ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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| INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |
| | | Page No. |
| Report of Independent Registered Public Accounting Firm | (PCAOB ID 271) | | |
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| | | |
| | | | |
| Consolidated Balance Sheets | | | |
| For the Years Ended February 29, 2024 and February 28, 2023 | | |
| | | | |
| Consolidated Statements of Shareholders’ Equity | | | |
| For the Years Ended February 29, 2024, February 28, 2023 and February 28, 2022 | | |
| | | | |
| Consolidated Statements of Operations | | | |
| For the Years Ended February 29, 2024, February 28, 2023 and February 28, 2022 | | |
| | | | |
| Consolidated Statements of Comprehensive Income (Loss) | | | |
| For the Years Ended February 29, 2024, February 28, 2023 and February 28, 2022 | | |
| | | | |
| Consolidated Statements of Cash Flows | | | |
| For the Years Ended February 29, 2024, February 28, 2023 and February 28, 2022 | | |
| | | | |
| Notes to the Consolidated Financial Statements | | | |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of BlackBerry Limited
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of BlackBerry Limited and its subsidiaries (together, the Company) as of February 29, 2024 and February 28, 2023, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended February 29, 2024, including the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of February 29, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 29, 2024 and February 28, 2023, and the results of its operations and its cash flows for each of the three years in the period ended February 29, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 29, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting, appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairment Test of Goodwill for the BlackBerry Spark Reporting Unit
As described in Notes 1, 3 and 4 to the consolidated financial statements, the Company’s goodwill balance was $562 million as of February 29, 2024. A significant portion of the goodwill relates to the BlackBerry Spark reporting unit. Management conducts a goodwill impairment test annually on December 31, or more frequently if events or changes in circumstances indicate goodwill may be impaired. In the impairment test, management compares the carrying value of a reporting unit, including goodwill, to its fair value. When the carrying value 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. Management utilizes multiple valuation techniques, which include the income approach using a discounted future cash flow model, among others in determining the fair value of a reporting unit. Estimating the fair value of a reporting unit using a discounted future cash flow model requires significant judgment by management, including estimation of future cash flows, which is dependent on estimation of the long-term rates of revenue growth, terminal growth rate, profitability measures, and determination of the discount rate. Based on the result of the impairment test related to goodwill, management concluded that the carrying value of the BlackBerry Spark reporting unit exceeded its fair value. Management recorded a goodwill impairment charge of $35 million relating to the BlackBerry Spark reporting unit.
The principal considerations for our determination that performing procedures relating to the impairment test of goodwill for the BlackBerry Spark reporting unit is a critical audit matter are (i) the significant judgment by management when determining the fair value of the BlackBerry Spark reporting unit using a discounted future cash flow model; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to long-term rates of revenue growth, terminal growth rate, profitability measures and the discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment test for the BlackBerry Spark reporting unit, including controls over the determination of its fair value. These procedures also included, among others, (i) testing management’s process for determining the fair value of the BlackBerry Spark reporting unit; (ii) testing the completeness and accuracy of underlying data used in the discounted future cash flow model; (iii) evaluating the appropriateness of the discounted future cash flow model; and (iv) evaluating the reasonableness of the significant assumptions used by management related to long-term rates of revenue growth, terminal growth rate, profitability measures and the discount rate. Evaluating management’s assumptions related to long-term rates of revenue growth and profitability measures involved assessing whether the assumptions used by management were reasonable considering consistency with (i) the current and past performance of the BlackBerry Spark reporting unit; (ii) external market and industry data; and (iii) evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the (i) appropriateness of the Company’s discounted future cash flow model and (ii) reasonableness of the discount rate and terminal growth rate.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
April 4, 2024
We have served as the Company's auditor since 2020.
BlackBerry Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions)
Consolidated Balance Sheets | | | | | | | | | | | |
| | As at |
| | February 29, 2024 | | February 28, 2023 |
| Assets | | | |
| Current | | | |
| Cash and cash equivalents (note 3) | $ | 175 | | | $ | 295 | |
| Short-term investments (note 3) | 62 | | | 131 | |
Accounts receivable, net of allowance of $6 and $1, respectively (note 4 and note 12) | 199 | | | 120 | |
| Other receivables (note 4) | 21 | | | 12 | |
| | | |
| Income taxes receivable | 4 | | | 3 | |
| Other current assets (note 4) | 47 | | | 182 | |
| | | |
| 508 | | | 743 | |
| Restricted cash and cash equivalents (note 3) | 25 | | | 27 | |
| Long-term investments (note 3) | 36 | | | 34 | |
| Other long-term assets (note 4) | 57 | | | 8 | |
| | | |
Operating lease right-of-use assets, net (note 11) | 32 | | | 44 | |
| Property, plant and equipment, net (note 4) | 21 | | | 25 | |
| Intangible assets, net (note 3 and note 4) | 154 | | | 203 | |
| Goodwill (note 3 and note 4) | 562 | | | 595 | |
| | | |
| $ | 1,395 | | | $ | 1,679 | |
| Liabilities | | | |
| Current | | | |
| Accounts payable | $ | 17 | | | $ | 24 | |
| Accrued liabilities (note 4) | 117 | | | 143 | |
| Income taxes payable (note 5) | 28 | | | 20 | |
| Debentures (note 6) | — | | | 367 | |
| Deferred revenue, current (note 12) | 194 | | | 175 | |
| 356 | | | 729 | |
| Deferred revenue, non-current (note 12) | 28 | | | 40 | |
Operating lease liabilities (note 11) | 38 | | | 52 | |
| Other long-term liabilities | 3 | | | 1 | |
| Long-term notes (note 6) | 194 | | | — | |
| | | |
| | | |
| 619 | | | 822 | |
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 and outstanding - 589,232,539 voting common shares (February 28, 2023 - 582,157,203) | 2,948 | | | 2,909 | |
| Deficit | (2,158) | | | (2,028) | |
| Accumulated other comprehensive loss (note 9) | (14) | | | (24) | |
| 776 | | | 857 | |
| $ | 1,395 | | | $ | 1,679 | |
See notes to consolidated financial statements.
On behalf of the Board: | | | | | |
| John Giamatteo | Lisa Disbrow |
| Director | Director |
BlackBerry Limited
(United States dollars, in millions)
Consolidated Statements of Shareholders’ Equity
| | | | | | | | | | | | | | | | | | | | | | | |
| Capital Stock
and Additional
Paid-in Capital | | Deficit | | Accumulated
Other
Comprehensive Loss | | Total |
| Balance as at February 28, 2021 | $ | 2,823 | | | $ | (1,306) | | | $ | (13) | | | $ | 1,504 | |
| Net income | — | | | 12 | | | — | | | 12 | |
| Other comprehensive loss | — | | | — | | | (6) | | | (6) | |
| | | | | | | |
| Stock-based compensation (note 7) | 36 | | | — | | | — | | | 36 | |
| | | | | | | |
| | | | | | | |
| Shares issued: | | | | | | | |
| Exercise of stock options (note 7) | 3 | | | — | | | — | | | 3 | |
| | | | | | | |
| Employee share purchase plan (note 7) | 7 | | | — | | | — | | | 7 | |
| Balance as at February 28, 2022 | 2,869 | | | (1,294) | | | (19) | | | 1,556 | |
| Net loss | — | | | (734) | | | — | | | (734) | |
| Other comprehensive loss | — | | | — | | | (5) | | | (5) | |
| | | | | | | |
| Stock-based compensation (note 7) | 34 | | | — | | | — | | | 34 | |
| Shares issued: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Employee share purchase plan (note 7) | 6 | | | — | | | — | | | 6 | |
| Balance as at February 28, 2023 | 2,909 | | | (2,028) | | | (24) | | | 857 | |
| Net loss | — | | | (130) | | | — | | | (130) | |
| Other comprehensive income | — | | | — | | | 10 | | | 10 | |
| | | | | | | |
| Stock-based compensation (note 7) | 33 | | | — | | | — | | | 33 | |
| Shares issued: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Employee share purchase plan (note 7) | 5 | | | — | | | — | | | 5 | |
| Redemption of deferred share units ("DSUs") (note 7) | 1 | | | $ | — | | | $ | — | | | 1 | |
| Balance as at February 29, 2024 | $ | 2,948 | | | $ | (2,158) | | | $ | (14) | | | $ | 776 | |
See notes to consolidated financial statements.
BlackBerry Limited
(United States dollars, in millions, except per share data)
Consolidated Statements of Operations
| | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| | February 29, 2024 | | February 28, 2023 | | February 28, 2022 |
| Revenue (note 12) | $ | 853 | | | $ | 656 | | | $ | 718 | |
| Cost of sales | 333 | | | 237 | | | 251 | |
| | | | | |
| Gross margin | 520 | | | 419 | | | 467 | |
| | | | | |
| Operating expenses | | | | | |
| Research and development | 186 | | | 207 | | | 219 | |
| Sales and marketing | 171 | | | 176 | | | 183 | |
| General and administrative | 181 | | | 164 | | | 114 | |
| Amortization | 54 | | | 96 | | | 165 | |
| Impairment of goodwill (note 3) | 35 | | | 245 | | | — | |
| Impairment of long-lived assets (note 3) | 15 | | | 235 | | | — | |
| Gain on sale of property, plant and equipment, net (note 4) | — | | | (6) | | | — | |
| Debentures fair value adjustment (note 6) | 3 | | | (138) | | | (212) | |
| Litigation settlement (note 10) | — | | | 165 | | | — | |
| 645 | | | 1,144 | | | 469 | |
| Operating loss | (125) | | | (725) | | | (2) | |
| Investment income, net (note 3 and note 6) | 19 | | | 5 | | | 21 | |
| | | | | |
| Income (loss) before income taxes | (106) | | | (720) | | | 19 | |
| Provision for income taxes (note 5) | 24 | | | 14 | | | 7 | |
| | | | | |
| | | | | |
| Net income (loss) | $ | (130) | | | $ | (734) | | | $ | 12 | |
| Earnings (loss) per share (note 8) | | | | | |
| Basic | $ | (0.22) | | | $ | (1.27) | | | $ | 0.02 | |
| Diluted | $ | (0.22) | | | $ | (1.35) | | | $ | (0.31) | |
| | | | | |
| | | | | |
See notes to consolidated financial statements.
BlackBerry Limited
(United States dollars, in millions)
Consolidated Statements of Comprehensive Income (Loss)
| | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| | February 29, 2024 | | February 28, 2023 | | February 28, 2022 |
| Net income (loss) | $ | (130) | | | $ | (734) | | | $ | 12 | |
| Other comprehensive income (loss) | | | | | |
| | | | | |
| Net change in fair value and amounts reclassified to net income (loss) from derivatives designated as cash flow hedges during the year (note 9) | 1 | | | (1) | | | (1) | |
| | | | | |
| Foreign currency translation adjustment | 2 | | | (6) | | | (6) | |
| Actuarial gains associated with other post-employment benefit obligations | 1 | | | — | | | — | |
| Net change in fair value from instrument-specific credit risk on the Debentures during the year (note 6) | 6 | | | 2 | | | 1 | |
| | | | | |
| Other comprehensive income (loss) | 10 | | | (5) | | | (6) | |
| Comprehensive income (loss) | $ | (120) | | | $ | (739) | | | $ | 6 | |
See notes to consolidated financial statements.
BlackBerry Limited
(United States dollars, in millions)
Consolidated Statements of Cash Flows | | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| | February 29, 2024 | | February 28, 2023 | | February 28, 2022 |
| Cash flows from operating activities | | | | | |
| | | | | |
| | | | | |
| Net income (loss) | $ | (130) | | | $ | (734) | | | $ | 12 | |
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | | | | | |
| Amortization | 59 | | | 105 | | | 176 | |
| | | | | |
| Stock-based compensation | 33 | | | 34 | | | 36 | |
| Gain on sale of investment (note 3) | — | | | — | | | (22) | |
| Impairment of goodwill (note 3) | 35 | | | 245 | | | — | |
Impairment of long-lived assets (note 3) | 15 | | | 235 | | | — | |
| Intellectual property disposed of by sale (note 4) | 147 | | | — | | | — | |
| | | | | |
| | | | | |
| Gain on sale of property, plant and equipment, net (note 4) | — | | | (6) | | | — | |
| Debentures fair value adjustment (note 6) | 3 | | | (138) | | | (212) | |
| | | | | |
| | | | | |
| Operating leases | (13) | | | (16) | | | (16) | |
| Other | 3 | | | 5 | | | (3) | |
| Net changes in working capital items | | | | | |
| Accounts receivable, net of allowance | (79) | | | 18 | | | 44 | |
| Other receivables | (9) | | | 13 | | | — | |
| | | | | |
| Income taxes receivable | (1) | | | 6 | | | 1 | |
| Other assets | (53) | | | (1) | | | 15 | |
| Accounts payable | (7) | | | 2 | | | 2 | |
| Accrued liabilities | (21) | | | (11) | | | (16) | |
| Income taxes payable | 8 | | | 9 | | | 5 | |
| Deferred revenue | 7 | | | (29) | | | (50) | |
| Net cash used in operating activities | (3) | | | (263) | | | (28) | |
| Cash flows from investing activities | | | | | |
| Acquisition of long-term investments | (2) | | | (3) | | | (1) | |
| Proceeds on sale, maturity or distribution from long-term investments | — | | | — | | | 35 | |
| Acquisition of property, plant and equipment | (7) | | | (7) | | | (8) | |
| Proceeds on sale of property, plant and equipment (note 4) | — | | | 17 | | | — | |
| Acquisition of intangible assets | (14) | | | (34) | | | (31) | |
| | | | | |
| Acquisition of short-term investments | (154) | | | (514) | | | (916) | |
| | | | | |
| Proceeds on sale or maturity of restricted short-term investments | — | | | — | | | 24 | |
| Proceeds on sale or maturity of short-term investments | 223 | | | 717 | | | 1,104 | |
| | | | | |
| | | | | |
| Net cash provided by investing activities | 46 | | | 176 | | | 207 | |
| Cash flows from financing activities | | | | | |
| Issuance of common shares | 6 | | | 6 | | | 10 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Maturities of 2020 Debentures and Extension Debentures (note 6) | (515) | | | — | | | — | |
| Proceeds from issuance of Extension Debentures and Notes, net (note 6) | 344 | | | — | | | — | |
| | | | | |
| Net cash provided by (used in) financing activities | (165) | | | 6 | | | 10 | |
| Effect of foreign exchange loss on cash, cash equivalents, restricted cash, and restricted cash equivalents | — | | | (3) | | | (1) | |
| Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period | (122) | | | (84) | | | 188 | |
| Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period | 322 | | | 406 | | | 218 | |
| Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period | $ | 200 | | | $ | 322 | | | $ | 406 | |
See notes to consolidated financial statements.
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
1. BLACKBERRY LIMITED AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
BlackBerry Limited (the “Company”) provides intelligent security software and services to enterprises and governments around the world. The Company secures more than 235 million vehicles. Based in Waterloo, Ontario, the Company leverages artificial intelligence (“AI”) and machine learning to deliver innovative solutions in the areas of cybersecurity, safety and data privacy, and is a leader in the areas of endpoint security, endpoint management, encryption, and embedded systems. The Company’s common shares trade under the ticker symbol “BB” on the New York Stock Exchange and the Toronto Stock Exchange.
Basis of Presentation and Preparation
The consolidated financial statements include the accounts of all subsidiaries of the Company with intercompany transactions and balances eliminated on consolidation. All of the Company’s subsidiaries are wholly owned. These consolidated financial statements have been prepared by management in accordance with United States generally accepted accounting principles (“U.S. GAAP”) on a basis consistent for all periods presented, except as described in Note 2.
Certain of the comparative figures have been reclassified to conform to the current year’s presentation.
The Company is organized and managed as three reportable operating segments: Cybersecurity, IoT (collectively, “Software & Services”), and Licensing and Other, as further discussed in Note 12.
Risks and Uncertainties
In fiscal 2024, assumptions and estimates about future cash flows, economic uncertainty, customer budgetary constraints, auto industry labor disruptions and inflation, development timelines for automotive OEM embedded software platforms, as well as higher interest rates implemented in response to inflation and resulting fears of recession, resulted in the Company making significant judgments related to its estimates and assumptions concerning the impairment of goodwill, indefinite-lived intangible assets, 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, judgments, or revise the carrying value of its assets or liabilities. 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.
Accounting Policies and Critical Accounting Estimates
Use of estimates
The preparation of the consolidated financial statements requires management to make estimates and assumptions with respect to the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. Significant areas requiring the use of management estimates relate to revenue-related estimates including variable consideration, standalone selling price (“SSP”), estimated customer life, right of return and customer incentive commitments, fair value of reporting units in relation to actual or potential goodwill impairment, fair value of the Debentures (as defined in Note 6), fair value of share-based liability awards, fair value of long-lived assets in relation to actual or potential impairment, the Company’s long-lived asset groupings, estimated useful lives of property, plant and equipment and intangible assets, provision (or recovery) of income taxes, realization of deferred income tax assets and the related components of the valuation allowance, allowance for credit losses, incremental borrowing rates in determining the present value of lease liabilities and the determination of reserves for various litigation claims. Actual results could differ from these estimates, which were based upon circumstances that existed as of the date of the consolidated financial statements, February 29, 2024.
The significant accounting policies used in these U.S. GAAP consolidated financial statements are as follows:
Foreign currency translation
The U.S. dollar is the functional and reporting currency of the Company and substantially all of the Company’s subsidiaries.
Foreign currency denominated assets and liabilities of the Company and its U.S. dollar functional currency subsidiaries are translated into U.S. dollars. Accordingly, monetary assets and liabilities are translated using the exchange rates in effect as at the consolidated balance sheet dates, and revenue and expenses are translated at the rates of exchange
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
prevailing when the transactions occurred. Remeasurement adjustments are included in income. Non-monetary assets and liabilities are translated at historical exchange rates.
Foreign currency denominated assets and liabilities of the Company’s non-U.S. dollar functional currency subsidiary is translated into U.S. dollars at the exchange rates in effect as at the consolidated balance sheet dates. Revenue and expenses are translated using daily exchange rates. Exchange gains or losses arising from the translation of foreign currency denominated assets and liabilities are included as a currency translation adjustment within accumulated other comprehensive loss (“AOCL”).
Cash and cash equivalents
Cash and cash equivalents consist of balances with banks and liquid investments with maturities of three months or less at the date of acquisition.
Accounts receivable, net of allowance
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 resellers and other distribution partners, rather than directly to end users. 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 non-marketable 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 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 non-marketable equity investments without readily determinable fair value at cost minus impairment, and 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 non-marketable 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, non-marketable equity investments without readily determinable fair value and investments that the Company does not intend to sell are classified as long-term investments.
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
Allowance for Credit Losses on Available-for-sale Debt Securities
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.
Derivative financial instruments
The Company uses derivative financial instruments, including forward contracts and options, to hedge certain foreign currency exposures. The Company does not use derivative financial instruments for speculative purposes.
The Company records all derivative instruments at fair value on the consolidated balance sheets. The fair value of these instruments is calculated based on notional and exercise values, transaction rates, market quoted currency spot rates, forward points, volatilities and interest rate yield curves. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative instrument and the resulting designation.
For derivative instruments designated as cash flow hedges, the derivative’s gain or loss is initially reported as a component of AOCL, net of tax, and subsequently reclassified into income in the same period or periods in which the hedged item affects income. In order for the Company to receive hedge accounting treatment, the cash flow hedge must be highly effective in offsetting changes in the fair value of the hedged item and the relationship between the hedging instrument and the associated hedged item must be formally documented at the inception of the hedge relationship. Hedge effectiveness is formally assessed, both at hedge inception and on an ongoing basis, to determine whether the derivatives used in hedging transactions are highly effective in offsetting changes in the value of the hedged items and whether they are expected to continue to be highly effective in future periods.
The Company formally documents relationships between hedging instruments and associated hedged items. This documentation includes: identification of the specific foreign currency asset, liability or forecasted transaction being hedged; the nature of the risk being hedged; the hedge objective; and the method of assessing hedge effectiveness. If an anticipated transaction is deemed no longer likely to occur, the corresponding derivative instrument is de-designated as a hedge and any associated unrealized gains and losses in AOCL are recognized in income at that time. Any future changes in the fair value of the instrument are recognized in current income.
For any derivative instruments that do not meet the requirements for hedge accounting, or for any derivative instruments for which hedge accounting is not elected, the changes in fair value of the instruments are recognized in income in the current period and will generally offset the impact to income as a result of changes in the U.S. dollar value of the associated asset, liability or forecasted transaction.
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
Property, plant and equipment, net
Property, plant and equipment are stated at cost, less accumulated amortization and impairment. Amortization is provided using the following rates and methods:
| | | | | | | | |
| Leasehold improvements and other | | Straight-line over terms between 5 and 15 years |
| BlackBerry operations and other information technology | | Straight-line over terms between 3 and 5 years |
| Manufacturing, repair and research and development equipment | | Straight-line over terms between 1 and 5 years |
| Furniture and fixtures | | Declining balance at 30% per annum |
For amortization on ROU assets, see the Company’s accounting policy on leases below and Note 11 for the remaining lease terms of leases.
Leases
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As most of the Company’s leases do not provide an implicit discount rate, the Company primarily uses its incremental borrowing rate, based on the information available at the commencement date of the lease, in determining the present value of future payments. The Company’s incremental borrowing rate requires significant judgment and is determined based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term in a similar economic environment. The operating lease ROU asset includes any lease payments made, lease incentives and initial direct costs incurred. The lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. In some cases, the Company has index-based variable lease payments for which an estimated rate is applied to the initial lease payment to determine future lease payment amounts.
The Company has building, car and data center lease agreements with lease and non-lease components that are accounted for separately. For lease terms of 12 months or less on the commencement date, the Company recognizes the lease payments as lease cost on a straight-line basis over the lease term.
See Note 11 for additional information related to the Company’s leases.
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.
In the annual impairment test, the carrying value 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 using a discounted future cash flow model, market-based approaches, and the asset value approach. The analysis requires significant judgment, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rates of revenue growth for the Company’s reporting units, estimation of the useful life over which cash flows will occur, terminal growth rates, profitability measures, and determination of the discount rates for the reporting units. The carrying value of the Company’s assets was assigned to reporting units using reasonable methodologies based on the
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
asset type. When the carrying value 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.
Intangible assets
Intangible assets with definite lives are stated at cost, less accumulated amortization and impairment. Amortization is provided on a straight-line basis over the following terms:
| | | | | | | | |
| Acquired technology | | Between 3 and 10 years |
| Intellectual property | | Between 1 and 25 years |
| Other acquired intangibles | | Between 2 and 10 years |
Acquired technology consists of intangible assets acquired through business acquisitions. Intellectual property consists of patents (including purchased and internally generated patents and maintenance fees). Other acquired intangibles include items such as customer relationships and brand. The useful lives of intangible assets are evaluated at least annually to determine if events or circumstances warrant a revision to their remaining period of amortization. Legal, regulatory and contractual factors, the effects of obsolescence, demand, competition and other economic factors are potential indicators that the useful life of an intangible asset may be revised.
Impairment of long-lived assets
The Company reviews long-lived assets (“LLA”) such as property, plant and equipment, intangible assets with finite useful lives and ROU assets for impairment whenever events or changes in circumstances indicate that the carrying value of the asset or asset group may not be recoverable. These events and circumstances may include significant decreases in the market price of an asset or asset group, significant changes in the extent or manner in which an asset or asset group is being used by the Company or in its physical condition, a significant change in legal factors or in the business climate, a history or forecast of future operating or cash flow losses, significant disposal activity, a significant decline in the Company’s share price, a significant decline in revenue or adverse changes in the economic environment.
The LLA impairment test requires the Company to identify its asset groups and test impairment of each asset group separately. Determining the Company’s asset groups and related primary assets requires significant judgment by management. Different judgments could yield different results. The Company’s determination of its asset groups, its primary asset and its remaining useful life, and estimated cash flows are significant factors in assessing the recoverability of the Company’s assets for the purposes of LLA impairment testing. The Company’s share price can be affected by, among other things, changes in industry or market conditions, including the effect of competition, changes in the Company’s results of operations, changes in the Company’s forecasts or market expectations relating to future results, and the Company’s strategic initiatives and the market’s assessment of any such factors.
When indicators of impairment exist, LLA impairment is tested using a two-step process. The Company performs a cash flow recoverability test as the first step, which involves comparing the asset group’s estimated undiscounted future cash flows to the carrying value of its net assets. If the net cash flows of the asset group exceed the carrying value of its net assets, LLA are not considered to be impaired. If the carrying value exceeds the net cash flows, there is an indication of potential impairment and the second step of the LLA impairment test is performed to measure the impairment amount. The second step involves determining the fair value of the asset group. Fair values are determined using valuation techniques that are in accordance with U.S. GAAP, including the market approach, income approach and cost approach. If the carrying value of the asset group’s net assets exceeds its fair value, then the excess represents the maximum amount of potential impairment that will be allocated to LLA in the asset group, with the limitation that the carrying value of each separable asset cannot be reduced to a value lower than its individual fair value. The total impairment amount allocated is recognized as a non-cash impairment loss.
The Company reviews any changes in events and circumstances that have occurred on a quarterly basis to determine if indicators of LLA impairment exist.
Convertible debentures
The Company has recognized the Notes (as defined in Note 6) as a single liability instrument measured at amortized cost. Debt issuance costs related to the Notes have been recorded as a direct deduction from the face amount of the Notes and will be amortized using the effective interest method.
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
The Company elected to measure its Extension Debentures (as defined in Note 6) and 2020 Debentures (as defined in Note 6) at fair value in accordance with the fair value option. Each period, the fair value of the Extension Debentures and 2020 Debentures was recalculated and resulting gains and losses from the change in fair value of the Extension Debentures and 2020 Debentures associated with non-credit components were recognized in income, while the change in fair value associated with credit components were recognized in AOCL.
Extension Debentures
The fair value of the Extension Debentures was determined using the significant inputs of principal value, interest rate spreads and curves, and the market price and volatility of the Company’s common shares.
2020 Debentures
The fair value of the 2020 Debentures was determined using the significant inputs of principal value, interest rate spreads and curves, any observable trades of the 2020 Debentures that occurred during the period, the market price and volatility of the Company’s common shares, and the significant Level 3 inputs related to credit spread and the implied discount of the 2020 Debentures at issuance.
Revenue recognition
The Company recognizes revenue when control of the promised products or services are transferred to customers, in an amount that reflects the consideration that the Company expects to receive in exchange for those products and services. Revenue is recognized through the application of the following steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when (or as) the Company satisfies a performance obligation.
A contract exists with a customer when both parties have approved the contract, commitments to performance and rights of each party (including payment terms) are identified, the contract has commercial substance and collection of substantially all consideration is probable for goods and services that are transferred.
Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other available resources, and are distinct in the context of the contract, whereby the transfer of the good or service is separately identifiable from other promises in the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.
The transaction price is determined based on the consideration the Company expects to be entitled to in exchange for transferring promised goods and services to the customer, excluding amounts collected on behalf of third parties such as sales taxes. Determining the transaction price requires significant judgment. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration.
Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative SSP. The Company’s method for allocation of consideration to be received and its method of estimation of SSP are described below under “Significant judgments”.
For each of the Company’s major categories of revenue, the following paragraphs describe the applicable specific revenue recognition policy, and when the Company satisfies its performance obligations.
Nature of products and services
The Company is organized and managed as three operating segments. The Company has multiple products and services from which it derives revenue, which are structured in three groups: Cybersecurity, IoT and Licensing and Other.
Cybersecurity
Cybersecurity includes revenue from Cylance® cybersecurity and BlackBerry unified endpoint management (“UEM”) solutions (collectively, BlackBerry Spark®), BlackBerry® AtHoc® and SecuSUITE®. Cybersecurity revenue is generated predominantly through software licenses, commonly bundled with support, maintenance and professional services.
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
Cylance Cybersecurity
The BlackBerry Spark platform is a comprehensive offering of security software products and services, including the Cylance cybersecurity solutions and BlackBerry Unified Endpoint Management, offering the Company’s broadest range of tailored cybersecurity and endpoint management options.
The Cylance cybersecurity solutions include revenue from the Company’s artificial intelligence and machine learning-based platform consisting of CylanceENDPOINT™, CylanceGUARD®, CylanceEDGE™, CylanceINTELLIGENCE™ and other cybersecurity applications. The Company generates software license revenue from term subscription products, which includes technical support, and any updates and upgrades.
The Company recognizes the license revenue over the term of the contract beginning on the commencement date of each contract, the date that services are made available to customers. The Company’s software license and updates, to the extent made available, are not distinct in the context of the contract as they are critical to the ongoing usability of the solution and so fulfill a single promise to the customer in the contract. The typical subscription term is one to three years. The technical support is recognized over the support period, which will normally be the same term as the software license.
Revenue for hourly rate professional services arrangements is recognized as services are performed and revenue for fixed fee professional services is recognized on a proportional performance basis as the services are performed.
BlackBerry UEM
The Company’s endpoint management platform includes BlackBerry® UEM, BlackBerry® Dynamics™ and BlackBerry® Workspaces solutions (which are often sold together as part of the BlackBerry UEM Suite), and BlackBerry Messenger (BBM®) Enterprise. The Company generates software license revenue from both term subscription and perpetual license contracts, both of which are commonly bundled with support, maintenance and professional services.
If the licensed software in a contract requires access to the Company’s proprietary secure network infrastructure in order to function, revenue from term subscription contracts is recognized over time, ratably over the term, and revenue from perpetual license contracts is recognized over time, ratably over the expected customer life, which in most cases the Company has estimated to be four years. If access to the Company’s proprietary network infrastructure is not required for the software to function, revenue associated with both term subscription and perpetual licenses contracts is recognized at a point in time upon delivery of the software. Generally, most of the Company’s UEM software products sold require access to the Company’s proprietary secure network infrastructure in order to function, and therefore the associated revenue is recognized over time, ratably over either the subscription term or expected customer life as described above.
BlackBerry SecuSUITE
SecuSUITE revenue is generated from software license products associated with secure communications and the associated hardware. Similar to the Cylance cybersecurity and BlackBerry UEM products, if the licensed software requires access to the Company’s proprietary secure network infrastructure, revenue from the contract is recognized over time, ratably over the expected term or over the customer life, if licensed on a perpetual basis. If access to the Company’s proprietary network infrastructure is not required, revenue associated with the license is recognized at a point in time upon delivery of the software. Revenue from the hardware is recognized once title and the significant risks and rewards of ownership of the products are transferred to the customer, which occurs after the product has shipped.
BlackBerry AtHoc
BlackBerry AtHoc generates revenue from networked critical event management solutions through perpetual and term subscriptions which include technical support, as well as associated professional services. The licensed software in most contracts requires access to the Company’s proprietary secure network infrastructure in order to function, specifically through AtHoc’s secure platform which is included within the Company’s data center. The Company recognizes the license revenue over the term of the contract beginning on the commencement date of each contract, the date that services are made available to customers.
IoT
IoT consists of BlackBerry Technology Solutions, BlackBerry Radar® and BlackBerry IVY™. BlackBerry Technology Solutions includes revenue from BlackBerry® QNX®, BlackBerry Certicom® and other IoT applications. IoT revenue is generated predominantly through software licenses, commonly bundled with support, maintenance and professional services.
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
BlackBerry® QNX® software license revenue from both term subscription and perpetual contracts is recognized at a point in time when the software is made available to the customer for use, as the software has standalone functionality and the license is distinct in the context of the contract. The licenses for certain software embedded into hardware such as automotive digital cockpit systems and advanced driver-assistance systems are sold as a sales-based royalty where intellectual property is the predominant item to which the royalty relates, and are recognized based on actual volumes and underlying sales by the customer of the hardware with the embedded software shipped by the customer, except in cases where the customer makes a non-refundable prepayment related to its future royalties, in which case consideration is fixed and recognized immediately.
Revenue from technical support is recognized over the support period. Revenue from professional services is recognized as the customer simultaneously receives and consumes the benefits provided by the Company’s performance as the services are provided. This can be on a proportional performance basis, or over the term of the contract. Revenue from software maintenance services is recognized over the length of the maintenance period, with an average term of one year.
Licensing and Other
Licensing and Other includes revenue from the Company’s intellectual property licensing arrangements and settlement awards. Other revenue consists of revenue associated with the Company’s legacy service access fees (“SAF”) business.
The Company’s outbound patent licensing agreements provide for license fees that may be a single upfront payment or multiple payments representing all or a majority of the licensing revenue that will be payable to the Company. These agreements may be perpetual or term in nature and grant (i) a limited non-exclusive, non-transferable license to certain of the Company’s patents, (ii) a covenant not to enforce patent rights against the licensee, and (iii) the release of the licensee from certain claims.
The Company examines intellectual property agreements on a case-by-case basis to determine whether the intellectual property contains distinct performance obligations with standalone functionality and whether the Company is the principal or agent in the transaction. Significant judgment is applied in assessing contractual terms which could impact the timing and amount of revenue recognition. Revenue from patent licensing agreements is often recognized for the transaction price either when the license has been transferred to the customer or based upon subsequent sales by the customer in the case of sales-based royalty licenses where the license of intellectual property is the predominant item to which the royalty relates. As part of these agreements the Company may also recognize revenue relating to the sale and assignment of patents.
The Company recognizes revenue related to consideration that may result from a negotiated agreement with a licensee that utilized the Company’s IP prior to signing a patent license agreement with the Company or from the resolution of a disagreement or arbitration with a licensee over the specific terms of an existing license agreement. The Company may also recognize revenue related to consideration for past patent royalties in connection with the settlement of patent litigation where there was no prior patent license agreement.
Other includes revenue associated with the Company’s legacy SAF business, relating to subscribers utilizing the Company’s legacy BlackBerry 7 and prior operating systems, for which the Company ended support and maintenance as of January 4, 2022. SAF revenue was recognized over time as the monthly service was provided. In instances where the Company invoiced the SAF customer prior to performing the service, the pre-billing was recorded as deferred revenue.
See Note 12 for further information, including revenue by major product and service types.
Significant judgments in revenue recognition
The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue recognized under the contract will not occur. Any estimates, including any constraints on variable consideration, are evaluated at each reporting period. To the extent the transaction price in a contract with a customer includes variable consideration, the Company estimates the amount of variable consideration that should be included in the price utilizing either the expected value method or the most likely amount method, depending on the nature of the variable consideration. The Company also estimates whether and how much variable consideration is subject to constraint if it cannot conclude it is probable that a significant reversal in revenue will not occur, due to factors such as: the consideration being highly susceptible to factors outside the Company’s influence, the period of time before
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
the variable consideration is resolved, the Company’s previous experience with similar contracts, the Company’s history of price concessions or changing of payment terms, and whether there is a large number and broad range of possible variable consideration amounts.
Judgment is required to determine the SSP for each distinct performance obligation. The Company’s products and services often have observable SSP when the Company sells a promised product or service separately to similar customers. A contractually stated price or list price for a good or service may be the SSP of that good or service. However, in instances where SSP is not directly observable, the Company determines the SSP by maximizing observable inputs and using an adjusted market assessment approach using information that may include market conditions and other observable inputs from the Company’s pricing team, including historical SSP.
Judgment is required to determine in certain agreements if the Company is the principal or agent in the arrangement. The Company considers factors such as, but not limited to, which party can direct the usage of the product or service, which party obtains substantially all the remaining benefits and which party has the ability to establish the selling price.
Significant judgment is required to determine the estimated customer life used in perpetual license contracts that require access to the Company’s proprietary secure network infrastructure to function. The Company uses historical experience regarding the length of the technology upgrade cycle and the expected life of the product to draw this conclusion.
Revenue contract balances
Timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets are generated when contractual billing schedules differ from revenue recognition timing. An unbilled receivable is recorded in instances when revenue is recognized prior to invoicing, and amounts collected in advance of services being provided are recorded as deferred revenue. Contract assets and liabilities are presented net as either a single contract asset or contract liability.
Certain sales commissions are considered incremental and recoverable costs of obtaining a contract with a customer. The Company’s capitalized commissions are recorded as other current assets and other long-term assets and are recognized immediately or amortized proportionally, based on the satisfaction of the related performance obligations, and are included in sales and marketing expenses. The Company has applied the practical expedient to expense sales commission as incurred if the amortization period would have been for one year or less. The practical expedient was applied to sales commissions allocated to professional services, as these contracts are generally for one year or less. See Note 12 for further information on the Company’s contract balances.
Payment terms and conditions vary by contract type although standard billing terms are that payment is due upon receipt of invoice, payable within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that contracts generally do not include a significant financing component if the period between when the payment is received and when the Company transfers the promised goods or services to the customer will be one year or less. To the extent the Company determines that there is a significant financing component in a contract with a customer, it determines the impact of the time value of money in adjusting the transaction price to account for the income associated with the financing component by estimating the discount rate that would be reflected in a separate financing transaction between the customer and the Company at contract inception, based upon the credit characteristics of the customer receiving financing in the contract.
Income taxes
The Company uses the liability method of income tax allocation to account for income taxes. Deferred income tax assets and liabilities are recognized based upon temporary differences between the financial reporting and income tax bases of assets and liabilities and measured using enacted income tax rates and tax laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred income tax assets to the amount that is more likely than not to be realized. The Company considers both positive evidence and negative evidence, to determine whether, based upon the weight of that evidence, a valuation allowance is required. Judgment is required in considering the relative impact of negative and positive evidence.
Significant judgment is also required in evaluating the Company’s uncertain income tax positions and provisions for income taxes. Liabilities for uncertain income tax positions are recognized based on a two-step approach. The first step is to evaluate whether an income tax position has met the recognition threshold by determining if the weight of available evidence indicates that it is more likely than not to be sustained upon examination. The second step is to measure the income tax position that has met the recognition threshold as the largest amount that is more than 50% likely of being realized upon settlement. The Company continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provisions, income taxes payable and deferred income taxes in the period in which the facts that
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
give rise to a revision become known. The Company recognizes interest and penalties related to uncertain income tax positions as interest expense, which is then netted and reported within investment income.
The Company uses the flow-through method to account for investment tax credits (“ITCs”) earned on eligible scientific research and experimental development expenditures. Under this method, the ITCs are recognized as a reduction to income tax expense.
Research and development
Research costs are expensed as incurred. Development costs for licensed software to be sold, leased or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. The Company’s products are generally released soon after technological feasibility has been established and therefore costs incurred subsequent to achievement of technological feasibility are not significant and have been expensed as incurred. The Company does not currently have any capitalized research and development costs other than those identified through business combinations as in-process research and development included within intangible assets, net, which were recorded at their fair values and began amortizing when the related technology became available for general release to customers.
Comprehensive income (loss)
Comprehensive income (loss) is defined as the change in net assets of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period, except those resulting from investments by owners and distributions to owners. The Company’s reportable items of comprehensive income (loss) are the cumulative translation adjustment resulting from its non-U.S. dollar functional currency subsidiary as described under the foreign currency translation policy above, cash flow hedges as described above in derivative financial instruments, changes in the fair value of available-for-sale investments as described in Note 3, changes in fair value from instrument-specific credit risk on the 2020 Debentures and Extension Debentures as described in Note 6 and Note 9, and actuarial gains or losses associated with certain other post-employment benefit obligations. Realized gains or losses on available-for-sale investments are reclassified into investment income using the specific identification basis.
Earnings (loss) per share
Earnings (loss) per share is calculated based on the weighted average number of common shares outstanding during the fiscal year. The treasury stock method is used for the calculation of the dilutive effect of stock options. The if-converted method is used for the calculation of the dilutive effect of the Debentures.
Stock-based compensation plans
The Company has stock-based compensation plans. Awards granted under the plans are detailed in Note 7(b).
The Equity Incentive Plan (the “Equity Plan”) was adopted during fiscal 2014. The Equity Plan provides for grants of incentive stock options and restricted share units (“RSUs”) to officers and employees of the Company or its subsidiaries. RSUs may be either time-based (“TBRSUs”) or time- and performance-based (“PBRSUs”). The number of common shares authorized for awards under the Equity Plan is 45,875,000 common shares. Any shares that are subject to options granted under the Equity Plan are counted against this limit as 0.625 shares for every one option granted, any shares that are subject to TBRSUs granted under the Equity Plan are counted against this limit as one share for every TBRSU, and any shares that are subject to PBRSUs granted under the Equity Plan are counted against this limit at the maximum performance attainment (which is generally 1.5 shares for every PBRSU). Awards previously granted under the Equity Plan that expire or are forfeited, or settled in cash, are added to the shares available under the Equity Plan. Options forfeited will be counted as 0.625 shares to the shares available under the Equity Plan. Shares issued as awards other than options that expire or are forfeited (i.e., RSUs), settled in cash or sold to cover withholding tax requirements are counted as one share added to the shares available under the Equity Plan. There are approximately 8 million shares in the equity pool available for future grants under the Equity Plan as at February 29, 2024.
RSUs are redeemed for common shares issued by the Company or the cash equivalent on the vesting dates established by the Board or the Compensation, Nomination and Governance Committee of the Board. The RSUs granted under the Equity Plan generally vest over a three-year period, either in equal annual installments or on the third anniversary date. For PBRSUs, the Company estimates its achievement against the performance goals, which are based on the Company’s business plan approved by the Board and total shareholder return. The estimated achievement is updated for the Company’s outlook for the fiscal year as at the end of each fiscal quarter. Compensation cost will only be recognized to the extent that performance goals are expected to be achieved. The Company classifies RSUs as equity instruments as the
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
Company has the ability and intent to settle the awards in common shares. The compensation expense for standard RSUs is calculated based on the fair value of each RSU as determined by the closing value of the Company’s common shares on the business day of the grant date. The Company recognizes compensation expense over the vesting period of the RSU. The Company expects to settle RSUs, upon vesting, through the issuance of new common shares from treasury.
The Company has a Deferred Share Unit Plan (the “DSU Plan”), originally approved by the Board on December 20, 2007, under which each independent director is credited with Deferred Share Units (“DSUs”) in satisfaction of all or a portion of the cash fees otherwise payable to them for serving as a director of the Company. Each independent director’s annual retainer will be entirely satisfied in the form of DSUs. Within a specified period after a director ceases to be a member of the Board, DSUs will be redeemed for cash with the redemption value of each DSU equal to the weighted average trading price of the Company’s shares over the five trading days preceding the redemption date. Alternatively, the Company may elect to redeem DSUs by way of shares purchased on the open market or issued by the Company.
DSUs are accounted for as liability-classified awards and are awarded on a quarterly basis. These awards are measured at their fair value on the date of issuance and remeasured at each reporting period until settlement.
Advertising costs
The Company expenses all advertising costs as incurred. These costs are included in sales and marketing expenses.
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. ADOPTION OF ACCOUNTING POLICIES
Accounting Standards Adopted During Fiscal 2024
The Company did not adopt any accounting standards during fiscal 2024.
Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (the “FASB”) issued ASU 2023-07 on the topic of segment reporting. The standard requires additional disclosures for segment reporting. These requirements include: (i) disclosure of significant expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of segment profit or loss (collectively referred to as the “significant expense principle”); (ii) disclosure of an amount for other segment items (equal to the difference between segment revenue less segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss) by reportable segment and a description of their composition; (iii) annual disclosure of a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods; (iv) clarification that, if the CODM uses more than one measure of a segment's profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report those additional measures of segment profit or loss; (v) disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources; (vi) requiring a public entity that has a single reportable segment provide all the disclosures required by the amendments in this ASU, and all existing segment disclosures in Topic 280. The guidance is effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company will adopt this guidance in fiscal 2025 and is in the process of evaluating the new requirements. As a result, the Company has not yet determined the impact this new ASU will have on its disclosures.
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
In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” on the topic of income taxes. The standard requires additional disclosure for income taxes. These requirements include: (i) requiring a public entity to disclose specific categories in the rate reconciliation; (ii) disclosure of additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate); (iii) annual disclosure of the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes; (iv) annual disclosure of the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5% of total income taxes paid (net of refunds received); (v) annual disclosure of income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign; and (vi) annual disclosure of income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. For public entities, the guidance is effective for annual periods beginning after December 15, 2024. The Company will adopt this guidance in fiscal 2026 and is in the process of evaluating the new requirements. As a result, the Company has not yet determined the impact this new ASU will have on its 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.
The Company’s cash and cash equivalents, accounts receivable, other receivables, accounts payable and accrued liabilities are carried at amounts that approximate their fair values (Level 2 measurement) due to their short maturities.
Recurring Fair Value Measurements
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.
For a description of how the fair values of the Extension Debentures and 2020 Debentures were determined, see the “Convertible debentures” accounting policies in Note 1. The Extension Debentures are classified as Level 2 and the 2020 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 non-marketable equity investments for which it utilizes the measurement alternative, and long-lived assets, including property, plant and equipment, operating
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
lease ROU assets, intangible assets and goodwill if an impairment or observable price adjustment is recognized in the current period.
Non-Marketable Equity Investments Measured Using the Measurement Alternative
Non-marketable equity investments measured using the measurement alternative include investments in privately held companies without readily determinable fair values in which the Company does not own a controlling interest or have significant influence. The estimation of fair value used in the fair value measurements required the use of significant unobservable inputs, and as a result, the fair value measurements were classified as Level 3.
Goodwill Impairment
During the fourth quarter of fiscal 2024, as part of its process for setting the annual operating plan for fiscal 2025, the Company updated its estimates of long-term future cash flows to reflect lower revenue and EBITDA growth rate expectations and a reduction in revenue multiples used in the valuation of the BlackBerry Spark reporting unit. These changes in estimates, combined with the continued global economic uncertainty, customer budgetary constraints, and inflation, as well as higher interest rates implemented in response to inflation, and a broad-based stock market decline impacting the Company’s market capitalization, resulted in the recognition of a goodwill impairment charge of $35 million in the BlackBerry Spark reporting unit, which is included within the Company’s Cybersecurity segment as disclosed in Note 12. Based on the results of the annual goodwill impairment test for the BlackBerry Spark reporting unit, based on the income approach using a discounted future cash flow model and market-based approaches, it was concluded that the carrying value exceeded its fair value, necessitating an impairment charge for the amount of excess and reducing the carrying value of goodwill. The estimated fair values of the Company’s other reporting units substantially exceeded their carrying values as at the annual goodwill impairment test date, with the exception of the Intellectual Property reporting unit.
Assumptions and estimates about future cash flows and discount rates are complex and often subjective and require significant judgement. The analysis is dependent on internal forecasts, estimation of the long-term rates of revenue growth for the Company’s reporting units, estimation of the useful life over which cash flows will occur, terminal growth rates, profitability measures, and determination of the discount rates for the reporting units.
During the year ended February 28, 2023, the Company recorded a goodwill impairment charge of $245 million in the BlackBerry Spark reporting unit, which is included within the Company’s Cybersecurity segment as disclosed in Note 12. The estimated fair values of the Company’s other reporting units substantially exceeded their carrying values as at the annual goodwill impairment test date.
During the year ended February 28, 2022, there were no goodwill impairment charges. In its annual goodwill impairment test in the fourth quarter of fiscal 2022, the Company’s estimates indicated the fair values of all its reporting units substantially exceeded their carrying values, such carrying values were expected to be recovered, and there was no goodwill impairment.
Impairment of Long-Lived Assets (“LLA”)
During the year ended February 29, 2024, the Company exited certain leased facilities and recorded a pre-tax and after-tax impairment charge of $7 million, related to the ROU assets for 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 3 inputs. The fair value of the ROU asset was based on the estimated sublease income for certain facilities taking into consideration the estimated time period it will take to obtain a sublessor, the applicable discount rate and the sublease rate, which are considered unobservable inputs. The Company conducts an evaluation of the related liabilities and expenses and revises its assumptions and estimates as appropriate as new or updated information becomes available. These ROU impaired assets are classified within Level 3 of the fair value hierarchy.
The Company conducts regular reviews of the individual patents, both organically generated and acquired, comprising its patent portfolio. As a result of this review, for the year ended February 29, 2024, the Company determined it had an indicator of impairment, as it had ceased enforcement and abandoned the legal right and title to patents with a cost of $15 million, accumulated amortization of $7 million, and a net book value of $8 million, which is classified as an impairment of long-lived assets on the Company’s consolidated statements of operations.
During the year ended February 28, 2023, the Company recorded a non-cash, pre-tax and after-tax impairment charge of $235 million consisting of $231 million related to the Company’s UES asset group, which is primarily composed of intangible assets recognized on the acquisition of Cylance and is included within the Company’s Cybersecurity segment
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
as disclosed in Note 12 and $4 million related to operating lease ROU assets for certain leased facilities that were exited during the fiscal year. None of the Company’s other asset groups demonstrated indicators of potential impairment.
During the year ended February 28, 2022, there were no LLA impairment charges.
Cash, Cash Equivalents and Investments
The components of cash, cash equivalents and investments by fair value level as at February 29, 2024 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost Basis (1) | | Unrealized
Gains | | Unrealized
Losses | | | | Fair Value | | Cash and
Cash
Equivalents | | Short-term
Investments | | Long-term
Investments | | Restricted Cash and Cash Equivalents | | |
| Bank balances | $ | 96 | | | $ | — | | | $ | — | | | | | $ | 96 | | | $ | 96 | | | $ | — | | | $ | — | | | $ | — | | | |
| Other investments | 30 | | | 6 | | | — | | | | | 36 | | | — | | | — | | | 36 | | | — | | | |
| 126 | | | 6 | | | — | | | | | 132 | | | 96 | | | — | | | 36 | | | — | | | |
| Level 1: | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Equity securities | 10 | | | — | | | (10) | | | | | — | | | — | | | — | | | — | | | — | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Level 2: | | | | | | | | | | | | | | | | | | | |
| Term deposits, and certificates of deposits | 21 | | | — | | | — | | | | | 21 | | | — | | | — | | | — | | | 21 | | | |
| Bearer deposit notes | 53 | | | — | | | — | | | | | 53 | | | 28 | | | 25 | | | — | | | — | | | |
| Commercial paper | 47 | | | — | | | — | | | | | 47 | | | 15 | | | 32 | | | — | | | — | | | |
| Non-U.S. promissory notes | 35 | | | — | | | — | | | | | 35 | | | 30 | | | 5 | | | — | | | — | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| U.S. treasury bills | 10 | | | — | | | — | | | | | 10 | | | 6 | | | — | | | — | | | 4 | | | |
| | | | | | | | | | | | | | | | | | | |
| 166 | | | — | | | — | | | | | 166 | | | 79 | | | 62 | | | — | | | 25 | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| $ | 302 | | | $ | 6 | | | $ | (10) | | | | | $ | 298 | | | $ | 175 | | | $ | 62 | | | $ | 36 | | | $ | 25 | | | |
______________________________
(1) Cost basis for other investments includes the effect of returns of capital and impairment.
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
The components of cash, cash equivalents and investments by fair value level as at February 28, 2023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost Basis (1) | | Unrealized
Gains | | Unrealized
Losses | | | | Fair Value | | Cash and
Cash
Equivalents | | Short-term
Investments | | Long-term
Investments | | Restricted Cash and Cash Equivalents | | |
| Bank balances | $ | 89 | | | $ | — | | | $ | — | | | | | $ | 89 | | | $ | 87 | | | $ | — | | | $ | — | | | $ | 2 | | | |
| Other investments | 26 | | | 2 | | | — | | | | | 28 | | | — | | | — | | | 28 | | | — | | | |
| 115 | | | 2 | | | — | | | | | 117 | | | 87 | | | — | | | 28 | | | 2 | | | |
| Level 1: | | | | | | | | | | | | | | | | | | | |
| Equity securities | 10 | | | — | | | (10) | | | | | — | | | — | | | — | | | — | | | — | | | |
| | | | | | | | | | | | | | | | | | | |
| Level 2: | | | | | | | | | | | | | | | | | | | |
| Term deposits, and certificates of deposits | 33 | | | — | | | — | | | | | 33 | | | 8 | | | — | | | — | | | 25 | | | |
| Bearer deposit notes | 82 | | | — | | | — | | | | | 82 | | | 82 | | | — | | | — | | | — | | | |
| Commercial paper | 159 | | | — | | | — | | | | | 159 | | | 108 | | | 51 | | | — | | | — | | | |
| Non-U.S. promissory notes | 45 | | | — | | | — | | | | | 45 | | | — | | | 45 | | | — | | | — | | | |
| | | | | | | | | | | | | | | | | | | |
| Non-U.S. government sponsored enterprise notes | 30 | | | — | | | — | | | | | 30 | | | 10 | | | 20 | | | — | | | — | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Corporate notes/bonds | 15 | | | — | | | — | | | | | 15 | | | — | | | 15 | | | — | | | — | | | |
| 364 | | | — | | | — | | | | | 364 | | | 208 | | | 131 | | | — | | | 25 | | | |
| Level 3: | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Other investments | 2 | | | 4 | | | — | | | | | 6 | | | — | | | — | | | 6 | | | — | | | |
| | | | | | | | | | | | | | | | | | | |
| $ | 491 | | | $ | 6 | | | $ | (10) | | | | | $ | 487 | | | $ | 295 | | | $ | 131 | | | $ | 34 | | | $ | 27 | | | |
______________________________
(1) Cost basis for other investments includes the effect of returns of capital and impairment.
As at February 29, 2024, the Company had non-marketable equity investments without readily determinable fair value of $36 million (February 28, 2023 - $34 million). During the year ended February 29, 2024, there was no impairment recognized relating to non-marketable equity investments without readily determinable fair value (February 28, 2023 and February 28, 2022 - nil). As of February 29, 2024, the Company has recorded a cumulative impairment of $3 million to the carrying value of certain other non-marketable equity investments without readily determinable fair value (February 28, 2023 - $3 million).
During the year ended February 28, 2022, the Company received a distribution from a non-marketable equity investment without readily determinable fair value in the amount of $35 million, which for accounting purposes, consisted of a return of capital of $13 million and a realized gain of $22 million included in investment income, net on the Company’s consolidated statements of operations.
There were no realized gains or losses on available-for-sale securities for the year ended February 29, 2024 (February 28, 2023 and February 28, 2022 - nil).
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. The letters of credit are for terms ranging from one month to two 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.
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
The following table provides a reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents as at February 29, 2024, February 28, 2023 and February 28, 2022 from the consolidated balance sheets to the consolidated statements of cash flows:
| | | | | | | | | | | | | | | | | |
| As at |
| February 29, 2024 | | February 28, 2023 | | February 28, 2022 |
| Cash and cash equivalents | $ | 175 | | | $ | 295 | | | $ | 378 | |
| Restricted cash and cash equivalents | 25 | | | 27 | | | 28 | |
Total cash, cash equivalents, restricted cash, and restricted cash equivalents presented in the consolidated statements of cash flows | $ | 200 | | | $ | 322 | | | $ | 406 | |
The contractual maturities of available-for-sale investments as at February 29, 2024 and February 28, 2023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | | |
| February 29, 2024 | | | | February 28, 2023 | | |
| Cost Basis | | Fair Value | | | | Cost Basis | | Fair Value | | |
| Due in one year or less | $ | 166 | | | $ | 166 | | | | | $ | 364 | | | $ | 364 | | | |
| | | | | | | | | | | |
| No fixed maturity | 10 | | | — | | | | | 10 | | | — | | | |
| $ | 176 | | | $ | 166 | | | | | $ | 374 | | | $ | 364 | | | |
| | | | | | | | | | | |
As at February 29, 2024 and February 28, 2023, the Company had no available-for-sale debt securities with continuous unrealized losses.
4. CONSOLIDATED BALANCE SHEET DETAILS
Accounts Receivable, Net of Allowance
The allowance for credit losses as at February 29, 2024 was $6 million (February 28, 2023 - $1 million).
The Company recognizes current estimated credit losses (“CECL”) for accounts receivable. The CECL for accounts receivable 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. 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:
| | | | | | | |
| Carrying Amount | | |
| | | |
| Beginning balance as of February 28, 2022 | $ | 4 | | | |
| Prior period provision for expected credit losses | 1 | | | |
| Write-offs charged against the allowance | (4) | | | |
| Ending balance of the allowance for credit loss as at February 28, 2023 | 1 | | | |
| | | |
| Current period provision for expected credit losses | 5 | | | |
| | | |
| | | |
| Ending balance of the allowance for credit loss as at February 29, 2024 | $ | 6 | | | |
The allowance for credit losses as at February 29, 2024 consists of $1 million (February 28, 2023 - $1 million) relating to CECL estimated based on days past due and region and $5 million (February 28, 2023 - nil) relating to specific customers that were evaluated separately.
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
There were two customers that comprised more than 10% of accounts receivable as at February 29, 2024 (February 28, 2023 - two customers comprised more than 10%).
Other Receivables
As at February 29, 2024 and February 28, 2023, other receivables included items such as claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund program’s investment in BlackBerry QNX, among other items, none of which were greater than 5% of the current assets balance.
Other Current Assets
Other current assets comprised the following:
| | | | | | | | | | | |
| | As at |
| | February 29, 2024 | | February 28, 2023 |
| | | |
| | | |
| Intellectual property | $ | — | | | $ | 141 | |
| Other | 47 | | | 41 | |
| $ | 47 | | | $ | 182 | |
As described in Note 12, on May 11, 2023, the Company completed its previously announced patent sale with Malikie Innovations Limited (“Malikie”) and recognized revenue of $218 million and cost of sales of $147 million, which is comprised of the carrying value of the intellectual property of $141 million referred to above and $6 million of capitalized costs during the first quarter of fiscal 2024 related to patent maintenance. See Note 12 under the heading “Patent Sale”.
Other current assets also included the current portion of deferred commissions and prepaid expenses, among other items, none of which were greater than 5% of the current assets balance as at the balance sheet dates.
Property, Plant and Equipment, Net
Property, plant and equipment comprised the following:
| | | | | | | | | | | |
| | As at |
| | February 29, 2024 | | February 28, 2023 |
| Cost | | | |
| BlackBerry operations and other information technology | $ | 85 | | | $ | 84 | |
| Leasehold improvements and other | 15 | | | 19 | |
| Furniture and fixtures | 6 | | | 9 | |
| Manufacturing, repair and research and development equipment | 3 | | | 2 | |
| 109 | | | 114 | |
| Accumulated amortization | 88 | | | 89 | |
| Net book value | $ | 21 | | | $ | 25 | |
For the year ended February 29, 2024, amortization expense related to property, plant and equipment amounted to $10 million (February 28, 2023 - $12 million; February 28, 2022 - $15 million).
Sale of Property, Plant and Equipment, Net
During the year ended February 29, 2024, the Company had no sale of property, plant and equipment, net.
During the year ended February 28, 2023, the Company sold its corporate aircraft. As a result, the Company recorded proceeds of approximately $17 million and incurred a gain on disposal of approximately $6 million (cost of $29 million, accumulated amortization of $18 million, and a net book value of approximately $11 million).
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
Intangible Assets, Net
Intangible assets comprised the following: | | | | | | | | | | | | | | | | | |
| | As at February 29, 2024 |
| | Cost | | Accumulated
Amortization | | Net Book
Value |
| Acquired technology | $ | 900 | | | $ | 846 | | | $ | 54 | |
| Other acquired intangibles | 386 | | | 334 | | | 52 | |
| Intellectual property | 111 | | | 63 | | | 48 | |
| $ | 1,397 | | | $ | 1,243 | | | $ | 154 | |
| | | | | | | | | | | | | | | | | |
| As at February 28, 2023 |
| Cost | | Accumulated
Amortization | | Net Book
Value |
| Acquired technology | $ | 900 | | | $ | 824 | | | $ | 76 | |
| Other acquired intangibles | 386 | | | 318 | | | 68 | |
| Intellectual property | 123 | | | 64 | | | 59 | |
| $ | 1,409 | | | $ | 1,206 | | | $ | 203 | |
For the year ended February 29, 2024, amortization expense related to intangible assets amounted to $49 million (February 28, 2023 - $93 million; February 28, 2022 - $161 million).
Total additions to intangible assets in fiscal 2024 amounted to $14 million (fiscal 2023 - $34 million) and included additions related to patent maintenance classified as other current assets on the Company’s consolidated balance sheets. During fiscal 2024, additions to intangible assets primarily consisted of payments for intellectual property relating to patent maintenance, registration and license fees.
For the year ended February 29, 2024, the Company recorded $8 million in impairment charges related to patent abandonments (fiscal 2023 - $231 million related to intangible assets previously recognized from the acquisition of Cylance), see Note 3 for further details.
Based on the carrying value of the identified intangible assets, as at February 29, 2024, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for each of the five succeeding years is expected to be as follows: fiscal 2025 - $42 million; fiscal 2026 - $36 million; fiscal 2027 - $31 million; fiscal 2028 - $18 million and fiscal 2029 - $6 million.
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
The weighted average remaining useful lives of the intangible assets are as follows:
| | | | | | | | | | | |
| | As at |
| February 29, 2024 | | February 28, 2023 |
| Acquired technology | 3.3 years | | 4.0 years |
| Other acquired intangibles | 3.6 years | | 4.5 years |
| Intellectual property | 6.1 years | | 6.8 years |
Goodwill
Changes to the carrying amount of goodwill during the fiscal years ended February 29, 2024, February 28, 2023 and February 28, 2022 were as follows:
| | | | | |
| Carrying Amount |
| Carrying amount as at February 29, 2021 | $ | 849 | |
| |
| |
| Effect of foreign exchange on non-U.S. dollar denominated goodwill | (5) | |
| |
| Carrying amount as at February 28, 2022 | 844 | |
| |
| Goodwill impairment charge (note 3) | (245) | |
| Effect of foreign exchange on non-U.S. dollar denominated goodwill | (4) | |
| Carrying amount as at February 28, 2023 | 595 | |
| Effect of foreign exchange on non-U.S. dollar denominated goodwill | 2 | |
| |
| Goodwill impairment charge (note 3) | (35) | |
| Carrying amount as at February 29, 2024 | $ | 562 | |
Other Long-term Assets
As at February 29, 2024, other long-term assets included long-term receivables related to intellectual property sold (see Note 12 under the heading “Patent Sale”), long-term receivables, and the long-term portion of deferred commission, among other items, none of which were greater than 5% of the total assets balance.
As at February 28, 2023, other long-term assets included the long-term portion of deferred commission and long-term receivables, among other items, none of which were greater than 5% of the total assets balance.
Accrued Liabilities
Accrued liabilities comprised the following:
| | | | | | | | | | | |
| | As at |
| | February 29, 2024 | | February 28, 2023 |
| | | |
| | | |
| | | |
Operating lease liabilities, current (note 11) | 20 | | | 24 | |
| Restructuring programs, current portion | 20 | | | 3 | |
| Other | 77 | | | 116 | |
| $ | 117 | | | $ | 143 | |
Other accrued liabilities include accrued director fees, accrued vendor liabilities, variable incentive accrual, payroll withholding taxes and accrued royalties, among other items, none of which were greater than 5% of the current liabilities balance in any of the periods presented.
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
Restructuring
During fiscal 2023 and fiscal 2024, the Company commenced restructuring programs with the objectives of reducing its annual costs and expenses relating to the Cybersecurity business, and later separating and streamlining the Company’s centralized corporate functions into Cybersecurity and IoT specific teams such that the businesses may operate independently and on a profitable and cash flow positive basis. The reduction of overall Company costs will include rationalizing and streamlining existing central administrative functions, right-sizing cost structures within both business units including R&D and outsourced contracting, changes to overall product portfolio offerings and geographies the Company operates in, and optimizing related support functions and organizational structure. Other charges and cash costs may occur as programs are implemented or changes are completed.
The following table sets forth the activity in the Company’s restructuring program liabilities for fiscal 2024 and fiscal 2023: | | | | | | | | | | | | | | | | | | | |
| Employee
Termination
Benefits | | Facilities
Costs | | | | Total |
| Balance as at February 28, 2022 | $ | — | | | $ | — | | | | | $ | — | |
| Charges incurred | 8 | | | 2 | | | | | 10 | |
| Cash payments made | (6) | | | (1) | | | | | (7) | |
| Balance as at February 28, 2023 | 2 | | | 1 | | | | | 3 | |
| Charges incurred | 31 | | | 6 | | | | | 37 | |
| Cash payments made | (16) | | | (3) | | | | | (19) | |
| Balance as at February 29, 2024 | $ | 17 | | | $ | 4 | | | | | $ | 21 | |
| | | | | | | |
| Current portion | $ | 17 | | | $ | 3 | | | | | $ | 20 | |
| Long-term portion | — | | | 1 | | | | | 1 | |
| $ | 17 | | | $ | 4 | | | | | $ | 21 | |
The long-term portion of the restructuring liabilities is recorded at fair value, determined by measuring the remaining payments at present value using an effective interest rate of 5.0%, and the Company recorded interest expense over time to arrive at the total face value of the remaining payments.
The restructuring charges included employee termination benefits and facilities costs to better align the Company’s general and administrative and R&D cost profiles to its market competitors, create a more focused sales force and improve profitability and cash flow. Total charges incurred in fiscal 2024 and fiscal 2023 were $37 million and $10 million respectively, recorded within General and administrative on the Consolidated Statements of Operations.
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
5. INCOME TAXES
The difference between the amount of the provision for (recovery of) income taxes and the amount computed by multiplying income (loss) before income taxes by the statutory Canadian tax rate is reconciled as follows:
| | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| | February 29, 2024 | | February 28, 2023 | | February 28, 2022 |
| Statutory Canadian tax rate | 26.5 | % | | 26.5 | % | | 26.5 | % |
| Expected provision for (recovery of) income taxes | $ | (28) | | | $ | (191) | | | $ | 5 | |
| Differences in income taxes resulting from: | | | | | |
| Valuation allowance | 28 | | | 125 | | | (9) | |
| Investment tax credits | (11) | | | (10) | | | 7 | |
| | | | | |
| Change in unrecognized income tax benefits | (1) | | | 1 | | | (2) | |
| | | | | |
| Foreign tax rate differences | 4 | | | 10 | | | 3 | |
| | | | | |
| Non-deductible permanent differences | 8 | | | 5 | | | 3 | |
| Goodwill impairment | 9 | | | 65 | | | — | |
| Prior period adjustments | 9 | | | 4 | | | (1) | |
| Other differences | 6 | | | 5 | | | 1 | |
| | | | | |
| $ | 24 | | | $ | 14 | | | $ | 7 | |
| | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| | February 29, 2024 | | February 28, 2023 | | February 28, 2022 |
| Income (loss) before income taxes: | | | | | |
| Canadian | $ | (18) | | | $ | (128) | | | $ | 133 | |
| Foreign | (88) | | | (592) | | | (114) | |
| $ | (106) | | | $ | (720) | | | $ | 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
The provision for (recovery of) income taxes consists of the following:
| | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| | February 29, 2024 | | February 28, 2023 | | February 28, 2022 |
| Current | | | | | |
| Canadian | $ | 2 | | | $ | 1 | | | $ | (1) | |
| Foreign | 22 | | | 13 | | | 8 | |
| | | | | |
| | | | | |
| | | | | |
| $ | 24 | | | $ | 14 | | | $ | 7 | |
Deferred income tax assets and liabilities consist of the following temporary differences:
| | | | | | | | | | | |
| | As at |
| | February 29, 2024 | | February 28, 2023 |
| Assets | | | |
| Property, plant, equipment and intangibles assets | $ | 258 | | | $ | 264 | |
| Non-deductible reserves | 37 | | | 44 | |
| Minimum taxes | 207 | | | 207 | |
Debentures (note 6) | — | | | 1 | |
| Research and development | 402 | | | 390 | |
| Tax loss carryforwards | 514 | | | 495 | |
| Other | 125 | | | 122 | |
| Deferred income tax assets | 1,543 | | | 1,523 | |
| | | |
| Valuation allowance | 1,520 | | | 1,492 | |
| Deferred income tax assets net of valuation allowance | 23 | | | 31 | |
| | | |
| Liabilities | | | |
| Property, plant, equipment and intangibles assets | (23) | | | (31) | |
| | | |
| | | |
| Deferred income tax liabilities | (23) | | | (31) | |
| Net deferred income tax asset (liability) | $ | — | | | $ | — | |
| | | |
| | | |
| | | |
| | | |
The Company regularly assesses the need for a valuation allowance against its deferred tax assets. In making that assessment, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more likely than not that some or all of the deferred tax assets will be realized.
In evaluating the need for a valuation allowance, the Company noted that there had been three years of cumulative losses, including fiscal 2024. In fiscal 2024, the Company saw an increase in the deferred tax valuation allowance of $28 million (February 28, 2023 - increase of $125 million). As a result, the deferred tax valuation allowance had an ending balance of $1,520 million (February 28, 2023 - $1,492 million). This accounting treatment has no effect on the Company’s ability to utilize deferred tax assets to reduce future cash tax payments. The Company will continue to assess the likelihood that the deferred tax assets will be realizable at each reporting period and the valuation allowance will be adjusted accordingly.
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
The Company’s total unrecognized income tax benefits as at February 29, 2024 and February 28, 2023 were $20 million and $21 million, respectively. A reconciliation of the beginning and ending amount of unrecognized income tax benefits that, if recognized, would affect the Company’s effective income tax rate is as follows:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 29, 2024 | | February 28, 2023 | | February 28, 2022 |
| Unrecognized income tax benefits, opening balance | $ | 21 | | | $ | 20 | | | $ | 24 | |
| | | | | |
| Increase for income tax positions of current year | 1 | | | 1 | | | — | |
| Settlement of tax positions | (2) | | | — | | | (4) | |
| | | | | |
| Unrecognized income tax benefits, ending balance | $ | 20 | | | $ | 21 | | | $ | 20 | |
As at February 29, 2024, $20 million of the unrecognized tax benefits have been netted against deferred income taxes and nil has been recorded within income taxes payable on the Company’s consolidated balance sheets.
A summary of open tax years by major jurisdiction is presented below:
| | | | | |
| Jurisdiction |
Canada (1) | Fiscal 2016 - 2024 |
United States (2) | Fiscal 2021 - 2024 |
| United Kingdom | Fiscal 2023 - 2024 |
______________________________
(1) Includes federal as well as provincial jurisdictions, as applicable.
(2) Pertains to federal tax years. Certain state jurisdictions remain open from fiscal 2020 through fiscal 2024.
The Company is subject to ongoing examination by tax authorities in the 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. The Company believes it is reasonably possible that approximately nil of its gross unrecognized income tax benefits will be realized in the next twelve months. While the final resolution of these 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.
The Company recognizes interest and penalties related to unrecognized income tax benefits as interest expense that is netted and reported within investment income, net. The amount of interest accrued as at February 29, 2024 was approximately $3 million (February 28, 2023 - approximately $3 million). The amount of penalties accrued as at February 29, 2024 was nil (February 28, 2023 - nil).
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
As at February 29, 2024, the Company has the following net operating loss carryforwards and tax credits, which are scheduled to expire in the following years:
| | | | | | | | | | | | | | | | | | | | | | |
| Year of Expiry | | Net Operating Losses | | | | Research and Development Tax Credits (1) | | Minimum Taxes |
| 2029 | | $ | 10 | | | | | $ | — | | | $ | 1 | |
| 2030 | | — | | | | | — | | | 108 | |
| 2031 | | 1 | | | | | 12 | | | 72 | |
| 2032 | | 28 | | | | | 1 | | | 22 | |
| 2033 | | 88 | | | | | 133 | | | — | |
| 2034 | | 96 | | | | | 124 | | | — | |
| 2035 | | 92 | | | | | 52 | | | 4 | |
| 2036 | | 326 | | | | | 40 | | | — | |
| 2037 | | 492 | | | | | 23 | | | — | |
| 2038 | | 199 | | | | | 17 | | | — | |
| 2039 | | 13 | | | | | 14 | | | — | |
| 2040 | | 3 | | | | | 13 | | | — | |
| 2041 | | — | | | | | 8 | | | — | |
| 2042 | | — | | | | | 11 | | | — | |
| 2043 | | 182 | | | | | 14 | | | — | |
| 2044 | | — | | | | | 12 | | | — | |
| Indefinite | | 422 | | | | | 22 | | | — | |
| | $ | 1,952 | | | | | $ | 496 | | | $ | 207 | |
______________________________
(1) Includes federal, provincial and state balances.
6. DEBENTURES
3.00% Convertible Senior Notes
On January 29, 2024, the Company issued $200 million aggregate principal amount of 3.00% senior convertible unsecured notes (the “Notes”) in an offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended. The Company used the net proceeds of the issuance of the Notes principally to repay its outstanding $150 million aggregate principal amount of 1.75% extendible convertible unsecured debentures (the “Extension Debentures” and, collectively with the “2020 Debentures” (as defined below) and the Notes, the “Debentures”) at maturity on February 15, 2024.
The Notes are due on February 15, 2029 unless earlier converted, redeemed, or repurchased. Each $1,000 principal amount of the Notes is convertible into 257.5826 common shares of the Company based on the initial conversion rate, for a total of 52 million common shares at a price of $3.88 per share, subject to adjustments. Prior to the close of business on the business day immediately preceding November 15, 2028, the Notes will be convertible only upon satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding February 15, 2029. The Company may satisfy any conversions of the Notes by paying or delivering, as the case may be, cash, its common shares or a combination of cash and its common shares, at the Company’s election (or, in the case of any Notes called for redemption that are converted during the related redemption period, solely its common shares). Covenants associated with the Notes include general corporate maintenance, existence and reporting requirements. The Notes will bear interest at a rate of 3.00% per annum, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2024.
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
Under specified events of default, the outstanding principal and any accrued and unpaid interest on the Notes will become immediately due and payable upon request of holders holding not less than 25% of the principal amount of the Notes then outstanding. During the occurrence of certain specific events of default, the Company may elect to cure such events of default by increasing the 3.00% interest rate on the Notes by 0.25% to 0.50% per annum.
The Company may not redeem the Notes prior to February 22, 2027, except in the event of certain tax law changes. On or after February 22, 2027, the Company may redeem for cash all or a portion of the Notes, at the Company’s election, if the last reported sale price of the Company’s common shares has been at least 130% of the conversion price then in effect on each of at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a cash redemption price equal to 100% of the aggregate principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company undergoes a fundamental change, as defined in the indenture governing the Notes, subject to certain conditions the Company will be required to make an offer to repurchase for cash all of the outstanding Notes (or any portion thereof that a holder determines to sell to the Company) at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In connection with certain corporate events or if the Company calls the Notes for redemption, the Company will, under certain circumstances, increase the conversion rate for noteholders who elect to convert their Notes in connection with such corporate event or convert their Notes called for redemption.
The Company has recorded the Notes, including the debt itself and all embedded derivatives, at cost less debt issuance costs of $6 million and present the Notes as a single hybrid financial instrument. No portion of the embedded derivatives required bifurcation from the host debt contract.
The following table summarizes the change in the Notes for the fiscal year ended February 29, 2024 from their date of issuance:
| | | | | | | | | |
| | As at |
| | | February 29, 2024 | |
| | | |
| | | |
| Principal received as of January 29, 2024 | | 200 | | |
| Debt issuance costs paid | | (6) | | |
| Balance as at February 29, 2024 | | $ | 194 | | |
Extension Debentures and 2020 Debentures
On November 17, 2023, the Company issued the Extension Debentures in a private placement to certain controlled affiliates of Fairfax Financial Holdings Limited (“Fairfax”). The Company used the net proceeds from the issuance of the Extension Debentures, together with cash on hand, to repay its outstanding $365 million aggregate principal amount of 1.75% unsecured convertible debentures (the “2020 Debentures”) at maturity on November 13, 2023. Aside from the maturity date, the terms of the Extension Debentures were substantially identical to those of the 2020 Debentures, except that the Extension Debentures were not listed on any stock exchange and did not involve an indenture trustee. The Company used a portion of the proceeds from the issuance of the Notes to repay the Extension Debentures at maturity on February 15, 2024.
Each $1,000 principal amount of Extension Debentures was convertible at any time prior to the third business day prior to the maturity date into 166.67 common shares of the Company, for a total of 25 million common shares at a price of $6.00 per share, subject to adjustments. Covenants associated with the Extension Debentures included limitations on the
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
Company’s total indebtedness. Interest on the Extension Debentures was payable on the maturity date in arrears at a rate of 1.75% per annum.
Under specified events of default, the outstanding principal and any accrued interest on the Extension Debentures become immediately due and payable upon request of holders holding not less than 25% of the principal amount of the Extension Debentures then outstanding. During an event of default, the interest rate would increase to 5.75% per annum.
The Extension Debentures were subject to a change of control provision whereby the Company would be required to make an offer to repurchase the Extension Debentures at 115% of par value if a person or group (not affiliated with Fairfax) acquired 35% of the Company’s outstanding common shares, acquired all or substantially all of its assets, or if the Company merged with another entity and the Company’s existing shareholders hold less than 50% of the common shares of the surviving entity. Additionally, the Extension Debentures could not be converted to the extent that, after giving effect to the conversion, the holder would beneficially own or exercise control or direction over more than 19.99% of the Company’s then issued and outstanding common shares.
Due to the conversion option and other embedded derivatives within the Extension Debentures, and consistent with the Company’s accounting for the 2020 Debentures, the Company had elected to record the Extension Debentures, including the debt itself and all embedded derivatives, at fair value and present the Extension Debentures as a single hybrid financial instrument. No portion of the fair value of the Extension Debentures had been recorded as equity, nor would be if the embedded derivatives were bifurcated from the host debt contract.
Each period, the fair value of the Extension Debentures and 2020 Debentures were recalculated and resulting gains and losses from the changes in fair value of the Extension Debentures and 2020 Debentures associated with non-credit components were recognized in income, while the change in fair value associated with credit components was recognized in accumulated other comprehensive loss (“AOCL”). The fair value of the Extension Debentures was determined using observable interest rate curves, and the market price and volatility of the Company’s common shares.
The following table summarizes the change in fair value of the Extension Debentures from their date of issuance, which also represents the total changes through earnings of items classified as Level 2 in the fair value hierarchy:
| | | | | | | | | |
| | |
| | | February 29, 2024 | |
| Principal received as of November 17, 2023 | | $ | 150 | | |
| Change in fair value of the Extension Debentures | | — | | |
| Maturity of the Extension Debentures on February 15, 2024 | | (150) | | |
| Balance as at February 29, 2024 | | $ | — | | |
The following table summarizes the change in fair value of the 2020 Debentures for the years ended February 29, 2024 and February 28, 2023 which also represents the total changes through earnings of items classified as Level 3 in the fair value hierarchy:
| | | | | | | | | |
| | |
| | | February 29, 2024 | |
| Balance as at February 28, 2022 | | $ | 507 | | |
| Change in fair value of the 2020 Debentures | | (140) | | |
| Balance as at February 28, 2023 | | 367 | | |
| Change in fair value of the 2020 Debentures | | (2) | | |
| Maturity of the 2020 Debentures on November 13, 2023 | | (365) | | |
| Balance as at February 29, 2024 | | $ | — | | |
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
The following table shows the impact of the changes in fair value of the Extension Debentures and 2020 Debentures for the years ended February 29, 2024, February 28, 2023 and February 28, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | For the Years Ended |
| | | | | | | February 29, 2024 | | February 28, 2023 | | February 28, 2022 |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Income associated with the change in fair value from non-credit components recorded in the consolidated statements of operations | | | | | | $ | 2 | | | $ | 138 | | | $ | 212 | |
| Income associated with the change in fair value from instrument-specific credit components recorded in AOCL | | | | | | — | | | 2 | | | 1 | |
| Realized losses associated with the change in fair value from credit components recorded in the consolidated statements of operations on maturity of the Extension Debentures and 2020 Debentures | | | | | | (6) | | | — | | | — | |
| Realized losses associated with the change in fair value from credit components released from AOCL on maturity of the Extension Debentures and 2020 Debentures | | | | | | 6 | | | — | | | — | |
| Total decrease in the fair value of the Extension Debentures and 2020 Debentures | | | | | | $ | 2 | | | $ | 140 | | | $ | 213 | |
For the year ended February 29, 2024, the Company recorded interest expense related to the Debentures of $6 million, which has been included in investment income, net on the Company’s consolidated statements of operations (fiscal 2023 - $6 million; fiscal 2022 - $6 million). The Company is required to make semi-annual interest-only payments of approximately $3 million during the remaining term the Notes are outstanding.
Fairfax, a related party under U.S. GAAP due to its beneficial ownership of common shares in the Company after taking into account potential conversion of the Extension Debentures, owned $330 million principal amount of the 2020 Debentures and $150 million principal amount of the Extension Debentures. As such, the payment of interest on the Extension Debentures and such portion of the 2020 Debentures, and their repayment, to Fairfax represented related party transactions.
7. CAPITAL STOCK
(a)Capital Stock
The Company is authorized to issue an unlimited number of voting common shares, an unlimited number of non-voting, redeemable, retractable Class A common shares and an unlimited number of non-voting, cumulative, redeemable, retractable preferred shares. As at February 29, 2024 and February 28, 2023, there were no Class A common shares or preferred shares outstanding.
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
The following details the changes in issued and outstanding common shares for the years ended February 29, 2024, February 28, 2023 and February 28, 2022:
| | | | | | | | | | | |
| | Capital Stock and
Additional Paid-in Capital |
| | Stock
Outstanding
(000s) | | Amount |
| Common shares outstanding as at February 28, 2021 | 565,505 | | | $ | 2,823 | |
| Exercise of stock options | 555 | | | 3 | |
| Common shares issued for restricted share unit settlements | 8,011 | | | — | |
| Stock-based compensation | — | | | 36 | |
| | | |
| Common shares issued related to Exchange Shares | 1,422 | | | — | |
| Common shares issued for employee share purchase plan | 735 | | | 7 | |
| | | |
| Common shares outstanding as at February 28, 2022 | 576,228 | | | 2,869 | |
| Exercise of stock options | 97 | | | — | |
| Common shares issued for restricted share unit settlements | 4,872 | | | — | |
| Stock-based compensation | — | | | 34 | |
| | | |
| | | |
| | | |
| Common shares issued for employee share purchase plan | 960 | | | 6 | |
| | | |
| Common shares outstanding as at February 28, 2023 | 582,157 | | | 2,909 | |
| Exercise of stock options | 106 | | | — | |
| Common shares issued for restricted share unit settlements | 5,636 | | | — | |
| Stock-based compensation | — | | | 33 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Common shares issued on the redemption of deferred share units | 297 | | | 1 | |
| Common shares issued for employee share purchase plan | 1,037 | | | 5 | |
| Common shares outstanding as at February 29, 2024 | 589,233 | | | $ | 2,948 | |
Common shares (the “Exchange Shares”) were issued in connection with the Cylance acquisition, which was completed on February 21, 2019. In lieu of cash, a portion of the consideration owed to certain Cylance shareholders was paid in equal installments of Exchange Shares on the first three anniversary dates of the closing.
The Company had 589 million voting common shares outstanding, 0.2 million options to purchase voting common shares, 19 million RSUs and 1 million DSUs outstanding as at April 1, 2024. In addition, 51.5 million common shares are issuable upon conversion in full of the Notes as described in Note 6.
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
(b)Stock-based Compensation
Restricted share units
The Company recorded compensation expense with respect to RSUs of approximately $33 million in the year ended February 29, 2024 (February 28, 2023 - $34 million; February 28, 2022 - $35 million).
A summary of RSU activity during fiscal 2024 is shown below:
| | | | | | | | | | | | | | | | | | | | | | | |
| | RSUs Outstanding |
| | Number
(000’s) | | Weighted
Average
Grant Date
Fair Value | | Average
Remaining
Contractual
Life in Years | | Aggregate
Intrinsic
Value
(millions) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance as at February 28, 2023 | 19,640 | | | $ | 5.92 | | | | | |
| Granted during the year | 8,097 | | | 3.51 | | | | | |
| Vested during the year | (5,636) | | | 6.76 | | | | | |
| Forfeited/cancelled during the year | (5,800) | | | 6.31 | | | | | |
| Balance as at February 29, 2024 | 16,301 | | | $ | 4.30 | | | 1.68 | | $ | 45 | |
| Expected to vest February 29, 2024 | 13,491 | | | $ | 4.29 | | | 1.66 | | $ | 38 | |
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the aggregate closing share price of the Company’s common shares on February 29, 2024 that would have been received by RSU holders if all RSUs had been vested on February 29, 2024).
Tax deficiencies incurred by the Company related to the RSUs vested were nil for the year ended February 29, 2024 (February 28, 2023 - tax deficiency of nil; February 28, 2022 - tax deficiency of nil).
As at February 29, 2024, there was $53 million of unrecognized compensation expense related to RSUs that will be expensed over the vesting period, which, on a weighted average basis, results in a period of approximately 1.63 years.
During the year ended February 29, 2024, there were 8,097,408 RSUs granted (February 28, 2023 - 11,882,500), all of which will be settled upon vesting by the issuance of new common shares.
During the year ended February 29, 2024, the weighted average fair value for RSUs granted was $3.51 (February 28, 2023 - $4.29; February 28, 2022 - $9.72). During the year ended February 29, 2024, the fair value of RSUs that vested was $38 million (February 28, 2023 - $40 million; February 28, 2022 - $69 million).
Deferred share units (“DSUs”)
The Company issued 381,073 DSUs and redeemed 602,753 DSUs during the year ended February 29, 2024. There were $1 million of DSUs redeemed for shares. There were 1.4 million DSUs outstanding as at February 29, 2024 (February 28, 2023 - 1.6 million). The Company had a liability of $4 million in relation to the DSU Plan as at February 29, 2024 (February 28, 2023 - $6 million) included in accrued liabilities.
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
8. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings (loss) per share:
| | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| | February 29, 2024 | | February 28, 2023 | | February 28, 2022 |
| Net income (loss) for basic earnings (loss) per share available to common shareholders | $ | (130) | | | $ | (734) | | | $ | 12 | |
Less: Debentures fair value adjustment (1) (2) | — | | | (138) | | | (212) | |
Add: interest expense on Debentures (1) (2) | — | | | 6 | | | 6 | |
| Net loss for diluted loss per share available to common shareholders | $ | (130) | | | $ | (866) | | | $ | (194) | |
| | | | | |
Weighted average number of shares outstanding (000’s) - basic (1)(3) | 584,543 | | | 578,654 | | | 570,607 | |
| Effect of dilutive securities (000’s) | | | | | |
| | | | | |
Conversion of 2020 Debentures (1) (2) | — | | | 60,833 | | | 60,833 | |
| | | | | |
| Weighted average number of shares and assumed conversions (000’s) diluted | 584,543 | | | 639,487 | | | 631,440 | |
| Earnings (loss) per share - reported | | | | | |
Basic | $ | (0.22) | | | $ | (1.27) | | | $ | 0.02 | |
Diluted | $ | (0.22) | | | $ | (1.35) | | | $ | (0.31) | |
______________________________
(1) The Company has not presented the dilutive effect of the Notes, Extension Debentures or 2020 Debentures using the if-converted method in the calculation of diluted loss per share for the year ended February 29, 2024, as to do so would be antidilutive. See Note 6 for details on the Debentures.
(2) The Company has presented the dilutive effect of the 2020 Debentures using the if-converted method, assuming conversion at the beginning of the fiscal year for the years ended February 28, 2023 and February 28, 2022. Accordingly, to calculate diluted loss per share, the Company adjusted net income (loss) by eliminating the fair value adjustment made to the 2020 Debentures and interest expense incurred on the 2020 Debentures in the years ended February 28, 2023 and February 28, 2022, and added the number of shares that would have been issued upon conversion to the diluted weighted average number of shares outstanding. See Note 6 for details on the 2020 Debentures.
(3) The Company has not presented the dilutive effect of in-the-money options and RSUs that will be settled upon vesting by the issuance of new common shares in the calculation of diluted loss per share for the years ended February 29, 2024, February 28, 2023 and February 28, 2022 as to do so would be antidilutive.
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
9. ACCUMULATED OTHER COMPREHENSIVE LOSS
The changes in AOCL by component net of tax, for the years ended February 29, 2024, February 28, 2023 and February 28, 2022 were as follows:
| | | | | | | | | | | | | | | | | |
| As At |
| February 29, 2024 | | February 28, 2023 | | February 28, 2022 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Cash Flow Hedges | | | | | |
| Balance, beginning of period | $ | (1) | | | $ | — | | | $ | 1 | |
| Other comprehensive loss before reclassification | — | | | (3) | | | — | |
| Amounts reclassified from AOCL into net income (loss) | 1 | | | 2 | | | (1) | |
| Accumulated net unrealized losses on derivative instruments designated as cash flow hedges | $ | — | | | $ | (1) | | | $ | — | |
| Foreign Currency Cumulative Translation Adjustment | | | | | |
| Balance, beginning of period | $ | (16) | | | $ | (10) | | | $ | (4) | |
| Other comprehensive income (loss) | 2 | | | (6) | | | (6) | |
| Foreign currency cumulative translation adjustment | $ | (14) | | | $ | (16) | | | $ | (10) | |
| Change in Fair Value From Instrument-Specific Credit Risk On Debentures | | | | | |
| Balance, beginning of period | $ | (6) | | | $ | (8) | | | $ | (9) | |
| Other comprehensive income before reclassification | — | | | 2 | | | 1 | |
| Amounts reclassified from AOCL into net income (loss) | 6 | | | — | | | — | |
| | | | | |
| Change in fair value from instruments-specific credit risk on Debentures | $ | — | | | $ | (6) | | | $ | (8) | |
| Other Post-Employment Benefit Obligations | | | | | |
| Balance, beginning of period | $ | (1) | | | $ | (1) | | | $ | (1) | |
| Other comprehensive income | 1 | | | — | | | — | |
| Actuarial losses associated with other post-employment benefit obligations | $ | — | | | $ | (1) | | | $ | (1) | |
| Accumulated Other Comprehensive Loss, End of Period | $ | (14) | | | $ | (24) | | | $ | (19) | |
During the year ended February 29, 2024, $1 million in losses (pre-tax and post-tax) associated with cash flow hedges were reclassified from AOCL into general and administrative expenses (February 28, 2023 - $2 million in losses).
10. COMMITMENTS AND CONTINGENCIES
(a)Letters of Credit
The Company had $25 million in collateralized outstanding letters of credit in support of certain leasing arrangements entered into in the ordinary course of business as of February 29, 2024. See the discussion of restricted cash in Note 3.
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
(b) Contingencies
Litigation
The Company is involved in litigation in the normal course of its business, both as a defendant and as a plaintiff. The Company is subject to a variety of claims (including claims related to patent infringement, purported class actions and other claims in the normal course of business) and may be subject to additional claims either directly or through indemnities against claims that it provides to certain of its partners and customers. In particular, the industry in which the Company competes has many participants that own, or claim to own, intellectual property, including participants that have been issued patents and may have filed patent applications or may obtain additional patents and proprietary rights for technologies similar to those used by the Company in its products. The Company has received, and may receive in the future, assertions and claims from third parties that the Company’s products infringe on their patents or other intellectual property rights. Litigation has been, and will likely continue to be, necessary to determine the scope, enforceability and validity of third-party proprietary rights or to establish the Company’s proprietary rights. Regardless of whether claims against the Company have merit, those claims could be time-consuming to evaluate and defend, result in costly litigation, divert management’s attention and resources and subject the Company to significant liabilities.
Management reviews all of the relevant facts for each claim and applies judgment in evaluating the likelihood and, if applicable, the amount of any potential loss. Where a potential loss is considered probable and the amount is reasonably estimable, provisions for loss are made based on management’s assessment of the likely outcome. Where a range of loss can be reasonably estimated with no best estimate in the range, the Company records the minimum amount in the range. The Company does not provide for claims for which the outcome is not probable or claims for which the amount of the loss cannot be reasonably estimated. Any settlements or awards under such claims are provided for when reasonably determinable.
As of February 29, 2024, there are no material claims outstanding for which the Company has assessed the potential loss as both probable to result and reasonably estimable; therefore, no accrual has been made. Further, there are claims outstanding for which the Company has assessed the potential loss as reasonably possible to result; however, an estimate of the amount of loss cannot reasonably be made. There are many reasons that the Company cannot make these assessments, including, among others, one or more of the following: the early stages of a proceeding does not require the claimant to specifically identify the patent claims that have allegedly been infringed or the products that are alleged to infringe; damages sought are unspecified, unsupportable, unexplained or uncertain; discovery has not been started or is incomplete; the facts that are in dispute are highly complex; the difficulty of assessing novel claims; the parties have not engaged in any meaningful settlement discussions; the possibility that other parties may share in any ultimate liability; and the often slow pace of litigation.
The Company has included the following summaries of certain of its legal proceedings though they do not meet the test for accrual described above.
Between October and December 2013, several purported class action lawsuits and one individual lawsuit were filed against the Company and certain of its former officers in various jurisdictions in the U.S. and Canada alleging that the Company and certain of its officers made materially false and misleading statements regarding the Company’s financial condition and business prospects and that certain of the Company’s financial statements contain material misstatements. The individual lawsuit was voluntarily dismissed and the consolidated U.S. class actions was settled; see “Litigation Settlement” below in this Note 10.
On July 23, 2014, the plaintiff in the putative Ontario class action (Swisscanto Fondsleitung AG v. BlackBerry Limited, et al.) filed a motion for class certification and for leave to pursue statutory misrepresentation claims. On November 17, 2015, the Ontario Superior Court of Justice issued an order granting the plaintiffs’ motion for leave to file a statutory claim for misrepresentation. On December 2, 2015, the Company filed a notice of motion seeking leave to appeal this ruling. On November 15, 2018, the Court denied the Company’s motion for leave to appeal the order granting the plaintiffs leave to file a statutory claim for misrepresentation. On February 5, 2019, the Court entered an order certifying a class comprised persons (a) who purchased BlackBerry common shares between March 28, 2013, and September 20, 2013, and still held at least some of those shares as of September 20, 2013, and (b) who acquired those shares on a Canadian stock exchange or acquired those shares on any other stock exchange and were a resident of Canada when the shares were acquired. Notice of class certification was published on March 6, 2019. The Company filed its Statement of Defence on April 1, 2019. Discovery is proceeding and the Court has not set a trial date.
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
On March 17, 2017, a putative employment class action was filed against the Company in the Ontario Superior Court of Justice (Parker v. BlackBerry Limited). The Statement of Claim alleges that actions the Company took when certain of its employees decided to accept offers of employment from Ford Motor Company of Canada amounted to a wrongful termination of the employees’ employment with the Company. The claim seeks (i) an unspecified quantum of statutory, contractual, or common law termination entitlements; (ii) punitive or breach of duty of good faith damages of CAD$20 million, or such other amount as the Court finds appropriate, (iii) pre- and post- judgment interest, (iv) attorneys’ fees and costs, and (v) such other relief as the Court deems just. The Court granted the plaintiffs’ motion to certify the class action on May 27, 2019. The Company commenced a motion for leave to appeal the certification order on June 11, 2019. The Court denied the motion for leave to appeal on September 17, 2019. The Company filed its Statement of Defence on December 19, 2019. The parties participated in a mediation on November 9, 2022, which did not result in an agreement. The Court has set a trial date of June 2, 2025, and scheduled a pre-trial conference on December 4, 2024. Discovery is proceeding.
Other contingencies
As at February 29, 2024, the Company has recognized $17 million (February 28, 2023 - $17 million) in funds from claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund (“SIF”) program’s investment in BlackBerry QNX. A portion of this amount may be repayable in the future under certain circumstances if certain terms and conditions are not met by the Company, which is not probable at this time.
(c) Litigation Settlement
On April 6, 2022, through a mediator, the Company agreed in principle to pay $165 million to settle the consolidated U.S. class actions (see “Litigation” above in this Note 10). The Stipulation of Settlement was executed effective June 7, 2022. On June 29, 2022, the Company paid $1 million of the settlement amount and the remaining $164 million was paid on September 6, 2022. On September 29, 2022, the Court granted final approval of the settlement and entered final judgment.
(d) Indemnifications
The Company enters into certain agreements that contain indemnification provisions under which the Company could be subject to costs and damages, including in the event of an infringement claim against the Company or an indemnified third party. Such intellectual property infringement indemnification clauses are generally not subject to any dollar limits and remain in effect for the term of the Company’s agreements. To date, the Company has not encountered material costs as a result of such indemnifications.
The Company has entered into indemnification agreements with its current and former directors and executive officers. Under these agreements, the Company agreed, subject to applicable law, to indemnify its current and former directors and executive officers against all costs, charges and expenses reasonably incurred by such individuals in respect of any civil, criminal or administrative action that could arise by reason of their status as directors or officers. The Company maintains liability insurance coverage for the benefit of the Company, and its current and former directors and executive officers. The Company has not encountered material costs as a result of such indemnifications in fiscal 2024.
11. LEASES
The Company has operating and finance leases primarily for corporate offices, research and development facilities, data centers and certain equipment. The Company’s leases have remaining lease terms of between one year and six years, some of which may include options to extend the lease for up to 10 years, and some of which may include options to terminate the lease within one month.
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
The components of lease expense were as follows: | | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| | February 29, 2024 | | February 28, 2023 | | February 28, 2022 |
| Operating lease cost, included in general and administrative | $ | 18 | | | $ | 20 | | | $ | 23 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Supplemental cash flow information related to leases was as follows:
| | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| | February 29, 2024 | | February 28, 2023 | | February 28, 2022 |
| | | | | |
| Cash used in operating activities related to operating lease payments | $ | 28 | | | $ | 32 | | | $ | 37 | |
| | | | | |
During the year ended February 29, 2024, the Company entered into $13 million (February 28, 2023 - $15 million) in lease obligations and recognized a corresponding ROU asset of $13 million (February 28, 2023 - $15 million).
During the year ended February 29, 2024, the Company incurred losses of $7 million (February 28, 2023 - $4 million; February 28, 2022 - nil) on LLA impairment of ROU assets, as described in Note 3. The Company also had sublease income during the year ended February 29, 2024 of $4 million (February 28, 2023 - $3 million; February 28, 2022 - $3 million) and incurred short-term lease costs of $3 million (February 28, 2023 - $2 million; February 28, 2022 - $2 million).
Supplemental consolidated balance sheet information related to leases was as follows:
| | | | | | | | | | | | | |
| | As at |
| | February 29, 2024 | | February 28, 2023 | | |
| Operating leases | | | | | |
| Operating lease assets | | | | | |
| Operating lease ROU assets | $ | 32 | | | $ | 44 | | | |
| Operating lease liabilities | | | | | |
| Accrued liabilities | $ | 20 | | | $ | 24 | | | |
| Operating lease liabilities | 38 | | | 52 | | | |
| Total operating lease liabilities | $ | 58 | | | $ | 76 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | |
| | As at |
| | February 29, 2024 | | February 28, 2023 | | |
| Weighted average remaining lease term | | | | | |
| Operating leases | 3.2 years | | 3.8 years | | |
| | | | | |
| Weighted average discount rate | | | | | |
| Operating lease | 3.9 | % | | 3.4 | % | | |
| | | | | |
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
Maturities of undiscounted lease liabilities were as follows:
| | | | | | | | | | |
| | | As at |
| | February 29, 2024 |
| | | Operating Leases | | |
| Fiscal year 2025 | | $ | 23 | | | |
| Fiscal year 2026 | | 18 | | | |
| Fiscal year 2027 | | 12 | | | |
| Fiscal year 2028 | | 10 | | | |
| Fiscal year 2029 | | 1 | | | |
| Thereafter | | 1 | | | |
| Total future minimum lease payments | | 65 | | | |
| Less: | | | | |
| Imputed interest | | (7) | | | |
| Total | | $ | 58 | | | |
12. REVENUE AND SEGMENT DISCLOSURES
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by the CODM for making decisions and assessing performance as a source of the Company’s reportable operating segments. The CODM, who is the CEO of the Company, makes decisions and assesses the performance of the Company using three operating segments.
The CODM does not evaluate operating segments using discrete asset information. The Company does not specifically allocate assets to operating segments for internal reporting purposes.
Segment Disclosures
The Company is organized and managed as three operating segments: Cybersecurity, IoT, and Licensing and Other.
The Company disaggregates revenue from contracts with customers based on geographical regions, timing of revenue recognition, and the major product and service types as described in Note 1.
The following table shows information by operating segment for the fiscal year ended February 29, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cybersecurity | | IoT | | | | Licensing and Other | | | | Segment Totals |
| Segment revenue | $ | 378 | | | | | $ | 215 | | | | | $ | 260 | | | | | $ | 853 | |
| Segment cost of sales | 142 | | | | | 36 | | | | | 152 | | | | | 330 | |
Segment gross margin (1) | $ | 236 | | | | | $ | 179 | | | | | $ | 108 | | | | | $ | 523 | |
______________________________
(1) A reconciliation of total segment gross margin to consolidated totals is set forth below.
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
The following table shows information by operating segment for the fiscal year ended February 28, 2023 and February 28, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended |
| February 28, 2023 | | | | February 28, 2022 |
| Cybersecurity | | IoT | | | | Licensing and Other | | Segment Totals | | | | Cybersecurity | | IoT | | | | Licensing and Other | | Segment Totals |
| Segment revenue | $ | 418 | | | $ | 206 | | | | | $ | 32 | | | $ | 656 | | | | | $ | 477 | | | $ | 178 | | | | | $ | 63 | | | $ | 718 | |
| Segment cost of sales | 185 | | | 37 | | | | | 12 | | | 234 | | | | | 194 | | | 30 | | | | | 23 | | | 247 | |
Segment gross margin (1) | $ | 233 | | | $ | 169 | | | | | $ | 20 | | | $ | 422 | | | | | $ | 283 | | | $ | 148 | | | | | $ | 40 | | | $ | 471 | |
______________________________
(1) A reconciliation of total segment gross margin to consolidated totals is set forth below.
Cybersecurity consists of BlackBerry® UEM and Cylance® cybersecurity solutions (collectively, BlackBerry Spark®), BlackBerry® AtHoc® and BlackBerry® SecuSUITE®. The Company’s Cylance AI and machine learning-based platform consists of CylanceENDPOINT™, CylanceGUARD®, CylanceEDGE™, CylanceINTELLIGENCE™ and other cybersecurity applications. The Company’s endpoint management platform includes BlackBerry® UEM, BlackBerry® Dynamics™, and BlackBerry® Workspaces solutions. Cybersecurity revenue is generated predominantly through software licenses, commonly bundled with support, maintenance and professional services.
IoT consists of BlackBerry® QNX®, BlackBerry® Certicom®, BlackBerry Radar®, BlackBerry IVY® and other IoT applications. IoT revenue is generated predominantly through software licenses, commonly bundled with support, maintenance and professional services.
Licensing and Other consists of the Company’s intellectual property arrangements and settlement awards. Other consists of the Company’s legacy SAF business, which ceased operations on January 4, 2022.
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
The following table reconciles total segment gross margin for the fiscal year ended February 29, 2024, February 28, 2023 and February 28, 2022 to the Company’s consolidated totals:
| | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| February 29, 2024 | | February 28, 2023 | | February 28, 2022 |
| Total segment gross margin | 523 | | | $ | 422 | | | $ | 471 | |
Adjustments (1): | | | | | |
| Less: Stock compensation | 3 | | | 3 | | | 4 | |
| | | | | |
| Less: | | | | | |
| Research & development | 186 | | | 207 | | | 219 | |
| Sales and marketing | 171 | | | 176 | | | 183 | |
| General and administrative | 181 | | | 164 | | | 114 | |
| Amortization | 54 | | | 96 | | | 165 | |
| Impairment of long-lived assets | 15 | | | 235 | | | — | |
| Impairment of goodwill | 35 | | | 245 | | | — | |
| Gain on sale of property, plant and equipment, net | — | | | (6) | | | — | |
| Debentures fair value adjustment | 3 | | | (138) | | | (212) | |
| Litigation settlement | — | | | 165 | | | — | |
| Investment income, net | (19) | | | (5) | | | (21) | |
| Consolidated income (loss) before income taxes | $ | (106) | | | $ | (720) | | | $ | 19 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
______________________________
(1) The CODM reviews segment information on an adjusted basis, which excludes certain amounts as described below:
Stock compensation expenses - Equity compensation is a non-cash expense and does not impact the ongoing operating decisions taken by the Company’s management.
Patent Sale
On May 11, 2023, the Company completed its previously announced patent sale with Malikie and sold certain non-core patent assets for $170 million in cash on closing, an additional $30 million in fixed consideration due by no later than the third anniversary of closing and variable consideration in the form of future royalties in the aggregate amount of up to $700 million (the “Malikie Transaction”). Pursuant to the terms of the Malikie Transaction, the Company received a license back to the patents sold, which relate primarily to mobile devices, messaging and wireless networking.
In the first quarter of fiscal 2024, the Company recognized revenue of $218 million and cost of sales of $147 million related to intellectual property sold. As at February 29, 2024, the remaining financing component on the patent sale was $10 million and will be recognized as interest income over the payment terms.
The Company estimated variable consideration from future royalty revenues using an expected value method including inputs from both internal and external sources related to patent monetization activities and cash flows, and constrained the recognition of that variable consideration based on the Company’s accounting policies and critical accounting estimates as described in Note 1. The present value of variable consideration recognized as revenue was $23 million and the amount of variable consideration constrained was $210 million. The Company evaluates its conclusions as to whether the constraints are still applicable on an ongoing basis, and will make updates when it observes a sufficient amount of evidence that amounts of variable consideration are no longer subject to constraint or the estimated amount of variable consideration has changed.
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
Revenue
The Company disaggregates revenue from contracts with customers based on geographical regions, timing of revenue recognition, and the major product and service types, as discussed above in “Segment Disclosures”.
The Company’s revenue, classified by major geographic region in which the Company’s customers are located, was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| | February 29, 2024 | | February 28, 2023 | | February 28, 2022 |
North America (1) | $ | 556 | | | 65.2 | % | | $ | 350 | | | 53.4 | % | | $ | 413 | | | 57.5 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Europe, Middle East and Africa | 172 | | | 20.2 | % | | 222 | | | 33.8 | % | | 234 | | | 32.6 | % |
| | | | | | | | | | | |
| Other regions | 125 | | | 14.6 | % | | 84 | | | 12.8 | % | | 71 | | | 9.9 | % |
| | | | | | | | | | | |
| Total | $ | 853 | | | 100.0 | % | | $ | 656 | | | 100.0 | % | | $ | 718 | | | 100.0 | % |
______________________________
(1) North America includes all revenue from the Company’s intellectual property arrangements, due to the global applicability of the patent portfolio and licensing arrangements thereof.
Revenue, classified by timing of recognition, was as follows:
| | | | | | | | | | | | | | | | | |
| | For the Year Ended |
| February 29, 2024 | | February 28, 2023 | | February 28, 2022 |
| Products and services transferred over time | $ | 279 | | | $ | 364 | | | $ | 428 | |
| Products and services transferred at a point in time | 574 | | | 292 | | | 290 | |
| Total | $ | 853 | | | $ | 656 | | | $ | 718 | |
Revenue contract balances
The following table sets forth the activity in the Company’s revenue contract balances for the fiscal year ended February 29, 2024:
| | | | | | | | | | | | | | | | | |
| Accounts Receivable | | Deferred Revenue | | Deferred Commissions |
| Opening balance as at February 28, 2023 | $ | 120 | | | $ | 215 | | | $ | 17 | |
| Increases due to invoicing of new or existing contracts, associated contract acquisition costs, or other | 939 | | | 605 | | | 32 | |
| Decrease due to payment, fulfillment of performance obligations, or other | (804) | | | (598) | | | (28) | |
| | | | | |
| Increase, net | 135 | | | 7 | | | 4 | |
| Closing balance as at February 29, 2024 | $ | 255 | | | $ | 222 | | | $ | 21 | |
Transaction price allocated to the remaining performance obligations
The table below discloses the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as at February 29, 2024 and the time frame in which the Company expects to recognize this revenue. The disclosure includes estimates of variable consideration, except when the variable consideration is a sales-based or usage-based royalty promised in exchange for a license of intellectual property.
The disclosure excludes estimates of variable consideration relating to future royalty revenues from the Malikie Transaction, which have been constrained based on the Company’s accounting policies and critical accounting estimates as described in Note 1 and under “Patent Sale” in this Note 12.
| | | | | | | | | | | | | | | | | | | | | | | |
| As at February 29, 2024 |
| Less than 12 Months | | 12 to 24 Months | | Thereafter | | Total |
| Remaining performance obligations | $ | 194 | | | $ | 14 | | | $ | 14 | | | $ | 222 | |
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
Revenue recognized for performance obligations satisfied in prior periods
For the fiscal year ended February 29, 2024, $12 million in revenue was recognized relating to performance obligations satisfied in a prior period as a result of certain variable consideration no longer being subject to constraint (fiscal year ended February 28, 2023 - $1 million; fiscal year ended February 28, 2022 - $1 million).
Property, plant and equipment, intangible assets, operating lease ROU assets and goodwill, classified by geographic region in which the Company’s assets are located, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | As at |
| | February 29, 2024 | | February 28, 2023 |
| Property, Plant and Equipment, Intangible Assets, Operating Lease ROU Assets and Goodwill | | Total Assets | | Property, Plant and Equipment, Intangible Assets, Operating Lease ROU Assets and Goodwill | | Total Assets |
| Canada | $ | 78 | | | $ | 342 | | | $ | 98 | | | $ | 375 | |
| United States | 662 | | | 923 | | | 742 | | | 1,208 | |
| Other | 29 | | | 130 | | | 27 | | | 96 | |
| $ | 769 | | | $ | 1,395 | | | $ | 867 | | | $ | 1,679 | |
Information About Major Customers
There was one customer that comprised 27% of the Company’s revenue in fiscal 2024 due to the completed Malikie Transaction (fiscal 2023 - one customer that comprised 12%; fiscal 2022 - one customer that comprised 11%).
13. CASH FLOW AND ADDITIONAL INFORMATION
(a) Certain consolidated statements of cash flow information related to interest and income taxes paid is summarized as follows:
| | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| | February 29, 2024 | | February 28, 2023 | | February 28, 2022 |
| Interest paid during the year | $ | 6 | | | $ | 6 | | | $ | 6 | |
| Income taxes paid during the year | 10 | | | 2 | | | 5 | |
| Income tax refunds received during the year | 1 | | | 5 | | | 6 | |
(b) Additional Information
Advertising expense, which includes media, agency and promotional expenses totaling $22 million is included in sales and marketing expenses for the fiscal year ended February 29, 2024. (February 28, 2023 - $29 million; February 28, 2022 - $25 million)
General and administrative expenses for the fiscal year ended February 29, 2024 included nil with respect to foreign exchange gain, net of foreign exchange hedging (February 28, 2023 - nil; February 28, 2022 - $1 million).
Foreign exchange
The Company is exposed to foreign exchange risk as a result of transactions in currencies other than its functional currency, the U.S. dollar. The majority of the Company’s revenue in fiscal 2024 was transacted in U.S. dollars. Portions of the revenue were denominated in Canadian dollars, euros and British pounds. Other expenses, consisting mainly of salaries and certain other operating costs, were incurred primarily in Canadian dollars, but were also incurred in U.S. dollars, euros and British pounds. At February 29, 2024, approximately 19% of cash and cash equivalents, 25% of accounts receivable and 59% of accounts payable were denominated in foreign currencies (February 28, 2023 – 19%, 24% and 36%, respectively). These foreign currencies primarily include the Canadian dollar, euro and British pound. As part of its risk management strategy, the Company maintains net monetary asset and/or liability balances in foreign currencies and engages in foreign currency hedging activities using derivative financial instruments, including currency forward contracts and currency options. The Company does not use derivative instruments for speculative purposes.
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
Interest rate risk
Cash and cash equivalents and investments are invested in certain instruments with fixed interest rates of varying maturities. Consequently, the Company is exposed to interest rate risk as a result of holding investments of varying maturities and the significant financing components within certain revenue contracts with customers. The fair value of investments, as well as the investment income derived from the investment portfolio, will fluctuate with changes in prevailing interest rates. The Company also has significant financing components within certain revenue contracts with customers and is exposed to interest rate risk as a result of discounting the future payments from customers with a fixed interest rate. The Company has also issued Notes with a fixed interest rate, as described in Note 6. The Company is exposed to interest rate risk as a result of the Notes. The Company does not currently utilize interest rate derivative instruments.
Credit risk
The Company is exposed to market and credit risk on its investment portfolio. The Company is also exposed to credit risk with customers, as described in Note 4. The Company reduces this risk from its investment portfolio by investing in liquid, investment-grade securities and by limiting exposure to any one entity or group of related entities. As at February 29, 2024, no single issuer represented more than 30% of the total cash, cash equivalents and investments (February 28, 2023 - no single issuer represented more than 12% of the total cash, cash equivalents and investments), with the largest such issuer representing bearer deposits, term deposits and cash balances with one of the Company’s banking counterparties.
The Company maintains Credit Support Annexes (“CSAs”) with several of its counterparties. These CSAs require the outstanding net position of all contracts be made whole by the paying or receiving of collateral to or from the counterparties on a daily basis, subject to exposure and transfer thresholds. As at February 29, 2024, the Company had no collateral posted or held with counterparties (February 28, 2023 - $1 million in collateral held).
Liquidity risk
Cash, cash equivalents, and investments were approximately $298 million as at February 29, 2024. The Company’s management remains focused on efficiently managing working capital balances and managing the liquidity needs of the business. Based on its current financial projections, the Company believes its financial resources, together with expected future operating cash generating and operating expense reduction activities, should be sufficient to meet funding requirements for current financial commitments and future operating expenditures not yet committed, and should provide the necessary financial capacity for the foreseeable future.
