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 November 30, 2022 February 28, 2022 Assets Current Cash and cash equivalents (note 2) $ 255 $ 378 Short-term investments (note 2) 194 334 Accounts receivable, net of allowance of $ 5 and $ 4 , respectively (note 3) 131 138 Other receivables (note 3) 9 25 Income taxes receivable 5 9 Other current assets (note 3) 175 159 769 1,043 Restricted cash and cash equivalents (note 2) 27 28 Long-term investments (note 2) 29 30 Other long-term assets (note 3) 8 9 Operating lease right-of-use assets, net 46 50 Property, plant and equipment, net (note 3) 26 41 Goodwill (note 3) 839 844 Intangible assets, net (note 3) 450 522 $ 2,194 $ 2,567 Liabilities Current Accounts payable $ 21 $ 22 Accrued liabilities (note 3) 154 157 Income taxes payable (note 4) 21 11 Debentures (note 5) 392 — Deferred revenue, current (note 10) 179 207 767 397 Deferred revenue, non-current (note 10) 30 37 Operating lease liabilities 57 66 Other long-term liabilities 1 4 Long-term debentures (note 5) — 507 855 1,011 Commitments and contingencies (note 9) 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 - 580,346,426 voting common shares (February 28, 2022 - 576,227,898 ) 2,898 2,869 Deficit ( 1,533 ) ( 1,294 ) Accumulated other comprehensive loss (note 8) ( 26 ) ( 19 ) 1,339 1,556 $ 2,194 $ 2,567 See notes to consolidated financial statements. On behalf of the Board: John S. Chen Lisa Disbrow Director Director 5 BlackBerry Limited (United States dollars, in millions) (unaudited) Consolidated Statements of Shareholders’ Equity Three Months Ended November 30, 2022 Capital Stock and Additional Paid-in Capital Deficit Accumulated Other Comprehensive Loss Total Balance as at August 31, 2022 $ 2,887 $ ( 1,529 ) $ ( 28 ) $ 1,330 Net loss — ( 4 ) — ( 4 ) Other comprehensive income — — 2 2 Stock-based compensation 9 — — 9 Shares issued: Employee share purchase plan 2 — — 2 Balance as at November 30, 2022 $ 2,898 $ ( 1,533 ) $ ( 26 ) $ 1,339 Three Months Ended November 30, 2021 Capital Stock and Additional Paid-in Capital Deficit Accumulated Other Comprehensive Loss Total Balance as at August 31, 2021 $ 2,845 $ ( 1,512 ) $ ( 15 ) $ 1,318 Net income — 74 — 74 Other comprehensive loss — — ( 5 ) ( 5 ) Stock-based compensation 8 — — 8 Shares issued: Employee share purchase plan 4 — — 4 Balance as at November 30, 2021 $ 2,857 $ ( 1,438 ) $ ( 20 ) $ 1,399 See notes to consolidated financial statements. 6 BlackBerry Limited (United States dollars, in millions) (unaudited) Consolidated Statements of Shareholders’ Equity Nine Months Ended November 30, 2022 Capital Stock and Additional Paid-in Capital Deficit Accumulated Other Comprehensive Loss Total Balance as at February 28, 2022 $ 2,869 $ ( 1,294 ) $ ( 19 ) $ 1,556 Net loss — ( 239 ) — ( 239 ) Other comprehensive loss — — ( 7 ) ( 7 ) Stock-based compensation (note 6) 23 — — 23 Shares issued: Employee share purchase plan (note 6) 6 — — 6 Balance as at November 30, 2022 $ 2,898 $ ( 1,533 ) $ ( 26 ) $ 1,339 Nine Months Ended November 30, 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 — ( 132 ) — ( 132 ) Other comprehensive loss — — ( 7 ) ( 7 ) Stock-based compensation 25 — — 25 Shares issued: Exercise of stock options 2 — — 2 Employee share purchase plan 7 — — 7 Balance as at November 30, 2021 $ 2,857 $ ( 1,438 ) $ ( 20 ) $ 1,399 See notes to consolidated financial statements. 7 BlackBerry Limited (United States dollars, in millions, except per share data) (unaudited) Consolidated Statements of Operations Three Months Ended Nine Months Ended November 30, 2022 November 30, 2021 November 30, 2022 November 30, 2021 Revenue (note 10) $ 169 $ 184 $ 505 $ 533 Cost of sales 60 67 186 190 Gross margin 109 117 319 343 Operating expenses Research and development 52 57 159 172 Selling, marketing and administration 89 77 257 233 Amortization 26 42 78 133 Impairment of long-lived assets (note 2) — — 4 — Gain on sale of property, plant and equipment, net (note 3) — — ( 6 ) — Debentures fair value adjustment (note 5) ( 56 ) ( 110 ) ( 112 ) ( 47 ) Litigation settlement (note 9) — — 165 — 111 66 545 491 Operating income (loss) ( 2 ) 51 ( 226 ) ( 148 ) Investment income (loss), net 2 25 ( 1 ) 22 Income (loss) before income taxes — 76 ( 227 ) ( 126 ) Provision for income taxes (note 4) 4 2 12 6 Net income (loss) $ ( 4 ) $ 74 $ ( 239 ) $ ( 132 ) Earnings (loss) per share (note 7) Basic $ ( 0.01 ) $ 0.13 $ ( 0.41 ) $ ( 0.23 ) Diluted $ ( 0.09 ) $ ( 0.05 ) $ ( 0.54 ) $ ( 0.28 ) See notes to consolidated financial statements. 8 BlackBerry Limited (United States dollars, in millions) (unaudited) Consolidated Statements of Comprehensive Income (Loss) Three Months Ended Nine Months Ended November 30, 2022 November 30, 2021 November 30, 2022 November 30, 2021 Net income (loss) $ ( 4 ) $ 74 $ ( 239 ) $ ( 132 ) Other comprehensive income (loss) Net change in fair value and amounts reclassified to net loss from derivatives designated as cash flow hedges during the period, net of income taxes of nil for the three and nine months ended November 30, 2022 and November 30, 2021 (note 8) — — ( 1 ) ( 1 ) Foreign currency translation adjustment 1 ( 4 ) ( 9 ) ( 6 ) Net change in fair value from instrument-specific credit risk on the 1.75% Debentures, net of income taxes of nil for the three and nine months ended November 30, 2022 and November 30, 2021 (note 5) 1 ( 1 ) 3 — Other comprehensive income (loss) 2 ( 5 ) ( 7 ) ( 7 ) Comprehensive income (loss) $ ( 2 ) $ 69 $ ( 246 ) $ ( 139 ) See notes to consolidated financial statements. 9 BlackBerry Limited (United States dollars, in millions) (unaudited) Consolidated Statements of Cash Flows Nine Months Ended November 30, 2022 November 30, 2021 Cash flows from operating activities Net loss $ ( 239 ) $ ( 132 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization 85 142 Stock-based compensation 23 25 Gain on sale of investment — ( 22 ) Impairment of long-lived assets (note 2) 4 — Gain on sale of property, plant and equipment, net (note 3) ( 6 ) — Debentures fair value adjustment (note 5) ( 112 ) ( 47 ) Operating leases ( 12 ) ( 12 ) Other 7 ( 3 ) Net changes in working capital items Accounts receivable, net of allowance 7 44 Other receivables 16 8 Income taxes receivable 4 1 Other assets ( 2 ) 5 Accounts payable ( 1 ) 6 Accrued liabilities ( 2 ) 2 Income taxes payable 10 5 Deferred revenue ( 35 ) ( 59 ) Net cash used in operating activities ( 253 ) ( 37 ) Cash flows from investing activities Acquisition of long-term investments ( 2 ) ( 1 ) Distribution from long-term investments — 35 Acquisition of property, plant and equipment ( 5 ) ( 6 ) Proceeds on sale of property, plant and equipment (note 3) 17 — Acquisition of intangible assets ( 24 ) ( 22 ) Acquisition of short-term investments ( 393 ) ( 695 ) Proceeds on sale or maturity of restricted short-term investments — 24 Proceeds on sale or maturity of short-term investments 533 776 Net cash provided by investing activities 126 111 Cash flows from financing activities Issuance of common shares 6 9 Net cash provided by financing activities 6 9 Effect of foreign exchange loss on cash, cash equivalents, restricted cash, and restricted cash equivalents ( 3 ) ( 1 ) Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period ( 124 ) 82 Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period 406 218 Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period $ 282 $ 300 See notes to consolidated financial statements. 10 BlackBerry Limited Notes to the Consolidated Financial Statements In millions of United States dollars, except share and per share data, and except as otherwise indicated (unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES Basis of Presentation and Preparation These interim consolidated financial statements have been prepared by management in accordance with United States generally accepted accounting principles (“U.S. GAAP”). They do not include all of the disclosures required by U.S. GAAP for annual financial statements and should be read in conjunction with the audited consolidated financial statements of BlackBerry Limited (the “Company”) for the year ended February 28, 2022 (the “Annual Financial Statements”), which have been prepared in accordance with U.S. GAAP. In the opinion of management, all normal recurring adjustments considered necessary for fair presentation have been included in these interim consolidated financial statements. Operating results for the three and nine months ended November 30, 2022 are not necessarily indicative of the results that may be expected for the full year ending February 28, 2023. The consolidated balance sheet at February 28, 2022 was derived from the audited Annual Financial Statements but does not contain all of the footnote disclosures from the Annual Financial Statements. 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. Actual results could differ from these estimates and any such differences may be material to the Company’s consolidated financial statements. Certain of the comparative figures have been reclassified to conform to the current period’s presentation. The Company is organized and managed as three reportable operating segments: Cybersecurity, IoT (collectively, “Software & Services”), and Licensing and Other, as further discussed in Note 10. 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 2023 ASU 2020-06, Debt with Conversion and Other Options In August 2020, the Financial Standards Accounting Board (“FASB”) issued a new accounting standard on the topic of debt with conversion and other options, accounting standards update (“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 adopted this guidance in the first quarter of fiscal 2023 and it did not have a material impact on its results of operations, financial position and disclosures as the fair value option accounting model used by the Company is not impacted by this ASU and the Company already utilizes the if-converted method in its calculation of diluted earnings per share relating to the 1.75% Debentures (as defined in Note 5). ASU 2021-08, Business Combinations In October 2021, the FASB issued a new accounting standard on the topic of business combinations, accounting for contract assets and contract liabilities from contracts with customers, ASU 2021-08. The amendment in this update improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency. This update requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. The guidance is effective for interim and annual periods beginning after December 15, 2022 and requires entities to prospectively apply business combinations occurring on or after the effective date of the amendments. The Company early adopted this guidance in the first quarter of fiscal 2023, and will apply it prospectively to any business acquisitions subsequent to the date of adoption. 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) ASU 2021-10, Government Assistance In November 2021, the FASB issued a new accounting standard on the topic of government assistance, ASU 2021-10. The standard requires additional disclosures for transactions with a government accounted for by applying a grant or contribution accounting model by analogy, including: (i) information about the nature of the transactions and related accounting policy used to account for the transactions; (ii) the line items on the balance sheet and income statement affected by these transactions including amounts applicable to each line; and (iii) significant terms and conditions of the transactions, including commitments and contingencies. The update also requires entities that omit any of the information because it is legally prohibited from being disclosed to include a statement to that effect. The guidance is effective for annual periods beginning after December 15, 2021. The Company adopted this guidance in the first quarter of fiscal 2023 and does not expect the adoption to have a material impact on its annual disclosures. 2. FAIR VALUE MEASUREMENTS, CASH, CASH EQUIVALENTS AND INVESTMENTS Fair Value The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use in pricing the asset or liability, such as inherent risk, non-performance risk and credit risk. The Company applies the following fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value into three levels: • Level 1 - Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets. • Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. • Level 3 - Significant unobservable inputs that are supported by little or no market activity. The fair value hierarchy also requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s cash and cash equivalents, accounts receivable, other receivables, accounts payable and accrued liabilities are carried at amounts that approximate their fair values (Level 2 measurement) due to their short maturities. Recurring Fair Value Measurements In determining the fair value of investments held, the Company primarily relies on an independent third-party valuator for the fair valuation of securities. The Company also reviews the inputs used in the valuation process and assesses the pricing of the securities for reasonableness after conducting its own internal collection of quoted prices from brokers. Fair values for all investment categories provided by the independent third-party valuator that are in excess of 0.5 % from the fair values determined by the Company are communicated to the independent third-party valuator for consideration of reasonableness. The independent third-party valuator considers the information provided by the Company before determining whether a change in their original pricing is warranted. 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 public equity securities obtained through an initial public offering by the issuer of a previously held non-marketable equity investment. For a description of how the fair value of the 1.75% Debentures was determined, see the “Convertible debentures” accounting policies in Note 1 to the Annual Financial Statements. The 1.75% Debentures are classified as Level 3. Non-Recurring Fair Value Measurements Upon the occurrence of certain events, the Company re-measures the fair value of non-marketable equity investments for which it utilizes the measurement alternative, and long-lived assets, including property, plant and equipment, operating lease ROU assets, intangible assets and goodwill if an impairment or observable price adjustment is recognized in the current period. 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) Impairment of Long-Lived Assets During the second quarter of fiscal 2023, the Company exited certain leased facilities and is in the process of seeking subleases for those properties. The Company recorded a non-cash, pre-tax and after-tax impairment charge of $ 4 million related to the operating lease right-of-use (“ROU”) assets for those facilities. The impairment was determined by comparing the fair value of the impacted ROU asset to the carrying value of the asset as of the impairment measurement date, as required under ASC Topic 360, Property, Plant, and Equipment, using Level 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 conducts an evaluation of the related liabilities and expenses and revises its assumptions and estimates as appropriate as new or updated information becomes available. Non-Marketable Equity Investments Measured Using the Measurement Alternative Non-marketable equity investments measured using the measurement alternative include investments in privately held companies without readily determinable fair values in which the Company does not own a controlling interest or have significant influence. The estimation of fair value used in the fair value measurements required the use of significant unobservable inputs, and as a result, the fair value measurements were classified as Level 3. Cash, Cash Equivalents and Investments The components of cash, cash equivalents and investments by fair value level as at November 30, 2022 were as follows: Cost Basis (1) Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Short-term Investments Long-term Investments Restricted Cash and Cash Equivalents Bank balances $ 55 $ — $ — $ 55 $ 53 $ — $ — $ 2 Other investments 27 2 — 29 — — 29 — 82 2 — 84 53 — 29 2 Level 1: Equity securities 10 — ( 10 ) — — — — — Level 2: Term deposits and certificates of deposits 34 — — 34 9 — — 25 Bankers’ acceptances/bearer deposit notes 102 — — 102 102 — — — Commercial paper 208 — — 208 80 128 — — Non-U.S. promissory notes 9 — — 9 4 5 — — Non-U.S. treasury bills/notes 13 — — 13 2 11 — — Non-U.S. government sponsored enterprise notes 50 — — 50 — 50 — — U.S. treasury bills/notes 5 — — 5 5 — — — 421 — — 421 202 194 — 25 $ 513 $ 2 $ ( 10 ) $ 505 $ 255 $ 194 $ 29 $ 27 ______________________________ (1) Cost basis for other investments includes the effect of returns of capital and impairment. 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, 2022 were as follows: Cost Basis (1) Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Short-term Investments Long-term Investments Restricted Cash and Cash Equivalents Bank balances $ 105 $ — $ — $ 105 $ 104 $ — $ — $ 1 Other investments 8 — — 8 — — 8 — 113 — — 113 104 — 8 1 Level 1: Equity securities 10 — ( 9 ) 1 — 1 — — Level 2: Term deposits, certificates of deposits, and GICs 157 — — 157 65 65 — 27 Bankers’ acceptances/bearer deposit notes 58 — — 58 58 — — — Commercial paper 247 — — 247 62 185 — — Non-U.S. promissory notes 71 — — 71 46 25 — — Non-U.S. government sponsored enterprise notes 58 — — 58 — 58 — — Non-U.S. treasury bills/notes 43 — — 43 43 — — — 634 — — 634 274 333 — 27 Level 3: Other investments 17 5 — 22 — — 22 — $ 774 $ 5 $ ( 9 ) $ 770 $ 378 $ 334 $ 30 $ 28 ______________________________ (1) Cost basis for other investments includes the effect of returns of capital and impairment. As at November 30, 2022, the Company had private non-marketable equity investments without readily determinable fair value of $ 29 million (February 28, 2022 - $ 30 million). As of November 30, 2022, the Company has recorded a cumulative impairment of $ 3 million to the carrying value of certain other non-marketable equity investments without readily determinable fair value (February 28, 2022 - $ 3 million). There were no realized gains or losses on available-for-sale securities for the three and nine months ended November 30, 2022 and November 30, 2021. 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 three 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 November 30, 2022 and February 28, 2022 from the consolidated balance sheets to the consolidated statements of cash flows: As at November 30, 2022 February 28, 2022 Cash and cash equivalents $ 255 $ 378 Restricted cash and cash equivalents 27 28 Total cash, cash equivalents, restricted cash, and restricted cash equivalents presented in the consolidated statements of cash flows $ 282 $ 406 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 November 30, 2022 and February 28, 2022 were as follows: As at November 30, 2022 February 28, 2022 Cost Basis Fair Value Cost Basis Fair Value Due in one year or less $ 421 $ 421 $ 634 $ 634 No fixed maturity 10 — 10 1 $ 431 $ 421 $ 644 $ 635 As at November 30, 2022 and February 28, 2022, the Company had no available-for-sale debt securities with continuous unrealized losses . 3. CONSOLIDATED BALANCE SHEET DETAILS Accounts Receivable, Net of Allowance The allowance for credit losses as at November 30, 2022 was $ 5 million (February 28, 2022 - $ 4 million). The Company recognizes current estimated credit losses (“CECL”) for accounts receivable. The CECL for accounts receivable are estimated based on days past due and region for each customer in relation to a representative pool of assets consisting of a large number of customers with similar risk characteristics that operate under similar economic environments. The Company determined the CECL by estimating historical credit loss experience based on the past due status and region of the customers, adjusted as appropriate to reflect current conditions and estimates of future economic conditions. When specific customers are identified as no longer sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately. The Company also has long-term accounts receivable included in Other Long-term Assets. The CECL for long-term accounts receivable is estimated using the probability of default method and the default exposure due to limited historical information. The exposure of default is represented by the assets’ amortized carrying amount at the reporting date. The following table sets forth the activity in the Company’s allowance for credit losses: Carrying Amount Beginning balance as of February 28, 2021 $ 10 Prior period recovery for expected credit losses ( 2 ) Write-offs charged against the allowance ( 4 ) Ending balance of the allowance for credit loss as at February 28, 2022 4 Current period provision for expected credit losses 1 Ending balance of the allowance for credit loss as at November 30, 2022 $ 5 The allowance for credit losses as at November 30, 2022 consists of $ 2 million (February 28, 2022 - $ 2 million) relating to CECL estimated based on days past due and region and $ 3 million (February 28, 2022 - $ 2 million) relating to specific customers that were evaluated separately. There was one customer that comprised more than 10% of accounts receivable as at November 30, 2022 (February 28, 2022 - no customer comprised more than 10%). Other Receivables As at November 30, 2022, other receivables included items such as claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund program’s investment in BlackBerry QNX, among other items, none of which were greater than 5% of the current assets balance. As at February 28, 2022, other receivables included items such as receivables from the Government of Canada’s Hardest-Hit Business Recovery Program (“HHBRP”) and an intellectual property licensing receivable, among other items, none of which were greater than 5% of the current assets balance. 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) Other Current Assets Other current assets comprised the following: As at November 30, 2022 February 28, 2022 Intellectual property $ 134 $ 118 Other 41 41 $ 175 $ 159 On January 29, 2022, the Company entered into a patent sale agreement with Catapult IP Innovations, Inc. (“Catapult”), pursuant to which the Company agreed to sell substantially all of its non-core patent assets to Catapult for a total transaction price of $ 600 million. Patents that are essential to the Company’s current core business operations are excluded from the transaction. Pursuant to the patent sale agreement, the Company would receive a license back to the patents being sold, which relate primarily to mobile devices, messaging and wireless networking. Catapult is working with a financing partner and the parties are negotiating definitive closing documents. In parallel, the Company is in advanced term sheet discussions with a second interested party which has completed its due diligence on the portfolio. This alternate party is a prominent private equity firm that would not require external financing. For the year ended February 28, 2022, the Company had classified $ 118 million of intellectual property that would be sold under the patent sale agreement with Catapult as other current assets on the Company’s consolidated balance sheets relating to the patent sale agreement. As at November 30, 2022, the Company continues to classify $ 134 million of intellectual property, which includes the initial $ 118 million of intellectual property that would be sold under the patent sale agreement with Catapult with additions related to patent maintenance, as other current assets on the Company’s consolidated balance sheets. Other current assets also 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 any of the periods presented. Property, Plant and Equipment, Net Property, plant and equipment comprised the following: As at November 30, 2022 February 28, 2022 Cost BlackBerry operations and other information technology $ 96 $ 92 Leasehold improvements and other 18 53 Furniture and fixtures 9 10 Manufacturing, repair and research and development equipment 2 1 125 156 Accumulated amortization 99 115 Net book value $ 26 $ 41 Sale of Property, Plant and Equipment, Net During the second quarter of fiscal 2023, the Company completed the sale of its corporate aircraft. As a result, the Company recorded proceeds of approximately $ 17 million and incurred a gain on disposal of approximately $ 6 million (cost of $ 29 million, accumulated amortization of $ 18 million, and a net book value of approximately $ 11 million). 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) Intangible Assets, Net Intangible assets comprised the following: As at November 30, 2022 Cost Accumulated Amortization Net Book Value Acquired technology $ 1,023 $ 815 $ 208 Other acquired intangibles 494 312 182 Intellectual property 122 62 60 $ 1,639 $ 1,189 $ 450 As at February 28, 2022 Cost Accumulated Amortization Net Book Value Acquired technology $ 1,023 $ 776 $ 247 Other acquired intangibles 494 283 211 Intellectual property 117 53 64 $ 1,634 $ 1,112 $ 522 For the nine months ended November 30, 2022, amortization expense related to intangible assets amounted to $ 76 million (nine months ended November 30, 2021 - $ 130 million). Total additions to intangible assets for the nine months ended November 30, 2022 amounted to $ 24 million (nine months ended November 30, 2021 - $ 22 million) and included additions related to patent maintenance classified as other current assets on the Company’s consolidated balance sheets. During the nine months ended November 30, 2022, additions to intangible assets primarily consisted of payments for intellectual property relating to patent maintenance, registration and license fees. Based on the carrying value of the identified intangible assets as at November 30, 2022, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for the remainder of fiscal 2023 and each of the five succeeding years is expected to be as follows: fiscal 2023 - $ 25 million; fiscal 2024 - $ 95 million; fiscal 2025 - $ 90 million; fiscal 2026 - $ 86 million; fiscal 2027 - $ 79 million and fiscal 2028 - $ 44 million. Goodwill Changes to the carrying amount of goodwill during the nine months ended November 30, 2022 were as follows: Carrying Amount Carrying amount as at February 28, 2021 $ 849 Effect of foreign exchange on non-U.S. dollar denominated goodwill ( 5 ) Carrying amount as at February 28, 2022 844 Effect of foreign exchange on non-U.S. dollar denominated goodwill ( 5 ) Carrying amount as at November 30, 2022 $ 839 In the fourth quarter of fiscal 2022, the Company announced that it had agreed to the sale of a significant amount of patent assets to Catapult subject to the satisfaction of closing conditions. The completion of the sale would accelerate the timing of estimated cash flows for the Intellectual Property reporting unit and, based upon changes in the estimates to future cash flows following the contemplated sale, could potentially result in impacts that would be material to the consolidated financial statements in relation to the recoverability of the carrying value of that reporting unit. Other Long-term Assets As at November 30, 2022 and February 28, 2022, 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. 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) Accrued Liabilities Accrued liabilities comprised the following: As at November 30, 2022 February 28, 2022 Accrued royalties $ 20 $ 20 Operating lease liabilities, current 25 28 Other 109 109 $ 154 $ 157 Other accrued liabilities include accrued director fees, 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 in any of the periods presented. 4. INCOME TAXES For the nine months ended November 30, 2022, the Company’s net effective income tax expense rate was approximately 5 % compared to a net effective income tax expense rate of 5 % for the nine months ended November 30, 2021. 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 1.75% Debentures, amongst other items, is offset by a corresponding adjustment of the valuation allowance. The Company’s net effective income tax rate also reflects the geographic mix of earnings in jurisdictions with different income tax rates. The Company’s total unrecognized income tax benefits as at November 30, 2022 were $ 20 million (February 28, 2022 - $ 20 million). As at November 30, 2022, $ 20 million of the unrecognized income tax benefits have been netted against deferred income tax assets and nil 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. 5. 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”). The 1.75% Debentures mature on November 13, 2023 . Due to the conversion option and other embedded derivatives within the 1.75% 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 1.75% 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 1.75% Debentures has been determined using the significant Level 2 inputs interest rate curves, 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 7.52 % as of November 30, 2022. 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 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) 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 nine months ended November 30, 2022, which also represents the total changes through earnings of items classified as Level 3 in the fair value hierarchy: As at November 30, 2022 Balance as at February 28, 2022 $ 507 Change in fair value of the 1.75% Debentures ( 115 ) Balance as at November 30, 2022 $ 392 The difference between the fair value of the 1.75% Debentures and the unpaid principal balance of $ 365 million is $ 27 million. The following table shows the impact of the changes in fair value of the 1.75% Debentures for the three and nine months ended November 30, 2022 and November 30, 2021: Three Months Ended Nine Months Ended November 30, 2022 November 30, 2021 November 30, 2022 November 30, 2021 Income associated with the change in fair value from non-credit components recorded in the consolidated statements of operations $ 56 $ 110 $ 112 $ 47 Income (charge) associated with the change in fair value from instrument-specific credit components recorded in AOCL 1 ( 1 ) 3 — Total decrease in the fair value of the 1.75% Debentures $ 57 $ 109 $ 115 $ 47 For the three and nine months ended November 30, 2022, the Company recorded interest expense related to the 1.75% Debentures of $ 2 million, and $ 5 million which has been included in investment income (loss), net on the Company’s consolidated statements of operations (three and nine months ended November 30, 2021 - $ 2 million and $ 5 million). 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 1.75% Debentures, owns $ 330 million principal amount of the 1.75% Debentures. As such, the payment of interest on the 1.75% Debentures to Fairfax represents a related party transaction. Fairfax receives interest at the same rate as other holders of the 1.75% Debentures. 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) 6. CAPITAL STOCK The following details the changes in issued and outstanding common shares for the nine months ended November 30, 2022: Capital Stock and Additional Paid-in Capital Stock Outstanding (000s) Amount Common shares outstanding as at February 28, 2022 576,228 $ 2,869 Exercise of stock options 97 — Common shares issued for restricted share unit settlements 3,061 — Stock-based compensation — 23 Common shares issued for employee share purchase plan 960 6 Common shares outstanding as at November 30, 2022 580,346 $ 2,898 The Company had 580 million voting common shares outstanding, 0.5 million options to purchase voting common shares, 13 million RSUs and 2 million DSUs outstanding as at December 16, 2022. In addition, 60.8 million common shares are issuable upon conversion in full of the 1.75% Debentures as described in Note 5. 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) 7. EARNINGS ( LOSS) PER SHARE The following table sets forth the computation of basic and diluted earnings (loss) per share: Three Months Ended Nine Months Ended November 30, 2022 November 30, 2021 November 30, 2022 November 30, 2021 Net income (loss) for basic earnings (loss) per share available to common shareholders $ ( 4 ) $ 74 $ ( 239 ) $ ( 132 ) Less: 1.75% Debentures fair value adjustment (1) ( 56 ) ( 110 ) ( 112 ) ( 47 ) Add: interest expense on 1.75% Debentures (1) 2 2 5 5 Net loss for diluted loss per share available to common shareholders $ ( 58 ) $ ( 34 ) $ ( 346 ) $ ( 174 ) Weighted average number of shares outstanding (000’s) - basic (2) (3) 578,948 571,138 577,718 568,877 Effect of dilutive securities (000’s) Conversion of 1.75% Debentures (1) 60,833 60,833 60,833 60,833 Weighted average number of shares and assumed conversions (000’s) diluted 639,781 631,971 638,551 629,710 Earnings (loss) per share - reported Basic $ ( 0.01 ) $ 0.13 $ ( 0.41 ) $ ( 0.23 ) Diluted $ ( 0.09 ) $ ( 0.05 ) $ ( 0.54 ) $ ( 0.28 ) ______________________________ (1) The Company has presented the dilutive effect of the 1.75% Debentures using the if-converted method, assuming conversion at the beginning of the quarter for the three and nine months ended November 30, 2022 and November 30, 2021. Accordingly, to calculate diluted loss per share, the Company adjusted net income (loss) by eliminating the fair value adjustment made to the 1.75% Debentures and interest expense incurred on the 1.75% Debentures for the three and nine months ended November 30, 2022 and November 30, 2021, and added the number of shares that would have been issued upon conversion to the diluted weighted average number of shares outstanding. See Note 5 for details on the 1.75% Debentures. (2) The three and nine months ended November 30, 2021, includes approximately 1,421,945 common shares (Exchange Shares) remaining that were subsequently issued on the third anniversary date of the Cylance acquisition completed on February 21, 2019 in consideration for the acquisition. (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 and nine months ended November 30, 2022 and November 30, 2021, as to do so would be antidilutive. 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) 8. ACCUMULATED OTHER COMPREHENSIVE LOSS The changes in AOCL by component net of tax, for the three and nine months ended November 30, 2022 and November 30, 2021 were as follows: Three Months Ended Nine Months Ended November 30, 2022 November 30, 2021 November 30, 2022 November 30, 2021 Cash Flow Hedges Balance, beginning of period $ ( 1 ) $ — $ — $ 1 Other comprehensive loss before reclassification ( 2 ) — ( 3 ) — Amounts reclassified from AOCL into net income (loss) 2 — 2 ( 1 ) Accumulated net unrealized gains on derivative instruments designated as cash flow hedges $ ( 1 ) $ — $ ( 1 ) $ — Foreign Currency Cumulative Translation Adjustment Balance, beginning of period $ ( 20 ) $ ( 6 ) $ ( 10 ) $ ( 4 ) Other comprehensive income (loss) 1 ( 4 ) ( 9 ) ( 6 ) Foreign currency cumulative translation adjustment $ ( 19 ) $ ( 10 ) $ ( 19 ) $ ( 10 ) Change in Fair Value From Instrument-Specific Credit Risk On 1.75% Debentures Balance, beginning of period $ ( 6 ) $ ( 8 ) $ ( 8 ) $ ( 9 ) Other comprehensive income (loss) before reclassification 1 ( 1 ) 3 — Change in fair value from instruments-specific credit risk on 1.75% Debentures $ ( 5 ) $ ( 9 ) $ ( 5 ) $ ( 9 ) Other Post-Employment Benefit Obligations Actuarial losses associated with other post-employment benefit obligations $ ( 1 ) $ ( 1 ) $ ( 1 ) $ ( 1 ) Accumulated Other Comprehensive Loss, End of Period $ ( 26 ) $ ( 20 ) $ ( 26 ) $ ( 20 ) 9. COMMITMENTS AND CONTINGENCIES (a) Letters of Credit The Company had $ 25 million in collateralized outstanding letters of credit in support of certain leasing arrangements entered into in the ordinary course of business as of November 30, 2022. See the discussion of restricted cash in Note 2. (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 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) estimable, provisions for loss are made based on management’s assessment of the likely outcome. Where a range of loss can be reasonably estimated with no best estimate in the range, the Company records the minimum amount in the range. The Company does not provide for claims for which the outcome is not probable or claims for which the amount of the loss cannot be reasonably estimated. Any settlements or awards under such claims are provided for when reasonably determinable. As of November 30, 2022, there are no other material claims outstanding for which the Company has assessed the potential loss as both probable to result and reasonably estimable; therefore, no accrual has been made. Further, there are claims outstanding for which the Company has assessed the potential loss as reasonably possible to result; however, an estimate of the amount of loss cannot reasonably be made. There are many reasons that the Company cannot make these assessments, including, among others, one or more of the following: the early stages of a proceeding does not require the claimant to specifically identify the patent claims that have allegedly been infringed or the products that are alleged to infringe; damages sought are unspecified, unsupportable, unexplained or uncertain; discovery has not been started or is incomplete; the facts that are in dispute are highly complex; the difficulty of assessing novel claims; the parties have not engaged in any meaningful settlement discussions; the possibility that other parties may share in any ultimate liability; and the often slow pace of litigation. The Company has included the following summaries of certain of its legal proceedings though they do not meet the test for accrual described above. Between October and December 2013, several purported class action lawsuits and one individual lawsuit were filed against the Company and certain of its former officers in various jurisdictions in the U.S. and Canada alleging that the Company and certain of its officers made materially false and misleading statements regarding the Company’s financial condition and business prospects and that certain of the Company’s financial statements contain material misstatements. The individual lawsuit was voluntarily dismissed and the consolidated U.S. class actions reached an agreement in principle to settle; see “Litigation Settlement” below in this Note 9. On July 23, 2014, the plaintiff in the putative Ontario class action ( Swisscanto Fondsleitung AG v. BlackBerry Limited, et al. ) filed a motion for class certification and for leave to pursue statutory misrepresentation claims. On November 17, 2015, the Ontario Superior Court of Justice issued an order granting the plaintiffs’ motion for leave to file a statutory claim for misrepresentation. On December 2, 2015, the Company filed a notice of motion seeking leave to appeal this ruling. On November 15, 2018, the Court denied the Company’s motion for leave to appeal the order granting the plaintiffs leave to file a statutory claim for misrepresentation. On February 5, 2019, the Court entered an order certifying a class comprised persons (a) who purchased BlackBerry common shares between March 28, 2013, and September 20, 2013, and still held at least some of those shares as of September 20, 2013, and (b) who acquired those shares on a Canadian stock exchange or acquired those shares on any other stock exchange and were a resident of Canada when the shares were acquired. Notice of class certification was published on March 6, 2019. The Company filed its Statement of Defence on April 1, 2019. Discovery is proceeding and the Court has not set a trial date. On March 17, 2017, a putative employment class action was filed against the Company in the Ontario Superior Court of Justice ( Parker v. BlackBerry Limited ). The Statement of Claim alleges that actions the Company took when certain of its employees decided to accept offers of employment from Ford Motor Company of Canada amounted to a wrongful termination of the employees’ employment with the Company. The claim seeks (i) an unspecified quantum of statutory, contractual, or common law termination entitlements; (ii) punitive or breach of duty of good faith damages of CAD$20 million, or such other amount as the Court finds appropriate, (iii) pre- and post- judgment interest, (iv) attorneys’ fees and costs, and (v) such other relief as the Court deems just. The Court granted the plaintiffs’ motion to certify the class action on May 27, 2019. The Company commenced a motion for leave to appeal the certification order on June 11, 2019. The Court denied the motion for leave to appeal on September 17, 2019. The Company filed its Statement of Defence on December 19, 2019. The parties participated in a mediation on November 9, 2022, which did not result in an agreement. Discovery is proceeding and the Court has not set a trial date. 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 volume-weighted 10-day average trading 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 November 30, 2022, the liability recorded in association with this award is nominal (February 28, 2022 - $ 2 million). 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) As at November 30, 2022, the Company has recognized $ 17 million (February 28, 2022 - $ 17 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. (c) Litigation Settlement 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, 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 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 January 26, 2021, the District Court granted the plaintiffs’ motion for class certification. The class includes “all persons who purchased or otherwise acquired the common stock of BlackBerry Limited on the NASDAQ during the period from March 28, 2013, through and including September 20, 2013”. The class excludes (a) all persons and entities who purchased or otherwise acquired the Company’s common stock between March 28, 2013, and April 10, 2013, and who sold all their Company common stock before April 11, 2013, and (b) the defendants, officers and directors of the Company, members of their immediate families and their legal representatives, heirs, successors, or assigns, and any entity in which any of the Defendants have or had a controlling interest. The Second Circuit Court of Appeals denied the defendants’ petition for review of the class certification order 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 May 5, 2021, the parties participated in a mediation with the Hon. Layn Phillips (ret.), which did not result in an agreement. On September 10, 2021. the Court granted the plaintiffs’ unopposed motion for approval of the class notice plan. Postcard notice was mailed on October 8, 2021; publication notice was issued starting on October 18, 2021. On January 3, 2022, the Court denied defendants’ motion for summary judgment except with respect to seven statements the Court found were barred by the statute of repose. On April 6, 2022, the parties accepted a mediator’s settlement proposal, and reached an agreement in principle to settle the U.S. consolidated actions for $ 165 million. The Stipulation of Settlement was executed effective June 7, 2022. On June 14, 2022, the Court granted plaintiffs’ motion for preliminary approval of the settlement and scheduled the final approval hearing for September 29, 2022. In the first quarter of fiscal 2023, the Company accrued $ 165 million associated with this settlement within the line Litigation settlement on the consolidated statement of operations. On June 29, 2022, the Company paid $ 1 million of the settlement amount. The remaining $ 164 million was paid on September 6, 2022. On September 29, 2022, the Court granted final approval of the settlement and entered final judgment. (d) Indemnifications The Company enters into certain agreements that contain indemnification provisions under which the Company could be subject to costs and damages, including in the event of an infringement claim against the Company or an indemnified third party. Such intellectual property infringement indemnification clauses are generally not subject to any dollar limits and remain in effect for the term of the Company’s agreements. To date, the Company has not encountered material costs as a result of such indemnifications. The Company has entered into indemnification agreements with its current and former directors and executive officers. Under these agreements, the Company agreed, subject to applicable law, to indemnify its current and former directors and executive officers against all costs, charges and expenses reasonably incurred by such individuals in respect of any civil, criminal or administrative action that could arise by reason of their status as directors or officers. The Company maintains liability insurance coverage for the benefit of the Company, and its current and former directors and executive officers. The Company has not encountered material costs as a result of such indemnifications in the current period. 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) 10. REVENUE AND SEGMENT DISCLOSURES The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by the Chief Operating Decision Maker (“CODM”) for making decisions and assessing performance as a source of the Company’s reportable operating segments. The CODM, who is the Executive Chair and CEO of the Company, makes decisions and assesses the performance of the Company using three operating segments. The CODM does not evaluate operating segments using discrete asset information. The Company does not specifically allocate assets to operating segments for internal reporting purposes. Segment Disclosures The Company is organized and managed as three operating segments: Cybersecurity, IoT, and Licensing and Other. The following table shows information by operating segment for the three and nine months ended November 30, 2022 and November 30, 2021: For the Three Months Ended Cybersecurity IoT Licensing and Other Segment Totals November 30, November 30, November 30, November 30, 2022 2021 2022 2021 2022 2021 2022 2021 Segment revenue $ 106 $ 128 $ 51 $ 43 $ 12 $ 13 $ 169 $ 184 Segment cost of sales 46 52 10 8 4 6 60 66 Segment gross margin (1) $ 60 $ 76 $ 41 $ 35 $ 8 $ 7 $ 109 $ 118 For the Nine Months Ended Cybersecurity IoT Licensing and Other Segment Totals November 30, November 30, November 30, November 30, 2022 2021 2022 2021 2022 2021 2022 2021 Segment revenue $ 330 $ 355 $ 153 $ 126 $ 22 $ 52 $ 505 $ 533 Segment cost of sales 149 147 27 22 8 18 184 187 Segment gross margin (1) $ 181 $ 208 $ 126 $ 104 $ 14 $ 34 $ 321 $ 346 ______________________________ (1) A reconciliation of total segment gross margin to consolidated totals is set forth below. Cybersecurity consists of the Company’s BlackBerry Spark® software platform, BlackBerry® AtHoc®, BlackBerry® Alert and BlackBerry® SecuSUITE®. The BlackBerry Spark platform is a comprehensive offering of security software products and services, including the BlackBerry® Cyber Suite and the BlackBerry Spark® Unified Endpoint Management Suite, which are also marketed together as the BlackBerry Spark® Suite, 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 CylancePROTECT®, CylanceOPTICS®, CylancePERSONA™, CylanceGATEWAY™, CylanceGUARD® managed services, CylancePROTECT Mobile™ and other cybersecurity applications. The BlackBerry Spark UEM Suite includes the Company’s BlackBerry® UEM, BlackBerry® Dynamics™, and BlackBerry® Workspaces solutions. Cybersecurity revenue is generated predominantly through software licenses, commonly bundled with support, maintenance and professional services. IoT consists of BlackBerry® QNX®, BlackBerry® Certicom®, BlackBerry Radar®, BlackBerry IVY™ and other IoT applications. IoT revenue is generated predominantly through software licenses, commonly bundled with support, maintenance and professional services. Licensing and Other consists of the Company’s intellectual property arrangements and settlement awards. Other consists of the Company’s legacy service access fees (“SAF”) business, which ceased operations on January 4, 2022. 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) The following table reconciles total segment gross margin for the three and nine months ended November 30, 2022 and November 30, 2021 to the Company’s consolidated totals: Three Months Ended Nine Months Ended November 30, 2022 November 30, 2021 November 30, 2022 November 30, 2021 Total segment gross margin $ 109 $ 118 321 $ 346 Adjustments (1) : Less: Stock compensation — 1 2 3 Less: Research & development 52 57 159 172 Selling, marketing and administration 89 77 257 233 Amortization 26 42 78 133 Impairment of long-lived assets — — 4 — Gain on sale of property, plant and equipment, net — — ( 6 ) — Debentures fair value adjustment ( 56 ) ( 110 ) ( 112 ) ( 47 ) Litigation settlement — — 165 — Investment income (loss), net ( 2 ) ( 25 ) 1 ( 22 ) Consolidated income (loss) before income taxes $ — $ 76 $ ( 227 ) $ ( 126 ) ______________________________ (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. 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 Nine Months Ended November 30, 2022 November 30, 2021 November 30, 2022 November 30, 2021 North America (1) $ 92 $ 101 $ 266 $ 313 Europe, Middle East and Africa 55 66 176 168 Other regions 22 17 63 52 Total $ 169 $ 184 $ 505 $ 533 North America (1) 54.5 % 54.9 % 52.7 % 58.7 % Europe, Middle East and Africa 32.5 % 35.9 % 34.9 % 31.5 % Other regions 13.0 % 9.2 % 12.4 % 9.8 % Total 100.0 % 100.0 % 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. 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) Revenue, classified by timing of recognition, was as follows: Three Months Ended Nine Months Ended November 30, 2022 November 30, 2021 November 30, 2022 November 30, 2021 Products and services transferred over time $ 88 $ 111 $ 281 $ 324 Products and services transferred at a point in time 81 73 224 209 Total $ 169 $ 184 $ 505 $ 533 Revenue contract balances The following table sets forth the activity in the Company’s revenue contract balances for the nine months ended November 30, 2022: Accounts Receivable Deferred Revenue Deferred Commissions Opening balance as at February 28, 2022 $ 138 $ 244 $ 16 Increases due to invoicing of new or existing contracts, associated contract acquisition costs, or other 517 444 18 Decrease due to payment, fulfillment of performance obligations, or other ( 524 ) ( 479 ) ( 17 ) Increase (decrease), net ( 7 ) ( 35 ) 1 Closing balance as at November 30, 2022 $ 131 $ 209 $ 17 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 November 30, 2022 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 November 30, 2022 Less than 12 Months 12 to 24 Months Thereafter Total Remaining performance obligations $ 177 $ 22 $ 10 $ 209 Revenue recognized for performance obligations satisfied in prior periods For the three and nine months ended November 30, 2022, nil and $ 1 million of revenue was recognized for performance obligations satisfied in a prior period (three and nine months ended November 30, 2021 - $ 1 million of revenue was recognized relating to performance obligations satisfied in a prior period). 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 November 30, 2022 February 28, 2022 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 $ 102 $ 362 $ 117 $ 447 United States 1,232 1,721 1,313 1,989 Other 27 111 27 131 $ 1,361 $ 2,194 $ 1,457 $ 2,567 27 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) Information About Major Customers There was one customer that comprised 11 % and 14 % of the Company’s revenue in the three and nine months ended November 30, 2022, respectively (three and nine months ended November 30, 2021 - one customer that comprised 14 % and 11 % of the Company’s revenue, respectively). 11. 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 Nine Months Ended November 30, 2022 November 30, 2021 November 30, 2022 November 30, 2021 Interest paid during the period $ 2 $ 2 $ 5 $ 5 Income taxes paid during the period — 1 2 5 Income tax refunds received during the period 5 1 5 6 (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 third quarter of fiscal 2023 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 November 30, 2022, approximately 25 % of cash and cash equivalents, 41 % of accounts receivable and 44 % of accounts payable were denominated in foreign currencies (February 28, 2022 – 37 %, 23 % and 30 %, respectively). These foreign currencies primarily include the Canadian dollar, euro and British pound. As part of its risk management strategy, the Company maintains net monetary asset and/or liability balances in foreign currencies and engages in foreign currency hedging activities using derivative financial instruments, including currency forward contracts and currency options. The Company does not use derivative instruments for speculative purposes. 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 1.75% Debentures with a fixed interest rate, as described in Note 5. The fair value of the 1.75% Debentures will fluctuate with changes in prevailing interest rates. Consequently, the Company is exposed to interest rate risk as a result of the 1.75% Debentures. The Company does not currently utilize interest rate derivative instruments to hedge its investment portfolio or changes in the market value of the 1.75% 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 November 30, 2022, no single issuer represented more than 19 % of the total cash, cash equivalents and investments (February 28, 2022 - no single issuer represented more than 10 % of the total cash, cash equivalents and investments), with the largest such issuer representing cash balances, bearer deposits, term deposits and bankers’ acceptances with one of the Company’s banking counterparties. The Company maintains Credit Support Annexes (“CSAs”) with several of its counterparties. These CSAs require the outstanding net position of all contracts be made whole by the paying or receiving of collateral to or from the counterparties on a daily basis, subject to exposure and transfer thresholds. As at November 30, 2022, the Company had $ 1 million in collateral posted with counterparties (February 28, 2022 - nil in collateral posted). 28 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) Liquidity risk Cash, cash equivalents, and investments were approximately $ 505 million as at November 30, 2022. 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 fiscal 2021, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) and the Canada Emergency Rent Subsidy (“CERS”) for Canadian employers whose businesses were affected by the COVID-19 pandemic. The CEWS program initially ran for a thirty-six week period between March and November 2020 and the CERS program for a period between September 2020 and July 2021. The programs were subsequently extended to October 2021. The CEWS program provided a subsidy of up to 75 % of eligible employees’ employment insurable remuneration, subject to certain criteria. The extension also included a gradual decrease to the subsidy rate. CEWS received after June 5, 2021 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. The CERS program provided a subsidy of up to 65 % of eligible fixed property expenses. The base subsidy was determined based on the percentage revenue decline experienced by businesses affected by the COVID-19 pandemic. The CERS program gradually reduced the amount and availability of subsidies in the months leading up to the program’s final claim period. During the third quarter of fiscal 2022, the Government of Canada announced the HHBRP to continue supporting businesses affected by the COVID-19 pandemic. The HHBRP provides a subsidy of up to 50 % of eligible employees’ employment insurable remuneration, subject to certain criteria, and rent and ran until May 7, 2022 . The Company applied for the CEWS, CERS and HHBRP to the extent it met the requirements to receive the subsidy and during the three and nine months ended November 30, 2022, recorded nil and $ 4 million, respectively, in government subsidies as a reduction to operating expenses in the consolidated statement of operations (November 30, 2021 - $ 3 million and $ 30 million, respectively). As at November 30, 2022, the Company has recorded nil in accrued government subsidies within other receivables on the consolidated balance sheet (February 28, 2022 - $ 8 million). 29