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 November 30, 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
Waterloo	Ontario	Canada	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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares	BB	New York Stock Exchange
Common Shares	BB	Toronto 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 562,634,092 common shares issued and outstanding as of December 15, 2020.

2

BLACKBERRY LIMITED
TABLE OF CONTENTS
		Page No.
PART I	FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Balance Sheets as of November 30, 2020 (unaudited) and February 29, 2020	5
	Consolidated Statements of Shareholders’ Equity - Three and Nine Months Ended November 30, 2020 and 2019 (unaudited)	6
	Consolidated Statements of Operations - Three and Nine Months Ended November 30, 2020 and 2019 (unaudited)	8
	Consolidated Statements of Comprehensive Income (Loss) - Three and Nine Months Ended November 30, 2020 and 2019 (unaudited)	9
	Consolidated Statements of Cash Flows - Nine Months Ended November 30, 2020 and 2019 (unaudited)	10
	Notes to the Consolidated Financial Statements	11
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3	Quantitative and Qualitative Disclosures about Market Risk	61
Item 4	Controls and Procedures	62
PART II	OTHER INFORMATION
Item 1	Legal Proceedings	62
Item 6	Exhibits	63
Signatures		64

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
	November 30, 2020		February 29, 2020
Assets
Current
Cash and cash equivalents (note 3)	$	223	$	377
Short-term investments (note 3)	451		532
Accounts receivable, net of allowance of $13 and $9, respectively (note 1 and note 4)	212		215
Other receivables	21		14
Income taxes receivable	10		6
Other current assets (note 4)	54		52
	971		1,196
Restricted cash and cash equivalents (note 3)	50		49
Long-term investments (note 3)	33		32
Other long-term assets (note 4)	19		65
Operating lease right-of-use assets, net	91		124
Property, plant and equipment, net (note 4)	54		70
Goodwill (note 4)	849		1,437
Intangible assets, net (note 4)	803		915
	$	2,870	$	3,888
Liabilities
Current
Accounts payable	$	29	$	31
Accrued liabilities (note 4)	173		202
Income taxes payable (note 5)	8		18
Debentures (note 6)	—		606
Deferred revenue, current (note 11)	217		264
	427		1,121
Deferred revenue, non-current (note 11)	75		109
Operating lease liabilities	99		120
Other long-term liabilities (note 4)	7		9
Long-term debentures (note 6)	459		—
	1,067		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 - 562,015,875 voting common shares (February 29, 2020 - 554,199,016 )	2,803		2,760
Deficit	(991)		(198)
Accumulated other comprehensive loss (note 9)	(9)		(33)
	1,803		2,529
	$	2,870	$	3,888

See notes to consolidated financial statements.

On behalf of the Board: 

John S. Chen	Barbara Stymiest
Director	Director

5

BlackBerry Limited

(United States dollars, in millions) (unaudited)

Consolidated Statements of Shareholders’ Equity

	Three Months Ended November 30, 2020
	Capital Stock and Additional Paid-in Capital		Deficit		Accumulated Other Comprehensive Loss		Total
Balance as at August 31, 2020	$	2,788	$	(861)	$	(13)	$	1,914
Net loss	—		(130)		—		(130)
Other comprehensive income	—		—		4		4
Stock-based compensation	11		—		—		11
Shares issued:
Exercise of stock options	1		—		—		1
Employee share purchase plan	3		—		—		3
Balance as at November 30, 2020	$	2,803	$	(991)	$	(9)	$	1,803

	Three Months Ended November 30, 2019
	Capital Stock and Additional Paid-in Capital		Deficit		Accumulated Other Comprehensive Loss		Total
Balance as at August 31, 2019	$	2,722	$	(125)	$	(35)	$	2,562
Net loss	—		(32)		—		(32)
Other comprehensive loss	—		—		(2)		(2)
Stock-based compensation	15		—		—		15
Shares issued:
Exercise of stock options	1		—		—		1
Employee share purchase plan	4		—		—		4
Balance as at November 30, 2019	$	2,742	$	(157)	$	(37)	$	2,548

See notes to consolidated financial statements.

6

BlackBerry Limited

(United States dollars, in millions) (unaudited)

Consolidated Statements of Shareholders’ Equity

	Nine Months Ended November 30, 2020
	Capital Stock and Additional Paid-in Capital		Deficit		Accumulated Other Comprehensive Loss		Total
Balance as at February 29, 2020	$	2,760	$	(198)	$	(33)	$	2,529
Net loss	—		(789)		—		(789)
Other comprehensive income	—		—		24		24
Cumulative impact of adoption of ASC 326	—		(4)		—		(4)
Stock-based compensation (note 7)	33		—		—		33
Shares issued:
Exercise of stock options (note 7)	3		—		—		3
Employee share purchase plan (note 7)	7		—		—		7
Balance as at November 30, 2020	$	2,803	$	(991)	$	(9)	$	1,803

	Nine Months Ended November 30, 2019
	Capital Stock and Additional Paid-in Capital		Deficit		Accumulated Other Comprehensive Loss		Total
Balance as at February 28, 2019	$	2,688	$	(32)	$	(20)	$	2,636
Net loss	—		(111)		—		(111)
Other comprehensive loss	—		—		(17)		(17)
Cumulative impact of adoption of ASC 842	—		(14)		—		(14)
Stock-based compensation	46		—		—		46
Shares issued:
Exercise of stock options	2		—		—		2
Employee share purchase plan	6		—		—		6
Balance as at November 30, 2019	$	2,742	$	(157)	$	(37)	$	2,548

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 Ended				Nine Months Ended
	November 30, 2020		November 30, 2019		November 30, 2020		November 30, 2019
Revenue (note 11)	$	218	$	267	$	683	$	758
Cost of sales	69		69		192		207
Gross margin	149		198		491		551
Operating expenses
Research and development	53		66		167		199
Selling, marketing and administration	83		129		252		380
Amortization	45		49		137		146
Impairment of goodwill (note 3)	—		—		594		—
Impairment of long-lived assets (note 3)	—		3		21		5
Debentures fair value adjustment (note 6)	95		(20)		114		(71)
	276		227		1,285		659
Operating loss	(127)		(29)		(794)		(108)
Investment income (loss), net	(1)		(1)		(6)		2
Loss before income taxes	(128)		(30)		(800)		(106)
Provision for (recovery of) income taxes (note 5)	2		2		(11)		5
Net loss	$	(130)	$	(32)	$	(789)	$	(111)
Loss per share (note 8)
Basic	$	(0.23)	$	(0.06)	$	(1.41)	$	(0.20)
Diluted	$	(0.23)	$	(0.07)	$	(1.41)	$	(0.27)

See notes to consolidated financial statements.

8

BlackBerry Limited

(United States dollars, in millions) (unaudited)

Consolidated Statements of Comprehensive Income (Loss)

	Three Months Ended				Nine Months Ended
	November 30, 2020		November 30, 2019		November 30, 2020		November 30, 2019
Net loss	$	(130)	$	(32)	$	(789)	$	(111)
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 nine months ended November 30, 2020 and November 30, 2019	—		—		3		—
Foreign currency translation adjustment, net of income taxes of $1 million and nil, respectively, for the three and nine months ended November 30, 2020 (net of income taxes of nil for the three and nine months ended November 30, 2019)	1		—		5		(2)
Net change in fair value from instrument-specific credit risk on the Debentures, net of income taxes of $2 million and nil, respectively, for the three and nine months ended November 30, 2020 (net of income taxes of nil for the three and nine months ended November 30, 2019) (note 6)	3		(2)		16		(15)
Other comprehensive income (loss)	4		(2)		24		(17)
Comprehensive loss	$	(126)	$	(34)	$	(765)	$	(128)

See notes to consolidated financial statements.

9

BlackBerry Limited

(United States dollars, in millions) (unaudited)

Consolidated Statements of Cash Flows

	Nine Months Ended
	November 30, 2020		November 30, 2019
Cash flows from operating activities
Net loss	$	(789)	$	(111)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Amortization	149		160
Stock-based compensation	33		46
Impairment of goodwill	594		—
Impairment of long-lived assets	21		5
Non-cash consideration received from contracts with customers	—		(8)
Debentures fair value adjustment (note 6)	114		(71)
Operating leases	(4)		(12)
Other	(4)		11
Net changes in working capital items
Accounts receivable, net	(1)		17
Other receivables	(7)		6
Income taxes receivable	(4)		(1)
Other assets	51		3
Accounts payable	(2)		(21)
Accrued liabilities	(27)		(24)
Income taxes payable	(13)		2
Deferred revenue	(81)		(10)
Net cash provided by (used in) operating activities	30		(8)
Cash flows from investing activities
Acquisition of long-term investments	(1)		(1)
Acquisition of property, plant and equipment	(5)		(9)
Acquisition of intangible assets	(23)		(24)
Business acquisitions, net of cash acquired	—		1
Acquisition of short-term investments	(770)		(829)
Proceeds on sale or maturity of short-term investments	851		830
Net cash provided by (used in) investing activities	52		(32)
Cash flows from financing activities
Issuance of common shares	10		8
Payment of finance lease liability	(1)		(2)
Repurchase of 3.75% Debentures	(610)		—
Issuance of 1.75% Debentures	365		—
Net cash provided by (used in) financing activities	(236)		6
Effect of foreign exchange gain (loss) on cash, cash equivalents, restricted cash, and restricted cash equivalents	1		(1)
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period	(153)		(35)
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period	426		582
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period	$	273	$	547

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 nine months ended November 30, 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 and economies 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 affected 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.

During the third quarter of fiscal 2021, this uncertainty did not result in additional significant judgements.

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 Software & Services revenue growth and observed a partial recovery in global automotive production volumes in the second and third quarters of fiscal 2021, the COVID-19 pandemic has had and the Company believes 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 effects of the pandemic may not be fully reflected in the Company’s business until future periods.

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)

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 in Note 6 relating to the issuance of the 1.75% Debentures (as defined in Note 6) and 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

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)

requires significant judgment, including estimation of future cash flows, which is dependent on internal forecasts, 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) were determined, see the “Convertible debentures” accounting policies in Note 1 to the Annual Financial Statements. The 3.75% Debentures were classified as Level 2. For a description of how the fair values of the 1.75% Debentures (as defined in Note 6) are determined, see Note 6. The 1.75% Debentures are classified as Level 3.

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 (nine months ended November 30, 2019 - $5 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 November 30, 2020 were as follows:

	Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Short-term Investments		Long-term Investments		Restricted Cash and Cash Equivalents
Bank balances	$	163	$	—	$	—	$	163	$	163	$	—	$	—	$	—
Other investments	33		—		—		33		—		—		33		—
	196		—		—		196		163		—		33		—
Level 1:
Equity securities	10		—		(8)		2		—		2		—		—
Level 2:
Corporate notes/bonds	25		—		—		25		—		25		—		—
Term deposits, certificates of deposits, and GIC's	120		—		—		120		25		45		—		50
Commercial paper	231		—		—		231		35		196		—		—
Non-U.S. promissory notes	35		—		—		35		—		35		—		—
Non-U.S. government sponsored enterprise notes	98		—		—		98		—		98		—		—
Non-U.S. treasury bills/notes	50		—		—		50		—		50		—		—
	559		—		—		559		60		449		—		50
	$	765	$	—	$	(8)	$	757	$	223	$	451	$	33	$	50

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 Basis		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Short-term Investments		Long-term Investments		Restricted Cash and Cash Equivalents
Bank balances	$	100	$	—	$	—	$	100	$	100	$	—	$	—	$	—
Other investments	32		—		—		32		—		—		32		—
	132		—		—		132		100		—		32		—
Level 1:
Equity securities	10		—		(8)		2		—		2		—		—
Level 2:
Term deposits, certificates of deposits, and GICs	118		—		—		118		44		25		—		49
Bankers’ acceptances/bearer deposit notes	84		—		—		84		30		54		—		—
Commercial paper	276		—		—		276		108		168		—		—
Non-U.S. promissory notes	133		—		—		133		25		108		—		—
Non-U.S. government sponsored enterprise notes	144		—		—		144		—		144		—		—
Non-U.S. treasury bills/notes	56		—		—		56		25		31		—		—
U.S. treasury bills/notes	45		—		—		45		45		—		—		—
	856		—		—		856		277		530		—		49
	$	998	$	—	$	(8)	$	990	$	377	$	532	$	32	$	49

As at November 30, 2020, the Company had private equity investments without readily determinable fair value of $33 million (February 29, 2020 - $32 million).

There were no realized gains or losses on available-for-sale securities for the three and nine months ended November 30, 2020 (realized losses of nil for the three and nine months ended November 30, 2019).

The Company has restricted cash and cash equivalents, consisting of cash and securities pledged as collateral to major banking partners in support of the Company’s requirements for letters of credit. These letters of credit support certain leasing arrangements entered into in the ordinary course of business and also support patent litigation in certain jurisdictions. The letters of credit are for terms ranging from one month to five years. The Company is legally restricted from accessing these funds during the term of the leases for which the letters of credit have been issued; however, the Company can continue to invest the funds and receive investment income thereon.

17

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 following table provides a reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents as at November 30, 2020 and February 29, 2020 from the consolidated balance sheets to the consolidated statements of cash flows:

	As at
	November 30, 2020		February 29, 2020
Cash and cash equivalents	$	223	$	377
Restricted cash and cash equivalents	50		49
Total cash, cash equivalents, restricted cash, and restricted cash equivalents presented in the consolidated statements of cash flows	$	273	$	426

The contractual maturities of available-for-sale investments as at November 30, 2020 and February 29, 2020 were as follows:

	As at
	November 30, 2020				February 29, 2020
	Cost Basis		Fair Value		Cost Basis		Fair Value
Due in one year or less	$	559	$	559	$	856	$	856
No fixed maturity	10		2		10		2
	$	569	$	561	$	866	$	858

As at November 30, 2020, the Company had investments with continuous unrealized losses totaling $8 million, consisting of unrealized losses on equity securities (February 29, 2020 - continuous unrealized losses totaling $8 million).

4. CONSOLIDATED BALANCE SHEET DETAILS

    Accounts Receivable, Net

The allowance for credit losses as at November 30, 2020 was $13 million (February 29, 2020 - $9 million).

The Company recognizes current estimated credit losses for accounts receivable, net. The CECL for accounts receivable, net are estimated based on days past due and region for each customer in relation to a representative pool of assets consisting of a large number of customers with similar risk characteristics that operate under similar economic environments. The Company determined the CECL by estimating historical credit loss experience based on the past due status and region of the customers, adjusted as appropriate to reflect current conditions and estimates of future economic conditions, inclusive of the effect of the COVID-19 pandemic on credit losses. The duration and severity of COVID-19 and continued market volatility is highly uncertain and, as such, the impact on expected credit losses is subject to significant judgment and may cause variability in the Company’s allowance for credit losses in future periods. 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 also has long-term accounts receivable included in Other Long-term Assets. The CECL for long-term accounts receivable is estimated using the probability of default method and the default exposure due to limited historical information. The exposure of default is represented by the assets’ amortized carrying amount at the reporting date.

The following table sets forth the activity in the Company’s allowance for credit losses:

	Nine Months Ended
	November 30, 2020
Beginning balance as of February 29, 2020	$	9
Impact of adopting ASC 326	4
Current period provision for expected credit losses	—
Ending balance of the allowance for credit loss as at November 30, 2020	$	13

The allowance for credit losses as at November 30, 2020 consists of $6 million relating to CECL estimated based on days past due and region and $7 million relating to specific customers that were evaluated separately.

18

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)

There were two customers that comprised more than 10% of accounts receivable as at November 30, 2020 (February 29, 2020 - two customers comprised more than 10%).

Other Current Assets

As at November 30, 2020, other current assets include items such as the current portion of deferred commissions and prepaid expenses, among other items, none of which were greater than 5% of the current assets balance in all periods presented.

Property, Plant and Equipment, Net

Property, plant and equipment comprised the following:

	As at
	November 30, 2020		February 29, 2020
Cost
Buildings, leasehold improvements and other	$	68	$	72
BlackBerry operations and other information technology	80		84
Manufacturing, repair and research and development equipment	73		73
Furniture and fixtures	10		11
	231		240
Accumulated amortization	177		170
Net book value	$	54	$	70

Intangible Assets, Net

Intangible assets comprised the following:

	As at November 30, 2020
	Cost		Accumulated Amortization		Net Book Value
Acquired technology	$	1,022	$	694	$	328
Intellectual property	496		297		199
Other acquired intangibles	494		218		276
	$	2,012	$	1,209	$	803

	As at February 29, 2020
	Cost		Accumulated Amortization		Net Book Value
Acquired technology	$	1,019	$	636	$	383
Intellectual property	489		275		214
Other acquired intangibles	494		176		318
	$	2,002	$	1,087	$	915

For the nine months ended November 30, 2020, amortization expense related to intangible assets amounted to $133 million (nine months ended November 30, 2019 - $142 million)

Total additions to intangible assets for nine months ended November 30, 2020 amounted to $23 million (nine months ended November 30, 2019 - $24 million). During the nine months ended November 30, 2020, additions to intangible assets primarily consisted of payments for intellectual property relating to patent maintenance, registration and license fees.

Based on the carrying value of the identified intangible assets as at November 30, 2020, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for the remainder of fiscal 2021 and each of the five

19

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)

succeeding years is expected to be as follows: fiscal 2021 - $43 million; fiscal 2022 - $149 million; fiscal 2023 - $116 million; fiscal 2024 - $108 million; fiscal 2025 - $101 million and fiscal 2026 - $95 million.

Goodwill

Changes to the carrying amount of goodwill during the nine months ended November 30, 2020 were as follows:

	Carrying Amount
Carrying amount as at February 29, 2020	1,437
Goodwill impairment charge (see Note 3)	(594)
Effect of foreign exchange on non-U.S. dollar denominated goodwill	6
Carrying amount as at November 30, 2020	$	849

Other Long-term Assets

As at November 30, 2020, other long-term assets include long-term portion of deferred commission and long-term receivables, among other items, none of which were greater than 5% of total assets in any of the periods presented.

Accrued Liabilities

Accrued liabilities comprised the following:

	As at
	November 30, 2020		February 29, 2020
Operating lease liabilities, current	$	31	$	31
Other	142		171
	$	173	202

Other accrued liabilities includes accrued vendor liabilities, accrued carrier liabilities, variable incentive accrual and payroll withholding taxes, among other items, none of which were greater than 5% of the current liabilities balance.

Other Long-term Liabilities

Other long-term liabilities consist of the long-term portion of finance lease liabilities and non-lease component liabilities related to the Company’s previous Resource Allocation Program entered into in order to transition the Company from a legacy hardware manufacturer to a licensing driven software business.

5.    INCOME TAXES

For the nine months ended November 30, 2020, the Company’s net effective income tax recovery rate was approximately 1% compared to a net effective income tax expense rate of 5% for the nine months ended November 30, 2019. The Company’s income tax rate reflects the change in unrecognized income tax benefit and the fact that the Company has a significant valuation allowance against its deferred income tax assets, and in particular, the change in fair value of the Debentures (as defined in Note 6), amongst other items, is offset by a corresponding adjustment of the valuation allowance. The Company’s net effective income tax rate also reflects the geographic mix of earnings in jurisdictions with different income tax rates.

The Company’s total unrecognized income tax benefits as at November 30, 2020 were $35 million (February 29, 2020 - $72 million). As at November 30, 2020, $33 million of the unrecognized income tax benefits have been netted against deferred income tax assets and $2 million has been recorded within income taxes payable on the Company’s consolidated balance sheets.

The Company is subject to ongoing examination by tax authorities in certain jurisdictions in which it operates. The Company regularly assesses the status of these examinations and the potential for adverse outcomes to determine the adequacy of the provision for income taxes as well as the provisions for indirect and other taxes and related penalties and interest. While the final resolution of audits is uncertain, the Company believes the ultimate resolution of these audits will not have a material adverse effect on its consolidated financial position, liquidity or results of operations.

20

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)

6.    DEBENTURES

1.75% Convertible Debentures

On September 1, 2020, Hamblin Watsa Investment Counsel Ltd., in its capacity as investment manager of Fairfax Financial Holdings Limited ("Fairfax") and another institutional investor invested in the Company through a $365 million private placement of new debentures (the “1.75% Debentures”), which replaced $605 million of debentures issued in a private placement on September 7, 2016 (the “3.75% Debentures”) as described below (collectively, the “Debentures”).

Interest on the 1.75% Debentures is payable quarterly in arrears at a rate of 1.75% per annum. The 1.75% Debentures mature on November 13, 2023 and each $1,000 of 1.75% Debentures is convertible at any time into 166.67 common shares of the Company, for a total of 60.8 million common shares at a price of $6.00 per share for all 1.75% Debentures, subject to adjustments. Covenants associated with the 1.75% Debentures include limitations on the Company’s total indebtedness.

Under specified events of default, the outstanding principal and any accrued interest on the 1.75% Debentures become immediately due and payable upon request of holders holding not less than 25% of the principal amount of the 1.75% Debentures then outstanding. During an event of default, the interest rate rises to 5.75