BLACKBERRY Ltd 10-Q

ITEM 1. FINANCIAL STATEMENTS 4 BlackBerry Limited Incorporated under the Laws of Ontario (United States dollars, in millions) (unaudited) Consolidated Balance Sheets As at May 31, 2021 February 28, 2021 Assets Current Cash and cash equivalents (note 3) $ 339 $ 214 Short-term investments (note 3) 364 525 Accounts receivable, net of allowance of $9 and $10, respectively (note 4) 153 182 Other receivables 26 25 Income taxes receivable 10 10 Other current assets (note 4) 61 50 953 1,006 Restricted cash equivalents and restricted short-term investments (note 3) 29 28 Long-term investments (note 3) 37 37 Other long-term assets (note 4) 15 16 Operating lease right-of-use assets, net 59 63 Property, plant and equipment, net (note 4) 46 48 Goodwill (note 4) 850 849 Intangible assets, net (note 4) 732 771 $ 2,721 $ 2,818 Liabilities Current Accounts payable $ 22 $ 20 Accrued liabilities (note 4) 164 178 Income taxes payable (note 5) 8 6 Deferred revenue, current (note 11) 208 225 402 429 Deferred revenue, non-current (note 11) 57 69 Operating lease liabilities 85 90 Other long-term liabilities (note 4) 6 6 Long-term debentures (note 6) 715 720 1,265 1,314 Commitments and contingencies (note 10) Shareholders’ equity Capital stock and additional paid-in capital Preferred shares: authorized unlimited number of non-voting, cumulative, redeemable and retractable — — Common shares: authorized unlimited number of non-voting, redeemable, retractable Class A common shares and unlimited number of voting common shares Issued - 566,247,741 voting common shares (February 28, 2021 - 565,505,328 ) 2,834 2,823 Deficit ( 1,368 ) ( 1,306 ) Accumulated other comprehensive loss (note 9) ( 10 ) ( 13 ) 1,456 1,504 $ 2,721 $ 2,818 See notes to consolidated financial statements. On behalf of the Board: John S. Chen Barbara Stymiest Director Director 5 BlackBerry Limited (United States dollars, in millions) (unaudited) Consolidated Statements of Shareholders’ Equity Three Months Ended May 31, 2021 Capital Stock and Additional Paid-in Capital Deficit Accumulated Other Comprehensive Loss Total Balance as at February 28, 2021 $ 2,823 $ ( 1,306 ) $ ( 13 ) $ 1,504 Net loss — ( 62 ) — ( 62 ) Other comprehensive income — — 3 3 Stock-based compensation (note 7) 7 — — 7 Shares issued: Exercise of stock options (note 7) 1 — — 1 Employee share purchase plan (note 7) 3 — — 3 Balance as at May 31, 2021 $ 2,834 $ ( 1,368 ) $ ( 10 ) $ 1,456 Three Months Ended May 31, 2020 Capital Stock and Additional Paid-in Capital Deficit Accumulated Other Comprehensive Loss Total Balance as at February 29, 2020 $ 2,760 $ ( 198 ) $ ( 33 ) $ 2,529 Net loss — ( 636 ) — ( 636 ) Other comprehensive income — — 7 7 Cumulative impact of adoption of ASC 326 — ( 4 ) — ( 4 ) Stock-based compensation 13 — — 13 Shares issued: Exercise of stock options 1 — — 1 Employee share purchase plan 3 — — 3 Balance as at May 31, 2020 $ 2,777 $ ( 838 ) $ ( 26 ) $ 1,913 See notes to consolidated financial statements. 6 BlackBerry Limited (United States dollars, in millions, except per share data) (unaudited) Consolidated Statements of Operations Three Months Ended May 31, 2021 May 31, 2020 Revenue (note 11) $ 174 $ 206 Cost of sales 60 63 Gross margin 114 143 Operating expenses Research and development 57 57 Selling, marketing and administration 73 90 Amortization 46 46 Impairment of goodwill (note 3) — 594 Debentures fair value adjustment (note 6) ( 4 ) 1 172 788 Operating loss ( 58 ) ( 645 ) Investment loss, net ( 2 ) — Loss before income taxes ( 60 ) ( 645 ) Provision for (recovery of) income taxes (note 5) 2 ( 9 ) Net loss $ ( 62 ) $ ( 636 ) Loss per share (note 8) Basic $ ( 0.11 ) $ ( 1.14 ) Diluted $ ( 0.11 ) $ ( 1.14 ) See notes to consolidated financial statements. 7 BlackBerry Limited (United States dollars, in millions) (unaudited) Consolidated Statements of Comprehensive Loss Three Months Ended May 31, 2021 May 31, 2020 Net loss $ ( 62 ) $ ( 636 ) Other comprehensive income Net change in fair value and amounts reclassified to net loss from derivatives designated as cash flow hedges during the three months ended, net of income taxes of nil (May 31, 2020 - income taxes of nil) (note 9) 1 ( 1 ) Foreign currency translation adjustment 1 1 Net change in fair value from instrument-specific credit risk on the Debentures, net of income taxes of nil (May 31, 2020 - income taxes of $1 million) (note 6) 1 7 Other comprehensive income 3 7 Comprehensive loss $ ( 59 ) $ ( 629 ) See notes to consolidated financial statements. 8 BlackBerry Limited (United States dollars, in millions) (unaudited) Consolidated Statements of Cash Flows Three Months Ended May 31, 2021 May 31, 2020 Cash flows from operating activities Net loss $ ( 62 ) $ ( 636 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization 49 50 Stock-based compensation 7 13 Impairment of goodwill — 594 Debentures fair value adjustment (note 6) ( 4 ) 1 Operating leases ( 3 ) ( 3 ) Other ( 3 ) ( 1 ) Net changes in working capital items Accounts receivable, net of allowance 29 1 Other receivables ( 1 ) ( 6 ) Income taxes receivable — ( 2 ) Other assets ( 6 ) — Accounts payable 2 15 Accrued liabilities ( 14 ) ( 18 ) Income taxes payable 2 ( 7 ) Deferred revenue ( 29 ) ( 32 ) Net cash used in operating activities ( 33 ) ( 31 ) Cash flows from investing activities Acquisition of long-term investments — ( 1 ) Acquisition of property, plant and equipment ( 2 ) ( 1 ) Acquisition of intangible assets ( 6 ) ( 8 ) Acquisition of short-term investments ( 209 ) ( 299 ) Proceeds on sale or maturity of restricted short-term investments 24 — Proceeds on sale or maturity of short-term investments 369 270 Net cash provided by (used in) investing activities 176 ( 39 ) Cash flows from financing activities Issuance of common shares 4 4 Net cash provided by financing activities 4 4 Effect of foreign exchange gain on cash, cash equivalents, restricted cash, and restricted cash equivalents 3 — Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period 150 ( 66 ) Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period 218 426 Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period $ 368 $ 360 See notes to consolidated financial statements. 9 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES Basis of Presentation and Preparation These interim consolidated financial statements have been prepared by management in accordance with United States generally accepted accounting principles (“U.S. GAAP”). They do not include all of the disclosures required by U.S. GAAP for annual financial statements and should be read in conjunction with the audited consolidated financial statements of BlackBerry Limited (the “Company”) for the year ended February 28, 2021 (the “Annual Financial Statements”), which have been prepared in accordance with U.S. GAAP. In the opinion of management, all normal recurring adjustments considered necessary for fair presentation have been included in these interim consolidated financial statements. Operating results for the three months ended May 31, 2021 are not necessarily indicative of the results that may be expected for the full year ending February 28, 2022. The consolidated balance sheet at February 28, 2021 was derived from the audited Annual Financial Statements but does not contain all of the footnote disclosures from the Annual Financial Statements. Certain of the comparative figures have been reclassified to conform to the current period’s presentation. In the first quarter of fiscal 2022, the Chief Operating Decision Maker (“CODM”), who is the Executive Chair and Chief Executive Officer (“CEO”) of the Company, began making decisions and assessing the performance of the Company using three operating segments, whereas the CODM previously made decisions and assessed the performance of the Company as a single operating segment. As a result of the internal reporting reorganization, the Company is now organized and managed as three reportable operating segments: Cyber Security, IoT (collectively, “Software & Services”), and Licensing and Other, as further discussed in Note 11. Risks and Uncertainties The novel coronavirus (“COVID-19”) pandemic has prompted extraordinary actions 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, adversely affected workforces, organizations, consumers and economies, which led to an economic downturn and which may cause market volatility and uncertainty in future periods. In fiscal 2022 and 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, 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 first quarter of fiscal 2022 compared to the first quarter of fiscal 2021, when the COVID-19 pandemic first materially negatively impacted the Company’s operations, and observed a continued recovery in both automotive design activities and production volumes during the first quarter of fiscal 2022, 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 distribution and efficacy of vaccines, particularly against emergent viral variants), the impact of the global chip shortage 10 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) 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. Significant Accounting Policies and Critical Accounting Estimates There have been no material changes to the Company’s accounting policies or critical accounting estimates from those described in the Annual Financial Statements. Accounting Standards Adopted During Fiscal 2022 ASC 740, Income Taxes In December 2019, the Financial Accounting Standards Board (“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 remove 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 was effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The only aspect of ASU 2019-12 that impacts the Company is the removal of the exception related to intra-period tax allocation. Upon adoption of the new standard, the Company determines the tax attributable to continuing operations without regard to the tax effect of other items included in other comprehensive income. The Company adopted this guidance in the first quarter of fiscal 2022 and it did not have a material impact on the Company’s results of operations, financial position or disclosures. 2. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED In August 2020, the FASB issued a new accounting standard on the topic of debt with conversion and other options, ASU 2020-06. The amendment in this update simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock. This update also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions and requires the application of the if-converted method for calculating diluted earnings per share. The update also requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments. The guidance is effective for interim and annual periods beginning after December 15, 2021. The Company will adopt this guidance in the first quarter of fiscal 2023 and does not expect the adoption to have a material impact on its results of operations, financial position and disclosures. 3. FAIR VALUE MEASUREMENTS, CASH, CASH EQUIVALENTS AND INVESTMENTS Fair Value The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use in pricing the asset or liability, such as inherent risk, non-performance risk and credit risk. The Company applies the following fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value into three levels: • Level 1 - Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets. • Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. • Level 3 - Significant unobservable inputs that are supported by little or no market activity. 11 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) The fair value hierarchy also requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Recurring Fair Value Measurements The Company’s cash and cash equivalents, accounts receivable, other receivables, accounts payable and accrued liabilities are measured at an amount that approximates their fair values (Level 2 measurement) due to their short maturities. In determining the fair value of investments held, the Company primarily relies on an independent third-party valuator for the fair valuation of securities. The Company also reviews the inputs used in the valuation process and assesses the pricing of the securities for reasonableness after conducting its own internal collection of quoted prices from brokers. Fair values for all investment categories provided by the independent third-party valuator that are in excess of 0.5 % from the fair values determined by the Company are communicated to the independent third-party valuator for consideration of reasonableness. The independent third-party valuator considers the information provided by the Company before determining whether a change in their original pricing is warranted. The Company’s investments largely consist of debt 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 certain private equity investments without readily determinable fair value, and a limited amount of public equity securities following the initial public offering by the issuer of a previous private equity investment. For a description of how the fair values of the 1.75% Debentures (as defined in Note 6) and 3.75% Debentures (as defined in Note 6) were determined, see the “Convertible debentures” accounting policies in Note 1 to the Annual Financial Statements. The 1.75% Debentures are classified as Level 3 and the 3.75% Debentures were classified as Level 2. 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 first quarter of fiscal 2021, as a result of the deterioration in economic conditions caused by the global COVID-19 pandemic and its impact on the Company’s reporting units, and the decline of the trading value of the Company’s capital stock below the Company’s consolidated carrying value, the Company determined that it was more likely than not that the fair value of at least one of its reporting units was lower than its carrying 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. Based on the results of the goodwill impairment test, it was concluded that the carrying value of one reporting unit exceeded its fair value, necessitating an impairment charge for the amount of excess and reducing the carrying value of goodwill. Consequently, the Company recorded total non-cash goodwill impairment charges of $ 594 million in the BlackBerry Spark reporting unit (the “Goodwill Impairment Charge”). The estimated fair values of the Company’s other reporting units substantially exceeded their carrying values at May 31, 2020. The Company did not identify any goodwill impairment during its annual impairment test in the fourth quarter of fiscal 2021, and all reporting units substantially exceeded their carrying values. For further discussion of the Goodwill Impairment Charge in fiscal 2021, see Note 3 to the Annual Financial Statements. 12 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) Cash, Cash Equivalents and Investments The components of cash, cash equivalents and investments by fair value level as at May 31, 2021 were as follows: Cost Basis Unrealized Losses Fair Value Cash and Cash Equivalents Short-term Investments Long-term Investments Restricted Cash Equivalents Bank balances $ 90 $ — $ 90 $ 90 $ — $ — $ — Other investments 37 — 37 — — 37 — 127 — 127 90 — 37 — Level 1: Equity securities 10 ( 8 ) 2 — 2 — — Level 2: Term deposits, certificates of deposits, and GIC's 147 — 147 60 58 — 29 Bankers’ acceptances/bearer deposit notes 45 — 45 45 — — — Commercial paper 198 — 198 58 140 — — Non-U.S. promissory notes 92 — 92 50 42 — — Non-U.S. government sponsored enterprise notes 139 — 139 20 119 — — Non-U.S. treasury bills/notes 16 — 16 16 — — — Corporate notes/bonds 3 — 3 — 3 — — 640 — 640 249 362 — 29 $ 777 $ ( 8 ) $ 769 $ 339 $ 364 $ 37 $ 29 13 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) The components of cash, cash equivalents and investments by fair value level as at February 28, 2021 were as follows: Cost Basis Unrealized Losses Fair Value Cash and Cash Equivalents Short-term Investments Long-term Investments Restricted Cash Equivalents Restricted Short-term Investments Bank balances $ 165 $ — $ 165 $ 165 $ — $ — $ — $ — Other investments 37 — 37 — — 37 — — 202 — 202 165 — 37 — — Level 1: Equity securities 10 ( 7 ) 3 — 3 — — — Level 2: Term deposits, certificates of deposits, and GICs 138 — 138 7 103 — 4 24 Bearer deposit notes 40 — 40 — 40 — — — Commercial paper 162 — 162 15 147 — — — Non-U.S. promissory notes 55 — 55 26 29 — — — Non-U.S. government sponsored enterprise notes 154 — 154 1 153 — — — Non-U.S. treasury bills/notes 25 — 25 — 25 — — — Corporate notes/bonds 25 — 25 — 25 — — — 599 — 599 49 522 — 4 24 $ 811 $ ( 7 ) $ 804 $ 214 $ 525 $ 37 $ 4 $ 24 As at May 31, 2021, the Company had private equity investments without readily determinable fair value of $ 37 million (February 28, 2021 - $ 37 million). There were no realized gains or losses on available-for-sale securities for the three months ended May 31, 2021 (realized losses of nil for the three months ended May 31, 2020). The Company has restricted cash and cash equivalents, consisting of cash and securities pledged as collateral to major banking partners in support of the Company’s requirements for letters of credit. These letters of credit support certain leasing arrangements entered into in the ordinary course of business. The letters of credit are for terms ranging from one month to four years. The Company is legally restricted from accessing these funds during the term of the leases for which the letters of credit have been issued; however, the Company can continue to invest the funds and receive investment income thereon. The following table provides a reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents as at May 31, 2021 and February 28, 2021 from the consolidated balance sheets to the consolidated statements of cash flows: As at May 31, 2021 February 28, 2021 Cash and cash equivalents $ 339 $ 214 Restricted cash and cash equivalents 29 4 Total cash, cash equivalents, restricted cash, and restricted cash equivalents presented in the consolidated statements of cash flows $ 368 $ 218 14 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) The contractual maturities of available-for-sale investments as at May 31, 2021 and February 28, 2021 were as follows: As at May 31, 2021 February 28, 2021 Cost Basis Fair Value Cost Basis Fair Value Due in one year or less $ 640 $ 640 $ 599 $ 599 No fixed maturity 10 2 10 3 $ 650 $ 642 $ 609 $ 602 As at May 31, 2021, the Company had investments with continuous unrealized losses totaling $ 8 million, consisting of unrealized losses on equity securities (February 28, 2021 - continuous unrealized losses totaling $ 7 million). 4. CONSOLIDATED BALANCE SHEET DETAILS Accounts Receivable, Net of Allowance The allowance for credit losses as at May 31, 2021 was $ 9 million (February 28, 2021 - $ 10 million). The Company recognizes current estimated credit losses for accounts receivable, net of allowance. The cumulative expected credit losses (“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: As at May 31, 2021 Beginning balance as of February 29, 2020 $ 9 Impact of adopting ASC 326 4 Prior period recovery for expected credit losses ( 3 ) Ending balance of the allowance for credit loss as at February 28, 2021 10 Current period recovery for expected credit losses ( 1 ) Ending balance of the allowance for credit loss as at May 31, 2021 $ 9 The allowance for credit losses as at May 31, 2021 consists of $ 2 million (February 28, 2021 - $ 3 million) relating to CECL estimated based on days past due and region and $ 7 million (February 28, 2021 - $ 7 million) relating to specific customers that were evaluated separately. There was one customer that comprised more than 10% of accounts receivable as at May 31, 2021 (February 28, 2021 - one customer comprised more than 10%). Other Current Assets As at May 31, 2021 and February 28, 2021, other current assets included items such as the current portion of deferred commissions and prepaid expenses, among other items, none of which were greater than 5 % of the current assets balance in all periods presented. 15 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) Property, Plant and Equipment, Net Property, plant and equipment comprised the following: As at May 31, 2021 February 28, 2021 Cost Buildings, leasehold improvements and other $ 57 $ 67 BlackBerry operations and other information technology 112 110 Manufacturing, repair and research and development equipment 72 72 Furniture and fixtures 10 10 251 259 Accumulated amortization 205 211 Net book value $ 46 $ 48 Intangible Assets, Net Intangible assets comprised the following: As at May 31, 2021 Cost Accumulated Amortization Net Book Value Acquired technology $ 1,023 $ 730 $ 293 Intellectual property 502 310 192 Other acquired intangibles 494 247 247 $ 2,019 $ 1,287 $ 732 As at February 28, 2021 Cost Accumulated Amortization Net Book Value Acquired technology $ 1,023 $ 712 $ 311 Intellectual property 498 299 199 Other acquired intangibles 494 233 261 $ 2,015 $ 1,244 $ 771 For the three months ended May 31, 2021, amortization expense related to intangible assets amounted to $ 45 million (three months ended May 31, 2020 - $ 45 million) Total additions to intangible assets for three months ended May 31, 2021 amounted to $ 6 million (three months ended May 31, 2020 - $ 8 million). During the three months ended May 31, 2021, additions to intangible assets primarily consisted of payments for intellectual property relating to patent maintenance, registration and license fees. Based on the carrying value of the identified intangible assets as at May 31, 2021, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for the remainder of fiscal 2022 and each of the five succeeding years is expected to be as follows: fiscal 2022 - $ 114 million; fiscal 2023 - $ 118 million; fiscal 2024 - $ 109 million; fiscal 2025 - $ 102 million; fiscal 2026 - $ 96 million and fiscal 2027 - $ 88 million. 16 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) Goodwill Changes to the carrying amount of goodwill during the three months ended May 31, 2021 were as follows: Carrying Amount Carrying amount as at February 29, 2020 $ 1,437 Goodwill impairment charge (see note 3) ( 594 ) Effect of foreign exchange on non-U.S. dollar denominated goodwill 6 Carrying amount as at February 28, 2021 849 Effect of foreign exchange on non-U.S. dollar denominated goodwill 1 Carrying amount as at May 31, 2021 $ 850 Other Long-term Assets As at May 31, 2021 and February 28, 2021, other long-term assets included long-term portion of deferred commission and long-term receivables, among other items, none of which were greater than 5 % of total assets in any of the periods presented. Accrued Liabilities Accrued liabilities comprised the following: As at May 31, 2021 February 28, 2021 Accrued royalties $ 20 $ 20 Operating lease liabilities, current 31 33 Other 113 125 $ 164 $ 178 Other accrued liabilities include accrued vendor liabilities, accrued carrier liabilities, variable incentive accrual and payroll withholding taxes, among other items, none of which were greater than 5 % of the current liabilities balance. Other Long-term Liabilities Other long-term liabilities consist of the long-term portion of finance lease liabilities and non-lease component liabilities related to the Company’s previous Resource Allocation Program entered into in order to transition the Company from a legacy hardware manufacturer to a licensing driven software business. 5. INCOME TAXES For the three months ended May 31, 2021, the Company’s net effective income tax expense rate was approximately 3 % compared to a net effective income tax recovery rate of 1 % for the three months ended May 31, 2020. The Company’s income tax rate reflects the change in unrecognized income tax benefit, if any, and the fact that the Company has a significant valuation allowance against its deferred income tax assets, and in particular, the change in fair value of the Debentures (as defined in Note 6), amongst other items, is offset by a corresponding adjustment of the valuation allowance. The Company’s net effective income tax rate also reflects the geographic mix of earnings in jurisdictions with different income tax rates. The Company’s total unrecognized income tax benefits as at May 31, 2021 were $ 24 million (February 28, 2021 - $ 24 million). As at May 31, 2021, $ 22 million of the unrecognized income tax benefits have been netted against deferred income tax assets and $ 2 million has been recorded within income taxes payable on the Company’s consolidated balance sheets. The Company is subject to ongoing examination by tax authorities in certain jurisdictions in which it operates. The Company regularly assesses the status of these examinations and the potential for adverse outcomes to determine the adequacy of the provision for income taxes as well as the provisions for indirect and other taxes and related penalties and interest. While the final resolution of audits is uncertain, the Company believes the ultimate resolution of these audits will not have a material adverse effect on its consolidated financial position, liquidity or results of operations. 17 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) 6. DEBENTURES 1.75% Convertible Debentures On September 1, 2020, Hamblin Watsa Investment Counsel Ltd., in its capacity as investment manager of Fairfax Financial Holdings Limited ("Fairfax") and another institutional investor invested in the Company through a $ 365 million private placement of new debentures (the “1.75% Debentures”), which replaced $ 605 million of debentures issued in a private placement on September 7, 2016 (the “3.75% Debentures”) as described below (collectively, the “Debentures”). 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. 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 accumulated other comprehensive loss (“AOCL”). The fair value of the Debentures has been determined using the significant Level 2 inputs 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 originally 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 6.50 % as of May 31, 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 change in fair value of the 1.75% Debentures for the three months ended May 31, 2021, which also represents the total changes through earnings of items classified as Level 3 in the fair value hierarchy: As at May 31, 2021 Balance as at February 28, 2021 $ 720 Change in fair value of the Debentures ( 5 ) Balance as at May 31, 2021 $ 715 The difference between the fair value of the 1.75% Debentures and the unpaid principal balance of $ 365 million is $ 350 million. The following table shows the impact of the changes in fair value of the 1.75% Debentures for the three months ended May 31, 2021 and May 31, 2020: Three Months Ended May 31, 2021 May 31, 2020 Income associated with the change in fair value from non-credit components recorded in the consolidated statements of operations $ 4 $ — Income associated with the change in fair value from instrument-specific credit components recorded in AOCL 1 — Total decrease in the fair value of the 1.75% Debentures $ 5 $ — For the three months ended May 31, 2021, the Company recorded interest expense related to the Debentures of $ 2 million, which has been included in investment loss, net on the Company’s consolidated statements of operations (three months ended May 31, 2020 - $ 6 million). 18 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) Fairfax, a related party under U.S. GAAP due to its beneficial ownership of common shares in the Company after taking into account potential conversion of the 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. 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 to the consolidated statements of operations of the redemption on the fair value was recorded in the second quarter of fiscal 2021. The following table shows the impact of the changes in fair value of the 3.75% Debentures for the three months ended May 31, 2021 and May 31, 2020: Three Months Ended May 31, 2021 May 31, 2020 Charge associated with the change in fair value from non-credit components recorded in the consolidated statements of operations $ — $ ( 1 ) Income associated with the change in fair value from instrument-specific credit components recorded in AOCL — 8 Total decrease in the fair value of the 3.75% Debentures $ — $ 7 7. CAPITAL STOCK The following details the changes in issued and outstanding common shares for the three months ended May 31, 2021: Capital Stock and Additional Paid-in Capital Stock Outstanding (000s) Amount Common shares outstanding as at February 28, 2021 565,505 $ 2,823 Exercise of stock options 132 1 Common shares issued for restricted share unit settlements 232 — Stock-based compensation — 7 Common shares issued for employee share purchase plan 379 3 Common shares outstanding as at May 31, 2021 566,248 $ 2,834 The Company had 566 million voting common shares outstanding, 1 million options to purchase voting common shares, 20 million RSUs and 1 million DSUs outstanding as at June 22, 2021. In addition, 60.8 million common shares are issuable upon conversion in full of the 1.75% Debentures as described in Note 6. 19 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) 8. LOSS PER SHARE The following table sets forth the computation of basic and diluted loss per share: Three Months Ended May 31, 2021 May 31, 2020 Net loss for basic and diluted loss per share available to common shareholders (1) $ ( 62 ) $ ( 636 ) Weighted average number of shares outstanding (000’s) - basic and diluted (1) (2) (3) 567,358 557,839 Loss per share - reported Basic $ ( 0.11 ) $ ( 1.14 ) Diluted $ ( 0.11 ) $ ( 1.14 ) ______________________________ (1) The Company has not presented the dilutive effect of the Debentures using the if-converted method in the calculation of diluted loss per share for the three months ended May 31, 2021 and May 31, 2020, as to do so would be antidilutive. See Note 6 for details on the Debentures. (2) The three months ended May 31, 2021, includes approximately 1,421,945 common shares (Exchange Shares) remaining to be issued on the third anniversary date of the Cylance acquisition completed on February 21, 2019, in consideration for the acquisition. The three months ended May 31, 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. (3) The Company has not presented the dilutive effect of in-the-money options and RSUs that will be settled upon vesting by the issuance of new common shares in the calculation of diluted loss per share for the three months ended May 31, 2021, and three months ended May 31, 2020, as to do so would be antidilutive. 9. ACCUMULATED OTHER COMPREHENSIVE LOSS The changes in AOCL by component net of tax, for the three months ended May 31, 2021 and May 31, 2020 were as follows: As At May 31, 2021 May 31, 2020 Cash Flow Hedges Balance, beginning of period $ 1 $ ( 1 ) Other comprehensive income before reclassification 2 ( 2 ) Amounts reclassified from AOCL into net loss ( 1 ) 1 Accumulated net unrealized gains (losses) on derivative instruments designated as cash flow hedges $ 2 $ ( 2 ) Foreign Currency Cumulative Translation Adjustment Balance, beginning of period $ ( 4 ) $ ( 9 ) Other comprehensive income before reclassification 1 1 Foreign currency cumulative translation adjustment $ ( 3 ) $ ( 8 ) Change in Fair Value From Instrument-Specific Credit Risk On Debentures Balance, beginning of period $ ( 9 ) $ ( 22 ) Other comprehensive income before reclassification 1 7 Change in fair value from instruments-specific credit risk on Debentures $ ( 8 ) $ ( 15 ) Other Post-Employment Benefit Obligations Actuarial losses associated with other post-employment benefit obligations $ ( 1 ) $ ( 1 ) Accumulated Other Comprehensive Loss, End of Period $ ( 10 ) $ ( 26 ) 20 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) 10. COMMITMENTS AND CONTINGENCIES (a) Letters of Credit The Company had $ 29 million in collateralized outstanding letters of credit in support of certain leasing arrangements entered into in the ordinary course of business as of May 31, 2021. See the discussion of restricted cash in Note 3. (b) Contingencies Litigation The Company is involved in litigation in the normal course of its business, both as a defendant and as a plaintiff. The Company is subject to a variety of claims (including claims related to patent infringement, purported class actions and other claims in the normal course of business) and may be subject to additional claims either directly or through indemnities against claims that it provides to certain of its partners and customers. In particular, the industry in which the Company competes has many participants that own, or claim to own, intellectual property, including participants that have been issued patents and may have filed patent applications or may obtain additional patents and proprietary rights for technologies similar to those used by the Company in its products. The Company has received, and may receive in the future, assertions and claims from third parties that the Company’s products infringe on their patents or other intellectual property rights. Litigation has been, and will likely continue to be, necessary to determine the scope, enforceability and validity of third-party proprietary rights or to establish the Company’s proprietary rights. Regardless of whether claims against the Company have merit, those claims could be time-consuming to evaluate and defend, result in costly litigation, divert management’s attention and resources and subject the Company to significant liabilities. Management reviews all of the relevant facts for each claim and applies judgment in evaluating the likelihood and, if applicable, the amount of any potential loss. Where a potential loss is considered probable and the amount is reasonably estimable, provisions for loss are made based on management’s assessment of the likely outcome. Where a range of loss can be reasonably estimated with no best estimate in the range, the Company records the minimum amount in the range. The Company does not provide for claims for which the outcome is not determinable or claims for which the amount of the loss cannot be reasonably estimated. Any settlements or awards under such claims are provided for when reasonably determinable. As of May 31, 2021, there are no material claims outstanding for which the Company has assessed the potential loss as both probable to result and reasonably estimable; therefore, no accrual has been made. Further, there are claims outstanding for which the Company has assessed the potential loss as reasonably possible to result; however, an estimate of the amount of loss cannot reasonably be made. There are many reasons that the Company cannot make these assessments, including, among others, one or more of the following: the early stages of a proceeding does not require the claimant to specifically identify the patent claims that have allegedly been infringed or the products that are alleged to infringe; damages sought are unspecified, unsupportable, unexplained or uncertain; discovery has not been started or is incomplete; the facts that are in dispute are highly complex (e.g., once a patent is identified, the analysis of the patent and a comparison to the activities of the Company is a labour-intensive and highly technical process); the difficulty of assessing novel claims; the parties have not engaged in any meaningful settlement discussions; the possibility that other parties may share in any ultimate liability; and the often slow pace of litigation. The Company has included the following summaries of certain of its legal proceedings though they do not meet the test for accrual described above. Between October and December 2013, several purported class action lawsuits and one individual lawsuit were filed against the Company and certain of its former officers in various jurisdictions in the U.S. and Canada alleging that the Company and certain of its officers made materially false and misleading statements regarding the Company’s financial condition and business prospects and that certain of the Company’s financial statements contain material misstatements. The individual lawsuit was voluntarily dismissed. On March 14, 2014, the four putative U.S. class actions were consolidated in the U.S. District Court for the Southern District of New York, and on May 27, 2014, a consolidated amended class action complaint was filed. On March 13, 2015, the Court issued an order granting the Company’s motion to dismiss. The Court denied the plaintiffs’ motion for reconsideration and for leave to file an amended complaint on November 13, 2015. On August 24, 2016, the U.S. Court of Appeals for the Second Circuit affirmed the District Court order dismissing the complaint, but vacated the order denying leave to amend and remanded to the District Court for further proceedings in connection with the plaintiffs’ request for leave to amend. The Court granted the plaintiffs’ motion for leave to amend on September 13, 2017. On September 29, 21 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) 2017, the plaintiffs filed a second consolidated amended class action complaint (the “Second Amended Complaint”), which added the Company’s former Chief Legal Officer as a defendant. The Court denied the motion to dismiss the Second Amended Complaint on March 19, 2018. 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. 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 Second Circuit Court of Appeals denied the Rule 23(f) petition on June 23, 2021. The Second Circuit Court of Appeals affirmed the District Court judgment dismissing Cho and Ulug’s claims on March 11, 2021, and denied Cho and Ulug’s petition for panel rehearing and rehearing en banc on April 28, 2021.On April 19, 2021, Defendants filed a motion for summary judgment, and both parties filed Daubert motions to exclude the testimony of the oppositions’ marketing and accounting experts. Both sides filed oppositions to these motions on June 21, 2021; reply briefs are due July 19, 2021. On May 5, 2021, the parties participated in a mediation with the Hon. Layn Phillips (ret.), which did not result in an agreement. On May 11, 2021, the Magistrate Judge granted the parties’ joint request to adjourn the settlement conference previously scheduled for May 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. On November 16, 2015, the Ontario Superior Court of Justice issued an order granting the plaintiffs’ motion for leave to file a statutory claim for misrepresentation. On December 2, 2015, the Company filed a notice of motion seeking leave to appeal this ruling. On January 22, 2016, the Court postponed the hearing on the plaintiffs’ certification motion to an undetermined date after asking the Company to file a motion to dismiss the claims of the U.S. plaintiffs for forum non conveniens. Before that motion was heard, the parties agreed to limit the class to purchasers who reside in Canada or purchased on the Toronto Stock Exchange. On November 15, 2018, the Court denied the Company’s motion for leave to appeal the order granting the plaintiffs leave to file a statutory claim for misrepresentation. On February 5, 2019, the Court entered an order certifying a class comprised persons (a) who purchased BlackBerry common shares between March 28, 2013, and September 20, 2013, and still held at least some of those shares as of September 20, 2013, and (b) who acquired those shares on a Canadian stock exchange or acquired those shares on any other stock exchange and were a resident of Canada when the shares were acquired. Notice of class certification was published on March 6, 2019. The Company filed its Statement of Defence on April 1, 2019, and discovery is proceeding. On February 15, 2017, a putative employment class action was filed against the Company in the Ontario Superior Court of Justice. The Statement of Claim alleges that actions the Company took when certain of its employees decided to accept offers of employment from Ford Motor Company of Canada amounted to a wrongful termination of the employees’ employment with the Company. The claim seeks (i) an unspecified quantum of statutory, contractual, or common law termination entitlements; (ii) punitive or breach of duty of good faith damages of CAD$20,000,000, or such other amount as the Court finds appropriate, (iii) pre- and post- judgment interest, (iv) attorneys’ fees and costs, and (v) such other relief as the Court deems just. The Court granted the plaintiffs’ motion to certify the class action on May 27, 2019. The Company commenced a motion for leave to appeal the certification order on June 11, 2019. The Court denied the motion for leave to appeal on September 17, 2019. The Company filed its Statement of Defence on December 19, 2019, and discovery is proceeding. Other contingencies In the first quarter of fiscal 2019, the Board approved a compensation package for the Company’s Executive Chair and CEO as an incentive to remain as Executive Chair until November 23, 2023. As part of the package, 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 May 31, 2021, the liability recorded in association with this award is approximately $ 8 million (February 28, 2021 - $ 8 million). As at May 31, 2021, the Company has received $ 16 million (February 28, 2021 - $ 15 million) in funds from claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund 22 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) program’s investment in BlackBerry QNX. A portion of this amount may be repayable in the future under certain circumstances if certain terms and conditions are not met by the Company, which is not probable at this time. (c) 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 has also entered into various agreements for the supply of components, and the manufacturing of its products; however, there can be no guarantee that the Company will be able to extend or renew these agreements on similar terms, or at all. Therefore, the Company remains subject to risks of supply shortages. (d) Indemnifications The Company enters into certain agreements that contain indemnification provisions under which the Company could be subject to costs and damages, including in the event of an infringement claim against the Company or an indemnified third party. Such intellectual property infringement indemnification clauses are generally not subject to any dollar limits and remain in effect for the term of the Company’s agreements. To date, the Company has not encountered material costs as a result of such indemnifications. The Company has entered into indemnification agreements with its current and former directors and executive officers. Under these agreements, the Company agreed, subject to applicable law, to indemnify its current and former directors and executive officers against all costs, charges and expenses reasonably incurred by such individuals in respect of any civil, criminal or administrative action that could arise by reason of their status as directors or officers. The Company maintains liability insurance coverage for the benefit of the Company, and its current and former directors and executive officers. The Company has not encountered material costs as a result of such indemnifications in the current period. 11. REVENUE AND SEGMENT DISCLOSURES The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by the CODM for making decisions and assessing performance as a source of the Company’s reportable operating segments. In the first quarter of fiscal 2022, the CODM, who is the Executive Chair and CEO of the Company, began making decisions and assessing the performance of the Company using three operating segments, whereas the CODM previously made decisions and assessed the performance of the Company as a single operating segment. The CODM does not evaluate operating segments using discrete asset information. The Company does not specifically allocate assets to operating segments for internal reporting purposes. Segment Disclosures The Company is now organized and managed as three operating segments: Cyber Security, IoT, and Licensing and Other. Prior year information has been restated to conform to the current year presentation of the Company’s segment information. The following table shows information by operating segment for the three months ended May 31, 2021 and May 31, 2020: 23 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) For the Three Months Ended Cyber Security IoT Licensing and Other Segment Totals May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020 Segment revenue $ 107 $ 119 $ 43 $ 29 $ 24 $ 58 $ 174 $ 206 Segment cost of sales 46 47 7 6 6 8 59 61 Segment gross margin (1) $ 61 $ 72 $ 36 $ 23 $ 18 $ 50 $ 115 $ 145 ______________________________ (1) A reconciliation of total segment gross margin to consolidated totals is set forth below. Cyber Security includes revenue from the Company’s BlackBerry Spark® software platform, BlackBerry® AtHoc, BlackBerry® Alert and SecuSUITE. 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 (“UEM”) 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. In addition, the Company offers the BlackBerry Cyber Suite, a UEM-agnostic version of its BlackBerry Spark UES Suite. The BlackBerry Spark UEM Suite includes the Company’s BlackBerry® UEM, BlackBerry® Dynamics™, and BlackBerry® Workspaces solutions. Cyber Security revenue is generated predominantly through software licenses, commonly bundled with support, maintenance and professional services. IoT includes revenue from BlackBerry QNX®, BlackBerry Certicom®, BlackBerry Radar®, BlackBerry IVY™ and other IoT applications. IoT revenue is generated predominantly through software licenses, commonly bundled with support, maintenance and professional services. Licensing and Other includes revenue from the Company’s intellectual property arrangements and settlement awards. Other includes revenue associated with the Company’s legacy service access fees (“SAF”) business. The following table reconciles total segment gross margin for the three months ended May 31, 2021 and May 31, 2020 to the Company’s consolidated totals: Three Months Ended May 31, 2021 May 31, 2020 Total segment gross margin $ 115 $ 145 Adjustments (1) : Less: Cost of sales 1 2 Less: Research & development 57 57 Selling, marketing and administration 73 90 Amortization 46 46 Impairment of goodwill — 594 Debenture fair value adjustment ( 4 ) 1 Investment loss, net 2 — Consolidated loss before income taxes $ ( 60 ) $ ( 645 ) ______________________________ (1) The CODM reviews segment information on an adjusted basis, which excludes certain amounts as described below: Stock compensation expenses - Equity compensation is a non-cash expense and does not impact the ongoing operating decisions taken by the Company’s management. 24 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) Revenue The Company disaggregates revenue from contracts with customers based on geographical regions, timing of revenue recognition, and the major product and service types, as discussed above in “Segment Disclosures”. The Company’s revenue, classified by major geographic region in which the Company’s customers are located, was as follows: Three Months Ended May 31, 2021 May 31, 2020 North America (1) $ 111 $ 150 Europe, Middle East and Africa 45 41 Other regions 18 15 Total $ 174 $ 206 North America (1) 63.8 % 72.8 % Europe, Middle East and Africa 25.9 % 19.9 % Other regions 10.3 % 7.3 % Total 100.0 % 100.0 % ______________________________ (1) North America includes all revenue from the Company’s intellectual property arrangements, due to the global applicability of the patent portfolio and licensing arrangements thereof. Revenue, classified by timing of recognition, was as follows: Three Months Ended May 31, 2021 May 31, 2020 Products and services transferred over time $ 107 $ 116 Products and services transferred at a point in time 67 90 Total $ 174 $ 206 Revenue contract balances The following table sets forth the activity in the Company’s revenue contract balances for the three months ended May 31, 2021: Accounts Receivable Deferred Revenue Deferred Commissions Opening balance as at February 28, 2021 $ 188 $ 294 $ 21 Increases due to invoicing of new or existing contracts, associated contract acquisition costs, or other 153 118 5 Decrease due to payment, fulfillment of performance obligations, or other ( 181 ) ( 147 ) ( 6 ) Decrease, net ( 28 ) ( 29 ) ( 1 ) Closing balance as at May 31, 2021 $ 160 $ 265 $ 20 25 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) Transaction price allocated to the remaining performance obligations The table below discloses the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as at May 31, 2021 and the time frame in which the Company expects to recognize this revenue. The disclosure includes estimates of variable consideration, except when the variable consideration is a sales-based or usage-based royalty promised in exchange for a license of intellectual property. As at May 31, 2021 Less than 12 Months 12 to 24 Months Thereafter Total Remaining performance obligations $ 217 $ 54 $ 19 $ 290 Revenue recognized for performance obligations satisfied in prior periods For the three months ended May 31, 2021, no revenue was recognized for performance obligations satisfied in a prior period (three months ended May 31, 2020 - nil ). Property, plant and equipment, intangible assets, operating lease ROU assets and goodwill, classified by geographic region in which the Company’s assets are located, were as follows: As at May 31, 2021 February 28, 2021 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 $ 270 $ 493 $ 289 $ 504 United States 1,387 1,903 1,411 1,963 Other 30 325 31 351 $ 1,687 $ 2,721 $ 1,731 $ 2,818 Information About Major Customers There was no customer that comprised more than 10% of the Company’s revenue in the three months ended May 31, 2021 (three months ended May 31, 2020 - one customer that comprised 26 % of the Company’s revenue). 12. CASH FLOW AND ADDITIONAL INFORMATION (a) Certain consolidated statements of cash flow information related to interest and income taxes paid is summarized as follows: Three Months Ended May 31, 2021 May 31, 2020 Interest paid during the period $ 2 $ 6 Income taxes paid during the period 1 — Income tax refunds received during the period 2 1 (b) Additional Information Foreign exchange The Company is exposed to foreign exchange risk as a result of transactions in currencies other than its functional currency, the U.S. dollar. The majority of the Company’s revenue in the first quarter of fiscal 2022 was transacted in U.S. dollars. Portions of the revenue were denominated in Canadian dollars, euros and British pounds. Other expenses, consisting mainly of salaries and certain other operating costs, were incurred primarily in Canadian dollars, but were also incurred in U.S. dollars, euros and British pounds. At May 31, 2021, approximately 12 % of cash and cash equivalents, 20 % of accounts receivable and 52 % of accounts payable were denominated in foreign currencies (February 28, 2021 – 20 %, 25 % and 34 %, respectively). These foreign currencies primarily include the Canadian dollar, euro and British 26 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) pound. As part of its risk management strategy, the Company maintains net monetary asset and/or liability balances in foreign currencies and engages in foreign currency hedging activities using derivative financial instruments, including currency forward contracts and currency options. The Company does not use derivative instruments for speculative purposes. Interest rate risk Cash and cash equivalents and investments are invested in certain instruments of varying maturities. Consequently, the Company is exposed to interest rate risk as a result of holding investments of varying maturities. 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 Debentures with a fixed interest rate, as described in Note 6. 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 or changes in the market value of the Debentures. Credit risk The Company is exposed to market and credit risk on its investment portfolio. The Company reduces this risk by investing in liquid, investment-grade securities and by limiting exposure to any one entity or group of related entities. As at May 31, 2021, no single issuer represented more than 13 % of the total cash, cash equivalents and investments (February 28, 2021 - no single issuer represented more than 13 % of the total cash, cash equivalents and investments), representing cash balances at one of the Company’s banking counterparties. Liquidity risk Cash, cash equivalents, and investments were approximately $ 769 million as at May 31, 2021. The Company’s management remains focused on efficiently managing working capital balances and managing the liquidity needs of the business. Based on its current financial projections, the Company believes its financial resources, together with expected future operating cash generating and operating expense reduction activities 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 June 2021 and the Government of Canada has proposed plans for an additional extension to September 2021. The CEWS provides a subsidy of up to 75 % of eligible employees’ employment insurable remuneration, subject to certain criteria. The proposed extension would also include a gradual decrease to the subsidy rate. The Company applied for the CEWS to the extent it met the requirements to receive the subsidy and during the three months ended May 31, 2021, recorded $ 15 million in government subsidies as a reduction to operating expenses in the consolidated statement of operations (May 31, 2020 - $ 9 million) . 27