UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the quarterly period ended March 31,June 30, 2009

or

For the transition period fromto

Commission file number 0-28030

i2 Technologies, Inc.

(Exact Name of Registrant as Specified in Its Charter)

(469) 357-1000

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  x¨  (not applicable to registrant)

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of May 4,August 3, 2009, the Registrant had 21,986,13322,426,471 shares of $0.00025 par value Common Stock outstanding.

i2 TECHNOLOGIES, INC.

QUARTERLY REPORT ON FORM 10-Q

March 31,June 30, 2009

TABLE OF CONTENTS

PART 1. FINANCIAL INFORMATION

i2 TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(unaudited)

See accompanying notes to consolidated financial statements.

i2 TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

(unaudited)

See accompanying notes to consolidated financial statements.

i2 TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

See accompanying notes to consolidated financial statements.

i2 TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

See accompanying notes to consolidated financial statements.

i2 TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Table dollars in thousands, except per share data)

(Unaudited)

1. Summary of Significant Accounting Policies

Nature of Operations.We operate our business in one segment, supply chain management solutions, that are designed to help enterprises optimize business processes both internally and among trading partners. We are a provider of supply chain management solutions, consisting of various software and service offerings. Our service offerings include business optimization and licensed technical consulting, managed services, training, solution maintenance, software upgrades and development. We operate our business in one business segment. Supply chain management is the set of processes, technology and expertise involved in managing supply, demand and fulfillment throughout divisions within a company and with its customers, suppliers and partners. The business goals of our solutions include increasing supply chain efficiency and enhancing customer and supplier relationships by managing variability, reducing complexity, and improving operational visibility, and increasing operating velocity.visibility. Our offerings are designed to help customers better achieve the following critical operationalbusiness objectives:

Basis of Presentation.Our unaudited condensed consolidated financial statements have been prepared by management and reflect all adjustments (all of which are normal and recurring in nature) that, in the opinion of management, are necessary for a fair presentation of the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2009. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted under the Securities and Exchange Commission’s (SEC) rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, presented in our Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 12, 2009 with the SEC (2008 Annual Report on Form 10-K).

Recent Accounting Pronouncements.In May 2008, the FASB issued FASB staff position (FSP) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) be separately accounted for in a manner that reflects an issuer’s nonconvertible debt borrowing rate. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years and shall be applied retrospectively to all periods presented. Early adoption of FSP APB 14-1 was not permitted.

Our 5% Senior Convertible Notes (“Notes”) arewere within the scope of FSP APB 14-1. In the accompanying condensed financial statements, we reported the debt component of the Notes at fair value as of the date of issuance and amortized the discount as an increase to interest expense over the expected life of the debt. The implementation of this standard resulted in a decrease to net income and earnings per share for all prior periods presented; however, there is no effect on our cash interest payments. The incremental non-cash expense associated with adoption for the three months ended March 31,June 30, 2008 was $0.5 million and was zero for the three months ended June 30, 2009 due to the repurchase of the Notes. The incremental non-cash expense associated with adoption for the six months ended June 30, 2009 and 2008 was $0.3 and $0.5$1.0 million, respectively, seeNote 3, Borrowings and Debt Issuance Costs.10, Restatement of Financial Statements.

In March 2008, FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133(“SFAS 161”). SFAS 161 applies to all derivative instruments within the scope of SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities(“SFAS 133”). It also applies to non-derivative hedging instruments and all hedged items designated and qualifying as hedges under SFAS 133. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The adoption of this statement in the first quarter of 2009 did not have a material impact on the Company’s financial statements, seeNote 7, Commitments and Contingencies.

In January 2009, the FASB issued Staff Position (“FSP”) EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). Under FSP EITF 03-6-1, unvested share-based payment awards which receive non-forfeitable dividend rights, or dividend equivalents, are considered participating securities and are required to be included in computing EPS under the two-class method. The adoption of this provision in the six months ended 2009 had no effect on the Company’s financial statements.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”), which requires public entities to disclose in their interim financial statements the fair value of all financial instruments within the scope of FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments” (“SFAS 107”), as well as the method(s) and significant assumptions used to estimate the fair value of those financial instruments. The Company has adopted the provisions of FSP FAS 107-1 and APB 28-1. The adoption of FSP FAS 107-1 and APB 28-1 had no impact on the Company’s financial position or results of operations.

In May 2009, the FASB issued SFAS No. 165,Subsequent Events(“SFAS No. 165”). SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date, but before financial statements are issued or are available to be issued. SFAS No. 165 requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. Accordingly, the Company adopted SFAS No. 165 as of June 30, 2009 and evaluated its financial statements for subsequent events through August 7, 2009, the filing date of our financial statements. The Company is not aware of any such events, which would require recognition or disclosure in the financial statements.

From time to time, new accounting pronouncements applicable to the Company are issued by the FASB or other standards setting bodies, which we will adopt as of the specified effective date. Unless otherwise discussed, we believe the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.

2. Investment Securities

Short-term time deposits and other liquid investments in debt securities with original maturities of less than three months when acquired by us are reported as cash and cash equivalents on our condensed consolidated balance sheet. Based on their maturities, interest rate movements do not affect the balance sheet valuation of these investments.

Historically, we have invested our cash in a variety of interest-earning financial instruments, including bank time deposits, money market funds, taxable and tax-exempt variable-rate, fixed-rate obligations of corporations, federal, state and local governmentalgovernment entities, and agencies. These investments are primarily denominated in U.S. Dollars.

Due to current economic volatility, we have elected to keep our cash balances in overnight funds comprised of a combination of Treasury and government agency obligations. Atmoney market mutual funds (“MMMF”). These MMMF have the endstated goal of maintaining a net asset value of $1 per share and their interest rate resets daily to achieve this goal. These MMMF are considered Level 1 securities because they are actively traded and they are valued on our condensed consolidated balance sheets at quoted market prices. The balances held as MMMF reported as cash and cash equivalents were $167.1 million and $230.0 million as of June 30, 2009 and December 31, 2008, and during the first quarter of 2009, substantially all of our cash wasrespectively. The balances held in Treasury and agency funds. We also heldas time deposits reported as cash and cash equivalents of $2.7were $1.6 million and $1.8 million as of March 31,June 30, 2009 and December 31, 2008, respectively.

3. Borrowings and Debt Issuance Costs

The following table summarizes the outstanding debt and related capitalized debt issuance costs recorded on our condensed consolidated balance sheet at March 31,June 30, 2009 and December 31, 2008.

We recorded capitalized debt issuance costs, net of accumulated amortization, in other non-current assets. Prior to the repurchase of our 5% notes,assets and were amortizing these costs were being amortized over a five-year period, beginning in November 2005.

In connection with the issuance of our 5% senior convertible notes, we issued certain warrants to purchase our common stock. We assessed the characteristics of the warrants and determined that they should be included in additional paid in capital in the stockholders’ equity portion of our condensed consolidated balance sheet, valued using a Black-Scholes model. The effect of recording the warrants as equity is that the 5% senior convertible notes were recorded at an original discount to their face value. The discount recorded was originally $3.1 million, and this discount was being accreted through earnings over five years. We determined a five-year life to be appropriate due to the conversion features of the 5% senior convertible notes and our assessment of the probability that the debt would be converted prior to the scheduled maturity.

We were required to adopt FASB staff position (FSP) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)” in the three months ended March 31,(“FSP APB 14-1”) on January 1, 2009. FSP APB 14-1 requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) be separately accounted for in a manner that reflects an issuer’s nonconvertible debt borrowing rate. Based on our analysis of comparable nonconvertible debt issuances by similar-sized technology companies at or near the time of our debt issuance, we determined our borrowing rate would have been 9.5% for nonconvertible debt versus the stated 5% coupon rate of the Notes.

Upon adoption, we allocated the original debt proceeds between debt and the debt’s conversion feature based on the fair value of the conversion featureliability component at issuance. This results in the debt being recorded at a discount to its face value. This discount is amortized as additional interest expense using the effective interest method over the 10-year life of the debt.debt, which is the estimated life of a similar debt instrument without a related equity conversion feature. The effect on our financial statements is to record additional non-cash interest expense in each historical period in which our Notes were outstanding. We also were required to reallocate our capitalized debt issuance costs between cost of debt and cost of equity based on the relative values of the debt and the conversion feature. The result of this change is to reduce the original balance of capitalized debt issuance costs, as well as to reduce the amortization of such costs in each historical period in which our Notes were outstanding. The accompanying condensed consolidated financial statements have been restated to reflect the net increase to non-cash expense and balance sheet reclassifications. SeeNote 10, Restatement of Financial Statements, for the effect of FSP APB 14-1 on the historical financial statements included herein.

On February 6, 2009, we entered into a Consent and Purchase Agreement (“Purchase Agreement”) with the beneficial owner (the “Holder”) of $58.1 million in aggregate principal amount of our outstanding 5% Senior Convertible Notes (“Notes”). Pursuant to the Purchase Agreement, we agreed to purchase all of the Notes owned by the Holder as of February 6, 2009 (the “Holder’s Notes”) for a purchase price of $997.50 per $1,000.00 of original principal amount plus all accrued and unpaid interest thereon and the Holder irrevocably consented to eliminate certain covenants associated with the Notes. Subsequent to purchasing the Holder’s Notes, we entered into a series of repurchase transactions at various prices with other holders. As of March 31,June 30, 2009, $875all Notes have been repurchased, the majority of Notes remained outstanding, which was repurchased on April 21, 2009 and is included in accounts payable on our condensed consolidated balance sheet as of March 31, 2009.

At the time of repurchase, we were required by FSP APB 14-1 to assess the current fair value of the notes and the conversion feature and allocate the cost of repurchasing cost accordingly. Due to the lack of comparable issuancesoccurred in the market at the timefirst quarter of repurchase, we looked to the average yield on “Triple-B-rated” US Corporate bonds and the yield on our bonds to their contractual put date in May 2010 based on the discounted repurchase price of the bonds to determine the current fair value of the Notes. The resulting fair value of the Notes approximates the restated carrying value of the Notes resulting in no reallocation of the repurchase cost between debt and equity.

2009. The total cash paid for the debt repurchase of $84.8 million was allocated, based on respectivethe fair values of the liability component as required by FSP APB 14-1, $64.5 million to the repurchased debt and $20.3 million to the conversion feature included in equity.

The repurchaseIn connection with the issuance of our 5% senior convertible notes, we issued 484,449 warrants to purchase our common stock. We assessed the characteristics of the warrants and determined that they should be included in additional paid in capital in the stockholders’ equity portion of our condensed consolidated balance sheet, valued using a Black-Scholes model. The effect of recording the warrants as equity was that the 5% senior convertible notes resulted inwere recorded at an original discount to their face value. The discount recorded was originally $3.1 million, and this discount was being accreted through earnings over five years. We determined a loss on extinguishmentfive-year life to be appropriate due to the conversion features of the 5% senior convertible notes and our assessment of the probability that the debt would be converted prior to the scheduled maturity. All of the warrants remain outstanding as follows:of June 30, 2009.

4. Restructuring Charges and Adjustments

Restructuring Plans.In current and prior periods, we implemented restructuring plans, which included the elimination of personnel as well as other targeted cost reductions. SeeNote 11, Restructuring Charges and Adjustments, in our Notes to Consolidated Financial Statements in our 2008 Annual Report on Form 10-K for a description of our previous restructuring plans. In the first quarter of 2009, we eliminated 79approximately 80 positions, resulting in severance costs of $3.0 million.

The following table summarizes the changes to our restructuring accruals, as well as the components of the remaining restructuring accruals at March 31,June 30, 2009 and March 31,June 30, 2008.

5. Net Income Per Common Share

Net Income Per Common Share. Basic net income per common share was computed by dividing net income applicable to common stockholders by the weighted average number of common shares outstanding for the reporting period following the two-class method. Our Series B Convertible Preferred Stock is a participating security because in the event dividends are declared on our common stock it participates in those dividends on a 1:1 ratio on an as converted basis. Under the two-class method, participating convertible securities are required to be included in the calculation of basic net income per common share when the effect is dilutive. Accordingly, for the periods presented, the effect of the convertible preferred stock is included in the calculation of basic net income per common share.

Diluted net income per common share includes the dilutive effect of stock options, share rights awards, and warrants granted using the treasury stock method, and the effect of contingently issuable shares earned during the period and shares issuable under the conversion feature of our convertible debt and convertible preferred stock using the if-converted method. A loss causes all common stock equivalents to be anti-dilutive due to an increase of the weighted average shares from the potential dilution that could occur if securities or other contracts were exercised or converted into common stock. EITF 04-8 requires the inclusion of the effect of contingently convertible instruments in the calculation of diluted income per share including when the market price of our common stock is below the conversion price of the convertible security and the effect is not anti-dilutive. Accordingly, the effect of our convertible debt is included in the calculation of diluted Earnings per Share (EPS). Convertible instruments are anti-dilutive when conversion would cause diluted earnings per share to be greater than basic earnings per share. The effect of our convertible preferred stock is included in basic earnings per share under the two-class method per EITF 03-6, “Participating Securities and the Two-Class Method” under FASB No. 128 —Earnings per Share; therefore, it is similarly included in diluted income per share when the effect is dilutive.

The following is a reconciliation of the number of shares used in the calculation of basic income per share under the two-class method and diluted earnings per share and the number of anti-dilutive shares excluded from such computations for the three and six months ended March 31,June 30, 2009 and March 31,June 30, 2008.

6. Segment Information, International Operations and Customer Concentrations

We operate our business in one segment, supply chain management solutions, that are designed to help enterprises optimize business processes both internally and among trading partners. SFAS No. 131,“Disclosures About Segments of an Enterprise and Related Information,” establishes standards for the reporting of 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, who is our Chief Executive Officer (CEO), 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 systems consulting and integration firms and other industry-related partners. Our CEO evaluates resource allocation decisions and our performance based on financial information, presented on a consolidated basis, accompanied by disaggregated information by geographic regions. Sales to our customers generally include products from some or all of our product suites. We have not consistently allocated revenues from such sales to individual products for internal or general-purpose financial statements.

Revenues are attributable to regions based on the locations of the customers’ operations. Total revenues by geographic region, as reported to our CEO, were as follows:

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

Long-lived assets by geographic region excluding deferred taxes, as reported to our CEO, were as follows:

7. Commitments and Contingencies

Derivative Action

On October 23, 2007, a purported shareholder derivative lawsuit was filed in the Delaware Chancery Court against certain of our current and former officers and directors, naming the company as a nominal defendant. The complaint, originallyentitled John McPadden, Sr. v. Sanjiv S. Sidhu, Stephen Bradley, Harvey B. Cash, Richard L. Clemmer, Michael E. McGrath, Lloyd G. Waterhouse, Jackson L. Wilson, Jr., Robert L. Crandall and Anthony Dubreville and i2 Technologies, Inc.,alleges breach of fiduciary duty and unjust enrichment based upon allegations that the company sold its wholly-owned subsidiary, Trade Services Corporation, for an inadequate price in 2005. TheSince the filing of the complaint, is derivative in nature did not seek relief from the company, but did seek damages and other relief from the defendant officers and directors.Eugene Singer has been substituted for John McPadden as plaintiff. The defendants moved to dismiss the complaint on December 28, 2007. On August 29, 2008, the court granted the motion to dismiss as to all defendants but Mr. Dubreville (one of our former officers). The case is still pending againstcomplaint, derivative in nature, does not seek relief from the company, but does seek damages and other relief from the sole remaining defendant, Mr. Dubreville,Dubreville. On June 23, 2009, a related derivative action was filed in the Superior Court for the State of California, County of San Diego, styledEugene Singer v. Sunrise Ventures, LLC; James A. Simpson; Trade Service Holdings LLC; Trade Service Holdings, Inc.; Steven Borgardt; and the Company remainsDoes 1-50;and i2 Technologies, Inc as a nominal defendant. This action purports to arise out of the same set of facts as the aforementionedSinger v. Dubreville action pending in Delaware, and asserts a claim for aiding and abetting breach of fiduciary duty. The complaint, derivative in nature, does not seek relief from the company, but does seek damages and other relief from the named defendants.

Shareholder Class Action Lawsuits

On August 11, 2008, two suits were filed in state district court in Texas against (among others) the Company and certain members of its Board of Directors. Each of the two suits sought injunctive relief prohibiting the closing of the sale of the Company’s common stock to an affiliate of JDA Software Group, Inc. (“JDA”), and each of the named plaintiffs purported to represent a class of holders of the Company’s common stock. One of the two suits was thereafter dismissed by the plaintiff; the other, styledJohn D. Norsworthy, on Behalf of Himself and All Others Similarly Situated, v. i2 Technologies, Inc., et al., remainsremained pending in the 134th District Court of Dallas County, Texas. On November 5, 2008, the District Court held a hearing on Plaintiff Norsworthy’s motion for a temporary restraining order, and at the conclusion of the hearing denied the motion in its entirety. To date, the Plaintiff has not requested monetary relief other than his attorneys’ fees and costs. Based on the stage of the litigation, it is not known whether he may hereafter do so, nor is it possibleOn May 29, 2009, Mr. Norsworthy non-suited this action as to estimate the amount or range of possible loss that might result from an adverse judgment or a settlement of this matter. Despite the termination of the Merger Agreement with JDA, the plaintiff has not dismissed nor amended his petition as of the date of this report.all defendants.

Oracle Litigation

On April 29, 2009, the Company filed a lawsuit for patent infringement against Oracle Corporation (NASDAQ: ORCL). The lawsuit, filed in the United States District Court for the Eastern District of Texas, alleges infringement of 11 patents related to supply chain management, available to promise software and other enterprise software applications. We incurred expenses related to this matter of $0.2 million for the three and six months ended June 30, 2009.

Indemnification Agreements

We have indemnification agreements with certain of our officers, directors and employees that may require us, among other things, to indemnify such officers, directors and employees against certain liabilities that may arise by reason of their status or service as directors, officers or employees and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. We have also entered into agreements regarding the advancement of costs with certain other officers and employees.

Pursuant to these indemnification and cost-advancement agreements, we have advanced fees and expenses incurred by certain current and former directors, officers and employees in connection with the governmental investigations and actions related to the 2003 restatement of our consolidated financial statements and other matters. We incurred no such expenses during the three months ended March 31, 2009 and 2008.

We may continue to advance fees and expenses incurred by certain current and former directors, officers and employees in the future. The maximum potential amount of future payments we could be required to make under these indemnification and cost-advancement agreements is unlimited. Additionally, our corporate by-laws allow us to choose to indemnify any employee for certain events or occurrences while the employee is, or was, serving at our request in such capacity. We incurred $0.2 million of expenses during the three and six months ended June 30, 2009.

Under the terms of our software license agreements with our customers, we agree that in the event the licensed software infringes upon any patent, copyright, trademark, or any other proprietary right of a third-party, we will indemnify our customer licensees against any loss, expense, or liability from any damages that may be awarded against our customer. We include this infringement indemnification in substantially all of our software license agreements and selected managed service arrangements. In the event the customer cannot use the software or service due to infringement and we cannot obtain the right to use, replace or modify the software or service in a commercially feasible manner so that it no longer infringes, then we may terminate the license and provide the customer a pro-rata refund of the fees paid by the customer for the infringing software or service. We believe the estimated fair value of these intellectual property indemnification clauses is minimal.

India Tax Assessments

We currently are under income tax examinations in India primarily related to our intercompany pricing for services rendered by our Indian subsidiary to other i2 companies, the taxability of certain payments received from our Indian customers, and our statutory qualification for a tax holiday. The tax authorities have assessed an aggregate of approximately $7.6$8.1 million for the Indian statutory fiscal years ended March 31, 2002 through March 31, 2005.

We believe the Indian tax authorities’ positions regarding these matters to be without merit, that all intercompany transactions were conducted at arm’s length pricing levels, all payments received from our Indian customers have been properly treated for tax purposes, and that our operations qualify for the tax holiday claimed. Accordingly, we appealed all of these assessments and sought assistance from the United States competent authority under the mutual agreement procedure of the income tax treaty between the United States and the Republic of India. This provides us with an opportunity to resolve these matters in a forum that includes governmental representatives of both countries.

Pending resolution of these matters, we have paid approximately $3.1$3.0 million of the assessed amount and have arranged for $4.0$4.2 million in bank guarantees in favor of the Indian government in respect of a portion of the balance as required. The bank guarantees are supported by letters of credit issued in the United States. Cash that is collateralizing these letters of credit is reflected on our condensed consolidated balance sheet as restricted cash.

We expect subsequent tax years to be examined, assessments made similar to those discussed above, and no assurances can be given that these issues ultimately will be resolved in our favor. We continue to monitor and assess these issues as they progress through the relevant processes and believe that the ultimate resolution of these matters will not exceed the tax contingency reserves we have established for them.

Derivative Financial Instruments

On January 1, 2009, we adopted FASB Statement No. 161,Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement 133. The adoption of Statement 161 had no financial impact on our consolidated financial statements and only required additional financial statement disclosures. We have applied the requirements of Statement 161 on a prospective basis. Accordingly, disclosures related to interim periods prior to the date of adoption have not been presented.

The Company utilizes a foreign currency risk mitigation program that uses foreign currency forward exchange contracts “(Contracts”) to economically reduce exposure to various amounts denominated in nonfunctional currencies. These foreign currency exposures typically arise from intercompany transactions, cash balances and accounts receivable held in non-functional currencies. The objective of this program is to reduce the effect of changes in foreign currency exchange rates on our results of operations. Although the Company does not designate these Contracts as hedges for accounting purposes, the objective of the program is to offset foreign currency transaction gains and losses recorded for accounting purposes with gains and losses realized on the Contracts.

Our Contracts generally settle within 30 days.days, maturing at month end. We do not use these forward contracts for trading purposes. We do not designate these forward contracts as hedging instruments pursuant to Statement 133. Accordingly, we record the fair value of these contracts as of the end of our reporting period to our consolidated balance sheet with changes in fair value recorded in our consolidated statement of operations. The balance sheet classification for the fair values of these forward contracts is to other current assets for unrealized gains and to accrued liabilities for unrealized losses. The statement of operations classification for the fair values of these forward contracts is to other income(expense)income (expense), net, for both realized and unrealized gains and losses.

The US dollar equivalent amount of foreign currencytables below summarize the Company’s outstanding forward contracts that were outstanding as of March 31, 2009 and 2008 was $34.2 million and $46.0 million, respectively. The net cash paid to counterparties for the Contracts settled during the period ended March 31, 2009 and 2008 was $0.8 million and $0.2 million, respectively. For the three month periods ended March 31, 2009 and 2008, the Company recorded realized losses on these contracts of $1.9 million and $0.2 million, respectively.held in USD functional currency.

Certain Accruals

We have accrued for estimated losses in the accompanying condensed consolidated financial statements for matters where we believe the likelihood of an adverse outcome is probable and the amount of the loss is reasonably estimable.

We are subject to various claims and legal proceedings that arise in the ordinary course of our business from time to time, including claims and legal proceedings that have been asserted against us by former employees and certain customers, and have been in negotiations to settle certain of those contingencies. The adverse resolution of any one or more of those matters or the matters described above, over and above the amount, if any, that has been estimated and accrued in our condensed consolidated financial statements could have a material adverse effect on our business, financial condition, results of operations and/or cash flows.

8. Stock-Based Compensation Plans.

For a description of our stock-based compensation plans, seeNote 10, Stock-Based Compensation, in our Notes to Consolidated Financial Statements filed in our 2008 Annual Report on Form 10-K.

Stock-based compensation expense for the three-month periodsthree and six months ended March 31,June 30, 2009 and March 31,June 30, 2008 is as follows:

		Three Months Ended June 30,						Six Months Ended June 30,
		2009			2008			2009			2008
Services		$	201		$	432		$	381		$	1,043
Maintenance			49			61			95			130
Sales and marketing			549			760			1,348			1,386
Research and development			477			627			935			1,382
General and administrative			1,191			1,090			2,286			1,931
Total		$	2,467		$	2,970		$	5,045		$	5,872

Included in stock-based compensation expense was restricted stock expense of $0.9$1.3 million and $1.0 million for the three-month periods ended March 31,June 30, 2009 and March 31, 2008.June 30, 2008, respectively, and $2.2 million and $1.9 million for the six-month periods ended June 30, 2009 and June 30, 2008, respectively.

In February 2007, we granted Restricted Stock Units (“RSUs”) to certain key employees that contain vesting provisions based on specified performance over a two-year performance period. This performance period is from January 1, 2008 to December 31, 2009. The grant vested 33% on February 19, 2009 based on the increase of our Generally Accepted Accounting Principles (GAAP) EPS of more than 40% over the 2-year period from the close of calendar year 2006 to the close of calendar year 2008. The remaining 67% of the performance RSU grant shares are scheduled to vest on February 19, 2010, subject to the Company’s EPS as of the close of the 2009 calendar year increasing by 60% or more over the 2006 calendar year GAAP EPS. This would require achieving GAAP EPS of more than $1.31$1.20 in 2009.

We are required to assess whether the performance criteria are probable of being achieved, and only recognize compensation expense if the vesting is considered probable. On a quarterly basis, we assess whether vesting is probable and based on that assessment record the appropriate expense, if any. Based on our current assessment of 2009 GAAP EPS vesting is not probable; therefore, the Company has not recorded compensation expense for thisthe remaining unvested portion of this award in its 2008 or 2009 annual financial statements. Compensation expense of $0.2 million associated with the performance-based RSUs that vested on February 19, 2009 is reflected in our results of operations in the three-month period ended March 31, 2009.

In February 2009, we granted RSUs to two key employeesexecutives that contain vesting provisions based on achieving specified performance criteria. The RSUs vest upon completion of the defined objectives as determined by the Board’s Compensation Committee in its sole discretion on or before December 31, 2010. In April 2009, we granted RSUs to additional key employees that contain vesting provisions based on achieving specified performance criteria. The RSUs vest upon completion of the defined objectives for each year as determined by the Board’s Compensation Committee in its sole discretion as to one-third of the shares per year on or before December 31, 2009, 2010 and 2011. Based on our assessment that vesting of the awards is probable as of March 31,June 30, 2009, we recognized compensation expense in the three-monthsix-month period ended March 31,June 30, 2009 for the Februaryperformance based 2009 RSUs based on the time period such awards were outstanding.

Fair values of stock options and shares are estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions in the below table.assumptions:

9. Income Taxes

Income taxes have beenare provided using the liability method in accordance with SFAS No. 109,Accounting for Income Taxes (“SFAS 109”). In accordance with Accounting Principles Board Opinion No. 28,Interim Financial

Reporting (“APB 28”), and FASB Interpretation No. 18, Accounting for Income Taxes in Interim Periods – an interpretation of APB Opinion No. 28 (“FIN 18”), the provision for income taxes reflects the Company’s estimate of the effective rate expected to be applicable for the full fiscal year, adjusted by any discrete events which are reported in the period in which they occur. This estimate is re-evaluated each quarter based on our estimated tax expense for the year.

We recognized income tax expense of approximately $0.6$2.3 million and $2.7 million for the three months ended March 31,June 30, 2009 and $1.1 million for the three months ended March 31, 2008, respectively, representing effective income tax rates of 18.8%18.1% and 28.3%3.2%, respectively. The three months ended March 31, 2009 include a benefit resulting from adjustments to our global transfer pricing accruals, includingfor the expiration of certain tax years related to international operations. The three months ended March 31, 2008 include the effect of a tax refund of approximately $1.0 million related to our international operations. Other factors that affectcorresponding periods. We recognized income tax expense include,of approximately $3.0 million and $3.8 million for the six months ended June 30, 2009 and 2008, respectively, representing effective income tax rates of 18.3% and 4.3% for the corresponding periods. Various factors affect our effective income tax rate including, among others, changes in our valuation allowance, the effect of foreign operations, state income taxes (net of federal income tax benefits), non-deductible meals and entertainment expenses, research and development tax credits, and the effect of foreign withholding taxes. Our effective income tax rates during the three months and six months ended June 30, 2009 and June 30, 2008 differ from the U.S. statutory rate primarily due to the effect these items have on our valuation allowance.

Income tax expense included the effect of foreign withholding taxes of $0.3 million for the three months ended March 31,June 30, 2009 and $0.5$0.6 million for the three months ended March 31,June 30, 2008 and $0.6 million for the six months ended June 30, 2009 and $1.1 million for the three months ended June 30, 2008. Foreign withholding taxes are recorded when incurred normallyon certain payments from international customers and are recorded upon receipt of such payments from certain non-US customers,that are received net of the withheld taxes. Foreign withholding taxes generally are available to reduce domestic income tax. Due to our net operating loss carryforwards and affectassociated valuation allowance against our domestic deferred tax assets, these withholding taxes increase our income tax expense.

During the six months ended June 30, 2008, we recorded a benefit to operating expense dueof approximately $83.3 million related to our domestic valuation allowance. Accordingly, our effectivethe settlement of the SAP patent litigation. We utilized net operating loss carryforwards and other tax attributes to reduce taxes on the settlement. We recorded federal and state alternative minimum tax (AMT) of approximately $1.1 million and $0.1 million, respectively, and other state income taxes of approximately $0.2 million in income tax ratesexpense during the three months and six months ended March 31, 2009 and March 31,June 30, 2008 differ from the U.S. statutory rate primarily duerelated to the discrete items discussed abovesettlement. Alternative minimum tax generally is available to reduce regular income tax in the future. Due to our net operating loss carryforwards and changes inassociated valuation allowance against our valuation allowance.domestic deferred tax assets, these AMT amounts increase our income tax expense.

Estimated potential interest and penalties related to our unrecognized tax benefits within our global organization isare recorded in income tax expense. As a result of the expiration of the statute of limitations for assessing tax in certain foreign jurisdictions, during the period ended March 31, 2009, we recorded a net benefit related to accrued interest ofexpense and totaled approximately $0.3$0.2 million for the three months ended March 31,June 30, 2009 and resulted in a benefit of approximately $0.1 million for the six months ended June 30, 2009. Accrued interest and penalties waswere approximately $1.9$2.1 million at March 31,June 30, 2009. Management believes recording interest and penalties related to income tax uncertainties as income tax expense better reflects income tax expense and provides better information reporting.

We or one of our subsidiaries file income tax returns in the United States (U.S.) federal jurisdiction and various state and foreign jurisdictions. We have open tax years for the U.S. federal return back to 1993 with respect to our net operating loss (“NOL”) carryforwards, where the IRS may not raise tax for these years, but can reduce NOLs. Otherwise, with few exceptions, we are no longer subject to federal, state, local or foreign income tax examinations for years prior to 2004.

We are subject to potential change by various tax jurisdictions in the inter-company pricing at which we have conducted business within our global related group of companies. Additional tax examinations may be opened or existing examinations may be resolved within the next 12 months. We closely monitor developments in this area and make changes as necessary in the accruals we have made for what we believe will be the ultimate outcome of any tax adjustments. It is not possible to reasonably estimate a range of potential increases or decreases of such changes.

As part of the process of preparing unaudited condensed consolidated financial statements, we are required to estimate our full-year income and the related income tax expense in each jurisdiction in which we operate. Changes in the geographical mix or estimated level of annual pre-tax income can impactaffect our effective tax rate. This process involves estimating our current tax liabilities in each jurisdiction in which we operate, including the impact, if any, of additional taxes resulting from tax examinations, as well as making judgments regarding the recoverability of deferred tax assets. To the extent recovery of deferred tax assets is not likely based on, among other things, our estimation of future taxable income in each jurisdiction, a valuation allowance is established. Tax controversies often involve complex issues across multiple jurisdictions and may require an extended period to resolve.

10. Restatement of Financial Statements

As discussed inNote 3, Borrowings and Debt Issuance Costs, we adopted FSP APB 14-1 in the threesix months ended March 31,June 30, 2009. The accompanying condensed consolidated financial statements have been restated to reflect the resulting increase to non-cash expense and balance sheet reclassifications.

Following is a summary of the effects of the restatement described above (in thousands, except per share data).

Condensed Consolidated Balance Sheet

Condensed Consolidated Statement of Operations and Comprehensive Income

Condensed Consolidated Statement of Cash Flows

ITEM 2. 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 statements of historical or current facts, including, without limitation, statements about our business strategy, plans, objectives and future prospects, are forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from these expectations, which could have a material adverse effect on our business, results of operations, cash flow and financial condition. Such risks and uncertainties include, without limitation, the following:

Many of these risks and uncertainties are beyond our control and, in many cases, we cannot accurately 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, our customers or our management are intended to identify forward-looking statements.

References in this report to the terms “optimal” and “optimization” and words to that effect are not 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

Nature of Operations

We operate our business in one segment, supply chain management solutions, that are designed to help enterprises optimize business processes both internally and among trading partners. We are a provider of supply chain management solutions, consisting of various software and service offerings. Our service offerings include business optimization and licensed technical consulting, managed services, training, solution maintenance, software upgrades and development. We operate our business in one business segment. Supply chain management is the set of processes, technology and expertise involved in managing supply, demand and fulfillment throughout divisions within a company and with its customers, suppliers and partners. The business goals of our solutions include increasing supply chain efficiency and enhancing customer and supplier relationships by managing variability, reducing complexity, and improving operational visibility, and increasing operating velocity.visibility. Our offerings are designed to help customers better achieve the following critical operationalbusiness objectives:

Visibility – a clear and unobstructed view up and down the supply chain

Planning – supply chain optimization to match supply and demand while considering system-wide constraints

Collaboration – interoperability with supply chain partners and elimination of functional silos

Control – management of data and business processes across the extended supply chain

Revenue Categories

We recognize revenue for software and our related service offerings in accordance withStatement of Position (SOP) 81-1, “Accounting for Certain Construction Type and Certain Production Type Contracts,” 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,” SEC Staff Accounting Bulletin (SAB) 104, “Revenue Recognition,” andSAB 103, “Update of Codification of Staff Accounting Bulletins,” andSEC Staff Accounting Bulletin “Topic 13, Revenue Recognition.”

Software Solutions.Software solutions revenue includes core license revenue,and recurring license revenue, and fees receivedrevenue to develop the licensed functionality (for example, the provision of essential services).functionality. We recognize our software solutionsthese revenues under SOP 97-2 or SOP 81-1 based on our evaluation of whether the associated services are essential to the licensed software as described within SOP 97-2. If the services are considered essential, revenue is generally recognized on a percentage of completion basis under SOP 81-1. Services are considered essential to the software when they involve significant modifications or additions to the software features and functionality. In such arrangements, the software license fees as well as the fees received for the performance of essential services are recognized as software solutions revenue. In addition, we have several subscription and other recurring revenue transactions, which are recognized ratably over the life of each contract.

Services.Services revenue is primarily derived from fees for services that are not essential to the software, including implementation, integration, training, consulting, hosting, and consulting,managed services, and is generally recognized when services are performed. In addition, services revenue may include fees received from arrangements to customize or enhance previously purchased licensed software, when such services are not essential to the previously licensed software. Services revenue also includes reimbursable expense revenue, with the related costs of reimbursable expenses included in cost of services. Services revenue typically earns a lower margin than software solutions and other revenue types.

Maintenance. Maintenance revenue consists of fees generated by providing support services, such as telephone support, and unspecified upgrades/enhancements on a when-and-if available basis. A customer typically prepays maintenance and support fees for an initial period, and the related revenue is deferred and generally recognized over the term of such initial period. Maintenance is renewable by the customer on an annual basis thereafter. Rates for maintenance, including subsequent renewal rates, are typically established based upon a specified percentage of net license fees as set forth in the contract.

Key Performance Indicators and Operating Metrics

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 offer suites of applications, while most offer solutions designed to target specific processes or industries. We believe our principal competitors continue to strengthen, in part based on consolidation within the industry. In addition, our shift to a more solutions-oriented approach, where services are more critical, increases our exposure to competition from offshore providers and consulting companies. All of these factors are creating pricing pressure for our software and service offerings. However, we believe our focus on a solutions-oriented approach that leverages our deep supply chain expertise differentiates us from our competitors.

In managing our business and reviewing our results, management focuses most intently on our cashrevenue generation process, including bookings, backlog, revenue, cash flow from operations and liquidity.

Bookings. We define bookings as the total value of non-contingent fees payable to the company pursuant to the terms of duly executed contracts. Bookings are expected to result in revenue as products are delivered or services are performed, and may reflect contracts from which revenue will be recognized over multi-year periods, however there can be no assurance that bookings will result in future revenue. Bookings do not include amounts subject to contingencies, such as optional renewal periods, amounts subject to a customer’s internal approvals, amounts subject to customer specific cancellation provisions and amounts that are refundable for reasons outside of our standard warranty provisions. Based on the nature of the transactions, certain of our subscription bookings have termination provisions upon payment of a penalty. Because our revenues are recognized under several different accounting standards and thus are subject to period-to-period variability, we closely monitor our bookings as a leading indicator of future revenues and the overall performance of our business.

Total bookings for the three months ended March 31,June 30, 2009 and March 31,June 30, 2008 were $66.5$61.6 million and $66.4$64.1 million, respectively, a decrease of 4% or $2.5 million. Included in total bookings are $23.5 million and $4.2 million of multi-year contracts, respectively. Total bookings for the six months ended June 30, 2009 and June 30, 2008 were $128.1

million and $130.5 million, respectively, a decline of approximately 2% or $2.4 million. This includes $32.1 million and $7.7 million of multi-year contracts, respectively. The software solutions component of our bookings formulti-year contracts in the three months ended March 31,June 30, 2009 include approximately $13.5 million in maintenance agreements and March 31, 2008 were $24.1$10 million and $8.6 million, respectively, an increase of $15.5 million, or 180%. The increase from the first quarter of 2008 was driven by increased bookings associated with the performance of essential services, which are the services required to deliver and implement the contracted functionality associated with license agreements that will be accounted for under SOP 81-1. The essential services portion ofin software solutions, bookings were $11.9 millionwhich is higher in the first quarter of 2009 than in the first quarterprevious quarters. The average term of 2008.these multi-year agreements is slightly less than 3 years.

Backlog.Backlog represents the balance of bookings that has not been recognized as revenue. The amount of backlog for which we have received payment is recorded as deferred revenue on our condensed consolidated balance sheet. We review our backlog to assess future revenue that may be recognized from bookings in previous fiscal periods. This review allows us to determine whether we are recognizing more or less revenue compared to the bookings in that period and whether our backlog is increasing or decreasing.

Revenue.For the three months ended March 31,June 30, 2009, total revenue was down 10%decreased by 12% or $6.2$7.7 million compared to the same period in 2008. As part of being a solutions-oriented provider, we have experienced a shift2008 and decreased by 11% or $13.9 million for the six months ended June 30, 2009 compared to a greater level of services revenue, which has partially offset our declinethe same period in software solutions and maintenance revenue.2008. The changes in each category of our revenue are described below.

Software solutions revenue declined 13%increased 21% or $1.5$2.7 million for the three months ended March 31,June 30, 2009 compared to the same period in 2008. The primary reason2008, and increased 5% or $1.2 million for the decline is a reductionsix months ended June 30, 2009 compared to the same period in our recurring revenue,2008 due to a license arrangement that was required to berevenue recognized ratably overfrom our SOP 81-1 transactions. The increase primarily resulted from the 12 months ended December 31, 2008 based on its terms. That arrangement is subject to a maintenance agreement in 2009. Oursignificant software solutions revenue is heavily dependent on the amount of backlog at the beginning of each quarter. Our software solutions backlog increasedbookings in the first quarter of 2009 which was the first such increase since 2007. In order to increase our software solutions revenue in the future, we need to continue to increase our software solutions bookings.

Services revenue decreased 7%23% or $2.1$6.9 million for the three months ended March 31,June 30, 2009 when compared to the same period in 2008 which resulted fromand decreased 15% or $9.0 million for the six months ended June 30, 2009 when compared to the same period in 2008. The decrease was driven by a 7%decline in demand for our services due to our customers’ economic constraints, resulting in a 20% and 14% reduction in billable hours.hours, respectively. We adjusted our services capacity accordingly through cost reductions including decreasing our average headcount by 10% and 9%, respectively, as well as reducing our usage of third party contractors.

Maintenance revenue decreased 12%16% or $2.6$3.5 million for the three months ended March 31,June 30, 2009 when compared to the same period in 2008 and decreased 14% or $6.1 million for the six months ended June 30, 2009 when compared to the same period in 2008. This decrease was primarily due to the impact of lower renewal rates as well as cancellations of certain contracts by customers who previously had multiple maintenance agreements. In addition, a significant maintenance-paying customer decided not to renew maintenance in the second quarter of 2009, which resulted in a $1.0 million reduction in maintenance revenue for the three and six months ended June 30, 2009 when compared to the same period in 2008. This trend of lower renewal rates and customer losses may continue if our customers reduce their expenditures during the current economic downturn.

Operating Cash Flow and Liquidity.We closely monitor our operating cash flow, working capital and cash levels. In doing so, we attempt to limit our restricted cash and cash balances held inby foreign subsidiaries.

Our operating cash flow for the threesix months ended March 31,June 30, 2009 was approximately $7.7$22.3 million compared to operating cash flow from operations of $8.9$20.4 million in the threesix months ended March 31, 2008.June 30, 2008 primarily due to our cost reductions as a result of our restructuring and reorganization efforts.

Our working capital was approximately$124.9 million at June 30, 2009, compared to the $106.5 million balance at March 31, 2009 compared toand the $187.4 million for the period endedat December 31, 2008. In the first quarter of 2009, we used $84.8 million to repurchase debt, seeNote 3, Borrowings and Debt Issuance Cost.

The chart below shows the components of our working capital for the twelve months ended 2008 and the dollar changes from December 31, 2008 through the first quarterand second quarters of 2009.

In addition to assessing our liquidity based on operating cash flow and working capital, management also considers our cash balances and our net cash balance, which we define as the sum of our total cash and cash equivalents and restricted cash minus the face value of our debt.

Application of Critical Accounting Policies and Accounting Estimates

There have been no changes during the firstsecond quarter of 2009 to the critical accounting policies or the areas that involve the use of significant judgments and estimates we described in our 2008 Annual Report on Form 10-K.

Analysis of Financial Results – Three Months Ended March 31,June 30, 2009 Compared to Three Months Ended March 31,June 30, 2008.

Summary of FirstSecond Quarter 2009 Results

Revenues

The following table sets forth revenues and the percentages of total revenues of selected items reflected in our condensed consolidated statements of operations and comprehensive income for the three months ended March 31,June 30, 2009 and March 31,June 30, 2008. The period-to-period comparisons of financial results are not necessarily indicative of future results.