THE DESCARTES SYSTEMS GROUP INC.

We also determined to perform a quarterly reconciliation of actual forfeiture experience to the estimated forfeiture
experience.
We followed the guidance in ASC Topic 250 “Accounting Changes and Error Corrections” (“ASC Topic 250”)
and accounted for this change of estimate and the corresponding reconciliation to actual forfeitures in 2010. As a
result of the above changes, we expensed $1.8 million in additional stock-based compensation in 2010.
Correction of Immaterial Error
In connection with our review of our forfeiture estimates in 2010, and in light of actual forfeiture experience that
varied from the original forfeiture estimate used, we determined that there was insufficient evidence to support the
forfeiture estimate used beginning November 1, 2007 in fiscal 2008 and fiscal 2009. We determined that the
difference between the original forfeiture estimate used and the actual forfeiture experience should be accounted
for as an error. As stock-based compensation expense is a non-cash item, this error did not impact net cash
provided by operations in any period.
This error resulted in the understatement of stock-based compensation expense, with a corresponding
understatement of additional paid in capital, as follows (in millions of dollars):
Years Ended January 31,
2008 0.6
2009 0.5
1.1
We considered the guidance in ASC Topic 250, in assessing the materiality of the error. In accordance with ASC
Topic 250 and other GAAP guidance, we considered the total mix of information applicable to the error,
including an evaluation from quantitative and qualitative perspectives. We concluded that the correction of this
non-cash error is not material to the previously issued historical consolidated financial statements as well as the
fiscal 2010 consolidated financial statements. Accordingly, we corrected the error in 2010 by expensing $1.1
million of additional stock-based compensation expense.
Basis of consolidation
The consolidated financial statements include the financial statements of Descartes and our wholly-owned
subsidiaries. We do not have any variable interests in variable interest entities. All intercompany accounts and
transactions have been eliminated during consolidation.
Financial instruments
Fair value of financial instruments
Financial instruments are comprised of cash and cash equivalents, short-term investments, accounts receivable,
accounts payable and accrued liabilities. The estimated fair values of cash and cash equivalents, short-term
investments, accounts receivable, accounts payable and accrued liabilities are approximate to book values because of
their short-term maturities.
Foreign exchange risk
We are exposed to foreign exchange risk because a higher proportion of our revenues are denominated in US dollars
relative to expenditures. Accordingly, our results are affected, and may be affected in the future, by exchange rate
fluctuations of the US dollar relative to the Canadian dollar, euro and various other foreign currencies.
Interest rate risk
We are exposed to reductions in interest rates, which could adversely impact expected returns from our investment of
corporate funds in interest bearing bank accounts and short-term investments.
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