What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-31 compared with 2020-04-07 · 593 added, 504 removed, 1061 unchanged (51% of the section changed)

1 unchanged sentence

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm 64

Reports of Independent Registered Public Accounting Firms 61

Consolidated Balance Sheets

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For the Years Ended February 28, 2021, February 29, 2020 and February 28, 2019 67

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Comprehensive Income (Loss)

For the Years Ended February 28, 2021, February 29, 2020 and February 28, 2019 68

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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 sheet of BlackBerry Limited and its subsidiaries (together, the Company) as of February 28, 2021 and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for the year then ended, 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 28, 2021, 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 28, 2021 and the results of its operations and its cash flows for the year then ended 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 28, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.

Change in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for the allowance for credit losses as of March 1, 2020 and the manner in which it accounts for leases as of March 1, 2019.

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 the accompanying Management's Report on Internal Control Over Financial Reporting.

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 audit.

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 audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit 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 audit 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 audit 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 audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides 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 matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill impairment test

As described in Notes 1, 3 and 4 to the consolidated financial statements, the Company’s goodwill balance was $849 million as of February 28, 2021.

Management conducts a goodwill impairment test as of December 31 of each year, or more frequently if events or changes in circumstances indicate that the asset may be impaired.

The impairment test is performed in one step by comparing the fair value of a reporting unit to its carrying value, including goodwill.

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.

As disclosed by management, during the year ended February 28, 2021, as a result of the deterioration in economic conditions caused by the global COVID-19 pandemic and its impact on the Company’s reporting units, and the decline of the trading value of the Company’s capital stock below the Company’s consolidated carrying value, management determined that it was more likely than not that the fair value of at least one of its reporting units was lower than its carrying amount after including goodwill.

As a result, management completed an analysis of the fair values of its reporting units to compare against their respective carrying values as of May 31, 2020.

Based on the results of the goodwill impairment test, the Company recorded total goodwill impairment charges of $594 million in the first quarter of fiscal 2021, relating to the BlackBerry Spark reporting unit.

No additional goodwill impairment was identified during the Company’s annual impairment test as of the annual test date of December 31, 2020.

The estimated fair values of reporting units were determined utilizing multiple valuation techniques, which included the income approach using a discounted future cash flow model, the market-based approach, and the asset value approach.

As disclosed by management, the analysis requires significant judgment in estimating future cash flows, especially in light of the ongoing COVID-19 pandemic and its short-term and potential long-term impacts to the Company’s business and assumptions, including the long-term rates of revenue growth for the reporting units, terminal growth rates, profitability measures and determination of the discount rates for the reporting units.

The principal considerations for our determination that performing procedures relating to the goodwill impairment test is a critical audit matter are (i) the significant judgment by management when determining the fair values of the reporting units, including the short-term and potential long-term impacts of the COVID-19 pandemic to the Company’s business;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to estimated future cash flows including long-term rates of revenue growth, terminal growth rates, profitability measures, and the discount rates;

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, including controls over the determination of the fair values of the Company’s reporting units.

These procedures also included, among others (i) testing management’s process for determining the fair values of the Company’s reporting units;

(ii) evaluating the appropriateness of the discounted future cash flow models;

(iii) testing the completeness and accuracy of underlying data used in the

discounted future cash flow models;

and (iv) evaluating the significant assumptions used by management related to the estimated future cash flows, long-term rates of revenue growth, terminal growth rates, profitability measures, and the discount rates.

Evaluating management’s assumptions related to the estimated future cash flows including long-term rates of revenue growth and profitability measures involved evaluating whether the assumptions used by management were reasonable considering consistency with (i) current and past performance of each reporting unit (ii) external market and industry data;

and (iii) with 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 cash flow models and (ii) reasonableness of the discount rates and terminal growth rates.

Revenue recognition – Intellectual property licensing

As discussed in Notes 1 and 13 to the consolidated financial statements, $272 million of the Company’s total revenues for the year ended February 28, 2021 was generated from Licensing and Other, which includes revenue from intellectual property licensing arrangements.

Management examines intellectual property agreements on a case-by-case basis to determine whether they contain distinct performance obligations with standalone functionality and whether the Company is the principal or agent in the transaction.

As disclosed by management, significant judgment is applied in assessing contractual terms which could impact the timing and amount of revenue recognition.

The principal considerations for our determination that performing procedures relating to the Revenue recognition – Intellectual property licensing is a critical audit matter are (i) significant judgment by management in assessing contractual terms which could impact the timing and amount of revenue recognition;

and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating evidence relating to the timing and amount of revenue recognition.

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 the revenue recognition process, including controls related to the assessment of contractual terms in the intellectual property agreements which impact on the timing and amount of revenue recognition.

These procedures also included, among others, (i) testing the completeness and accuracy of management’s identification of contractual terms by examining intellectual property agreements on a test basis, and (ii) testing management's process for determining the appropriate amount and timing of revenue recognition based on the contractual terms identified in the intellectual property agreements on a test basis.

/s/PricewaterhouseCoopers LLP

Chartered Professional Accountants, Licensed Public Accountants

Toronto, Canada

March 31, 2021

We have served as the Company's auditor since 2020.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of BlackBerry Limited:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of BlackBerry Limited (the Company) as of February 29, 2020 and February 28, 2019, 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, 2020, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at February 29, 2020 and February 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended February 29, 2020, in conformity with United States generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of February 29, 2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO) and our report dated April 6, 2020 expressed an unqualified opinion thereon.

Adoption of ASC 842

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases as of March 1, 2019 due to the adoption of ASC 842, Leases.

We have audited the accompanying consolidated balance sheets of BlackBerry Limited (the Company) as of February 29, 2020, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the two years in the period ended February 29, 2020, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at February 29, 2020, and the results of its operations and its cash flows for each of the two years in the period ended February 29, 2020, in conformity with United States generally accepted accounting principles.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit & Risk Management Committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective or complex judgments.

The communication of the 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 matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill Impairment

Description of the Matter As described in Note 1 of the consolidated financial statements, a goodwill impairment test is required at least annually at the reporting unit level.

The estimation of the fair value of the reporting units is contingent on future cash flows and market expectations and there is a risk that, if these cash flows and market outcomes do not meet the Company’s expectations, the goodwill might be impaired.

The fair value of the reporting units was determined using multiple approaches including discounted future cash flows analysis and a market-based approach

We identified the valuation of goodwill for certain reporting units as a critical audit matter because auditing the impairment analysis was complex due to the significant estimation uncertainty and judgment applied by management in determining their fair value.

The significant estimation uncertainty was primarily due to the sensitivity of the underlying key assumptions to the future cash flows and the significant effect that changes in these assumptions would have on the fair value of these reporting units.

Furthermore, for certain reporting units, there is limited information on which to base those assumptions given the emerging nature of both the business model and industry.

The significant assumptions used to estimate the fair value of these reporting units included discount rates and certain forward-looking assumptions (e.g., revenue growth rates, terminal growth rates, and profitability metrics) that could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls relating to the determination of the fair value of the reporting units, including controls over management’s review of the significant assumptions described above.

To test the fair value of the reporting units, we involved our valuation specialists to review the valuation methodology used by management and to assist in our evaluation of the discount rate used in the fair value estimate.

We also performed audit procedures that included, among others, testing the significant assumptions discussed above and the underlying data used by the Company in its analysis.

We compared the significant assumptions used by management to available industry and historical trends and evaluated whether changes to the significant assumptions would impact the impairment conclusion.

In addition, we tested management’s reconciliation of the fair value of the reporting units to the market capitalization of the Company and reviewed the related disclosure in the consolidated financial statements.

Revenue Recognition – Licensing Revenues

Description of the Matter As described in Note 1 of the consolidated financial statements, Licensing revenues relate primarily to Intellectual Property (“IP”) licensing.

Revenue recognition on IP licensing arrangements is assessed on a case-by-case basis taking into consideration the relevant contractual terms in each agreement.

Revenue related to IP licensing agreements for the fiscal year ended February 29, 2020 is included within Licensing as set out in note 13 of the consolidated financial statements.

We identified revenue related to IP licensing agreements as a critical audit matter because of the multiple areas of complexity, including identifying the customer, assessing performance obligations, assessing any constraints on variable consideration and determining if control of the license has transferred.

Auditing the revenue recognition was complex due to the significant judgment applied by management in assessing the agreements against the provisions of ASC 606, Revenue from Contracts with Customers, in relation to the specific judgmental areas listed above.

The application of these judgments can materially impact the amount and timing of revenue recognition.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls relating to the accounting for IP licensing arrangements, including those controls related to management’s review of the accounting analyses for the significant judgmental areas described above.

To test the revenue recognition of the Company’s IP licensing arrangements, we obtained and analyzed management’s accounting analyses by reference to the relevant accounting literature.

We assessed the appropriateness of the accounting treatments by discussing with management to understand the facts and substance of the arrangements and inspecting the written agreements.

In addition, we also reviewed the related financial statement disclosure.

We have served as the Company’s auditor since 1997.

We served as the Company’s auditor from 1997 to 2020.

/s/ Ernst & Young LLP

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Short-term investments (note 3) 525 532

Accounts receivable, net (note 4) 215 233

Accounts receivable, net of allowance of $10 and $9, respectively (note 2 and note 4) 182 215

Other receivables 25 14

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Other current assets (note 4) 50 52

Restricted cash and cash equivalents (note 3) 49 34

Restricted cash equivalents and restricted short-term investments (note 3) 28 49

Long-term investments (note 3) 37 32

Other long-term assets (note 4) 16 65

Deferred income tax assets (note 6) — 2

Operating lease right-of-use assets, net (note 12) 63 124

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Long-term debentures (note 7) 720 —

Deferred income tax liabilities (note 6) — 2

Commitments and contingencies (note 11)

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Net income — 93 — 93

Other comprehensive income — — 7 7

Other comprehensive loss — — ( 4 ) ( 4 )

Cumulative impact of adoption of ASC 606 — ( 86 ) — ( 86 )

Cumulative impact of adoption of ASU 2016-01 6 ( 6 )

Stock-based compensation (note 8) 67 — — 67

Share repurchase (note 8) ( 9 ) ( 9 ) — ( 18 )

Value of pre-combination service related to Replacement Awards included in purchase consideration (note 8) 21 — — 21

Shares issued:

Exercise of stock options (note 8) 1 — — 1

Exchange shares related to Cylance acquisition 35 — — 35

Employee share purchase plan (note 8) 4 — — 4

Balance as at February 28, 2019 2,688 ( 32 ) ( 20 ) 2,636

Net income — 93 — 93

Net loss — ( 152 ) — ( 152 )

Other comprehensive loss — — ( 13 ) ( 13 )

Cumulative impact of adoption of ASU 606 — ( 86 ) — ( 86 )

Cumulative impact of adoption of ASU 2016-01 — 6 ( 6 ) —

Cumulative impact of adoption of ASC 842 — ( 14 ) — ( 14 )

Stock-based compensation (note 8) 63 — — 63

Value of pre-combination service related to Replacement Awards included in purchase consideration (note 8) 21 — — 21

Shares issued:

Exercise of stock options (note 8) 3 — — 3

Exchange shares related to Cylance acquisition (note 5) 35 — — 35

Employee share purchase plan (note 8) 6 — — 6

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Net loss — ( 1,104 ) — ( 1,104 )

Other comprehensive loss — — ( 13 ) ( 13 )

Other comprehensive income — — 20 20

Cumulative impact of adoption of ASC 326 — ( 4 ) — ( 4 )

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Debentures fair value adjustment (note 7) 372 ( 66 ) ( 117 )

Arbitration awards and settlements, net (note 11) — ( 9 ) ( 683 )

Settlements, net (note 11) — — ( 9 )

1,750 912 638

Operating income (loss) ( 1,107 ) ( 149 ) 60

Investment income, net 1 17 123

Investment income (loss), net ( 6 ) 1 17

Income (loss) before income taxes ( 1,113 ) ( 148 ) 77

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Other comprehensive income (loss)

Net change in unrealized gains (losses) on available-for-sale investments ( 2 ) 1 ( 3 )

Net changes in fair value and amounts reclassified to net income (loss) from derivatives designated as cash flow hedges during the year ( 1 ) 1 ( 1 )

Net change in unrealized gains (losses) on available-for-sale investments (note 10) — ( 2 ) 1

Net change in fair value and amounts reclassified to net loss from derivatives designated as cash flow hedges during the year (note 10) 2 ( 1 ) 1

Foreign currency translation adjustment 5 ( 3 ) ( 6 )

Actuarial losses associated with other post-employment benefit obligations — — ( 1 )

Loss from change in fair value from instrument-specific credit risk on the Debentures (note 7) ( 7 ) — —

Net change in fair value from instrument-specific credit risk on the Debentures during the year (note 7) 13 ( 7 ) —

Other comprehensive income (loss) 20 ( 13 ) ( 4 )

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Debentures fair value adjustment (note 7) 372 ( 66 ) ( 117 )

Other long-term assets ( 37 ) — ( 18 )

Other long-term liabilities ( 3 ) 2 ( 12 )

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Net changes in working capital items

Accounts receivable, net 18 ( 9 ) 49

Accounts receivable, net of allowance 29 18 ( 9 )

Other receivables ( 11 ) 5 52

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Business acquisitions, net of cash acquired — 1 ( 1,402 )

Acquisition of restricted short-term investments ( 24 ) — —

Acquisition of short-term investments ( 1,039 ) ( 1,180 ) ( 2,895 )

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Issuance of common shares 19 9 5

Common shares repurchased — — ( 18 )

Payment of finance lease liability ( 1 ) ( 2 ) —

Repurchase of 3.75% Debentures ( 610 ) — —

Issuance of 1.75% Debentures 365 — —

Net cash provided by (used in) financing activities ( 227 ) 7 5

Effect of foreign exchange gain (loss) on cash, cash equivalents, restricted cash, and restricted cash equivalents 2 ( 1 ) ( 3 )

Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents during the year ( 156 ) ( 273 ) 70

Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of year 582 855 785

Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of year $ 426 $ 582 $ 855

Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period ( 208 ) ( 156 ) ( 273 )

Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period 426 582 855

Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period $ 218 $ 426 $ 582

See notes to consolidated financial statements.

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BlackBerry Limited (the “Company”) provides intelligent security software and services to enterprises and governments around the world.

The Company secures more than 500 million endpoints, including 150 million cars.

Based in Waterloo, Ontario, the Company leverages artificial intelligence and machine learning to deliver innovative solutions in the areas of cybersecurity, safety and data privacy solutions, and is a leader in the areas of endpoint security management, encryption, and embedded systems.

The Company secures more than 500 million endpoints including more than 175 million cars on the road today.

Based in Waterloo, Ontario, the Company leverages artificial intelligence 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.

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Certain of the comparative figures have been reclassified to conform to the current year’s presentation.

The Company operates as a single reportable segment.

The Company operates as a single operating segment.

For additional information concerning the Company’s segment reporting, see Note 13.

Correction of Previously Issued Financial Statements

Accounts receivable, contract assets and contract liabilities associated with certain contracts with customers accounted for under Accounting Standard Codification 606 (“ASC 606”)

During fiscal 2020, the Company corrected an error associated with the presentation of accounts receivable and associated deferred revenues for certain contracts with customers on the comparative February 28, 2019 consolidated balance sheet.

This correction had no impact to the deficit or the consolidated statement of operations for any period and impacts only the consolidated balance sheet as at February 28, 2019.

Under ASC 606, a receivable is recorded when it is unconditional;

that is, the only thing required for its collection is the passage of time.

If a receivable is not unconditional, the amount is treated as a contract asset and netted against any contract liabilities, such as deferred revenue, associated with the same contract.

Most of the Company’s contracts for its IoT software and services contain customer termination provisions, but do not have refund rights for the unused portion of any contract.

As, contractually, all amounts are owed to the Company regardless of the customer’s actions, the Company has determined that the associated accounts receivable are unconditional, should not have been treated as contract assets and would therefore not be netted against the associated deferred revenue.

The Company continues to net receivables that are not unconditional against the associated deferred revenue, such as pre-billed professional services or contracts with customers that have refund provisions.

As a result of the correction, the balances in the Company’s consolidated balance sheet as at February 28, 2019 have been reclassified in the consolidated balance sheet as at February 29, 2020 as follows:

February 28, 2019

(as previously disclosed) Correction As at

February 28, 2019

Accounts receivable, net $ 194 $ 39 $ 233

Deferred revenue, current $ 214 $ 39 $ 253

Risks and Uncertainties

In March 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) as a global pandemic and extraordinary actions have been taken by international, federal, state, provincial and local governmental authorities to contain and combat the spread of COVID-19 in regions throughout the world.

The COVID-19 pandemic and related public health measures, including orders to shelter-in-place, travel restrictions and mandated business closures, have adversely affected workforces, organizations, consumers and economies leading to an economic downturn and increased market volatility.

In fiscal 2021, the economic downturn and uncertainty caused by the COVID-19 pandemic and the measures undertaken to contain its spread negatively affected the Company’s QNX automotive software business and caused volatility in demand for the Company’s products and services, adversely affected the ability of the Company’s sales and professional services teams to work with customers, impacted spending from new customers and increased sales cycle times.

The uncertainty also 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, and concerning the collectability of receivables.

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, other than the COVID-19 pandemic as discussed above and below in Note 3.

These estimates may change, as new events occur and additional information is obtained, and such changes will be recognized in the consolidated financial statements as soon as they become known.

Actual results could differ from these estimates and any such differences may be material to the Company’s financial statements.

Although the Company experienced higher Software & Services revenue in the fourth quarter of fiscal 2021 compared to the first quarter of fiscal 2021, when the COVID-19 pandemic first materially negatively impacted the Company’s operations, and observed a partial recovery in global automotive production volumes by the end of the fiscal year, the COVID-19 pandemic and related global chip shortage have had and, in fiscal 2022, may continue to have a material adverse impact on the Company’s QNX automotive software business in particular and on the Company’s business, results of operations and financial condition on a consolidated basis.

The Company continues to evaluate the current and potential impact of the pandemic on its business, results of operations and consolidated financial statements, including the potential impairment of goodwill and indefinite-lived intangible assets.

The Company does not expect the COVID-19 pandemic and its related economic impact to materially adversely affect its liquidity position.

The ultimate impact of the COVID-19 pandemic on the Company’s operational and financial performance will depend on, among other things, the pandemic’s duration and severity, the governmental restrictions that may be sustained or imposed in response to the pandemic, the effectiveness of actions taken to contain or mitigate the pandemic (including the availability and distribution of vaccines), the impact of the global chip shortage and global economic conditions.

The long-term impact of the COVID-19 pandemic on the Company’s business may not be fully reflected until future periods.

BlackBerry Limited

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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, if control of the license has transferred, value of non-cash consideration, right of return and customer incentive commitments, fair value of reporting units in relation to potential goodwill impairment, fair value of the Debentures, fair value of long-lived assets in relation to potential impairment, useful lives of property, plant and equipment and intangible assets, fair values of assets acquired and liabilities assumed in business combinations, provision for income taxes, realization of deferred income tax assets and the related components of the valuation allowance, allowance for doubtful accounts, incremental borrowing rate in determining the present value of lease liabilities and the determination of reserves for various litigation claims.

Significant areas requiring the use of management estimates relate to revenue-related estimates including variable consideration, standalone selling price (“SSP”), estimated customer life, if control of licenses to intellectual property has transferred, the value of non-cash consideration, 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 7), fair value of share-based liability award, fair value of long-lived assets in relation to actual or potential impairment, the Company’s long-lived asset groupings, useful lives of property, plant and equipment and intangible assets, provision for income taxes, realization of deferred income tax assets and the related components of the valuation allowance, allowance for credit losses, incremental borrowing rate 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 28, 2021.

Subsequent to this date, there have been significant changes to the global economic situation and to public securities markets as a consequence of the COVID-19 pandemic.

It is reasonably possible that this could cause changes to estimates as a result of the financial circumstances of the markets in which the Company operates, the price of the Company’s publicly traded equity in comparison to the Company’s carrying value, and the health of the global economy.

Such changes to estimates could potentially result in impacts that would be material to the consolidated financial statements, particularly with respect to the fair value of the Company’s reporting units in relation to potential goodwill impairment and the fair value of long-lived assets in relation to potential impairment.

Subsequent to this date, it is reasonably possible that the COVID-19 pandemic and its impact on the health of the global economy could cause changes to estimates as a result of the financial circumstances of the markets in which the Company operates and the price of the Company’s publicly traded equity in comparison to the Company’s carrying value.

The significant accounting policies used in these U.S.

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Revenue and expenses are translated using daily exchange rates.

Exchange gains or losses arising from translation of foreign currency denominated assets and liabilities are included as a currency translation adjustment within accumulated other comprehensive income (loss) (“AOCI”).

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

The accounts receivable balance reflects invoiced and accrued revenue and is presented net of an allowance for doubtful accounts.

The allowance for doubtful accounts reflects estimates of probable losses in the accounts receivable balance.

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 network carriers rather than directly.

The Company evaluates the collectability of its accounts receivable balance based upon a combination of factors on a periodic basis such as specific credit risk of its customers, historical trends and economic circumstances.

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 bad debt 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.

BlackBerry Limited

1 unchanged sentence

In millions of United States dollars, except share and per share data, and except as otherwise indicated

Accounts receivable, net of allowance

Accounting Standards Codification 326, Financial Instruments - Credit Losses (“ASC 326”)

On March 1, 2020, the Company adopted ASC 326 using the modified retrospective method.

The accounts receivable balance reflects invoiced and accrued revenue and is presented net of an allowance for credit losses.

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

For periods prior to the adoption of ASC 326, the accounts receivable balance reflects invoiced and accrued revenue and is presented net of an allowance for doubtful accounts.

The allowance for doubtful accounts reflects estimates of probable losses in the accounts receivable balance.

The Company expected the majority of its accounts receivable balances to continue to come from large customers as it has sold and continues to sell, the majority of its software products and services through resellers and other distribution partners, rather than directly.

The Company evaluated the collectability of its accounts receivable balance based upon a combination of factors on a periodic basis such as specific credit risk of its customers, historical trends and economic circumstances.

The Company, in the normal course of business, monitored the financial condition of its customers and reviewed the credit history of each new customer.

When the Company became 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 recorded a specific bad debt provision to reduce the customer’s related accounts receivable to its estimated net realizable value.

If circumstances related to specific customers changed, the Company’s estimates of the recoverability of accounts receivable balances may have been further adjusted.

The Company’s cash equivalents and investments, other than publicly issued equity securities and private equity investments without readily determinable fair value, consist of money market and other debt securities, which are classified as available-for-sale for accounting purposes and are carried at fair value.

Unrealized gains and losses, net of related income taxes, are recorded in AOCI until such investments mature or are sold.

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.

In the event of a decline in value that is other-than-temporary, the investment is written down to fair value with a charge to income.

The Company does not exercise significant influence with respect to any of these investments.

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Investments with maturities in excess of one year or investments that the Company does not intend to sell are classified as long-term investments.

The Company assesses individual investments that are in an unrealized loss position to determine whether the unrealized loss is other-than-temporary.

The Company makes this assessment by considering available evidence, including changes in general market conditions, specific industry and individual company data, the length of time and the extent to which the fair value has been less than cost, the financial condition, the near-term prospects of the individual investment and the Company’s intent and ability to hold the investment.

In the event that a decline in the fair value of an investment occurs and that decline in value is considered to be other-than-temporary, an impairment charge is recorded in investment income equal to the difference between the cost basis and the fair value of the individual investment as at the consolidated balance sheet date of the reporting period for which the assessment was made.

The fair value of the investment then becomes the new cost basis of the investment.

If a debt security’s market value is below its amortized cost and either the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before its anticipated recovery, the Company records an other-than-temporary impairment charge to investment income for the entire amount of the impairment.

For other-than-temporary impairments on debt securities that the Company does not intend to sell and it is not more likely than not that the entity will be required to sell the security before its anticipated recovery, the Company would separate the other-than-temporary impairment into the amount representing the credit loss and the amount related to all other factors.

The Company would record the other-than-temporary impairment related to the credit loss as a charge to investment income, and the remaining other-than-temporary impairment would be recorded as a component of AOCI.

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

On March 1, 2020, the Company adopted ASC 326 on a modified retrospective basis.

Under ASC 326, at each reporting period, the Company evaluates its available-for-sale debt securities at the individual security level to determine whether there is a decline in the fair value below its amortized cost basis (an impairment).

In circumstances where the Company intends to sell, or is more likely than not required to sell, the security before it recovers its amortized cost basis, the difference between fair value and amortized cost is recognized as a loss in the consolidated statement of operations, with a corresponding write-down of the security’s amortized cost.

In circumstances where neither condition exists, the Company then evaluates whether a decline is due to credit-related factors.

The factors considered in determining whether a credit loss exists can include the extent to which fair value is less than the amortized cost basis, changes in the credit quality of the underlying issuer, credit ratings actions, as well as other factors.

To determine the portion of a decline in fair value that is credit-related, the Company compares the present value of the expected cash flows of the security discounted at the security’s effective interest rate to the amortized cost basis of the security.

A credit-related impairment is limited to the difference between fair value and amortized cost, and recognized as an allowance for credit loss on the consolidated balance sheet with a corresponding adjustment to net income.

Any remaining decline in fair value that is non-credit related is recognized in other comprehensive income (loss), net of tax.

Improvements in expected cash flows due to improvements in credit are recognized through reversal of the credit loss and corresponding reduction in the allowance for credit loss.

Prior to the adoption of ASC 326, the Company assessed individual investments that were in an unrealized loss position to determine whether the unrealized loss was other-than-temporary.

The Company made this assessment by considering available evidence, including changes in general market conditions, specific industry and individual company data, the length of time and the extent to which the fair value had been less than cost, the financial condition, the near-term prospects of the individual investment and the Company’s intent and ability to hold the investment.

In the event that a decline in the fair value of an investment occurred and that decline in value was considered to be other-than-temporary, an impairment charge was recorded in investment income equal to the difference between the cost basis and the fair value of the individual investment as at the consolidated balance sheet date of the reporting period for which the assessment was made.

The fair value of the investment then became the new cost basis of the investment.

If a debt security’s market value was below its amortized cost and either the Company intended to sell the security or it was more likely than not that the Company would be required to sell the security before its anticipated recovery, the Company recorded an other-than-temporary impairment charge to investment income for the entire amount of the impairment.

For other-than-temporary impairments on debt securities that the Company did not intend to sell and it was not more likely than not that the entity would be required to sell the security before its anticipated recovery, the Company separated the other-than-temporary impairment into the amount representing the credit loss and the amount related to all other factors.

The Company recorded the other-than-temporary impairment related to the credit loss as a charge to investment income, and the remaining other-than-temporary impairment was recorded as a component of AOCL.

Derivative financial instruments

On March 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2017-12 related to accounting for hedging activities.

The Company uses derivative financial instruments, including forward contracts and options, to hedge certain foreign currency exposures.

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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 effective portion of the derivative’s gain or loss is initially reported as a component of AOCI, net of tax, and subsequently reclassified into income in the same period or periods in which the hedged item affects income.

The ineffective portion of the derivative’s gain or loss is recognized in current income.

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

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

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.

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.

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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 AOCI are recognized in income at that time.

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

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 changes in the U.S.

dollar value of the associated asset, liability or forecasted transaction.

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Furniture and fixtures Declining balance at 20% per annum

For amortization on ROU assets, see the Company’s accounting policy on leases below and Note 12 for the remaining lease terms of leases.

On March 1, 2019, the Company adopted the new standard on leases, Accounting Standards Codification 842 (“ASC 842”).

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 does not apply the ASC 842 recognition requirements and recognizes the lease payments as lease cost on a straight-line basis over the lease term.

Prior to the adoption of ASC 842, the Company classified leases as either capital or operating leases.

Capital leases were capitalized on the consolidated balance sheet and reported on the consolidated statement of operations.

Operating leases were considered off-balance sheet transactions and expensed as incurred.

See Note 12 for additional information related to the Company’s leases.

Goodwill represents the excess of the acquisition price in a business combination over the fair value of identifiable net assets acquired.

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These events and circumstances may include a significant change in legal factors or in the business climate, a significant decline in the Company’s share price, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant disposal activity and the testing of recoverability for a significant asset group.

The Company’s annual impairment test was carried out in two steps.

In the first step, the carrying amount of the reporting unit, including goodwill, was compared with its fair value.

On March 1, 2020 the Company adopted ASU 2017-04 on the topic of Intangibles— Goodwill and Other (ASC 350).

ASU 2017-04 simplifies the subsequent measurement of goodwill, enabling the Company to carry out its goodwill

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

impairment test in one step, instead of two steps.

In the 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, the market-based approach, and the asset value approach.

The analysis requires significant judgment, including estimation of future cash flows, which is dependent on internal forecasts, 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 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.

Events and circumstances resulted in an additional goodwill impairment test being conducted as at May 31, 2020, in addition to the Company’s annual impairment test;

Prior to the adoption of ASU 2017-04, the Company’s annual impairment test was carried out in two steps.

In the first step, 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, discounted future cash flows, the market-based approach, and the asset value approach.

The analysis requires significant judgment, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of revenue growth for our reporting units, estimation of the useful life over which cash flows will occur, terminal growth rate, profitability measures, and determination of the discount rates for the reporting units.

The carrying amount of the Company’s assets was assigned to reporting units using reasonable methodologies based on the asset type.

When the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit is considered to be impaired and the second step is necessary.

Different judgments could yield different results.

The carrying value of the Company’s assets was assigned to reporting units using reasonable methodologies based on the asset type.

When the carrying value of a reporting unit exceeded its fair value, goodwill of the reporting unit was considered to be impaired and the second step was necessary.

Different judgments could have yielded different results.

In fiscal 2020, the Company disaggregated one reporting unit and goodwill was assigned to the disaggregated reporting units based upon the relative fair value allocation approach.

The completion of step one of the goodwill impairment test provided indications of impairment in certain reporting units, necessitating step two.

In the second step, the implied fair value of the reporting unit’s goodwill is compared with its carrying amount to measure the amount of the impairment loss, if any.

The second step involves significant judgment in the selection of assumptions necessary to arrive at an implied fair value of goodwill.

Different judgments could yield different results.

In the second step, the implied fair value of the reporting unit’s goodwill was compared with its carrying value to measure the amount of the impairment loss, if any.

The second step involved significant judgment in the selection of assumptions necessary to arrive at an implied fair value of goodwill.

Different judgments could have yielded different results.

Using the impaired reporting units’ fair value determined in step one as the acquisition prices in hypothetical acquisitions of the reporting units, the implied fair values of goodwill were calculated as the residual amount of the acquisition price after allocations made to the fair values of net assets, including working capital, property, plant and equipment and both recognized and unrecognized intangible assets.

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

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Acquired technology consists of intangible assets acquired through business acquisitions.

Intellectual property consists of patents (both purchased and internally generated) and agreements with third parties for the use of intellectual property.

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.

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Impairment of long-lived assets

The Company reviews long-lived assets (“LLA”) such as property, plant and equipment and intangible assets with finite useful lives for impairment whenever events or changes in circumstances indicate that the carrying amount 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 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.

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

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.

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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 amount of its net assets.

If the net cash flows of the asset group exceed the carrying amount of its net assets, LLA are not considered to be impaired.

If the carrying amount 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 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.

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GAAP, including the market approach, income approach and cost approach.

If the carrying amount of the asset group’s net assets exceeds the fair value of the Company, then the excess represents the maximum amount of potential impairment that will be allocated to 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.

If the carrying value of the asset group’s net assets exceeds the fair value of the Company, then the excess represents the maximum amount of potential impairment that will be allocated to 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.

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The Company includes the operating results of each acquired business in the consolidated financial statements from the date of acquisition.

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 recognizes its liability for royalties in accordance with the terms of existing license agreements.

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The Company elected to measure its outstanding convertible debentures (collectively, the “Debentures”, as defined in Note 7) at fair value in accordance with the fair value option.

Each period, the fair value of the Debentures is recalculated and resulting gains and losses from the change in fair value of the Debentures associated with non-credit components are recognized in income, while the change in fair value associated with credit components is recognized in AOCI.

The fair value of the Debentures has been determined using the significant inputs of principal value, interest rate spreads and curves, embedded call option prices, observable trades of the Debentures, the market price and volatility of the Company’s listed common shares and the Company’s implicit credit spread.

On March 1, 2019, the Company adopted the new standard on leases, Accounting Standards Codification 842 (“ASC 842”).

Operating lease right-of-use (“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.

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 commencement date, the Company does not apply the ASC 842 recognition requirements and recognizes the lease payments as lease cost on a straight-line basis over the lease term.

Prior to the adoption of ASC 842, the Company classified leases as either capital or operating leases.

Capital leases were capitalized on the consolidated balance sheet and reported on the consolidated statement of operations.

Operating leases were considered off-balance sheet transactions and expensed as incurred.

See Note 12 for additional information related to the Company’s leases.

3.75% Debentures

The fair value of the 3.75% Debentures (as defined in Note 7) was determined using the significant inputs of principal value, interest rate spreads and curves, embedded call option prices, observable trades of the Debentures, the market price and volatility of the Company’s listed common shares and the Company’s implicit credit spread.

1.75% Debentures

The fair value of the 1.75% Debentures (as defined in Note 7) has been determined using the significant inputs of principal value, interest rate spreads and curves, any observable trades of the Debentures that occurred during the period, the market price and volatility of the Company’s listed common shares, and the significant level 3 inputs related to credit spread and the implied discount of the 1.75% Debentures at issuance.

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 recognition

On March 1, 2018, the Company adopted ASC 606 and all related amendments using the modified retrospective method.

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.

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If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.

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 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.

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Nature of products and services

Internet of Things

IoT includes revenue from the Company’s suite of security software products and services designed to secure endpoint communications for the IoT, including BlackBerry Unified Endpoint Manager (“UEM”) and BlackBerry Dynamics, among other products and applications, as well as revenue from the sale of the Company’s AtHoc Alert secure networked crisis communications solution, its SecuSUITE secure voice and text solution, and the technologies offered by BlackBerry QNX.

The Company is organized and managed as one operating segment.

The Company has multiple products and services from which it derives revenue, which are structured in two groups:

Software and Services, and Licensing and Other.

Software and Services

Software and Services includes revenue from the Company’s BlackBerry Spark® software platform and BlackBerry IoT Solutions.

Software and Services 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 Spark

The BlackBerry Spark platform is a comprehensive offering of security software products and services, including the BlackBerry Spark® Unified Endpoint Security Suite and the BlackBerry Spark® Unified Endpoint Management Suite, which are also marketed together as the BlackBerry Spark® Suites, offering the Company’s broadest range of tailored cybersecurity and endpoint management options.

The BlackBerry Spark UES Suite includes revenue from the Company’s Cylance® artificial intelligence and machine learning-based platform consisting of BlackBerry® Protect, BlackBerry® Optics, BlackBerry® Persona, BlackBerry® Guard managed services 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 also offers the BlackBerry Cyber Suite, which is a UEM-agnostic version of the BlackBerry UES Suite which will be able to integrate with UEM software from other vendors.

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 Spark® UEM Suite includes the Company’s BlackBerry® UEM, BlackBerry® Dynamics™ and BlackBerry® Workspaces solutions.

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.

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Generally, most of the Company’s enterprise 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 IoT Solutions

BlackBerry IoT Solutions includes revenue from BlackBerry Technology Solutions, which consists of BlackBerry® QNX®, BlackBerry Certicom®, BlackBerry Radar® and other IoT applications, and from Secure Communications which consists of BlackBerry® AtHoc® and SecuSUITE.

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 infotainment 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 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

BlackBerry® AtHoc® generates revenue from networked crisis communication software from term subscription products, which includes technical support, and associated professional services.

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.

SecuSUITE revenue is generated from software license products associated with secure messaging and the associated hardware.

Similar to the BlackBerry Spark 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.

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 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.

Revenue from technical support is recognized over the support period.

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Revenue from software maintenance services is recognized over the length of the maintenance period, with an average term of one year.

BlackBerry Cylance

BlackBerry Cylance includes revenue from the Company’s artificial intelligence and machine learning-based platform consisting of CylancePROTECT, CylanceOPTICS, CylanceGUARD professional services and other cybersecurity applications.

The Company generates software license revenue from term subscription products, which includes technical support, and any updates and upgrades.

Professional services are provided through hourly rate and fixed fee arrangements.

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 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 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.

This also now includes BlackBerry cybersecurity services, which was previously included within IoT;

it has been reclassified into BlackBerry Cylance for the years ended February 28, 2019 and February 28, 2018 in order to conform to the current year presentation.

Licensing includes revenue from the Company’s intellectual property licensing arrangements, BBM Consumer licensing arrangement, settlement awards and mobility licensing software arrangements, which include revenue from licensed hardware sales.

Licensing and Other

Licensing and Other includes revenue from the Company’s intellectual property licensing arrangements, BBM Consumer licensing arrangement, settlement awards and mobility licensing software arrangements, which include revenue from licensed hardware sales.

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 has standalone functionality and whether the Company is the principal or agent in the transaction.

The Company examines intellectual property agreements on a case-by-case basis to determine whether the intellectual property contain 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.

The transaction price may include non-monetary consideration in the form of patents transferred to the Company, which is recorded at fair value as determined by a combination of market and income-based valuation approaches.

As part of the Company’s business strategy and operations is to monetize its IP, 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.

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.

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For licensees whose sales do not exceed contractual sales minimums, revenue is recognized over time, ratably over the license term based on contractual minimum amounts due to the promise to provide engineering services to the licensees.

Other includes revenue associated with the Company’s legacy service access fees (“SAF”) business, relating to subscribers utilizing the Company’s legacy BlackBerry 7 and prior operating systems, as well as revenue relating to unspecified future software upgrade rights for devices previously sold by the Company and legacy handheld revenue associated with the release of previously accrued amounts when the Company determines it has no further performance

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

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, as well as legacy handheld revenue associated with the release of previously accrued amounts when the Company determines it has no further performance obligations.

SAF revenue is recognized over time as the monthly service is provided.

1 unchanged sentence

See Note 13 for further information, including revenue by major product and service types.

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

Significant judgments in revenue recognition

19 unchanged sentences

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 selling, marketing and administration 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 13 for further information on the Company’s contract balances.

8 unchanged sentences

Liabilities for uncertain income tax positions are recognized based on a two-step approach.

The first step is

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

BlackBerry Limited

1 unchanged sentence

In millions of United States dollars, except share and per share data, and except as otherwise indicated

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.

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 give rise to a revision become known.

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The Company’s reportable items of comprehensive income (loss) are the cumulative translation adjustment resulting from non-U.S.

dollar functional currency subsidiaries 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 Debentures as described in Notes 7 and 10, and actuarial gains or losses associated with certain other post-employment benefit obligations.

dollar functional currency subsidiaries 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 Debentures as described in Note 7 and Note 10, 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.

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There are approximately 18 million shares in the equity pool available for future grants under the Equity Plan as at February 28, 2021.

In connection with the Cylance (as defined in Note 5) acquisition, the Company adopted the BlackBerry-Cylance Stock Plan (the “Cylance Stock Plan”).

In connection with the Cylance (as defined in Note 5) acquisition in fiscal 2019, the Company adopted the BlackBerry-Cylance Stock Plan (the “Cylance Stock Plan”).

The Cylance Stock Plan provides for the grant of Replacement Awards (as defined in Note 8(b)) in connection with unvested Cylance employee equity awards.

The number of common shares authorized for

The number of common shares authorized for awards under the Cylance Stock Plan is 9,144,176 common shares, which is equal to the amount of Replacement Awards granted.

As at February 28, 2019, there were no shares remaining in the Cylance Stock Plan for

BlackBerry Limited

1 unchanged sentence

In millions of United States dollars, except share and per share data, and except as otherwise indicated

awards under the Cylance Stock Plan is 9,144,176 common shares, which is equal to the amount of Replacement Awards granted.

As at February 28, 2019, there were no shares remaining in the Cylance Stock Plan for future grants.

future grants.

In addition, no shares may be reissued under the Cylance Stock Plan in respect of shares that expire, are forfeited, or are settled in cash.

The Company measures stock-based compensation expense for options at the grant date based on the award’s fair value as calculated by the Black-Scholes-Merton (“BSM”) option pricing model for stock options, and the expense is recognized ratably over the vesting period.

Options granted under the Equity Plan generally vest over a four -year period with 25 % vesting on the first anniversary date, and the remainder vesting in equal monthly installments.

Options granted under the Cylance Stock Plan generally vest over a four -year period with 25 % vesting on the first anniversary date, and the remainder vesting in equal monthly installments.

The BSM model requires various judgmental assumptions including volatility and expected option life.

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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 selling, marketing and administration 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 .

ADOPTION OF ACCOUNTING POLICIES

Accounting Standards Adopted During Fiscal 2021

ASC 842, Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASC 842 on leases.

The standard requires companies to include lease obligations in their balance sheets, including a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases.

Both finance leases and operating leases result in the lessee recognizing a ROU asset and a corresponding lease liability.

The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred on transition.

For finance leases, the lessee will recognize interest expense and amortization of the ROU asset, and for operating leases, the lessee will recognize a straight-line total lease expense.

The short-term lease exemption allows the Company to not apply the recognition requirements to lease terms of 12 months or less on the commencement date.

The Company elected the package of practical expedients where lease classification, embedded leases, and initial direct costs are not reassessed upon adoption of ASC 842.

The guidance is effective for interim and annual periods beginning after December 15, 2018.

The Company adopted this guidance in the first quarter of fiscal 2020 using the modified retrospective method for all leases that existed at or commence after the date of initial application.

As a result of the adoption of the new standard on leases, the Company recognized ROU assets of approximately $ 161 million, lease liabilities of approximately $ 175 million, and a cumulative adjustment to increase the deficit of approximately $ 14 million in the consolidated balance sheet as at March 1, 2019.

ASC 350, Goodwill and Other

In January 2017, the Financial Accounting Standards Board (“FASB”) released ASU 2017-04 on the topic of Intangibles— Goodwill and Other (ASC 350).

ASU 2017-04 simplifies the subsequent measurement of goodwill, eliminating Step 2 from the goodwill impairment test.

Previously, under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) after performing a required procedure to determine the fair value of assets acquired and liabilities assumed in a business combination.

Instead, under the amendments of ASU 2017-04, an entity performs its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying value.

The Company will recognize an impairment charge for any amount by which the carrying value exceeds the reporting unit’s fair value.

The amendments in

BlackBerry Limited

1 unchanged sentence

In millions of United States dollars, except share and per share data, and except as otherwise indicated

Future lease costs included in the Resource Allocation Program (“RAP”) of approximately $ 14 million, which were accrued for prior to adoption of ASC 842, and were previously included in accrued liabilities and other long-term liabilities, are now presented in accrued liabilities and operating lease liabilities in the consolidated balance sheet as at March 1, 2019.

As a result, total operating lease liabilities were $ 189 million in the consolidated balance sheet as at March 1, 2019.

ASU 2017-12, Hedge Accounting

In August 2017, the FASB issued ASU 2017-12.

This guidance expands the range of strategies that qualify for hedge accounting, changes how certain hedging relationships are presented in the financial statements and simplifies the application of hedge accounting in certain situations.

The guidance is effective for interim and annual periods beginning after December 15, 2018.

The Company adopted this guidance in the first quarter of fiscal 2020 and it did not have a material impact to the consolidated financial results.

Issued Accounting Pronouncements

In June 2016, the FASB issued guidance related to the measurement of credit losses on financial instruments, ASU 2016-13.

This guidance replaces the incurred loss impairment methodology in current U.S.

this update were effective for an entity’s annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.

The Company adopted this standard on March 1, 2020.

ASC 326, Credit Losses

In June 2016, the FASB released ASU 2016-13 on the topic of Financial Instruments — Credit Losses (ASC 326).

ASU 2016-13 replaces the previous incurred loss impairment methodology in U.S.

GAAP with a methodology that reflects expected credit losses, requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, and requires entities to estimate an expected lifetime credit loss on its financial assets.

The guidance also amends the impairment model for available-for-sale debt securities, requiring entities to determine whether all or a portion of the unrealized loss on such securities is a credit loss, and also eliminating the option for management to consider the length of time a security has been in an unrealized loss position as a factor in concluding whether or not a credit loss exists.

The amended model states that an entity recognizes an allowance for credit losses on available-for-sale debt securities, instead of a direct reduction of the amortized cost basis of the investment, as required under previous guidance.

As a result, entities recognize improvements to estimated credit losses on available-for-sale debt securities immediately in earnings as opposed to in interest income over time.

The guidance was effective for interim and annual periods beginning after December 15, 2019.

The Company adopted this guidance in the first quarter of fiscal 2021 using the modified retrospective method.

As a result of the adoption of the new standard on credit losses, the Company recorded a cumulative adjustment to the consolidated balance sheet increasing the allowance for credit losses and increasing deficit by approximately $ 4 million as at March 1, 2020.

As a result, the allowance for credit losses was $ 13 million in the consolidated balance sheet as at March 1, 2020.

Accounting Pronouncements Issued But Not Yet Adopted

In August 2020, the FASB issued a new accounting standard on the topic of debt with conversion and other options, ASU 2020-06.

The amendment in this update simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock.

This update also amends the guidance for the derivatives scope exception for contracts in an entity's own equity to reduce form-over-substance-based accounting conclusions and requires the application of the if-converted method for calculating diluted earnings per share.

The update also requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments.

The guidance is effective for interim and annual periods beginning after December 15, 2021.

The Company will adopt this guidance in the first quarter of fiscal 2023 and does not expect the adoption to have a material impact on its results of operations, financial position and disclosures.

In December 2019, the FASB released ASU 2019-12 on the topic of simplifying the accounting for income taxes, as part of its simplification initiative to reduce the cost and complexity in accounting for income taxes.

The amendments in this update removes certain exceptions from Topic 740, Income Taxes, including (i) the exception to the incremental approach for intra period tax allocation;

(ii) the exception to accounting for basis differences when there are ownership changes in foreign investments;

and (iii) the exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses.

The update also simplifies U.S.

GAAP in several other areas of Topic 740 such as (i) franchise taxes and other taxes partially based on income;

(ii) transactions with a government that result in a step up in the tax basis of goodwill;

(iii) separate financial statements of entities not subject to tax;

and (iv) enacted changes in tax laws in interim periods.

The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted.

The Company will adopt this guidance in the first quarter of fiscal 2022 and the only aspect of ASU 2019-12 that could have a material impact on the Company’s consolidated financial statements is the removal of the exception related to intraperiod tax allocation.

Upon adoption of the new standard, the Company would determine the tax attributable to continuing operations without regard to the tax effect of other items included in other comprehensive income.

FAIR VALUE MEASUREMENTS, CASH, CASH EQUIVALENTS AND INVESTMENTS

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.

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

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:

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The Company’s cash and cash equivalents, accounts receivable, other receivables, accounts payable and accrued liabilities are measured at an amount that approximates their fair values (Level 2 measurement) due to their short maturities.

In determining the fair value of investments held (other than those classified as Level 3), the Company primarily relies on an independent third-party valuator for the fair valuation of securities.

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.

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The independent third-party valuator considers the information provided by the Company before determining whether a change in their original pricing is warranted.

The Company’s investments (other than those classified as Level 3) largely consist of securities issued by major corporate and banking organizations, the provincial and federal governments of Canada, international government banking organizations and the United States Department of the Treasury and are all investment grade.

The Company also holds a

The Company’s investments largely consist of securities issued by major corporate and banking organizations, the provincial and federal governments of Canada, international government banking organizations and the United States Department of the Treasury and are all investment grade.

The Company also holds a limited amount of equity securities following the initial public offering by the issuer of a previous private equity investment.

The Company no longer has Level 3 assets as of February 29, 2020.

The Company’s Level 3 assets previously consisted of auction rate securities.

The Company realized $ 3 million in gains on auction rate securities for the year ended February 29, 2020 (February 28, 2019 - nil ).

The Company recognizes transfers in and out of levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurred.

There were no significant transfers in or out of Level 3 assets during the years ended February 28, 2021 or February 29, 2020.

For a description of how the fair values of the Debentures (as defined in Note 7) were determined, see the “Convertible debentures” accounting policies in Note 1.

The 3.75% Debentures (as defined in Note 7) were classified as Level 2 and the 1.75% Debentures (as defined in Note 7) are classified as Level 3.

For a description of how the fair value of the CEO Contingent Cash Award (as defined in Note 8) was determined, see the “2019 Executive Chair Incentive Grant” section of Note 8(b).

Non-Recurring Fair Value Measurements

Upon the occurrence of certain events, the Company re-measures the fair value of long-lived assets, including property, plant and equipment, operating lease ROU assets, intangible assets and goodwill.

Goodwill Impairment

During the year ended February 28, 2021, as a result of the deterioration in economic conditions caused by the global COVID-19 pandemic and its impact on the Company’s reporting units, and the decline of the trading value of the Company’s capital stock below the Company’s consolidated carrying value, the Company determined that it was more likely than not that the fair value of at least one of its reporting units was lower than its carrying value after including goodwill.

As a result, the Company completed an analysis of the fair value of its reporting units to compare against their respective carrying values as of May 31, 2020.

In its analysis, the Company utilized multiple valuation techniques, including the income approach using a discounted future cash flow model, the market-based approach, and the asset value approach which is based on the sum of the values of each of the assets and liabilities within the entity.

In addition to market data, the valuation techniques utilized Level 3 inputs such as the Company’s internal forecasts of its future results, cash flows and its weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested and based upon the Company’s estimated credit rating.

The analysis involves significant judgment in the selection of assumptions necessary to arrive at

BlackBerry Limited

1 unchanged sentence

In millions of United States dollars, except share and per share data, and except as otherwise indicated

limited amount of equity securities following the initial public offering by the issuer of a previous private equity investment.

The following table summarizes the changes in fair value of the Company’s Level 3 assets for the years ended February 29, 2020 and February 28, 2019:

Balance at February 28, 2018 $ 20

Principal repayments ( 1 )

Balance at February 28, 2019 19

Principal repayments ( 19 )

Balance at February 29, 2020 $ —

The Company recognizes transfers in and out of levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurred.

There were no significant transfers in or out of Level 3 assets during the years ended February 29, 2020 or February 28, 2019.

The Company’s Level 3 assets previously consisted of auction rate securities.

The Company realized $ 3 million in gains on auction rate securities.

The Company no longer has Level 3 assets as of February 29, 2020.

the reporting units’ fair values, especially in light of the ongoing COVID-19 pandemic and its short-term and potential long-term impacts to the Company’s business.

The total of the fair values of the Company’s reporting units was reconciled to the Company’s market capitalization based on the quoted market price of the Company’s stock in an active market, adjusted by an appropriate control premium.

Where the carrying value of a reporting unit exceeded its fair value, goodwill of the reporting unit was considered to be impaired.

Based on the results of the goodwill impairment test, it was concluded that the carrying value of one reporting unit exceeded its fair value, necessitating an impairment charge for the amount of excess and reducing the carrying value of Goodwill.

Consequently, the Company recorded total non-cash goodwill impairment charges of $ 594 million in the first quarter of fiscal 2021, relating to its BlackBerry Spark reporting unit (the “Goodwill Impairment Charge”).

The estimated fair values of the Company’s other reporting units substantially exceeded their carrying values at May 31, 2020.

No additional goodwill impairment was identified during the Company’s annual impairment test and the Company’s reporting units all substantially exceeded their carrying values as of the annual test date of December 31, 2020.

During the year ended February 29, 2020, the Company recorded a goodwill impairment charge of $ 22 million relating to its BBM Consumer reporting unit.

During the year ended February 28, 2019, there was no goodwill impairment charge.

Impairment of Long-Lived Assets

During the year ended February 28, 2021, the Company decided to exit and seek subleases for certain leased facilities and made a change in the estimate of future sublease activity of a previously exited facility.

In addition, during the fourth quarter of fiscal 2021, the Company made a strategic decision to move towards a significant work from home model and will vacate or consolidate numerous facilities globally.

The Company will also actively market certain facilities for sublease as part of its strategic decision.

During the year ended February 28, 2021, the Company recorded a non-cash, pre-tax and after-tax impairment charge of $ 46 million consisting of $ 37 million related to operating lease ROU assets for those facilities and $ 9 million related to property, plant and equipment associated with those facilities.

The impairment was determined by comparing the fair value of the impacted ROU asset to the carrying value of the asset as of the impairment measurement date, as required under ASC Topic 360, Property, Plant, and Equipment, using Level 2 inputs.

The fair value of the ROU asset was based on the estimated sublease income for certain facilities taking into consideration the time period it will take to obtain a sublessor, the applicable discount rate and the sublease rate.

The Company also recorded a decrease to its lease liabilities of $ 3 million associated with certain leased facilities with an early termination option, which has been included as a partial offset in impairment of long-lived assets on the Company’s consolidated statements of operations.

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.

During the year ended February 29, 2020, the Company recorded a non-cash, pre-tax and after-tax impairment charge of $ 10 million consisting of $ 8 million related to operating lease ROU assets for certain facilities that have been exited (see Note 12) and $ 2 million related to property, plant and equipment associated with those facilities.

During the year ended February 28, 2019, there were no LLA impairment charges.

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

Cash, Cash Equivalents and Investments

2 unchanged sentences

Gains Unrealized

Losses Other-than-

Impairment Fair Value Cash and

Losses Fair Value Cash and

Equivalents Short-term

Investments Long-term

Investments Restricted Cash

Investments Restricted Cash Equivalents Restricted Short-term Investments

Bank balances $ 165 $ — $ — $ 165 $ 165 $ — $ — $ — $ —

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Equity securities 10 — ( 7 ) 3 — 3 — — —

Term deposits, certificates of deposits, and GICs 118 — — — 118 44 25 — 49

Bankers’ acceptances/bearer deposit notes 84 — — — 84 30 54 — —

Term deposits, certificates of deposits, and GIC's 138 — — 138 7 103 — 4 24

Bearer deposit notes 40 — — 40 — 40 — — —

Commercial paper 162 — — 162 15 147 — — —

2 unchanged sentences

treasury bills/notes 25 — — 25 — 25 — — —

treasury bills/notes 45 — — — 45 45 — — —

Corporate notes/bonds 25 — — 25 — 25 — — —

599 — — 599 49 522 — 4 24

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Gains Unrealized

Losses Other-than-

Impairment Fair Value Cash and

Losses Fair Value Cash and

Equivalents Short-term

Investments Long-term

Investments Restricted Cash and Cash Equivalents

Investments Restricted Cash Equivalents

Bank balances $ 100 $ — $ — $ 100 $ 100 $ — $ — $ —

3 unchanged sentences

Term deposits, certificates of deposits, and GICs 118 — — 118 44 25 — 49

Bankers’ acceptances 39 — — — 39 4 35 — —

Bankers’ acceptances/bearer deposit notes 84 — — 84 30 54 — —

Commercial paper 276 — — 276 108 168 — —

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856 — — 856 277 530 — 49

Auction rate securities 20 2 — ( 3 ) 19 — — 19 —

$ 998 $ — $ ( 8 ) $ 990 $ 377 $ 532 $ 32 $ 49

As at February 28, 2021, the Company had private equity investments without readily determinable fair value of $ 37 million (February 29, 2020 - $ 32 million).

During the year ended February 29, 2020, there was a $ 3 million impairment recognized relating to a certain private equity investment without readily determinable fair value (February 28, 2019 and February 28, 2018 - nil ).

There were no realized gains or losses on available-for-sale securities for the year ended February 29, 2020 (realized losses of nil and $ 1 million for the years ended February 28, 2019 and February 28, 2018, respectively).

The Company has restricted cash and cash equivalents, consisting of cash and securities pledged as collateral to major banking partners in support of the Company’s requirements for letters of credit.

These letters of credit support certain leasing arrangements entered into in the ordinary course of business and also support patent litigation in certain jurisdictions.

The letters of credit are for terms ranging from one month to six years.

During the year ended February 28, 2021, there was no impairment recognized relating to private equity investments without readily determinable fair value (February 29, 2020 - $ 3 million and February 28, 2019 - nil ).

There were no realized gains or losses on available-for-sale securities for the year ended February 28, 2021 (February 29, 2020 and February 28, 2019 - nil ).

The Company has restricted cash and cash equivalents and restricted short-term investments, 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 five years.

The Company is legally restricted from accessing these funds during the term of the leases for which the letters of credit have been issued;

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February 28, 2021 February 29, 2020

Cost Basis Fair Value Cost Basis (1)

Cost Basis Fair Value Cost Basis Fair Value

Due in one year or less $ 599 $ 599 $ 856 $ 856

Due after five years — — 17 19

No fixed maturity 10 3 10 2

$ 609 $ 602 $ 866 $ 858

______________________________

(1) Cost basis includes other-than-temporary impairment.

As at February 28, 2021, the Company had investments with continuous unrealized losses totaling $ 7 million, consisting of unrealized losses on equity securities (February 29, 2020 - continuous unrealized losses totaling $ 8 million).

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Accounts Receivable, Net

The allowance for doubtful accounts as at February 29, 2020 was $ 9 million (February 28, 2019 - $ 25 million).

There were two customers that comprised more than 10% of accounts receivable as at February 29, 2020 (February 28, 2019 - one customer comprised more than 10%).

Other Current Assets

As at February 29, 2020, other current assets include items such as the current portion of deferred commissions and prepaid expenses, among other items, none of which were greater than 5 % of the current assets balance in all years presented.

The allowance for credit losses as at February 28, 2021 was $ 10 million (February 29, 2020 - $ 9 million).

The Company recognizes current estimated credit losses for accounts receivable, net of allowance.

The CECL for accounts receivable, net are estimated based on days past due and region for each customer in relation to a representative pool of assets consisting of a large number of customers with similar risk characteristics that operate under similar economic environments.

The Company determined the CECL by estimating historical credit loss experience based on the past due status and region of the customers, adjusted as appropriate to reflect current conditions and estimates of future economic conditions, inclusive of the effect of the COVID-19 pandemic on credit losses.

The duration and severity of the COVID-19 pandemic and the resulting market volatility are highly uncertain and, as such, the impact on expected credit losses is subject to significant judgment and may cause variability in the Company’s allowance for credit losses in future periods.

When specific customers are identified as no longer sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately.

The Company also has long-term accounts receivable included in Other Long-term Assets.

The CECL for long-term accounts receivable is estimated using the probability of default method and the default exposure due to limited historical information.

The exposure of default is represented by the assets’ amortized carrying amount at the reporting date.

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

For the Year Ended

February 28, 2021

Beginning balance as of February 29, 2020 $ 9

Impact of adopting ASC 326 4

Current period recovery for expected credit losses ( 3 )

Ending balance of the allowance for credit loss as at February 28, 2021 $ 10

The allowance for credit losses as at February 28, 2021 consists of $ 3 million relating to CECL estimated based on days past due and geographic region and $ 7 million relating to specific customers that were evaluated separately.

BlackBerry Limited

1 unchanged sentence

In millions of United States dollars, except share and per share data, and except as otherwise indicated

There was one customer that comprised more than 10% of accounts receivable as at February 28, 2021 (February 29, 2020 - two customers comprised more than 10%).

Other Current Assets

As at February 28, 2021 and February 29, 2020, other current assets include items such as the current portion of deferred commissions and prepaid expenses, among other items, none of which were greater than 5 % of the current assets balance in all years presented.

Property, Plant and Equipment, Net

27 unchanged sentences

February 28, 2019 - $ 129 million).

Total additions to intangible assets in fiscal 2020 amounted to $ 32 million (fiscal 2019 - $ 725 million which included $ 646 million in connection with the Cylance acquisition).

During fiscal 2020, the additions to intangible assets primarily consisted of patents received as non-cash consideration in a contract with a customer and payments for intellectual property relating to patent registration, licenses and maintenance fees.

Total additions to intangible assets in fiscal 2021 amounted to $ 36 million (fiscal 2020 - $ 32 million).

During fiscal 2021, additions to intangible assets primarily consisted of payments for intellectual property relating to patent maintenance, registration and license fees.

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

Based on the carrying value of the identified intangible assets as at February 28, 2021, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for each of the succeeding years is expected to be as follows:

4 unchanged sentences

and fiscal 2026 - $ 95 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:

3 unchanged sentences

Other acquired intangibles 5.0 years 6.0 years

Impairment of LLA

During the year ended February 29, 2020, the Company recorded a non-cash, pre-tax and after-tax impairment charge of$ 10 million consisting of $ 8 million related to operating lease ROU assets for certain facilities (see Note 12) and $ 2 million related to property, plant and equipment associated with those facilities.

There were no LLA impairment charges taken in fiscal 2019.

During fiscal 2018, the Company recorded an LLA impairment charge of $ 11 million, which was applicable to certain prepaid royalty arrangements associated with the Company’s sale of handheld devices.

Changes to the carrying amount of goodwill during the fiscal years ended February 28, 2021, February 29, 2020 and February 28, 2019 were as follows:

3 unchanged sentences

dollar denominated goodwill ( 5 )

Goodwill acquired through business combination completed during the year 899

Carrying amount as at February 28, 2019 1,463

Measurement period adjustment (note 5) ( 2 )

Goodwill impairment charge ( 22 )

Effect of foreign exchange on non-U.S.

dollar denominated goodwill ( 2 )

Goodwill acquired through business combination completed during the year 899

Carrying amount as at February 29, 2020 1,437

Measurement period adjustment (see Note 5) ( 2 )

Goodwill impairment charge ( 22 )

Effect of foreign exchange on non-U.S.

dollar denominated goodwill 6

Goodwill impairment charge (note 3) ( 594 )

Carrying amount as at February 28, 2021 $ 849

Based on the results of step two of the goodwill impairment test in fiscal 2020 discussed in Note 1, it was concluded that the carrying value of goodwill was impaired.

Consequently, the Company recorded a goodwill impairment charge of $ 22 million in the fourth quarter of fiscal 2020, relating to its BBM Consumer reporting unit.

Other Long-term Assets

As at February 29, 2020, other long-term assets include long-term portion of deferred commission and long-term receivables, among other items, none of which were greater than 5 % of total assets in any of the periods presented.

As at February 28, 2021 and February 29, 2020, other long-term assets include long-term portion of deferred commission and long-term receivables, among other items, none of which were greater than 5 % of total assets in any of the periods presented.

Accrued Liabilities

4 unchanged sentences

Other 129 138

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

BlackBerry Limited

1 unchanged sentence

In millions of United States dollars, except share and per share data, and except as otherwise indicated

Other Long-term Liabilities

Other long-term liabilities consist of the long-term portion of finance lease liabilities and non-lease components of RAP liabilities.

It previously included the present value of the long-term portion of accrued future lease payments associated with RAP, which are presented in operating lease liabilities as of the adoption of ASC 842.

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

BUSINESS ACQUISITIONS

There were no business acquisitions during fiscal 2020.

There were no business acquisitions during fiscal 2021 and fiscal 2020.

On February 21, 2019, the Company acquired all of the issued and outstanding shares of Cylance Inc.

(“Cylance”), an artificial intelligence and cybersecurity leader, for approximately $ 1.4 billion in cash and common shares, plus the assumption of unvested employee incentive awards.

The acquisition of Cylance is a strategic addition to the Company’s end-to-end secure communications portfolio.

The acquisition of Cylance was a strategic addition to the Company’s end-to-end secure communications portfolio.

The accounting for the acquisition of Cylance was completed in the second quarter of fiscal 2020, as the calculation of working capital of Cylance was finalized.

The following table summarizes the fair value allocations of the acquisition price of the assets acquired and liabilities assumed during fiscal 2019:

Preliminary Balance February 28, 2019 Measurement Period Adjustment Balance as at August 31, 2019

Non-cash assets acquired

Current assets $ 40 $ ( 6 ) $ 34

Property, plant and equipment and other long-term assets 25 — 25

Intangible assets

Acquired technology 283 — 283

In-process research and development 66 — 66

Customer relationships 277 — 277

Trade name 20 — 20

899 ( 2 ) 897

1,610 ( 8 ) 1,602

Liabilities assumed

Current liabilities 27 1 28

Debt 125 — 125

Deferred revenue (2)

Deferred tax liability 22 1 23

Other long-term liabilities 8 ( 7 ) 1

277 ( 7 ) 270

Net non-cash assets acquired 1,333 ( 1 ) 1,332

Cash acquired 10 — 10

Restricted cash acquired 4 — 4

Net assets acquired 1,347 ( 1 ) 1,346

Settlement of acquired debt (3)

$ 1,472 $ ( 1 ) $ 1,471

Consideration

Cash consideration $ 1,416 $ ( 1 ) $ 1,415

Replacement Awards issued (4)

Exchange shares (5)

Total consideration $ 1,472 $ ( 1 ) $ 1,471

_____________________________

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) Goodwill represents the excess of the acquisition price over the fair value of net assets acquired, which is not expected to be deductible for tax purposes when goodwill results from share purchases.

(2) The fair value of deferred revenue represents the costs to service the assumed obligations, plus a normal profit margin as required under purchase accounting.

(3) $ 125 million in cash was paid to existing debt holders to settle Cylance debt outstanding at acquisition.

(4) Fair value of 8,320,130 options and 824,046 RSUs (“Replacement Awards”) issued in connection with unvested Cylance employee equity awards, related to pre-combination service and considered purchase consideration.

See Note 8(b) for details on the Replacement Awards.

(5) In lieu of cash, a proportion of consideration owed to certain Cylance shareholders will be paid in BlackBerry shares issued from treasury in equal instalments on the first three anniversary dates of the acquisition.

In lieu of cash, a proportion of consideration owed to certain Cylance shareholders will be paid in BlackBerry shares issued from treasury in equal instalments on the first three anniversary dates of the acquisition (the “Exchange Shares”).

There are no service or other requirements associated with the issuance of these shares.

The weighted average amortization periods of the acquired technology, in-process research and development, customer relationships and trade name related to the business acquisitions completed during the year ended February 28, 2019 were approximately 8 years, 9 years, 9 years and 7 years, respectively.

One installment of the Exchange Shares was issued in each of fiscal 2021 and fiscal 2020.

The Company incurred $ 12 million in acquisition-related costs included in selling, general and administration expenses for the fiscal year ended February 28, 2019.

The Company recorded a measurement period recovery of $ 2 million in selling, general and administration expenses during the fiscal year ended February 29, 2020, as the amount would have been recognized in the prior fiscal year, if the adjustment to the provisional amounts had been recognized as of the acquisition date.

The amounts of revenue and loss before income taxes of the acquisition above included in the consolidated statement of operations for the year ended February 28, 2019 are as follows:

Revenue Loss before income taxes

Actuals from acquisition date to February 28, 2019 $ 2 $ ( 5 )

Supplemental Pro Forma Combined Financial Statements

The following pro forma combined results for the year ended February 28, 2019 reflect the consolidated statement of operations of the Company as if the acquisition of Cylance had occurred at the beginning of fiscal 2019.

These results combine the historical results of Cylance’s consolidated statement of operations and are not necessarily indicative of the consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal 2019 or of the results of future operations of the combined business.

The supplemental pro forma information, as if the acquisition had occurred on March 1, 2018, is as follows:

For the Year Ended

February 28, 2019

Revenue $ 1,027

______________________________

(1) Includes measurement period adjustments identified during the fiscal year ended February 29, 2020 of $2 million to reflect if the adjustment to the provisional amounts had been recognized as of the acquisition 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

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:

8 unchanged sentences

Foreign tax rate differences 3 3 ( 1 )

Effect of adjustments to deferred tax amounts for enacted changes resulting from U.S.

tax reform — — 67

Non-deductible permanent differences 13 15 19

9 unchanged sentences

$ ( 1,113 ) $ ( 148 ) $ 77

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:

3 unchanged sentences

Foreign ( 7 ) 3 7

Canadian — — —

Foreign — ( 1 ) ( 25 )

$ ( 9 ) $ 4 $ ( 16 )

BlackBerry Limited

Notes to the Consolidated Financial Statements

In millions of United States dollars, except share and per share data, and except as otherwise indicated

Deferred income tax assets and liabilities consist of the following temporary differences:

3 unchanged sentences

Minimum taxes 206 267

Convertible Debentures (see Note 7) 1 15

Convertible Debentures (note 7) 94 1

Research and development 390 327

6 unchanged sentences

Net deferred income tax asset (liability) $ — $ —

Deferred income tax asset $ — $ 2

Deferred income tax liability — ( 2 )

The Company regularly assesses the need for a valuation allowance against its deferred tax assets.

1 unchanged sentence

In evaluating the need for a valuation allowance, the Company noted that there had been three years of cumulative losses including fiscal 2021.

In fiscal 2020, the Company saw an increase in the deferred tax valuation allowance of $ 41 million (February 28, 2019 - decrease of $ 55 million).

In fiscal 2021, the Company saw an increase in the deferred tax valuation allowance of $ 205 million (February 29, 2020 - increase of $ 41 million).

As a result, the deferred tax valuation allowance had an ending balance of $ 1,360 million (February 29, 2020 - $ 1,223 million).

1 unchanged sentence

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 28, 2021 and February 29, 2020 were $ 24 million and $ 72 million, respectively.

8 unchanged sentences

As at February 28, 2021, $ 22 million of the unrecognized tax benefits have been netted against deferred income taxes and $ 2 million has been recorded within income taxes payable on the Company’s consolidated balance sheets.

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

A summary of open tax years by major jurisdiction is presented below:

9 unchanged sentences

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 $ 34 million of its gross unrecognized income tax benefits will be realized in the next twelve months.

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.

1 unchanged sentence

The amount of interest accrued as at February 28, 2021 was approximately $ 3 million (February 29, 2020 - approximately $ 4 million).

The amount of penalties accrued as at February 29, 2020 was nil (February 28, 2019 - $ 2 million).

The amount of penalties accrued as at February 28, 2021 was nil (February 29, 2020 - 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 28, 2021, the Company has the following net operating loss carryforwards and tax credits, which are scheduled to expire in the following years:

17 unchanged sentences

(1) Includes federal, provincial and state balances.

On September 7, 2016, Fairfax Financial Holdings Limited (“Fairfax”) and other institutional investors invested in the Company through a private placement of new debentures in an aggregate amount of $ 605 million (the “Debentures”).

1.75% Convertible Debentures

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

Interest on the 1.75% Debentures is payable quarterly in arrears at a rate of 1.75 % per annum.

1 unchanged sentence

Covenants associated with the 1.75% Debentures include limitations on the Company’s total indebtedness.

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 interest on the 1.75% Debentures become immediately due and payable upon request of holders holding not less than 25 % of the principal amount of the 1.75% Debentures then outstanding.

1 unchanged sentence

The 1.75% Debentures are subject to a change of control provision whereby the Company would be required to make an offer to repurchase the 1.75% Debentures at 115 % of par value if a person or group (not affiliated with Fairfax) acquires 35 % of the Company’s outstanding common shares, acquires all or substantially all of its assets, or if the Company merges with another entity and the Company’s existing shareholders hold less than 50 % of the common shares of the surviving entity.

The following table summarizes the changes in fair value of the Debentures for the fiscal year ended February 29, 2020, February 28, 2019 and February 28, 2018:

Additionally, the 1.75% Debentures cannot 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 shares (the “Blocker Provision”).

Due to the conversion option and other embedded derivatives within the 1.75% Debentures, and consistent with the Company’s accounting for the 3.75% Debentures, the Company has elected to record the 1.75% Debentures, including the debt itself and all embedded derivatives, at fair value and present the 1.75% Debentures as a single hybrid financial instrument.

No portion of the fair value of the 1.75% Debentures has been recorded as equity, nor would be if the embedded derivatives were bifurcated from the host debt contract.

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

Each period, the fair value of the 1.75% Debentures is recalculated and resulting gains and losses from the change in fair value of the Debentures associated with non-credit components are recognized in income, while the change in fair value associated with credit components is recognized in AOCL.

The fair value of the Debentures has been determined using the significant Level 2 inputs of interest rate curves and any observable trades of the Debentures that may have occurred during the period, the market price and volatility of the Company’s listed common shares, and the significant Level 3 inputs related to credit spread and the implied discount of the 1.75% Debentures at issuance.

The Company determined its credit spread by calibrating to observable trades of the 3.75% Debentures and trending the calibrated spread to valuation dates utilizing an appropriate credit index.

The Company’s credit spread was determined to be 7.90 % as of the issuance date of the 1.75% Debentures and 6.20 % as of February 28, 2021.

An increase in credit spread will result in a decrease in the fair value of 1.75% Debentures and vice versa.

The fair value of the 1.75% Debentures on September 1, 2020 was determined to be approximately $ 456 million and the implied discount approximately $ 91 million.

The Company determined the implied discount on the 1.75% Debentures by calculating the fair value of the 1.75% Debentures on September 1, 2020 utilizing the above credit spread and other inputs described above.

The following table summarizes the changes in fair value of the 1.75% Debentures for the fiscal year ended February 28, 2021:

February 28, 2021

Balance as at February 28, 2017 $ 591

Change in fair value of the Debentures 191

Balance as at February 28, 2018 782

Change in fair value of the Debentures ( 117 )

Balance as at February 28, 2019 665

Balance as at Principal received as of September 1, 2020 $ 365

Change in fair value of the Debentures 355

1 unchanged sentence

The difference between the fair value of the 1.75% Debentures and the unpaid principal balance of $ 365 million is $ 355 million.

The fair value of the Debentures is measured using Level 2 fair value inputs.

The following table shows the impact of the change in fair value of the Debentures for the fiscal years ended February 29, 2020, February 28, 2019 and February 28, 2018:

The following table shows the impact of the changes in fair value of the 1.75% Debentures for the years ended February 28, 2021, February 29, 2020 and February 28, 2019:

For the Years Ended

February 28, 2021 February 29, 2020 February 28, 2019

Income (charge) associated with the change in fair value from non-credit components recorded in the consolidated statements of operations (1)

$ 66 $ 117 $ ( 191 )

Charges associated with the change in fair value from instrument-specific credit components recorded in AOCI (1)

Total decrease (increase) in the fair value of the Debentures (1)

$ 59 $ 117 $ ( 191 )

______________________________

(1) During the year ended February 28, 2018 and prior to the adoption of ASU 2016-01 on March 1, 2018, the changes in fair value from both instrument-specific credit components and non-credit components of the Debentures were recorded in the consolidated statement of operations for the fiscal year ended February 28, 2018.

The Company recorded interest expense related to the Debentures of $ 23 million, which has been included in investment income, net on the Company’s consolidated statements of operations in fiscal 2020 (fiscal 2019 - $ 24 million;

Charge associated with the change in fair value from non-credit components recorded in the consolidated statements of operations $ ( 347 ) $ — $ —

Charge associated with the change in fair value from instrument-specific credit components recorded in AOCL ( 8 ) — —

Total increase in the fair value of the 1.75% Debentures $ ( 355 ) $ — $ —

For the year ended February 28, 2021, the Company recorded interest expense related to the Debentures of $ 15 million, which has been included in investment income (loss), net on the Company’s consolidated statements of operations (fiscal 2020 - $ 23 million;

fiscal 2019 - $ 24 million).

The Company is required to make quarterly interest-only payments of approximately $ 6 million in the first and second quarter of fiscal 2021 and approximately $ 5 million in the third quarter of fiscal 2021 when the Debentures mature.

The Company is required to make quarterly interest-only payments of approximately $ 2 million during the remaining term the 1.75% Debentures are outstanding.

Fairfax, a related party under U.S.

GAAP, purchased $ 500 million principal amount of the Debentures.

As such, the payment of interest on the Debentures represents a related-party transaction.

Fairfax receives interest at the same rate as other Debenture holders.

GAAP due to its beneficial ownership of common shares in the Company after taking into account potential conversion of the Debentures, owned $ 500 million principal amount of the 3.75% Debentures and purchased $ 330 million principal amount of the 1.75% Debentures.

As such, the redemption of Fairfax’s portion of the 3.75% Debentures, the investment by Fairfax in the 1.75% Debentures and the payment of interest on the Debentures represent related party transactions.

Fairfax receives interest at the same rate as other holders of the Debentures.

3.75% Convertible Debentures

On September 7, 2016, Fairfax and other institutional investors invested in the Company through a $ 605 million private placement of the 3.75% Debentures.

The terms of the 3.75% Debentures were substantially similar to those of the 1.75% Debentures, except that the 3.75 % Debentures had a higher interest rate, were convertible into common shares at a price of $ 10.00 per common share, were subject to a lower approval threshold for extraordinary resolutions, did not contain the Blocker Provision and had a maturity date of November 13, 2020 .

BlackBerry Limited

1 unchanged sentence

In millions of United States dollars, except share and per share data, and except as otherwise indicated

On July 22, 2020, the Company announced that, with the required approval of the holders of the 3.75% Debentures, it would redeem the 3.75% Debentures for a redemption amount of approximately $ 615 million (the “Redemption Amount”), which would settle all outstanding obligations of the Company in respect of the 3.75% Debentures.

The redemption was completed on September 1, 2020 .

As the Redemption Amount represented fair value at August 31, 2020 and the Company elected the fair value option for the 3.75% Debentures, the impact of the redemption on the fair value was recorded in the second quarter of fiscal 2021.

A portion of the fair value associated with changes in instrument-specific credit components in the amount of $ 6 million remained in OCI until redemption on September 1, 2020 at which point $ 6 million was discharged to the consolidated statement of operations and is included in the table below.

The following table shows the impact of the changes in fair value of the 3.75% Debentures for the years ended February 28, 2021, February 29, 2020 and February 28, 2019:

For the Years Ended

February 28, 2021 February 29, 2020 February 28, 2019

Income (charge) associated with the change in fair value from non-credit components recorded in the consolidated statements of operations $ ( 19 ) $ 66 $ 117

Income (charge) associated with the change in fair value from instrument-specific credit components recorded in AOCL 15 ( 7 ) —

Realized charges associated with the change in fair value from credit components recorded in the consolidated statements of operations on redemption ( 6 ) — —

Realized charges associated with the change in fair value from credit components released from AOCL on redemption 6 — —

Total decrease (increase) in the fair value of the 3.75% Debentures $ ( 4 ) $ 59 $ 117

CAPITAL STOCK

2 unchanged sentences

As at February 28, 2021 and February 29, 2020, 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 28, 2021, February 29, 2020 and February 28, 2019:

6 unchanged sentences

Stock-based compensation — 67

Share repurchase ( 1,992 ) ( 9 )

Exchange shares issued from Cylance acquisition (note 5) — 35

Value of pre-combination service related to Replacement Awards included in purchase consideration — 21

Common shares issued for employee share purchase plan 363 4

3 unchanged sentences

Stock-based compensation — 63

Exchange shares issued from Cylance acquisition (see note 5) — 35

Value of pre-combination service related to Replacement Awards included in purchase consideration — 21

Common shares issued related to Exchange Shares (note 5) 1,380 —

Common shares issued for employee share purchase plan 911 6

3 unchanged sentences

Stock-based compensation — 44

Common shares issued related to exchanges shares (see note 5) 1,380 —

Common shares issued related to Exchange Shares (note 5) 1,380 —

Common shares issued for employee share purchase plan 1,524 7

2 unchanged sentences

In addition, 60.8 million common shares are issuable upon conversion in full of the 1.75% Debentures as described in Note 7.

On June 23, 2017, the Company announced that it received acceptance from the Toronto Stock Exchange with respect to a normal course issuer bid to purchase for cancellation up to 31 million common shares of the Company, or approximately 6.4 % of the outstanding public float as at May 31, 2017.

During fiscal 2018, the Company repurchased approximately 2 million common shares at a cost of approximately $ 18 million.

The Company recorded a reduction of approximately $ 9 million to capital stock and the amount paid in excess of the per share paid-in capital of the common shares of approximately $ 9 million was charged to deficit.

All common shares repurchased by the Company pursuant to the normal course issuer bid have been canceled.

The common share repurchase program expired on June 26, 2018.

During fiscal 2019 and fiscal 2020, the Company did not repurchase any common shares.

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

9 unchanged sentences

The fair value of the rollover consideration was estimated to be $ 39 million, net of forfeitures, of which $ 21 million was attributable to pre-acquisition services.

The remaining fair value of $ 18 million is recorded as stock-based compensation over the remaining vesting period subsequent to the acquisition date.

The remaining fair value of $ 18 million is

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

recorded as stock-based compensation over the remaining vesting period subsequent to the acquisition date.

As of February 28, 2021, the remaining amount of unrecognized expense for the replacement awards totaled $ 3 million (February 29, 2020 - $ 6 million).

20 unchanged sentences

February 28, 2019 - $ 2.55 ).

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

A summary of unvested stock options since February 28, 2021 is shown below:

13 unchanged sentences

February 28, 2019 - tax deficiency of nil ).

During the year ended February 29, 2020, there were no stock options granted (February 28, 2019 - 8,320,130 ;

February 28, 2018 - 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

During the year ended February 28, 2021, there were no stock options granted (February 29, 2020 - nil ;

February 28, 2019 - 8,320,130 ).

The weighted average fair value of these grants was calculated using the BSM option pricing model with the following assumptions:

14 unchanged sentences

February 28, 2019 - $ 66 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

A summary of RSU activity during fiscal 2021 is shown below:

13 unchanged sentences

As at February 28, 2021, there was $ 80 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 1.66 years.

During the year ended February 29, 2020, there were 16,902,445 RSUs granted, of which 4,182,189 were inducement awards in connection with the Cylance acquisition (February 28, 2019 - 14,245,412 , of which 824,046 RSUs were Replacement Awards in connection with the Cylance acquisition, all of which will be settled upon vesting by the issuance of new common shares).

During the year ended February 28, 2021, there were 8,620,551 RSUs granted (February 29, 2020 - 16,902,445 , of which 4,182,189 were inducement awards in connection with the Cylance acquisition), all of which will be settled upon vesting by the issuance of new common shares.

During the year ended February 28, 2021, the weighted average fair value for RSUs granted was $ 5.54 (February 29, 2020 - $ 7.19 ;

2 unchanged sentences

February 28, 2019 - $ 73 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

Inducement awards

1 unchanged sentence

Up to 25 %, 35 % and 40 % of the Inducement Awards may be earned at the end of the Company’s 2020, 2021 and 2022 fiscal years, respectively, if certain performance conditions are met, and any earned amounts will vest at the end of fiscal 2022.

The Company also notes that 75 % of the awards eligible to vest in a given year are based on achievement of a billings goal and 25 % are based on achievement of a contribution margin goal.

In the third quarter of fiscal 2020, 3,122,140 common shares subject to Inducement Awards were forfeited due to the departure of one of the co-founders of Cylance.

In fiscal 2020, 3,122,140 common shares subject to Inducement Awards were forfeited due to the departure of one of the co-founders of Cylance.

As at February 28, 2021, there were 861,290 common shares subject to Inducement Awards outstanding.

The Company recorded compensation expense with respect to the Inducement Awards of approximately $ 3 million for the year ended February 29, 2020.

The Company recorded compensation expense with respect to the Inducement Awards of approximately $ 1 million for the year ended February 28, 2021 (February 29, 2020 - $ 3 million).

2019 Executive Chair Incentive Grant

5 unchanged sentences

Market performance-based equity award

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

common shares on the New York Stock Exchange reaches $ 16 , $ 17 , $ 18 , $ 19 and $ 20 , respectively.

The market performance-based equity award consists of five tranches, each of 1 million market-condition RSUs that will become earned and vested in increments of 1 million RSUs when the 10 -day volume weighted average closing price of the Company’s common shares on the New York Stock Exchange reaches $ 16 , $ 17 , $ 18 , $ 19 and $ 20 , respectively.

The grant date fair value and the derived service period for each of the market condition equity awards were determined through the use of a Monte Carlo simulation model utilizing Level 2 inputs.

2 unchanged sentences

Contingent cash award

The contingent cash award consists of a cash amount of $ 90 million that becomes payable should the 10 -day average closing price of the Company’s common shares on the New York Stock Exchange reach $ 30 .

As the award is triggered by the Company’s share price, it is considered stock-based compensation and accounted for as a share-based liability award, the fair value of which is determined at each reporting period end utilizing an option pricing model using Level 2 inputs and the associated compensation expense for the reporting period recorded.

The contingent cash award consists of a cash amount of $ 90 million that becomes payable should the 10 -day volume weighted average closing price of the Company’s common shares on the New York Stock Exchange reach $ 30 (“CEO Contingent Cash Award”).

As the award is triggered by the Company’s share price, it is considered stock-based compensation and accounted for as a share-based liability award, the fair value of which is determined at each reporting period end utilizing a option pricing model using Level 2 inputs and the associated compensation expense for the reporting period recorded.

If unearned, the contingent cash award will terminate on November 3, 2023 .

See also the discussion under “Other contingencies” in Note 11.

The Company recorded compensation expense with respect to the contingent cash award of approximately $ 8 million for the year ended February 28, 2021 (February 29, 2020 - $ 1 million;

February 28, 2019 - $ 1 million).

The liability recorded in respect to the award was $ 8 million as at February 28, 2021 and is included within accrued liabilities (February 29, 2020 - $ 1 million).

19 unchanged sentences

Stock-based compensation (4) (5)

— 11,308 12,998

Conversion of Debentures (1) (2)

11 unchanged sentences

See Note 7 for details on the Debentures.

(3) Includes approximately 2,802,067 common shares remaining to be issued in equal installments on the next two anniversary dates of the Cylance acquisition, in consideration for the acquisition in the year ended February 28, 2019.

(3) The year ended February 28, 2021, includes approximately 1,421,945 common shares (Exchange Shares) remaining to be issued on the third anniversary date of the Cylance acquisition, in consideration for the acquisition.

The year ended February 29, 2020, includes approximately 2,802,067 common shares to be issued in equal installments on the two anniversary dates of the Cylance acquisition thereafter, in consideration for the acquisition.

There are no service or other requirements associated with the issuance of these shares.

(4) 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 earnings (loss) per share for the year ended February 29, 2020, as to do so would be antidilutive.

(5) The Company has 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 earnings (loss) per share for the years ended February 28, 2019 and February 28, 2018.

As at February 28, 2019, there were 8,985,836 options and 9,300,191 RSUs outstanding that were in-the-money and may have a dilutive effect on earnings (loss) per share in future periods (February 28, 2018 - 790,918 options and 14,068,069 RSUs).

(4) 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 earnings (loss) per share for the years ended February 28, 2021 and February 29, 2020, as to do so would be antidilutive.

As at February 28, 2019, there were 8,985,836 options and 9,300,191 RSUs outstanding that were in-the-money and may have a dilutive effect on earnings (loss) per share in future periods.

(6) The Company has presented the dilutive effect of the Exchange Shares in connection with the Cylance acquisition completed on February 21, 2019 in the calculation of diluted earnings (loss) per share for the year ended February 28, 2019.

The remaining exchange shares are included in the calculation of weighted average number of shares outstanding for the year ended February 29, 2020 as noted in footnote 3 above.

The remaining Exchange Shares are included in the calculation of weighted average number of shares outstanding for the years ended February 28, 2021 and February 29, 2020 as noted in footnote 3 above.

BlackBerry Limited

2 unchanged sentences

ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss are as follows:

The changes in AOCL by component net of tax, for the years ended February 28, 2021, February 29, 2020 and February 28, 2019 were as follows:

February 28, 2021 February 29, 2020 February 28, 2019

Accumulated net unrealized gains (losses) on available-for-sale debt securities $ — $ 2 $ ( 7 )

Accumulated net unrealized losses on derivative instruments designated as cash flow hedges, net of tax ( 1 ) — ( 1 )

Available-for-Sale Debt Securities

Balance, beginning of period $ — $ 2 $ ( 7 )

Other comprehensive income (loss) before reclassification — ( 2 ) 1

Cumulative impact of adoption of ASU 2016-01 — — 8

Accumulated net unrealized gains on available-for-sale debt securities $ — $ — $ 2

Cash Flow Hedges

Balance, beginning of period $ ( 1 ) $ — $ ( 1 )

Other comprehensive income (loss) before reclassification 2 ( 1 ) ( 2 )

Amounts reclassified from AOCL into net income (loss) — — 3

Accumulated net unrealizes gains (losses) on derivative instruments designated as cash flow hedges $ 1 $ ( 1 ) $ —

Foreign Currency Cumulative Translation Adjustment

Balance, beginning of period $ ( 9 ) $ ( 7 ) $ ( 1 )

Other comprehensive income (loss) before reclassification 5 ( 2 ) ( 6 )

Foreign currency cumulative translation adjustment $ ( 4 ) $ ( 9 ) $ ( 7 )

Change in Fair Value From Instrument-Specific Credit Risk On Debentures

Balance, beginning of period $ ( 22 ) $ ( 14 ) $ —

Other comprehensive income (loss) before reclassification 7 ( 8 ) —

Amounts reclassified from AOCL into net income (loss) 6 — —

Cumulative impact of adoption of ASU 2016-01 — — ( 14 )

Change in fair value from instruments-specific credit risk on Debentures $ ( 9 ) $ ( 22 ) $ ( 14 )

Other Post-Employment Benefit Obligations

Actuarial losses associated with other post-employment benefit obligations $ ( 1 ) $ ( 1 ) $ ( 1 )

Accumulated other comprehensive loss $ ( 33 ) $ ( 20 ) $ ( 10 )

Accumulated Other Comprehensive Loss, End of Period $ ( 13 ) $ ( 33 ) $ ( 20 )

As a result of the adoption of ASU 2016-01 in fiscal 2019, the Company reclassified $ 8 million in unrecognized losses on equity securities that had previously been recorded to other comprehensive income (loss), through a cumulative addition to deficit in the consolidated balance sheet as of March 1, 2018.

The Company recognized approximately $ 14 million on the change in fair value from instrument-specific credit risk that had previously been recorded to deficit through a cumulative increase to accumulated other comprehensive loss in the consolidated balance sheet as of March 1, 2018.

During the year ended February 29, 2020, nil gains (pre-tax and post-tax) associated with cash flow hedges were reclassified from AOCI into selling, marketing and administration expenses (February 28, 2019 - $ 3 million in gains).

The Company recognized approximately $ 14 million on the change in fair value from instrument-specific credit risk associated with the 3.75% Debentures that had previously been recorded to deficit through a cumulative increase to accumulated other comprehensive loss in the consolidated balance sheet as of March 1, 2018.

During the year ended February 28, 2021, nil gains or losses (pre-tax and post-tax) associated with cash flow hedges were reclassified from AOCL into selling, marketing and administration expenses (February 29, 2020 - nil gains or losses).

COMMITMENTS AND CONTINGENCIES

(a) Letters of Credit

The Company has $ 42 million in collateralized outstanding letters of credit in support of certain leasing arrangements entered into in the ordinary course of business and in support of patent litigation in certain jurisdictions as of February 29, 2020.

See the discussion of restricted cash in Note 3.

The Company has $ 28 million in collateralized outstanding letters of credit in support of certain leasing arrangements entered into in the ordinary course of business as of February 28, 2021.

See the discussion of restricted cash and restricted short-term investments 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

4 unchanged sentences

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, subject the Company to significant liabilities and could have the other effects that are described in greater detail under Part I, Item 1A “Risk Factors” for the fiscal year ended February 29, 2020, which is included in the Company’s Annual Report on Form 10-K, including the risk factors entitled “Litigation against the Company may result in adverse outcomes” and “The Company could be found to have infringed on the intellectual property rights of others”.

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.

1 unchanged sentence

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.

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 does not provide for claims for which the outcome is not determinable or claims for which the amount of the loss cannot be reasonably estimated.

2 unchanged sentences

therefore, no accrual has been made.

Further, there are claims outstanding for which the Company has assessed the potential loss as reasonably probable to result;

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.

8 unchanged sentences

and the often slow pace of litigation.

Though they do not meet the test for accrual described above, the Company has included the following summaries of certain of its legal proceedings that it believes may be of interest to its investors.

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.

11 unchanged sentences

The Court denied the motion to dismiss the Second Amended Complaint on March 19, 2018.

During the first quarter of fiscal 2019, the U.S.

class actions lawsuit proceeded to discovery.

Fact discovery was completed on January 31, 2020, and expert discovery is scheduled to be completed on June 29, 2020.

On January 4, 2019, the Court issued an order placing the case on its suspense calendar but allowed fact and expert discovery to continue.

On August 2, 2019, the Magistrate Judge issued a Report and Recommendation that the Court grant the defendants’ motion for judgment on the pleadings dismissing the claims of additional plaintiffs Cho and Ulug.

On September 24, 2019, the District Court Judge accepted the Magistrate Judge’s recommendation and dismissed the claims of Cho and Ulug against all defendants.

On October 17, 2019, Cho and Ulug filed a Notice of Appeal.

All other proceedings, including plaintiffs’ pending motion for class certification but excluding fact and expert discovery, are currently suspended pending the decision of the Second Circuit Court of Appeals in Arkansas Teachers Retirement System et al.

Goldman Sachs Group, Inc., et al., which involves an issue relevant to the motion for class certification.

On October 17, 2019, Cho and

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

Ulug filed a Notice of Appeal.

The Second Circuit Court of Appeals affirmed the District Court judgment dismissing Cho and Ulug’s claims on March 11, 2021.

The District Court removed the case from its suspense calendar on May 29, 2020.

Plaintiffs filed a motion for class certification on June 8, 2020, the defendants filed oppositions on August 10, 2020, and the plaintiffs filed a reply on September 28, 2020.

All discovery was completed as of November 13, 2020.

On January 26, 2021, the District Court granted the plaintiffs’ motion for class certification.

On February 9, 2021, the defendants filed a Rule 23(f) petition for interlocutory review of the class certification order with the Second Circuit Court of Appeals.

The plaintiffs filed an opposition to the Rule 23(f) petition on February 19, 2021, and the defendants filed a motion for leave to file a reply in support of the petition on February 26, 2021.

On February 8, 2021, the Magistrate Judge set a settlement conference for May 19, 2021.

On February 15, 2021, the District Court set the following briefing schedule for dispositive motions:

motions due April 19, 2021, oppositions due June 18, 2021, and replies due July 19, 2021.

On July 23, 2014, the plaintiffs in the putative Ontario class action filed a motion for certification and leave to pursue statutory misrepresentation claims.

8 unchanged sentences

The Company filed its Statement of Defence on April 1, 2019, and discovery is proceeding.

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 February 15, 2017, a putative employment class action was filed against the Company in the Ontario Superior Court of Justice.

5 unchanged sentences

The Court denied the motion for leave to appeal on September 17, 2019.

On February 4, 2019, a putative employment class action and California Private Attorney General Act claim was filed against the Company in the San Joaquin County Superior Court alleging the Company (i) failed to provide itemized wage statements in violation of California Labor Code Section 226(a);

and (ii) failed to pay all wages due at termination in violation of California Labor Code Section 201.

The complaint seeks statutory penalties, injunctive relief, interest, costs, and attorneys’ fees.

The Company filed its answer denying the allegations in the complaint on March 18, 2019, and discovery is proceeding.

On August 22, 2019, the Company filed a Motion for Summary Adjudication of the named plaintiff’s wage statement claims.

The Court took the motion under submission following oral argument on November 13, 2019, and the motion remains pending.

The Court denied the motion on January 21, 2020.

The parties have reached a tentative settlement and will provide notice of the settlement to the class after the Court enters its order preliminarily approving the settlement.

The Company filed its Statement of Defence on December 19, 2019, and discovery is proceeding.

Other contingencies

In the first quarter of fiscal 2019, the Board approved the 2019 Executive Chair Grant.

As part of the agreement, the Company’s Executive Chair and CEO is entitled to receive a contingent performance-based cash award in the amount of $ 90 million that will become earned and payable should the 10-day average closing price of the Company’s common shares on the New York Stock Exchange reach $ 30 before November 3, 2023 .

As the award is triggered by the Company’s share price, it is considered stock-based compensation and accounted for as a share-based liability award.

As at February 29, 2020, the liability recorded in association with this award is approximately $ 1 million.

During the year ended February 29, 2020, the Company received $ 10 million in funds from claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund program’s investment in BlackBerry QNX.

As at February 28, 2021, the Company has received $ 15 million (February 29, 2020 - $ 10 million) in funds from claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund 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.

Panasonic settlement agreement

In fiscal 2019, the Company and Panasonic Corporation entered into a settlement agreement whereby the Company received approximately $ 12 million in connection with previously purchased components utilized by the legacy handheld devices business.

This amount, net of legal costs of approximately $ 3 million, was recorded within arbitration awards and settlements, net on the consolidated statements of operations in the fourth quarter of fiscal 2019.

Qualcomm arbitration award

On April 20, 2016, the Company and Qualcomm Incorporated (“Qualcomm”) entered into an agreement to arbitrate a dispute regarding whether Qualcomm’s agreement to cap certain royalties applied to payments made by the Company under a license between the parties.

Following a joint stipulation by the parties, the arbitration panel issued a final award on May 26, 2017 providing for the payment by Qualcomm to the Company of a total amount of $ 940 million including interest and attorneys’ fees, which was net of $ 22 million in certain royalties owed by the Company to Qualcomm for calendar 2016 and the first quarter of calendar 2017 previously recorded within accrued liabilities on the consolidated balance sheets.

Approximately $ 815 million of the arbitration award represents the return of royalty overpayments.

The Company also recorded on the consolidated statements of operations recoveries of legal expenses of approximately $ 8 million included in selling, marketing and administration, and $ 139 million of interest income within investment income, net, for a total gain associated with the award of $ 962 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

Nokia arbitration decision

On April 28, 2016, Nokia Corporation (“Nokia”) filed a Request for Arbitration with the International Chamber of Commerce International Court of Arbitration.

The dispute related to whether certain payments due under a patent agreement between the parties were in fact owed under the terms of the agreement.

The arbitration panel issued a decision, finding in favour of Nokia.

In the third quarter of fiscal 2018, the Company recorded $ 148 million in charges associated with the arbitration, consisting of $ 132 million within arbitration awards and settlements, net and $ 16 million in interest expense within investment income, net on the consolidated statements of operations.

This amount, net of legal costs of approximately $ 3 million, was recorded within settlements, net on the consolidated statements of operations in the fourth quarter of fiscal 2019.

(d) Concentrations in Certain Areas of the Company’s Business

The Company attempts to ensure that most components essential to the Company’s business are generally available from

multiple sources;

however, certain components are currently obtained from limited sources within a competitive market,

which subjects the Company to supply, availability and pricing risks.

The Company attempts to ensure that most components essential to the Company’s business are generally available from multiple sources;

however, certain components are currently obtained from limited sources within a competitive market, which subjects the Company to supply, availability and pricing risks.

The Company has also entered into various agreements for the supply of components, and the manufacturing of its products;

1 unchanged sentence

Therefore, the Company remains subject to risks of supply shortages.

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

(e) Indemnifications

8 unchanged sentences

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 eight 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 .

The Company’s leases have remaining lease terms of between one year and seven 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 three months .

The components of lease expense were as follows:

For the Year Ended

February 29, 2020

For the Years Ended

February 28, 2021 February 29, 2020

Operating lease cost, included in selling, marketing and administration $ 30 $ 33

3 unchanged sentences

Total finance lease cost $ 1 $ 2

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

Supplemental cash flow information related to leases was as follows:

For the Year Ended

February 29, 2020

For the Years Ended

February 28, 2021 February 29, 2020

Cash paid for amounts included in the measurement of lease liabilities:

2 unchanged sentences

During the year ended February 28, 2021, the Company entered into $ 4 million in lease obligations and recognized a corresponding ROU asset of $ 4 million.

During the year ended February 29, 2020, the Company incurred losses of $ 8 million on LLA impairment of ROU assets (cost of $ 18 million, accumulated amortization of $ 10 million, and a net book value of approximately $ 8 million).

During the year ended February 28, 2021, the Company incurred losses of $ 37 million on LLA impairment of ROU assets, as described in Note 3.

The Company also had sublease income of $ 1 million and incurred $ 2 million in short-term lease costs during the year ended February 28, 2021.

During the year ended February 29, 2020, the Company entered into $ 1 million in lease obligations and recognized a corresponding ROU asset of $ 1 million.

During the year ended February 29, 2020, the Company incurred losses of $ 8 million on LLA impairment of ROU assets, as described in Note 3.

The Company also had sublease income of $ 2 million and incurred $ 2 million in short-term lease costs during the year ended February 29, 2020.

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

Supplemental consolidated balance sheet information related to leases was as follows:

February 29, 2020 March 1, 2019 (adoption)

February 28, 2021 February 29, 2020

Operating leases

14 unchanged sentences

Total finance lease liabilities $ — $ 1

February 29, 2020

February 28, 2021 February 29, 2020

Weighted average remaining lease term

Operating leases 5.5 years

Finance leases 1.3 years

Operating leases 4.7 years 5.5 years

Finance leases 0.9 years 1.3 years

Weighted average discount rate

16 unchanged sentences

Total $ 123 $ —

Supplemental Information for Comparative Periods

As of February 28, 2019, prior to the adoption of ASC 842, future minimum annual lease payments related to operating leases were as follows:

Thereafter 47

For the year ended February 28, 2019, the Company incurred rental expense of $ 31 million (February 28, 2018 - $ 32 million).

REVENUE AND SEGMENT DISCLOSURES

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.

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 revenue, classified by major geographic region in which the Company’s customers are located, was as follows:

For the Years Ended

February 29, 2020 (1)

February 28, 2019 (1)

February 28, 2018 (2)

February 28, 2021 February 29, 2020 February 28, 2019

North America (1)

4 unchanged sentences

______________________________

( 1) As reported under ASC 606.

(2) Comparative information has not been restated and continues to be reported under the accounting standards in effect for the year ended February 28, 2018.

( 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.

1 unchanged sentence

For the Years Ended

February 29, 2020 (1)

February 28, 2019 (1)

February 28, 2018 (2)

IoT $ 540 $ 554 $ 551

BlackBerry Cylance 151 5 —

Licensing 328 286 196

Other 21 59 185

February 28, 2021 February 29, 2020 February 28, 2019

Software and Services $ 621 $ 691 $ 559

Licensing and Other 272 349 345

Total $ 893 $ 1,040 $ 904

______________________________

(1) As reported under ASC 606.

(2) Comparative information has not been restated and continues to be reported under the accounting standards in effect for the year ended February 28, 2018.

Revenue, classified by timing of recognition, was as follows:

For the Year Ended

February 29, 2020 February 28, 2019

February 28, 2021 February 29, 2020 February 28, 2019

Products and services transferred over time $ 476 $ 512 $ 488

7 unchanged sentences

Accounts Receivable Deferred Revenue Deferred Commissions

Opening balance as at February 28, 2019, as corrected $ 252 $ 389 $ 23

Opening balance as at February 29, 2020 $ 267 $ 373 $ 28

Increases due to invoicing of new or existing contracts, associated contract acquisition costs, or other 842 574 23

9 unchanged sentences

Revenue recognized for performance obligations satisfied in prior periods

For the fiscal year ended February 29, 2020, $ 1 million in revenue was recognized relating to performance obligations satisfied in a prior period (fiscal year ended February 28, 2019 - $ 11 million, in revenue recognized relating to the legacy handheld devices business).

For the fiscal year ended February 28, 2021, $ 2 million in revenue was recognized relating to performance obligations satisfied in a prior period (fiscal year ended February 29, 2020 - $ 1 million, in revenue recognized relating to performance obligations satisfied in a prior period;

fiscal year ended February 28, 2019 - $ 11 million in revenue recognized relating to the legacy handheld devices business).

Segment Disclosures

4 unchanged sentences

February 28, 2021 February 29, 2020

Property, Plant and Equipment, Intangible Assets, Operating Lease ROU Assets and Goodwill Total Assets Property, Plant and Equipment, Intangible Assets and Goodwill Total Assets

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 $ 289 $ 504 $ 374 $ 657

6 unchanged sentences

Information About Major Customers

There was one customer that comprised 13 % of the Company’s revenue in fiscal 2020 (fiscal 2019 - one customer that comprised more than 10 %;

fiscal 2018 - no customers that comprised more than 10%).

There was one customer that comprised 22 % of the Company’s revenue in fiscal 2021 (fiscal 2020 - one customer that comprised 13 %;

fiscal 2019 - one customer that comprised more than 10%).

CASH FLOW AND ADDITIONAL INFORMATION

6 unchanged sentences

(b) Additional Information

Advertising expense, which includes media, agency and promotional expenses totaling $ 39 million (February 28, 2019 - $ 22 million;

February 28, 2018 - $ 23 million) is included in selling, marketing and administration expenses for the fiscal year ended February 29, 2020.

Selling, marketing and administration expenses for the fiscal year ended February 29, 2020 included nil with respect to foreign exchange gain or losses, net of foreign exchange hedging (February 28, 2019 - gain of $ 2 million;

February 28, 2018 - losses of nil ).

Advertising expense, which includes media, agency and promotional expenses totaling $ 24 million is included in selling, marketing and administration expenses for the fiscal year ended February 28, 2021.

(February 29, 2020 - $ 39 million;

February 28, 2019 - $ 22 million)

Selling, marketing and administration expenses for the fiscal year ended February 28, 2021 included $ 1 million with respect to foreign exchange gain, net of foreign exchange hedging (February 29, 2020 - nil ;

February 28, 2019 - gain of $ 2 million).

Foreign exchange

12 unchanged sentences

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 has also issued the Debentures as described in Note 7 with a fixed 3.75 % interest rate.

The Company has also issued the Debentures as described in Note 7.

The fair value of the Debentures will fluctuate with changes in prevailing interest rates.

Consequently, the Company is exposed to interest rate risk as a result of the Debentures.

The Company does not currently utilize interest rate derivative instruments to hedge its investment portfolio.

The Company does not currently utilize interest rate derivative instruments to hedge its investment portfolio or changes in the market value of the Debentures.

The Company is exposed to market and credit risk on its investment portfolio.

7 unchanged sentences

counterparties on a daily basis, subject to exposure and transfer thresholds.

As at February 29, 2020, the Company had $ 1 million in collateral posted with counterparties (February 28, 2019 - nil collateral posted or held).

As at February 28, 2021, the Company had nil collateral posted or held with counterparties (February 29, 2020 - $ 1 million in collateral posted).

Liquidity risk

2 unchanged sentences

Based on its current financial projections, the Company believes its financial resources, together with expected future operating cash generating and operating expense reduction activities and access to other potential financing arrangements, 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.

Government subsidies

During the first quarter of fiscal 2021, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) for Canadian employers whose businesses were affected by the COVID-19 pandemic, initially running for a thirty-six week period between March and November 2020.

The program was subsequently extended to December 2020 and the Government of Canada has announced plans for an additional extension to June 2021.

The CEWS originally provided a subsidy of up to 75 % of eligible employees’ employment insurable remuneration, subject to certain criteria, which declined to up to 65 % for a period of time before returning to 75 %.

Accordingly, the Company applied for the CEWS to the extent it met the requirements to receive the subsidy and during the year ended February 28, 2021, recorded $ 53 million in government subsidies as a reduction to operating expenses in the consolidated statement of operations.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data