THE DESCARTES SYSTEMS GROUP INC.

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The components of the deferred income tax assets and liabilities are as follows: January 31, January 31, 2011 2010 Assets Accruals not currently deductible 2,772 6,386 Accumulated net operating losses 55,769 56,836 Accumulated net capital losses - 319 Corporate minimum taxes 1,276 1,038 Difference between tax and accounting basis of capital assets 12,237 11,932 Writedown of assets not currently deductible 1,055 1,054 Research and development and other tax credits and expenses 4,472 3,791 Expenses of public offerings 482 712 Other timing differences 257 1 Total deferred income tax assets Liabilities 78,320 82,069 Deferred expenses currently deductible - (219) Difference between tax and accounting basis of intangible assets (6,529) (2,085) Uncertain tax positions incurred in loss years (1,372) (2,388) Total deferred income tax liabilities (7,901) (4,692) Net deferred income taxes 70,419 77,377 Valuation allowance (32,562) (38,617) Net deferred income taxes, net of valuation allowance 37,857 38,760 Deferred income tax assets – current 11,457 4,414 Deferred income tax assets – non-current 34,667 34,346 Deferred income tax liabilities – non-current (8,267) - Net deferred income taxes, net of valuation allowance 37,857 38,760 The measurement of a deferred tax asset is adjusted by a valuation allowance, if necessary, to recognize tax benefits only to the extent that, based on available evidence, it is more likely than not that they will be realized. In determining the valuation allowance, we consider factors by taxing jurisdiction, including our estimated taxable income, our history of losses for tax purposes, our tax planning strategies and the likelihood of success of our tax filing positions, among others. A change to any of these factors could impact the estimated valuation allowance and income tax expense. Based on the weight of positive and negative evidence regarding recoverability of our deferred tax assets, we have recorded a valuation allowance for $32.6 million ($38.6 million at January 31, 2010) of our net deferred tax assets of $70.4 million ($77.4 million at January 31, 2010), resulting in a total net deferred tax asset of $37.9 million at January 31, 2011 ($38.8 million at January 31, 2010). As at January 31, 2011, we had not accrued for Canadian income taxes and foreign withholding taxes applicable to approximately $16.8 million of unremitted earnings of subsidiaries operating outside of Canada. These earnings, which we consider to be invested indefinitely, will become subject to these taxes if and when they are remitted as dividends or if we sell our stock in the subsidiaries. The potential amount of unrecognized deferred Canadian income tax liabilities and foreign withholding and income tax liabilities on the unremitted earnings and foreign exchange gains is not currently practicably determinable. 72
The provision (recovery) for income taxes varies from the expected provision at the statutory rates for the reasons detailed in the table below: Year Ended January 31, January 31, January 31, 2011 2010 2009 Combined basic Canadian statutory rates 30.7% 32.9% 33.5% Income tax expense based on the above rates 2,436 2,214 2,925 Increase (decrease) in income taxes resulting from: Permanent differences including amortization of intangibles (2,198) 3,388 2,732 Effect of differences between Canadian and foreign tax rates 1,354 724 150 Application of loss carryforwards not previously recognized (59) (11) (4,150) Application of research and development tax credits - (30) (27) Increases (decreases) in tax reserves (149) - - Valuation allowance (5,241) (14,162) (13,133) Deferral of tax charges 197 197 197 Other 54 55 (173) Income tax (recovery) (3,606) (7,625) (11,479) We have income tax loss carryforwards of approximately $197.9 million, which expire as follows: Expiry year Canada United States EMEA Asia Pacific Total 2012 - 883 5,831 853 7,567 2013 - - 4,421 722 5,143 2014 2,212 - 3,647 556 6,415 2015 - - 1,912 - 1,912 2016 - - 6 215 221 Thereafter 42,153 22,938 91,744 19,784 176,619 44,365 23,821 107,561 22,130 197,877 The following is a tabular reconciliation of the total amounts of unrecognized tax benefits: January 31, January 31, January 31, 2011 2010 2009 Unrecognized tax benefits, beginning of year 5,168 4,778 4,438 Gross (decreases) increases – tax positions in prior periods (1,368) 47 3 Gross increases – tax positions in the current period 874 397 828 Lapsing of statutes of limitations (428) (54) (491) Unrecognized tax benefits, end of year 4,246 5,168 4,778 We expect that the unrecognized tax benefits will increase within the next 12 months due to uncertain tax positions expected to be taken, although at this time a reasonable estimate of the possible increase cannot be made. Of the $4.2 million of unrecognized tax benefits at January 31, 2011, approximately $2.8 million would impact the effective income tax rate if recognized. Consistent with our historical financial reporting, we recognize accrued interest and penalties related to unrecognized tax benefits in general and administrative expense. As at January 31, 2011 and January 31, 2010, the unrecognized tax benefits have resulted in no material liability for estimated interest and penalties. 73
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THE DESCARTES SYSTEMS GROUP INC. 20
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LETTER FROM THE CEO Dear Shareholde
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securities laws (“forward-looking
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who can help them manage the end-to
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CONSOLIDATED OPERATIONS The followi
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We operate in one business segment
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Gross margin percentage for service
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Other charges consist primarily of
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April 30, July 31, October 31, Janu
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shares from certain executive offic
Page 21 and 22: COMMITMENTS, CONTINGENCIES AND GUAR
Page 23 and 24: On December 21, 2010, we announced
Page 25 and 26: for tax benefits that we currently
Page 27 and 28: Integrated Framework, issued by the
Page 29 and 30: We estimate that amortization expen
Page 31 and 32: credit in the future, which could r
Page 33 and 34: hedging strategies to mitigate our
Page 35 and 36: transportation. The added cost of a
Page 37 and 38: seriously harm our business because
Page 39 and 40: assert these patents against us. Su
Page 41 and 42: MANAGEMENT’S REPORT ON FINANCIAL
Page 43 and 44: Report of Independent Registered Ch
Page 45 and 46: THE DESCARTES SYSTEMS GROUP INC. CO
Page 47 and 48: THE DESCARTES SYSTEMS GROUP INC. CO
Page 49 and 50: We also determined to perform a qua
Page 51 and 52: Impairment of long-lived assets We
Page 53 and 54: including our estimated taxable inc
Page 55 and 56: income tax liability decreased by $
Page 57 and 58: The goodwill on the Porthus, Imanet
Page 59 and 60: The goodwill on the Oceanwide and S
Page 61 and 62: Note 5 - Trade Receivables January
Page 63 and 64: We write down intangible assets wit
Page 65 and 66: time limitation. The amount also de
Page 67 and 68: Total estimated stock-based compens
Page 69 and 70: Deferred Share Unit Plan Our board
Page 71: Income tax expense (recovery) is in
Page 75 and 76: The following table shows the chang
Page 77 and 78: CORPORATE INFORMATION Stock Exchang
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THE DESCARTES SYSTEMS GROUP INC.

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