10-Q 1 bbry-20220531.htm 10-Q bbry-20220531
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2022

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from     to

Commission file number 001-38232
 ______________________________________________________
BlackBerry Limited
(Exact name of registrant as specified in its charter)
Canada
98-0164408
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
2200 University Ave East
WaterlooOntarioCanada
N2K 0A7
(Address of Principal Executive Offices)
(Zip Code)
(519) 888-7465
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common SharesBBNew York Stock Exchange
Common SharesBBToronto Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes  x   No  o 

1



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
Non-accelerated filer  
o
Smaller reporting company
Emerging growth company
                
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐   No  x

The registrant had 577,169,762 common shares issued and outstanding as of June 21, 2022.
 

2




BLACKBERRY LIMITED
TABLE OF CONTENTS
Page No.
PART I FINANCIAL INFORMATION
Item 1Financial Statements
Consolidated Balance Sheets as of May 31, 2022 (unaudited) and February 28, 2022
Consolidated Statements of Shareholders' Equity - Three Months Ended May 31, 2022 and 2021 (unaudited)
Consolidated Statements of Operations - Three Months Ended May 31, 2022 and 2021 (unaudited)
Consolidated Statements of Comprehensive Loss - Three Months Ended May 31, 2022 and 2021 (unaudited)
Consolidated Statements of Cash Flows - Three Months Ended May 31, 2022 and 2021 (unaudited)
Notes to the Consolidated Financial Statements
Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3Quantitative and Qualitative Disclosures about Market Risk
Item 4Controls and Procedures
PART IIOTHER INFORMATION
Item 1Legal Proceedings
Item 6Exhibits
Signatures

3




Unless the context otherwise requires, all references to the “Company” and “BlackBerry” include BlackBerry Limited and its subsidiaries.

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
4


BlackBerry Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions) (unaudited)
Consolidated Balance Sheets
 As at
 May 31, 2022February 28, 2022
Assets
Current
Cash and cash equivalents (note 2)$391 $378 
Short-term investments (note 2)272 334 
Accounts receivable, net of allowance of $4 and $4, respectively (note 3)
102 138 
Other receivables (note 3)21 25 
Income taxes receivable 9 9 
Other current assets (note 3)169 159 
964 1,043 
Restricted cash and cash equivalents (note 2)28 28 
Long-term investments (note 2)30 30 
Other long-term assets (note 3)8 9 
Operating lease right-of-use assets, net46 50 
Property, plant and equipment, net (note 3)38 41 
Goodwill (note 3)841 844 
Intangible assets, net (note 3)505 522 
$2,460 $2,567 
Liabilities
Current
Accounts payable $14 $22 
Accrued liabilities (note 3 and note 9)304 157 
Income taxes payable (note 4)13 11 
Deferred revenue, current (note 10)190 207 
521 397 
Deferred revenue, non-current (note 10)32 37 
Operating lease liabilities60 66 
Other long-term liabilities3 4 
Long-term debentures (note 5)459 507 
1,075 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 - 577,168,941 voting common shares (February 28, 2022 - 576,227,898)
2,880 2,869 
Deficit(1,475)(1,294)
Accumulated other comprehensive loss (note 8)(20)(19)
1,385 1,556 
$2,460 $2,567 
See notes to consolidated financial statements.

On behalf of the Board: 
John S. ChenLisa Disbrow
DirectorDirector
5


BlackBerry Limited
(United States dollars, in millions) (unaudited)
Consolidated Statements of Shareholders’ Equity

Three Months Ended May 31, 2022
Capital Stock
and Additional
Paid-in Capital
DeficitAccumulated
Other
Comprehensive Loss
Total
Balance as at February 28, 2022$2,869 $(1,294)$(19)$1,556 
Net loss— (181)— (181)
Other comprehensive loss— — (1)(1)
Stock-based compensation (note 6)8 — — 8 
Shares issued:
Employee share purchase plan (note 6)3 — — 3 
Balance as at May 31, 2022$2,880 $(1,475)$(20)$1,385 

Three Months Ended May 31, 2021
Capital Stock
and Additional
Paid-in Capital
DeficitAccumulated
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 compensation7 — — 7 
Shares issued:
Exercise of stock options1 — — 1 
Employee share purchase plan3 — — 3 
Balance as at May 31, 2021$2,834 $(1,368)$(10)$1,456 

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, 2022May 31, 2021
Revenue (note 10)$168 $174 
Cost of sales64 60 
Gross margin104 114 
Operating expenses
Research and development53 57 
Selling, marketing and administration82 73 
Amortization27 46 
Debentures fair value adjustment (note 5)(46)(4)
Litigation settlement (note 9)165  
281 172 
Operating loss(177)(58)
Investment loss, net(1)(2)
Loss before income taxes(178)(60)
Provision for income taxes (note 4)3 2 
Net loss$(181)$(62)
Loss per share (note 7)
Basic$(0.31)$(0.11)
Diluted$(0.35)$(0.11)
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, 2022May 31, 2021
Net loss$(181)$(62)
Other comprehensive income (loss)
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, 2021 - income taxes of nil) (note 8)1 1 
Foreign currency translation adjustment(4)1 
Net change in fair value from instrument-specific credit risk on the 1.75% Debentures, net of income taxes of nil (May 31, 2021 - income taxes of nil) (note 5)2 1 
Other comprehensive income (loss)(1)3 
Comprehensive loss$(182)$(59)
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, 2022May 31, 2021
Cash flows from operating activities
Net loss$(181)$(62)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization29 49 
Stock-based compensation8 7 
Debentures fair value adjustment (note 5)(46)(4)
Operating leases(3)(3)
Other (3)
Net changes in working capital items
Accounts receivable, net of allowance36 29 
Other receivables4 (1)
Other assets(9)(6)
Accounts payable(8)2 
Accrued liabilities148 (14)
Income taxes payable2 2 
Deferred revenue(22)(29)
Net cash used in operating activities(42)(33)
Cash flows from investing activities
Acquisition of property, plant and equipment(1)(2)
Acquisition of intangible assets(8)(6)
Acquisition of short-term investments(164)(209)
Proceeds on sale or maturity of restricted short-term investments 24 
Proceeds on sale or maturity of short-term investments226 369 
Net cash provided by investing activities53 176 
Cash flows from financing activities
Issuance of common shares3 4 
Net cash provided by financing activities3 4 
Effect of foreign exchange gain (loss) on cash, cash equivalents, restricted cash, and restricted cash equivalents(1)3 
Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents during the period13 150 
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period406 218 
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period$419 $368 
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, 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 months ended May 31, 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.
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)





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.
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 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 (as defined in Note 5) 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.
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)





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 May 31, 2022 were as follows:
Cost Basis (1)
Unrealized
Gains
Unrealized
Losses
Fair ValueCash and
Cash
Equivalents
Short-term
Investments
Long-term
Investments
Restricted Cash and Cash Equivalents
Bank balances$97 $ $ $97 $95 $ $ $2 
Other investments25 5  30   30  
122 5  127 95  30 2 
Level 1:
Equity securities10  (10)     
Level 2:
Term deposits, certificates of deposits, and GICs54   54 28   26 
Bearer deposit notes60   60 60    
Commercial paper257   257 125 132   
Non-U.S. promissory notes85   85 33 52   
Non-U.S. treasury bills/notes50   50 50    
Non-U.S. government sponsored enterprise notes69   69  69   
Corporate notes/bonds19   19  19   
594   594 296 272  26 
$726 $5 $(10)$721 $391 $272 $30 $28 
______________________________
(1) Cost basis for other investments includes the effect of returns of capital and impairment.
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)





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 ValueCash and
Cash
Equivalents
Short-term
Investments
Long-term
Investments
Restricted Cash and Cash Equivalents
Bank balances$105 $ $ $105 $104 $ $ $1 
Other investments8   8   8  
113   113 104  8 1 
Level 1:
Equity securities10  (9)1  1   
Level 2:
Term deposits, certificates of deposits, and GICs157   157 65 65  27 
Bankers’ acceptances/bearer deposit notes58   58 58    
Commercial paper247   247 62 185   
Non-U.S. promissory notes71   71 46 25   
Non-U.S. government sponsored enterprise notes58   58  58   
Non-U.S. treasury bills/notes43   43 43    
634   634 274 333  27 
Level 3:
Other investments17 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 May 31, 2022, the Company had private non-marketable equity investments without readily determinable fair value of $30 million (February 28, 2022 - $30 million). During the three months ended May 31, 2022 and May 31, 2021, no adjustments were made to the carrying value of non-marketable equity investments without readily determinable fair value as a result of observable price changes or impairment. As of May 31, 2022, the Company has recorded a cumulative upward adjustment of $5 million to the carrying value of certain non-marketable equity investments without readily determinable fair value as a result of observable price changes for identical or similar securities (February 28, 2022 - $5 million). As of May 31, 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 months ended May 31, 2022 (realized losses of nil for the three months ended May 31, 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.
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 following table provides a reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents as at May 31, 2022 and February 28, 2022 from the consolidated balance sheets to the consolidated statements of cash flows:
As at
May 31, 2022February 28, 2022
Cash and cash equivalents$391 $378 
Restricted cash and cash equivalents28 28 
Total cash, cash equivalents, restricted cash, and restricted cash equivalents presented in the consolidated statements of cash flows
$419 $406 
The contractual maturities of available-for-sale investments as at May 31, 2022 and February 28, 2022 were as follows:
As at
May 31, 2022February 28, 2022
Cost BasisFair ValueCost BasisFair Value
Due in one year or less $594 $594 $634 $634 
No fixed maturity 10  10 1 
$604 $594 $644 $635 
As at May 31, 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 May 31, 2022 was $4 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:
As at
May 31, 2022
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, 20224 
Current period recovery for expected credit losses  
Ending balance of the allowance for credit loss as at May 31, 2022$4 
The allowance for credit losses as at May 31, 2022 consists of $1 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.
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)





There was no customer that comprised more than 10% of accounts receivable as at May 31, 2022 (February 28, 2022 - no customer comprised more than 10%).
Other Receivables
As at May 31, 2022 and 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 in any of the periods presented.
Other Current Assets
Other current assets comprised the following:
 As at
 May 31, 2022February 28, 2022
Intellectual property$118 $118 
Other51 41 
$169 $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. Completion of the revenue transaction is subject to the satisfaction of closing conditions. Catapult continues to work on securing its required financing; however, the Company is no longer under exclusivity with Catapult and is exploring alternative options in parallel. 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 May 31, 2022, the Company continues to classify the intellectual property 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
 May 31, 2022February 28, 2022
Cost
BlackBerry operations and other information technology$93 $92 
Leasehold improvements and other54 53 
Furniture and fixtures9 10 
Manufacturing, repair and research and development equipment1 1 
157 156 
Accumulated amortization119 115 
Net book value$38 $41 
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)





Intangible Assets, Net
Intangible assets comprised the following:
 As at May 31, 2022
 CostAccumulated
Amortization
Net Book
Value
Acquired technology$1,023 $789 $234 
Other acquired intangibles494 293 201 
Intellectual property120 50 70 
$1,637 $1,132 $505 
As at February 28, 2022
CostAccumulated
Amortization
Net Book
Value
Acquired technology$1,023 $776 $247 
Other acquired intangibles494 283 211 
Intellectual property117 53 64 
$1,634 $1,112 $522 
For the three months ended May 31, 2022, amortization expense related to intangible assets amounted to $25 million (three months ended May 31, 2021 - $45 million).
Total additions to intangible assets for the three months ended May 31, 2022 amounted to $8 million (three months ended May 31, 2021 - $6 million). During the three months ended May 31, 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 May 31, 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 - $74 million; fiscal 2024 - $94 million; fiscal 2025 - $90 million; fiscal 2026 - $85 million; fiscal 2027 - $79 million and fiscal 2028 - $43 million.
Goodwill
Changes to the carrying amount of goodwill during the three months ended May 31, 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, 2022844 
Effect of foreign exchange on non-U.S. dollar denominated goodwill(3)
Carrying amount as at May 31, 2022$841 
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 fair value of the goodwill of that reporting unit.
Other Long-term Assets
As at May 31, 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.
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)





Accrued Liabilities
Accrued liabilities comprised the following:
 As at
 May 31, 2022February 28, 2022
Accrued settlement (note 9)
$165 $ 
Accrued royalties20 20 
Operating lease liabilities, current27 28 
Other92 109 
$304 $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 three months ended May 31, 2022, the Company’s net effective income tax expense rate was approximately 2% compared to a net effective income tax expense rate of 3% for the three months ended May 31, 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 (as defined in Note 5), 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, 2022 were $20 million (February 28, 2022 - $20 million). As at May 31, 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”).
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 7.31% as of May 31, 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 approximately $91 million. The Company determined the implied discount on the 1.75% Debentures by calculating the
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)





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, 2022, which also represents the total changes through earnings of items classified as Level 3 in the fair value hierarchy:
As at
  May 31, 2022
Balance as at February 28, 2022$507 
Change in fair value of the 1.75% Debentures(48)
Balance as at May 31, 2022$459 
The difference between the fair value of the 1.75% Debentures and the unpaid principal balance of $365 million is $94 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, 2022 and May 31, 2021:    
Three Months Ended
  May 31, 2022May 31, 2021
Income associated with the change in fair value from non-credit components recorded in the consolidated statements of operations $46 $4 
Income associated with the change in fair value from instrument-specific credit components recorded in AOCL2 1 
Total decrease in the fair value of the 1.75% Debentures $48 $5 
For the three months ended May 31, 2022, the Company recorded interest expense related to the 1.75% 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, 2021 - $2 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.
6.    CAPITAL STOCK
The following details the changes in issued and outstanding common shares for the three months ended May 31, 2022:
 Capital Stock and
Additional Paid-in Capital
 Stock
Outstanding
(000s)
Amount
Common shares outstanding as at February 28, 2022576,228 $2,869 
Exercise of stock options27  
Common shares issued for restricted share unit settlements456 — 
Stock-based compensation— 8 
Common shares issued for employee share purchase plan458 3 
Common shares outstanding as at May 31, 2022577,169 $2,880 
The Company had 577 million voting common shares outstanding, 1 million options to purchase voting common shares, 15 million RSUs and 2 million DSUs outstanding as at June 21, 2022. In addition, 60.8 million common shares are issuable upon conversion in full of the 1.75% Debentures as described in Note 5.
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)





7.    LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss per share:
 Three Months Ended
 May 31, 2022May 31, 2021
Net loss for basic loss per share available to common shareholders$(181)$(62)
Less: 1.75% Debentures fair value adjustment (1) (2)
(46) 
Add: interest expense on 1.75% Debentures (1) (2)
2  
Net loss for diluted loss per share available to common shareholders$(225)$(62)
Weighted average number of shares outstanding (000’s) - basic (3) (4)
576,877 567,358 
Effect of dilutive securities (000’s)
Conversion of 1.75% Debentures (1) (2)
60,833  
Weighted average number of shares and assumed conversions (000’s) diluted637,710 567,358 
Loss per share - reported
Basic
$(0.31)$(0.11)
Diluted
$(0.35)$(0.11)
______________________________
(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 months ended May 31, 2022. Accordingly, to calculate diluted loss per share, the Company adjusted net 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 months ended May 31, 2022, and added the number of shares that would have been issued upon conversion to the diluted weighted average number of shares outstanding. See Note 5 for details on the 1.75% Debentures.
(2) The Company has not presented the dilutive effect of the 1.75% Debentures using the if-converted method in the calculation of diluted loss per share for the three months ended May 31, 2021, as to do so would be antidilutive. See Note 5 for details on the 1.75% Debentures.
(3) The three months ended May 31, 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.
(4) The Company has not presented the dilutive effect of in-the-money options and RSUs that will be settled upon vesting by the issuance of new common shares in the calculation of diluted loss per share for the three months ended May 31, 2022 and May 31, 2021, as to do so would be antidilutive.
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.    ACCUMULATED OTHER COMPREHENSIVE LOSS
The changes in AOCL by component net of tax, for the three months ended May 31, 2022 and May 31, 2021 were as follows: