Washington (June 15, 2004) -- I2 Technologies Inc., a Dallas-based developer and marketer of enterprise supply chain software and management solutions, joined the growing list of companies that have settled charges brought by the Securities and Exchange Commission related to improper revenue recognition.

Without admitting or denying the commission's charges, i2 agreed to pay a $10 million penalty and consented to a cease-and-desist order finding that it violated federal securities laws. The penalty proceeds will be distributed to injured i2 shareholders. The company said that it will continue to cooperate with the SEC's ongoing investigation.

The SEC said that the company misstated roughly $1 billion of software license revenues, including over $125 million of revenues that it should never have recognized, over nearly five years to 2002.

The SEC noted that had i2 accurately presented its financial condition for these periods, "it would have disclosed increasingly negative results."

Harold F. Degenhardt, administrator of the commission's Fort Worth office, said that i2's revenue recognition problems were "endemic" and were triggered in some cases to meet analysts' revenue and earnings expectations.

The SEC said that i2 knew or was reckless in not knowing that up-front recognition of software license revenue was inappropriate for some of its software licenses that required lengthy and intense implementation and customization efforts. In some cases, the SEC said, the company shipped products and product lines that lacked functionality essential to commercial use, and in others licensed software that required additional functionality to be usable by particular customers. The SEC also alleged that i2 exaggerated certain product capabilities, or entered into side agreements with certain customers that weren't properly reflected in the accounting for those transactions.

According to the SEC, i2 also improperly recorded revenue from four barter transactions that involved third-party purchases of software licenses in exchange for i2's agreement to purchase a comparable amount of products or services from the company in the future.

In July 2003, i2 restated its financial results for the four years ended Dec. 31, 2001, and the first three quarters of 2002. The restatement involved approximately $1 billion of revenues and included revenue write-offs of over $125 million.

-- WebCPA staff

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