THE DESCARTES SYSTEMS GROUP INC.

As of January 31, 2011, our gross amount of unrecognized tax benefits was $4.2 million. We expect that the
unrecognized tax benefits could increase within the next 12 months due to uncertain tax positions that may be
taken, although at this time a reasonable estimate of the possible increase cannot be made.
In fiscal 2011, we recorded a deferred income tax recovery of $3.9 million resulting primarily from the
recognition of additional deferred tax assets in the Netherlands and United Kingdom. The amount of any tax
expense or recovery in a period will depend on the amount of taxable income, if any, we generate in a jurisdiction,
our then current effective tax rate in that jurisdiction, and estimations of our ability to utilize deferred tax asset
balances in the future. We can provide no assurance as to the timing or amounts of any income tax expense or
recovery, nor can we provide any assurance that our current valuation allowance for deferred tax assets will not
need to be adjusted further.
Our tax expense for a period is difficult to predict as it depends on many factors, including the actual jurisdictions
in which income is earned, the tax rates in those jurisdictions, the amount of deferred tax assets relating to the
jurisdictions and the valuation allowances relating to those tax assets. At this time, we anticipate that our income
tax expense (current and deferred) for fiscal 2012 will be 35% - 40% of income before income taxes, exclusive of
any potential further changes to the valuation allowance for our deferred tax assets or other company events. We
also anticipate the current income tax expense portion for fiscal 2012 will be approximately 18% - 22% of income
before income taxes.
We intend to actively explore business combinations during fiscal 2012 to add complementary services, products
and customers to our existing businesses. We intend to focus our acquisition activities on companies that are
targeting the same customers as us and processing similar data and, to that end, will listen to our customers’
suggestions as they relate to consolidation opportunities. Depending on the size and scope of any business
combination, or series of business combinations, we may need to raise additional debt or equity capital. However,
with rapid changes in the global economic environment and the corresponding impact on credit and capital
markets, there can be no assurance that we will be able to undertake such a financing transaction.
Certain future commitments are set out above in the section of this MD&A called “Commitments, Contingencies
and Guarantees”. We believe that we have sufficient liquidity to fund our current operating and working capital
requirements, including the payment of these commitments.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Any investment in us will be subject to risks inherent to our business. Before making an investment decision, you
should carefully consider the risks described below together with all other information included in this report.
The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties
that we are not aware of or have not focused on, or that we currently deem immaterial, may also impair our
business operations. This report is qualified in its entirety by these risk factors.
If any of the following risks actually occur, they could materially adversely affect our business, financial
condition, liquidity or results of operations. In that case, the trading price of our securities could decline and you
may lose all or part of your investment.
General economic conditions may affect our business, results of operations and financial condition.
Demand for our products depends in large part upon the level of capital and operating expenditures by many of
our customers. Decreased capital and operational spending could have a material adverse effect on the demand for
our products and our business, results of operations, cash flow and overall financial condition. Disruptions in the
financial markets may adversely impact the availability of credit already arranged and the availability and cost of
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