83) $ (1.91) $ (1.80)
Diluted earnings (loss) per common
share................................. $ 0.03 $ (0.83) $ (1.91) $ (1.80)

Weighted-average common shares
outstanding.............................. 313,000 338,230 395,080 403,723
Weighted-average diluted common shares
outstanding.............................. 366,050 338,230 395,080 403,723

YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------

UNAUDITED SELECTED STATEMENT OF OPERATIONS
DATA:
Revenues..................................... $117,599 $131,947 $146,296 $175,268
Costs and expenses........................... 117,669 123,975 136,472 152,569
-------- -------- -------- --------
Operating income (loss)...................... (70) 7,972 9,824 22,699
Other income, net............................ 1,078 1,324 2,017 3,223
-------- -------- -------- --------
Income before income taxes................... 1,008 9,296 11,841 25,922
Provision for income taxes................... 2,534 5,397 6,114 10,507
-------- -------- -------- --------
Net income (loss)............................ $ (1,526) $ 3,899 $ 5,727 $ 15,415
======== ======== ======== ========
Basic and diluted earnings (loss) per common
share:
Basic earnings (loss) per common share..... $ (0.01) $ 0.01 $ 0.02 $ 0.05
Diluted earnings (loss) per common share... $ (0.01) $ 0.01 $ 0.02 $ 0.04

Weighted-average common shares outstanding... 294,784 299,748 303,356 308,100
Weighted-average diluted common shares
outstanding................................ 294,784 327,080 330,796 353,116

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This report contains 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. All statements other than historical or current facts,
including, without limitation, statements about our business, financial
condition, business strategy, plans and objectives of management and our future
prospects, are forward-looking statements. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, such
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from these expectations. Such risks
and uncertainties include, without limitation, the following:

- 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.

- We anticipate seasonal fluctuations in revenues, which may cause
volatility in our stock price.

- 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 may not remain competitive and increased competition could seriously
harm our business.

- Any decrease in demand for our products and services could significantly
reduce our revenues.

- Other risks indicated below under the caption "Factors that May Affect
Future Results" and in our other filings with the Securities and Exchange
Commission.

These risks and uncertainties are beyond our control and, in many cases, we
cannot predict the risks and uncertainties that could cause our actual results
to differ materially from those indicated by the forward-looking statements.
When used in this document, the words "believes," "plans," "expects,"
"anticipates," "intends," "continue," "may," "will," "should" or the negative of
such terms and similar expressions as they relate to us or our management are
intended to identify forward-looking statements.

References in this report 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,
precision of the results and other commercial factors.

OVERVIEW

We are a leading provider of e-business and marketplace software solutions
that may be used by enterprises to optimize business processes both internally
and among trading partners. Our solutions are designed to help enterprises
improve efficiencies, collaborate with suppliers and customers, respond to
market demands and engage in dynamic business interactions over the Internet.
Our product suites include software solutions for supply chain management,
supplier relationship management and customer relationship management. We also
provide content and content management solutions as well as a platform for
integration and administration of private and public electronic marketplaces. We
also provide services such as consulting, training and maintenance in support of
these offerings.

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RESULTS OF OPERATIONS

The following table sets forth the percentages of total revenues
represented by selected items reflected in our Consolidated Statements of
Operations. The year-to-year comparisons of financial results are not
necessarily indicative of future results.

YEAR ENDED DECEMBER 31,
------------------------
2000 1999 1998
------ ----- -----

Revenues:
Software licenses......................................... 63.0% 61.7% 63.5%
Services.................................................. 24.0% 25.9% 24.8%
Maintenance............................................... 13.0% 12.4% 11.7%
------ ----- -----
Total revenues.................................... 100.0% 100.0% 100.0%
Costs and expenses:
Cost of software licenses................................. 4.7% 3.1% 2.2%
Cost of services and maintenance.......................... 20.8% 22.1% 21.0%
Sales and marketing....................................... 34.6% 34.1% 35.2%
Research and development.................................. 19.3% 23.2% 25.5%
General and administrative................................ 7.7% 9.3% 10.3%
Amortization of intangibles............................... 155.7% -- --
In-process research and development and
acquisition-related expenses........................... 9.1% 1.1% 2.1%
------ ----- -----
Total costs and expenses.......................... 251.9% 92.9% 96.3%
------ ----- -----
Operating income (loss)..................................... (151.9)% 7.1% 3.7%
Other income, net........................................... 1.6% 1.3% 2.4%
Non-cash settlement......................................... (2.0)% -- --
------ ----- -----
Income before income taxes.................................. (152.3)% 8.4% 6.1%
Provision for income taxes.................................. 3.2% 4.3% 4.7%
------ ----- -----
Net income (loss)........................................... (155.5)% 4.1% 1.4%
====== ===== =====

REVENUES

Revenues consist of software license revenues, service revenues, and
maintenance revenues, and are recognized in accordance with Statement of
Position (SOP) 97-2, "Software Revenue Recognition," as modified by SOP 98-9,
"Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain
Transactions," and SEC Staff Accounting Bulletin (SAB) 101, "Revenue
Recognition."

Software license revenues are recognized upon shipment, provided fees are
fixed and determinable and collection is probable. Revenue for agreements that
include one or more elements to be delivered at a future date is recognized
using the residual method. Under the residual method, the fair value of the
undelivered elements is deferred, and the remaining portion of the agreement fee
is recognized as revenue. If fair values have not been established for certain
undelivered elements, revenue is deferred until those elements have been
delivered, or their fair values have been determined. Agreements that include a
right to unspecified future elements are recognized ratably over the term of the
agreement. License fees from reseller agreements are generally based on the
sublicenses granted by the reseller and recognized when the license is sold to
the end customer. Licenses to our content databases are recognized over the
terms of the agreements. Fees from licenses sold together with services are
generally recognized upon shipment, provided fees are fixed and determinable,
collection is probable, payment of the license fee is not dependent upon the
performance of the consulting services and the consulting services are not
essential to the functionality of the licensed software.

Service revenues are primarily derived from fees for implementation,
consulting and training services and are generally recognized under service
agreements in connection with initial license sales and as the services are
performed.

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15

Maintenance revenues are derived from technical support and software
updates provided to customers. Maintenance revenue is recognized ratably over
the term of the maintenance agreement.

Payments received in advance of revenue recognized are classified as
deferred revenue in the Consolidated Balance Sheets.

Total revenues increased 97.2% in 2000 and 54.7% in 1999. These increases
resulted from increased demand for our products and services, the expansion of
our product offerings, increased sales activities resulting from additional
sales representatives and additional revenues generated by acquired businesses.
We derived substantially all of our revenues from licenses associated with our
software products and content databases and related services and maintenance.

Software Licenses. Software license revenues constituted 63.0% of total
revenues in 2000, 61.7% in 1999 and 63.5% in 1998. Software license revenues
increased $356.6 million, or 101.1%, in 2000 and $118.3 million, or 50.5%, in
1999. The increases in software license revenues for all periods were due to:

- Increased demand for our products and services.

- Expansion of product offerings.

- Increased sales activities resulting from increases in direct sales
representatives and strategic alliances with industry partners.

- Increased customer awareness and interest in our product offerings.

As a result of the above items, the number of recognized software license
transactions increased to 392 transactions in 2000 from 252 transactions in 1999
and 216 transactions in 1998, representing increases of 55.6% and 16.7%. The
average size of individual license transactions increased to $1.8 million in
2000 from $1.4 million in 1999 and $1.1 million in 1998, representing increases
of 29.3% and 28.9%. Additionally, the number of individual software license
transactions in excess of $1 million increased to 150 transactions in 2000 from
66 transactions in 1999 and 55 transactions in 1998, representing increases of
127.3% and 20.0%. Our direct sales channel is responsible for most of our
license revenue.

Although we believe 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 sales of
our software products through, or in conjunction with, sales alliances,
distributors, resellers and other indirect channels to 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 constituted 24.0% of total revenues in 2000,
25.9% in 1999 and 24.8% in 1998. Service revenues as a percentage of total
revenues have fluctuated, and are expected to continue to fluctuate on a
year-to-year basis, as revenues from the implementation of software are not
generally recognized in the same period as the related license revenues. As
large licenses or a significant number of smaller licenses are sold near the end
of a given period, the relative proportion of license revenues to total revenues
will increase compared to service revenues.

Service revenues increased $123.1 million, or 83.2%, in 2000 and $56.2
million, or 61.2%, 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 were also due to expanded
use of third-party consultants as subcontractors to provide implementation
services to our customers. This has allowed us to increase our penetration into
various international and targeted vertical markets.

Maintenance. Maintenance revenues increased to 13.0% of total revenues in
2000, from 12.4% in 1999 and 11.7% in 1998. Maintenance revenues increased $75.5
million, or 106.9%, in 2000 and $27.5 million, or 63.8%, in 1999. In 2000, we
began offering new tiered levels of maintenance with proportionately higher fees
for higher levels of service. The increases in maintenance revenues were also
due to continued increases in software license sales and renewals of maintenance
agreements from prior license sales.

15
16

International Revenues. Our international revenues are primarily generated
from customers located in Europe, Asia, Canada and Latin America. International
revenues totaled $393.0 million, or 34.9% of total revenues, in 2000; increasing
from $181.2 million, or 31.7% of total revenues, in 1999; and $73.2 million, or
19.8% of total revenues, in 1998. The increase in international revenues is
consistent with our efforts to expand our international presence and sales
efforts. We believe continued growth and profitability will require further
expansion in international markets. We have expended and will continue to expend
substantial resources to expand our international operations.

COSTS AND EXPENSES

Cost of Software Licenses. Cost of software licenses consists of:

- Commissions paid to third parties in connection with joint marketing and
other related agreements.

- Royalty fees associated with third-party software.

- Costs related to user documentation.

- Costs related to reproduction and delivery of software.

Cost of software licenses as a percentage of related revenue was 7.5% in
2000, 5.1% in 1999 and 3.4% in 1998. Cost of software license increased $35.4
million, or 196.6%, in 2000 and $10.0 million, or 125.7%, in 1999. The increases
in cost of software licenses, both as a percentage of software license revenue
and in dollar amount, are due to increases in commissions paid to third parties
in connection with joint marketing efforts and other sales assistance, and
increases in the amount of royalty fees associated with third-party software.

Cost of Services and Maintenance. Cost of services and maintenance
includes costs associated with the implementation of software solutions and
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 as a percentage of
related revenues was 56.1% in 2000, 57.6% in 1999 and 57.4% in 1998. The
decrease in cost of services and maintenance as a percentage of related revenues
over the comparable periods resulted from efficiencies developed in project
management and other cost saving measures.

The total cost of services and maintenance increased $108.3 million, or
86.0%, in 2000 and $48.5 million, or 62.6%, in 1999. The increases were due to
increases in the number of consultants, product support and training staff and
increased use of third-party consultants to provide implementation services. As
a means to expand into different geographic and vertical markets, we expect to
increase the number of our consulting, product support and training personnel in
the foreseeable future.

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, technical conferences,
advertising and public relations programs. Sales and marketing expenses
increased $195.4 million, or 100.3%, in 2000 and $64.8 million, or 49.8%, in
1999. The increases were due to:

- We increased the number of our direct sales representatives to 580 at
December 31, 2000, up from 253 at December 31, 1999 and 184 at December
31, 1998. This represents a 129.2% increase in our direct sales force in
2000 and a 37.5% increase in 1999.

- Increased sales commissions due to higher revenues.

- Increased marketing and promotional activities due to the expansion of
our suite of e-business solutions.

Research and Development Expenses. Research and development expenses
consist of continued software development and product enhancements to existing
software. Software development costs are expensed as incurred until
technological feasibility has been established, at which time such costs are
capitalized until the product is available for general release to customers. To
date, the establishment of

16
17

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 $85.7 million, or 64.8%, in
2000 and $38.1 million, or 40.4%, in 1999. Research and development expenses as
a percentage of total revenues decreased to 19.3% in 2000 from 23.2% in 1999 and
25.5% in 1998. The decrease in research and development expenses as a percentage
of total revenues resulted from our ability to leverage our resource base to
support a larger organization. The increases in the dollar amount of research
and development expenses were due to increased research and development
personnel by approximately 93.9% in 2000 and approximately 23.5% in 1999. As of
December 31, 2000, our research and development headcount totaled approximately
1,900, up from approximately 1,000 at December 31, 1999 and approximately 800 at
December 31, 1998. Included in the 1,900 headcount total for research and
development at December 31, 2000 were approximately 600 employees added by the
acquisition of Aspect and approximately 30 employees added by the acquisition of
SupplyBase.

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 $33.7 million, or 63.4%, in 2000 and $15.0
million, or 39.3%, in 1999. General and administrative expenses as a percentage
of total revenues decreased to 7.7% in 2000 from 9.3% in 1999 and 10.3% in 1998.
The increases in the dollar amounts of general and administrative expenses were
primarily due to the cost of supporting a 102.0% increase in personnel in 2000
and an 18.9% increase in 1999, as well as increases in the number and size of
our facilities and equipment related to our new corporate headquarters. The
decrease in general and administrative expenses as a percentage of total
revenues resulted from our ability to leverage our resource base to support a
larger organization. We expect total general and administrative expenses to
increase in the foreseeable future due to further growth and expansion of the
company.

Amortization of Intangibles. From time to time, we have sought to
supplement the expanding depth and breadth of our product offerings through
technology or business acquisitions. When an acquisition of a business is
accounted for using the purchase method, the amount of the purchase price is
allocated to the fair value of assets acquired, net of liabilities assumed. Any
excess purchase price is allocated to goodwill. Goodwill is amortized over the
life of the asset (typically two to three years). Details of our acquisitions
are presented in Note 2-Business Combinations and Note 3-Asset Acquisition in
the Notes to Consolidated Financial Statements included elsewhere in this
report.

Amortization of intangibles, including amortization of goodwill, related to
the acquisitions referenced above totaled $1.8 billion, or 155.7% of total
revenues, in 2000. Under current accounting guidance, amortization of these
intangibles will continue through 2003. In February 2001, the Financial
Accounting Standards Board issued a revision to a previously issued exposure
draft covering business combinations proposing new accounting guidance related
to goodwill that would change the amortization methodology. See Note 12-New
Accounting Standards in the Notes to Consolidated Financial Statements included
elsewhere in this report.

In-Process Research and Development and Acquisition-Related Expenses.
Technology or business acquisitions may include the purchase of technology that
has not yet been 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 consummation of the acquisition. Details of in-
process research and development and acquisition-related expenses are presented
in Note 2-Business Combinations and Note 3-Asset Acquisition in the Notes to
Consolidated Financial Statements included elsewhere in this report.

The write-off of acquired in-process research and development increased to
9.1% of total revenues in 2000 from 1.1% in 1999 and 2.1% in 1998. In 2000, this
increase is related to the acquisitions of SupplyBase, Aspect and various IBM
assets. In 1999, the charges primarily consisted of acquisition expenses related
to SMART, and in 1998, the charges consisted mostly of acquisition expenses
related to ITLS. We expect to continue to
17
18

expand through acquisitions and the resulting write-off of process research and
development could vary significantly from year to year.

OTHER INCOME, NET

Other income, net, consists of interest income on investments partially
offset by interest expense, realized gains/losses on equity investments, foreign
currency exchange transaction gains/losses and other miscellaneous income and
expense. Other income, net, was 1.6% of total revenues in 2000, 1.3% in 1999 and
2.4% in 1998. Other income, net, increased $10.6 million, or 138.5%, in 2000.
The increase was attributable to the combination of higher average investment
balances and overall market interest rates offset by a full year's interest
expense on our convertible notes and net foreign currency exchange transaction
losses. The interest yields on investments and the relative exchange values of
foreign currencies are influenced by the monetary and fiscal policies of the
governments in the countries we operate. The nature, timing and extent of any
impact on our financial statements resulting from changes in those governments'
policies are not predictable.

NON-CASH SETTLEMENT

PROVISION FOR INCOME TAXES

We recognized income tax expense in 2000 despite our net loss before income
taxes, resulting in a negative effective tax rate. Our effective income tax rate
in 2000 was (2.1)% compared to 51.1% in 1999 and 76.8% in 1998. The effective
income tax rate in 2000, and to a lesser extent in 1999 and 1998, differed from
the U.S. statutory rate primarily due to the non-deductibility of goodwill,
in-process research and development and acquisition-related expenses. Other
items affecting our effective tax rate during the periods presented include
state taxes (net of federal tax benefits), non-deductible meals and
entertainment, deferred tax asset valuation allowances and research and
development tax credits. Excluding the impact of these and other items, our
effective tax rates were 37.5% in 2000, 38.0% in 1999 and 38.5% in 1998.

BASIC AND DILUTED EARNINGS PER COMMON SHARE

Basic and diluted earnings per common share is computed in accordance with
SFAS No. 128, "Earnings Per Share," which requires dual presentation of basic
and diluted earnings per common share for entities with complex capital
structures. Basic earnings per common share is based on net income divided by
the weighted-average number of common shares outstanding during the year.
Diluted earnings per common share includes the dilutive effect of stock options
and warrants granted using the treasury stock method, the effect of contingently
issuable shares earned during the year and shares issuable under the conversion
feature of our convertible notes using the if-converted method. Future
weighted-average shares outstanding calculations will be impacted by the
following factors:

- The ongoing issuance of common stock associated with stock option
exercises.

- The issuance of common shares associated with our employee stock purchase
plans.

- 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 calculation.

- The issuance of common stock to effect business combinations should we
enter into such transactions.

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- The issuance of common stock or warrants to effect joint marketing, joint
development or other similar arrangements should we enter into such
arrangements.

- Assumed or actual conversions of debt into common stock with respect to
our convertible notes.

PRO FORMA RESULTS OF OPERATIONS

The following summary of unaudited pro forma consolidated selected
statement of operations data presents our results of operations for the three
years ended December 31, 2000, excluding: amortization of intangibles, write-off
of in-process research and development and acquisition-related expenses,
employer taxes on stock option exercises, non-recurring charges, and net losses
realized on minority investments. We believe the exclusion of these items
provides a more relevant summary of the results of our operations as they relate
to our core business and we use these measures internally to evaluate our
operating performance. This information is not to be construed as a measurement
of profitability under generally accepted accounting principles and is not to be
accepted or used as an alternative to net income. Additionally, the pro forma
results of operations, as presented, may not be consistent with measures used by
other companies. All acquisitions accounted for using the purchase method are
included in the following summary from the date those entities were acquired. As
discussed in Note 2 -- Business Combinations in the Notes to Consolidated
Financial Statements, the acquisitions of SupplyBase and Aspect were completed
in the second quarter of 2000 and, accordingly, the operating results of
SupplyBase and Aspect are included with our results of operations since their
respective dates of acquisition of April 28, 2000 and June 9, 2000. Amounts
shown are in thousands, except per share data.

YEAR ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
---------- -------- --------

PRO FORMA UNAUDITED SELECTED STATEMENT OF OPERATIONS DATA:
Revenues.................................................. $1,126,325 $571,110 $369,157
Costs and expenses........................................ 972,629 522,885 347,726
---------- -------- --------
Operating income.......................................... 153,696 48,225 21,431
Other income, net......................................... 19,805 7,642 8,753
---------- -------- --------
Income before income taxes................................ 173,501 55,867 30,184
Provision for income taxes................................ 65,063 25,020 17,305
---------- -------- --------
Net income................................................ $ 108,438 $ 30,847 $ 12,879
========== ======== ========
Basic earnings per common share........................... $ 0.30 $ 0.10 $ 0.04
Diluted earnings per common share......................... $ 0.26 $ 0.09 $ 0.04

Weighted-average common shares outstanding................ 362,723 300,838 287,176
Weighted-average diluted common shares outstanding........ 421,679 335,678 314,120

THE ABOVE PRO FORMA AMOUNTS HAVE BEEN ADJUSTED TO EXCLUDE
THE FOLLOWING ITEMS:
Amortization of intangibles............................... $1,753,605 $ -- $ --
In-process research and development and acquisition
related expenses........................................ 102,373 6,552 7,618
Employer taxes on stock option exercises.................. 9,830 1,248 68
Non-cash settlement....................................... 22,412 -- --
Net losses realized on minority investments............... 1,578 -- --
Income tax effect of excluded items....................... (29,347) (468) (26)
---------- -------- --------
Net effect of pro forma adjustments....................... $1,860,451 $ 7,332 $ 7,660
========== ======== ========

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LIQUIDITY AND CAPITAL RESOURCES

Historically, we have financed our operations and met our capital
expenditure requirements primarily through cash flows provided from operations,
long-term borrowings and sales of equity securities. Our liquidity and financial
position at December 31, 2000 showed a 32.8% increase in working capital in
2000. Working capital was $776.7 million as of year-end 2000 and $585.0 million
as of year-end 1999. The increase in working capital is primarily attributed to
$192.0 million in net cash provided by operating activities. The net change in
cash and cash equivalents was also positively impacted by the net effect of cash
provided by proceeds from the sale of common stock to employees and exercise of
stock options, offset by cash used in investing activities.

Net cash provided by operating activities increased 120.6%, net cash used
in investing activities decreased 11.8% and net cash provided by financing
activities decreased 59.5% over 1999 totals. Cash and cash equivalents were
$739.2 million at December 31, 2000, an increase of $284.7 million, or 62.6%,
over balances at December 31, 1999. The increase was the result of $192.0
million in cash generated by operating activities and $150.3 million in cash
provided by financing activities, offset by $57.7 million in cash used in
investing activities. The most significant transactions which adjusted net
income to net cash provided by operations for 2000 were write-offs of in-process
research and development of $101.3 million, depreciation and amortization of
$1.8 billion, deferred income taxes and disqualifying dispositions of $351.1
million, tax benefits from stock option exercises of $326.7 million and the net
increase in accounts receivable of $132.3 million. Significant items that
affected our net cash used in investing activities in 2000 were purchases of
premises and equipment of $87.9 million, cash acquired in purchase transactions
of $55.2 million, direct costs of purchase transactions of $41.0 million, and
net maturities and sales of debt securities and equity investments of $16.9
million. The $150.3 million in cash provided by financing activities was from
proceeds from the sale of common stock to employees and exercises of stock
options.

Accounts receivable, net of allowance for doubtful accounts, increased
89.4% in 2000. Days sales outstanding (DSO's) in receivables decreased to 73
days as of December 31, 2000 from 83 days as of December 31, 1999. The increase
in accounts receivable was due to a 97.2% increase in total revenue. DSO's
decreased due to strong collection efforts in 2000 that resulted in over $1.1
billion in actual cash collections. There is no assurance that DSO performance
will remain at this level.

We maintain two, one-year revolving lines of credit of $15.0 million with
separate financial institutions that have an aggregate borrowing capacity of
$30.0 million. There have been no borrowings under these agreements, which are
renewable in August 2001. See Note 6 -- Borrowings in the Notes to Consolidated
Financial Statements included elsewhere in this report.

On December 10, 1999, we issued an aggregate principal amount of $350.0
million of our 5.25% convertible subordinated notes due in 2006. As of year-end
2000, none of the notes have been converted to common stock. The notes are
convertible at the option of the holder into shares of our common stock at a
conversion price of $38.00 per share at any time prior to maturity. On or after
December 20, 2002, we have the option to redeem, in cash, all or a portion of
the notes that have not been previously converted. See Note 6 -- Borrowings in
the Notes to Consolidated Financial Statements included elsewhere in this
report.

In the future, we may pursue acquisition 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 nature, timing and amount of
consideration to be paid.

We expect future liquidity will be enhanced to the extent that we are able
to realize the cash benefit from utilization of our net operating loss
carryforwards against future tax liabilities. As of December 31, 2000, we had
$931.3 million in net operating loss carryforwards, which represent up to $349.2
million in future tax benefits. The utilization of the net operating loss
carryforwards is subject to limitations and various expiration dates in years
2002 through 2020.

We believe that existing cash and cash equivalent balances, short-term
investment balances, available borrowings under the revolving credit agreements
and our anticipated cash flows from operations will satisfy our working capital
and capital expenditure requirements for the foreseeable future. However, any
material
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acquisitions of complementary businesses, products or technologies or joint
venture arrangements could require us to obtain additional equity or debt
financing.

SENSITIVITY TO MARKET RISKS

Foreign Currency Risk. Revenues originating outside of the United States
totaled 34.9%, 31.7% and 19.8% of total revenues in 2000, 1999 and 1998.
Revenues from our European markets totaled 19.9%, 16.4% and 10.8% of total
revenues for the same years. Due to the fact that we conduct business on a
global basis in various foreign currencies, we are exposed to adverse movements
in foreign currency exchange rates. During 2000, 1999 and 1998, our strategy for
managing foreign currency risk was limited to hedging certain significant
accounts receivable that were denominated in a foreign currency. Gains and
losses realized from hedging activities through December 31, 2000 have not been
significant. In January 2001, we established a foreign currency hedging program
utilizing foreign currency forward exchange contracts to hedge various
nonfunctional currency exposures. We expect this program to reduce the effect of
changes in foreign currency exchange rates on our results of operations because
foreign currency transaction gains and losses recorded for accounting purposes
will be offset by gains and losses on the forward contracts. The forward
contracts we enter into will generally have original maturities of one month. We
have not used, nor do we expect to use, forward contracts for trading purposes.

Interest Rate Risk. Our investments are subject to interest rate risk.
Interest rate risk is the risk that our financial condition and results of
operations could be adversely affected due to movements in interest rates. We
invest our cash in a variety of interest-earning financial instruments,
including bank time deposits, money market funds and taxable and tax-exempt
variable rate and fixed rate obligations of corporations, municipalities and
local, state and national governmental entities and agencies. These investments
are denominated in U.S. dollars. Cash balances in foreign currencies overseas
are operating balances and are invested in short-term time deposits of the local
operating bank.

Due to the demand nature of our money market funds and the short-term
nature of our time deposits and debt securities portfolio, these assets are
particularly sensitive to changes in interest rates. As of December 31, 2000,
84.6% of our debt securities and time deposits had original maturities of three
months or less, while 13.3% had original maturities between three months and one
year. If these short-term assets are reinvested in a declining interest rate
environment, we would experience an immediate negative impact on other income.
The opposite holds true in a rising interest rate environment. The Federal
Reserve Board influences the general market rates of interest. Since December
31, 2000, the Federal Reserve Board has decreased the discount rate by 150 basis
points, which has led to a general decline in market interest rates. Assuming
the Federal Reserve Board maintains this position on interest rates, we expect
our average yield on investments to decline in 2001 provided the composition of
our investment portfolio remains the same.

The weighted-average yield on interest-earning investments held as of
December 31, 2000 was 6.8% compared to 5.3% for investments held as of December
31, 1999. Based on our investment holdings as of December 31, 2000, an immediate
100 basis point decline in the average yield earned on these investments would
reduce our expected annual interest earnings by $6.4 million.

Market Price Risk. In addition to investments in debt securities, we
maintain minority equity investments in various privately held and publicly
traded companies for business and strategic purposes. Our investments in
publicly traded companies are subject to market price volatility. As a result of
market price volatility, we experienced a $3.8 million net after-tax unrealized
loss during 2000 on these investments. Our ability to sell certain equity
positions is restricted because the shares held may not have been registered or
other contractual agreements. While these positions were not hedged as of
December 31, 2000, in 2001, we may implement hedging strategies using put and
call options to fix our gains and limit our losses in certain equity positions
until such time as the investments can be sold. The fair value of our
investments in publicly traded companies totaled $13.4 million at December 31,
2000. The fair value of these investments would be $12.0 million given 10%
decreases in each stock's price.

We have invested in numerous privately held companies, many of which can
still be considered in the start-up or development stages. These investments are
inherently risky as the market for technologies or
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products they have under development are typically in the early stages and may
never materialize. Further, market conditions for these types of investments
have been deteriorating of late. We could lose our entire investments in these
companies. As of December 31, 2000, our investments in privately held companies
totaled $40.2 million. In 2000, realized losses related to the write-down of
various equity investments totaled $2.8 million, or 7.0% of year-end holdings.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

On January 1, 2001, we adopted SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS 137 and SFAS 138. SFAS
133 requires all derivatives to be recorded at fair value. Unless designated as
hedges, changes in these fair values will be recorded in the income statement.
Fair value changes involving hedges will generally be recorded by offsetting
gains and losses on the hedge and on the hedged item, even if the fair value of
the hedged item is not otherwise recorded. Adoption of this standard did not
have a material effect on our financial statements.

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. This report is qualified in its entirety by these risk
factors.

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:

- Volume and timing of customer orders.

- Length of the sales cycle.

- Customer budget constraints.

- Announcement or introduction of new products or product enhancements by
our competitors or us.

- Changes in prices of our products and those of our competitors.

- Foreign currency exchange rate fluctuations.

- Market acceptance of new products.

- Mix of direct and indirect sales.

- Changes in our strategic relationships.

- Changes in our business strategy.

- Economic conditions.

- Technological changes.

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 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

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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. In addition,
with our rapid growth, we have set a number of demanding objectives and
commitments that may cause challenges to our operations. Any of these factors
could cause our operating results to be below the expectations of public market
analysts and investors, and negatively affect the price of our common stock.

THE IMPACT OF CHANGES IN GLOBAL ECONOMIC CONDITIONS ON OUR CUSTOMERS MAY CAUSE
US TO FAIL TO MEET EXPECTATIONS, WHICH WOULD NEGATIVELY IMPACT THE PRICE OF OUR
STOCK.

Our operating results can vary significantly based upon the impact of
changes in global economic conditions on our customers. More specifically, the
macro-economic environment entering 2001 is more uncertain than in recent
periods and has the potential to materially and adversely affect us. The revenue
growth and profitability of our business depends on the overall demand for
computer software and services, particularly in the areas in which we compete.
Because our sales are primarily to major corporate customers whose businesses
fluctuate with general economic and business conditions, a softening of demand
for computer software caused by a weakening economy may result in decreased
revenues and lower growth rates. We may be especially prone to this as a result
of the relatively large license transactions we have historically relied upon.
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 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 in any
period.

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 with, in some cases, long and
intensive sales cycles. 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 that we have targeted to close in that period, this
failure could seriously harm our operating results for that period.

IMPLEMENTATION OF OUR PRODUCTS IS COMPLEX, TIME-CONSUMING AND EXPENSIVE AND
CUSTOMERS MAY BE UNABLE TO IMPLEMENT OUR PRODUCTS SUCCESSFULLY OR OTHERWISE
ACHIEVE THE BENEFITS ATTRIBUTABLE TO OUR PRODUCTS.

Our products must integrate with the many existing computer systems and
software programs of our customers. This can be complex, time-consuming and
expensive, and may cause delays in the deployment of our products. Our customers
may be unable to implement our products successfully or otherwise achieve the
benefits attributable to our products.

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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:

- Companies such as Adexa, Manugistics and others that compete principally
with our supply chain management applications.

- Companies such as Agile, Commerce One and others that compete principally
with our supplier relationship management applications.

- Companies such as Trilogy and others that compete principally with our
customer relationship management applications.

- Companies such as RTI, Saqqara and others that compete principally with
our content and content management applications.

- Other vendors who establish electronic marketplaces and indirect
procurement capabilities that may compete now or in the future with
marketplaces created or powered by us.

- Other business application software vendors that may offer or partner
with independent developers of advanced planning and scheduling software.

- Internal development efforts by corporate information technology
departments.

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

- Longer operating history.

- Greater financial, technical, marketing, sales and other resources.

- Superior product functionality in specific areas.

- Greater name recognition.

- A broader range of products to offer.

- 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. Any of these conditions could cause substantial harm to our
business, operating results and financial condition.

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

As part of our business strategy, we are offering electronic marketplace
services and content to trading communities and participants in digital
marketplaces. We are currently providing only a limited portion of our intended
i2 TradeMatrix solutions in only a relatively small number of digital trading
communities compared to the potential market for digital trading communities. 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 solutions. If
this business strategy is flawed, or if we are unable to execute it effectively,
our business, operating results and financial condition could be substantially
harmed.

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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
and PricewaterhouseCoopers, 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. Our enterprise products principally
include solutions for supply chain management, supplier relationship management,
customer relationship management and other planning products. We expect license
revenues and maintenance and consulting contracts related to these products 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
our enterprise offering could substantially harm our business, operating results
and financial condition.

WE ARE INVESTING SIGNIFICANT RESOURCES IN DEVELOPING AND MARKETING OUR
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, within
an enterprise and among many enterprises, including public and private
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 are often complex and 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.

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 i2 or other companies.
Dissatisfaction or problems with our services or the services of the third
parties that host our i2 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 marketplaces. 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 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.
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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 of products 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 negatively 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, among other things, if:

- Use of the Internet and other online services does not continue to
increase or increases more slowly than expected.

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

- New standards and protocols are not developed or adopted in a timely
manner.

- The Internet does not create a viable commercial marketplace, inhibiting
the development of electronic commerce and reducing the need for and
desirability of our products and services due to concerns about security,
reliability, cost, ease of use, accessibility, quality of service or
other reasons.

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

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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 inhibit 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 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 an Internet 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 our customer management products are designed to operate with
applications that protect user privacy, 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 effect 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.

If rapid growth in the scope of our operating and financial systems and the
geographic distribution of our operations and customers continues, it may
increase 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 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.

WE MAY NOT SUCCESSFULLY INTEGRATE OR REALIZE THE INTENDED BENEFITS OF OUR
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. Continued success of acquisitions will depend
primarily on our ability to:

- Retain, motivate and integrate the acquired personnel.

- Integrate multiple information systems.

- Integrate acquired products and services with our existing products and
services.

We may encounter difficulties in integrating our operations and products
with companies we acquire and we may not realize the benefits that we
anticipated when we make acquisitions. Our failure to successfully integrate our
operations and products with companies we acquire could seriously harm our
business, operating results and financial condition.

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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:

- Difficulties and costs of staffing and managing geographically disparate
operations.

- Longer accounts receivable payment cycles in certain countries.

- Compliance with a variety of foreign laws and regulations.

- Unexpected changes in regulatory requirements.

- Overlap of different tax structures.

- Greater difficulty in safeguarding intellectual property.

- Meeting import and export licensing requirements.

- Trade restrictions.

- Changes in tariff rates.

- Political instability.

- Changes in 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 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 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. Relatively few
of our key technical

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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. 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 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
including 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
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.

29
30

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 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.

On March 26, 2001, our executive officers and directors together
beneficially owned approximately 32.0% of the total voting power of our company.
Accordingly, these stockholders 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
Delaware 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.

30
31

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

- Quarterly variations in our results of operations.

- Announcement of new products, product enhancements, joint ventures and
other alliances by our competitors or us.

- Technological innovations by our competitors or us.

- 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, often due to events unrelated to
their operating performance. These fluctuations may harm the market price of our
common stock.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information is included in the section captioned "Sensitivity to
Market Risks," included in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is included in Part IV, Item 14
(a)(1) and (2).

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

Certain information required by Part III is omitted from this report
because we will file a definitive annual meeting proxy statement pursuant to
Regulation 14A (the "Proxy Statement") no later than 120 days after the end of
the fiscal year covered by this report, and specified information to be included
therein is incorporated herein by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item is incorporated by reference to the
Proxy Statement under the sections captioned "Proposal 1 -- Election of
Directors," "Executive Compensation and Other Matters -- Directors and Executive
Officers" and "Compliance with Section 16 (a) of the Securities Exchange Act of
1934."

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to the
Proxy Statement under the section captioned "Executive Compensation and Other
Matters."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated by reference to the
Proxy Statement under the section captioned "Principal Stockholders."

31
32

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference to the
Proxy Statement under the section captioned "Executive Compensation and Other
Matters -- Certain Transactions with Management."

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Form 10-K:

1. Consolidated Financial Statements. The following consolidated
financial statements of i2 Technologies, Inc., as of December 31,
2000 and 1999 and for the years ended December 31, 2000, 1999 and
1998 are filed as part of this Form 10-K on the pages indicated:

PAGE
---
Report of Independent Public Accountants.................... F-1
Consolidated Balance Sheets................................. F-2
Consolidated Statements of Operations....................... F-3
Consolidated Statements of Stockholders' Equity............. F-4
Consolidated Statements of Cash Flows....................... F-5
Notes to Consolidated Financial Statements.................. F-6

2. Consolidated Financial Statement Schedules.
Report of Independent Public Accountants.................... S-1
Schedule II -- Valuation and Qualifying Accounts............ S-2

Schedules other than the one listed above are omitted as the
required information is inapplicable or the information is
presented in the consolidated financial statements or
related notes.

3. Exhibits. The exhibits to this Form 10-K have been included only
with the copy of this Form 10-K filed with the Securities and
Exchange Commission. Copies of individual exhibits will be
furnished to stockholders upon written request to i2 and payment
of a reasonable fee.

EXHIBIT
NUMBER DESCRIPTION
------- -----------

32
33

EXHIBIT
NUMBER DESCRIPTION
------- -----------

4.3* -- Registration Rights Agreement, dated as of December 10,
1999 between i2 and Goldman, Sachs & Co., Morgan Stanley
Dean Witter and Credit Suisse First Boston (filed as
Exhibit 4.3 to the Form S-3).
10.1* -- Form of Registration Rights Agreement, dated April 1,
1996, among i2, Sanjiv S. Sidhu and Sidhu-Singh Family
Investments, Ltd. (filed as Exhibit 10.2 to the Form
S-1).
10.2* -- i2 Technologies, Inc. 1995 Stock Option/Stock Issuance
Plan, as amended and restated through January 14, 2000
(filed as Exhibit 99.1 to i2's Registration Statement on
Form S-8 (Reg. No. 333-40038) (the "Aspect S-8")).
10.3* -- Form of Indemnification Agreement between i2 and each of
its officers and directors (filed as Exhibit 10.4 to the
Form S-1).
10.4* -- Form of Employee Proprietary Information Agreement
between i2 and each of its employees (filed as Exhibit
10.9 to the Form S-1).
10.5* -- i2 Technologies, Inc. Employee Stock Purchase Plan (filed
as Exhibit 99.1 to i2's Registration Statement on Form
S-8 (Reg. No. 333-85791) (the "1999 S-8")).
10.6* -- i2 Technologies, Inc. International Employee Stock
Purchase Plan (filed as Exhibit 99.4 to the 1999 Form
S-8).
10.7* -- Think Systems Corporation 1996 Incentive Stock Plan
(filed as Exhibit 99.3 to i2's Registration Statement on
Form S-8 (Reg. No. 333-28147) (the "Think/ Optimax
S-8")).
10.8* -- Think Systems Corporation 1997 Incentive Stock Plan
(filed as Exhibit 99.1 to the Think/Optimax S-8).
10.9* -- Optimax Systems Corporation Stock Option Plan (filed as
Exhibit 99.10 to the Think/Optimax S-8).
10.10* -- InterTrans Logistics Solutions Limited 1997 Stock
Incentive Plan (filed as Exhibit 99.7 to i2's
Registration Statement on Form S-8 (Reg. No. 333-53667)).
10.11* -- SMART Technologies, Inc. 1996 Stock Option/Stock Issuance
Plan (filed as Exhibit 99.13 to 1999 Form S-8).
10.12* -- Lease with One Colinas Crossing dated March 24, 1999
between Colinas Crossing, LP and i2 (filed as Exhibit
99.6 to i2's Current Report on Form 8-K dated November
30, 1999 (the "November 1999 8-K")).
10.13* -- Lease with Two Colinas Crossing dated August 3, 1999
between Colinas Crossing, LP and i2 (filed as Exhibit
99.7 to the November 1999 8-K).
10.14* -- SupplyBase, Inc. 1999 Stock Plan (filed as Exhibit 99.1
to i2's Registration Statement on Form S-8 (Reg. No.
333-36478)).
10.15* -- Aspect Development, Inc. 1997 Nonstatutory Stock Option
Plan (filed as Exhibit 99.2 to the Aspect S-8).
10.16* -- Aspect Development, Inc. 1992 Stock Option Plan (filed as
Exhibit 99.3 to the Aspect S-8).
10.17* -- Aspect Development, Inc. 1996 Outside Directors Stock
Option Plan (filed as Exhibit 99.4 to the Aspect S-8).
10.18* -- Aspect Development, Inc. 1996 Employee Stock Purchase
Plan (filed as Exhibit 99.5 to the Aspect S-8).
10.19* -- Transition Analysis Component Technology, Inc. 1997 Stock
Plan (filed as Exhibit 99.6 to the Aspect S-8).
10.20* -- Cadis, Inc. 1991 Stock Option Plan (filed as Exhibit 99.7
to the Aspect S-8).

33
34

EXHIBIT
NUMBER DESCRIPTION
------- -----------

10.21* -- Common Stock Purchase Agreement, dated March 7, 2000,
between i2 and International Business Machines
Corporation (filed as Exhibit 2.1 to i2's Current Report
on Form 8-K filed on April 11, 2000).
10.22*(1) -- Employment and Non-Compete Agreement, dated June 9, 2000
between i2 and Robert L. Evans (filed as Exhibit 10.1 to
i2's Current Report on Form 8-K filed on June 22, 2000).
10.23*(1) -- Employment and Non-Compete Agreement, dated June 9, 2000
between i2 and Romesh T. Wadhwani (filed as Exhibit 10.2
to i2's Current Report on Form 8-K filed on June 22,
2000).
16.1* -- Letter Regarding Change in Certifying Accountant (filed
as Exhibit 16.1 to i2's Current Report on Form 8-K filed
on April 21, 1999).
21.1 -- List of subsidiaries.
23.1 -- Consent of Arthur Andersen LLP.
24.1 -- Power of Attorney, pursuant to which amendments to this
Form 10-K may be filed, is included on this signature
page contained in Part IV of this Form 10-K.

---------------

* Incorporated herein by reference to the indicated filing

(1) Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K.

During the fourth quarter of 2000, we filed a report on Form 8-K (Item 5)
on October 17, 2000, containing two press releases announcing:

- A two-for-one stock split payable as a 100% stock dividend on or about
December 4, 2000 subject to stockholder approval of an increase in
authorized shares of common stock.

- The financial results for the quarter ended September 30, 2000.

34
35

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

i2 TECHNOLOGIES, INC.

Dated: March 26, 2001
By: /s/ WILLIAM M. BEECHER
----------------------------------
William M. Beecher
Executive Vice President and
Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints Sanjiv S. Sidhu and
William M. Beecher, and each or any of them, his true and lawful
attorneys-in-fact and agents, each with the power of substitution and
resubstitution, for him in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ SANJIV S. SIDHU Chairman of the Board March 26, 2001
----------------------------------------------------- and Chief Executive Officer
Sanjiv S. Sidhu (Principal executive officer)

/s/ WILLIAM M. BEECHER Executive Vice President March 26, 2001
----------------------------------------------------- and Chief Financial Officer
William M. Beecher (Principal financial officer)

/s/ NANCY F. BRIGHAM Controller (Principal March 26, 2001
----------------------------------------------------- accounting officer)
Nancy F. Brigham

/s/ HARVEY B. CASH Director March 26, 2001
-----------------------------------------------------
Harvey B. Cash

/s/ KENNETH L. LAY Director March 26, 2001
-----------------------------------------------------
Kenneth L. Lay

/s/ THOMAS J. MEREDITH Director March 26, 2001
-----------------------------------------------------
Thomas J. Meredith

/s/ SANDEEP R. TUNGARE Director March 26, 2001
-----------------------------------------------------
Sandeep R. Tungare

/s/ ROMESH T. WADHWANI Director March 26, 2001
-----------------------------------------------------
Romesh T. Wadhwani

35
36

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
i2 Technologies, Inc.

We have audited the accompanying consolidated balance sheets of i2 Technologies,
Inc. (a Delaware corporation) as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of i2 Technologies, Inc. as of
December 31, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.

/s/ ARTHUR ANDERSEN LLP

Dallas, Texas
January 16, 2001 (except for the last
paragraph in Note 2 and Note 13 as
to which the dates are March 23, 2001
and March 9, 2001, respectively)

F-1
37

i2 TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT PAR VALUE)

2000 1999
----------- --------

ASSETS
Current assets:
Cash and cash equivalents................................. $ 739,241 $454,585
Short-term investments.................................... 84,086 124,806
Accounts receivable, net of allowance for doubtful
accounts of $31,329
and $17,474............................................ 298,465 157,586
Deferred income taxes, prepaids and other current
assets................................................. 76,989 26,088
----------- --------
Total current assets.............................. 1,198,781 763,065
Premises and equipment, net................................. 124,852 50,483
Deferred income taxes and other assets...................... 410,026 32,660
Intangibles and goodwill, net............................... 7,492,167 13,986
----------- --------
Total assets...................................... $ 9,225,826 $860,194
=========== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 49,628 $ 20,039
Accrued liabilities....................................... 111,739 40,447
Accrued compensation and related expenses................. 84,942 40,443
Deferred revenue.......................................... 165,689 72,617
Income taxes payable...................................... 10,056 4,480
----------- --------
Total current liabilities......................... 422,054 178,026
Other long-term liabilities................................. 325 --
Long-term debt.............................................. 350,000 350,000
----------- --------
Total liabilities................................. 772,379 528,026
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.001 par value, 5,000 shares
authorized, none issued................................ -- --
Common stock, $0.00025 par value, 2,000,000 and 500,000
shares authorized, 405,840 and 310,824 shares issued
and outstanding........................................ 102 78
Additional paid-in capital................................ 10,174,012 297,840
Accumulated other comprehensive loss...................... (6,694) (4,126)
Retained earnings (deficit)............................... (1,713,973) 38,376
----------- --------
Total stockholders' equity........................ 8,453,447 332,168
----------- --------
Total liabilities and stockholders' equity........ $ 9,225,826 $860,194
=========== ========

See accompanying notes to consolidated financial statements.

F-2
38

i2 TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)

2000 1999 1998
----------- -------- --------

Revenues:
Software licenses........................................ $ 709,177 $352,597 $234,316
Services................................................. 271,009 147,893 91,726
Maintenance.............................................. 146,139 70,620 43,115
----------- -------- --------
Total revenues................................... 1,126,325 571,110 369,157
Costs and expenses:
Cost of software licenses................................ 53,331 17,981 7,967
Cost of services and maintenance......................... 234,191 125,934 77,459
Sales and marketing...................................... 390,111 194,752 129,978
Research and development................................. 217,938 132,278 94,199
General and administrative............................... 86,888 53,188 38,191
Amortization of intangibles.............................. 1,753,605 -- --
In-process research and development and
acquisition-related expenses.......................... 102,373 6,552 7,618
----------- -------- --------
Total costs and expenses......................... 2,838,437 530,685 355,412
----------- -------- --------
Operating income (loss).................................... (1,712,112) 40,425 13,745
Other income, net.......................................... 18,227 7,642 8,753
Non-cash settlement........................................ (22,412) -- --
----------- -------- --------
Income (loss) before income taxes.......................... (1,716,297) 48,067 22,498
Provision for income taxes................................. 35,716 24,552 17,279
----------- -------- --------
Net income (loss).......................................... $(1,752,013) $ 23,515 $ 5,219
=========== ======== ========
Basic and diluted earnings (loss) per common share:
Basic earnings (loss) per common share................... $ (4.83) $ 0.08 $ 0.02
Diluted earnings (loss) per common share................. $ (4.83) $ 0.07 $ 0.02

Weighted-average common shares outstanding................. 362,723 300,838 287,176
Weighted-average diluted common shares outstanding......... 362,723 335,678 314,120

Comprehensive income (loss):
Net income (loss)........................................ $(1,752,013) $ 23,515 $ 5,219
Other comprehensive income (loss):
Unrealized loss on available-for-sale securities
arising during the period........................... (7,670) -- --
Reclassification adjustment for net realized losses on
available-for-sale securities included in income.... 1,578 -- --
----------- -------- --------
Net unrealized loss.............................. (6,092) -- --
Foreign currency translation adjustments.............. 1,984 (5,311) (738)
Tax effect of other comprehensive income.............. 1,540 2,018 284
----------- -------- --------
Total other comprehensive loss................... (2,568) (3,293) (454)
----------- -------- --------
Total comprehensive income (loss).......................... $(1,754,581) $ 20,222 $ 4,765
=========== ======== ========

See accompanying notes to consolidated financial statements.

F-3
39

i2 TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)

ACCUMULATED
COMMON STOCK ADDITIONAL OTHER RETAINED TOTAL
---------------- PAID-IN COMPREHENSIVE EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL LOSS (DEFICIT) EQUITY
------- ------ ----------- ------------- ----------- -------------

Balance at January 1, 1997........ 278,340 $ 68 $ 183,633 $ (379) $ 9,642 $ 192,964
Exercise of options and issuance
under stock purchase plan.... 14,352 4 11,276 -- -- 11,280
Shares issued in acquisitions... 308 -- 2,708 -- -- 2,708
Tax benefit of stock options.... -- -- 16,669 -- -- 16,669
Amortization of deferred
compensation................. -- -- 600 -- -- 600
Foreign currency translation,
net of tax................... -- -- -- (454) -- (454)
Net income...................... -- -- -- -- 5,219 5,219
------- ---- ----------- ------- ----------- -----------
Balance at December 31, 1998...... 293,000 72 214,886 (833) 14,861 228,986
Exercise of options and issuance
under stock purchase plan.... 17,260 6 36,385 -- -- 36,391
Shares issued in acquisitions... 564 -- 4,800 -- -- 4,800
Tax benefit of stock options.... -- -- 41,329 -- -- 41,329
Amortization of deferred
compensation................. -- -- 440 -- -- 440
Foreign currency translation,
net of tax................... -- -- -- (3,293) -- (3,293)
Net income...................... -- -- -- -- 23,515 23,515
------- ---- ----------- ------- ----------- -----------
Balance at December 31, 1999...... 310,824 78 297,840 (4,126) 38,376 332,168
Exercise of options and issuance
under stock purchase plan.... 21,027 6 150,591 -- (336) 150,261
Shares issued in acquisitions... 73,989 18 9,367,694 -- -- 9,367,712
Options issued in non-cash
settlement................... -- -- 22,412 -- -- 22,412
Tax benefit of stock options.... -- -- 326,710 -- -- 326,710
Amortization of deferred
compensation................. -- -- 8,765 -- -- 8,765
Change in fair value of
securities available for
sale, net of tax............. -- -- -- (3,808) (3,808)
Foreign currency translation,
net of tax................... -- -- -- 1,240 -- 1,240
Net loss........................ -- -- -- -- (1,752,013) (1,752,013)
------- ---- ----------- ------- ----------- -----------
Balance at December 31, 2000...... 405,840 $102 $10,174,012 $(6,694) $(1,713,973) $ 8,453,447
======= ==== =========== ======= =========== ===========

See accompanying notes to consolidated financial statements.

F-4
40

i2 TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)

YEAR ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
----------- -------- ---------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $(1,752,013) $ 23,515 $ 5,219
Adjustments to reconcile net income to net cash provided
by operating activities:
Write-off of in-process research and development..... 101,341 3,267 4,674
Depreciation and amortization........................ 1,781,411 16,427 12,211
Provision for bad debts charged to costs and
expenses........................................... 21,829 11,065 4,924
Amortization of deferred compensation................ 8,765 440 600
Non-cash settlement.................................. 22,412 -- --
Loss on equity investments........................... 1,578 -- --
Deferred income taxes and disqualifying
dispositions....................................... (351,093) (26,651) (10,709)
Tax benefit from stock option exercises.............. 326,710 41,329 16,669
Changes in operating assets and liabilities:
Accounts receivable, net........................... (132,325) (40,974) (55,985)
Prepaids and other assets.......................... (12,604) (10,196) (4,466)
Accounts payable................................... 25,821 8,182 3,843
Accrued liabilities................................ 37,697 18,913 9,404
Accrued compensation and related expenses.......... 44,499 17,802 5,808
Deferred revenue................................... 62,346 21,388 19,485
Income taxes payable............................... 5,576 2,493 2,213
----------- -------- ---------
Net cash provided by operating activities....... 191,950 87,000 13,890
----------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in purchase of Aspect..................... 55,206 -- --
Cash acquired in purchase of SupplyBase................. 26 -- --
Direct costs of purchase transactions................... (41,012) (500) (4,148)
Long-term investments................................... (910) -- --
Purchases of premises and equipment..................... (87,881) (33,496) (19,712)
Net change in short-term investments.................... 59,273 (25,391) (78,849)
Purchases of equity investments......................... (48,764) (6,028) --
Sales of equity investments............................. 3,372 -- --
Purchases of long-term debt securities.................. (6,019) -- --
Maturities of long-term debt securities................. 9,000 -- --
----------- -------- ---------
Net cash used in investing activities........... (57,709) (65,415) (102,709)
----------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit.................. -- -- 942
Payments on revolving line of credit.................... -- -- (1,600)
Proceeds from issuance of debt.......................... -- 500 5,032
Payments on debt........................................ -- (5,532) (1,457)
Advances from stockholders.............................. -- 4,000 --
Payments on advances from stockholders.................. -- (4,000) --
Net proceeds from issuance of convertible debt.......... -- 339,875 --
Net proceeds from sale of common stock to employees and
exercise of stock options............................ 150,261 36,391 11,280
----------- -------- ---------
Net cash provided by financing activities....... 150,261 371,234 14,197
----------- -------- ---------
Effect of exchange rates on cash........................ 154 (845) (118)
Net change in cash and cash equivalents................... 284,656 391,974 (74,740)
Cash and cash equivalents at beginning of period.......... 454,585 62,611 137,351
----------- -------- ---------
Cash and cash equivalents at end of period................ $ 739,241 $454,585 $ 62,611
=========== ======== =========

See accompanying notes to consolidated financial statements.

F-5
41

i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLARS IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations. We are a leading provider of e-business and
marketplace software solutions may be used by enterprises to optimize business
processes both internally and among trading partners. Our solutions are designed
to help enterprises improve efficiencies, collaborate with suppliers and
customers, respond to market demands and engage in dynamic business interactions
over the Internet. Our product suites include software solutions for supply
chain management, supplier relationship management and customer relationship
management. We also provide content and content management solutions as well as
a platform for integration and administration of private and public electronic
marketplaces. We also provide services such as consulting, training and
maintenance in support of these offerings.

Principles of Consolidation. The consolidated financial statements include
the accounts of i2 Technologies, Inc. and its majority owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.

All share and per share data in this report reflect the two-for-one stock
splits of our common stock paid as 100% stock dividends on December 5, 2000,
February 17, 2000 and June 2, 1998.

We acquired InterTrans Logistics Solutions Limited (ITLS) in 1998 and Sales
Marketing Administration Research Tracking Technologies, Inc. (SMART) in 1999.
Each of these business combinations was accounted for as a pooling-of-interests.
Accordingly, the accompanying consolidated financial statements give retroactive
effect to the combinations for all periods presented. In 2000, we acquired
SupplyBase, Inc. (SupplyBase) and Aspect Development, Inc. (Aspect). Each of
these transactions was accounted for as a purchase business combination.
Accordingly, the results of operations of SupplyBase and Aspect have been
included with our results of operations since their respective acquisition
dates. A more detailed discussion of business combinations is provided in Note
2 -- Business Combinations.

Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Cash and cash equivalents. Cash and cash equivalents include cash on hand,
demand deposits with financial institutions and short-term time deposits and
other liquid investments in debt securities with initial maturities of less than
three months.

Investments. Investments in debt securities are classified as held to
maturity and carried at amortized cost when management has the positive intent
and ability to hold them to maturity. Investments in debt securities are
classified as available for sale when they might be sold before maturity.
Investments in marketable equity securities are classified as available for
sale. Investments in equity securities with no active market are carried at
cost. Securities available for sale are carried at fair value, with unrealized
holding gains and losses reported in other comprehensive income. Management
determines the appropriate classification of securities at the time of purchase.

Interest income includes amortization of purchase premiums and discounts.
Gains and losses on sales are based on the amortized cost of the security sold.
Securities are written down to fair value when a decline in fair value is not
temporary.

Financial Instruments. Financial instruments that potentially subject us
to a concentration of credit risk consist principally of investments and
accounts receivable. Cash on deposit is held with financial institutions with
high credit standings. Debt security investments are in highly rated
corporations and municipalities as well as agencies of the U.S. government. In
addition, we regularly monitor financial information related to our equity
investments. Our customer base consists of large numbers of geographically
diverse customers dispersed across many industries. As a result, concentration
of credit risk with respect to accounts receivable is

F-6
42
i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

not significant. However, we periodically perform credit evaluations of our
customers and maintain reserves for potential losses. We have used and expect to
continue to use foreign exchange contracts to hedge the risk in receivables
denominated in foreign currencies. Risk of non-performance by counterparties to
such contracts is minimal due to the size and credit standings of the financial
institutions used. Our foreign exchange contracts outstanding at December 31,
2000 and 1999 were not material. Gains and losses on foreign exchange contracts
have also not been material to date.

Premises and Equipment. Premises and equipment are recorded at cost and
are depreciated over their useful lives ranging from three to seven years using
the straight-line method. Leasehold improvements are amortized over shorter of
the expected term of the lease or estimated useful life.

Goodwill and Purchased Intangible Assets. Goodwill, acquired technology
and other intangible assets related to business acquisitions are amortized on a
straight-line basis over periods of two to five years. In-process research and
development is expensed immediately at the date of acquisition as technological
feasibility has not been established.

Long-Lived Assets. Premises and equipment, goodwill and other long-term
assets are reviewed for impairment quarterly, or when events indicate their
carrying amount may not be recoverable from future undiscounted cash flows. If
impaired, the assets are recorded at fair value.

Capitalized Research and Development Costs. In accordance with Statement
of Financial Accounting Standards (SFAS) No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed," software
development costs are expensed as incurred until technological feasibility has
been established, at which time such costs are capitalized until the product is
available for general release to customers. To date, the establishment of
technological feasibility of our products has substantially coincided with the
general release of such software. As a result, software development costs
qualifying for capitalization under SFAS 86 have been insignificant and,
therefore, we have not capitalized any such costs.

Revenue Recognition. Revenues consist of software license revenues,
service revenues, and maintenance revenues, and are recognized in accordance
with Statement of Position (SOP) 97-2, "Software Revenue Recognition," as
modified by SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition
with Respect to Certain Transactions," and SEC Staff Accounting Bulletin (SAB)
101, "Revenue Recognition."

Maintenance revenues are derived from technical support and software
updates provided to customers. Maintenance revenue is recognized ratably over
the term of the maintenance agreement.

F-7
43
i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Payments received in advance of revenue recognized are classified as
deferred revenue in the Consolidated Balance Sheets.

We warrant our products will function substantially in accordance with
documentation provided to customers. To date, we have not incurred any
significant expenses related to warranty claims.

No individual customer accounted for more than 10% of total revenues during
any of the periods presented.

Income Taxes. Income tax expense is the total of the current year income
tax due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax amounts for the
temporary differences between carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the expected amount to be realized.

Basic and Diluted Earnings Per Common Share. Basic and diluted earnings
per common share is computed in accordance with SFAS No. 128, "Earnings Per
Share," which requires dual presentation of basic and diluted earnings per
common share for entities with complex capital structures. Basic earnings per
common share is based on net income divided by the weighted-average number of
common shares outstanding during the period. Diluted earnings per common share
includes the dilutive effect of stock options and warrants granted using the
treasury stock method, the effect of contingently issuable shares earned during
the period and shares issuable under the conversion feature of our convertible
notes using the if-converted method. The computations also give retroactive
effect to the exchange of common shares in connection with the ITLS and SMART
acquisitions (see Note 2 -- Business Combinations). A reconciliation of the
weighted-average shares used in calculating basic earnings per common share and
the weighted average common shares used in calculating diluted earnings per
common share for 2000, 1999 and 1998 is provided in Note 7 -- Stockholders'
Equity and Earnings Per Common Share.

Stock-Based Compensation Plans. Employee compensation expense under stock
option plans is reported only if options are granted below market price at grant
date in accordance with APB Opinion No. 25. SFAS No. 123, "Accounting for Stock
Based Compensation," requires pro forma disclosures of net income and earnings
per share for companies not adopting its fair value accounting method for
stock-based employee compensation. The pro forma disclosures shown in Note
8 -- Employee Benefit Plans use the fair value method of SFAS No. 123 to measure
expense for options granted using an option-pricing model to estimate fair
value.

Deferred Compensation. Deferred compensation is recorded as a component of
stockholders' equity for stock options issued to non-employees. The compensation
is valued as the services are performed and recognized over the service period.

Foreign Currency Translation. The functional currency for the majority of
our foreign subsidiaries is the local currency. Assets and liabilities are
translated at exchange rates in effect at the balance sheet date while income
and expense amounts are translated at average exchange rates during the period.
The resulting translation adjustments are disclosed as a separate component of
stockholders' equity and other comprehensive income. Transaction gains and
losses arising from transactions denominated in a non-functional currency and
due to changes in exchange rates are recorded in "other income, net" in the
Consolidated Statements of Operations.

Fair Values of Financial Instruments. Fair values of financial instruments
are estimated using relevant market information and other assumptions. Fair
value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk and other factors, especially in the
absence of broad markets for particular items. Changes in assumptions or in
market conditions could significantly affect the estimates. The estimated fair
value approximates carrying value for all financial instruments except
securities and long-term debt. Fair values of securities are based on quoted
market prices or dealer quotes. If a quoted
F-8
44
i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

market price is not available, fair value is estimated using quoted market
prices for similar instruments. The fair value of long-term debt is estimated by
discounting future cash flows using the interest rates currently offered for
similar debt of similar remaining maturity.

Comprehensive Income. Comprehensive income is reported for all periods.
Comprehensive income includes both net income and other comprehensive income,
which includes the change in unrealized gains and losses on available-for-sale
securities and foreign currency translation adjustments.

Reclassifications. Some items in prior year financial statements have been
reclassified to conform to the current year presentation.

2. BUSINESS COMBINATIONS

The following table presents acquisitions that were accounted using the
pooling-of-interests method during 1998, 1999 and 2000:

i2 SHARES
COMPANY DATE ISSUED
------- ---------- ------------

ITLS............................................... April 1998 13.2 million
SMART.............................................. July 1999 8.4 million

The consolidated financial statements give retroactive effect to these
combinations for all periods presented.

The separate revenues and net income (loss) of i2 (including ITLS) and
SMART (prior to acquisition date) and the combined amounts presented in the
consolidated financial statements follow:

1999 1998
-------- --------

Total revenues:
i2................................................... $569,246 $361,916
SMART................................................ 1,864 7,241
-------- --------
$571,110 $369,157
======== ========
Net income (loss):
i2................................................... $ 33,536 $ 19,983
SMART................................................ (10,021) (14,764)
-------- --------
$ 23,515 $ 5,219
======== ========

During 1999, we incurred $6.6 million in acquisition related expenses in
connection with the SMART pooling acquisition, as well as other acquisitions
accounted for using the purchase method. During 1998, we incurred $7.6 million
in acquisition related expenses in connection with the ITLS pooling acquisition,
as well as other purchase acquisitions. These costs included investment banking,
legal and accounting fees and expenses, amortization of acquisition-related
intangible assets and the write-off of in-process research and development.

On April 28, 2000, we completed our acquisition of 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
3.6 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.

F-9
45
i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

SUPPLYBASE
----------

Net liabilities assumed..................................... $ (1,663)
Identifiable intangible assets.............................. 15,700
Goodwill.................................................... 331,815
In-process research and development......................... 6,400
--------
Total............................................. $352,252
========

$15.7 million of the purchase consideration was allocated to other
intangible assets, including developed technology ($2.8 million), assembled
workforce ($1.2 million) and content databases ($11.7 million), with these
amounts being amortized over two to three years. Goodwill is being amortized
over 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.
The purchase price allocation is preliminary and subject to final determination
and valuation of the fair value of assets and liabilities acquired.

On June 9, 2000, we completed our acquisition of 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 67.5 million shares of our common stock with a fair
market value of $6.4 billion and exchanged options to purchase 28.5 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: expected volatility of 0.84, weighted-average
risk-free interest rate of 5.60%, expected terms ranging from 1-4 years and 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:

ASPECT
----------

Net assets acquired......................................... $ 161,568
Identifiable intangible assets.............................. 217,000
Goodwill.................................................... 8,344,292
In-process research and development......................... 83,000
----------
Total............................................. $8,805,860
==========

$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
F-10
46
i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

customer lists ($42.0 million), with these amounts being amortized over two to
three years. Goodwill is being amortized over 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. The purchase
price allocation is preliminary and subject to final determination and valuation
of the fair value of assets and liabilities acquired.

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

PRO FORMA (UNAUDITED)
--------------------------
2000 1999
----------- -----------

Revenue........................................... $ 1,178,931 $ 671,422
Net loss.......................................... (2,989,314) (2,982,570)
Basic and diluted loss per common share........... (7.60) (8.07)

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.

We also acquired certain other businesses in 2000, 1999 and 1998 for an
aggregate purchase price of $2.9 million, $5.3 million and $9.2 million, which
included cash, stock, assumed liabilities and acquisition costs. These
acquisitions were accounted for as purchase business combinations. Accordingly,
we allocated the purchase prices based on the fair value of assets acquired and
liabilities assumed. A portion of the purchase price of these transactions was
identified, using proven valuation procedures and techniques, as intangible
assets. This allocation represents the estimated fair value based on
risk-adjusted cash flows related to the in-process research and development
projects. The revenue projections used to value the in-process research and
development were based on estimates of relevant market sizes and growth factors,
expected trends in technology and the nature and expected timing of new product
introductions by us and our competitors. At the date of each acquisition, the
products under development had not reached technological feasibility and had no
alternative future use. We expensed $2.4 million, $3.3 million and $4.7 million
in 2000, 1999 and 1998, as in-process research and development and
acquisition-related costs at each acquisition date. The value assigned to
in-process research and development is comprised of various research and
development projects. These projects include the introduction of new
technologies as well as revisions of enhancements to certain acquired
technologies. There is risk associated with the completion of the projects, and
there is no assurance that each will attain either technological feasibility or
commercial success.

Amortization of goodwill, acquired technology, other intangible assets, and
the write-off of in-process research and development totaled $1.9 billion in
2000, $5.1 million in 1999 and $5.4 million in 1998.

F-11
47
i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. ASSET ACQUISITION

On March 27, 2000, we purchased various software assets, cross-patent
rights and software licenses with an aggregate value of $234 million from IBM in
exchange for 2.6 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.
In-process research and development totaled $8.9 million and was 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 cash flows 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. INVESTMENT SECURITIES

Short-term time deposits and other liquid investments in debt securities
with initial maturities of less than three months are reported as cash and cash
equivalents in the Consolidated Balance Sheets. Investment securities reported
as cash and cash equivalents as of December 31, 2000 and 1999 were as follows:

2000 1999
-------- --------

Short-term time deposits............................... $ 12,840 $ 32,556
U.S. government obligations............................ -- 340,375
Obligations of state and local municipalities.......... 111,305 --
Commercial paper....................................... 409,088 36,695
-------- --------
$533,233 $409,626
======== ========

F-12
48
i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Investments in debt securities with original maturities in excess of three
months but less than one year are reported as short-term investments in the
Consolidated Balance Sheets. Short-term investments as of December 31, 2000 and
1999 were as follows:

2000 1999
------- --------

U.S. government obligations............................. $18,064 $ --
Obligations of state and local municipalities........... 1,136 1,300
Corporate bonds and notes............................... 54,886 123,506
Commercial paper........................................ 10,000 --
------- --------
$84,086 $124,806
======= ========

Investments in debt securities with original maturities in excess of one
year and corporate equity securities are reported as other assets in the
Consolidated Balance Sheets. All long-term debt securities outstanding at
December 31, 2000 will contractually mature within 2 years. Long-term
investments as of December 31, 2000 and 1999 were as follows:

2000 1999
------- ------

U.S. government obligations............................... $ 7,000 $ --
Corporate bonds and notes................................. 6,019 --
Corporate equity securities............................... 53,631 6,028
------- ------
$66,650 $6,028
======= ======

During 2000 and 1999, all debt securities were classified as available for
sale. The difference between the cost and fair value of these investments was
not material at December 31, 2000 or 1999; therefore, no adjustment has been
made to the historical carrying value of these investments. At December 31,
2000, the carrying value of corporate equity securities included gross
unrealized gains of $2.0 million and gross unrealized losses of $8.1 million. No
unrealized gains or losses were recognized on corporate equity securities at
December 31, 1999.

Interest and dividend income on investments totaled $43.5 million in 2000,
$9.7 million in 1999 and $7.6 million in 1998. Net realized losses on
investments totaled $1.6 million in 2000. Realized gains and losses in 1999 and
1998 were not material.

5. PREMISES AND EQUIPMENT

Premises and equipment as of December 31, 2000 and 1999 consisted of the
following:

2000 1999
-------- --------

Computer equipment..................................... $ 84,114 $ 52,701
Furniture and fixtures................................. 53,712 19,388
Leasehold improvements................................. 51,479 16,406
-------- --------
189,305 88,495
Less: Accumulated depreciation......................... (64,453) (38,012)
-------- --------
$124,852 $ 50,483
======== ========

Depreciation of premises and equipment totaled $27.8 million in 2000, $14.6
million in 1999 and $11.5 million in 1998.

F-13
49
i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. BORROWINGS

We maintain two, one-year revolving lines of credit of $15.0 million with
separate financial institutions that have an aggregate borrowing capacity of
$30.0 million. The lines of credit are unsecured and contain customary
restrictive covenants, including covenants requiring us to maintain certain
financial ratios. The lines of credit are not subject to a borrowing base
limitation and borrowings bear interest at LIBOR plus 0.75% to 1.75% per annum,
depending on certain cash ratios. The maximum borrowing levels available under
the lines of credit are reduced by the value of outstanding letters of credit
issued by the lenders on our behalf, $8.1 million and $14.2 million of which
were outstanding at December 31, 2000 and 1999. As of December 31, 2000 and
1999, there were no borrowings outstanding under the lines of credit and we were
in compliance with all covenants. The lines of credit are renewable in August
2001.

December 10, 1999, we issued an aggregate principal amount of $350.0
million of our 5.25% convertible subordinated notes due in 2006. The notes were
sold at par less an underwriting discount of 2.75% of the principal amount of
the notes. The net proceeds of this offering, after giving effect to discounts,
commissions, premiums and expenses, were $339.9 million. These securities were
issued and sold to Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated and
Credit Suisse First Boston Corporation, as the initial purchasers, in reliance
on the exemption from registration under the Securities Act of 1933, as amended
provided by Section 144A thereof. In connection with this transaction, each of
the initial purchasers represented that it was a "qualified institutional buyer"
within the meaning of the Securities and Exchange Act of 1934. The notes are
convertible at the option of the holder into shares of our common stock at a
conversion price of $38.00 per share at any time prior to maturity. As of
December 31, 2000, none of the notes have been converted to common stock. The
principal balance of the notes totaled $350.0 million at December 31, 2000 and
1999, while the estimated fair value of the notes totaled $358.5 million and
$350.0 million at those dates.

Interest expensed for borrowings totaled $18.5 million and $1.8 million in
2000 and 1999. Actual cash payments related to interest on borrowings totaled
$18.7 million and $0.7 million during those years. Interest on borrowings was
not significant in 1998.

7. STOCKHOLDERS' EQUITY AND EARNINGS PER COMMON SHARE

Stock Splits. 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. On October 17, 2000, our Board of Directors approved another
two-for-one stock split that was contingent upon stockholder approval of a
proposed amendment to our certificate of incorporation to increase our
authorized common stock to 2,000,000,000 shares. Our stockholders approved the
proposal at a special meeting held on November 28, 2000 and the stock split was
paid as a 100% stock dividend on December 5, 2000. All prior share and per share
amounts included herein have been adjusted to reflect the stock splits.

Earnings Per Common Share. The weighted-average number of common shares
outstanding for basic and diluted earnings per common share computations for
each reported period was as follows (in thousands):

2000 1999 1998
------- ------- -------

Weighted-average common shares outstanding............ 362,723 300,838 287,176
Effect of dilutive securities:
Stock options....................................... -- 34,278 26,944
Convertible debt.................................... -- 562 --
------- ------- -------
Weighted-average diluted common shares outstanding.... 362,723 335,678 314,120
======= ======= =======

As a result of the net loss incurred for 2000, the effect of dilutive
securities would have been anti-dilutive to the diluted earnings per common
share computation and were thus excluded. Dilutive securities that would have
otherwise been included in the determination of the weighted-average number of
common shares

F-14
50
i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

outstanding for the purposes of computing diluted earnings per common share
included 58.7 million shares issuable under stock options and warrants and 0.3
million contingently issuable shares earned during the year.

8. EMPLOYEE BENEFIT PLANS

Employee Retirement Plans. We have established 401(k) retirement plans
that cover a majority of our employees. Eligible employees may contribute up to
18% of their compensation, subject to certain limitations, to the Retirement
Plans. We may make contributions to the plans at the discretion of the Board;
however, as of December 31, 2000, no contributions have been made.

Deferred Compensation. During 2000, 1999 and 1998, we recognized $8.8
million, $0.4 million and $0.6 million of deferred compensation as compensation
expense. As of December 31, 2000 and 1999, the unamortized portion of deferred
compensation totaled $1.4 million and $10.2 million.

Employee Stock Purchase Plans. We maintain stock purchase plans for the
benefit of our employees and the employees of our wholly owned subsidiaries. The
purchase plans are designed to allow eligible employees to purchase shares of
common stock through periodic payroll deductions. Payroll deductions may not
exceed the lesser of 15% of a participant's base salary or $25,000 per year, and
employees may purchase a maximum of 8,000 shares per purchase period under the
purchase plans. The purchase price per share is 85% of the lesser of the fair
market value of our common stock on the start of the purchase period or the fair
market value at the end of the purchase period. Participation may be terminated
at any time by the employee and automatically ends upon termination of
employment. We have reserved 10,000,000 shares of common stock for issuance
under the plans. Shares purchased under the plans totaled 709,826 in 2000,
2,026,884 in 1999 and 1,344,778 in 1998. As of December 31, 2000, 4,820,804
shares remained available for purchase under the plans.

We assumed an employee stock purchase plan maintained by Aspect as a part
of our acquisition. The plan permits eligible employees to purchase common stock
at a discount, but only through payroll deductions, during concurrent 24-month
offering periods. Each offering period is divided into four consecutive
six-month purchase periods. The price at which stock is sold under the Purchase
Plan is equal to 85% of the fair market value of the common stock on the first
day of the offering period or the last day of the purchase period, whichever is
lower. We have reserved 722,447 shares of our common stock for issuance under
this plan. 203,474 shares were issued under this plan in 2000. As of December
31, 2000, 518,973 shares remained available for purchase under the plan. This
plan was terminated upon completion of the final offering period in February
2001.

1995 Stock Option/Stock Issuance Plan. The 1995 Stock Option/Stock
Issuance Plan replaced our original 1992 Stock Plan. All options outstanding
under the 1992 Stock Plan were incorporated into the 1995 Plan, however, all
outstanding options under the 1992 Plan continue to be governed by the terms and
conditions of the existing option agreements for those grants. Under the
provisions of the 1995 Plan, as amended, 252,000,000 have been reserved for
issuance. The 1995 Plan is divided into the following three equity programs: (i)
the Discretionary Option Grant Program, (ii) the Stock Issuance Program and
(iii) the Automatic Option Grant Program.

The Discretionary Option Grant Program provides for the grant of incentive
stock options to employees and for the grant of nonqualified stock options to
employees, directors and consultants. Exercise prices may not be less than 100%
and 85% of the fair market value at the date of grant for incentive options and
nonqualified stock options. Options granted under the Discretionary Option Grant
Program generally vest in four equal annual increments and expire after ten
years. Some options granted under the Discretionary Option Grant Program are
immediately exercisable, subject to a right of repurchase at the original
exercise price for all unvested shares.

F-15
51
i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under the Stock Issuance Program, the Board or a committee of the Board, or
the Plan Administrator, may grant shares of our common stock to any person at
any time, at such prices and on such terms as established by the Plan
Administrator. The purchase price per share cannot be less than 85% of the fair
market value of our common stock on the issuance date.

Under the Automatic Option Grant Program, each person who is first elected
or appointed as a non-employee Board member shall automatically be granted a
nonqualified option to purchase 8,000 shares of our common stock at the fair
market value on the date of grant. On the date of each Annual Meeting of
Stockholders, each non-employee Board member shall automatically be granted an
additional option to purchase 8,000 shares of our common stock, subject to
certain conditions.

In connection with the acquisitions of various companies, we have assumed
the stock option plans of each acquired company. A total of 37.6 million shares,
including 28.6 million shares in 2000, of our common stock have been reserved
for issuance under the assumed plans and the related options are included in the
following table.

A summary of option activity follows (in thousands, except per share
amounts):

OPTIONS OUTSTANDING
SHARES -----------------------------
AVAILABLE NUMBER WEIGHTED-AVERAGE
FOR GRANT OF SHARES EXERCISE PRICE
--------- --------- ----------------

Balance, January 1, 1998........................ 30,747 50,376 $ 2.00
Additional shares reserved.................... 603 -- --
Granted and assumed........................... (39,710) 39,710 4.32
Exercised..................................... -- (13,388) .43
Canceled...................................... 16,982 (16,982) 5.65
------- -------
Balance, December 31, 1998...................... 8,622 59,716 2.86
Additional shares reserved.................... 49,345 -- --
Granted and assumed........................... (35,097) 35,097 12.34
Exercised..................................... -- (15,337) 1.68
Canceled...................................... 6,141 (6,141) 4.92
------- -------
Balance, December 31, 1999...................... 29,011 73,335 7.47
Additional shares reserved.................... 108,568 -- --
Granted and assumed........................... (71,098) 71,098 44.40
Exercised..................................... -- (20,018) 5.05
Canceled...................................... 9,512 (9,512) 30.56
------- -------
Balance, December 31, 2000...................... 75,993 114,903 29.14
======= =======

In October 1998, the Board approved a plan to reprice a portion of our
outstanding stock options, excluding options held by certain executive officers.
As a result, 15,030,740 options with exercise prices ranging from $3.50 to $8.21
per share were repriced at $3.49 per share, the fair market value on the date of
repricing. For any unvested options included in this repricing, the vesting
schedule was restarted with a vesting period of four years. The repricing has
been reflected in the above table as part of the options granted and canceled
during 1998.

Under the 1995 Plan, each outstanding option and unvested stock issuance
will be subject to accelerated vesting under certain circumstances upon an
acquisition of us in a merger or asset sale, except to the extent our repurchase
rights with respect to the underlying shares are to be assigned to the successor
corporation. In addition, the Plan Administrator has the discretion to
accelerate vesting of outstanding options upon consummation of any other
transaction that results in a change in control.

F-16
52
i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

All options outstanding at December 31, 2000, are incentive options except
for 51,296,203 options, which are nonqualified stock options.

Other information regarding options outstanding and options exercisable as
of December 31, 2000, is as follows (in thousands, except per share amounts):

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- --------------------------
WEIGHTED-
AVERAGE
RANGE OF WEIGHTED- REMAINING WEIGHTED-
EXERCISE NUMBER AVERAGE CONTRACTUAL NUMBER AVERAGE
PRICES OF SHARES EXERCISE PRICE LIFE (YEARS) OF SHARES EXERCISE PRICE
--------------- --------- -------------- ------------ --------- --------------

$ 0.00 - $ 3.16 8,436 $ 2.39 7.1 5,535 $ 2.17
3.17 - 5.15 24,860 3.85 7.4 9,706 3.86
5.16 - 9.86 16,751 7.59 8.2 2,898 7.34
9.87 - 14.95 11,077 11.18 8.4 3,649 11.94
14.86 - 38.81 14,939 33.00 8.9 1,359 26.13
38.82 - 45.46 2,994 40.43 9.3 105 43.61
45.47 - 55.22 6,659 49.11 9.4 521 46.94
55.23 - 64.42 11,884 60.19 9.5 43 61.49
64.43 - 73.62 11,102 71.43 9.5 257 68.15
73.63 - 92.03 6,201 85.74 9.6 -- --
------- ------
Total 114,903 29.14 8.5 24,073 8.27
======= ======

Pro Forma Net Income (Loss) and Earnings Per Share. Pro forma information
regarding net income (loss) and earnings per share has been determined as if we
had accounted for our employee stock options and shares issued under the
employee stock purchase plans using the fair value method of SFAS No. 123. The
weighted average fair value of options granted in 2000, 1999 and 1998 was
$41.22, $2.15 and $2.31 per option. Fair values of options are estimated at the
date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions for 2000, 1999 and 1998: Risk-free interest rates
of 6.0%, 5.6% and 5.2%; volatility factors of the expected market price of our
common stock of 0.93, 0.84 and 0.75; a weighted-average expected life of the
options of 4, 3 and 3 years; and no dividend yields. The pro forma impact of
stock options issued under stock option plans assumed in connection with pooling
of interests business combinations are not presented prior to their acquisitions
as the fair value of the options and their related impact is immaterial.

The fair value of shares issued under the employee stock purchase plans was
estimated as of the initial day of the purchase period using a Black-Scholes
option pricing model with the following weighted-average assumptions for 2000,
1999 and 1998: Risk free interest rates of 5.86%, 5.0% and 5.0%; volatility
factors of the expected market price of our common stock of 0.90, 0.84 and 0.75;
a weighted-average expected life of the purchase right of 0.5 years; and no
dividend yields. The weighted-average fair value of purchase rights granted
under the employee stock purchase plans during 2000, 1999, and 1998 were $27.60,
$2.82 and $2.30.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of publicly traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because our employee stock options have characteristics
significantly different from those of publicly traded options, and because
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options and employee stock purchase plans' shares.

F-17
53
i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following pro forma information presents net income (loss) and earnings
per share for 2000, 1999 and 1998 had the fair value method of SFAS 123 been
used to measure compensation cost for stock compensation plans. For purposes of
these pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period and the estimated fair
value of the employee stock purchase plans' shares is amortized to expense over
the purchase period. These amounts have not been reflected in our Consolidated
Statements of Operations (in thousands, except per share amounts):

2000 1999 1998
----------- ------- -------

Net income (loss):
As reported...................................... $(1,752,013) $23,515 $ 5,219
Pro forma........................................ (2,157,137) (3,652) (9,232)
Basic earnings (loss) per common share:
As reported...................................... (4.83) 0.08 0.02
Pro forma........................................ (5.95) (0.01) (0.03)
Diluted earnings (loss) per common share:
As reported...................................... (4.83) 0.07 0.02
Pro forma........................................ (5.95) (0.01) (0.03)

9. INCOME TAXES

Our provision for income taxes consists of the following:

2000 1999 1998
-------- ------- -------

Current:
Federal............................................ $ 42,424 $24,604 $21,982
State.............................................. 6,822 3,120 2,490
Foreign............................................ 18,880 12,310 3,278
Deferred:
Federal............................................ (30,604) (7,558) (4,752)
State.............................................. (2,671) (990) (185)
Foreign............................................ 865 (6,934) (5,534)
-------- ------- -------
Total...................................... $ 35,716 $24,552 $17,279
======== ======= =======

Our provision for income taxes reconciles to the amount computed by
applying the statutory U.S. federal rate of 35% for 2000, 1999 and 1998 to
income before income taxes as follows:

2000 1999 1998
--------- ------- -------

Expense (benefit) computed at statutory rate........ $(600,704) $16,824 $ 7,874
Non-deductible in-process research and development
and acquisition costs............................. 634,039 2,294 2,635
State taxes, net of federal tax benefit............. 1,756 1,050 1,536
Research and development tax credits................ (3,938) (1,185) (1,375)
Non-deductible meals and entertainment.............. 1,553 1,062 518
Valuation allowance for net deferred tax asset...... -- 1,904 5,661
Other............................................... 3,010 2,603 430
--------- ------- -------
Provision for income taxes................ $ 35,716 $24,552 $17,279
========= ======= =======

F-18
54
i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred tax assets and liabilities at December 31, 2000 and 1999 are
comprised of the following:

2000 1999
-------- --------

Deferred tax assets:
Foreign tax credits....................................... $ 6,590 $ 4,030
Deferred revenue.......................................... 5,710 2,604
Accrued liabilities....................................... 32,854 8,287
Bad debt allowance........................................ 6,969 6,158
Research and development tax credits...................... 8,013 4,075
Net operating losses...................................... 349,229 28,485
Acquired intangibles...................................... 14,538 --
Other..................................................... 8,955 3,165
-------- --------
Total deferred tax assets......................... 432,858 56,804
Deferred tax liabilities:
Acquired intangibles...................................... (63,014) (662)
Other..................................................... (2,953) (3,723)
-------- --------
Total deferred tax liability................................ (65,967) (4,385)
Valuation allowance for net deferred tax assets............. (10,423) (10,423)
-------- --------
Net deferred tax assets........................... $356,468 $ 41,996
======== ========

We consider the earnings of foreign subsidiaries to be permanently
reinvested outside the United States. Accordingly, no United States income tax
on these earnings has been provided. Aggregate unremitted earnings of foreign
subsidiaries, for which U.S. income taxes have not been provided, totaled $42.9
million and $25.3 million as of December 31, 2000 and 1999.

At December 31, 2000 and 1999, we had $929.6 million and $56.5 million of
U.S. federal net operating loss carryforwards and research and development
carryforwards of $8.0 million and $4.1 million. At December 31, 2000 and 1999,
we had $1.7 million and $22.3 million of foreign net operating loss
carryforwards. The federal net operating loss carryforwards expire in the years
2002 through 2020 and are subject to certain annual limitations. The federal
research and development carryforwards expire in the years 2005 through 2020.
The foreign net operating loss carryforwards have no expiration date.

We paid income taxes of $2.7 million, $3.2 million and $5.9 million in
2000, 1999 and 1998.

Management regularly evaluates the realizability of its deferred tax assets
given the nature of its operations and given the tax jurisdictions in which it
operates. We adjust our valuation allowance from time to time based on such
evaluations.

10. COMMITMENTS AND CONTINGENCIES

We lease our office facilities and certain office equipment under operating
leases that expire at various dates through 2011. We have renewal options for
most of our operating leases. Total rent expense incurred during 2000, 1999 and
1998 was $56.4 million, $26.2 million and $9.3 million.

F-19
55
i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum lease payments under all noncancellable operating leases as
of December 31, 2000 are as follows:

2001........................................................ $ 61,630
2002........................................................ 40,609
2003........................................................ 30,821
2004........................................................ 21,277
2005........................................................ 15,568
Thereafter.................................................. 57,578
--------
Total............................................. $227,483
========

11. SEGMENT INFORMATION AND INTERNATIONAL OPERATIONS

We operate our business in one segment, Internet-based e-business and
marketplace solutions designed to help enterprises optimize business process
both internally and among trading partners. SFAS 131, "Disclosures About
Segments of an Enterprise and Related Information," establishes standards for
the reporting information about operating segments. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.

We market our software and services primarily through our worldwide sales
organization augmented by other service providers, including both domestic and
international e-business providers and systems consulting and integration firms.
Our chief operating decision maker evaluates resource allocation decisions and
our performance based on financial information, presented on a consolidated
basis, accompanied by desegregated information about revenues by geographic
regions.

Revenues are attributable to regions based on the locations of the
customers' operations. The following geographic information presents total
revenues for 2000, 1999 and 1998:

2000 1999 1998
---------- -------- --------

United States..................................... $ 733,372 $389,912 $295,933
Europe............................................ 224,273 93,844 39,739
Asia.............................................. 128,358 60,111 21,095
Other............................................. 40,322 27,243 12,390
---------- -------- --------
$1,126,325 $571,110 $369,157
========== ======== ========

Total assets related to our international operations accounted for $350.3
million, or 3.8% of total consolidated assets, as of December 31, 2000 and
$132.2 million, or 15.4% of total consolidated assets, as of December 31, 1999.

F-20
56
i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. NEW ACCOUNTING STANDARDS

We address certain financial exposures through a controlled program of risk
management that includes the use of derivative financial instruments. We do not
utilize or expect to utilize derivative financial instruments for trading or
speculative purposes.

During the periods presented, our strategy for managing foreign currency
risk was limited to hedging certain significant accounts receivable that were
denominated in foreign currency. In January 2001, we established a foreign
currency hedging program utilizing foreign currency forward contracts to hedge
various nonfunctional currency exposures with the objective of reducing the
effect of foreign currency exchange rates on our results of operations.

In February 2001, the Financial Accounting Standards Board issued a
revision to a previously issued exposure draft covering business combinations
proposing new accounting guidance related to goodwill. This proposed standard
would not allow for amortization of goodwill. The carrying amount of goodwill
would be reduced only if it was found to be impaired. Goodwill would be tested
for impairment when events or circumstances occur indicating that goodwill might
be impaired. A fair-value based impairment test would be used to measure
goodwill for impairment in lieu of the method for measuring impairment of
long-lived assets set forth in SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." As goodwill is
measured as a residual amount in an acquisition, it is not possible to directly
measure the fair value of goodwill. Under this proposed standard, the net assets
of a reporting unit should be subtracted from the fair value of that reporting
unit to determine the implied fair value of goodwill. Impairment loss would be
recognized to the extent the carrying amount of goodwill exceeds the implied
fair value. The provisions of this proposed standard would be effective for
fiscal quarters beginning after the issuance of a final statement. Management
believes the adoption of this standard, as it is proposed, will have a material
impact on our financial statements if the final statement is issued prior to the
full amortization of our remaining goodwill.

13. SUBSEQUENT EVENTS

Since March 2, 2001, several class action lawsuits have been filed in the
United States District Court, Northern District of Texas, Dallas Division,
alleging that we and certain of our officers have violated federal securities
laws. In substance, all of the complaints allege that we issued a series of
false and misleading statements which failed to disclose, among other things,
that we were experiencing software implementation difficulties with our customer
Nike, Inc. and that these problems were material, severe and damaging our
relationship with Nike. The plaintiffs in the actions purport to represent
persons who purchased our stock during various periods ranging from October 18,
2000 to February 26, 2001. As these suits have just been filed, we have not had
the opportunity to adequately review the claims or respond. Although the
ultimate outcome and liability, if any, cannot be determined, we believe the
facts in these class actions do not support the plaintiffs' claims and we and
our officers have meritorious defenses.

F-21
57
i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

all the outstanding stock of Rightworks. The transaction is expected to close in
the second quarter of 2001 and will be accounted for using the purchase method.

F-22
58

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
i2 Technologies, Inc.

We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of i2 Technologies, Inc. (a
Delaware corporation) included in this annual report on Form 10-K and have
issued our report thereon dated January 16, 2001 (except for the last paragraph
in Note 2 and Note 13 as to which the dates are March 23, 2001 and March 9,
2001, respectively). Our audits were made for the purpose of forming an opinion
on the basic financial statements taken as a whole. Schedule II is the
responsibility of the company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

/s/ ARTHUR ANDERSEN LLP

Dallas, Texas
January 16, 2001

S-1
59

i2 TECHNOLOGIES, INC.
SCHEDULE II TO CONSOLIDATED FINANCIAL STATEMENTS
VALUATION AND QUALIFYING ACCOUNTS

2000 1999 1998
-------- ------- ------

ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance at beginning of period.............................. $ 17,474 $ 8,551 $4,578
Provision for bad debts charged to costs and expenses....... 21,829 $11,065 4,924
Write-offs.................................................. (11,497) $(2,142) (951)
Acquired allowances and other adjustments................... 3,523 -- --
-------- ------- ------
Balance at end of period.................................... $ 31,329 $17,474 $8,551
======== ======= ======

S-2
60

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
------- -----------

2.1* -- Agreement and Plan of Reorganization, dated May 12, 1999,
by and among i2, Intelligent Acquisition Corp. and Sales
Marketing Administration Tracking Technologies, Inc.
(filed as Exhibit 2.1 to i2's Registration Statement on
Form S-4 (Reg. No. 333-79681)(the "Form S-4").
2.2* -- Agreement and Plan of Reorganization, dated March 12,
2000, by and among i2, Hoya Merger Corp. and Aspect
Development, Inc. (filed as Exhibit 1 to the Schedule 13D
filed by i2 on March 22, 2000 with respect to Aspect
Development, Inc. and incorporated herein by reference).
2.3* -- Agreement and Plan of Reorganization, dated March 12,
2000, by and among i2, Starfish Merger Corporation and
SupplyBase, Inc. (filed as Exhibit 2.3 to i2's Annual
Report on Form 10-K for the year ended December 31,
1999).
3.1 -- Restated Certificate of Incorporation, as amended through
November 29, 2000.
3.2 -- Amended and Restated Bylaws, as amended through September
13, 2000.
4.1* -- Specimen Common Stock certificate (filed as Exhibit 4.1
to i2's Registration Statement on Form S-1 (Reg. No.
333-1752) (the "Form S-1")).
4.2* -- Indenture, dated as of December 10, 1999 between i2 and
Chase Bank of Texas, National Association, as trustee,
including the form of note set forth in Section 2.2
thereof (filed as Exhibit 4.2 to i2's Registration
Statement on Form S-3 (Reg. No. 333-31342) (the "Form
S-3")).
4.3* -- Registration Rights Agreement, dated as of December 10,
1999 between i2 and Goldman, Sachs & Co., Morgan Stanley
Dean Witter and Credit Suisse First Boston (filed as
Exhibit 4.3 to the Form S-3).
10.1* -- Form of Registration Rights Agreement, dated April 1,
1996, among i2, Sanjiv S. Sidhu and Sidhu-Singh Family
Investments, Ltd. (filed as Exhibit 10.2 to the Form
S-1).
10.2* -- i2 Technologies, Inc. 1995 Stock Option/Stock Issuance
Plan, as amended and restated through January 14, 2000
(filed as Exhibit 99.1 to i2's Registration Statement on
Form S-8 (Reg. No. 333-40038) (the "Aspect S-8")).
10.3* -- Form of Indemnification Agreement between i2 and each of
its officers and directors (filed as Exhibit 10.4 to the
Form S-1).
10.4* -- Form of Employee Proprietary Information Agreement
between i2 and each of its employees (filed as Exhibit
10.9 to the Form S-1).
10.5* -- i2 Technologies, Inc. Employee Stock Purchase Plan (filed
as Exhibit 99.1 to i2's Registration Statement on Form
S-8 (Reg. No. 333-85791) (the "1999 S-8")).
10.6* -- i2 Technologies, Inc. International Employee Stock
Purchase Plan (filed as Exhibit 99.4 to the 1999 Form
S-8).
10.7* -- Think Systems Corporation 1996 Incentive Stock Plan
(filed as Exhibit 99.3 to i2's Registration Statement on
Form S-8 (Reg. No. 333-28147) (the "Think/Optimax S-8")).
10.8* -- Think Systems Corporation 1997 Incentive Stock Plan
(filed as Exhibit 99.1 to the Think/Optimax S-8).
10.9* -- Optimax Systems Corporation Stock Option Plan (filed as
Exhibit 99.10 to the Think/Optimax S-8).

EXHIBIT
NUMBER DESCRIPTION
------- -----------

10.10* -- InterTrans Logistics Solutions Limited 1997 Stock
Incentive Plan (filed as Exhibit 99.7 to i2's
Registration Statement on Form S-8 (Reg. No. 333-53667)).
10.11* -- SMART Technologies, Inc. 1996 Stock Option/Stock Issuance
Plan (filed as Exhibit 99.13 to 1999 Form S-8).
10.12* -- Lease with One Colinas Crossing dated March 24, 1999
between Colinas Crossing, LP and i2 (filed as Exhibit
99.6 to i2's Current Report on Form 8-K dated November
30, 1999 (the "November 1999 8-K")).
10.13* -- Lease with Two Colinas Crossing dated August 3, 1999
between Colinas Crossing, LP and i2 (filed as Exhibit
99.7 to the November 1999 8-K).
10.14* -- SupplyBase, Inc. 1999 Stock Plan (filed as Exhibit 99.1
to i2's Registration Statement on Form S-8 (Reg. No.
333-36478)).
10.15* -- Aspect Development, Inc. 1997 Nonstatutory Stock Option
Plan (filed as Exhibit 99.2 to the Aspect S-8).
10.16* -- Aspect Development, Inc. 1992 Stock Option Plan (filed as
Exhibit 99.3 to the Aspect S-8).
10.17* -- Aspect Development, Inc. 1996 Outside Directors Stock
Option Plan (filed as Exhibit 99.4 to the Aspect S-8).
10.18* -- Aspect Development, Inc. 1996 Employee Stock Purchase
Plan (filed as Exhibit 99.5 to the Aspect S-8).
10.19* -- Transition Analysis Component Technology, Inc. 1997 Stock
Plan (filed as Exhibit 99.6 to the Aspect S-8).
10.20* -- Cadis, Inc. 1991 Stock Option Plan (filed as Exhibit 99.7
to the Aspect S-8).
10.21* -- Common Stock Purchase Agreement, dated March 7, 2000,
between i2 and International Business Machines
Corporation (filed as Exhibit 2.1 to i2's Current Report
on Form 8-K filed on April 11, 2000).
10.22*(1) -- Employment and Non-Compete Agreement, dated June 9, 2000
between i2 and Robert L. Evans (filed as Exhibit 10.1 to
i2's Current Report on Form 8-K filed on June 22, 2000).
10.23*(1) -- Employment and Non-Compete Agreement, dated June 9, 2000
between i2 and Romesh T. Wadhwani (filed as Exhibit 10.2
to i2's Current Report on Form 8-K filed on June 22,
2000).
16.1* -- Letter Regarding Change in Certifying Accountant (filed
as Exhibit 16.1 to i2's Current Report on Form 8-K filed
on April 21, 1999).
21.1 -- List of subsidiaries.
23.1 -- Consent of Arthur Andersen LLP.
24.1 -- Power of Attorney, pursuant to which amendments to this
Form 10-K may be filed, is included on this signature
page contained in Part IV of this Form 10-K.

---------------
* Incorporated herein by reference to the indicated filing

(1) Management contract or compensatory plan or arrangement