Legal Proceedings

Dillard’s, Inc. vs. i2 Technologies, Inc.

In September 2007, Dillard’s, Inc. filed a lawsuit against i2 in the 191st Judicial District Court of Dallas County, Texas, (the “trial court”) Cause No. 07-10924-J, which alleged that i2 committed fraud and failed to meet certain obligations to Dillard’s regarding the purchase of two i2 products in the year 2000 under a software license agreement and related services agreement. Dillard’s paid i2 approximately $8.1 million under these two agreements.

As previously reported, on June 15, 2010, a jury in the District Court of the State of Texas, County of Dallas, returned an adverse verdict in the litigation between Dillard’s, Inc. and i2. On September 30, 2010, the trial court signed a judgment awarding Dillard’s $237 million, plus post-judgment interest of 5% per annum. On October 4, 2010, i2 posted a $25 million supersedeas bond. By posting the bond, under Texas law, the execution of the judgment was suspended, which meant the judgment would not have to be paid during the appeals process. On December 2, 2010, we met with Dillard’s for a mediation session. During that mediation session, settlement offers were exchanged, but no agreement was reached. Therefore, on December 23, 2010 i2 filed a Notice of Appeal with the Dallas Court of Appeals.

The Company accrues estimated losses if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In evaluating the probability of an unfavorable outcome in this litigation we have considered (a) the nature of the litigation and claim, (b) the progress in the case, (c) the opinions of legal counsel and other advisors, (d) the experience of the Company and others in similar cases, (e) how management intends to respond in the event an unfavorable final judgment is returned by the trial court and (f) settlement discussions. At December 31, 2010, the Company estimated the reasonably possible loss for this matter to range between $19 million (the highest settlement offer exchanged) and $237 million (representing a maximum award for lost profits, punitive damages and pre-judgment interest), plus post-judgment interest. Management had determined that the best estimate of the potential outcome of this matter was $19 million, of which $5 million was recorded on the opening balance sheet of i2 following JDA’s acquisition of i2 in January 2010 and $14 million was recorded in December 2010 in the Consolidated Statements of Income under the caption “Litigation provision” and in the Consolidated Balance Sheets under the caption “Accrued expenses and other liabilities.” On November 30, 2011, i2 and Dillard's entered into a settlement agreement. The terms of this agreement included the following: (i) i2 would pay $57.0 million to Dillard's by December 5, 2011; (ii) dismissal with prejudice of all legal proceedings related to the litigation, (iii) the $25.0 million supersedeas bond previously posted by the Company would be discharged to the Company and (iv) mutual releases and covenants not to sue. The Company received insurance proceeds of $3.0 million in December 2011 and therefore, recorded a net charge of $35.0 million in 2011 in the Consolidated Statements of Income under the caption “Litigation provision and settlements, net.”

i2 Technologies, Inc. vs. Oracle Corporation

On April 29, 2009, i2 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, Tyler Division (No. 6:09-cv-194-LED) alleged infringement of 11 patents related to supply chain management, available to promise software and other enterprise software applications. On April 22, 2010, Oracle filed counterclaims against i2 and JDA Software Group, Inc. (of which i2 is now a wholly-owned subsidiary) alleging the infringement by i2 of four Oracle patents. In response to i2’s motion to sever the Oracle counterclaim, on June 11, 2010, the trial court split the initial case into two cases, staying the second case (No. 6:10-cv-00284-LED) pending the outcome of the first case. The trial court instructed i2 to select five patents for the first case (subsequently reduced by i2 to four patents) and Oracle to select one patent for the first case.

On February 25, 2011, the Company, i2 and Oracle Corporation entered into a settlement agreement. Under the settlement agreement, the parties entered into a cross-license arrangement and dismissed their respective litigation claims related to the patent infringement dispute with prejudice. In addition, the Company received a one-time cash payment of $35.0 million from Oracle Corporation, as well as a $2.5 million license and technical support credit from Oracle Corporation that must be used by the Company within two years. The Company recorded the settlement in the first quarter of 2011 in the Consolidated Statements of Income under the caption “Litigation provision and settlements, net.”

Sky Technologies LLC v. JDA Software Group, et al.

On May 11, 2011, Sky Technologies LLC (“Sky”) filed a lawsuit for patent infringement against the Company and a number of other entities, including Microsoft, Siemens and Dassault Systemes, in the United States District Court for the District of Massachusetts (No. 6:11-cv-10833-WGY), alleging infringement of a number of patents. Sky amended its complaint on October 17, 2011, to add additional claims. In response to the amended complaint, on October 17, 2011 the Company filed counterclaims against Sky, alleging that Sky breached the terms of a Settlement and License Agreement entered into between Sky and i2 Technologies, Inc. in 2005. The Company recorded an accrual of $4.0 million in 2011 in the Consolidated Statements of Income under the caption “Litigation provision and settlements, net.”

On April 5, 2012, the Company and Sky entered into a settlement agreement (the "Agreement"). The terms of the Agreement included the following: (i) the Company would pay $4.0 million to Sky by April 12, 2012; (ii) dismissal with prejudice of all legal proceedings related to the litigation, (iii) mutual releases and covenants not to sue; and (iv) Sky granting a license to the Company of Sky's patents.

Beaver County Retirement Fund vs JDA Software Group Inc, C.A. No. 7446-ML

On April 20, 2012, Beaver County Retirement Fund, a stockholder of the Company, commenced an action in the Delaware Court of Chancery (C.A. No. 7446-ML) seeking access to certain books and records of the Company pursuant to Section 220 of the Delaware General Corporation Law. On May 15, 2012, the Company filed a motion to dismiss the complaint for failure to state a claim upon which relief could be granted. To date, no briefing schedule on the Company's motion to dismiss has been set by the Court of Chancery. We believe that the ultimate outcome of the lawsuit will not result in a material adverse effect on our financial condition or results of operations.

SEC Inquiries; Audit Committee Investigation

In January 2012, we disclosed that we received a subpoena from the Division of Enforcement and a comment letter from the Division of Corporation Finance of the SEC requesting information and documents related to revenue recognition and other accounting and financial reporting matters for certain past fiscal years. In response to the SEC's inquiries, our Audit Committee promptly commenced an investigation into our revenue recognition policies and the application of these policies during the periods in question, engaged an outside accounting firm separate from our independent auditors and engaged special counsel to undertake a fact-finding investigation. Our outside legal counsel also assisted in this investigation.

In conjunction with this investigation, the Company:


•	responded to comment letters from the SEC's Division of Corporation Finance regarding its revenue recognition policies and the restatement; and


•	provided the SEC's Division of Enforcement with information and documents it requested.

The Audit Committee, with its outside advisors, has completed the internal investigation. The investigation uncovered no evidence of fraud or intentional wrongdoing. The Company continues to cooperate with the SEC in connection with its investigation.

We are involved in other legal proceedings and claims arising in the ordinary course of business. Although there can be no assurance, management does not currently believe the disposition of these matters will have a material adverse effect on our business, financial position, results of operations or cash flows.