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Executives

Tom Ward – Investor Relations

Jackson L. Wilson, Jr.– Chief Executive Officer

Michael Berry – Chief Financial Officer

Analysts

James Friedman – Susquehanna Financial

Brad Reback – Oppenheimer & Co.

Pat Walraven – JMP Securities

[Steve Selkey – Unidentified Company Name]

I2 Technologies (ITWO) Q4 2008 Earnings Call February 5, 2009 9:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter 2008 earning’s release conference call. (Operator instructions) I would now like to turn the conference over to our host, Mr. Tom Ward. Please go ahead.

Tom Ward

Thank you Julia. I’d like to welcome everyone to our conference call this morning. We released our fourth quarter and fiscal year 2008 results today. The release crossed the wire at 6:55 a.m. Eastern time. Joining me today are Jack Wilson, i2’s Chairman, President, and CEO, and Mike Berry, i2’s Chief Financial Officer, who will deliver some prepared remarks and we will then take questions afterwards.

Those of you wishing to access the webcast of today’s conference call may do so by going to www.i2.com/investor and clicking on the webcast link in the center of the page.

I would like to remind that the comments we will make today are subject to the SEC's Safe Harbor provisions. During our commentary and during the question-answer session, we will make estimates and forward-looking statements that are the current beliefs and opinions of certain members of i2 management. These statements are indicated by such terms as "plans to", "preliminary", "goal", "will", "believe", "targeting", "expect", "anticipate", "intend", and "likely".

They may include statements regarding future revenues or expenses, earnings, operations, and cash flows, as well as statements regarding demand for the company's solutions and services and the company's ability to achieve its targets, goals, and initiatives. We can give no assurance regarding the achievement of these forward-looking statements as they are only estimates and the actual outcomes may be significantly different.

Additionally, we expect that some of these forward-looking statements will change in the normal course of our business, and the company expressly disclaims any current intention to update forward-looking statements that we may make on today's call. Please refer to the forward-looking statements portion of the MD&A section and the Risk Factors section of our most recent 10-K filing and the section titled ‘i2 Cautionary Language’ in the press release attached to the form 8-K filed with the SEC today, which are available on our website.

During the call, we may make reference to certain non-GAAP financial measures. We have posted the appropriate reconciliations of our non-GAAP to GAAP financial measures on the Investor Relations page of our Web site.

I would now like to turn the call over to jack Wilson, i2’s Chairman, President, and CEO. Jack?

Jackson L. Wilson, Jr.

Thanks, Tom, and good morning everyone. Thank you for joining us today. I want to briefly provide you with some operational highlights from the fourth quarter, and to update you on my activities since being appointed CEO in December.

First, 2008 was a year in which i2 around the world demonstrated perseverance and dedication to customer value delivery amid significant distractions. Coverage of our patent infringement lawsuit with SAP and the proposed merger with JDA Software prompted much discussion, and offered fodder for competitor’s looking to create uncertainties about i2 in the marketplace. We believe the SAP settlement is a strong validation of the value of our intellectual property in the resulting settlement amount, as well as the fee from the terminated JDA merger agreement further strengthened our balance sheet and our growing net cash position. With these transactions behind us, we look forward to i2 being a sustainable company with focused execution and increased operational efficiency.

Now I would like to cover some booking’s highlights from our fourth quarter. First, the global computer manufacturer who is already successful using i2 Solutions extended its relationship with us to manage and support its configure-to-order web channel. Working closely with i2, this customer aims to increase demand and drive higher margins through its web channel. A global leader in mobile communications who renewed their supply chain and leader agreement in 2007 extended that agreement with us to continue optimizing their supply chain for competitive advantage. One of the world’s largest semi-conductor companies extended its relationship with i2 in order to expand their existing planning forecasting and business intelligence of functionality across their enterprise.

A global consumer electronics manufacturer, and a new customer, selected i2 to help define the supply chain management business transformation plan for one of its key divisions, and for managed services within its retail management. This agreement includes store level forecasting and replenishment for a top U.S. retailer.

Finally, as corporations need to efficiently manage their entire logistics network with flexible, scalable solutions increases, we continue to see strong interest in our transportation solutions, including [inaudible] matrix. While the fourth quarter is traditionally a strong bookings quarter, given the distractions in the second half of 2008, in particular, we are pleased with what our sales team was able to accomplish.

Now I would like to give you an update on some of my activities during the whirlwind of these last few weeks. I was appointed CEO less than two weeks before the end of the year, so I focused a lot of my initial time learning about and meeting with our customers. I was proud to talk with customers about our solid financial position our commitment to their success. My meetings with them offered valuable insights into their challenges at what they want and what they need. My business career has been anchored in exceptional client service, but I look forward to spending an increasing portion of my time with our customers.

I also spoke with a few representatives of the investment community. It was clear from these discussions that many of you are looking to know more about our go-forward strategy. Fundamentally our strategy is to solve the toughest supply chain problems utilizing our world-class intellectual property and expertise. I believe the four pillars of our current strategic approach are essentially good.

First, a robust licensed software and maintenance offering, implementation services, process consulting, and a managed services offering. Where we need the greatest improvement is in our execution and to sharpen up what we are trying to optimize. That is where we are putting the majority of our focus right now. During the third and fourth quarters of 2008, we experienced purchasing delays by some customers due to either the deteriorating macro economic environment, or their desire to know more about the combined product road map, resulting from our proposed merger with JDA.

While we can't control the macro economic environment, we do believe that there is some deferred demand resulting from these companies holding off on purchase decisions until after our situation stabilized. As an example, for the last six months, we have been working with a large U.S. customer who had delayed their purchase decision as they waited for clarity in our strategic direction. I’m pleased to say this company signed a comprehensive agreement for software solutions, services, and maintenance in January of 2009. This agreement has a total contract value in excess of $15 million with a significant portion related to software solutions.

In these tough economic times, a sharp focus on supply chain management is critical to a company’s success. Streamlining operations and manufacturing costs, optimizing transportation, and focusing on increasing cash to improve asset utilization, and enhance execution management, can enable a business to maneuver through these volatile times.

I believe history will show that companies who make the investment in supply chain improvements today will emerge stronger and more successful than those who conservatively stand back waiting for times to get better. The time to act is now and i2’s around the world are committed to delivering value through exceptional customer service. This is an exciting time for i2 and we believe tremendous opportunity awaits us.

With that I would like to turn it over to Mike who will review the fourth quarter and fiscal year 2008 results for you. Mike?

Michael Berry

Thank you, Jack, good morning everyone. I will apologize, I have a little bit of a cold so if it’s raspy, again, I do apologize.

This morning, as Jack said, I am going to review the fourth quarter and the fiscal year results for 2008. Before I get started, I do want to remind everyone that the results we will discuss this morning are preliminary pending final review by the company and our external auditors. The financial results will not be final until we file our 2008 10-K in March. Additionally, you will find a presentation of our supplemental financial results for the fourth quarter and full year 2008 on the presentations page of the Investor Relations section of our website.

Okay. But before I go into the details of the fourth quarter, I would like to go through some of the events that have occurred during the year that had a significant impact on our financial results. First, let’s talk about bookings, which represent the value of non-contingent agreements signed, and are a leading indicator of our future revenue.

Total bookings for the full year 2008 were 226 million down 38 million, or 14%, compared to the full year 2007. It is important to remember that the 2007 booking results included the impact of the multi-year renewals for three of our supply chain leader deals. If you exclude the impact of these bookings in 2007, or any extensions in 2008, total bookings were down by 9% with Software Solutions decreasing by 32% and services and maintenance combined decreasing by 4%.

As Jack mentioned, we experienced disruptions to our business in the third and fourth quarters of 2008 as a result of both the proposed merger with JDA and the slowing economic environment. Both of these events had a negative impact on our ability to achieve our booking’s plan, especially related to signing new customers and proposals related to licensed transactions.

While it is difficult to qualify the specific impact of each, some customers and prospects did postpone their purchase decisions while the merger was in process, and we saw some impact toward the end of the year related to the economic slowdown.

Second, for full year 2008 we were reporting $3.99 in GAAP diluted earnings-per-share, and $115 million in cash flow from operations. Our patent infringement lawsuit with SAP and the termination of our proposed merger with JDA Software had a significant impact on our financial results for the year. From a diluted earnings-per-share perspective, the patent infringement settlement contributed $2.94 in diluted EPS and the net benefit from the merger termination payment of 10.2 million represented $0.38 in diluted EPS.

From a cash flow perspective, the net proceeds of the SAP settlement amount in 2008 were 77.8 million and the net merger termination proceeds were 10.8 million. Combined, these two events contributed approximately $89 million to our total $115 million in cash flow from operations during the year.

So, excluding these events, we generated approximately 26 million in cash flow from operations, marking our third consecutive year of positive cash flow from operations, and a growth of approximately 60% when compared to the full year 2007.

Third, we had a leadership change in the fourth quarter. Jackson L. Wilson, Jr. was appointed CEO. As a result of this change, the company accrued approximately 3.1 million in costs related to Pallab Chatterjee’s departure, including 2.2 million in stock compensation expense and approximately 900,000 in severance expense. The cash component of this total will be paid in June of 2009 due to the new 409 regulations governing executive payment.

Next, let's discuss our income tax situation. As we have discussed many, many times, we have approximately 1.7 billion in net operating loss carried forward that equate to over 600 million in deferred tax assets. And we have applied evaluation allowance to virtually all this amount. Because we have been profitable now for several years, we are looking at when we should start reversing portions of the domestic valuation allowance. There are many factors and judgments that come into play when reversing valuation allowance. At this point, we do not believe that we will record a reversal to the valuation of allowance in the fourth quarter of 2008, but this may change based on our ongoing planning and projections for 2009 and beyond.

Please not that these are non-cash events. Except for specific items that may occur in AMT liability, we do not anticipate paying domestic federal income taxes for the foreseeable future. We will accrue a nominal amount of domestic state and local income taxes due to the manner in which these taxes are determined. We will certainly update you on this item during our first quarter 2009 earning’s call.

Finally, foreign exchange volatility during the year, particularly in the fourth quarter, affected our financial results as well. It is important to remember that foreign exchange volatility can affect financial results both positively and negatively.

Similar to other companies with a significant presence in India, our rupee denominated expenses translated into a reduction in dollar denominated expenses for India operation as a result of the significant strengthening of the U.S. dollar versus the rupee during the fourth quarter. The strengthening dollar against the Indian rupee translated into approximately 1.4 million in lower operating expenses in the fourth quarter of 2008 versus the same time period last year due to the stronger dollar.

The majority of this benefit is seen in the lower operating expense for services, as well as research and development. However, this was more than offset by the cash flows required to settle certain foreign exchange hedges associated with our balance sheet hedging program.

We are entering 2009 with our strongest balance sheet in recent history with approximately 244 million in total cash and approximately 158 million in net cash. This is truly a significant improvement over the past three years in our cash and working capital balance and is a tribute to the hard work of all of the i2 associates across the world. We are very excited with our liquidity and cash position and are encouraged by the flexibility this position afford the company as we chart our path forward.

Okay, let's talk about bookings for the fourth quarter. Total bookings in the fourth quarter were 49.5 million, which includes 7.8 million of Software Solutions bookings. The 49.5 million represents the contracted value of non-contingent booking signed during the fourth quarter across all of our revenue categories. The 7.8 million of Software Solutions bookings for the fourth quarter includes approximately $3 million related to subscription agreement, of which approximately 2 million is from the extension of a supply chain leader customer renewal from 2007.

Okay, before I get into more detail on the income statement, let's go through the effect that the termination fee had on our financial results. In the fourth quarter 2008 we recorded the $20 million termination fee from the proposed merger net of 3.2 million in related external expenses as non-operating income. In addition to the 3.2 million, we incurred income tax expense of 530,000 for alternative minimum tax and state taxes specifically related to the termination fee. We had included this termination fee, again, net related expenses and taxes, as a non-GAAP adjusting item for the quarter, similar to how we treated it in Q3. And, again, I’ll discuss this further during our discussion on the non-GAAP results.

Okay, let's move on to the income statement. Total revenue for the fourth quarter of 2008 was 63.8 million, which was 500,000, or 1%, higher than total revenue in the fourth quarter 2007. Software Solutions revenue was 12.1 million in the fourth quarter 2008 versus 12.4 million in the fourth quarter of 2007, which is a decrease of 300,000, or 3%, year-over-year.

Services revenue was 30.9 million in the fourth quarter of 2008, up 1.8 million, or 6%, compared to the fourth quarter of 2007. The year-over-year increase in services revenue was primarily due to a 9% increase in billable hours, partially offset by a 3% decline in the billable rate in the fourth quarter of 2008 compared to the prior year period.

Maintenance revenue finished at 20.8 million for the fourth quarter of 2008, a decrease of 1 million, or 5%, when compared to the fourth quarter of 2007. The year-over-year decrease in maintenance revenue for the fourth quarter is primarily due to a reduction in revenue from our existing customer base as opposed to a net loss in customer. While we were hoping for an increase in maintenance revenue during the fourth quarter and on a full year basis, we are encouraged that maintenance revenue decreased by only 2% for the full year 2008, a significant improvement from prior years.

Okay, let’s move on to total costs and expenses. Cost of services was 21.6 million in the fourth quarter of 2008, a decrease of 2.7 million, or 11%, year-over-year compared to the fourth quarter 2007. Our services gross margin for the fourth quarter 2008 was 30%, up 13.8 percentage points year-over-year, and down 3 percentage points compared to the third quarter of 2008.

Our services growth margin for the full year was 27.2%, up 6.6 percentage points compared to the full year 2007. Please remember that the year-over-year comparisons were helped by the movement of certain services associated to the sales organization in the first quarter of 2008. This represented approximately 1.5 million in expense per quarter, or 6 million for the year.

Cost of maintenance was 2.3 million in the fourth quarter of 2008. Our maintenance margin in the fourth quarter was 89.1%, up 40 basis points from the third quarter 2008. For the full year 2008, maintenance margin was 88.1%, up 80 basis points from the full year 2007.

The market expense increased 300,000, or 3%, in the fourth quarter of 2008 compared to the prior year period. The increase in sales to marketing expense is primarily due to the movement of the services associates to sales that I just discussed offset by lower commissions, travel, and marketing expense for the fourth quarter of 2008 when compared to the fourth quarter of 2007.

Research and development expenses declined 1.1 million, or 14%, year-over-year in the fourth quarter. This decrease was primarily due to a reduction in contractor costs, as well as lower overall payroll related expenses during the fourth quarter of 2008.

Our general administrative expense for the fourth quarter increased 4.2 million year-over-year, or 51%. This was primarily due to the 3.1 million in severance costs related to the departure of the company’s former CEO, as well as the $1 million credit that was recorded to JNA in the fourth quarter 2007 from a reversal to our litigation reserve accrual.

We reported 15.3 million of non-operating income in the fourth quarter of 2008, which reflects the merger termination fee net of the related external expenses, as well as the net amount of interest income, interest expense, bank fees, foreign exchange gains or losses, and other miscellaneous income and expenses. Despite the higher cash balances in 2008 compared to 2007, our interest income was approximately $1 million lower in the fourth quarter of 2008 compared to the fourth quarter 2007, due to the lower rates on our invested balances.

We moved the majority of our cash balances into very short term treasury and agency funds during the third quarter of this year, and this had a significant impact on our investment returns during the second half of the year.

Our income tax provision was $3 million for the fourth quarter of 2008, which included foreign withholding taxes, foreign income taxes, estimated domestic AMT, and other state taxes related to the merger and termination fee, as well as some year-end (inaudible) as it relates to our company-wide tax positions.

After subtracting out the preferred stock dividend and increasing the discount, net income applicable to common stock holders finished at 21.4 million and diluted earnings-per-share applicable to common stock holders for the quarter was $0.80.

And for those of you joining us today who use non-GAAP measures to evaluate our performance, for the fourth quarter of 2008, non-GAAP diluted EPS was $0.31 per share compared to the non-GAAP diluted EPS of $0.26 per share in the fourth quarter of 2007.

As we did in the third quarter of 2008, in addition to stock option expense, we included the impact of the merger termination fee, again, net of the related external expenses and applicable income taxes as a non-GAAP adjusting item for the quarter. I would like to remind you that we have a full reconciliation of our GAAP to non-GAAP amounts on our website under the Investor Relations section. The reconciliations posted are consistent with items and definitions we have discussed today and all historical amounts have been previously disclosed in company filing.

Okay, now let's talk about the balance sheet. I will provide comparisons of the fourth quarter 2008 balance sheet versus the balance sheet as of the third quarter of 2008. Total assets increased 15.4 million from the end of the third quarter 2008 primarily due to an increase in cash and equivalence, including restricted cash of 16 million. The increase in cash and equivalence was due mainly to the receipt of the merger termination fee in December.

Current liabilities decreased 10.7 million primarily due to decreases in our net deferred revenue of 9.7 million and accrued liabilities of 3.4 million. These decreases were partially offset by a 2.4 million increase in accounts payable and accrued compensation. The increase in accrued compensation is due mainly to the bonus accruals during the fourth quarter that will be paid in February 2009.

At the end of the fourth quarter of 2008, total cash and equivalence balance including restricted cash of 5.8 million was $243.8 million. We ended the quarter with approximately $158 million more cash than the face value of our total debt of 86.3 million. Okay. Moving onto the cash flow statement; as I mentioned earlier, we generated cash from operating activities of 15.6 million in the fourth quarter of 2008. There were a number of puts and takes during the quarter, so let me walk you through those.

First, we had the cash inflow of $20 million from the termination fee from the proposed merger. Second, during the fourth quarter we paid 3.4 million in expenses related to the proposed merger. So, the net cash inflow from the termination fee was 16.6 million for the fourth quarter.

When looking at cash flow from operations for the fourth quarter, while we had the 16.6 million benefit from the merger termination proceed, we also had a negative net impact of several million dollars associated with our balance sheet hedging during the fourth quarter.

Cash provided by investing activities was 500,000 in the fourth quarter and was primarily provided by restrictions released on our restricted cash. We are pleased with the significant cash generation we achieved during 2008. Even if you adjust our reported full-year cash flow from operations of 115 million for the SAP settlement and the net merger termination fee, our cash generated from operations was approximately 26 million. Again, that's approximately $10 million better than the full year 2007.

Okay. Before I hand the call back to Jack, I do want to address a new FASB pronouncement that will affect our financial results both going forward and historically beginning with the first quarter of 2009 reporting. This new standard called FASB Staff Position APB14-1 changes the accounting for convertible debt with a cash settlement component such as our 5% senior notes.

The intent of this statement is for similar issuances of convertible and non convertible debt to generate similar interest expense. The impact on our balance sheet is to adjust the originally recorded debt value to allocate a portion of the proceeds between debt and the conversion feature within equity. These allocated amounts are based on the company's estimate of our annual interest rate if we had issued straight debt and not a convertible instrument.

As a result of that, the debt is reported at a discount to its face value and that discount gets recognized as additional non cash interest expense over the life of the debt, which results in total cash in non cash interest expense debt equals the rate that would have been incurred if straight debt without a conversion feature had been issued.

The result for i2 is that starting with our first quarter of 2009 results, all of our historical and ongoing financial statements will show a lower debt value on our balance sheet and we currently estimate we will incur approximately 500,000 in additional non cash interest expense per quarter.

Let me do that again, sorry I mixed that up. We currently estimate that we will incur approximately 500,000 in additional non cash interest expense per quarter.

We intend to provide updated historical financial results on the investor relations' page of our website, beginning with the first quarter of 2009 results.

With that, this concludes my prepared remarks. Now I'd like to turn it back to Jack for some concluding comments. Jack?

Jackson L. Wilson, Jr.

Thank you, Mike. Before we get onto Q&A, I would like to comment on a few specific issues that have come up during my conversations with customers, i2 associates, and members of the investment community.

First, does the strategic review committee still exist? Yes it does. The SRC is a continuing committee of the board comprised of three independent directors. It is important to remember that the SRC was not established to review just one transaction. It was established to review and evaluate strategic options available to the company to enhance shareholder value. As part of that process, the SRC plays an important role in reviewing any external inquiries or internal management initiatives.

Second, what do we plan to do with our cash balance? Given the current economic environment, we believe it is prudent to have a strong balance sheet with a significant cash position. As part of our ongoing strategic review process, we continue to evaluate various available alternatives to effectively deploy our capital. These alternatives include, among others, investing in particular areas of our existing operations, defending our robust intellectual property portfolio, making acquisitions to broaden our solution offerings or our consulting capability and expertise, or making changes to our capital structure.

One use of cash I did not mention was a return of capital to common stockholders through either a dividend or stock repurchase program. This type of use is not entirely at the discretion of management, as it requires the consent approval of our series B preferred stockholders.

As I mentioned in my opening remarks, we are concentrating on i2 being a sustainable company with focused execution and increased operational efficiency. With our strong financial position, we will continue to evaluate our options related to mergers, acquisitions, new products, additional intellectual property activities, changes to our capital structure, and other activities aimed at increasing shareholder value.

Since the termination of the proposed JDA merger in December, our stock prices have been essentially trading at our net cash balance on a per diluted share basis.

With roughly 160 million of net cash on our balance sheet, we are excited about the options and opportunities available to us to increase shareholder value.

All this being said, as is our policy, we will not comment on any specifics related to any of these activities until or if we have an event that requires a public disclosure.

That concludes our prepared remarks. Operator, we'd now like to open the line for Q&A.

Question-and-Answer Session

Operator

(Operator's Instructions) Our first question will come from the line of Mr. James Friedman. Please go ahead.

James Friedman – Susquehanna Financial

Hi, and thank you for taking my question. Maybe it was just me or others on the call, but I couldn't get on until late. Jack, could I trouble to at least repeat what you had said with regard to the kind of extraordinary impact to the bookings number? I guess one was economic and one was obviously M&A related?

Jackson L. Wilson, Jr.

I'm not exactly sure what you're asking. There were two factors, I think, on our bookings that I related to. One is our view that there was some deferral of our customers waiting to see what a joint product plan would like from a JDA/i2 organization. And the second was the macroeconomic factors that begin to bear in our customers in the second half of '08.

James Friedman – Susquehanna Financial

And being that one of those is no longer at issue, but the other is kind of persistent, how would you decompose those relative to the kind of fundamental business that you're on?

Jackson L. Wilson, Jr.

Well, I think obviously as this quarter goes by, I mean I did report — you may have missed, I did report a rather significant booking early in January of a customer we have been working with and was deferring its decision through Q3, Q4. That is one data point that is a referral that does come in post the clarification with where we are with JDA.

The other overhang that we have a much harder time getting a read on is the impact on all of our customers from the economic situation they're in. They're all in a cost containment mode, they're all in a convert their CapEx to OpEx, and they're in a cost reduction mode across the board.

So for us, that is the biggest overhang. It's hard to judge. We'll know more as we go through Q1 how much of the deferred demand we actually see in bookings in Q1 and we couldn't predict that at this point.

James Friedman – Susquehanna Financial

Okay. I apologize to have had to ask you to repeat that. And then with regard to the use of funds for the company, and this part I did hear — you had alluded first to potentially reinvesting in the product portfolio of the company. Could you share with us what types of products you think customers are looking for?

Jackson L. Wilson, Jr.

Our investments in recent years have been generally in the retail space and in the logistics and freight space and those are now getting good traction in the marketplace. We are looking at ones adjacent to those. We are looking at perhaps refresh in our core SEM product suite. We're also looking at different models as we look at expanding our managed services. Obviously the way we would develop products for our managed services environment is a bit different than a licensed environment.

So, our R&D folks and our field ops are coordinating and looking at all of those activities right now as we try to plan really where to put our emphasis as we go into 2009.

James Friedman – Susquehanna Financial

Okay. That's interesting. And then lastly, in a similar vein, with regards to the use of funds for common shareholders — I realize that that is beyond your control. Does that apply as well to a share repurchase?

Michael Berry

Hey, Jamie. It's Mike Berry. Good morning. Yeah, any use of capital for a share repurchase or any kind of share buyback needs the approval of the series B holder.

James Friedman – Susquehanna Financial

Is it possible to just buyout the preferred holders to harmonize your interests better with those of the common?

Michael Berry

So, under the agreement, beginning in June 2008, the company now has the option to repurchase all of the series B for 104% of the then current face value. And just for your information, that's 109 million right now. But quite frankly, and while I do not want to speak for the board, from a financial perspective, keep in mind that that preferred stock instrument is really equity. Unless there is an event that occurs, that will automatically convert to common stock a predetermined price in 2014. So, on an as converted basis it's certainly much worse than the 109. So, from a financial perspective, it would be challenging to do a repurchase of that.

James Friedman – Susquehanna Financial

Okay. I understand. Thank you so much for taking my question.

Michael Berry

Thanks for calling.

Operator

And thank you. Our next question will come from the line of Mr. Brad Reback. Please go ahead.

Brad Reback – Oppenheimer & Co.

Hi, guys. How are you?

Jackson L. Wilson, Jr.

Hey, Brad.

Michael Berry

Hey, Brad.

Brad Reback – Oppenheimer & Co.

Mike, I think you had said something to the effect on maintenance that there was a reduction in revenue from customers, but not a change in renewal rates or people dropping maintenance. Would that be correct?

Michael Berry

Yeah. What we've seen during 2008, and it was in '07, but more so in 2008, is the pressure on maintenance revenue has come more from our existing customer base. Read that to be renegotiations of their existing maintenance contract versus a loss in customers. And if you take a look at the 2% drop for the year, again that's going to be much more so from the current base than us losing customers.

Brad Reback – Oppenheimer & Co.

Given what's going on in the world economically, and some of the pressures that you saw in a better economic time, is there concern or should we be somewhat concerned that that accelerates in '09?

Michael Berry

I think certainly the down economic environment puts more pressure on maintenance renewals. As Jack mentioned, companies are looking at everywhere they spend money. So, while we are very confident in our solutions providing value to our customers, clearly that pressures, given the economic environment, is more likely to increase than not.

Brad Reback – Oppenheimer & Co.

Okay. And, Jack, on the acquisition front, without getting too specific, can you maybe frame up what type of opportunities you would engage and look at? Would they be more point type solutions to fill in a product set or meet a need or would you entertain bigger deals where you're the acquirer to pickup math and maintenance and other operational efficiencies.

Jackson L. Wilson, Jr.

Well, without being too specific, in the first I would make the point as some investors have advised me that we're trading at substantial or net cash values, so be careful what you do with the cash. That's good advice from an owner.

I would be a big fan of what I might call tuck in or adjacency type things to fill out or expand product suites. But there's got to be revenue synergy in doing something like that, either through their sales force or our sales force, overlap of customer set or geography, those would be attractive to us.

i2 has not done acquisitions for some time, and so there is the issue of our capability to IDA to find, to construct, and more importantly to integrate, some other organization into i2. I think the first order is to make sure that we have the operations of i2 very solid, very streamlined and straightforward, so that we are more able to absorb an acquisition, and that's our current focus.

We do get calls on acquisitions. I have actually looked at a couple, but we are in no hurry to go and spend all of our cash just to try to buy revenue in a one-time bump kind of scenario.

Brad Reback – Oppenheimer & Co.

Got it. And final question, given the deceleration in bookings over the course of '08, I'm assuming it's just correct to look to '09 and expect that to have a similar type impact on your reported revenue?

Michael Berry

Hey, Brad. It's Mike. Yeah, certainly bookings are a leading indicator, and given our revenue recognition pattern, from a logical point of view, you could take a look at bookings in '08 and move that forward in '09. However, I would note clearly there is impact for bookings in the current year, but certainly bookings in the preceding year is a leading indicator going into 2009.

Brad Reback – Oppenheimer & Co.

Okay. And with that knowledge, I'm assuming you can move proactively to some extent to make sure the expense structure remains in line with the revenue or the expected revenue?

Michael Berry

Absolutely.

Brad Reback – Oppenheimer & Co.

Great. Thanks a lot.

Jackson L. Wilson, Jr.

Thank you.

Operator

Thank you. Our next question will come from the line of Pat Walraven. Please go ahead.

Pat Walraven – JMP Securities

Oh, great. Thank you. So you had I guess 1,280 employees at the end of December, is that number still about right?

Jackson L. Wilson, Jr.

Yeah. I think that's approximately correct still, Pat.

Pat Walraven – JMP Securities

And are you planning to reduce headcount further?

Jackson L. Wilson, Jr.

We are going through our organization, every piece of it, and we're well in process with it, and we're asking ourselves do we have, first of all, the right compensation for the work being done, which isn't a headcount issue so much a cost versus benefit issue. We are also looking at how we simplify things. I mean, interesting, this organization as you know has come from being a very large organization eight years ago to much more modest sized today, and we do make sure that we are no more complicated than any other organization our size. I would not describe i2 that way today. So, there is great opportunity to take out cost through headcount without really changing our operation.

We do not have any target of across the board headcount reduction. We do have some expense reduction targets, but we think we can meet it surgically rather than with an axe across the whole organization.

Pat Walraven – JMP Securities

Can you share any of those expense reduction targets with us?

Jackson L. Wilson, Jr.

No. Not at this time, Pat.

Pat Walraven – JMP Securities

Okay. Did I miss it, did you guys mention any '09 guidance?

Jackson L. Wilson, Jr.

No. We did not.

Pat Walraven – JMP Securities

How did you come to the decision to not provide any color on '09?

Jackson L. Wilson, Jr.

In looking forward to '09, we think there is more — the biggest uncertainty on us is the uncertainty inherent in the macroeconomic environment. And like most other companies at this time ,we're choosing not to provide guidance into '09.

Pat Walraven – JMP Securities

Okay. Can you tell us how many maintenance paying customers you still have?

Michael Berry

Total maintenance paying customers would be somewhere probably around 450.

Pat Walraven – JMP Securities

Okay. And when you look at your maintenance renewals, are there differences by geography?

Michael Berry

Yeah, okay. So, Pat, hold on a second. Maintenance paying customers at the end of 2008, I need to my amend my answer, it's about 380. Sorry about that. So, sorry, ask your question again, your next one?

Pat Walraven – JMP Securities

Okay. Now you got me going a different direction. So, where do you think that number was at the end of '07?

Michael Berry

About the same.

Pat Walraven – JMP Securities

Was it?

Michael Berry

Yeah. That was just my mistake. I had a different number in my head. I was thinking revenue paying is about 450, maintenance paying is about 380. That number of customers has not changed significantly, and again the customers that we've lost have typically been lower maintenance paying, so we have lost some smaller guys, but we have not lost a lot of our larger maintenance paying customers.

Pat Walraven – JMP Securities

Okay. And then my last question was are seeing differences in maintenance renewals by geography?

Michael Berry

Yeah. We do see some additional pressure in some of the Asia-Pacific regions, but except for that it's pretty consistent across the board.

Pat Walraven – JMP Securities

Okay. How do you think we should model maintenance? I mean, how should we think about it for '09?

Michael Berry

Well, maintenance for '09 is going to obviously — Q1 will be a pretty significant indicator because a lot of the maintenance renewals happen in Q1. The other thing you have to look at is what kind of new maintenance is going to be added through additional software solution sales? Also, I would just ask you to be careful because keep in mind as do more subscription type arrangements that the maintenance in the license is typically bundled, so I would ask you to keep an eye both on maintenance and the subscription line as well, kind of add those two together.

Pat Walraven – JMP Securities

Okay. Thank you, guys.

Operator

Thank you. And our next question will come from the line of Steve Selkey (ph). Please go ahead.

[Steve Selkey – Unidentified Company Name]

In the fourth quarter you all showed a net cash flow of minus $1 million, and in the third quarter you were about $1 million cash flow positive. For the whole year you ended up at 26 million. What are we going to be doing in 2009 to get back to where we were at the beginning of 2008 on a cash flow basis?

Michael Berry

So, Steve, it's Mike Berry. A couple of things you have to keep in mind there is that it's probably not fair to just add back the larger events. Both of those, especially the merger discussions, did have some impact on our ability to sign new deals as well as cash collections, so I just ask you to keep that in mind. I also mentioned the impact on cash from some of the hedging that we do, which with the dollar strengthening was not an insignificant number.

So, going into the year, again as Jack mentioned, to build a sustainable company — he's talked about growth and cash flow from operations. While we don't want to provide any guidance on cash flow, we understand its importance and our desire to continue that to be positive.

[Steve Selkey – Unidentified Company Name]

Okay. And then a follow up a little bit on with the cash. You all were able to work with the bondholder to do the acquisition with JDA and you were willing to compensate them to vote for the merger. Why don't you all want to do something with the bond holder to be able to them have — to free up the cash? Because if you're going to buy another company, I would imagine you have the same requirements to get their approval on an acquisition. Why don't we give you all some freedom a little bit to do with the cash versus being tied?

When the agreement was done with this, you all didn't have say $100 million worth of cash that you do have now with the termination as well as the property settlement agreement. So, all your hands are sort of tied by this bond holder. I think you all would be better served for yourselves, as well as the company, to try to free up yourselves a little bit instead of being tied by this bond holder.

Jackson L. Wilson, Jr.

That's good input.

Michael Berry

And keep in mind, it's 86 million. There is a majority holder, there's more than one holder and clearly we — Jack mentioned that we will take a look at our capital structure as a whole well.

[Steve Selkey – Unidentified Company Name]

Because the net cash that you're earning on the books, as you all put it in the treasuries as you reported, is less than 1%. So, you're not generating anything with $160 million in benefit of the shareholders. So, it's really sitting there and it's not doing anybody any good and least if you have access to it, Jack through his expenditure way back when he was buying companies or venture capitalists and things of this sort — as far as the shareholders reimbursing it as one side earlier as you pointed out, to get to the shareholders, than you're making some use of it versus it sitting on your books earning less than 1%.

Jackson L. Wilson, Jr.

That's a good observation, but recall that up until December 6th, we had a specific target for a cash balance we had to have in our company.

So, preservation of that capital was way more important than return, and we will be looking at those investments over time. We're not going to get real risky with them, but on the other hand, the convertible can be put to us in what, 18 months or so?

Michael Berry

Yeah.

Jackson L. Wilson, Jr.

So, the cash that it would take to buy that isn't going to go anywhere in the next 18 months, I don't believe. We have to be fairly sure that we're going to be able to stand that push. So then it becomes math, a look at what does it cost us versus what do we get, and are there degrees of flexibility in an acquisition or any other kind of event that might be important to us, and we'll consider all of that.

[Steve Selkey – Unidentified Company Name]

I appreciate it.

Operator

And thank you. There are no further questions coming from the phone lines at this time. Please continue.

Jackson L. Wilson, Jr.

Thank you all very much for your time today, and I look forward to talking with you in the future.

Michael Berry

Thank you.

Operator

That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.

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