0001070235-20-000101.txt : 20201026 0001070235-20-000101.hdr.sgml : 20201026 20200924165524 ACCESSION NUMBER: 0001070235-20-000101 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 74 CONFORMED PERIOD OF REPORT: 20200831 FILED AS OF DATE: 20200924 DATE AS OF CHANGE: 20200924 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLACKBERRY Ltd CENTRAL INDEX KEY: 0001070235 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 000000000 FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38232 FILM NUMBER: 201195867 BUSINESS ADDRESS: STREET 1: 2200 UNIVERSITY AVENUE EAST CITY: WATERLOO STATE: A6 ZIP: N2K 0A7 BUSINESS PHONE: 5198887465 MAIL ADDRESS: STREET 1: 2200 UNIVERSITY AVENUE EAST CITY: WATERLOO STATE: A6 ZIP: N2K 0A7 FORMER COMPANY: FORMER CONFORMED NAME: RESEARCH IN MOTION LTD DATE OF NAME CHANGE: 19980911 10-Q 1 bbry-20200831.htm 10-Q bbry-20200831
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ________________________
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from     to

Commission file number 001-38232
 ______________________________________________________
BlackBerry Limited
(Exact name of registrant as specified in its charter)
Canada
98-0164408
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
2200 University Ave East
WaterlooOntarioCanada
N2K 0A7
(Address of Principal Executive Offices)
(Zip Code)
(519) 888-7465
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common SharesBBNew York Stock Exchange
Common SharesBBToronto Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes  x   No  o 

1



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
Non-accelerated filer  
o
Smaller reporting company
Emerging growth company
                
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐   No  x

The registrant had 556,513,359 common shares issued and outstanding as of September 21, 2020.
 

2





BLACKBERRY LIMITED
TABLE OF CONTENTS
Page No.
PART I FINANCIAL INFORMATION
Item 1Financial Statements
Consolidated Balance Sheets as of August 31, 2020 (unaudited) and February 29, 2020
Consolidated Statements of Shareholders’ Equity - Three and Six Months Ended August 31, 2020 and 2019 (unaudited)
Consolidated Statements of Operations - Three and Six Months Ended August 31, 2020 and 2019 (unaudited)
Consolidated Statements of Comprehensive Income (Loss) - Three and Six Months Ended August 31, 2020 and 2019 (unaudited)
Consolidated Statements of Cash Flows - Six Months Ended August 31, 2020 and 2019 (unaudited)
Notes to the Consolidated Financial Statements
Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3Quantitative and Qualitative Disclosures about Market Risk
Item 4Controls and Procedures
PART IIOTHER INFORMATION
Item 1Legal Proceedings
Item 6Exhibits
Signatures

3




Unless the context otherwise requires, all references to the “Company” and “BlackBerry” include BlackBerry Limited and its subsidiaries.

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
4


BlackBerry Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions) (unaudited)
Consolidated Balance Sheets
 As at
 August 31, 2020February 29, 2020
Assets
Current
Cash and cash equivalents (note 3)$837 $377 
Short-term investments (note 3)58 532 
Accounts receivable, net of allowance of $14 and $9, respectively (note 1 and note 4)240 215 
Other receivables 25 14 
Income taxes receivable 9 6 
Other current assets (note 4)50 52 
1,219 1,196 
Restricted cash and cash equivalents (note 3)49 49 
Long-term investments (note 3)33 32 
Other long-term assets (note 4)29 65 
Operating lease right-of-use assets, net 96 124 
Property, plant and equipment, net (note 4)56 70 
Goodwill (note 4)848 1,437 
Intangible assets, net (note 4)841 915 
$3,171 $3,888 
Liabilities
Current
Accounts payable $29 $31 
Accrued liabilities (note 4)179 202 
Income taxes payable (note 5)9 18 
Debentures (note 6)610 606 
Deferred revenue, current (note 11)229 264 
1,056 1,121 
Deferred revenue, non-current (note 11)87 109 
Operating lease liabilities 106 120 
Other long-term liabilities (note 4)8 9 
1,257 1,359 
Commitments and contingencies (note 10)
Shareholders’ equity
Capital stock and additional paid-in capital
Preferred shares: authorized unlimited number of non-voting, cumulative, redeemable and retractable  
Common shares: authorized unlimited number of non-voting, redeemable, retractable Class A common shares and unlimited number of voting common shares
Issued - 556,467,825 voting common shares (February 29, 2020 - 554,199,016 )2,788 2,760 
Deficit(861)(198)
Accumulated other comprehensive loss (note 9)(13)(33)
1,914 2,529 
$3,171 $3,888 
See notes to consolidated financial statements.

On behalf of the Board: 
John S. ChenBarbara Stymiest
DirectorDirector

5


BlackBerry Limited
(United States dollars, in millions) (unaudited)
Consolidated Statements of Shareholders’ Equity


Three Months Ended August 31, 2020
Capital Stock
and Additional
Paid-in Capital
DeficitAccumulated
Other
Comprehensive Loss
Total
Balance as at May 31, 2020$2,777 $(838)$(26)$1,913 
Net loss (23) (23)
Other comprehensive income  13 13 
Stock-based compensation9   9 
Shares issued:
Exercise of stock options2   2 
Balance as at August 31, 2020$2,788 $(861)$(13)$1,914 

Three Months Ended August 31, 2019
Capital Stock
and Additional
Paid-in Capital
DeficitAccumulated
Other
Comprehensive Loss
Total
Balance as at May 31, 2019$2,708 $(81)$(30)$2,597 
Net loss (44) (44)
Other comprehensive loss  (5)(5)
Stock-based compensation14   14 
Balance as at August 31, 2019$2,722 $(125)$(35)$2,562 

See notes to consolidated financial statements.

6


BlackBerry Limited
(United States dollars, in millions) (unaudited)
Consolidated Statements of Shareholders’ Equity


Six Months Ended August 31, 2020
Capital Stock
and Additional
Paid-in Capital
DeficitAccumulated
Other
Comprehensive Loss
Total
Balance as at February 29, 2020$2,760 $(198)$(33)$2,529 
Net loss (659) (659)
Other comprehensive income  20 20 
Cumulative impact of adoption of ASC 326 (4) (4)
Stock-based compensation (note 7)22   22 
Shares issued:
Exercise of stock options (note 7)3   3 
Employee share purchase plan (note 7)3   3 
Balance as at August 31, 2020$2,788 $(861)$(13)$1,914 


Six Months Ended August 31, 2019
Capital Stock
and Additional
Paid-in Capital
DeficitAccumulated
Other
Comprehensive Loss
Total
Balance as at February 28, 2019$2,688 $(32)$(20)$2,636 
Net loss (79) (79)
Other comprehensive loss  (15)(15)
Cumulative impact of adoption of ASC 842 (14) (14)
Stock-based compensation31   31 
Shares issued:
Exercise of stock options 1   1 
Employee share purchase plan 2   2 
Balance as at August 31, 2019$2,722 $(125)$(35)$2,562 

See notes to consolidated financial statements.

7


BlackBerry Limited
(United States dollars, in millions, except per share data) (unaudited)
Consolidated Statements of Operations
 
 Three Months EndedSix Months Ended
 August 31, 2020August 31, 2019August 31, 2020August 31, 2019
Revenue (note 11)$259 $244 $465 $491 
Cost of sales60 68 123 138 
Gross margin199 176 342 353 
Operating expenses
Research and development57 62 114 133 
Selling, marketing and administration79 130 169 251 
Amortization46 48 92 97 
Impairment of goodwill (note 3)  594  
Impairment of long-lived assets (note 3)21 2 21 2 
Debentures fair value adjustment (note 6)18 (23)19 (51)
221 219 1,009 432 
Operating loss(22)(43)(667)(79)
Investment income (loss), net(5) (5)3 
Loss before income taxes(27)(43)(672)(76)
Provision for (recovery of) income taxes (note 5)(4)1 (13)3 
Net loss$(23)$(44)$(659)$(79)
Loss per share (note 8)
Basic$(0.04)$(0.08)$(1.18)$(0.14)
Diluted$(0.04)$(0.10)$(1.18)$(0.19)
See notes to consolidated financial statements.

8


BlackBerry Limited
(United States dollars, in millions) (unaudited)
Consolidated Statements of Comprehensive Income (Loss)
 
 Three Months Ended Six Months Ended
 August 31, 2020August 31, 2019August 31, 2020August 31, 2019
Net loss$(23)$(44)$(659)$(79)
Other comprehensive income (loss)
Net change in fair value and amounts reclassified to net loss from derivatives designated as cash flow hedges during the period, net of income taxes of nil for the three and six months ended August 31, 2020 and August 31, 20194 1 3  
Foreign currency translation adjustment, net of income taxes of $1 million and $1 million, respectively, for the three and six months ended August 31, 2020 (net of income taxes of nil for the three and six months ended August 31, 2019)2 (1)3 (2)
Net change in fair value from instrument-specific credit risk on the Debentures, net of income taxes of $1 million and $2 million, respectively, for the three and six months ended August 31, 2020 (net of income taxes of nil for the three and six months ended August 31, 2019) (note 6)7 (6)14 (13)
Other comprehensive income (loss)13 (6)20 (15)
Comprehensive loss$(10)$(50)$(639)$(94)
See notes to consolidated financial statements.

9


BlackBerry Limited
(United States dollars, in millions) (unaudited)
Consolidated Statements of Cash Flows
 Six Months Ended
  August 31, 2020August 31, 2019
Cash flows from operating activities
Net loss$(659)$(79)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization100 107 
Stock-based compensation22 31 
Impairment of goodwill594  
Impairment of long-lived assets21 2 
Non-cash consideration received from contracts with customers (8)
Debentures fair value adjustment (note 6)19 (51)
Operating leases(2)(12)
Other(3)5 
Net changes in working capital items
Accounts receivable, net(29)11 
Other receivables(11)1 
Income taxes receivable(3)(1)
Other assets43 (10)
Accounts payable(2)(11)
Accrued liabilities(21)(26)
Income taxes payable(12)1 
Deferred revenue(57)(7)
Net cash used in operating activities (47)
Cash flows from investing activities
Acquisition of long-term investments(1) 
Acquisition of property, plant and equipment(3)(6)
Acquisition of intangible assets(16)(16)
Business acquisitions, net of cash acquired 1 
Acquisition of short-term investments(320)(553)
Proceeds on sale or maturity of short-term investments794 532 
Net cash provided by (used in) investing activities454 (42)
Cash flows from financing activities
Issuance of common shares6 3 
Payment of finance lease liability (1)(1)
Net cash provided by financing activities5 2 
Effect of foreign exchange gain (loss) on cash, cash equivalents, restricted cash, and restricted cash equivalents1 (1)
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period460 (88)
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period426 582 
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period$886 $494 
See notes to consolidated financial statements.
10

BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)





1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
Basis of Presentation and Preparation
These interim consolidated financial statements have been prepared by management in accordance with United States generally accepted accounting principles (“U.S. GAAP”). They do not include all of the disclosures required by U.S. GAAP for annual financial statements and should be read in conjunction with the audited consolidated financial statements of BlackBerry Limited (the “Company”) for the year ended February 29, 2020 (the “Annual Financial Statements”), which have been prepared in accordance with U.S. GAAP. In the opinion of management, all normal recurring adjustments considered necessary for fair presentation have been included in these interim consolidated financial statements. Operating results for the three and six months ended August 31, 2020 are not necessarily indicative of the results that may be expected for the full year ending February 28, 2021. The consolidated balance sheet at February 29, 2020 was derived from the audited Annual Financial Statements but does not contain all of the footnote disclosures from the Annual Financial Statements.
Certain of the comparative figures have been reclassified to conform to the current period’s presentation.
The Company operates as a single reportable segment. For additional information concerning the Company’s segment reporting, see Note 11.
Risks and Uncertainties
In March 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) as a global pandemic and extraordinary actions have been taken by international, federal, state, provincial and local governmental authorities to contain and combat the spread of COVID-19 in regions throughout the world. The COVID-19 outbreak and related public health measures, including orders to shelter-in-place, travel restrictions and mandated business closures, have adversely affected workforces, organizations, consumers, economies, and financial markets globally, leading to an economic downturn and increased market volatility. The extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on certain developments, including the duration of the outbreak, impact on the Company’s customers and its sales cycles, and impact on the Company’s employees.
The economic downturn and uncertainty caused by the COVID-19 outbreak and the measures undertaken to contain its spread have negatively affected the Company’s QNX automotive software business and have caused volatility in demand for the Company’s products and services, adversely affecting the ability of the Company’s sales and professional services teams to meet with customers and provide service, impacted spending from new customers and increased sales cycle times. The Company continues to evaluate the current and potential impact of the COVID-19 outbreak on its business, results of operations and consolidated financial statements, including the impairment of goodwill and indefinite-lived intangible assets and the collectability of receivables.
During the first quarter of fiscal 2021, this uncertainty resulted in the Company making significant judgements related to its estimates and assumptions concerning impairment of goodwill and indefinite-lived intangible assets and the collectability of receivables.
During the second quarter of fiscal 2021, this uncertainty resulted in the Company making significant judgements related to its estimates and assumptions concerning impairment of certain operating lease right-of-use (“ROU”) assets and associated property, plant and equipment.
As of the date of issuance of the financial statements, the Company is not aware of any additional events or circumstances which would require it to update its estimates, judgements, or revise the carrying value of its assets or liabilities, other than the COVID-19 pandemic as discussed above and below in Note 3. These estimates may change, as new events occur and additional information is obtained, and such changes will be recognized in the consolidated financial statements as soon as they become known. Actual results could differ from these estimates and any such differences may be material to the Company’s financial statements.
The Company remains focused on continuity plans and preparedness measures in the event that certain jurisdictions or sectors of the economy remain closed for an extended period or are shut down again. Although the Company experienced sequential revenue growth and observed a partial recovery in global automotive production volumes in the second quarter of fiscal 2021, the Company believes that the COVID-19 pandemic has had and may continue to have a material adverse impact on the Company’s consolidated business, results of operations and financial condition in fiscal 2021. Further, the
11

BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)





effects of the pandemic may not be fully reflected in the Company’s business until future periods. The Company does not expect the COVID-19 pandemic and its related economic impact to materially adversely affect its liquidity position.
Significant Accounting Policies and Critical Accounting Estimates
There have been no material changes to the Company’s accounting policies or critical accounting estimates from those
described in the Annual Financial Statements, except as described below, which were adopted during fiscal 2021.
Accounting Standards Adopted During Fiscal 2021
ASC 350, Goodwill and Other
In January 2017, the Financial Accounting Standards Board (“FASB”) released ASU 2017-04 on the topic of Intangibles— Goodwill and Other (ASC 350). ASU 2017-04 simplifies the subsequent measurement of goodwill, eliminating Step 2 from the goodwill impairment test. Previously, under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments of ASU 2017-04, an entity performs its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The Company will recognize an impairment charge for any amount by which the carrying amount exceeds the reporting unit’s fair value. The amendments in this update were effective for an entity’s annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company adopted this standard on March 1, 2020.
ASC 326, Credit Losses
In June 2016, the FASB released ASU 2016-13 on the topic of Financial Instruments — Credit Losses (ASC 326). ASU 2016-13 replaces the previous incurred loss impairment methodology in U.S. GAAP with a methodology that reflects expected credit losses, requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, and requires entities to estimate an expected lifetime credit loss on its financial assets.
The guidance also amends the impairment model for available-for-sale debt securities, requiring entities to determine whether all or a portion of the unrealized loss on such securities is a credit loss, and also eliminating the option for management to consider the length of time a security has been in an unrealized loss position as a factor in concluding whether or not a credit loss exists. The amended model states that an entity recognizes an allowance for credit losses on available-for-sale debt securities, instead of a direct reduction of the amortized cost basis of the investment, as required under previous guidance. As a result, entities recognize improvements to estimated credit losses on available-for-sale debt securities immediately in earnings as opposed to in interest income over time.
The guidance was effective for interim and annual periods beginning after December 15, 2019. The Company adopted this guidance in the first quarter of fiscal 2021 using the modified retrospective method. As a result of the adoption of the new standard on credit losses, the Company recorded a cumulative adjustment to the consolidated balance sheet increasing the allowance for credit losses and increasing deficit by approximately $4 million as at March 1, 2020. As a result, the allowance for credit losses was $13 million in the consolidated balance sheet as at March 1, 2020.
The following policies have been updated to reflect the adoption of the new standard in accounting for credit losses on financial instruments and goodwill.
Goodwill
Goodwill represents the excess of the acquisition price in a business combination over the fair value of identifiable net assets acquired. Goodwill is allocated at the date of the business combination. Goodwill is not amortized but is tested for impairment annually on December 31 or more frequently if events or changes in circumstances indicate the asset may be impaired. These events and circumstances may include a significant change in legal factors or in the business climate, a significant decline in the Company’s share price, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant disposal activity and the testing of recoverability for a significant asset group.
The Company’s impairment test is carried out in one step. The carrying amount of the reporting unit, including goodwill, was compared with its fair value. The estimated fair value was determined utilizing multiple approaches based on the nature of the reporting units being valued. In its analysis, the Company utilized multiple valuation techniques, including the income approach, discounted future cash flows, the market-based approach, and the asset value approach. The analysis requires significant judgment, including estimation of future cash flows, which is dependent on internal forecasts,
12

BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)





estimation of the long-term rate of revenue growth for our reporting units, estimation of the useful life over which cash flows will occur, terminal growth rate, profitability measures, and determination of the discount rates for the reporting units. The carrying amount of the Company’s assets was assigned to reporting units using reasonable methodologies based on the asset type. When the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit is considered to be impaired and written down to its fair value. Different judgments could yield different results.
Events and circumstances resulted in a goodwill impairment test being conducted as at May 31, 2020; see Note 3.
Accounts receivable, net
The accounts receivable balance reflects invoiced and accrued revenue and is presented net of an allowance for credit losses. The Company expects the majority of its accounts receivable balances to continue to come from large customers as it sells the majority of its software products and services through distributor partners, such as resellers and network carriers, rather than directly. The Company establishes current expected credit losses (“CECL”) for pools of assets with similar risk characteristics by evaluating historical levels of credit losses, current economic conditions that may affect a customer’s ability to pay, and creditworthiness of significant customers. When specific customers are identified as no longer sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately. The Company, in the normal course of business, monitors the financial condition of its customers and reviews the credit history of each new customer. When the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company (such as in the case of bankruptcy filings or material deterioration in the customer’s operating results or financial position, and payment experiences), the Company records a specific credit loss provision to reduce the customer’s related accounts receivable to its estimated net realizable value. If circumstances related to specific customers change, the Company’s estimates of the recoverability of accounts receivable balances could be further adjusted.
Investments
The Company’s cash equivalents and investments, other than publicly issued equity securities and private equity investments without readily determinable fair value, consist of money market and other debt securities, which are classified as available-for-sale for accounting purposes and are carried at fair value. Unrealized gains and losses, net of related income taxes, are recorded in Accumulated Other Comprehensive Loss (“AOCL”) until such investments mature or are sold. The Company uses the specific identification method of determining the cost basis in computing realized gains or losses on available-for-sale investments, which are recorded in investment income. The Company does not exercise significant influence with respect to any of these investments. Publicly issued equity securities are recorded at fair value and revalued at each reporting period with changes in fair value recorded through investment income. The Company elects to record private equity investments without readily determinable fair value at cost minus impairment, as adjusted for any changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. The Company reassesses each reporting period that its private equity investments without readily determinable fair value continue to qualify for this treatment.
Investments with maturities at the time of purchase of three months or less are classified as cash equivalents. Investments with maturities of one year or less (but which are not cash equivalents), public equity investments and any investments that the Company intends to hold for less than one year are classified as short-term investments. Investments with maturities in excess of one year or investments that the Company does not intend to sell are classified as long-term investments.
13

BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)





Allowance for Credit Losses on Available-for-sale Debt Securities
The Company accounts for credit losses on available-for-sale debt securities in accordance with ASC 326. The Company adopted ASC 326 on March 1, 2020, on a modified retrospective basis. Under ASC 326, at each reporting period, the Company evaluates its available-for-sale debt securities at the individual security level to determine whether there is a decline in the fair value below its amortized cost basis (an impairment). In circumstances where the Company intends to sell, or is more likely than not required to sell, the security before it recovers its amortized cost basis, the difference between fair value and amortized cost is recognized as a loss in the consolidated statement of operations, with a corresponding write-down of the security’s amortized cost. In circumstances where neither condition exists, the Company then evaluates whether a decline is due to credit-related factors. The factors considered in determining whether a credit loss exists can include the extent to which fair value is less than the amortized cost basis, changes in the credit quality of the underlying issuer, credit ratings actions, as well as other factors. To determine the portion of a decline in fair value that is credit-related, the Company compares the present value of the expected cash flows of the security discounted at the security’s effective interest rate to the amortized cost basis of the security. A credit-related impairment is limited to the difference between fair value and amortized cost, and recognized as an allowance for credit loss on the consolidated balance sheet with a corresponding adjustment to net income. Any remaining decline in fair value that is non-credit related is recognized in other comprehensive income (loss), net of tax. Improvements in expected cash flows due to improvements in credit are recognized through reversal of the credit loss and corresponding reduction in the allowance for credit loss.
Government Subsidies
The Company recognizes government subsidies as a reduction to operating expenses in the consolidated statement of operations when there is reasonable assurance the Company will receive the amount and has complied with the conditions, if any, attached to the government subsidies.
2.    ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In August 2020, the FASB issued a new accounting standard on the topic of debt with conversion and other options, ASU 2020-06. The amendment in this update simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock. This update also amends the guidance for the derivatives scope exception for contracts in an entity's own equity to reduce form-over-substance-based accounting conclusions and requires the application of the if-converted method for calculating diluted earnings per share. The update also requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments. The guidance is effective for interim and annual periods beginning after December 15, 2021. The Company will adopt this guidance in the first quarter of fiscal 2023 and does not expect the adoption to have a material impact on its results of operations, financial position and disclosures.
3.    FAIR VALUE MEASUREMENTS, CASH, CASH EQUIVALENTS AND INVESTMENTS
Fair Value
The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use in pricing the asset or liability, such as inherent risk, non-performance risk and credit risk. The Company applies the following fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value into three levels:
Level 1 - Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets.
Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 - Significant unobservable inputs that are supported by little or no market activity.
The fair value hierarchy also requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
14

BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)





Recurring Fair Value Measurements
The Company’s cash and cash equivalents, accounts receivable, other receivables, accounts payable and accrued liabilities are measured at an amount that approximates their fair values (Level 2 measurement) due to their short maturities.
In determining the fair value of investments held, the Company primarily relies on an independent third-party valuator for the fair valuation of securities. The Company also reviews the inputs used in the valuation process and assesses the pricing of the securities for reasonableness after conducting its own internal collection of quoted prices from brokers. Fair values for all investment categories provided by the independent third-party valuator that are in excess of 0.5% from the fair values determined by the Company are communicated to the independent third-party valuator for consideration of reasonableness. The independent third-party valuator considers the information provided by the Company before determining whether a change in their original pricing is warranted.
The Company’s investments largely consist of securities issued by major corporate and banking organizations, the provincial and federal governments of Canada, international government banking organizations and the United States Department of the Treasury and are all investment grade. The Company also holds a limited amount of equity securities following the initial public offering by the issuer of a previous private equity investment.
For a description of how the fair values of the 3.75% Debentures (as defined in Note 6) are determined, see the “Convertible debentures” accounting policies in Note 1 to the Annual Financial Statements.
Non-Recurring Fair Value Measurements
Upon the occurrence of certain events, the Company re-measures the fair value of long-lived assets, including property, plant and equipment, operating lease right-of-use (“ROU”) assets, intangible assets and goodwill.
Goodwill Impairment
During the first quarter of fiscal 2021, as a result of the deterioration in economic conditions caused by the global COVID-19 pandemic and its impact on the Company’s reporting units, and the decline of the trading value of the Company’s capital stock below the Company’s consolidated carrying value, the Company determined that it was more likely than not that the fair value of at least one of its reporting units was lower than its carrying amount after including goodwill. As a result, the Company completed an analysis of the fair value of its reporting units to compare against their respective carrying values as of May 31, 2020.
In its analysis, the Company utilized multiple valuation techniques, including the income approach, discounted future cash flows, the market-based approach, and the asset value approach which is based on the sum of the values of each of the assets and liabilities within the entity. In addition to market data, the valuation techniques utilize Level 3 inputs such as the Company’s internal forecasts of its future results, cash flows and its weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested and based upon the Company’s estimated credit rating. The analysis involves significant judgment in the selection of assumptions necessary to arrive at the reporting units’ fair values, especially in light of the ongoing COVID-19 pandemic and its short-term and potential long-term impacts to the Company’s business. The total of the fair values of the Company’s reporting units was reconciled to the Company’s market capitalization based on the quoted market price of the Company’s stock in an active market, adjusted by an appropriate control premium. Where the carrying amount of a reporting unit exceeded its fair value, goodwill of the reporting unit was considered to be impaired.
Based on the results of the goodwill impairment test, it was concluded that the carrying value of one reporting unit exceeded its fair value, necessitating an impairment charge for the amount of excess and reducing the carrying value of Goodwill. Consequently, the Company recorded total non-cash goodwill impairment charges of $594 million in the BlackBerry Spark reporting unit (the “Goodwill Impairment Charge”).
15

BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)





Impairment of Long-Lived Assets
During the second quarter of fiscal 2021, the Company decided to exit and seek subleases for certain leased facilities and made a change in the estimate of future sublease activity of a previously exited facility. The Company recorded a non-cash, pre-tax and after-tax impairment charge of $21 million consisting of $16 million related to operating lease ROU assets for those facilities and $5 million related to property, plant and equipment associated with those facilities. The impairment was determined by comparing the fair value of the impacted ROU asset to the carrying value of the asset as of the impairment measurement date, as required under ASC Topic 360, Property, Plant, and Equipment, using Level 2 inputs. The fair value of the ROU asset was based on the estimated sublease income for certain facilities taking into consideration the time period it will take to obtain a sublessor, the applicable discount rate and the sublease rate (six months ended August 31, 2019 - $2 million impairment charge related to ROU assets).
Cash, Cash Equivalents and Investments
The components of cash, cash equivalents and investments by fair value level as at August 31, 2020 were as follows:
Cost BasisUnrealized
Gains
Unrealized
Losses
Fair ValueCash and
Cash
Equivalents
Short-term
Investments
Long-term
Investments
Restricted Cash
Bank balances$793 $ $ $793 $793 $ $ $ 
Other investments33   33   33  
826   826 793  33  
Level 1:
Equity securities10  (8)2  2   
Level 2:
Term deposits and certificates of deposits49   49    49 
Bearer deposit notes19   19 19    
Commercial paper62   62 25 37   
Non-U.S. promissory notes19   19  19   
149   149 44 56  49 
$985 $ $(8)$977 $837 $58 $33 $49 

16

BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited)





The components of cash, cash equivalents and investments by fair value level as at February 29, 2020 were as follows:
Cost BasisUnrealized
Gains
Unrealized
Losses
Fair ValueCash and
Cash
Equivalents
Short-term
Investments
Long-term
Investments
Restricted Cash and Cash Equivalents
Bank balances$100 $ $ $100 $100 $ $ $ 
Other investments32   32   32  
132   132 100  32  
Level 1:
Equity securities10  (8)2  2   
Level 2:
Term deposits, certificates of deposits, and GICs118   118 44 25  49 
Bankers’ acceptances/bearer deposit notes84   84 30 54   
Commercial paper276   276 108 168   
Non-U.S. promissory notes133   133 25 108   
Non-U.S. government sponsored enterprise notes144   144  144   
Non-U.S. treasury bills/notes56   56 25 31   
U.S. treasury bills/notes45   45 45    
856   856 277 530  49 
$998 $ $(8)$990 $377 $532 $32 $