ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read together with the audited consolidated financial statements and the accompanying notes (the “Consolidated Financial Statements”) of BlackBerry Limited, for the fiscal year ended February 29, 2020. The Consolidated Financial Statements are presented in U.S. dollars and have been prepared in accordance with U.S. GAAP. All financial information in this MD&A is presented in U.S. dollars, unless otherwise indicated.
Readers should carefully review Part I, Item 1A “Risk Factors” and other documents filed from time to time with the Securities and Exchange Commission (“SEC”) and other securities regulators. A number of factors may materially affect our business, financial condition, operating results and prospects. These factors include but are not limited to those set forth in Part I, Item 1A “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Any one of these factors, and other factors that we are unaware of, or currently deem immaterial, may cause our actual results to differ materially from recent results or from our anticipated future results. Please refer to our MD&A of our Annual Report on Form 40-F for Fiscal 2019 for a comparative discussion of our Fiscal 2019 financial results as compared to our Fiscal 2018. Additional information about the Company, which is included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2020 (the “Annual Report”), can be found on SEDAR at www.sedar.com and on the SEC’s website at www.sec.gov.
Cautionary Note Regarding Forward-Looking Statements
This MD&A contains forward-looking statements within the meaning of certain securities laws, including under the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws, including statements relating to:
•the Company’s plans, strategies and objectives, including its intentions to achieve long-term profitable revenue growth and increase and enhance its product and service offerings;
•the Company’s expectations with respect to its financial performance in fiscal 2021;
•the Company’s estimates of purchase obligations and other contractual commitments; and
•the Company’s expectations with respect to the sufficiency of its financial resources.
The words “expect”, “anticipate”, “estimate”, “may”, “will”, “should”, “could”, “intend”, “believe”, “target”, “plan” and similar expressions are intended to identify forward-looking statements in this MD&A, including in the sections entitled “Results of Operations - Fiscal year ended February 29, 2020 compared to fiscal year ended February 28, 2019 - Revenue - Revenue by Product and Service”, “Results of Operations - Three months ended February 29, 2020 compared to the three months ended February 28, 2019 - Net Income”, and “Financial Condition - Debenture Financing and Other Funding Sources ”. Forward-looking statements are based on estimates and assumptions made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate in the circumstances, including but not limited to, the Company’s expectations regarding its business, strategy, opportunities and prospects, the launch of new products and services, general economic conditions, competition, and the Company’s expectations regarding its financial performance. Many factors could cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the risk factors discussed in Part I, Item 1A “Risk Factors” in the Annual Report on Form 10-K.
All of these factors should be considered carefully, and readers should not place undue reliance on the Company’s forward-looking statements. Any statements that are forward-looking statements are intended to enable the Company’s shareholders to view the anticipated performance and prospects of the Company from management’s perspective at the time such statements are made, and they are subject to the risks that are inherent in all forward-looking statements, as described above, as well as difficulties in forecasting the Company’s financial results and performance for future periods, particularly over longer periods, given changes in technology and the Company’s business strategy, evolving industry standards, intense competition and short product life cycles that characterize the industries in which the Company operates. See “Strategy” subsection in Part I, Item 1 “Business” of the Annual Report.
The Company has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Business Overview
The Company provides intelligent security software and services to enterprises and governments around the world. The Company secures more than 500 million endpoints, including 150 million cars. Based in Waterloo, Ontario, the Company leverages artificial intelligence and machine learning to deliver innovative solutions in the areas of cybersecurity, safety and data privacy solutions, and is a leader in the areas of endpoint security management, encryption, and embedded systems. The
Company’s common shares trade under the ticker symbol “BB” on the New York Stock Exchange and the Toronto Stock Exchange. The Company was incorporated under the Business Corporations Act (Ontario) (“OBCA”) on March 7, 1984.
The Company continued to execute on its strategy in fiscal 2020. The Company also announced the following achievements:
•Announced that the German Development Agency, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, selected BlackBerry AtHoc as its emergency mass notification system;
•Launched enhancements and feature updates to SecuSUITE for Government and BlackBerry AtHoc that enable government agencies to securely communicate and safeguard sensitive data;
•Announced the appointment of Marjorie Dickman as the Company’s first Chief Government Affairs and Public Policy Officer;
•Announced product enhancements to CylancePROTECT and CylanceOPTICS;
•Launched the BlackBerry Spark platform with a new unified endpoint security (UES) layer which can work with BlackBerry UEM to deliver zero trust security;
•Released the 2020 Threat Report, which examines the latest adversarial techniques and tactics analyzed by BlackBerry Cylance threat researchers and provides guidance organizations can leverage to mitigate risk;
•Launched BlackBerry Digital Workplace, a robust workspace that provides secure online and offline access to corporate on-premise or cloud content including Microsoft Office 365 resources;
•Announced that the BlackBerry Radar solution integrates with Trimble’s TMW.Suite and TruckMate transportation management system solutions;
•Announced that BlackBerry Cylance integrates with SafeBreach to help organizations improve their overall security posture with continuous enterprise endpoint security validation;
•Entered into a collaboration with Ansys to support BlackBerry QNX’s industry-leading real-time operating system (“RTOS”) for connected and autonomous vehicles;
•Collaborated with Amazon Web Services, Inc. (AWS) to demonstrate a connected vehicle software platform for in-vehicle applications that combines the BlackBerry QNX RTOS with AWS’ IoT Services in the cloud and in the car;
•Announced that Damon Motorcycles’ CoPilot advanced warning system will be powered by BlackBerry QNX technology across its entire line-up of advanced electric motorcycles;
•Announced that Renovo and BlackBerry QNX will cooperate to jointly develop and market safety-critical data management solutions for use in the next generation of connected and autonomous vehicles;
•Entered into a partnership that will provide advanced digital infrastructure to students as part of the Government of Romania’s National Wireless Campus Project;
•Entered into an agreement with electric carmaker WM Motor to embed BlackBerry’s QNX Neutrino Realtime Operating System and other BlackBerry QNX software products within the company’s third-generation SUVs;
•Entered into a strategic collaboration to integrate the QNX Platform for Digital Cockpits in MARELLI Electronics China’s eCockpit and Digital Cluster solution;
•Announced the second cohort of companies for the Company’s joint accelerator program with L-SPARK to advance Canadian startups that are focused on connected vehicle technologies;
•Announced that its QNX Hypervisor 2.0 for Safety has been recognized as ISO 26262 ASIL D compliant by the independent auditors at TÜV Rheinland, making it the world’s first ASIL D safety-certified commercial hypervisor;
•Announced that Reece Group has deployed BlackBerry Cylance technology to protect thousands of endpoints across its retail stores and offices in Australia and the United States;
•Entered into an agreement with Canadian Pacific Railway to deploy BlackBerry Radar across 2,000 of its domestic intermodal chassis;
•Entered into an agreement for BlackBerry QNX technology to power Arrival’s Generation 2.0 autonomous-ready commercial electric vehicles;
•Announced an agreement with ETAS GmbH, a subsidiary of Bosch, to cooperate on the joint development and marketing of an automotive software platform based on the AUTOSAR Adaptive standard;
•Announced that Hyundai Autron selected BlackBerry QNX technology to power its next-generation advanced driver-assistance systems (ADAS) and autonomous driving software platform;
•Launched BlackBerry AtHoc & BlackBerry SecuSUITE solutions on AWS;
•Launched CylancePROTECT for mobile devices managed by BlackBerry UEM;
•Announced the promotion of John McClurg to the role of Chief Information Security Officer and Christopher Hummel to the role of Chief Information Officer;
•Announced the integration of CylancePROTECT and CylanceOPTICS with Chronicle’s Backstory security analytics platform;
•Launched BlackBerry Solutions on the Microsoft Azure Marketplace;
•Launched the BlackBerry Advanced Technology Development Labs to develop cutting-edge security innovations;
•Announced the transition of Steve Capelli to the role of Chief Revenue Officer and the promotion of Steve Rai to the role of Chief Financial Officer;
•Entered into an agreement with Matson Logistics to deploy the BlackBerry Radar-M solution across its entire fleet of domestic intermodal containers;
•Announced, along with DENSO Corporation, that the first integrated Human Machine Interface digital cockpit system with BlackBerry QNX technology has shipped in SUBARU vehicles;
•Launched the BlackBerry QNX Acoustics Management Platform 3.0, the latest version of its automotive acoustics software;
•Announced a deeper partnership with Jaguar Land Rover for the use of the Company’s AI and machine learning technologies, BlackBerry QNX software and BlackBerry Cybersecurity Consulting services in the development of the automaker’s next-generation vehicles;
•Appointed Lisa Disbrow to the Company’s Board of Directors (the “Board”) and to the audit and risk management committee of the Board;
•Named as a Leader in Gartner’s 2019 Magic Quadrant for Unified Endpoint Management Tools for the fourth consecutive year;
•Launched BlackBerry Intelligent Security, the first cloud-based solution that leverages the power of adaptive security, continuous authentication and artificial intelligence to enhance mobile endpoint security in zero trust environments;
•Entered into an agreement with SYNNEX Corporation to distribute the BlackBerry Enterprise Mobility Suite in the United States and accelerate partner recruitment for the BlackBerry Enterprise Partner Program;
•Introduced CylanceGUARD, a managed detection and response solution that leverages BlackBerry Cylance security experts and its industry-leading native AI platform to provide continuous threat hunting and monitoring;
•Entered into a collaborative supply agreement expanding the Company’s partnership with LG Electronics Inc. to accelerate the deployment of connected and autonomous vehicle technology for automotive OEMs and Tier 1 vendors;
•Announced that BlackBerry QNX Software is embedded in more than 150 million vehicles;
•Achieved Federal Risk and Authorization Management Program (“FedRAMP”) Ready status for the BlackBerry Government Mobility Suite, a cloud-based endpoint management solution developed specifically for U.S. government agencies;
•Announced support of Canada’s Digital Charter, aimed at protecting the privacy and data security of Canadians, and that the Company has been recognized by the Government of Canada as a benchmark for trusted technology;
•Announced that Forrester found that BlackBerry Cylance’s AI-driven endpoint security products delivered a 99 percent return on investment;
•Announced that BlackBerry Cylance has completed an Australian Information Security Registered Assessors Program (IRAP) assessment to obtain certification as a security solutions provider to Australian federal government agencies;
•With WITTENSTEIN high integrity systems, announced a new embedded software platform that enables the development of safety-certified and mission-critical applications on heterogenous system-on-chip processors;
•Launched BlackBerry Radar H2, a new intelligent, data-driven asset monitoring device that can help automate operations, improve utilization of trailers, containers, chassis and other remote assets, as well as ensure assets are safe and secure;
•Established BlackBerry Government Solutions, to accelerate the Company’s FedRAMP initiatives and deepen ties with U.S. federal agencies;
•BlackBerry Limited announced that the NATO Communications and Information (NCI) Agency has awarded a contract for BlackBerry’s SecuSUITE® for Government to encrypt the conversations of its technology and cyber leaders;
•Announced that Verizon added BlackBerry Cylance’s AI-driven antivirus security solutions to its Managed Security Services portfolio; and
•Introduced CylancePERSONA, the first proactive endpoint behavioral analytics solution.
Fiscal 2020 Summary Results of Operations
The following table sets forth certain consolidated statements of operations data, as well as certain consolidated balance sheet data, as at and for the fiscal years ended February 29, 2020, February 28, 2019, and February 28, 2018:
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As at and for the Fiscal Years Ended
(in millions, except for share and per share amounts)
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|
February 29, 2020
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February 28, 2019
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Change
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February 28, 2018
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Change
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Revenue
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$
|
1,040
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|
|
$
|
904
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|
|
$
|
136
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|
|
$
|
932
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|
|
$
|
(28)
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|
Gross margin
|
763
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|
|
698
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|
|
65
|
|
|
670
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|
|
28
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|
Operating expenses
|
912
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|
|
638
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|
|
274
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|
|
387
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|
|
251
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|
Investment income (loss), net
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1
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|
|
17
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(16)
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123
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(106)
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Income (loss) before income taxes
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(148)
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77
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(225)
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406
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(329)
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Provision for (recovery of) income taxes
|
4
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(16)
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20
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1
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(17)
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Net income (loss)
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$
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(152)
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$
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93
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$
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(245)
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$
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405
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|
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$
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(312)
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Earnings (loss) per share - reported
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Basic
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$
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(0.27)
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$
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0.17
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$
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0.76
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Diluted
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$
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(0.32)
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$
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0.00
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$
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0.74
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Weighted-average number of shares outstanding (000’s)
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Basic
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553,861
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540,477
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532,888
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Diluted (1)
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614,361
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616,467
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545,886
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Total assets
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$
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3,888
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$
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3,968
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$
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(80)
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$
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3,801
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$
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167
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Total long-term financial liabilities
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$
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—
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$
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665
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$
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(665)
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$
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782
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|
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$
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(117)
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|
______________________________
(1)Diluted earnings (loss) per share on a U.S. GAAP basis for fiscal 2018 does not include the dilutive effect of the Debentures as to do so would be anti-dilutive. Diluted loss per share on a U.S. GAAP basis for fiscal 2020 does not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive. See Note 9 to the Consolidated Financial Statements for the fiscal year ended February 29, 2020 for calculation of the diluted weighted average number of shares outstanding.
Financial Highlights
The Company had approximately $990 million in cash, cash equivalents and investments as of February 29, 2020.
In fiscal 2020, the Company recognized revenue of $1.04 billion and incurred a net loss of $152 million, or $0.27 basic loss per share on a U.S. GAAP basis. The Company incurred a diluted loss per share of $0.32 on a U.S. GAAP basis.
The Company recognized adjusted revenue of $1.10 billion and adjusted net income of $74 million, or adjusted earnings of $0.13 per share, on a non-GAAP basis in fiscal 2020. See “Non-GAAP Financial Measures” below.
Debentures Fair Value Adjustment
As previously disclosed, the Company elected the fair value option to account for the 3.75% unsecured convertible debentures (the “Debentures”); therefore, periodic revaluation has been and continues to be required under U.S. GAAP. The fair value adjustment does not impact the terms of the Debentures such as the face value, the redemption features or the conversion price.
In fiscal 2020, the fair value of the Debentures decreased by approximately $59 million. For the three months ended February 29, 2020, the Company recorded non-cash income relating to changes in fair value from instrument specific credit risk of $7 million in AOCI and a non-cash charge relating to changes in fair value from non-credit components of $5 million (pre-tax and after tax) (the “Q4 Fiscal 2020 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations. In fiscal 2020, the Company recorded a non-cash charge relating to changes in fair value from instrument-specific credit risk of $7 million in AOCI and non-cash income relating to changes in fair value from non-credit components of $66 million (pre-tax and after tax) (the “Fiscal 2020 Debentures Fair Value Adjustment”) in the Company’s consolidated statements of operations.
Non-GAAP Financial Measures
The Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, and information contained in this MD&A is presented on that basis. On March 31, 2020, the Company announced financial results for the three months and fiscal year ended February 29, 2020, which included certain non-GAAP financial measures, including adjusted revenue, adjusted gross margin (before taxes), adjusted gross margin percentage (before taxes), adjusted operating expense, adjusted operating income, adjusted EBITDA, adjusted operating income margin percentage, adjusted EBITDA margin percentage, adjusted net income (loss), adjusted income (loss) per share, adjusted research and development expense, adjusted selling, marketing and administrative expense, adjusted amortization expense and free cash flow.
In the Company’s internal reports, management evaluates the performance of the Company’s business on a non-GAAP basis by excluding the impact of the items below from the Company’s financial results. The Company believes that excluding the below items provides readers of the Company’s financial statements with a more consistent basis for comparison across accounting periods and is more useful in helping readers understand the Company’s operating results and underlying operational trends.
•Debenture fair value adjustment. The Company has elected to measure its outstanding Debenture at fair value in accordance with the fair value option under U.S. GAAP. Each period, the fair value of the Debentures is recalculated and resulting non-cash gains and losses from the change in fair value from non-credit components of the Debentures are recognized in income. The amount can vary each period depending on changes to the Company’s share price. This is not indicative of the Company’s core operating performance, and is not meaningful in comparison to the Company’s past operating performance.
•Restructuring charges. The Company believes that restructuring costs relating to employee termination benefits, facilities, and manufacturing network simplification efforts pursuant to the Resource Allocation Program (“RAP”) entered into in order to transition the Company from a legacy hardware manufacturer to a licensing driven software business do not reflect expected future operating expenses, are not indicative of the Company’s core operating performance, and are not meaningful in comparison to the Company’s past operating performance.
•Software deferred revenue acquired. The Company has acquired businesses whose net assets include deferred revenue. In accordance with U.S. GAAP reporting requirements, the Company recorded write-downs of deferred revenue under arrangements pre-dating each acquisition to fair value, which resulted in lower recognized revenue than the original transaction price until the related service obligations under such arrangements are fulfilled. Therefore, U.S. GAAP revenues after the acquisitions will not reflect the full amount of revenue that would have been reported if the acquired deferred revenue was not written down to fair value, prior to the renewal of these arrangements. The Company believes that reversing the acquisition-related deferred revenue write-downs (so that the full amount of revenue booked by the acquired businesses is included) provides a more appropriate representation of revenue in a given period and, therefore, provides readers of the Company’s financial statements with a more consistent basis for comparison across accounting periods. The Company also believes that the adjustment is more useful in helping readers to understand the Company’s operating results and underlying operational trends, especially in future periods when the contracts underlying the acquired deferred revenue are renewed at amounts more consistent with their transaction price. As the impacted contracts renew over time, the associated reversal of the acquisition write-downs will trend to zero.
•Software deferred commission expense acquired. The Company has acquired businesses whose net assets include deferred commissions. In accordance with U.S. GAAP reporting requirements, the Company recorded write-downs of deferred commissions under arrangements pre-dating each acquisition to fair value, which in most cases is nil. Therefore, U.S. GAAP commission expense after the acquisitions will not reflect commission expense that would have been reported if the acquired deferred commissions were not written down to fair value. The Company believes that reversing the acquisition-related deferred commission write-downs (so that the full amount of commission expense is included) provides a more appropriate representation of commission expense in a given period and, therefore, provides readers of the Company’s financial statements with a more consistent basis for comparison across accounting periods. The Company also believes that the adjustment is more useful in helping readers to understand the Company’s operating results and underlying operational trends, especially in future periods when the Company recognizes commissions on the renewals of the contracts underlying the acquired deferred commissions. As the impacted contracts renew over time, the associated reversal of the acquisition write-downs will trend to zero.
•Stock compensation expenses. Equity compensation is a non-cash expense and does not impact the ongoing operating decisions taken by the Company’s management.
•Amortization of acquired intangible assets. When the Company acquires intangible assets through business combinations, the assets are recorded as part of purchase accounting and contribute to revenue generation. Such acquired intangible assets depreciate over time and the related amortization will recur in future periods until the assets have been fully amortized. This is not indicative of the Company’s core operating performance, and is not meaningful in comparison to the Company’s past operating performance.
•Business acquisition and integration costs. The Company incurs costs associated with business acquisitions, including legal costs, audit and accounting fees, and other acquisition and integration expenses. These expenditures do not relate to the ongoing operation of the business and they tend to vary significantly based on the circumstances of each transaction. This is not indicative of the Company’s core operating performance, and is not meaningful in comparison to the Company’s past operating performance.
•Acquisition valuation allowance. The Company records an income tax valuation allowance associated with business acquisitions. This is not indicative of the Company’s core operating performance, and is not meaningful in comparison to the Company’s past operating performance.
•Arbitration awards and settlements, net. The Company believes that arbitration awards and settlements, net related to the Qualcomm Technologies, Inc., Nokia Corporation and Panasonic Corporation arbitration and settlements are unusual items related to legacy operations which are not reflective of the Company’s ongoing operating expense or core operating performance and are not meaningful in comparison to the Company’s past and future operating performance.
•Long-lived asset impairment charge. The Company believes that long-lived asset impairment charges do not reflect expected future operating expenses, are not indicative of the Company’s core operating performance, and are not meaningful in comparison to the Company’s past operating performance.
•Goodwill impairment charge. The Company believes that goodwill impairment charge does not reflect expected future operating expenses, is not indicative of the Company’s core operating performance as it is associated with a legacy line of business, and is not meaningful in comparison to the Company’s past operating performance.
On a U.S. GAAP basis, the impact of these items is reflected in the Company’s income statement. However, the Company believes that the provision of supplemental non-GAAP measures allow investors to evaluate the financial performance of the Company’s business using the same evaluation measures that management uses, and is therefore a useful indication of the Company’s performance or expected performance of future operations and facilitates period-to-period comparison of operating performance. As a result, the Company considers it appropriate and reasonable to provide, in addition to U.S. GAAP measures, supplementary non-GAAP financial measures that exclude certain items from the presentation of its financial results.
Reconciliation of non-GAAP based measures with most directly comparable GAAP based measures for the three months ended February 29, 2020, February 28, 2019 and February 28, 2018
Readers are cautioned that adjusted revenue, adjusted gross margin (before taxes), adjusted gross margin percentage (before taxes), adjusted operating expense, adjusted operating income, adjusted EBITDA, adjusted operating income margin percentage, adjusted EBITDA margin percentage, adjusted net income (loss), adjusted income (loss) per share, adjusted research and development expense, adjusted selling, marketing and administrative expense, adjusted amortization expense and free cash flow and similar measures do not have any standardized meaning prescribed by U.S. GAAP and are therefore unlikely to be comparable to similarly titled measures reported by other companies. These non-GAAP financial measures should be considered in the context of the U.S. GAAP results, which are described in this MD&A and presented in our Consolidated Financial Statements.
A reconciliation of the most directly comparable U.S. GAAP financial measures for the three months ended February 29, 2020, February 28, 2019 and February 28, 2018 to adjusted financial measures is reflected in the tables below:
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For the Three Months Ended (in millions)
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February 29, 2020
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February 28, 2019
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February 28, 2018
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Revenue
|
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$
|
282
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|
|
$
|
255
|
|
|
$
|
233
|
|
Software deferred revenue acquired (1)
|
|
9
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|
|
2
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|
|
6
|
|
Adjusted revenue
|
|
$
|
291
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|
|
$
|
257
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|
|
$
|
239
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|
|
|
|
|
|
|
|
Gross margin (before taxes)
|
|
$
|
212
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|
|
$
|
206
|
|
|
$
|
177
|
|
Software deferred revenue acquired (1)
|
|
9
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|
|
2
|
|
|
6
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
—
|
|
|
1
|
|
|
3
|
|
Stock compensation expense
|
|
2
|
|
|
1
|
|
|
1
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|
Adjusted gross margin (before taxes)
|
|
$
|
223
|
|
|
$
|
210
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|
|
$
|
187
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|
|
|
|
|
|
|
|
Gross margin % (before taxes)
|
|
75.2
|
%
|
|
80.8
|
%
|
|
76.0
|
%
|
Software deferred revenue acquired (1)
|
|
0.7
|
%
|
|
0.1
|
%
|
|
0.5
|
%
|
|
|
|
|
|
|
|
Restructuring charges
|
|
—
|
%
|
|
0.4
|
%
|
|
1.4
|
%
|
Stock compensation expense
|
|
0.7
|
%
|
|
0.4
|
%
|
|
0.3
|
%
|
Adjusted gross margin % (before taxes)
|
|
76.6
|
%
|
|
81.7
|
%
|
|
78.2
|
%
|
______________________________
(1) See Reconciliation of U.S. GAAP IoT and BlackBerry Cylance revenue to adjusted IoT and BlackBerry Cylance revenue
Reconciliation of operating expense for the three months ended February 29, 2020, November 30, 2019, February 28, 2019 and February 28, 2018 to adjusted operating expense is reflected in the tables below:
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|
For the Three Months Ended (in millions)
|
|
February 29, 2020
|
|
November 30, 2019
|
|
February 28, 2019
|
|
February 28, 2018
|
Operating expense
|
|
$
|
253
|
|
|
$
|
227
|
|
|
$
|
178
|
|
|
$
|
194
|
|
Restructuring charges
|
|
1
|
|
|
4
|
|
|
2
|
|
|
23
|
|
Stock compensation expense
|
|
15
|
|
|
14
|
|
|
13
|
|
|
12
|
|
Debenture fair value adjustment (1)
|
|
5
|
|
|
(20)
|
|
|
(6)
|
|
|
(34)
|
|
Software deferred commission expense acquired
|
|
(3)
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
Acquired intangibles amortization
|
|
35
|
|
|
35
|
|
|
18
|
|
|
22
|
|
Business acquisition and integration costs
|
|
1
|
|
|
—
|
|
|
8
|
|
|
—
|
|
Goodwill impairment charge
|
|
22
|
|
|
—
|
|
|
—
|
|
|
—
|
|
LLA impairment charge
|
|
5
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Arbitration awards and settlements, net
|
|
—
|
|
|
—
|
|
|
(9)
|
|
|
(1)
|
|
Adjusted operating expense
|
|
$
|
172
|
|
|
$
|
195
|
|
|
$
|
152
|
|
|
$
|
172
|
|
______________________________
(1) See “Fiscal 2020 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment”
Reconciliation of GAAP net income (loss) and GAAP basic earnings per share for the three months ended February 29, 2020, February 28, 2019 and February 28, 2018 to adjusted net income and adjusted basic earnings per share is reflected in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended (in millions, except per share amounts)
|
|
February 29, 2020
|
|
|
|
February 28, 2019
|
|
|
|
February 28, 2018
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
Basic earnings per share
|
|
|
|
Basic earnings per share
|
Net income (loss)
|
|
$
|
(41)
|
|
|
$(0.07)
|
|
|
$
|
51
|
|
|
$0.09
|
|
|
$
|
(10)
|
|
|
$(0.02)
|
|
Software deferred revenue acquired
|
|
9
|
|
|
|
|
2
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
1
|
|
|
|
|
3
|
|
|
|
|
26
|
|
|
|
Stock compensation expense
|
|
17
|
|
|
|
|
14
|
|
|
|
|
13
|
|
|
|
Debenture fair value adjustment
|
|
5
|
|
|
|
|
(6)
|
|
|
|
|
(34)
|
|
|
|
Software deferred commission expense acquired
|
|
(3)
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
Acquired intangibles amortization
|
|
35
|
|
|
|
|
18
|
|
|
|
|
22
|
|
|
|
Business acquisition and integration costs
|
|
1
|
|
|
|
|
8
|
|
|
|
|
—
|
|
|
|
Goodwill impairment charge
|
|
22
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
LLA impairment charge
|
|
5
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arbitration awards and settlements, net
|
|
—
|
|
|
|
|
(9)
|
|
|
|
|
(1)
|
|
|
|
Acquisition valuation allowance
|
|
—
|
|
|
|
|
(21)
|
|
|
|
|
—
|
|
|
|
Adjusted net income
|
|
$
|
51
|
|
|
$0.09
|
|
|
$
|
60
|
|
|
$0.11
|
|
|
$
|
22
|
|
|
$0.05
|
|
Reconciliation of U.S GAAP IoT, BlackBerry Cylance and software and services revenue for the three months ended February 29, 2020, February 28, 2019 and February 28, 2018 to adjusted IoT, BlackBerry Cylance and software and services revenue is reflected in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended (in millions)
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
IoT Revenue
|
|
$
|
127
|
|
|
$
|
144
|
|
|
$
|
154
|
|
|
|
|
|
|
|
|
Software deferred revenue acquired
|
|
—
|
|
|
1
|
|
|
6
|
|
Adjusted IoT revenue
|
|
$
|
127
|
|
|
$
|
145
|
|
|
$
|
160
|
|
|
|
|
|
|
|
|
BlackBerry Cylance Revenue
|
|
$
|
43
|
|
|
$
|
3
|
|
|
$
|
—
|
|
Software deferred revenue acquired
|
|
9
|
|
|
1
|
|
|
—
|
|
Adjusted BlackBerry Cylance Revenue
|
|
$
|
52
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Software and Services revenue
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
282
|
|
|
$
|
255
|
|
|
$
|
233
|
|
Less: Other revenue
|
|
4
|
|
|
9
|
|
|
21
|
|
Software and Services revenue
|
|
$
|
278
|
|
|
$
|
246
|
|
|
$
|
212
|
|
Software deferred revenue acquired
|
|
9
|
|
|
2
|
|
|
6
|
|
Adjusted Software and Services revenue
|
|
$
|
287
|
|
|
$
|
248
|
|
|
$
|
218
|
|
Reconciliation of U.S GAAP research and development, selling, marketing and administration, and amortization expense for the three months ended February 29, 2020, February 28, 2019 and February 28, 2018 to adjusted research and development, selling, marketing and administration, and amortization expense is reflected in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended (in millions)
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Research and development
|
|
$
|
60
|
|
|
$
|
52
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
|
3
|
|
|
3
|
|
|
3
|
|
Adjusted research and development
|
|
$
|
57
|
|
|
$
|
49
|
|
|
$
|
55
|
|
|
|
|
|
|
|
|
Selling, marketing and administration
|
|
$
|
113
|
|
|
$
|
110
|
|
|
$
|
131
|
|
Restructuring charges
|
|
1
|
|
|
2
|
|
|
23
|
|
Software deferred commission expense acquired
|
|
(3)
|
|
|
—
|
|
|
—
|
|
Stock compensation expense
|
|
12
|
|
|
10
|
|
|
9
|
|
Business acquisition and integration costs
|
|
1
|
|
|
8
|
|
|
—
|
|
Adjusted selling, marketing and administration
|
|
$
|
102
|
|
|
$
|
90
|
|
|
$
|
99
|
|
|
|
|
|
|
|
|
Amortization
|
|
$
|
48
|
|
|
$
|
31
|
|
|
$
|
37
|
|
Acquired intangibles amortization
|
|
35
|
|
|
18
|
|
|
22
|
|
Adjusted amortization
|
|
$
|
13
|
|
|
$
|
13
|
|
|
$
|
15
|
|
Reconciliation of selected GAAP-based measures to non-GAAP based measures for the years ended February 29, 2020, February 28, 2019 and February 28, 2018
A reconciliation of the most directly comparable U.S. GAAP financial measures for the years ended February 29, 2020, February 28, 2019 and February 28, 2018 to adjusted financial measures is reflected in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended (in millions)
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Revenue
|
|
$
|
1,040
|
|
|
$
|
904
|
|
|
$
|
932
|
|
Software deferred revenue acquired (1)
|
|
59
|
|
|
12
|
|
|
35
|
|
Adjusted revenue
|
|
$
|
1,099
|
|
|
$
|
916
|
|
|
$
|
967
|
|
|
|
|
|
|
|
|
Gross margin (before taxes)
|
|
$
|
763
|
|
|
$
|
698
|
|
|
$
|
670
|
|
Software deferred revenue acquired (1)
|
|
59
|
|
|
12
|
|
|
35
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
5
|
|
|
2
|
|
|
11
|
|
Stock compensation expense
|
|
5
|
|
|
4
|
|
|
4
|
|
Adjusted gross margin (before taxes)
|
|
$
|
832
|
|
|
$
|
716
|
|
|
$
|
720
|
|
|
|
|
|
|
|
|
Gross margin % (before taxes)
|
|
73.4
|
%
|
|
77.2
|
%
|
|
71.9
|
%
|
Software deferred revenue acquired (1)
|
|
1.4
|
%
|
|
0.3
|
%
|
|
0.9
|
%
|
|
|
|
|
|
|
|
Restructuring charges
|
|
0.5
|
%
|
|
0.2
|
%
|
|
1.2
|
%
|
Stock compensation expense
|
|
0.4
|
%
|
|
0.5
|
%
|
|
0.5
|
%
|
Adjusted gross margin % (before taxes)
|
|
75.7
|
%
|
|
78.2
|
%
|
|
74.5
|
%
|
|
|
|
|
|
|
|
Operating expense
|
|
$
|
912
|
|
|
$
|
638
|
|
|
$
|
387
|
|
Restructuring charges
|
|
5
|
|
|
9
|
|
|
67
|
|
Stock compensation expense
|
|
58
|
|
|
64
|
|
|
45
|
|
Debenture fair value adjustment (2)
|
|
(66)
|
|
|
(117)
|
|
|
191
|
|
Software deferred commission expense acquired
|
|
(16)
|
|
|
—
|
|
|
—
|
|
Acquired intangibles amortization
|
|
141
|
|
|
82
|
|
|
95
|
|
Business acquisition and integration costs
|
|
4
|
|
|
12
|
|
|
14
|
|
Goodwill impairment charge
|
|
22
|
|
|
—
|
|
|
—
|
|
LLA impairment charge
|
|
10
|
|
|
—
|
|
|
11
|
|
|
|
|
|
|
|
|
Arbitration awards and settlements, net
|
|
—
|
|
|
(9)
|
|
|
(683)
|
|
Adjusted operating expense
|
|
$
|
754
|
|
|
$
|
597
|
|
|
$
|
647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
______________________________
(1) See Reconciliation of U.S GAAP IoT and BlackBerry Cylance revenue to adjusted IoT and BlackBerry Cylance revenue
(2) See “Fiscal 2020 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment”
Reconciliation of GAAP net income (loss) and GAAP basic earnings per share for the years ended February 29, 2020, February 28, 2019 and February 28, 2018 to the adjusted net income and adjusted basic earnings per share is reflected in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended (in millions, except per share amounts)
|
|
February 29, 2020
|
|
|
|
February 28, 2019
|
|
|
|
February 28, 2018
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
Basic earnings per share
|
|
|
|
Basic earnings per share
|
Net income (loss)
|
|
$
|
(152)
|
|
|
$
|
(0.27)
|
|
|
$
|
93
|
|
|
$
|
0.17
|
|
|
$
|
405
|
|
|
$
|
0.76
|
|
Software deferred revenue acquired
|
|
59
|
|
|
|
|
12
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
10
|
|
|
|
|
11
|
|
|
|
|
78
|
|
|
|
Stock compensation expense
|
|
63
|
|
|
|
|
68
|
|
|
|
|
49
|
|
|
|
Debenture fair value adjustment
|
|
(66)
|
|
|
|
|
(117)
|
|
|
|
|
191
|
|
|
|
Software deferred commission expense acquired
|
|
(16)
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
Acquired intangibles amortization
|
|
141
|
|
|
|
|
82
|
|
|
|
|
95
|
|
|
|
Business acquisition and integration costs
|
|
4
|
|
|
|
|
12
|
|
|
|
|
14
|
|
|
|
Goodwill impairment charge
|
|
22
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
LLA impairment charge
|
|
10
|
|
|
|
|
—
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arbitration awards and settlements, net
|
|
—
|
|
|
|
|
(9)
|
|
|
|
|
(806)
|
|
|
|
Acquisition valuation allowance
|
|
(1)
|
|
|
|
|
(21)
|
|
|
|
|
—
|
|
|
|
Adjusted net income
|
|
$
|
74
|
|
|
$0.13
|
|
|
$
|
131
|
|
|
$0.24
|
|
|
$
|
72
|
|
|
$0.14
|
|
Reconciliation of U.S GAAP IoT, BlackBerry Cylance and software and services revenue for the years ended February 29, 2020, February 28, 2019 and February 28, 2018 to adjusted IoT, BlackBerry Cylance and software and services revenue is reflected in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended (in millions)
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
IoT Revenue
|
|
$
|
540
|
|
|
$
|
554
|
|
|
$
|
551
|
|
|
|
|
|
|
|
|
Software deferred revenue acquired
|
|
2
|
|
|
11
|
|
|
35
|
|
Adjusted IoT revenue
|
|
$
|
542
|
|
|
$
|
565
|
|
|
$
|
586
|
|
|
|
|
|
|
|
|
BlackBerry Cylance Revenue
|
|
$
|
151
|
|
|
$
|
5
|
|
|
$
|
—
|
|
Software deferred revenue acquired
|
|
57
|
|
|
1
|
|
|
—
|
|
Adjusted BlackBerry Cylance revenue
|
|
$
|
208
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Software and Services revenue
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,040
|
|
|
$
|
904
|
|
|
$
|
932
|
|
Less: Other revenue
|
|
21
|
|
|
59
|
|
|
185
|
|
Software and Services revenue
|
|
$
|
1,019
|
|
|
$
|
845
|
|
|
$
|
747
|
|
Software deferred revenue acquired
|
|
59
|
|
|
12
|
|
|
35
|
|
Adjusted software and services revenue
|
|
$
|
1,078
|
|
|
$
|
857
|
|
|
$
|
782
|
|
Reconciliation of U.S GAAP research and development, selling, marketing and administration, and amortization expense for the years ended February 29, 2020, February 28, 2019 and February 28, 2018 to adjusted research and development, selling, marketing and administration, and amortization expense is reflected in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended (in millions)
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Research and development
|
|
$
|
259
|
|
|
$
|
219
|
|
|
$
|
239
|
|
Restructuring charges
|
|
—
|
|
|
2
|
|
|
5
|
|
Stock compensation expense
|
|
13
|
|
|
12
|
|
|
12
|
|
Adjusted research and development
|
|
$
|
246
|
|
|
$
|
205
|
|
|
$
|
222
|
|
|
|
|
|
|
|
|
Selling, marketing and administration
|
|
$
|
493
|
|
|
$
|
409
|
|
|
$
|
476
|
|
Restructuring charges
|
|
5
|
|
|
7
|
|
|
62
|
|
Software deferred commission expense acquired
|
|
(16)
|
|
|
—
|
|
|
—
|
|
Stock compensation expense
|
|
45
|
|
|
52
|
|
|
33
|
|
Business acquisition and integration costs
|
|
4
|
|
|
12
|
|
|
14
|
|
Adjusted selling, marketing and administration
|
|
$
|
455
|
|
|
$
|
338
|
|
|
$
|
367
|
|
|
|
|
|
|
|
|
Amortization
|
|
$
|
194
|
|
|
$
|
136
|
|
|
$
|
153
|
|
Acquired intangibles amortization
|
|
141
|
|
|
82
|
|
|
95
|
|
Adjusted amortization
|
|
$
|
53
|
|
|
$
|
54
|
|
|
$
|
58
|
|
Adjusted operating income, adjusted EBITDA, adjusted operating income margin percentage and adjusted EBITDA margin percentage for the three months ended February 29, 2020, February 28, 2019 and February 28, 2018 are reflected in the table below. These are non-GAAP financial measures that do not have any standardized meaning as prescribed by U.S. GAAP and are therefore unlikely to be comparable to similar measures presented by other companies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended (in millions)
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Operating income (loss)
|
|
$
|
(41)
|
|
|
$
|
28
|
|
|
$
|
(17)
|
|
Non-GAAP adjustments to operating income (loss)
|
|
|
|
|
|
|
Software deferred revenue acquired
|
|
9
|
|
|
2
|
|
|
6
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
1
|
|
|
3
|
|
|
26
|
|
Stock compensation expense
|
|
17
|
|
|
14
|
|
|
13
|
|
Debenture fair value adjustment
|
|
5
|
|
|
(6)
|
|
|
(34)
|
|
Software deferred commission expense acquired
|
|
(3)
|
|
|
—
|
|
|
—
|
|
Acquired intangibles amortization
|
|
35
|
|
|
18
|
|
|
22
|
|
Business acquisition and integration costs
|
|
1
|
|
|
8
|
|
|
—
|
|
Goodwill impairment charge
|
|
22
|
|
|
—
|
|
|
—
|
|
LLA impairment charge
|
|
5
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Arbitration awards and settlements, net
|
|
—
|
|
|
(9)
|
|
|
—
|
|
Total non-GAAP adjustments to operating loss
|
|
92
|
|
|
30
|
|
|
33
|
|
Adjusted operating income
|
|
51
|
|
|
58
|
|
|
16
|
|
Amortization
|
|
52
|
|
|
33
|
|
|
39
|
|
Acquired intangibles amortization
|
|
(35)
|
|
|
(18)
|
|
|
(22)
|
|
Adjusted EBITDA
|
|
$
|
68
|
|
|
$
|
73
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
Adjusted revenue (per above)
|
|
$
|
291
|
|
|
$
|
257
|
|
|
$
|
239
|
|
Adjusted operating income margin % (1)
|
|
18
|
%
|
|
23
|
%
|
|
7
|
%
|
Adjusted EBITDA margin % (2)
|
|
23
|
%
|
|
28
|
%
|
|
14
|
%
|
______________________________
(1) Adjusted operating income margin % is calculated by dividing adjusted operating income by adjusted revenue
(2) Adjusted EBITDA margin % is calculated by dividing adjusted EBITDA by adjusted revenue
Adjusted operating income, adjusted EBITDA, adjusted operating income margin percentage and adjusted EBITDA margin percentage for the fiscal years ended February 29, 2020, February 28, 2019 and February 28, 2018 are reflected in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended (in millions)
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Operating income (loss)
|
|
$
|
(149)
|
|
|
$
|
60
|
|
|
$
|
283
|
|
Non-GAAP adjustments to operating income (loss)
|
|
|
|
|
|
|
Software deferred revenue acquired
|
|
59
|
|
|
12
|
|
|
35
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
10
|
|
|
11
|
|
|
78
|
|
Stock compensation expense
|
|
63
|
|
|
68
|
|
|
49
|
|
Debenture fair value adjustment
|
|
(66)
|
|
|
(117)
|
|
|
191
|
|
Software deferred commission expense acquired
|
|
(16)
|
|
|
—
|
|
|
—
|
|
Acquired intangibles amortization
|
|
141
|
|
|
82
|
|
|
95
|
|
Business acquisition and integration costs
|
|
4
|
|
|
12
|
|
|
14
|
|
Goodwill impairment charge
|
|
22
|
|
|
—
|
|
|
—
|
|
LLA impairment charge
|
|
10
|
|
|
—
|
|
|
11
|
|
|
|
|
|
|
|
|
Arbitration awards and settlements, net
|
|
—
|
|
|
(9)
|
|
|
(683)
|
|
Total non-GAAP adjustments to operating income
|
|
227
|
|
|
59
|
|
|
(210)
|
|
Adjusted operating income
|
|
78
|
|
|
119
|
|
|
73
|
|
Amortization
|
|
212
|
|
|
149
|
|
|
177
|
|
Acquired intangibles amortization
|
|
(141)
|
|
|
(82)
|
|
|
(95)
|
|
Adjusted EBITDA
|
|
$
|
149
|
|
|
$
|
186
|
|
|
$
|
155
|
|
|
|
|
|
|
|
|
Adjusted revenue (per above)
|
|
$
|
1,099
|
|
|
$
|
916
|
|
|
$
|
967
|
|
Adjusted operating income margin % (1)
|
|
7
|
%
|
|
13
|
%
|
|
8
|
%
|
Adjusted EBITDA margin % (2)
|
|
14
|
%
|
|
20
|
%
|
|
16
|
%
|
______________________________
(1) Adjusted operating income margin % is calculated by dividing adjusted operating income by adjusted revenue
(2) Adjusted EBITDA margin % is calculated by dividing adjusted EBITDA by adjusted revenue
Key Metrics
The Company regularly monitors a number of financial and operating metrics, including the following key metrics, in order to measure the Company’s current performance and estimate future performance. Readers are cautioned that recurring revenue percentage, annual recurring revenue (“ARR”), dollar-based net retention rate (“DBNRR”) and free cash flow do not have any standardized meaning prescribed by U.S. GAAP and are therefore unlikely to be comparable to similarly titled measures reported by other companies.
Billings
The Company defines billings as amounts invoiced less credits issued, with the exception of BlackBerry Cylance for which billings are defined as revenue recognized plus the change in deferred revenue from the beginning to the end of the period. The Company considers billings to be a useful metric because billings drive deferred revenue, which is an important indicator of the health and visibility of the business, and represents a significant percentage of future revenue.
The Company previously stated that it expected double-digit percentage billings growth in fiscal 2020. The Company’s billings grew by a double-digit percentage in fiscal 2020.
Enterprise achieved sequential billings growth in the high teen percentage in the fourth quarter of fiscal 2020, which quarter also marked the highest level of Enterprise billings in fiscal 2020.
BlackBerry Cylance billings also increased sequentially in the fourth quarter of fiscal 2020.
Recurring Revenue Percentage
The Company defines recurring revenue percentage as subscription, license and support revenue (which includes revenue relating to support for perpetual licenses), less IP licensing and professional services, for the period divided by total software and services revenue for the period. The Company uses recurring revenue percentage to provide visibility into the revenue expected to be recognized in the current and future periods.
The Company previously stated that it expected approximately 90% of total adjusted software and services revenue, excluding IP licensing and professional services, to be recurring in fiscal 2020. Total adjusted software and services revenue, excluding IP licensing and professional services, was greater than 90% recurring in the fourth quarter of fiscal 2020. Total software and services includes IoT, BlackBerry Cylance and Licensing.
Annual Recurring Revenue
The Company defines ARR as the annualized value of all active subscription contracts as of the end of the reporting period. The Company uses ARR as an indicator of business momentum for the BlackBerry Cylance product line.
BlackBerry Cylance ARR was approximately $167 million in the fourth quarter of fiscal 2020, an increase of approximately $14 million, or 9%, compared to approximately $153 million in the fourth quarter of fiscal 2019.
Dollar-Based Net Retention Rate
The Company defines DBNRR as the percentage of total annual contract value (“ACV”) from its subscription customer base at the end of a trailing 12-month period over the ACV of the same tranche of customers at the beginning of that 12-month period. The Company uses DBNRR to evaluate the long-term value of BlackBerry Cylance’s customer relationships, measuring the ability of the business to retain and expand recurring revenue from its existing customer base.
BlackBerry Cylance DBNRR was greater than 90% in the fourth quarter of fiscal 2020 and greater than 100% in the fourth quarter of fiscal 2019.
Free Cash Flow
Free cash flow is a measure of liquidity calculated as net operating cash flow minus capital expenditures. Free cash flow does not have any standardized meaning as prescribed by U.S. GAAP and therefore may not be comparable to similar measures presented by other companies. The Company uses free cash flow when assessing its sources of liquidity, capital resources, and quality of earnings. Free cash flow is helpful in understanding the Company’s capital requirements and provides an additional means to reflect the cash flow trends in the Company’s business. For the three months ended February 29, 2020, the Company’s net cash flow from operating activities was $35 million and capital expenditures were $3 million, resulting in the Company reporting free cash flow of $32 million which includes $4 million in restructuring payments associated with facilities.
For the fiscal year ended February 29, 2020, the Company’s net cash provided by operating activities was $26 million and capital expenditures were $12 million, resulting in the Company reporting free cash flow of $14 million which includes $17 million relating to acquisition and integration expenses, restructuring costs and legal proceeding.
Results of Operations - Fiscal year ended February 29, 2020 compared to fiscal year ended February 28, 2019
Revenue
Revenue by Product and Service
Comparative breakdowns of revenue by product and service on a U.S. GAAP basis are set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
Change
|
|
|
|
February 28, 2018
|
|
Change
|
|
|
Revenue by Product and Service
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IoT
|
$
|
540
|
|
|
$
|
554
|
|
|
$
|
(14)
|
|
|
|
|
$
|
551
|
|
|
$
|
3
|
|
|
|
BlackBerry Cylance
|
151
|
|
|
5
|
|
|
146
|
|
|
|
|
—
|
|
|
5
|
|
|
|
Licensing
|
328
|
|
|
286
|
|
|
42
|
|
|
|
|
196
|
|
|
90
|
|
|
|
Other
|
21
|
|
|
59
|
|
|
(38)
|
|
|
|
|
185
|
|
|
(126)
|
|
|
|
|
$
|
1,040
|
|
|
$
|
904
|
|
|
$
|
136
|
|
|
|
|
$
|
932
|
|
|
$
|
(28)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Revenue by Product and Service
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IoT
|
51.9
|
%
|
|
61.3
|
%
|
|
|
|
|
|
|
59.1
|
%
|
|
|
|
|
|
BlackBerry Cylance
|
14.5
|
%
|
|
0.6
|
%
|
|
|
|
|
|
|
—
|
%
|
|
|
|
|
|
Licensing
|
31.5
|
%
|
|
31.6
|
%
|
|
|
|
|
|
|
21.0
|
%
|
|
|
|
|
|
Other
|
2.1
|
%
|
|
6.5
|
%
|
|
|
|
|
|
|
19.9
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
IoT
IoT revenue was $540 million, or 51.9% of revenue in fiscal 2020, a decrease of $14 million compared to $554 million, or 61.3% of revenue in fiscal 2019. The decrease in IoT revenue of $14 million was primarily due to a decrease of $28 million from a lower number of Enterprise software licenses sold due to the reorganization of the Enterprise sales force in fiscal 2020 and a decrease of $13 million from lower BlackBerry QNX royalty volumes, partially offset by an increase of $19 million due to conversions of certain existing BlackBerry QNX royalty-bearing licenses to fixed pricing from volume-based pricing, resulting in recognition of the fixed price in the current period rather than as units are shipped (net of recurring royalties that would have been recognized without conversion) and an increase of $6 million related to BlackBerry QNX development seat revenues.
Adjusted IoT revenue was $542 million in fiscal 2020 compared to $565 million in fiscal 2019, representing a decrease of $23 million. The $23 million decrease in IoT revenue was primarily attributable to the same reasons described above on a U.S. GAAP basis and due to a decrease of $9 million in the non-GAAP adjustment of deferred software revenue acquired to $2 million in fiscal 2020 from $11 million in fiscal 2019.
The Company previously stated it expected BTS revenue growth of mid to high teen percentage in fiscal 2020 compared to 2019. BTS revenue grew by 5.9%, which was lower than expected due to the negative impacts of a slowdown in the automotive market and the COVID-19 pandemic. BTS revenue includes revenue from BlackBerry QNX, BlackBerry Certicom, BlackBerry Radar, Paratek and BlackBerry Jarvis.
The Company previously stated it expected Enterprise adjusted revenue growth of less than 12% in fiscal 2020. The Company also previously stated that it expected modest sequential growth in Enterprise adjusted revenue for the remainder of fiscal 2020. Enterprise adjusted revenue declined by 9.8% in fiscal 2020 and Enterprise adjusted revenue declined in the fourth quarter of fiscal 2020 versus the third quarter of fiscal 2020 due to reorganizations of the Enterprise sales force during fiscal 2020, which caused delays in developing and closing Enterprise sales transactions, and due to competitive upgrades to the Company’s Enterprise product features and suites not being introduced until late in the fiscal year.
In the second quarter of fiscal 2019, the Company previously stated that it expected to generate $100 million in cumulative revenue from its BlackBerry Radar asset tracking solution over the next three years. The Company no longer expects to generate this revenue within this time frame.
In fiscal 2021, the Company expects BlackBerry QNX revenue to be negatively impacted by a slowdown in automotive market related to the COVID-19 pandemic, the impact of which could be partially offset by increased customer demand for the Company’s endpoint security and productivity solutions that support business continuity and remote working environments, including the BlackBerry Spark platform, SecuSUITE and BlackBerry AtHoc.
BlackBerry Cylance
BlackBerry Cylance revenue was $151 million, or 14.5% of revenue in fiscal 2020, an increase of $146 million compared to $5 million, or 0.6% of revenue in fiscal 2019. The increase in BlackBerry Cylance revenue of $146 million was due to the acquisition of Cylance late in the fourth quarter of fiscal 2019; revenue reported in the prior year period related to BlackBerry Cybersecurity Services and seven days of BlackBerry Cylance revenue following its acquisition on February 21, 2019.
Adjusted BlackBerry Cylance revenue increased by $202 million to $208 million in fiscal 2020, compared to $6 million in fiscal 2019. The increase was primarily due to the same reason described above on a U.S. GAAP basis and due to an increase of $56 million in the non-GAAP adjustment of deferred software revenue acquired to $57 million in fiscal 2020 from $1 million in fiscal 2019.
Cylance recorded U.S. GAAP revenue of $175 million for the year ended February 28, 2019. After including BlackBerry Cybersecurity Services revenue, BlackBerry Cylance revenue was $178 million for the year ended February 28, 2019. Adjusted BlackBerry Cylance revenue was $208 million for the year ended February 29, 2020, representing an increase of $30 million, or 16.9% over the prior year period.
The Company previously stated that it expected adjusted BlackBerry Cylance revenue growth excluding BlackBerry Cybersecurity Services to be approximately 20% in fiscal 2020 on a base of $170 million. Adjusted BlackBerry Cylance revenue growth was 20.5% in fiscal 2020.
The Company previously stated that it expected the profitability of BlackBerry Cylance to improve through fiscal 2020. BlackBerry Cylance profitability at the end of fiscal 2020 was greater than at the end of fiscal 2019.
Licensing
Licensing revenue was $328 million, or 31.5% of revenue in fiscal 2020, an increase of $42 million compared to $286 million, or 31.6% of revenue in fiscal 2019. The increase in Licensing revenue of $42 million was primarily due to a $126 million increase in direct licensing arrangements consisting of patent licensing transactions and the BBM Consumer licensing arrangement and $4 million related to the sale of IP, partially offset by a $78 million decrease in revenue from the Company’s patent licensing agreement with Teletry and the impact of $11 million received from an IP settlement in fiscal 2019 which did not recur in fiscal 2020. The revenue recognized for the BBM Consumer licensing arrangement was due to the shut down of the BBM Consumer service by the licensee, as a result of which all of the Company’s performance obligations were completed and an assessment of the amount of revenue for which significant reversal was not probable was performed.
The Company previously stated that it expected IP revenue to grow in fiscal 2020 over the prior fiscal year. Licensing revenue grew in fiscal 2020.
The Company previously stated that it expected Licensing revenue in the second half of fiscal 2020 to be higher than in the first half of fiscal 2020. Licensing revenue in the second half of fiscal 2020 was higher than the first half of fiscal 2020.
The Company expects Licensing revenue of approximately $250 million in fiscal 2021.
Other
Other revenue was $21 million, or 2.1% of revenue in fiscal 2020 compared to $59 million, or 6.5% of revenue in fiscal 2019, representing a decrease of $38 million. The decrease in Other revenue of $38 million was primarily attributable to a decrease in SAF revenue and revenue from the legacy handheld business. The decrease in SAF revenue is primarily attributable to a lower number of BlackBerry 7 users and lower revenue from those users compared to fiscal 2019. The decrease in revenue from the legacy handheld business is primarily attributable to the release of previously accrued amounts in fiscal 2019 when the Company determined it had no further performance obligations, which did not recur in fiscal 2020.
The Company previously stated that it expected SAF revenue of between $10 million and $20 million in fiscal 2020. SAF revenue was approximately $21 million in fiscal 2020.
Adjusted Total Revenue and Software and Services
The Company previously stated that it expected adjusted total Company revenue growth of between 23% and 25% over the prior fiscal year. Adjusted total Company revenue growth was 20.0% in fiscal 2020, lower than expectations due to the reasons described above in IoT.
The Company previously stated that it expected total adjusted software and services revenue growth, excluding the revenue growth of BlackBerry Cylance, over the prior fiscal year. Total adjusted software and services revenue excluding BlackBerry Cylance grew by 2.2% in fiscal 2020.
U.S. GAAP Revenue by Geography
Comparative breakdowns of the geographic regions on a U.S. GAAP basis are set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
Change
|
|
|
|
February 28, 2018
|
|
Change
|
|
|
Revenue by Geography
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
743
|
|
|
$
|
599
|
|
|
$
|
144
|
|
|
|
|
$
|
540
|
|
|
$
|
59
|
|
|
|
Europe, Middle East and Africa
|
221
|
|
|
222
|
|
|
(1)
|
|
|
|
|
278
|
|
|
(56)
|
|
|
|
Other
|
76
|
|
|
83
|
|
|
(7)
|
|
|
|
|
114
|
|
|
(31)
|
|
|
|
|
$
|
1,040
|
|
|
$
|
904
|
|
|
$
|
136
|
|
|
|
|
$
|
932
|
|
|
$
|
(28)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Revenue by Geography
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
71.4
|
%
|
|
66.2
|
%
|
|
|
|
|
|
|
58.0
|
%
|
|
|
|
|
|
Europe, Middle East and Africa
|
21.3
|
%
|
|
24.6
|
%
|
|
|
|
|
|
|
29.8
|
%
|
|
|
|
|
|
Latin America
|
7.3
|
%
|
|
9.2
|
%
|
|
|
|
|
|
|
12.2
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Revenue
Revenue in North America was $743 million, or 71.4% of revenue, in fiscal 2020, reflecting an increase of $144 million compared to $599 million, or 66.2% of revenue in fiscal 2019. The increase in North American revenue is primarily due to increases of $121 million in BlackBerry Cylance and $47 million in Licensing revenue, partially offset by decreases of $13 million in Other revenue and $12 million in IoT revenue, due to the reasons discussed above in “Revenue by Product and Service”.
Europe, Middle East and Africa Revenue
Revenue in Europe, Middle East and Africa was $221 million, or 21.3% of revenue, in fiscal 2020, reflecting a decrease of $1 million compared to $222 million, or 24.6% of revenue, in fiscal 2019. The decrease in revenue is primarily due to decrease of $18 million in Other revenue, partially offset by an increase of $17 million in BlackBerry Cylance revenue, due to the reasons discussed above in “Revenue by Product and Service”.
Other Regions Revenue
Revenue in other regions was $76 million, or 7.3% of revenue, in fiscal 2020, reflecting a decrease of $7 million compared to $83 million, or 9.2% of revenue, in fiscal 2019. The decrease in revenue is primarily due to decreases in Other, Licensing and IoT revenue, partially offset by an increase in BlackBerry Cylance revenue. The decrease of $8 million in Other revenue and $4 million in IoT revenue are primarily due to the reasons discussed above in “Revenue by Product and Service”. The decrease in Licensing revenue is primarily due to a decrease of $5 million in revenue from mobility licensing arrangements. The increase in BlackBerry Cylance revenue of $10 million was primarily due to the reasons discussed above in “Revenue by Product and Service”.
Gross Margin
Consolidated Gross Margin
Consolidated gross margin increased by $65 million to approximately $763 million in fiscal 2020 from $698 million in fiscal 2019. The increase was primarily due to an increase in gross margin associated with BlackBerry Cylance and Licensing, partially offset by a decrease in gross margin associated with Other and IoT revenue due to the reasons discussed above in “Revenue by Product and Service”.
The increase in gross margin associated with BlackBerry Cylance and Licensing is primarily due to the reasons discussed above in “Revenue by Product and Service”. The decrease in gross margin associated with Other revenue is primarily due to the decline in SAF revenue discussed above in “Revenue by Product and Service”, as cost of goods sold associated with SAF were consistent in fiscal 2020 and fiscal 2019 due to certain fixed costs associated with SAF infrastructure. The decrease in gross margin associated with IoT revenue is primarily due to the decline in Enterprise revenue discussed above in “Revenue by Product and Service.
Consolidated Gross Margin Percentage
Consolidated gross margin percentage decreased by 3.8%, to approximately 73.4% of consolidated revenue in fiscal 2020 from 77.2% of consolidated revenue in fiscal 2019. The decrease was primarily due to a lower gross margin percentage associated with BlackBerry Cylance, which has a higher proportion of revenue related to professional services and due to a lower gross margin percentage in IoT revenue due to the decline in Enterprise revenue discussed above in “Revenue by Product and Service.
The Company previously stated that it expected adjusted gross margin to be between 74% and 75% for fiscal 2020. Adjusted gross margin was 75.7% for fiscal 2020.
Operating Expenses
The table below presents a comparison of research and development, selling, marketing and administration, and amortization expense for fiscal 2020 compared to fiscal 2019 and fiscal 2019 compared to fiscal 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
|
|
February 28, 2019
|
|
|
|
Change
|
|
|
February 28, 2018
|
|
Change
|
Revenue
|
$
|
1,040
|
|
|
|
|
$
|
904
|
|
|
|
|
$
|
136
|
|
|
|
$
|
932
|
|
|
$
|
(28)
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
259
|
|
|
|
|
219
|
|
|
|
|
$
|
40
|
|
|
|
239
|
|
|
$
|
(20)
|
|
Selling, marketing and administration
|
493
|
|
|
|
|
409
|
|
|
|
|
84
|
|
|
|
476
|
|
|
(67)
|
|
Amortization
|
194
|
|
|
|
|
136
|
|
|
|
|
58
|
|
|
|
153
|
|
|
(17)
|
|
Impairment of goodwill
|
22
|
|
|
|
|
—
|
|
|
|
|
22
|
|
|
|
—
|
|
|
—
|
|
Impairment of long-lived assets
|
10
|
|
|
|
|
—
|
|
|
|
|
10
|
|
|
|
11
|
|
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures fair value adjustment
|
(66)
|
|
|
|
|
(117)
|
|
|
|
|
51
|
|
|
|
191
|
|
|
(308)
|
|
Arbitration awards and settlements, net
|
—
|
|
|
|
|
(9)
|
|
|
|
|
9
|
|
|
|
(683)
|
|
|
674
|
|
Total
|
$
|
912
|
|
|
|
|
$
|
638
|
|
|
|
|
$
|
274
|
|
|
|
$
|
387
|
|
|
$
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expense as % of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
24.9
|
%
|
|
|
|
24.2
|
%
|
|
|
|
|
|
|
25.6
|
%
|
|
|
Selling, marketing and administration
|
47.4
|
%
|
|
|
|
45.2
|
%
|
|
|
|
|
|
|
51.1
|
%
|
|
|
Amortization
|
18.7
|
%
|
|
|
|
15.0
|
%
|
|
|
|
|
|
|
16.4
|
%
|
|
|
Impairment of goodwill
|
2.1
|
%
|
|
|
|
—
|
%
|
|
|
|
|
|
|
—
|
%
|
|
|
Impairment of long-lived assets
|
1.0
|
%
|
|
|
|
—
|
%
|
|
|
|
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures fair value adjustment
|
(6.3)
|
%
|
|
|
|
(12.9)
|
%
|
|
|
|
|
|
|
20.5
|
%
|
|
|
Arbitration awards and settlements, net
|
—
|
%
|
|
|
|
(1.0)
|
%
|
|
|
|
|
|
|
(73.3)
|
%
|
|
|
Total
|
87.7
|
%
|
|
|
|
70.5
|
%
|
|
|
|
|
|
|
41.5
|
%
|
|
|
See “Non-GAAP Financial Measures” for a reconciliation of selected GAAP-based measures to adjusted measures for the years ended February 29, 2020, February 28, 2019 and February 28, 2018.
U.S. GAAP Operating Expenses
Operating expenses increased by $274 million, or 42.9%, to $912 million, or 87.7% of revenue in fiscal 2020, compared to $638 million, or 70.5% of revenue, in fiscal 2019. The increase was attributable to an increase in salaries and benefits expense of $82 million and an increase in amortization expense of $58 million primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019, the difference between the Fiscal 2020 Debentures Fair Value Adjustment and Fiscal 2019 Debentures Fair Value Adjustment of $51 million, an increase of $22 million in goodwill impairment, costs associated with direct IP licensing arrangements of $18 million, an increase in marketing and advertising costs of $17 million, and long-lived asset impairment of $10 million, partially offset by $10 million in expenses reimbursed by the Ministry of Innovation, Science and Economic Development Canada through its Strategic Innovation Fund program’s investment in BlackBerry QNX (the “SIF Claims”) and a decrease of $8 million in Cylance acquisition costs from fiscal 2019 which did not recur.
Adjusted Operating Expenses
Adjusted operating expenses increased by $157 million, or 26.3%, to $754 million in the fiscal 2020, compared to $597 million in fiscal 2019. The increase was primarily attributable to an increase in salaries and benefits expense of $83 million, an increase of $22 million in sales incentive plan costs and a $17 million increase in marketing and advertising cost primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019, partially offset by $10 million from the SIF Claims.
Research and Development Expenses
Research and development expenses consist primarily of salaries and benefits for technical personnel, new product development costs, travel, office and building costs, infrastructure costs and other employee costs.
Research and development expenses increased by $40 million, or 18.3%, to $259 million, or 24.9% of revenue, in fiscal 2020, compared to $219 million, or 24.2% of revenue, in fiscal 2019. The increase was primarily attributable to an increase in salaries and benefits expense of $37 million, an increase of $6 million in professional service costs, and a $4 million increase in infrastructure cost primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019, partially offset by $10 million from the SIF Claims.
Adjusted research and development expenses increased by $41 million, or 20.0% to $246 million in fiscal 2020 compared to $205 million in fiscal 2019. The increase was primarily due to the same reasons described above on a U.S. GAAP basis.
Selling, Marketing and Administration Expenses
Selling, marketing and administration expenses consist primarily of marketing, advertising and promotion, salaries and benefits, external advisory fees, information technology costs, office and related staffing infrastructure costs and travel expenses.
Selling, marketing and administration expenses increased by $84 million, or 20.5%, to $493 million, or 47.4% of revenue, in fiscal 2020 compared to $409 million in fiscal 2019, or 45.2% of revenue. The increase was primarily attributable to an increase in salaries and benefits expense of $44 million and an increase of $7 million in sales incentive plan costs primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019, costs associated with a direct IP licensing arrangement of $18 million, and a marketing and advertising cost increase of $17 million, partially offset by a decrease in stock compensation expense of $9 million and a decrease in professional services of $8 million in Cylance acquisition costs from fiscal 2019 which did not recur.
Adjusted selling, marketing and administration expenses increased by $117 million, or 34.6%, to $455 million in fiscal 2020 compared to $338 million in fiscal 2019. The increase was primarily attributable to an increase in salaries and benefits expense of $46 million, an increase of $22 million in sales incentive plan costs, a marketing and advertising cost increase of $17 million, and an increase in infrastructure cost of $8 million primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019 and an increase of $8 million in legal costs, partially offset by a decrease in accounting expense of $2 million.
Amortization Expense
The table below presents a comparison of amortization expense relating to property, plant and equipment and intangible assets recorded as amortization or cost of sales for fiscal 2020 compared to fiscal 2019 and fiscal 2019 compared to fiscal 2018. Intangible assets are comprised of patents, licenses and acquired technology.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Included in Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
Change
|
|
|
|
February 28, 2018
|
|
Change
|
Property, plant and equipment
|
$
|
18
|
|
|
$
|
14
|
|
|
$
|
4
|
|
|
|
|
$
|
18
|
|
|
$
|
(4)
|
|
Intangible assets
|
176
|
|
|
122
|
|
|
54
|
|
|
|
|
135
|
|
|
(13)
|
|
Total
|
$
|
194
|
|
|
$
|
136
|
|
|
$
|
58
|
|
|
|
|
$
|
153
|
|
|
$
|
(17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
Change
|
|
|
|
February 28, 2018
|
|
Change
|
Property, plant and equipment
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
|
|
$
|
18
|
|
|
$
|
(12)
|
|
Intangible assets
|
12
|
|
|
7
|
|
|
5
|
|
|
|
|
6
|
|
|
1
|
|
Total
|
$
|
18
|
|
|
$
|
13
|
|
|
$
|
5
|
|
|
|
|
$
|
24
|
|
|
$
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization included in Operating Expense
Amortization expense relating to certain property, plant and equipment and intangible assets increased by $58 million to $194 million for fiscal 2020, compared to $136 million for fiscal 2019. The increase in amortization expense primarily reflects the amortization of assets acquired in the Cylance acquisition.
Adjusted amortization expense decreased by $1 million.
Amortization included in Cost of Sales
Amortization expense relating to certain property, plant and equipment and intangible assets employed in the Company’s service operations increased by $5 million to $18 million for fiscal 2020, compared to $13 million for fiscal 2019. This increase primarily reflects the full depreciation of certain assets, partially offset by a portion of the amortization of patents being classified as cost of goods sold due to the Company’s intellectual property licensing arrangements.
Investment Income, Net
Investment income, net, which includes the interest expense from the Debentures, decreased by $16 million to income of $1 million in fiscal 2020, from income of $17 million in fiscal 2019. The decreased investment income was due to lower cash and investment balances in fiscal 2020 versus fiscal 2019 as a result of the use of cash to fund the Cylance acquisition.
Income Taxes
For fiscal 2020, the Company’s net effective income tax expense rate was approximately 3%, compared to a net effective income tax recovery of approximately 21% for the prior fiscal year. The Company’s net effective income tax rate reflects the fact that the Company has a significant valuation allowance against its deferred tax assets, and in particular, the change in fair value of the Debentures, amongst other items, was 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 adjusted net effective income tax expense rate was approximately 6%, compared to approximately 4% for the same period in the prior fiscal year. The increase is due to current year taxable items that could not be offset with carried forward tax attributes such as tax losses.
Net Income
The Company’s net loss for fiscal 2020 was $152 million, reflecting a decrease in net income of $245 million compared to net income of $93 million in fiscal 2019, primarily due to an increase in operating expenses, as described above in “Operating Expenses”, and a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”, partially offset by an increase in revenue as described above in “Revenue by Product and Service”.
Adjusted net income for fiscal 2020 was $74 million compared to $131 million in fiscal 2019, reflecting a decrease in adjusted net income of $57 million, primarily due to an increase in operating expenditures and a decrease in the gross margin percentage, partially offset by an increase in revenue.
Basic loss per share on a U.S. GAAP basis was $0.27 and diluted loss per share on a U.S. GAAP basis was $0.32 in fiscal 2020, a decrease in earnings per share of $0.44 and $0.32, respectively, compared to basic earnings per share on a U.S. GAAP basis of $0.17 and diluted earnings per share on a U.S. GAAP basis of $0.00 in fiscal 2019.
The weighted average number of shares outstanding was 554 million and 614 million for basic and diluted loss per share, respectively, for the fiscal year ended February 29, 2020. The weighted average number of shares outstanding was 540 million and 616 million for basic and diluted earnings per share, respectively, for the fiscal year ended February 28, 2019.
The Company previously stated its expectations of achieving adjusted earnings per share of approximately $0.08 for fiscal 2020. Adjusted earnings per share were $0.13 in fiscal 2020 primarily due to better than expected Licensing revenue in the fourth quarter and continued demonstration of cost discipline.
Common Shares Outstanding
On March 26, 2020, there were 554 million voting common shares, options to purchase 6 million voting common shares, 24 million restricted share units and 1 million deferred share units outstanding. In addition, 60.5 million common shares are issuable upon conversion in full of the Debentures.
The Company has not paid any cash dividends during the last three fiscal years.
Results of Operations - Three months ended February 29, 2020 compared to the three months ended February 28, 2019
The following section sets forth certain unaudited consolidated statements of operations data, which is expressed in millions of dollars, except for share and per share amounts and as a percentage of revenue, for the three months ended February 29, 2020, February 28, 2019 and February 28, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
(in millions, except for share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
|
|
February 28, 2019
|
|
|
|
Change
|
|
February 28, 2018
|
|
Change
|
Revenue
|
$
|
282
|
|
|
|
|
$
|
255
|
|
|
|
|
$
|
27
|
|
|
$
|
233
|
|
|
$
|
22
|
|
Gross margin
|
212
|
|
|
|
|
206
|
|
|
|
|
6
|
|
|
177
|
|
|
29
|
|
Operating expenses
|
253
|
|
|
|
|
178
|
|
|
|
|
75
|
|
|
194
|
|
|
(16)
|
|
Investment income, net
|
(1)
|
|
|
|
|
4
|
|
|
|
|
(5)
|
|
|
3
|
|
|
1
|
|
Income (loss) before income taxes
|
(42)
|
|
|
|
|
32
|
|
|
|
|
(74)
|
|
|
(14)
|
|
|
46
|
|
Recovery of income taxes
|
(1)
|
|
|
|
|
(19)
|
|
|
|
|
18
|
|
|
(4)
|
|
|
(15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(41)
|
|
|
|
|
$
|
51
|
|
|
|
|
$
|
(92)
|
|
|
$
|
(10)
|
|
|
$
|
61
|
|
Earnings (loss) per share - reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.07)
|
|
|
|
|
$
|
0.09
|
|
|
|
|
$
|
(0.16)
|
|
|
$
|
(0.02)
|
|
|
$
|
0.11
|
|
Diluted (1)
|
$
|
(0.07)
|
|
|
|
|
$
|
0.08
|
|
|
|
|
$
|
(0.15)
|
|
|
$
|
(0.06)
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding (000’s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
556,668
|
|
|
|
|
547,272
|
|
|
|
|
|
|
536,594
|
|
|
|
|
Diluted (1)
|
556,668
|
|
|
|
|
615,593
|
|
|
|
|
|
|
597,094
|
|
|
|
|
______________________________
(1)Diluted loss per share on a U.S. GAAP basis in the fourth quarter of 2020 does not include the dilutive effect of the Debentures as to do so would be anti-dilutive. Diluted loss per share on a U.S. GAAP basis for fiscal 2020 and fiscal 2018 do not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive.
Revenue
Revenue by Product and Service
Comparative breakdowns of revenue by product and service on a U.S. GAAP basis are set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
Change
|
|
|
|
February 28, 2018
|
|
Change
|
|
|
Revenue by Product and Service
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IoT
|
$
|
127
|
|
|
$
|
144
|
|
|
$
|
(17)
|
|
|
|
|
$
|
154
|
|
|
$
|
(10)
|
|
|
|
BlackBerry Cylance
|
43
|
|
|
3
|
|
|
40
|
|
|
|
|
—
|
|
|
3
|
|
|
|
Licensing
|
108
|
|
|
99
|
|
|
9
|
|
|
|
|
58
|
|
|
41
|
|
|
|
Other
|
4
|
|
|
9
|
|
|
(5)
|
|
|
|
|
21
|
|
|
(12)
|
|
|
|
|
$
|
282
|
|
|
$
|
255
|
|
|
$
|
27
|
|
|
|
|
$
|
233
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Revenue by Product and Service
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IoT
|
45.0
|
%
|
|
56.5
|
%
|
|
|
|
|
|
|
66.1
|
%
|
|
|
|
|
BlackBerry Cylance
|
15.2
|
%
|
|
1.2
|
%
|
|
|
|
|
|
—
|
%
|
|
|
|
|
Licensing
|
38.3
|
%
|
|
38.8
|
%
|
|
|
|
|
|
24.9
|
%
|
|
|
|
|
Other
|
1.5
|
%
|
|
3.5
|
%
|
|
|
|
|
|
9.0
|
%
|
|
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
IoT
IoT revenue was $127 million, or 45.0% of revenue, in the fourth quarter of fiscal 2020, a decrease of $17 million compared to $144 million, or 56.5% of revenue, in the fourth quarter of fiscal 2019. The decrease in IoT revenue of $17 million was primarily due to a decrease of $13 million due to a lower number of Enterprise software licenses sold and a decrease of $7 million in recurring royalties in BlackBerry QNX due to the conversion in prior periods of certain existing royalty-bearing licenses to fixed pricing from volume-based pricing, resulting in recognition of the fixed price in prior periods, partially offset by an increase of $3 million in tablet sales in Secusmart.
Adjusted IoT revenue was $127 million in the fourth quarter of fiscal 2020, a decrease of $18 million compared to $145 million in the fourth quarter of fiscal 2019. Adjusted IoT revenue decreased due to the reasons described above on a U.S. GAAP basis and due to a decrease of $1 million in the non-GAAP adjustment of deferred software revenue acquired to nil in the fourth quarter of fiscal 2020 from $1 million in the fourth quarter of fiscal 2019.
The Company believes that BlackBerry QNX revenue was negatively impacted by a slowdown in automotive market related to the COVID-19 pandemic in the fourth quarter of fiscal 2020.
BlackBerry Cylance
BlackBerry Cylance revenue was $43 million, or 15.2% of revenue, in the fourth quarter of fiscal 2020, an increase of $40 million compared to $3 million, or 1.2% of revenue, in the fourth quarter of fiscal 2019. The increase in BlackBerry Cylance revenue of $40 million was due to the acquisition of Cylance late in the fourth quarter of fiscal 2019; revenue reported in the prior year period related to BlackBerry Cybersecurity Services which has been reclassified as a component of BlackBerry Cylance revenue, and seven days of BlackBerry Cylance revenue.
Adjusted BlackBerry Cylance revenue was $52 million in the fourth quarter of fiscal 2020, an increase of $48 million compared to $4 million in the fourth quarter of fiscal 2019. The increase in adjusted BlackBerry Cylance revenue of $48 million was due to the same reason described above on a U.S. GAAP basis and due to an increase of $8 million in the non-GAAP adjustment of deferred software revenue acquired to $9 million in the fourth quarter of fiscal 2020 from $1 million in the fourth quarter of fiscal 2019; revenue reported in the prior year period related to BlackBerry Cybersecurity Services and seven days of BlackBerry Cylance revenue.
Cylance recorded U.S. GAAP revenue of $49 million for the three months ended February 28, 2019. After including BlackBerry Cybersecurity Services revenue, Cylance revenue was $50 million for the three months ended February 28, 2019. Adjusted BlackBerry Cylance revenue was $52 million for the three months ended February 29, 2020, representing an increase of $2 million, or 3.9% over the prior year period.
Licensing
Licensing revenue was $108 million, or 38.3% of revenue, in the fourth quarter of fiscal 2020, an increase of $9 million compared to $99 million, or 38.8% of revenue, in the fourth quarter of fiscal 2019. The increase in Licensing revenue of $9 million was primarily due to an increase of $75 million in direct licensing arrangements consisting of the BBM Consumer licensing arrangement and patent licensing transactions and $4 million related to the sale of IP, partially offset by a $67 million decrease in revenue from the Company’s patent licensing agreement with Teletry. The revenue recognized for the BBM Consumer licensing arrangement was due to the shut down of the BBM Consumer service by the licensee, as a result of which all of the Company’s performance obligations were completed and an assessment of the amount of revenue for which significant reversal was not probable was performed.
Other
Other revenue includes revenue from SAF and the Company’s legacy handheld devices business. Other revenue was $4 million related to SAF, or 1.5% of revenue, in the fourth quarter of fiscal 2020, compared to $9 million, or 3.5% of revenue, in the fourth quarter of fiscal 2019, representing a decrease of $5 million. The decrease in Other revenue of $5 million was attributable to a decrease in SAF revenue. The decrease in SAF revenue, which is generated from users of BlackBerry 7 and prior BlackBerry operating systems is primarily attributable to a lower number of BlackBerry 7 users and lower revenue from those users compared to the fourth quarter of fiscal 2019.
Adjusted Revenue - Fourth Quarter vs. First Quarter
The Company previously stated that it expected adjusted revenue to be lower in the first quarter of fiscal 2020 than in the fourth quarter of fiscal 2020. Adjusted revenue was lower in the first quarter of fiscal 2020 compared to the fourth quarter of fiscal 2020.
U.S. GAAP Revenue by Geography
Comparative breakdowns of the geographic regions are set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
Change
|
|
|
|
February 28, 2018
|
|
Change
|
Revenue by Geography
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
213
|
|
|
$
|
176
|
|
|
$
|
37
|
|
|
|
|
$
|
147
|
|
|
$
|
29
|
|
Europe, Middle East and Africa
|
53
|
|
|
61
|
|
|
(8)
|
|
|
|
|
63
|
|
|
(2)
|
|
Other regions
|
16
|
|
|
18
|
|
|
(2)
|
|
|
|
|
23
|
|
|
(5)
|
|
|
$
|
282
|
|
|
$
|
255
|
|
|
$
|
27
|
|
|
|
|
$
|
233
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Revenue by Geography
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
75.5
|
%
|
|
69.0
|
%
|
|
|
|
|
|
63.1
|
%
|
|
|
Europe, Middle East and Africa
|
18.8
|
%
|
|
23.9
|
%
|
|
|
|
|
|
27.0
|
%
|
|
|
Other regions
|
5.7
|
%
|
|
7.1
|
%
|
|
|
|
|
|
9.9
|
%
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
100.0
|
%
|
|
|
North America Revenue
Revenue in North America was $213 million, or 75.5% of revenue, in the fourth quarter of fiscal 2020, reflecting an increase of $37 million compared to $176 million, or 69.0% of revenue, in the fourth quarter of fiscal 2019. Revenue in North America increased compared to the fourth quarter of fiscal 2019 primary due to a $35 million increase in BlackBerry Cylance and $12 million increase in Licensing revenue due to the reasons discussed above in “Revenue by Product and Service”, partially offset by a decrease in IoT revenue due to a $8 million decrease in Enterprise software licenses sold.
Europe, Middle East and Africa Revenue
Revenue in Europe, Middle East and Africa was $53 million or 18.8% of revenue in the fourth quarter of fiscal 2020, reflecting a decrease of $8 million compared to $61 million or 23.9% of revenue in the fourth quarter of fiscal 2019. The decrease in revenue is primarily due to a decrease of $8 million in IoT revenue and a decrease of $3 million in Other revenue due to the reasons discussed above in “Revenue by Product and Service”, partially offset by an increase of $4 million in BlackBerry Cylance revenue for the reasons discussed above in “Revenue by Product and Service”.
Other Regions Revenue
Revenue in other regions was $16 million or 5.7% of revenue in the fourth quarter of fiscal 2020, reflecting a decrease of $2 million compared to $18 million or 7.1% of revenue in the fourth quarter of fiscal 2019. The decrease in revenue is primarily due to a decrease in Licensing revenue due to a $2 million decrease in revenue from mobility licensing arrangements and a $1 million decrease in Other revenue due to the reasons discussed above in “Revenue by Product and Service”, partially offset by an increase of $2 million in BlackBerry Cylance revenue due to the reasons discussed above in “Revenue by Product and Service”.
Gross Margin
Consolidated Gross Margin
Consolidated gross margin increased by $6 million to approximately $212 million in the fourth quarter of fiscal 2020 from $206 million in the fourth quarter of fiscal 2019. The increase was primarily due to increases in gross margin in BlackBerry Cylance and Licensing, partially offset by a decrease in gross margin associated with IoT and Other.
The increase in gross margin associated with BlackBerry Cylance and Licensing is primarily due to the increase in revenue discussed above in “Revenue by Product and Service”. The decrease in gross margin associated with IoT is primarily due to the reasons discussed above in “Revenue by Product and Service”. The decrease in gross margin associated with Other is due to the decline in SAF revenue discussed above in “Revenue by Product and Service”, as the cost of goods sold associated with SAF was consistent in the fourth quarter of fiscal 2020 and the fourth quarter of fiscal 2019 due to certain fixed costs associated with SAF infrastructure.
Consolidated Gross Percentage
Consolidated gross margin percentage decreased by 5.6%, to approximately 75.2% of consolidated revenue in the fourth quarter of fiscal 2020 from 80.8% of consolidated revenue in the fourth quarter of fiscal 2019. The decrease was primarily due to lower
gross margin percentage associated with BlackBerry Cylance, which has a higher proportion of revenue related to professional services and due to a lower gross margin percentage in IoT revenue due to the decline in Enterprise revenue discussed above in “Revenue by Product and Service”.
Operating Expenses
The table below presents a comparison of research and development, selling, marketing and administration, and amortization expenses for the quarter ended February 29, 2020, compared to the quarter ended November 30, 2019 and the quarter ended February 28, 2019. The Company believes it is also meaningful to provide a sequential comparison between the fourth quarter of fiscal 2020 and the third quarter of fiscal 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
|
|
November 30, 2019
|
|
|
|
February 28, 2019
|
|
|
February 28, 2018
|
Revenue
|
$
|
282
|
|
|
|
|
$
|
267
|
|
|
|
|
$
|
255
|
|
|
|
$
|
233
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
60
|
|
|
|
|
66
|
|
|
|
|
52
|
|
|
|
58
|
|
Selling, marketing and administration
|
113
|
|
|
|
|
129
|
|
|
|
|
110
|
|
|
|
131
|
|
Amortization
|
48
|
|
|
|
|
49
|
|
|
|
|
31
|
|
|
|
37
|
|
Impairment of long-lived assets
|
5
|
|
|
|
|
3
|
|
|
|
|
—
|
|
|
|
—
|
|
Impairment of goodwill
|
22
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
Loss on sale, disposal and abandonment of long-lived assets
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
2
|
|
Debentures fair value adjustment
|
5
|
|
|
|
|
(20)
|
|
|
|
|
(6)
|
|
|
|
(34)
|
|
Arbitration awards and settlements, net
|
—
|
|
|
|
|
—
|
|
|
|
|
(9)
|
|
|
|
—
|
|
Total
|
$
|
253
|
|
|
|
|
$
|
227
|
|
|
|
|
$
|
178
|
|
|
|
$
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expense as % of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
21.3
|
%
|
|
|
|
24.7
|
%
|
|
|
|
20.4
|
%
|
|
|
24.9
|
%
|
Selling, marketing and administration
|
40.1
|
%
|
|
|
|
48.3
|
%
|
|
|
|
43.1
|
%
|
|
|
56.2
|
%
|
Amortization
|
17.0
|
%
|
|
|
|
18.4
|
%
|
|
|
|
12.2
|
%
|
|
|
15.9
|
%
|
Impairment of long-lived assets
|
1.8
|
%
|
|
|
|
1.1
|
%
|
|
|
|
—
|
%
|
|
|
—
|
%
|
Impairment of goodwill
|
7.8
|
%
|
|
|
|
—
|
%
|
|
|
|
—
|
%
|
|
|
—
|
%
|
Loss on sale, disposal and abandonment of long-lived assets
|
—
|
%
|
|
|
|
—
|
%
|
|
|
|
—
|
%
|
|
|
0.9
|
%
|
Debentures fair value adjustment
|
1.8
|
%
|
|
|
|
(7.5)
|
%
|
|
|
|
(2.4)
|
%
|
|
|
(14.6)
|
%
|
Arbitration awards and settlements, net
|
—
|
%
|
|
|
|
—
|
%
|
|
|
|
(3.5)
|
%
|
|
|
—
|
%
|
Total
|
89.7
|
%
|
|
|
|
85.0
|
%
|
|
|
|
69.8
|
%
|
|
|
83.3
|
%
|
See “Non-GAAP Financial Measures” for a reconciliation of selected GAAP-based measures to adjusted measures for the three months ended February 29, 2020, November 30, 2019, February 28, 2019 and February 28, 2018.
U.S. GAAP Operating Expenses
Operating expenses increased by $26 million, or 11.5%, to $253 million, or 89.7%% of revenue, in the fourth quarter of fiscal 2020, compared to $227 million, or 85.0% of revenue, in the third quarter of fiscal 2020. The increase was primarily attributable to the difference between the Q4 Fiscal 2020 Debentures Fair Value Adjustment and Q3 Fiscal 2020 Debentures Fair Value Adjustment of $25 million and an increase of $22 million resulting from goodwill impairment, offset by a decrease in variable incentive plan costs of $8 million.
Operating expenses increased by $75 million, or 42.1%, to $253 million, or 89.7%% of revenue, in the fourth quarter of fiscal 2020, compared to $178 million, or 69.8% of revenue, in the fourth quarter of fiscal 2019. The increase was primarily attributable to the goodwill impairment of $22 million, an increase of $18 million in salaries and benefits expenses primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019, an increase of $11 million in the difference between the Q4 Fiscal 2020 Debentures Fair Value Adjustment and Q4 Fiscal 2019 Debentures Fair Value Adjustment and a decrease in arbitration awards and settlements, net of $9 million in fiscal 2019, partially offset by a decrease of $8 million in Cylance acquisition costs from the fourth quarter of fiscal 2019 which did not recur.
Adjusted Operating Expenses
Adjusted operating expenses decreased by $23 million, or 11.8%, to $172 million in the fourth quarter of fiscal 2020 compared to $195 million in the third quarter of fiscal 2020. The decrease was primarily attributable to a decrease of $8 million in variable incentive plan cost, a decrease of $4 million in bad debt expenses, a decrease of $3 million in marketing and advertising expense, and a $3 million decrease in infrastructure cost, partially offset by an increase of $2 million in sales incentive plan costs.
Adjusted operating expenses increased by $20 million, or 13.2%, to $172 million in the fourth quarter of fiscal 2020, compared to $152 million in the fourth quarter of fiscal 2019. The increase was primarily attributable to the increase of $18 million in salaries and benefits expense and an increase in sales incentive plan cost of $7 million primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019 and an increase of $3 million in legal cost, partially offset by decreases of $4 million in bad debt expense and $3 million in variable incentive plan costs.
Research and Development Expense
Research and development expenses consist primarily of salaries and benefits costs for technical personnel, new product development costs, travel expenses, office and building costs, infrastructure costs and other employee costs.
Research and development expenses increased by $8 million, or 15.4%, to $60 million in the fourth quarter of fiscal 2020 compared to $52 million in the fourth quarter of fiscal 2019. The increase was primarily attributable to the increase of $8 million in salaries and benefits expense primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019.
Adjusted research and development expenses increased by $8 million, or 16.3%, to $57 million in the fourth quarter of fiscal 2020 compared to $49 million in the fourth quarter of fiscal 2019. This increase was primarily attributable to an increase of $8 million in salaries and benefits costs.
Selling, Marketing and Administration Expenses
Selling, marketing and administration expenses consist primarily of marketing, advertising and promotion, salaries and benefits, external advisory fees, information technology costs, office and related staffing infrastructure costs and travel expenses.
Selling, marketing and administration expenses increased by $3 million, or 2.7%, to $113 million in the fourth quarter of fiscal 2020 compared to $110 million in the fourth quarter of fiscal 2019. This increase is primarily attributable to an increase of $10 million in salaries and benefits expense and an increase of $3 million in marketing and advertising expense, partially offset by a decrease of $8 million in Cylance acquisition costs from the fourth quarter of fiscal 2019 which did not recur and a decrease of $5 million in variable incentive plan expense.
Adjusted selling, marketing and administration expenses increased by $12 million, or 13.3%, to $102 million in the fourth quarter of fiscal 2020 compared to $90 million in the fourth quarter of fiscal 2019. This increase was primarily attributable to an increase of $10 million in salaries and benefits expense and a $7 million increase in sales incentive plan costs primarily due to the acquisition of Cylance in the fourth quarter of fiscal 2019, partially offset by a decrease in variable incentive plan expense of $4 million.
Amortization Expense
The table below presents a comparison of amortization expense relating to property, plant and equipment and intangible assets recorded as amortization or cost of sales for the quarter ended February 29, 2020 compared to the quarter ended February 28, 2019 and for the quarter ended February 28, 2019 compared to the quarter ended February 28, 2018. Intangible assets are comprised of patents, licenses and acquired technology.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Included in Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
Change
|
|
|
|
February 28, 2018
|
|
Change
|
Property, plant and equipment
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
|
|
$
|
5
|
|
|
$
|
(1)
|
|
Intangible assets
|
44
|
|
|
27
|
|
|
17
|
|
|
|
|
32
|
|
|
(5)
|
|
Total
|
$
|
48
|
|
|
$
|
31
|
|
|
$
|
17
|
|
|
|
|
$
|
37
|
|
|
$
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
Change
|
|
|
|
February 28, 2018
|
|
Change
|
Property, plant and equipment
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
$
|
2
|
|
|
$
|
(1)
|
|
Intangible assets
|
2
|
|
|
1
|
|
|
1
|
|
|
|
|
—
|
|
|
1
|
|
Total
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
|
|
$
|
2
|
|
|
$
|
—
|
|
Amortization included in Operating Expense
Amortization expense relating to certain property, plant and equipment and certain intangible assets increased by $17 million to $48 million for the fourth quarter of fiscal 2020 compared to $31 million for the fourth quarter of fiscal 2019. The increase in amortization expense reflects the intangible assets acquired as part of the Cylance acquisition in the fourth quarter of fiscal 2019.
Adjusted amortization in the fourth quarter of fiscal 2020 was consistent with the fourth quarter of fiscal 2019.
Amortization included in Cost of Sales
Amortization expense relating to certain property, plant and equipment and certain intangible assets employed in the Company’s service operations were $4 million in the fourth quarter of fiscal 2019 compared to $2 million for the fourth quarter of fiscal 2019. The increase is due to a higher portion of the amortization of patents being classified as cost of goods sold due to the Company’s IP licensing arrangements.
Investment Income, Net
Investment income, net, which includes the interest expense from the Debentures, decreased by $5 million to a loss of $1 million in the fourth quarter of fiscal 2020, compared to income of $4 million in the fourth quarter of fiscal 2019. The decrease in investment income was due to lower cash and investment balances in fiscal 2020 versus fiscal 2019 as a result of the use of cash to fund the Cylance acquisition.
Income Taxes
For the fourth quarter of fiscal 2020, the Company’s net effective income tax recovery rate was approximately 2%, compared to an effective income tax recovery rate of approximately 59% for the same period in the prior fiscal year. The Company’s net effective income tax rate reflects the fact that the Company has a significant valuation allowance against its deferred tax assets, and in particular, the change in fair value of the Debentures, amongst other items, was 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 adjusted net effective income tax recovery rate was approximately 2%, compared to a net effective income tax recovery rate of approximately 3% for the same period in the prior fiscal year. The increase is due to current year taxable items that could not be offset with carried forward tax attributes such as tax losses.
Net Income (Loss)
The Company’s net loss for the fourth quarter of fiscal 2020 was $41 million, or $0.07 basic loss per share and $0.07 diluted loss per share on a U.S. GAAP basis, reflecting a decrease in net income of $92 million compared to a net income of $51 million, or $0.09 basic earnings per share and $0.08 diluted earnings per share, in the fourth quarter of fiscal 2019. The decrease in net income of $92 million was primarily due to an increase in operating expenses, as described above in “Operating
Expenses”, and a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”, partially offset by an increase in revenue as described above in “Revenue by Product and Service”.
Adjusted net income was $51 million in the fourth quarter of fiscal 2020 compared to $60 million in the fourth quarter of fiscal 2019, reflecting a decrease in adjusted net income of $9 million primarily due to an increase in operating expenses as described above in “Operating Expenses” and a decrease in gross margin percentage, as described above in “Consolidated Gross Margin Percentage”, partially offset by an increase in revenue as described above in “Revenue by Product and Service”.
The Company previously stated that it expected adjusted earnings to be lower in the first quarter of fiscal 2020 than in the fourth quarter of fiscal 2020. Adjusted earnings was lower in the first quarter of fiscal 2020 compared to the fourth quarter of fiscal 2020.
The Company expects its financial performance in the first quarter of fiscal 2021 to be below that of the fourth quarter of fiscal 2020 due to the COVID-19 pandemic. The COVID-19 pandemic may also negatively impact the Company’s financial performance in the second quarter of fiscal 2021. The Company expects its financial performance in the second half of fiscal 2021 to be stronger than its financial performance in the first half of the fiscal year.
The weighted average number of shares outstanding was 557 million common shares for basic and diluted loss per share for the fourth quarter of fiscal 2020. The weighted average number of shares outstanding was 547 million common shares for basic earnings per share and 616 million common shares for diluted earnings per share for the fourth quarter of fiscal 2019.
Selected Quarterly Financial Data
The following table sets forth the Company’s unaudited quarterly consolidated results of operations data for each of the eight most recent quarters, including the quarter ended February 29, 2020. The information in the table below has been derived from the Company’s unaudited interim consolidated financial statements that, in management’s opinion, have been prepared on a basis consistent with the audited consolidated financial statements of the Company and include all adjustments necessary for a fair presentation of information when read in conjunction with the audited consolidated financial statements of the Company. The Company’s quarterly operating results have varied substantially in the past and may vary substantially in the future. Accordingly, the information below is not necessarily indicative of results for any future quarter.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2020
|
|
|
|
|
|
|
|
Fiscal Year 2019
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
Third
Quarter
|
|
Second
Quarter
|
|
First
Quarter
|
|
Fourth
Quarter
|
|
Third
Quarter
|
|
Second
Quarter
|
|
First
Quarter
|
Revenue
|
$
|
282
|
|
|
$
|
267
|
|
|
$
|
244
|
|
|
$
|
247
|
|
|
$
|
255
|
|
|
$
|
226
|
|
|
$
|
210
|
|
|
$
|
213
|
|
Gross margin
|
212
|
|
|
198
|
|
|
176
|
|
|
177
|
|
|
206
|
|
|
170
|
|
|
161
|
|
|
161
|
|
Operating expenses
|
253
|
|
|
227
|
|
|
219
|
|
|
213
|
|
|
178
|
|
|
112
|
|
|
122
|
|
|
226
|
|
Income (loss) before income taxes
|
(42)
|
|
|
(30)
|
|
|
(43)
|
|
|
(33)
|
|
|
32
|
|
|
60
|
|
|
44
|
|
|
(59)
|
|
Provision for (recovery of) income taxes
|
(1)
|
|
|
2
|
|
|
1
|
|
|
2
|
|
|
(19)
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Net income (loss)
|
$
|
(41)
|
|
|
$
|
(32)
|
|
|
$
|
(44)
|
|
|
$
|
(35)
|
|
|
$
|
51
|
|
|
$
|
59
|
|
|
$
|
43
|
|
|
$
|
(60)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
$
|
(0.07)
|
|
|
$
|
(0.06)
|
|
|
$
|
(0.08)
|
|
|
$
|
(0.06)
|
|
|
$
|
0.09
|
|
|
$
|
0.11
|
|
|
$
|
0.08
|
|
|
$
|
(0.11)
|
|
Diluted earnings (loss) per share
|
$
|
(0.07)
|
|
|
$
|
(0.07)
|
|
|
$
|
(0.10)
|
|
|
$
|
(0.09)
|
|
|
$
|
0.08
|
|
|
$
|
(0.01)
|
|
|
$
|
(0.04)
|
|
|
$
|
(0.11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
$
|
60
|
|
|
$
|
66
|
|
|
$
|
62
|
|
|
$
|
71
|
|
|
$
|
52
|
|
|
$
|
55
|
|
|
$
|
51
|
|
|
$
|
61
|
|
Selling, marketing and administration
|
113
|
|
|
129
|
|
|
130
|
|
|
121
|
|
|
110
|
|
|
93
|
|
|
106
|
|
|
100
|
|
Amortization
|
48
|
|
|
49
|
|
|
48
|
|
|
49
|
|
|
31
|
|
|
33
|
|
|
35
|
|
|
37
|
|
Impairment of long-lived assets
|
5
|
|
|
3
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Impairment of goodwill
|
22
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures fair value adjustment
|
5
|
|
|
(20)
|
|
|
(23)
|
|
|
(28)
|
|
|
(6)
|
|
|
(69)
|
|
|
(70)
|
|
|
28
|
|
Arbitration awards and settlements, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Operating expenses
|
$
|
253
|
|
|
$
|
227
|
|
|
$
|
219
|
|
|
$
|
213
|
|
|
$
|
178
|
|
|
$
|
112
|
|
|
$
|
122
|
|
|
$
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Condition
Liquidity and Capital Resources
Cash, cash equivalents, and investments decreased by $15 million to $990 million as at February 29, 2020 from $1.01 billion as at February 28, 2019, primarily as a result of changes in working capital. The majority of the Company’s cash, cash equivalents, and investments are denominated in U.S. dollars as at February 29, 2020.
A comparative summary of cash, cash equivalents, and investments is set out below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
(in millions)
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
Change
|
|
February 28, 2018
|
|
Change
|
Cash and cash equivalents
|
$
|
377
|
|
|
$
|
548
|
|
|
$
|
(171)
|
|
|
$
|
816
|
|
|
$
|
(268)
|
|
Restricted cash
|
49
|
|
|
34
|
|
|
15
|
|
|
39
|
|
|
(5)
|
|
Short-term investments
|
532
|
|
|
368
|
|
|
164
|
|
|
1,443
|
|
|
(1,075)
|
|
Long-term investments
|
32
|
|
|
55
|
|
|
(23)
|
|
|
55
|
|
|
—
|
|
Cash, cash equivalents, and investments
|
$
|
990
|
|
|
$
|
1,005
|
|
|
$
|
(15)
|
|
|
$
|
2,353
|
|
|
$
|
(1,348)
|
|
The table below summarizes the current assets, current liabilities, and working capital of the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
(in millions)
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
Change
|
|
February 28, 2018
|
|
Change
|
Current assets
|
$
|
1,196
|
|
|
$
|
1,233
|
|
|
$
|
(37)
|
|
|
$
|
2,566
|
|
|
$
|
(1,333)
|
|
Current liabilities
|
1,121
|
|
|
510
|
|
|
611
|
|
|
432
|
|
|
78
|
|
Working capital
|
$
|
75
|
|
|
$
|
723
|
|
|
$
|
(648)
|
|
|
$
|
2,134
|
|
|
$
|
(1,411)
|
|
Current Assets
The decrease in current assets of $37 million at the end of fiscal 2020 from the end of fiscal 2019 was primarily due to a decrease in cash and cash equivalents of $171 million, accounts receivable, net of $18 million, other receivables of $5 million, other current assets of $4 million, and income taxes receivable of $3 million partially offset by increases in short term investments of $164 million.
At February 29, 2020, accounts receivable was $215 million, a decrease of $18 million from February 28, 2019. The decrease reflects a decrease in days sales outstanding to 70 days at the end of the fourth quarter of fiscal 2020 from 82 days at the end of the fourth quarter of fiscal 2019, partially offset by higher revenue recognized over the three months ended February 29, 2020.
At February 29, 2020, other receivables decreased by $5 million to $14 million compared to $19 million as at February 28, 2019. The decrease was primarily due to a decrease of $3 million in GST and VAT receivable.
At February 29, 2020, other current assets was $52 million, a decrease of $4 million from February 28, 2019. The decrease is primarily due to a decrease in prepaid rent of $4 million, partially offset by an increase in prepaid maintenance of $2 million.
At February 29, 2020, income taxes receivable was $6 million, a decrease of $3 million from February 28, 2019. The decrease was primarily due to tax refund received in fiscal 2020.
Current Liabilities
The increase in current liabilities of $611 million at the end of fiscal 2020 from the end of fiscal 2019 was primarily due to the Debentures balance of $606 million moving from long-term to current liabilities as they mature on November 13, 2020, an increase in deferred revenue of $11 million and an increase in accrued liabilities of $10 million, partially offset by a decrease in accounts payable of $17 million.
Deferred revenue, current was $264 million, which reflects an increase of $11 million compared to February 28, 2019 that was attributable to a $25 million increase in deferred revenue related to BlackBerry Cylance and $10 million related to Licensing, partially offset by a $27 million decrease in deferred revenue, current related to IoT.
As at February 29, 2020, accounts payable were $31 million, reflecting a decrease of $17 million from February 28, 2019, which was primarily attributable to payments of accounts payable.
Accrued liabilities were $202 million, reflecting an increase of $10 million compared to February 28, 2019, which was primarily attributable to a $31 million increase related to the current portion of operating lease liabilities from the adoption of ASC 842, partially offset by a $12 million decrease in vendor liabilities and a $4 million lower variable incentive plan accrual compared to fiscal 2019.
Cash flows for the fiscal year ended February 29, 2020 compared to the fiscal year ended February 28, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended
(in millions)
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
Change
|
|
February 28, 2018
|
|
Change
|
Net cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
Operating activities
|
$
|
26
|
|
|
$
|
100
|
|
|
$
|
(74)
|
|
|
$
|
704
|
|
|
$
|
(604)
|
|
Investing activities
|
(188)
|
|
|
(375)
|
|
|
187
|
|
|
(630)
|
|
|
255
|
|
Financing activities
|
7
|
|
|
5
|
|
|
2
|
|
|
(10)
|
|
|
15
|
|
Effect of foreign exchange gain (loss) on cash and cash equivalents
|
(1)
|
|
|
(3)
|
|
|
2
|
|
|
6
|
|
|
(9)
|
|
Net increase (decrease) in cash and cash equivalents
|
$
|
(156)
|
|
|
$
|
(273)
|
|
|
$
|
117
|
|
|
$
|
70
|
|
|
$
|
(343)
|
|
Operating Activities
The decrease in net cash flows provided by operating activities of $74 million primarily reflects the net changes in working capital and lower net income after adjustments for non-cash items.
Investing Activities
During the fiscal year ended February 29, 2020, cash flows used in investing activities were $188 million and included cash used in transactions involving the acquisitions of short-term and long-term investments, net of the proceeds on sale or maturity in the amount of $145 million, intangible asset additions of $32 million, and acquisitions of property, plant and equipment of $12 million, partially offset by proceeds received from the decrease in consideration paid for the Cylance acquisition following finalizing the accounting for the acquisition. During fiscal 2019, cash flows used in investing activities were $375 million and included cash flows used in the Cylance acquisition of $1.40 billion, intangible asset additions of $32 million, and acquisitions of property, plant and equipment of $17 million, partially offset by proceeds on sales of short-term and long-term investments, net of the proceeds used in the acquisition of short-term and long-term investments of $1.08 billion and proceeds on the sale of property, plant and equipment of $1 million.
Financing Activities
The increase in cash flows provided by financing activities was $2 million for fiscal 2020 due to an increase in common shares issued, partially offset by cash used for the finance lease liability.
Aggregate Contractual Obligations
The following table sets out aggregate information about the Company’s contractual obligations and the periods in which payments are due as at February 29, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Total
|
|
Less than One
Year
|
|
One to
Three Years
|
|
Four to Five
Years
|
|
Greater than
Five Years
|
Operating lease obligations
|
$
|
167
|
|
|
$
|
37
|
|
|
$
|
62
|
|
|
$
|
40
|
|
|
$
|
28
|
|
Purchase obligations and commitments
|
225
|
|
|
132
|
|
|
62
|
|
|
31
|
|
|
—
|
|
Debt interest and principal payments
|
621
|
|
|
621
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
1,013
|
|
|
$
|
790
|
|
|
$
|
124
|
|
|
$
|
71
|
|
|
$
|
28
|
|
Purchase obligations and commitments amounted to approximately $1,013 million as at February 29, 2020, including future principal and interest payments of $621 million on the Debentures and operating lease obligations of $167 million. The remaining balance consists of purchase orders for goods and services utilized in the operations of the Company. Total aggregate contractual obligations as at February 29, 2020 decreased by approximately $18 million as compared to the February 28, 2019 balance of approximately $1,031 million, which was attributable to a decrease in operating lease obligations and interest payments on the Debentures.
Debenture Financing and Other Funding Sources
See Note 7 to the Consolidated Financial Statements for a description of the Debentures.
The Company has $42 million in collateralized outstanding letters of credit in support of certain leasing arrangements entered into in the ordinary course of business. See Note 3 to the Consolidated Financial Statements for further information concerning the Company’s restricted cash.
Cash, cash equivalents, and investments were approximately $990 million as at February 29, 2020. The Company’s management remains focused on maintaining appropriate cash balances, 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.
The Company does not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K under the Exchange Act, or under applicable Canadian securities laws.
Accounting Policies and Critical Accounting Estimates
Accounting Policies
See Note 1 to the Consolidated Financial Statements for a description of the Company’s significant accounting policies.
Critical Accounting Estimates
The preparation of the consolidated financial statements requires management to make estimates and assumptions with respect to the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. Significant areas requiring the use of management estimates relate to revenue-related estimates including variable consideration, standalone selling price (“SSP”), estimated customer life, if control of the license has transferred, value of non-cash consideration, right of return and customer incentive commitments, fair value of reporting units in relation to potential goodwill impairment, fair value of the Debentures, fair value of long-lived assets in relation to potential impairment, useful lives of property, plant and equipment and intangible assets, fair values of assets acquired and liabilities assumed in business combinations, provision for income taxes, realization of deferred income tax assets and the related components of the valuation allowance, allowance for doubtful accounts, incremental borrowing rate in determining the present value of lease liabilities and the determination of reserves for various litigation claims. Actual results could differ from these estimates, which were based upon circumstances that existed as of the date of the consolidated financial statements, February 29, 2020. Subsequent to this date, there have been significant changes to the global economic situation and to public securities markets as a consequence of the COVID-19 pandemic. It is reasonably possible that this could cause changes to estimates as a result of the financial circumstances of the markets in which the Company operates, the price of the Company’s publicly traded equity in comparison to the Company’s carrying value, and the health of the global economy. Such changes to estimates could potentially result in impacts that would be material to the consolidated financial statements, particularly with respect to the fair value of the Company’s reporting units in relation to potential goodwill impairment and the fair value of long-lived assets in relation to potential impairment.
The Company’s critical accounting estimates have been reviewed and discussed with the Company’s Audit & Risk Management Committee and are set out below. Except as noted, there have not been any changes to the Company’s critical accounting estimates during the past three fiscal years.
Valuation of Long-Lived Assets
The LLA impairment test prescribed by U.S. GAAP requires the Company to identify its asset groups and test impairment of each asset group separately. To conduct the LLA impairment test, the asset group is tested for recoverability using undiscounted cash flows over the remaining useful life of the primary asset. If forecasted net cash flows are less than the carrying amount of the asset group, an impairment charge is measured by comparing the fair value of the asset group to its carrying value. Determining the Company’s asset groups and related primary assets requires significant judgment by management. Different judgments could yield different results.
The Company’s determination of its asset groups, its primary asset and its remaining useful life, and estimated cash flows are significant factors in assessing the recoverability of the Company’s assets for the purposes of LLA impairment testing. The Company’s share price can be affected by, among other things, changes in industry or market conditions, including the effect of competition, changes in the Company’s results of operations, changes in the Company’s forecasts or market expectations relating to future results, and the Company’s strategic initiatives and the market’s assessment of any such factors. See Part 1, Item 1A “Risk Factors - The market price of the Company’s common shares is volatile”. The current macroeconomic
environment and competitive dynamics continue to be challenging to the Company’s business and the Company cannot be certain of the duration of these conditions and their potential impact on the Company’s future financial results and cash flows. A decline in the Company’s performance, the Company’s market capitalization and future changes to the Company’s assumptions and estimates used in the LLA impairment test, particularly the expected future cash flows, remaining useful life of the primary asset and terminal value of the asset group, may result in further impairment charges in future periods of some or all of the assets on the Company’s balance sheet. Although it does not affect the Company’s cash flow, an impairment charge to earnings has the effect of decreasing the Company’s earnings or increasing the Company’s losses, as the case may be. The Company’s share price could also be adversely affected by the Company’s recorded LLA impairment charges.
The Company used various valuation techniques to determine the fair values of its assets to measure and allocate impairment. Techniques related to capital equipment and intangible assets included the direct capitalization method, market comparable transactions, the replacement cost method, discounted cash flow analysis, as well as the relief from royalty and excess earnings valuation methods. Determining valuations using these valuation techniques requires significant judgment and assumptions by management. Different judgments could yield different results.
Valuation of Goodwill Reporting Units
Goodwill represents the excess of the acquisition price in a business combination over the fair value of identifiable net assets acquired. Goodwill is allocated at the date of the business combination. Goodwill is not amortized but is tested for impairment annually on December 31 or more frequently if events or changes in circumstances indicate the asset may be impaired. These events and circumstances may include a significant change in legal factors or in the business climate, a significant decline in the Company’s share price, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant disposal activity and the testing of recoverability for a significant asset group.
The Company’s annual impairment test was carried out in two steps. In the first step, the carrying amount of the reporting unit, including goodwill, was compared with its fair value. The estimated fair value was determined utilizing multiple approaches based on the nature of the reporting units being valued. In its analysis, the Company utilized multiple valuation techniques, including the income approach, discounted future cash flows, the market-based approach, and the asset value approach. The analysis requires significant judgment, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of revenue growth for our reporting units, estimation of the useful life over which cash flows will occur, terminal growth rate, profitability measures, and determination of the discount rates for the reporting units. The carrying amount of the Company’s assets was assigned to reporting units using reasonable methodologies based on the asset type. When the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit is considered to be impaired and the second step is necessary. Different judgments could yield different results. In fiscal 2020, the Company disaggregated one reporting unit and goodwill was assigned to the disaggregated reporting units based upon the relative fair value allocation approach.
The completion of step one of the goodwill impairment test provided indications of impairment in certain reporting units, necessitating step two.
In the second step, the implied fair value of the reporting unit’s goodwill is compared with its carrying amount to measure the amount of the impairment loss, if any. The second step involves significant judgment in the selection of assumptions necessary to arrive at an implied fair value of goodwill. Different judgments could yield different results.
Valuation Allowance Against Deferred Tax Assets
The Company regularly assesses the need for a valuation allowance against its deferred tax assets. A valuation allowance is required for deferred tax assets if it is more likely than not that all or some portion of the asset will not be realized. All available evidence, both positive and negative, that may affect the realization of deferred tax assets must be identified and considered in determining the appropriate amount of the valuation allowance. Additionally, for interim periods, the estimated annual effective tax rate should include the valuation allowance for current year changes in temporary differences and losses or income arising during the year. For interim periods, the Company needs to consider the valuation allowance that it expects to recognize at the end of the fiscal year as part of the estimated annual effective tax rate. During interim quarters, the Company uses estimates including pre-tax results and ending position of temporary differences as at the end of the fiscal year to estimate the valuation allowance that it expects to recognize at the end of the fiscal year. This accounting treatment has no effect on the Company’s actual ability to utilize deferred tax assets to reduce future cash tax payments. Different judgments could yield different results. See “Results of Operations - Fiscal year ended February 29, 2020 compared to fiscal year ended February 28, 2019 - Income Taxes” and “Results of Operations - Three months ended February 29, 2020 compared to three months ended February 28, 2019 - Income Taxes”.
Revenue Recognition
The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue recognized under the contract will not occur. Any estimates, including any constraints on variable consideration, are evaluated at each reporting period. Judgment is required to determine the fair value of non-cash consideration at contract inception. The Company uses an independent third-party valuator for the fair value of non-cash consideration.
Judgment is required to determine the SSP for each distinct performance obligation. The Company’s products and services often have observable SSP when the Company sells a promised product or service separately to similar customers. A contractually stated price or list price for a good or service may be the SSP of that good or service. However, in instances where SSP is not directly observable, the Company determines the SSP by maximizing observable inputs and using an adjusted market assessment approach using information that may include market conditions and other observable inputs from the Company’s pricing team, including historical SSP.
Judgment is required to determine in certain agreements if the Company is the principal or agent in the arrangement. The Company considers factors such as, but not limited to, which party can direct the usage of the product or service, which party obtains substantially all the remaining benefits and which party has the ability to establish the selling price.
Significant judgment is required to determine the estimated customer life used in perpetual license contracts that require access to the Company’s proprietary secure network infrastructure to function. The Company uses historical experience regarding the length of the technology upgrade cycle and the expected life of the product to draw this conclusion.
Adoption of Accounting Policies
ASC 842, Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASC 842 on leases. The standard requires companies to include lease obligations in their balance sheets, including a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases result in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred on transition. For finance leases, the lessee will recognize interest expense and amortization of the ROU asset, and for operating leases, the lessee will recognize a straight-line total lease expense.
The guidance is effective for interim and annual periods beginning after December 15, 2018. The Company adopted this guidance in the first quarter of fiscal 2020 using the modified retrospective method for all leases that existed at or commence after the date of initial application. As a result of the adoption of the new standard on leases, the Company recognized ROU assets of approximately $161 million, lease liabilities of approximately $175 million and a cumulative adjustment to increase the deficit of approximately $14 million in the consolidated balance sheet as at March 1, 2019. Future lease costs included in the RAP of approximately $14 million, which were accrued for prior to adoption of ASC 842, and were previously included in accrued liabilities and other long-term liabilities, are now presented in accrued liabilities and operating lease liabilities in the consolidated balance sheet as at March 1, 2019. As a result, total operating lease liabilities were $189 million in the consolidated balance sheet as at March 1, 2019.
ASU 2017-12, Hedge Accounting
In August 2017, the FASB issued ASU 2017-12. This guidance expands the range of strategies that qualify for hedge accounting, changes how certain hedging relationships are presented in the financial statements, and simplifies the application of hedge accounting in certain situations. The guidance is effective for interim and annual periods beginning after December 15, 2018. The Company adopted this guidance in the first quarter of fiscal 2020 and it did not have a material impact to the consolidated financial results.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued guidance related to the measurement of credit losses on financial instruments, ASU 2016-13. This guidance replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses, requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, and requires entities to estimate an expected lifetime credit loss on its financial assets. The guidance is effective for interim and annual periods beginning after December 15, 2019. The Company will adopt this guidance in the first quarter of fiscal 2021 and does not expect the adoption to have a material impact on its results of operations, financial position and disclosures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Page No.
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Report of Independent Registered Public Accounting Firm
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Consolidated Balance Sheets
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For the Years Ended February 29, 2020 and February 28, 2019
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Consolidated Statements of Shareholders Equity
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For the Years Ended February 29, 2020, February 28, 2019 and February 28, 2018
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Consolidated Statements of Operations
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For the Years Ended February 29, 2020, February 28, 2019 and February 28, 2018
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Consolidated Statements of Comprehensive Loss
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For the Years Ended February 29, 2020, February 28, 2019 and February 28, 2018
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Consolidated Statements of Cash Flows
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For the Years Ended February 29, 2020, February 28, 2019 and February 28, 2018
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Notes to the Consolidated Financial Statements
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of BlackBerry Limited
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of BlackBerry Limited (the Company) as of February 29, 2020 and February 28, 2019, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended February 29, 2020, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at February 29, 2020 and February 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended February 29, 2020, in conformity with United States generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of February 29, 2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO) and our report dated April 6, 2020 expressed an unqualified opinion thereon.
Adoption of ASC 842
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases as of March 1, 2019 due to the adoption of ASC 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit & Risk Management Committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
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Goodwill Impairment
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Description of the Matter
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As described in Note 1 of the consolidated financial statements, a goodwill impairment test is required at least annually at the reporting unit level.
The estimation of the fair value of the reporting units is contingent on future cash flows and market expectations and there is a risk that, if these cash flows and market outcomes do not meet the Company’s expectations, the goodwill might be impaired. The fair value of the reporting units was determined using multiple approaches including discounted future cash flows analysis and a market-based approach
We identified the valuation of goodwill for certain reporting units as a critical audit matter because auditing the impairment analysis was complex due to the significant estimation uncertainty and judgment applied by management in determining their fair value. The significant estimation uncertainty was primarily due to the sensitivity of the underlying key assumptions to the future cash flows and the significant effect that changes in these assumptions would have on the fair value of these reporting units. Furthermore, for certain reporting units, there is limited information on which to base those assumptions given the emerging nature of both the business model and industry. The significant assumptions used to estimate the fair value of these reporting units included discount rates and certain forward-looking assumptions (e.g., revenue growth rates, terminal growth rates, and profitability metrics) that could be affected by future economic and market conditions.
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How We Addressed the Matter in Our Audit
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We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls relating to the determination of the fair value of the reporting units, including controls over management’s review of the significant assumptions described above.
To test the fair value of the reporting units, we involved our valuation specialists to review the valuation methodology used by management and to assist in our evaluation of the discount rate used in the fair value estimate. We also performed audit procedures that included, among others, testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We compared the significant assumptions used by management to available industry and historical trends and evaluated whether changes to the significant assumptions would impact the impairment conclusion. In addition, we tested management’s reconciliation of the fair value of the reporting units to the market capitalization of the Company and reviewed the related disclosure in the consolidated financial statements.
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Revenue Recognition – Licensing Revenues
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Description of the Matter
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As described in Note 1 of the consolidated financial statements, Licensing revenues relate primarily to Intellectual Property (“IP”) licensing. Revenue recognition on IP licensing arrangements is assessed on a case-by-case basis taking into consideration the relevant contractual terms in each agreement. Revenue related to IP licensing agreements for the fiscal year ended February 29, 2020 is included within Licensing as set out in note 13 of the consolidated financial statements.
We identified revenue related to IP licensing agreements as a critical audit matter because of the multiple areas of complexity, including identifying the customer, assessing performance obligations, assessing any constraints on variable consideration and determining if control of the license has transferred. Auditing the revenue recognition was complex due to the significant judgment applied by management in assessing the agreements against the provisions of ASC 606, Revenue from Contracts with Customers, in relation to the specific judgmental areas listed above. The application of these judgments can materially impact the amount and timing of revenue recognition.
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How We Addressed the Matter in Our Audit
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We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls relating to the accounting for IP licensing arrangements, including those controls related to management’s review of the accounting analyses for the significant judgmental areas described above.
To test the revenue recognition of the Company’s IP licensing arrangements, we obtained and analyzed management’s accounting analyses by reference to the relevant accounting literature. We assessed the appropriateness of the accounting treatments by discussing with management to understand the facts and substance of the arrangements and inspecting the written agreements. In addition, we also reviewed the related financial statement disclosure.
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We have served as the Company’s auditor since 1997.
/s/ Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants
Waterloo, Canada
April 06, 2020
BlackBerry Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions)
Consolidated Balance Sheets
|
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|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
Assets
|
|
|
|
Current
|
|
|
|
Cash and cash equivalents (note 3)
|
$
|
377
|
|
|
$
|
548
|
|
Short-term investments (note 3)
|
532
|
|
|
368
|
|
Accounts receivable, net (note 4)
|
215
|
|
|
233
|
|
Other receivables
|
14
|
|
|
19
|
|
|
|
|
|
Income taxes receivable
|
6
|
|
|
9
|
|
Other current assets (note 4)
|
52
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|
|
56
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|
|
1,196
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|
|
1,233
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|
Restricted cash and cash equivalents (note 3)
|
49
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|
|
34
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|
Long-term investments (note 3)
|
32
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|
|
55
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|
Other long-term assets (note 4)
|
65
|
|
|
28
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|
Deferred income tax assets (note 6)
|
—
|
|
|
2
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|
Operating lease right-of-use assets, net (note 12)
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124
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|
|
—
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|
Property, plant and equipment, net (note 4)
|
70
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|
|
85
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|
Goodwill (note 4)
|
1,437
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|
|
1,463
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Intangible assets, net (note 4)
|
915
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|
|
1,068
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|
|
|
|
|
|
$
|
3,888
|
|
|
$
|
3,968
|
|
Liabilities
|
|
|
|
Current
|
|
|
|
Accounts payable
|
$
|
31
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|
|
$
|
48
|
|
Accrued liabilities (note 4)
|
202
|
|
|
192
|
|
Income taxes payable (note 6)
|
18
|
|
|
17
|
|
Debentures (note 7)
|
606
|
|
|
—
|
|
Deferred revenue, current (note 13)
|
264
|
|
|
253
|
|
|
1,121
|
|
|
510
|
|
Deferred revenue, non-current (note 13)
|
109
|
|
|
136
|
|
Operating lease liabilities (note 12)
|
120
|
|
|
—
|
|
Other long-term liabilities (note 4)
|
9
|
|
|
19
|
|
Long-term debentures (note 7)
|
—
|
|
|
665
|
|
Deferred income tax liabilities (note 6)
|
—
|
|
|
2
|
|
|
|
|
|
|
1,359
|
|
|
1,332
|
|
Commitments and contingencies (note 11)
|
|
|
|
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 - 554,199,016 voting common shares (February 28, 2019 - 547,357,972)
|
2,760
|
|
|
2,688
|
|
Deficit
|
(198)
|
|
|
(32)
|
|
Accumulated other comprehensive loss (note 10)
|
(33)
|
|
|
(20)
|
|
|
2,529
|
|
|
2,636
|
|
|
$
|
3,888
|
|
|
$
|
3,968
|
|
See notes to consolidated financial statements.
On behalf of the Board:
|
|
|
|
|
|
John S. Chen
|
Barbara Stymiest
|
Director
|
Director
|
BlackBerry Limited
(United States dollars, in millions)
Consolidated Statements of Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock
and Additional
Paid-in Capital
|
|
Deficit
|
|
Accumulated
Other
Comprehensive Loss
|
|
Total
|
Balance as at February 28, 2017
|
$
|
2,512
|
|
|
$
|
(438)
|
|
|
$
|
(17)
|
|
|
$
|
2,057
|
|
Net income
|
—
|
|
|
405
|
|
|
—
|
|
|
405
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
7
|
|
|
7
|
|
Cumulative impact of adoption of ASU 2016-16
|
—
|
|
|
(3)
|
|
|
—
|
|
|
(3)
|
|
Stock-based compensation (note 8)
|
49
|
|
|
—
|
|
|
—
|
|
|
49
|
|
Share repurchase (note 8)
|
(9)
|
|
|
(9)
|
|
|
—
|
|
|
(18)
|
|
Shares issued:
|
|
|
|
|
|
|
|
Exercise of stock options (note 8)
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Employee share purchase plan (note 8)
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Balance as at February 28, 2018
|
2,560
|
|
|
(45)
|
|
|
(10)
|
|
|
2,505
|
|
Net income
|
—
|
|
|
93
|
|
|
—
|
|
|
93
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
(4)
|
|
|
(4)
|
|
Cumulative impact of adoption of ASU 606
|
—
|
|
|
(86)
|
|
|
—
|
|
|
(86)
|
|
Cumulative impact of adoption of ASU 2016-01
|
—
|
|
|
6
|
|
|
(6)
|
|
|
—
|
|
Stock-based compensation (note 8)
|
67
|
|
|
—
|
|
|
—
|
|
|
67
|
|
Value of pre-combination service related to Replacement Awards included in purchase consideration (note 8)
|
21
|
|
|
—
|
|
|
—
|
|
|
21
|
|
Shares issued:
|
|
|
|
|
|
|
|
Exercise of stock options (note 8)
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Exchange shares related to Cylance acquisition (note 5)
|
35
|
|
|
—
|
|
|
|
—
|
|
|
35
|
|
|
|
|
|
|
|
|
|
Employee share purchase plan (note 8)
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Balance as at February 28, 2019
|
2,688
|
|
|
(32)
|
|
|
(20)
|
|
|
2,636
|
|
Net loss
|
—
|
|
|
(152)
|
|
|
—
|
|
|
(152)
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
(13)
|
|
|
(13)
|
|
Cumulative impact of adoption of ASC 842
|
—
|
|
|
(14)
|
|
|
—
|
|
|
(14)
|
|
Stock-based compensation (note 8)
|
63
|
|
|
—
|
|
|
—
|
|
|
63
|
|
Shares issued:
|
|
|
|
|
|
|
|
Exercise of stock options (note 8)
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Employee share purchase plan (note 8)
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Balance as at February 29, 2020
|
$
|
2,760
|
|
|
$
|
(198)
|
|
|
$
|
(33)
|
|
|
$
|
2,529
|
|
See notes to consolidated financial statements.
BlackBerry Limited
(United States dollars, in millions, except per share data)
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Revenue (note 13)
|
$
|
1,040
|
|
|
$
|
904
|
|
|
$
|
932
|
|
Cost of sales
|
277
|
|
|
206
|
|
|
262
|
|
|
|
|
|
|
|
Gross margin
|
763
|
|
|
698
|
|
|
670
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
Research and development
|
259
|
|
|
219
|
|
|
239
|
|
Selling, marketing and administration
|
493
|
|
|
409
|
|
|
476
|
|
Amortization
|
194
|
|
|
136
|
|
|
153
|
|
Impairment of goodwill (note 4)
|
22
|
|
|
—
|
|
|
—
|
|
Impairment of long-lived assets (note 4)
|
10
|
|
|
—
|
|
|
11
|
|
|
|
|
|
|
|
Debentures fair value adjustment (note 7)
|
(66)
|
|
|
(117)
|
|
|
191
|
|
Arbitration awards and settlements, net (note 11)
|
—
|
|
|
(9)
|
|
|
(683)
|
|
|
912
|
|
|
638
|
|
|
387
|
|
Operating income (loss)
|
(149)
|
|
|
60
|
|
|
283
|
|
Investment income, net
|
1
|
|
|
17
|
|
|
123
|
|
Income (loss) before income taxes
|
(148)
|
|
|
77
|
|
|
406
|
|
Provision for (recovery of) income taxes (note 6)
|
4
|
|
|
(16)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(152)
|
|
|
$
|
93
|
|
|
$
|
405
|
|
Earnings (loss) per share (note 9)
|
|
|
|
|
|
Basic
|
$
|
(0.27)
|
|
|
$
|
0.17
|
|
|
$
|
0.76
|
|
Diluted
|
$
|
(0.32)
|
|
|
$
|
0.00
|
|
|
$
|
0.74
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
BlackBerry Limited
(United States dollars, in millions)
Consolidated Statements of Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Net income (loss)
|
$
|
(152)
|
|
|
$
|
93
|
|
|
$
|
405
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
Net change in unrealized gains (losses) on available-for-sale investments
|
(2)
|
|
|
1
|
|
|
(3)
|
|
Net changes in fair value and amounts reclassified to net income (loss) from derivatives designated as cash flow hedges during the year
|
(1)
|
|
|
1
|
|
|
(1)
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
(3)
|
|
|
(6)
|
|
|
12
|
|
Actuarial losses associated with other post-employment benefit obligations
|
—
|
|
|
—
|
|
|
(1)
|
|
Loss from change in fair value from instrument-specific credit risk on the Debentures (note 7)
|
(7)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
(13)
|
|
|
(4)
|
|
|
7
|
|
Comprehensive income (loss)
|
$
|
(165)
|
|
|
$
|
89
|
|
|
$
|
412
|
|
See notes to consolidated financial statements.
BlackBerry Limited
(United States dollars, in millions)
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(152)
|
|
|
$
|
93
|
|
|
$
|
405
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
Amortization
|
212
|
|
|
149
|
|
|
177
|
|
Deferred income taxes
|
—
|
|
|
(25)
|
|
|
(7)
|
|
Stock-based compensation
|
63
|
|
|
67
|
|
|
49
|
|
Impairment of goodwill
|
22
|
|
|
—
|
|
|
—
|
|
Impairment of long-lived assets
|
10
|
|
|
—
|
|
|
11
|
|
|
|
|
|
|
|
Non-cash consideration received from contracts with customers
|
(8)
|
|
|
(46)
|
|
|
—
|
|
|
|
|
|
|
|
Debentures fair value adjustment (note 7)
|
(66)
|
|
|
(117)
|
|
|
191
|
|
Other long-term assets
|
(37)
|
|
|
—
|
|
|
(18)
|
|
Other long-term liabilities
|
2
|
|
|
(12)
|
|
|
5
|
|
Operating leases
|
(9)
|
|
|
—
|
|
|
—
|
|
Other
|
10
|
|
|
6
|
|
|
3
|
|
Net changes in working capital items
|
|
|
|
|
|
Accounts receivable, net
|
18
|
|
|
(9)
|
|
|
49
|
|
Other receivables
|
5
|
|
|
52
|
|
|
(44)
|
|
|
|
|
|
|
|
Income taxes receivable
|
3
|
|
|
17
|
|
|
2
|
|
Other assets
|
2
|
|
|
(1)
|
|
|
39
|
|
Accounts payable
|
(17)
|
|
|
(15)
|
|
|
(82)
|
|
Accrued liabilities
|
(15)
|
|
|
(21)
|
|
|
(36)
|
|
Income taxes payable
|
1
|
|
|
(2)
|
|
|
4
|
|
Deferred revenue
|
(18)
|
|
|
(36)
|
|
|
(44)
|
|
Net cash provided by operating activities
|
26
|
|
|
100
|
|
|
704
|
|
Cash flows from investing activities
|
|
|
|
|
|
Acquisition of long-term investments
|
(1)
|
|
|
(2)
|
|
|
(27)
|
|
Proceeds on sale or maturity of long-term investments
|
19
|
|
|
2
|
|
|
77
|
|
Acquisition of property, plant and equipment
|
(12)
|
|
|
(17)
|
|
|
(15)
|
|
Proceeds on sale of property, plant and equipment
|
—
|
|
|
1
|
|
|
3
|
|
Acquisition of intangible assets
|
(32)
|
|
|
(32)
|
|
|
(30)
|
|
Business acquisitions, net of cash acquired
|
1
|
|
|
(1,402)
|
|
|
—
|
|
Acquisition of short-term investments
|
(1,180)
|
|
|
(2,895)
|
|
|
(3,499)
|
|
Proceeds on sale or maturity of short-term investments
|
1,017
|
|
|
3,970
|
|
|
2,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
(188)
|
|
|
(375)
|
|
|
(630)
|
|
Cash flows from financing activities
|
|
|
|
|
|
Issuance of common shares
|
9
|
|
|
5
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares repurchased
|
—
|
|
|
—
|
|
|
(18)
|
|
|
|
|
|
|
|
Payment of finance lease liability
|
(2)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
7
|
|
|
5
|
|
|
(10)
|
|
Effect of foreign exchange gain (loss) on cash, cash equivalents, restricted cash, and restricted cash equivalents
|
(1)
|
|
|
(3)
|
|
|
6
|
|
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents during the year
|
(156)
|
|
|
(273)
|
|
|
70
|
|
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of year
|
582
|
|
|
855
|
|
|
785
|
|
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of year
|
$
|
426
|
|
|
$
|
582
|
|
|
$
|
855
|
|
See notes to consolidated financial statements.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
1. BLACKBERRY LIMITED AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
BlackBerry Limited (the “Company”) provides intelligent security software and services to enterprises and governments around the world. The Company secures more than 500 million endpoints, including 150 million cars. Based in Waterloo, Ontario, the Company leverages artificial intelligence and machine learning to deliver innovative solutions in the areas of cybersecurity, safety and data privacy solutions, and is a leader in the areas of endpoint security management, encryption, and embedded systems. The Company’s common shares trade under the ticker symbol “BB” on the New York Stock Exchange and the Toronto Stock Exchange.
Basis of Presentation and Preparation
The consolidated financial statements include the accounts of all subsidiaries of the Company with intercompany transactions and balances eliminated on consolidation. All of the Company’s subsidiaries are wholly owned. These consolidated financial statements have been prepared by management in accordance with United States generally accepted accounting principles (“U.S. GAAP”) on a basis consistent for all periods presented, except as described in Note 2.
Certain of the comparative figures have been reclassified to conform to the current year’s presentation.
The Company operates as a single reportable segment. For additional information concerning the Company’s segment reporting, see Note 13.
Correction of Previously Issued Financial Statements
Accounts receivable, contract assets and contract liabilities associated with certain contracts with customers accounted for under Accounting Standard Codification 606 (“ASC 606”)
During fiscal 2020, the Company corrected an error associated with the presentation of accounts receivable and associated deferred revenues for certain contracts with customers on the comparative February 28, 2019 consolidated balance sheet. This correction had no impact to the deficit or the consolidated statement of operations for any period and impacts only the consolidated balance sheet as at February 28, 2019.
Under ASC 606, a receivable is recorded when it is unconditional; that is, the only thing required for its collection is the passage of time. If a receivable is not unconditional, the amount is treated as a contract asset and netted against any contract liabilities, such as deferred revenue, associated with the same contract. Most of the Company’s contracts for its IoT software and services contain customer termination provisions, but do not have refund rights for the unused portion of any contract.
As, contractually, all amounts are owed to the Company regardless of the customer’s actions, the Company has determined that the associated accounts receivable are unconditional, should not have been treated as contract assets and would therefore not be netted against the associated deferred revenue.
The Company continues to net receivables that are not unconditional against the associated deferred revenue, such as pre-billed professional services or contracts with customers that have refund provisions.
As a result of the correction, the balances in the Company’s consolidated balance sheet as at February 28, 2019 have been reclassified in the consolidated balance sheet as at February 29, 2020 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
February 28, 2019
(as previously disclosed)
|
|
Correction
|
|
As at
February 28, 2019
(corrected)
|
Assets
|
|
|
|
|
|
Accounts receivable, net
|
$
|
194
|
|
|
$
|
39
|
|
|
$
|
233
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Deferred revenue, current
|
$
|
214
|
|
|
$
|
39
|
|
|
$
|
253
|
|
|
|
|
|
|
|
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
Accounting Policies and Critical Accounting Estimates
Use of estimates
The preparation of the consolidated financial statements requires management to make estimates and assumptions with respect to the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. Significant areas requiring the use of management estimates relate to revenue-related estimates including variable consideration, standalone selling price (“SSP”), estimated customer life, if control of the license has transferred, value of non-cash consideration, right of return and customer incentive commitments, fair value of reporting units in relation to potential goodwill impairment, fair value of the Debentures, fair value of long-lived assets in relation to potential impairment, useful lives of property, plant and equipment and intangible assets, fair values of assets acquired and liabilities assumed in business combinations, provision for income taxes, realization of deferred income tax assets and the related components of the valuation allowance, allowance for doubtful accounts, incremental borrowing rate in determining the present value of lease liabilities and the determination of reserves for various litigation claims. Actual results could differ from these estimates, which were based upon circumstances that existed as of the date of the consolidated financial statements, February 29, 2020. Subsequent to this date, there have been significant changes to the global economic situation and to public securities markets as a consequence of the COVID-19 pandemic. It is reasonably possible that this could cause changes to estimates as a result of the financial circumstances of the markets in which the Company operates, the price of the Company’s publicly traded equity in comparison to the Company’s carrying value, and the health of the global economy. Such changes to estimates could potentially result in impacts that would be material to the consolidated financial statements, particularly with respect to the fair value of the Company’s reporting units in relation to potential goodwill impairment and the fair value of long-lived assets in relation to potential impairment.
The significant accounting policies used in these U.S. GAAP consolidated financial statements are as follows:
Foreign currency translation
The U.S. dollar is the functional and reporting currency of the Company and substantially all of the Company’s subsidiaries.
Foreign currency denominated assets and liabilities of the Company and its U.S. dollar functional currency subsidiaries are translated into U.S. dollars. Accordingly, monetary assets and liabilities are translated using the exchange rates in effect as at the consolidated balance sheet dates, and revenue and expenses are translated at the rates of exchange prevailing when the transactions occurred. Remeasurement adjustments are included in income. Non-monetary assets and liabilities are translated at historical exchange rates.
Foreign currency denominated assets and liabilities of the Company’s non-U.S. dollar functional currency subsidiaries are translated into U.S. dollars at the exchange rates in effect as at the consolidated balance sheet dates. Revenue and expenses are translated using daily exchange rates. Exchange gains or losses arising from translation of foreign currency denominated assets and liabilities are included as a currency translation adjustment within accumulated other comprehensive income (loss) (“AOCI”).
Cash and cash equivalents
Cash and cash equivalents consist of balances with banks and liquid investments with maturities of three months or less at the date of acquisition.
Accounts receivable, net
The accounts receivable balance reflects invoiced and accrued revenue and is presented net of an allowance for doubtful accounts. The allowance for doubtful accounts reflects estimates of probable losses in the accounts receivable balance. The Company expects the majority of its accounts receivable balances to continue to come from large customers as it sells the majority of its software products and services through resellers and network carriers rather than directly.
The Company evaluates the collectability of its accounts receivable balance based upon a combination of factors on a periodic basis such as specific credit risk of its customers, historical trends and economic circumstances. The Company, in the normal course of business, monitors the financial condition of its customers and reviews the credit history of each new customer. When the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company (such as in the case of bankruptcy filings or material deterioration in the customer’s operating results or financial position, and payment experiences), the Company records a specific bad debt provision to reduce the customer’s related accounts receivable to its estimated net realizable value. If circumstances related to specific customers change, the Company’s estimates of the recoverability of accounts receivable balances could be further adjusted.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
Investments
The Company’s cash equivalents and investments, other than publicly issued equity securities and private equity investments without readily determinable fair value, consist of money market and other debt securities, which are classified as available-for-sale for accounting purposes and are carried at fair value. Unrealized gains and losses, net of related income taxes, are recorded in AOCI until such investments mature or are sold. The Company uses the specific identification method of determining the cost basis in computing realized gains or losses on available-for-sale investments, which are recorded in investment income. In the event of a decline in value that is other-than-temporary, the investment is written down to fair value with a charge to income. The Company does not exercise significant influence with respect to any of these investments. Publicly issued equity securities are recorded at fair value and revalued at each reporting period with changes in fair value recorded through investment income. The Company elects to record private equity investments without readily determinable fair value at cost minus impairment, and adjusted for any changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. The Company reassesses each reporting period that its private equity investments without readily determinable fair value continue to qualify for this treatment.
Investments with maturities at the time of purchase of three months or less are classified as cash equivalents. Investments with maturities of one year or less (but which are not cash equivalents), public equity investments and any investments that the Company intends to hold for less than one year are classified as short-term investments. Investments with maturities in excess of one year or investments that the Company does not intend to sell are classified as long-term investments.
The Company assesses individual investments that are in an unrealized loss position to determine whether the unrealized loss is other-than-temporary. The Company makes this assessment by considering available evidence, including changes in general market conditions, specific industry and individual company data, the length of time and the extent to which the fair value has been less than cost, the financial condition, the near-term prospects of the individual investment and the Company’s intent and ability to hold the investment. In the event that a decline in the fair value of an investment occurs and that decline in value is considered to be other-than-temporary, an impairment charge is recorded in investment income equal to the difference between the cost basis and the fair value of the individual investment as at the consolidated balance sheet date of the reporting period for which the assessment was made. The fair value of the investment then becomes the new cost basis of the investment.
If a debt security’s market value is below its amortized cost and either the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before its anticipated recovery, the Company records an other-than-temporary impairment charge to investment income for the entire amount of the impairment. For other-than-temporary impairments on debt securities that the Company does not intend to sell and it is not more likely than not that the entity will be required to sell the security before its anticipated recovery, the Company would separate the other-than-temporary impairment into the amount representing the credit loss and the amount related to all other factors. The Company would record the other-than-temporary impairment related to the credit loss as a charge to investment income, and the remaining other-than-temporary impairment would be recorded as a component of AOCI.
Derivative financial instruments
On March 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2017-12 related to accounting for hedging activities. The Company uses derivative financial instruments, including forward contracts and options, to hedge certain foreign currency exposures. The Company does not use derivative financial instruments for speculative purposes.
The Company records all derivative instruments at fair value on the consolidated balance sheets. The fair value of these instruments is calculated based on notional and exercise values, transaction rates, market quoted currency spot rates, forward points, volatilities and interest rate yield curves. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative instrument and the resulting designation.
For derivative instruments designated as cash flow hedges, the effective portion of the derivative’s gain or loss is initially reported as a component of AOCI, net of tax, and subsequently reclassified into income in the same period or periods in which the hedged item affects income. The ineffective portion of the derivative’s gain or loss is recognized in current income. In order for the Company to receive hedge accounting treatment, the cash flow hedge must be highly effective in offsetting changes in the fair value of the hedged item and the relationship between the hedging instrument and the associated hedged item must be formally documented at the inception of the hedge relationship. Hedge effectiveness is formally assessed, both at hedge inception and on an ongoing basis, to determine whether the derivatives used in hedging
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
transactions are highly effective in offsetting changes in the value of the hedged items and whether they are expected to continue to be highly effective in future periods.
The Company formally documents relationships between hedging instruments and associated hedged items. This documentation includes: identification of the specific foreign currency asset, liability or forecasted transaction being hedged; the nature of the risk being hedged; the hedge objective; and the method of assessing hedge effectiveness. If an anticipated transaction is deemed no longer likely to occur, the corresponding derivative instrument is de-designated as a hedge and any associated unrealized gains and losses in AOCI are recognized in income at that time. Any future changes in the fair value of the instrument are recognized in current income.
For any derivative instruments that do not meet the requirements for hedge accounting, or for any derivative instruments for which hedge accounting is not elected, the changes in fair value of the instruments are recognized in income in the current period and will generally offset the changes in the U.S. dollar value of the associated asset, liability or forecasted transaction.
Property, plant and equipment, net
Property, plant and equipment are stated at cost, less accumulated amortization. Amortization is provided using the following rates and methods:
|
|
|
|
|
|
|
|
|
Buildings, leasehold improvements and other
|
|
Straight-line over terms between 5 and 40 years
|
BlackBerry operations and other information technology
|
|
Straight-line over terms between 3 and 5 years
|
Manufacturing, repair and research and development equipment
|
|
Straight-line over terms between 1 and 5 years
|
Furniture and fixtures
|
|
Declining balance at 20% per annum
|
Goodwill
Goodwill represents the excess of the acquisition price in a business combination over the fair value of identifiable net assets acquired. Goodwill is allocated at the date of the business combination. Goodwill is not amortized but is tested for impairment annually on December 31 or more frequently if events or changes in circumstances indicate the asset may be impaired. These events and circumstances may include a significant change in legal factors or in the business climate, a significant decline in the Company’s share price, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant disposal activity and the testing of recoverability for a significant asset group.
The Company’s annual impairment test was carried out in two steps. In the first step, the carrying amount of the reporting unit, including goodwill, was compared with its fair value. The estimated fair value was determined utilizing multiple approaches based on the nature of the reporting units being valued. In its analysis, the Company utilized multiple valuation techniques, including the income approach, discounted future cash flows, the market-based approach, and the asset value approach. The analysis requires significant judgment, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of revenue growth for our reporting units, estimation of the useful life over which cash flows will occur, terminal growth rate, profitability measures, and determination of the discount rates for the reporting units. The carrying amount of the Company’s assets was assigned to reporting units using reasonable methodologies based on the asset type. When the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit is considered to be impaired and the second step is necessary. Different judgments could yield different results. In fiscal 2020, the Company disaggregated one reporting unit and goodwill was assigned to the disaggregated reporting units based upon the relative fair value allocation approach.
The completion of step one of the goodwill impairment test provided indications of impairment in certain reporting units, necessitating step two.
In the second step, the implied fair value of the reporting unit’s goodwill is compared with its carrying amount to measure the amount of the impairment loss, if any. The second step involves significant judgment in the selection of assumptions necessary to arrive at an implied fair value of goodwill. Different judgments could yield different results.
Using the impaired reporting units’ fair value determined in step one as the acquisition prices in hypothetical acquisitions of the reporting units, the implied fair values of goodwill were calculated as the residual amount of the acquisition price after allocations made to the fair values of net assets, including working capital, property, plant and equipment and both recognized and unrecognized intangible assets.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
Intangible assets
Intangible assets with definite lives are stated at cost, less accumulated amortization. Amortization is provided on a straight-line basis over the following terms:
|
|
|
|
|
|
|
|
|
Acquired technology
|
|
Between 3 and 10 years
|
Intellectual property
|
|
Between 1 and 17 years
|
Other acquired intangibles
|
|
Between 2 and 10 years
|
Acquired technology consists of intangible assets acquired through business acquisitions. Intellectual property consists of patents (both purchased and internally generated) and agreements with third parties for the use of intellectual property. Other acquired intangibles include items such as customer relationships and brand. The useful lives of intangible assets are evaluated at least annually to determine if events or circumstances warrant a revision to their remaining period of amortization. Legal, regulatory and contractual factors, the effects of obsolescence, demand, competition and other economic factors are potential indicators that the useful life of an intangible asset may be revised.
Impairment of long-lived assets
The Company reviews long-lived assets (“LLA”) such as property, plant and equipment and intangible assets with finite useful lives for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. These events and circumstances may include significant decreases in the market price of an asset or asset group, significant changes in the extent or manner in which an asset or asset group is being used by the Company or in its physical condition, a significant change in legal factors or in the business climate, a history or forecast of future operating or cash flow losses, significant disposal activity, a significant decline in the Company’s share price, a significant decline in revenue or adverse changes in the economic environment.
The LLA impairment test requires the Company to identify its asset groups and test impairment of each asset group separately. Determining the Company’s asset groups and related primary assets requires significant judgment by management. Different judgments could yield different results. The Company’s determination of its asset groups, its primary asset and its remaining useful life, and estimated cash flows are significant factors in assessing the recoverability of the Company’s assets for the purposes of LLA impairment testing. The Company’s share price can be affected by, among other things, changes in industry or market conditions, including the effect of competition, changes in the Company’s results of operations, changes in the Company’s forecasts or market expectations relating to future results, and the Company’s strategic initiatives and the market’s assessment of any such factors.
When indicators of impairment exist, LLA impairment is tested using a two-step process. The Company performs a cash flow recoverability test as the first step, which involves comparing the asset group’s estimated undiscounted future cash flows to the carrying amount of its net assets. If the net cash flows of the asset group exceed the carrying amount of its net assets, LLA are not considered to be impaired. If the carrying amount exceeds the net cash flows, there is an indication of potential impairment and the second step of the LLA impairment test is performed to measure the impairment amount. The second step involves determining the fair value of the asset group. Fair values are determined using valuation techniques that are in accordance with U.S. GAAP, including the market approach, income approach and cost approach. If the carrying amount of the asset group’s net assets exceeds the fair value of the Company, then the excess represents the maximum amount of potential impairment that will be allocated to the asset group, with the limitation that the carrying value of each separable asset cannot be reduced to a value lower than its individual fair value. The total impairment amount allocated is recognized as a non-cash impairment loss.
The Company reviews any changes in events and circumstances that have occurred on a quarterly basis to determine if indicators of LLA impairment exist.
Business acquisitions
The Company accounts for its acquisitions using the acquisition method whereby identifiable assets acquired and liabilities assumed are measured at their fair values as of the date of acquisition. The excess of the acquisition price over such fair value, if any, is recorded as goodwill, which is not expected to be deductible for tax purposes. The Company includes the operating results of each acquired business in the consolidated financial statements from the date of acquisition.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
Royalties
The Company recognizes its liability for royalties in accordance with the terms of existing license agreements. Where license agreements are not yet finalized, the Company recognizes its current estimates of the obligation in accrued liabilities in the consolidated financial statements. When the license agreements are subsequently finalized, the estimate is revised accordingly. Management’s estimates of royalty rates are based on the Company’s historical licensing activities, royalty payment experience, and forward-looking expectations.
Convertible debentures
The Company elected to measure its outstanding convertible debentures (collectively, the “Debentures” as defined in Note 7) at fair value in accordance with the fair value option. Each period, the fair value of the Debentures is recalculated and resulting gains and losses from the change in fair value of the Debentures associated with non-credit components are recognized in income, while the change in fair value associated with credit components is recognized in AOCI. The fair value of the Debentures has been determined using the significant inputs of principal value, interest rate spreads and curves, embedded call option prices, observable trades of the Debentures, the market price and volatility of the Company’s listed common shares and the Company’s implicit credit spread.
Leases
On March 1, 2019, the Company adopted the new standard on leases, Accounting Standards Codification 842 (“ASC 842”). Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As most of the Company’s leases do not provide an implicit discount rate, the Company primarily uses its incremental borrowing rate, based on the information available at the commencement date of the lease, in determining the present value of future payments. The Company’s incremental borrowing rate requires significant judgment and is determined based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term in a similar economic environment. The operating lease ROU asset includes any lease payments made, lease incentives and initial direct costs incurred. The lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. In some cases, the Company has index-based variable lease payments for which an estimated rate is applied to the initial lease payment to determine future lease payment amounts.
The Company has building, car and data center lease agreements with lease and non-lease components that are accounted for separately. For lease terms of 12 months or less on commencement date, the Company does not apply the ASC 842 recognition requirements and recognizes the lease payments as lease cost on a straight-line basis over the lease term.
Prior to the adoption of ASC 842, the Company classified leases as either capital or operating leases. Capital leases were capitalized on the consolidated balance sheet and reported on the consolidated statement of operations. Operating leases were considered off-balance sheet transactions and expensed as incurred.
See Note 12 for additional information related to the Company’s leases.
Revenue recognition
On March 1, 2018, the Company adopted ASC 606 and all related amendments using the modified retrospective method. The Company recognizes revenue, when control of the promised products or services are transferred to customers, in an amount that reflects the consideration that the Company expects to receive in exchange for those products and services. Revenue is recognized through the application of the following steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when (or as) the Company satisfies a performance obligation.
A contract exists with a customer when both parties have approved the contract, commitments to performance and rights of each party (including payment terms) are identified, the contract has commercial substance and collection of substantially all consideration is probable for goods and services that are transferred.
Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other available resources, and are distinct in the context of the contract, whereby the transfer of the good or service is separately identifiable from other promises in the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
The transaction price is determined based on the consideration the Company expects to be entitled to in exchange for transferring promised goods and services to the customer, excluding amounts collected on behalf of third parties such as sales taxes. Determining the transaction price requires significant judgment. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Non-cash consideration received is measured at fair value at contract inception. The estimated fair value is determined utilizing multiple valuation techniques, including the discounted future cash flows and the market-based approach.
Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative SSP. The Company’s method for allocation of consideration to be received and its method of estimation of SSP are described below under “Significant judgments”.
For each of the Company’s major categories of revenue, the following paragraphs describe the applicable specific revenue recognition policy, and when the Company satisfies its performance obligations.
Nature of products and services
Internet of Things
IoT includes revenue from the Company’s suite of security software products and services designed to secure endpoint communications for the IoT, including BlackBerry Unified Endpoint Manager (“UEM”) and BlackBerry Dynamics, among other products and applications, as well as revenue from the sale of the Company’s AtHoc Alert secure networked crisis communications solution, its SecuSUITE secure voice and text solution, and the technologies offered by BlackBerry QNX.
The Company generates software license revenue from both term subscription and perpetual license contracts, both of which are commonly bundled with support, maintenance and professional services.
If the licensed software in a contract requires access to the Company’s proprietary secure network infrastructure in order to function, revenue from term subscription contracts is recognized over time, ratably over the term, and revenue from perpetual license contracts is recognized over time, ratably over the expected customer life, which in most cases the Company has estimated to be four years. If access to the Company’s proprietary network infrastructure is not required for the software to function, revenue associated with both term subscription and perpetual licenses contracts is recognized at a point in time upon delivery of the software. Generally, most of the Company’s enterprise software products sold require access to the Company’s proprietary secure network infrastructure in order to function, and therefore the associated revenue is recognized over time, ratably over either the subscription term or expected customer life as described above.
BlackBerry QNX software license revenue from both term subscription and perpetual contracts is recognized at a point in time when the software is made available to the customer for use, as the software has standalone functionality and the license is distinct in the context of the contract. The licenses for certain software embedded into hardware such as automotive infotainment systems and advanced driver-assistance systems are sold as a sales-based royalty where intellectual property is the predominant item to which the royalty relates, and are recognized based on actual volumes and underlying sales by the customer of the hardware with the embedded software except in cases where the customer makes a non-refundable prepayment related to its future royalties, in which case consideration is fixed and recognized immediately.
Revenue from technical support is recognized over the support period. Revenue from professional services is recognized as the customer simultaneously receives and consumes the benefits provided by the Company’s performance as the services are provided. This can be on a proportional performance basis, or over the term of the contract. Revenue from software maintenance services is recognized over the length of the maintenance period, with an average term of one year.
BlackBerry Cylance
BlackBerry Cylance includes revenue from the Company’s artificial intelligence and machine learning-based platform consisting of CylancePROTECT, CylanceOPTICS, CylanceGUARD professional services and other cybersecurity applications. The Company generates software license revenue from term subscription products, which includes technical support, and any updates and upgrades. Professional services are provided through hourly rate and fixed fee arrangements.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
The Company recognizes the license revenue over the term of the contract beginning on the commencement date of each contract, the date that services are made available to customers. The Company’s software license and updates, to the extent made available, are not distinct in the context of the contract as they are critical to the ongoing usability of the solution and so fulfill a single promise to the customer in the contract. The typical subscription term is one to three years. The technical support is recognized over the support period, which will normally be the same term as the software license.
Revenue for hourly rate professional services arrangements is recognized as services are performed and revenue for fixed fee professional services is recognized on a proportional performance basis as the services are performed. This also now includes BlackBerry cybersecurity services, which was previously included within IoT; it has been reclassified into BlackBerry Cylance for the years ended February 28, 2019 and February 28, 2018 in order to conform to the current year presentation.
Licensing
Licensing includes revenue from the Company’s intellectual property licensing arrangements, BBM Consumer licensing arrangement, settlement awards and mobility licensing software arrangements, which include revenue from licensed hardware sales.
The Company’s outbound patent licensing agreements provide for license fees that may be a single upfront payment or multiple payments representing all or a majority of the licensing revenue that will be payable to the Company. These agreements may be perpetual or term in nature and grant (i) a limited non-exclusive, non-transferable license to certain of the Company’s patents, (ii) a covenant not to enforce patent rights against the licensee, and (iii) the release of the licensee from certain claims.
The Company examines intellectual property agreements on a case-by-case basis to determine whether the intellectual property has standalone functionality and whether the Company is the principal or agent in the transaction. Revenue from patent licensing agreements is often recognized for the transaction price either when the license has been transferred to the customer or based upon subsequent sales by the customer in the case of sales-based royalty licenses where the license of intellectual property is the predominant item to which the royalty relates. The transaction price may include non-monetary consideration in the form of patents transferred to the Company, which is recorded at fair value as determined by a combination of market and income-based valuation approaches.
As part of the Company’s business strategy and operations is to monetize its IP, the Company recognizes revenue related to consideration that may result from a negotiated agreement with a licensee that utilized the Company’s IP prior to signing a patent license agreement with the Company or from the resolution of a disagreement or arbitration with a licensee over the specific terms of an existing license agreement. The Company may also recognize revenue related to consideration for past patent royalties in connection with the settlement of patent litigation where there was no prior patent license agreement.
The Company’s BBM Consumer licensing arrangement is a multi-year agreement where the license was not previously separately identifiable from the requirement to maintain interoperability between the licensed BBM Consumer product and the BBM Enterprise product sold by the Company. During fiscal 2020, the licensed BBM Consumer product was shut down by the licensee, removing any requirement for the Company to maintain interoperability and thus all performance obligations were completed. As a result, the Company estimated the amount for which it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and recognized that amount as revenue during fiscal 2020.
In fiscal 2017 and fiscal 2018, the Company entered into multiple multi-year license agreements under which the Company licensed its security software and services suite and, in many cases, related brand assets to third parties who design, manufacture, sell and provide customer support for BlackBerry-branded and white-label handsets. Mobility license revenue for licensees whose sales exceed contractual sales minimums is recognized when licensed products are sold as reported by the Company’s licensees. For licensees whose sales do not exceed contractual sales minimums, revenue is recognized over time, ratably over the license term based on contractual minimum amounts due to the promise to provide engineering services to the licensees.
Other
Other includes revenue associated with the Company’s legacy service access fees (“SAF”) business, relating to subscribers utilizing the Company’s legacy BlackBerry 7 and prior operating systems, as well as revenue relating to unspecified future software upgrade rights for devices previously sold by the Company and legacy handheld revenue associated with the release of previously accrued amounts when the Company determines it has no further performance
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
obligations. SAF revenue is recognized over time as the monthly service is provided. In instances where the Company invoices the SAF customer prior to performing the service, the pre-billing is recorded as deferred revenue.
See Note 13 for further information, including revenue by major product and service types.
Significant judgments in revenue recognition
The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue recognized under the contract will not occur. Any estimates, including any constraints on variable consideration, are evaluated at each reporting period. Judgment is required to determine the fair value of non-cash consideration at contract inception. The Company uses an independent third-party valuator for the fair value of non-cash consideration.
Judgment is required to determine the SSP for each distinct performance obligation. The Company’s products and services often have observable SSP when the Company sells a promised product or service separately to similar customers. A contractually stated price or list price for a good or service may be the SSP of that good or service. However, in instances where SSP is not directly observable, the Company determines the SSP by maximizing observable inputs and using an adjusted market assessment approach using information that may include market conditions and other observable inputs from the Company’s pricing team, including historical SSP.
Judgment is required to determine in certain agreements if the Company is the principal or agent in the arrangement. The Company considers factors such as, but not limited to, which party can direct the usage of the product or service, which party obtains substantially all the remaining benefits and which party has the ability to establish the selling price.
Significant judgment is required to determine the estimated customer life used in perpetual license contracts that require access to the Company’s proprietary secure network infrastructure to function. The Company uses historical experience regarding the length of the technology upgrade cycle and the expected life of the product to draw this conclusion.
Revenue contract balances
Timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets are generated when contractual billing schedules differ from revenue recognition timing. An unbilled receivable is recorded in instances when revenue is recognized prior to invoicing, and amounts collected in advance of services being provided are recorded as deferred revenue.
Certain sales commissions are considered incremental and recoverable costs of obtaining a contract with a customer. The Company’s capitalized commissions are recorded as other current assets and other long-term assets and are recognized immediately or amortized proportionally, based on the satisfaction of the related performance obligations, and are included in selling, marketing and administration expenses. See Note 13 for further information on the Company’s contract balances.
Payment terms and conditions vary by contract type although standard billing terms are that payment is due upon receipt of invoice, payable within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that contracts generally do not include a significant financing component if the period between when the payment is received and when the Company transfers the promised goods or services to the customer will be one year or less.
Income taxes
The Company uses the liability method of income tax allocation to account for income taxes. Deferred income tax assets and liabilities are recognized based upon temporary differences between the financial reporting and income tax bases of assets and liabilities and measured using enacted income tax rates and tax laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred income tax assets to the amount that is more likely than not to be realized. The Company considers both positive evidence and negative evidence, to determine whether, based upon the weight of that evidence, a valuation allowance is required. Judgment is required in considering the relative impact of negative and positive evidence.
Significant judgment is also required in evaluating the Company’s uncertain income tax positions and provisions for income taxes. Liabilities for uncertain income tax positions are recognized based on a two-step approach. The first step is
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
to evaluate whether an income tax position has met the recognition threshold by determining if the weight of available evidence indicates that it is more likely than not to be sustained upon examination. The second step is to measure the income tax position that has met the recognition threshold as the largest amount that is more than 50% likely of being realized upon settlement. The Company continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provisions, income taxes payable and deferred income taxes in the period in which the facts that give rise to a revision become known. The Company recognizes interest and penalties related to uncertain income tax positions as interest expense, which is then netted and reported within investment income.
The Company uses the flow-through method to account for investment tax credits (“ITCs”) earned on eligible scientific research and experimental development expenditures. Under this method, the ITCs are recognized as a reduction to income tax expense.
Research and development
Research costs are expensed as incurred. Development costs for licensed software to be sold, leased or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. The Company’s products are generally released soon after technological feasibility has been established and therefore costs incurred subsequent to achievement of technological feasibility are not significant and have been expensed as incurred. The Company does not currently have any capitalized research and development costs other than those identified through business combinations as in-process research and development included within intangible assets, net, which were recorded at their fair values and began amortizing when the related technology became available for general release to customers.
Comprehensive income (loss)
Comprehensive income (loss) is defined as the change in net assets of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period, except those resulting from investments by owners and distributions to owners. The Company’s reportable items of comprehensive income (loss) are the cumulative translation adjustment resulting from non-U.S. dollar functional currency subsidiaries as described under the foreign currency translation policy above, cash flow hedges as described above in derivative financial instruments, changes in the fair value of available-for-sale investments as described in Note 3, changes in fair value from instrument-specific credit risk on Debentures as described in Notes 7 and 10, and actuarial gains or losses associated with certain other post-employment benefit obligations. Realized gains or losses on available-for-sale investments are reclassified into investment income using the specific identification basis.
Earnings (loss) per share
Earnings (loss) per share is calculated based on the weighted average number of common shares outstanding during the fiscal year. The treasury stock method is used for the calculation of the dilutive effect of stock options. The if-converted method is used for the calculation of the dilutive effect of the Debentures.
Stock-based compensation plans
The Company has stock-based compensation plans. Awards granted under the plans are detailed in Note 8(b).
The Equity Incentive Plan (the “Equity Plan”) was adopted during fiscal 2014. The Equity Plan provides for grants of incentive stock options and restricted share units (“RSUs”) to officers and employees of the Company or its subsidiaries. RSUs may be either time-based (“TBRSUs”) or time- and performance-based (“PBRSUs”). The number of common shares authorized for awards under the Equity Plan is 33,875,000 common shares. Any shares that are subject to options granted under the Equity Plan are counted against this limit as 0.625 shares for every one option granted, any shares that are subject to TBRSUs granted under the Equity Plan are counted against this limit as one share for every TBRSU, and any shares that are subject to PBRSUs granted under the Equity Plan are counted against this limit at the maximum performance attainment (which is generally 1.5 shares for every PBRSU). Awards previously granted under the Equity Plan that expire or are forfeited, or settled in cash, are added to the shares available under the Equity Plan. Options forfeited will be counted as 0.625 shares to the shares available under the Equity Plan. Shares issued as awards other than options that expire or are forfeited (i.e, RSUs), settled in cash or sold to cover withholding tax requirements are counted as one share added to the shares available under the Equity Plan. There are approximately 4 million shares in the equity pool available for future grants under the Equity Plan as at February 29, 2020.
In connection with the Cylance (as defined in Note 5) acquisition, the Company adopted the BlackBerry-Cylance Stock Plan (the “Cylance Stock Plan”). The Cylance Stock Plan provides for the grant of Replacement Awards (as defined in Note 8(b)) in connection with unvested Cylance employee equity awards. The number of common shares authorized for
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
awards under the Cylance Stock Plan is 9,144,176 common shares, which is equal to the amount of Replacement Awards granted. As at February 28, 2019, there were no shares remaining in the Cylance Stock Plan for future grants. In addition, no shares may be reissued under the Cylance Stock Plan in respect of shares that expire, are forfeited, or are settled in cash.
The Company measures stock-based compensation expense for options at the grant date based on the award’s fair value as calculated by the Black-Scholes-Merton (“BSM”) option pricing model for stock options, and the expense is recognized ratably over the vesting period. Options granted under the Equity Plan generally vest over a four-year period with 25% vesting on the first anniversary date, and the remainder vesting in equal monthly installments. The BSM model requires various judgmental assumptions including volatility and expected option life. In addition, judgment is also applied in estimating the number of stock-based awards that are expected to be forfeited, and if actual results differ significantly from these estimates, stock-based compensation expense and the Company’s results of operations would be impacted.
Any consideration paid by employees on exercise of stock options, plus any recorded stock-based compensation within additional paid-in capital related to that stock option, is credited to capital stock.
RSUs are redeemed for common shares issued by the Company or the cash equivalent on the vesting dates established by the Board or the Compensation, Nomination and Governance Committee of the Board. The RSUs granted under the Equity Plan generally vest over a three-year period, either in equal annual installments or on the third anniversary date. For PBRSUs, the Company estimates its achievement against the performance goals, which are based on the Company’s business plan approved by the Board. The estimated achievement is updated for the Company’s outlook for the fiscal year as at the end of each fiscal quarter. Compensation cost will only be recognized to the extent that performance goals are achieved. The Company classifies RSUs as equity instruments as the Company has the ability and intent to settle the awards in common shares. The compensation expense for standard RSUs is calculated based on the fair value of each RSU as determined by the closing value of the Company’s common shares on the business day of the grant date. The Company recognizes compensation expense over the vesting period of the RSU.
The Company expects to settle RSUs, upon vesting, through the issuance of new common shares from treasury.
The Company has a Deferred Share Unit Plan (the “DSU Plan”), originally approved by the Board on December 20, 2007, under which each independent director is credited with Deferred Share Units (“DSUs”) in satisfaction of all or a portion of the cash fees otherwise payable to them for serving as a director of the Company. Each independent director’s annual retainer will be entirely satisfied in the form of DSUs. Within a specified period after a director ceases to be a member of the Board, DSUs will be redeemed for cash with the redemption value of each DSU equal to the weighted average trading price of the Company’s shares over the five trading days preceding the redemption date. Alternatively, the Company may elect to redeem DSUs by way of shares purchased on the open market or issued by the Company.
DSUs are accounted for as liability-classified awards and are awarded on a quarterly basis. These awards are measured at their fair value on the date of issuance and remeasured at each reporting period until settlement.
2. ADOPTION OF ACCOUNTING POLICIES
Accounting Standards Adopted During Fiscal 2020
ASC 842, Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASC 842 on leases. The standard requires companies to include lease obligations in their balance sheets, including a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases result in the lessee recognizing a ROU asset and a corresponding lease liability. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred on transition. For finance leases, the lessee will recognize interest expense and amortization of the ROU asset, and for operating leases, the lessee will recognize a straight-line total lease expense. The short-term lease exemption allows the Company to not apply the recognition requirements to lease terms of 12 months or less on the commencement date. The Company elected the package of practical expedients where lease classification, embedded leases, and initial direct costs are not reassessed upon adoption of ASC 842.
The guidance is effective for interim and annual periods beginning after December 15, 2018. The Company adopted this guidance in the first quarter of fiscal 2020 using the modified retrospective method for all leases that existed at or commence after the date of initial application. As a result of the adoption of the new standard on leases, the Company recognized ROU assets of approximately $161 million, lease liabilities of approximately $175 million, and a cumulative adjustment to increase the deficit of approximately $14 million in the consolidated balance sheet as at March 1, 2019.
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
Future lease costs included in the Resource Allocation Program (“RAP”) of approximately $14 million, which were accrued for prior to adoption of ASC 842, and were previously included in accrued liabilities and other long-term liabilities, are now presented in accrued liabilities and operating lease liabilities in the consolidated balance sheet as at March 1, 2019. As a result, total operating lease liabilities were $189 million in the consolidated balance sheet as at March 1, 2019.
ASU 2017-12, Hedge Accounting
In August 2017, the FASB issued ASU 2017-12. This guidance expands the range of strategies that qualify for hedge accounting, changes how certain hedging relationships are presented in the financial statements and simplifies the application of hedge accounting in certain situations. The guidance is effective for interim and annual periods beginning after December 15, 2018. The Company adopted this guidance in the first quarter of fiscal 2020 and it did not have a material impact to the consolidated financial results.
Issued Accounting Pronouncements
In June 2016, the FASB issued guidance related to the measurement of credit losses on financial instruments, ASU 2016-13. This guidance replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses, requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, and requires entities to estimate an expected lifetime credit loss on its financial assets. The guidance is effective for interim and annual periods beginning after December 15, 2019. The Company will adopt this guidance in the first quarter of fiscal 2021 and does not expect the adoption to have a material impact on its results of operations, financial position and disclosures.
3. FAIR VALUE MEASUREMENTS, CASH, CASH EQUIVALENTS AND INVESTMENTS
Fair Value
The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use in pricing the asset or liability, such as inherent risk, non-performance risk and credit risk. The Company applies the following fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value into three levels:
•Level 1 - Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets.
•Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•Level 3 - Significant unobservable inputs that are supported by little or no market activity.
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 (other than those classified as Level 3), 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 (other than those classified as Level 3) largely consist of securities issued by major corporate and banking organizations, the provincial and federal governments of Canada, international government banking organizations and the United States Department of the Treasury and are all investment grade. The Company also holds a
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
limited amount of equity securities following the initial public offering by the issuer of a previous private equity investment.
The following table summarizes the changes in fair value of the Company’s Level 3 assets for the years ended February 29, 2020 and February 28, 2019:
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Level 3
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Balance at February 28, 2018
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$
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20
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Principal repayments
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(1)
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Balance at February 28, 2019
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19
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Principal repayments
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(19)
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Balance at February 29, 2020
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$
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—
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The Company recognizes transfers in and out of levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurred. There were no significant transfers in or out of Level 3 assets during the years ended February 29, 2020 or February 28, 2019.
The Company’s Level 3 assets previously consisted of auction rate securities. The Company realized $3 million in gains on auction rate securities. The Company no longer has Level 3 assets as of February 29, 2020.
Cash, Cash Equivalents and Investments
The components of cash, cash equivalents and investments by fair value level as at February 29, 2020 were as follows:
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|
|
|
|
|
|
|
|
|
Cost Basis
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Other-than-
temporary
Impairment
|
|
Fair Value
|
|
Cash and
Cash
Equivalents
|
|
Short-term
Investments
|
|
Long-term
Investments
|
|
Restricted Cash
|
Bank balances
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100
|
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other investments
|
32
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32
|
|
|
—
|
|
|
—
|
|
|
32
|
|
|
—
|
|
|
132
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
132
|
|
|
100
|
|
|
—
|
|
|
32
|
|
|
—
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
10
|
|
|
—
|
|
|
(8)
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term deposits, certificates of deposits, and GICs
|
118
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
118
|
|
|
44
|
|
|
25
|
|
|
—
|
|
|
49
|
|
Bankers’ acceptances/bearer deposit notes
|
84
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
84
|
|
|
30
|
|
|
54
|
|
|
—
|
|
|
—
|
|
Commercial paper
|
276
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
276
|
|
|
108
|
|
|
168
|
|
|
—
|
|
|
—
|
|
Non-U.S. promissory notes
|
133
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
133
|
|
|
25
|
|
|
108
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. government sponsored enterprise notes
|
144
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
144
|
|
|
—
|
|
|
144
|
|
|
—
|
|
|
—
|
|
Non-U.S. treasury bills/notes
|
56
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
56
|
|
|
25
|
|
|
31
|
|
|
—
|
|
|
—
|
|
U.S. treasury bills/notes
|
45
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
45
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
856
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
856
|
|
|
277
|
|
|
530
|
|
|
—
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
998
|
|
|
$
|
—
|
|
|
$
|
(8)
|
|
|
$
|
—
|
|
|
$
|
990
|
|
|
$
|
377
|
|
|
$
|
532
|
|
|
$
|
32
|
|
|
$
|
49
|
|
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
The components of cash, cash equivalents and investments by fair value level as at February 28, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost Basis
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Other-than-
temporary
Impairment
|
|
Fair Value
|
|
Cash and
Cash
Equivalents
|
|
Short-term
Investments
|
|
Long-term
Investments
|
|
Restricted Cash and Cash Equivalents
|
Bank balances
|
$
|
326
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
326
|
|
|
$
|
322
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
Other investments
|
36
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
36
|
|
|
—
|
|
|
—
|
|
|
36
|
|
|
—
|
|
|
362
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
362
|
|
|
322
|
|
|
—
|
|
|
36
|
|
|
4
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
10
|
|
|
—
|
|
|
(10)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term deposits, certificates of deposits, and GICs
|
85
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
85
|
|
|
—
|
|
|
55
|
|
|
—
|
|
|
30
|
|
Bankers’ acceptances
|
39
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39
|
|
|
4
|
|
|
35
|
|
|
—
|
|
|
—
|
|
Commercial paper
|
264
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
264
|
|
|
177
|
|
|
87
|
|
|
—
|
|
|
—
|
|
Non-U.S. promissory notes
|
20
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. government sponsored enterprise notes
|
139
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
139
|
|
|
25
|
|
|
114
|
|
|
—
|
|
|
—
|
|
Non-U.S. treasury bills/notes
|
35
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
—
|
|
U.S. treasury bills/notes
|
42
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42
|
|
|
—
|
|
|
42
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
624
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
624
|
|
|
226
|
|
|
368
|
|
|
—
|
|
|
30
|
|
Level 3:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
20
|
|
|
2
|
|
|
—
|
|
|
(3)
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,016
|
|
|
$
|
2
|
|
|
$
|
(10)
|
|
|
$
|
(3)
|
|
|
$
|
1,005
|
|
|
$
|
548
|
|
|
$
|
368
|
|
|
$
|
55
|
|
|
$
|
34
|
|
As at February 29, 2020, the Company had private equity investments without readily determinable fair value of $32 million (February 28, 2019 - $36 million).
During the year ended February 29, 2020, there was a $3 million impairment recognized relating to a certain private equity investment without readily determinable fair value (February 28, 2019 and February 28, 2018 - nil).
There were no realized gains or losses on available-for-sale securities for the year ended February 29, 2020 (realized losses of nil and $1 million for the years ended February 28, 2019 and February 28, 2018, respectively).
The Company has restricted cash and cash equivalents, consisting of cash and securities pledged as collateral to major banking partners in support of the Company’s requirements for letters of credit. These letters of credit support certain leasing arrangements entered into in the ordinary course of business and also support patent litigation in certain jurisdictions. The letters of credit are for terms ranging from one month to six years. The Company is legally restricted from accessing these funds during the term of the leases for which the letters of credit have been issued; however, the Company can continue to invest the funds and receive investment income thereon.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
The following table provides a reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents as at February 29, 2020, February 28, 2019 and February 28, 2018 from the consolidated balance sheets to the consolidated statements of cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Cash and cash equivalents
|
$
|
377
|
|
|
$
|
548
|
|
|
$
|
816
|
|
Restricted cash and cash equivalents
|
49
|
|
|
34
|
|
|
39
|
|
Total cash, cash equivalents, restricted cash, and restricted cash equivalents presented in the consolidated statements of cash flows
|
$
|
426
|
|
|
$
|
582
|
|
|
$
|
855
|
|
The contractual maturities of available-for-sale investments as at February 29, 2020 and February 28, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
|
|
|
|
February 28, 2019
|
|
|
|
|
|
Cost Basis
|
|
Fair Value
|
|
|
|
Cost Basis (1)
|
|
Fair Value
|
|
|
Due in one year or less
|
$
|
856
|
|
|
$
|
856
|
|
|
|
|
$
|
624
|
|
|
$
|
624
|
|
|
|
Due after five years
|
—
|
|
|
—
|
|
|
|
|
17
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No fixed maturity
|
10
|
|
|
2
|
|
|
|
|
10
|
|
|
—
|
|
|
|
|
$
|
866
|
|
|
$
|
858
|
|
|
|
|
$
|
651
|
|
|
$
|
643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
______________________________
(1) Cost basis includes other-than-temporary impairment.
As at February 29, 2020, the Company had investments with continuous unrealized losses totaling $8 million, consisting of unrealized losses on equity securities (February 28, 2019 - continuous unrealized losses totaling $10 million).
4. CONSOLIDATED BALANCE SHEET DETAILS
Accounts Receivable, Net
The allowance for doubtful accounts as at February 29, 2020 was $9 million (February 28, 2019 - $25 million).
There were two customers that comprised more than 10% of accounts receivable as at February 29, 2020 (February 28, 2019 - one customer comprised more than 10%).
Other Current Assets
As at February 29, 2020, other current assets include items such as the current portion of deferred commissions and prepaid expenses, among other items, none of which were greater than 5% of the current assets balance in all years presented.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
Property, Plant and Equipment, Net
Property, plant and equipment comprised the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
Cost
|
|
|
|
Buildings, leasehold improvements and other
|
$
|
72
|
|
|
$
|
68
|
|
BlackBerry operations and other information technology
|
84
|
|
|
85
|
|
Manufacturing, repair and research and development equipment
|
73
|
|
|
73
|
|
Furniture and fixtures
|
11
|
|
|
14
|
|
|
240
|
|
|
240
|
|
Accumulated amortization
|
170
|
|
|
155
|
|
Net book value
|
$
|
70
|
|
|
$
|
85
|
|
For the year ended February 29, 2020, amortization expense related to property, plant and equipment amounted to $24 million (February 28, 2019 - $20 million; February 28, 2018 - $36 million).
Intangible Assets, Net
Intangible assets comprised the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at February 29, 2020
|
|
|
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
Acquired technology
|
$
|
1,019
|
|
|
$
|
636
|
|
|
$
|
383
|
|
Intellectual property
|
489
|
|
|
275
|
|
|
214
|
|
Other acquired intangibles
|
494
|
|
|
176
|
|
|
318
|
|
|
$
|
2,002
|
|
|
$
|
1,087
|
|
|
$
|
915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at February 28, 2019
|
|
|
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
Acquired technology
|
$
|
1,020
|
|
|
$
|
557
|
|
|
$
|
463
|
|
Intellectual property
|
466
|
|
|
239
|
|
|
227
|
|
Other acquired intangibles
|
494
|
|
|
116
|
|
|
378
|
|
|
$
|
1,980
|
|
|
$
|
912
|
|
|
$
|
1,068
|
|
For the year ended February 29, 2020, amortization expense related to intangible assets amounted to $188 million (February 28, 2019 - $129 million; February 28, 2018 - $141 million).
Total additions to intangible assets in fiscal 2020 amounted to $32 million (fiscal 2019 - $725 million which included $646 million in connection with the Cylance acquisition). During fiscal 2020, the additions to intangible assets primarily consisted of patents received as non-cash consideration in a contract with a customer and payments for intellectual property relating to patent registration, licenses and maintenance fees.
Based on the carrying value of the identified intangible assets as at February 29, 2020, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for each of the succeeding years is expected to be as follows: fiscal 2021 - $167 million; fiscal 2022 - $144 million; fiscal 2023 - $115 million; fiscal 2024 - $106 million; and fiscal 2025 - $100 million.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
The weighted average remaining useful lives of the intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
Acquired technology
|
5.4 years
|
|
5.5 years
|
Intellectual property
|
6.6 years
|
|
7.3 years
|
Other acquired intangibles
|
6.0 years
|
|
6.8 years
|
Impairment of LLA
During the year ended February 29, 2020, the Company recorded a non-cash, pre-tax and after-tax impairment charge of$10 million consisting of $8 million related to operating lease ROU assets for certain facilities (see Note 12) and $2 million related to property, plant and equipment associated with those facilities. There were no LLA impairment charges taken in fiscal 2019.
During fiscal 2018, the Company recorded an LLA impairment charge of $11 million, which was applicable to certain prepaid royalty arrangements associated with the Company’s sale of handheld devices.
Goodwill
Changes to the carrying amount of goodwill during the fiscal years ended February 29, 2020, February 28, 2019 and February 28, 2018 were as follows:
|
|
|
|
|
|
|
Carrying Amount
|
Carrying amount as at February 28, 2017
|
$
|
559
|
|
|
|
Effect of foreign exchange on non-U.S. dollar denominated goodwill
|
10
|
|
Carrying amount as at February 28, 2018
|
569
|
|
Effect of foreign exchange on non-U.S. dollar denominated goodwill
|
(5)
|
|
Goodwill acquired through business combination completed during the year
|
899
|
|
Carrying amount as at February 28, 2019
|
1,463
|
|
Measurement period adjustment (see Note 5)
|
(2)
|
|
Goodwill impairment charge
|
(22)
|
|
Effect of foreign exchange on non-U.S. dollar denominated goodwill
|
(2)
|
|
Carrying amount as at February 29, 2020
|
$
|
1,437
|
|
Based on the results of step two of the goodwill impairment test in fiscal 2020 discussed in Note 1, it was concluded that the carrying value of goodwill was impaired. Consequently, the Company recorded a goodwill impairment charge of $22 million in the fourth quarter of fiscal 2020, relating to its BBM Consumer reporting unit.
Other Long-term Assets
As at February 29, 2020, other long-term assets include long-term portion of deferred commission and long-term receivables, among other items, none of which were greater than 5% of total assets in any of the periods presented.
Accrued Liabilities
Accrued liabilities comprised the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
|
|
|
|
|
|
|
Variable incentive accrual
|
$
|
33
|
|
|
$
|
36
|
|
Operating lease liabilities, current (note 12)
|
31
|
|
|
—
|
|
Other
|
138
|
|
|
156
|
|
|
$
|
202
|
|
|
192
|
|
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
Other accrued liabilities include accrued vendor liabilities, accrued carrier liabilities and payroll withholding taxes, among other items, none of which were greater than 5% of the current liabilities balance.
Other Long-term Liabilities
Other long-term liabilities consist of the long-term portion of finance lease liabilities and non-lease components of RAP liabilities. It previously included the present value of the long-term portion of accrued future lease payments associated with RAP, which are presented in operating lease liabilities as of the adoption of ASC 842. See Note 1.
5. BUSINESS ACQUISITIONS
There were no business acquisitions during fiscal 2020.
On February 21, 2019, the Company acquired all of the issued and outstanding shares of Cylance Inc. (“Cylance”), an artificial intelligence and cybersecurity leader, for approximately $1.4 billion in cash and common shares, plus the assumption of unvested employee incentive awards. The acquisition of Cylance is a strategic addition to the Company’s end-to-end secure communications portfolio. The accounting for the acquisition of Cylance was completed in the second quarter of fiscal 2020, as the calculation of working capital of Cylance was finalized.
The following table summarizes the fair value allocations of the acquisition price of the assets acquired and liabilities assumed during fiscal 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary Balance February 28, 2019
|
|
Measurement Period Adjustment
|
|
Balance as at August 31, 2019
|
Non-cash assets acquired
|
|
|
|
|
|
|
Current assets
|
|
$
|
40
|
|
|
$
|
(6)
|
|
|
$
|
34
|
|
Property, plant and equipment and other long-term assets
|
|
25
|
|
|
—
|
|
|
25
|
|
Intangible assets
|
|
|
|
|
|
|
Acquired technology
|
|
283
|
|
|
—
|
|
|
283
|
|
In-process research and development
|
|
66
|
|
|
—
|
|
|
66
|
|
Customer relationships
|
|
277
|
|
|
—
|
|
|
277
|
|
Trade name
|
|
20
|
|
|
—
|
|
|
20
|
|
Goodwill (1)
|
|
899
|
|
|
(2)
|
|
|
897
|
|
|
|
1,610
|
|
|
(8)
|
|
|
1,602
|
|
Liabilities assumed
|
|
|
|
|
|
|
Current liabilities
|
|
27
|
|
|
1
|
|
|
|
28
|
|
Debt
|
|
125
|
|
|
—
|
|
|
|
125
|
|
Deferred revenue (2)
|
|
95
|
|
|
(2)
|
|
|
|
93
|
|
Deferred tax liability
|
|
22
|
|
|
1
|
|
|
|
23
|
|
Other long-term liabilities
|
|
8
|
|
|
(7)
|
|
|
|
1
|
|
|
|
277
|
|
|
(7)
|
|
|
270
|
|
Net non-cash assets acquired
|
|
1,333
|
|
|
(1)
|
|
|
1,332
|
|
Cash acquired
|
|
10
|
|
|
—
|
|
|
|
10
|
|
Restricted cash acquired
|
|
4
|
|
|
—
|
|
|
|
4
|
|
Net assets acquired
|
|
1,347
|
|
|
(1)
|
|
|
1,346
|
|
Settlement of acquired debt (3)
|
|
125
|
|
|
—
|
|
|
|
125
|
|
|
|
$
|
1,472
|
|
|
$
|
(1)
|
|
|
$
|
1,471
|
|
|
|
|
|
|
|
|
Consideration
|
|
|
|
|
|
|
Cash consideration
|
|
$
|
1,416
|
|
|
$
|
(1)
|
|
|
|
$
|
1,415
|
|
Replacement Awards issued (4)
|
|
21
|
|
|
—
|
|
|
|
21
|
|
Exchange shares (5)
|
|
35
|
|
|
—
|
|
|
|
35
|
|
Total consideration
|
|
$
|
1,472
|
|
|
$
|
(1)
|
|
|
$
|
1,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_____________________________
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
(1)Goodwill represents the excess of the acquisition price over the fair value of net assets acquired, which is not expected to be deductible for tax purposes when goodwill results from share purchases.
(2)The fair value of deferred revenue represents the costs to service the assumed obligations, plus a normal profit margin as required under purchase accounting.
(3)$125 million in cash was paid to existing debt holders to settle Cylance debt outstanding at acquisition.
(4)Fair value of 8,320,130 options and 824,046 RSUs (“Replacement Awards”) issued in connection with unvested Cylance employee equity awards, related to pre-combination service and considered purchase consideration. See Note 8(b) for details on the Replacement Awards.
(5)In lieu of cash, a proportion of consideration owed to certain Cylance shareholders will be paid in BlackBerry shares issued from treasury in equal instalments on the first three anniversary dates of the acquisition. There are no service or other requirements associated with the issuance of these shares.
The weighted average amortization periods of the acquired technology, in-process research and development, customer relationships and trade name related to the business acquisitions completed during the year ended February 28, 2019 were approximately 8 years, 9 years, 9 years and 7 years, respectively.
The Company incurred $12 million in acquisition-related costs included in selling, general and administration expenses for the fiscal year ended February 28, 2019.
The Company recorded a measurement period recovery of $2 million in selling, general and administration expenses during the fiscal year ended February 29, 2020, as the amount would have been recognized in the prior fiscal year, if the adjustment to the provisional amounts had been recognized as of the acquisition date.
The amounts of revenue and loss before income taxes of the acquisition above included in the consolidated statement of operations for the year ended February 28, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
Loss before income taxes
|
Actuals from acquisition date to February 28, 2019
|
$
|
2
|
|
|
$
|
(5)
|
|
Supplemental Pro Forma Combined Financial Statements
The following pro forma combined results for the year ended February 28, 2019 reflect the consolidated statement of operations of the Company as if the acquisition of Cylance had occurred at the beginning of fiscal 2019. These results combine the historical results of Cylance’s consolidated statement of operations and are not necessarily indicative of the consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal 2019 or of the results of future operations of the combined business.
The supplemental pro forma information, as if the acquisition had occurred on March 1, 2018, is as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
February 28, 2019
|
|
|
(unaudited)
|
|
Revenue
|
|
$
|
1,027
|
|
Net loss (1)
|
|
(77)
|
|
______________________________
(1) Includes measurement period adjustments identified during the fiscal year ended February 29, 2020 of $2 million to reflect if the adjustment to the provisional amounts had been recognized as of the acquisition date.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
6. INCOME TAXES
The difference between the amount of the provision for (recovery of) income taxes and the amount computed by multiplying income (loss) before income taxes by the statutory Canadian tax rate is reconciled as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Statutory Canadian tax rate
|
26.5
|
%
|
|
26.5
|
%
|
|
26.5
|
%
|
Expected provision for (recovery of) income taxes
|
$
|
(39)
|
|
|
$
|
20
|
|
|
$
|
108
|
|
Differences in income taxes resulting from:
|
|
|
|
|
|
Valuation allowance
|
41
|
|
|
(55)
|
|
|
(169)
|
|
Investment tax credits
|
(10)
|
|
|
(10)
|
|
|
(3)
|
|
|
|
|
|
|
|
Change in unrecognized income tax benefits
|
(12)
|
|
|
9
|
|
|
8
|
|
|
|
|
|
|
|
Foreign tax rate differences
|
3
|
|
|
(1)
|
|
|
(6)
|
|
Effect of adjustments to deferred tax amounts for enacted changes resulting from U.S. tax reform
|
—
|
|
|
—
|
|
|
67
|
|
Non-deductible permanent differences
|
15
|
|
|
19
|
|
|
4
|
|
Goodwill impairment
|
6
|
|
|
—
|
|
|
—
|
|
Other differences
|
1
|
|
|
2
|
|
|
(9)
|
|
|
|
|
|
|
|
Withholding tax on unremitted earnings
|
(1)
|
|
|
—
|
|
|
1
|
|
|
$
|
4
|
|
|
$
|
(16)
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Income (loss) before income taxes:
|
|
|
|
|
|
Canadian
|
$
|
15
|
|
|
$
|
63
|
|
|
$
|
413
|
|
Foreign
|
(163)
|
|
|
14
|
|
|
(7)
|
|
|
$
|
(148)
|
|
|
$
|
77
|
|
|
$
|
406
|
|
The provision for (recovery of) income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Current
|
|
|
|
|
|
Canadian
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
1
|
|
Foreign
|
3
|
|
|
7
|
|
|
7
|
|
Deferred
|
|
|
|
|
|
Canadian
|
—
|
|
|
—
|
|
|
—
|
|
Foreign
|
(1)
|
|
|
(25)
|
|
|
(7)
|
|
|
$
|
4
|
|
|
$
|
(16)
|
|
|
$
|
1
|
|
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
Deferred income tax assets and liabilities consist of the following temporary differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
Assets
|
|
|
|
Property, plant, equipment and intangibles assets
|
$
|
174
|
|
|
$
|
175
|
|
Non-deductible reserves
|
65
|
|
|
89
|
|
Minimum taxes
|
267
|
|
|
264
|
|
Convertible Debentures (see Note 7)
|
1
|
|
|
15
|
|
Research and development
|
327
|
|
|
304
|
|
Tax loss carryforwards
|
419
|
|
|
414
|
|
Other
|
117
|
|
|
98
|
|
Deferred income tax assets
|
1,370
|
|
|
1,359
|
|
|
|
|
|
Valuation allowance
|
1,223
|
|
|
1,192
|
|
Deferred income tax assets net of valuation allowance
|
147
|
|
|
167
|
|
|
|
|
|
Liabilities
|
|
|
|
Property, plant, equipment and intangibles assets
|
(147)
|
|
|
(167)
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities
|
(147)
|
|
|
(167)
|
|
Net deferred income tax asset (liability)
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Deferred income tax asset
|
$
|
—
|
|
|
$
|
2
|
|
Deferred income tax liability
|
—
|
|
|
(2)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company regularly assesses the need for a valuation allowance against its deferred tax assets. In making that assessment, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more likely than not that some or all of the deferred tax assets will be realized.
In evaluating the need for a valuation allowance, the Company noted that there had been three years of cumulative losses including fiscal 2020. In fiscal 2020, the Company saw an increase in the deferred tax valuation allowance of $41 million (February 28, 2019 - decrease of $55 million). As a result, the deferred tax valuation allowance had an ending balance of $1,223 million (February 28, 2019 - $1,192 million). This accounting treatment has no effect on the Company’s ability to utilize deferred tax assets to reduce future cash tax payments. The Company will continue to assess the likelihood that the deferred tax assets will be realizable at each reporting period and the valuation allowance will be adjusted accordingly.
The Company’s total unrecognized income tax benefits as at February 29, 2020 and February 28, 2019 were $72 million and $84 million, respectively. A reconciliation of the beginning and ending amount of unrecognized income tax benefits that, if recognized, would affect the Company’s effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Unrecognized income tax benefits, opening balance
|
$
|
84
|
|
|
$
|
73
|
|
|
$
|
65
|
|
Increase for income tax positions of prior years
|
2
|
|
|
10
|
|
|
4
|
|
Increase for income tax positions of current year
|
1
|
|
|
5
|
|
|
4
|
|
Settlement of tax positions
|
(15)
|
|
|
(4)
|
|
|
—
|
|
|
|
|
|
|
|
Unrecognized income tax benefits, ending balance
|
$
|
72
|
|
|
$
|
84
|
|
|
$
|
73
|
|
As at February 29, 2020, $59 million of the unrecognized tax benefits have been netted against deferred income taxes and $13 million has been recorded within income taxes payable on the Company’s consolidated balance sheets.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
A summary of open tax years by major jurisdiction is presented below:
|
|
|
|
|
|
Jurisdiction
|
|
Canada (1)
|
Fiscal 2011 - 2020
|
United States (2)
|
Fiscal 2017 - 2020
|
United Kingdom
|
Fiscal 2019 - 2020
|
______________________________
(1) Includes federal as well as provincial jurisdictions, as applicable.
(2) Pertains to federal tax years. Certain state jurisdictions remain open from fiscal 2015 through fiscal 2020.
The Company is subject to ongoing examination by tax authorities in the jurisdictions in which it operates. The Company regularly assesses the status of these examinations and the potential for adverse outcomes to determine the adequacy of the provision for income taxes, as well as the provisions for indirect and other taxes and related penalties and interest. The Company believes it is reasonably possible that approximately $34 million of its gross unrecognized income tax benefits will be realized in the next twelve months. While the final resolution of these audits is uncertain, the Company believes the ultimate resolution of these audits will not have a material adverse effect on its consolidated financial position, liquidity or results of operations.
The Company recognizes interest and penalties related to unrecognized income tax benefits as interest expense that is netted and reported within investment income, net. The amount of interest accrued as at February 29, 2020 was approximately $4 million (February 28, 2019 - approximately $5 million). The amount of penalties accrued as at February 29, 2020 was nil (February 28, 2019 - $2 million).
As at February 29, 2020, the Company has the following net operating loss carryforwards and tax credits, which are scheduled to expire in the following years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Expiry
|
|
Net Operating Losses
|
|
Capital Losses
|
|
Research and Development Tax Credits (1)
|
|
Minimum Taxes
|
2029
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
2030
|
|
—
|
|
|
—
|
|
|
5
|
|
|
109
|
|
2031
|
|
26
|
|
|
—
|
|
|
5
|
|
|
128
|
|
2032
|
|
78
|
|
|
—
|
|
|
3
|
|
|
27
|
|
2033
|
|
98
|
|
|
—
|
|
|
111
|
|
|
2
|
|
2034
|
|
94
|
|
|
—
|
|
|
109
|
|
|
1
|
|
2035
|
|
11
|
|
|
—
|
|
|
51
|
|
|
—
|
|
2036
|
|
399
|
|
|
—
|
|
|
40
|
|
|
—
|
|
2037
|
|
472
|
|
|
—
|
|
|
25
|
|
|
—
|
|
2038
|
|
185
|
|
|
—
|
|
|
19
|
|
|
—
|
|
2039
|
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
2040
|
|
68
|
|
|
—
|
|
|
13
|
|
|
—
|
|
Indefinite
|
|
173
|
|
|
31
|
|
|
21
|
|
|
—
|
|
|
|
$
|
1,614
|
|
|
$
|
31
|
|
|
$
|
420
|
|
|
$
|
267
|
|
______________________________
(1) Includes federal, provincial and state balances.
7. DEBENTURES
On September 7, 2016, Fairfax Financial Holdings Limited (“Fairfax”) and other institutional investors invested in the Company through a private placement of new debentures in an aggregate amount of $605 million (the “Debentures”).
Interest on the Debentures is payable quarterly in arrears at a rate of 3.75% per annum. The Debentures mature on November 13, 2020, and each $1,000 of Debentures is convertible at any time into 100 common shares of the Company, for a total of 60.5 million common shares at a price of $10.00 per share for all Debentures, subject to adjustments. Covenants associated with the Debentures include limitations on the Company’s total indebtedness.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
Under specified events of default, the outstanding principal and any accrued interest on the Debentures become immediately due and payable upon request of holders holding not less than 25% of the principal amount of the Debentures then outstanding. During an event of default, the interest rate rises to 7.75% per annum.
The Debentures are subject to a change of control provision whereby the Company would be required to make an offer to repurchase the Debentures at 115% of par value if a person or group (not affiliated with Fairfax) acquires 35% of the Company’s outstanding common shares, acquires all or substantially all of its assets, or if the Company merges with another entity and the Company’s existing shareholders hold less than 50% of the common shares of the surviving entity.
The following table summarizes the changes in fair value of the Debentures for the fiscal year ended February 29, 2020, February 28, 2019 and February 28, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
February 29, 2020
|
|
Balance as at February 28, 2017
|
|
$
|
591
|
|
|
Change in fair value of the Debentures
|
|
191
|
|
|
Balance as at February 28, 2018
|
|
782
|
|
|
Change in fair value of the Debentures
|
|
(117)
|
|
|
Balance as at February 28, 2019
|
|
665
|
|
|
Change in fair value of the Debentures
|
|
(59)
|
|
|
Balance as at February 29, 2020
|
|
$
|
606
|
|
|
The difference between the fair value of the Debentures and the unpaid principal balance of $605 million is $1 million. The fair value of the Debentures is measured using Level 2 fair value inputs.
The following table shows the impact of the change in fair value of the Debentures for the fiscal years ended February 29, 2020, February 28, 2019 and February 28, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Income (charge) associated with the change in fair value from non-credit components recorded in the consolidated statements of operations (1)
|
|
$
|
66
|
|
|
$
|
117
|
|
|
$
|
(191)
|
|
Charges associated with the change in fair value from instrument-specific credit components recorded in AOCI (1)
|
|
(7)
|
|
|
—
|
|
|
—
|
|
Total decrease (increase) in the fair value of the Debentures (1)
|
|
$
|
59
|
|
|
$
|
117
|
|
|
$
|
(191)
|
|
______________________________
(1)During the year ended February 28, 2018 and prior to the adoption of ASU 2016-01 on March 1, 2018, the changes in fair value from both instrument-specific credit components and non-credit components of the Debentures were recorded in the consolidated statement of operations for the fiscal year ended February 28, 2018.
The Company recorded interest expense related to the Debentures of $23 million, which has been included in investment income, net on the Company’s consolidated statements of operations in fiscal 2020 (fiscal 2019 - $24 million; fiscal 2018 - $23 million). The Company is required to make quarterly interest-only payments of approximately $6 million in the first and second quarter of fiscal 2021 and approximately $5 million in the third quarter of fiscal 2021 when the Debentures mature.
Fairfax, a related party under U.S. GAAP, purchased $500 million principal amount of the Debentures. As such, the payment of interest on the Debentures represents a related-party transaction. Fairfax receives interest at the same rate as other Debenture holders.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
8. CAPITAL STOCK
(a)Capital Stock
The Company is authorized to issue an unlimited number of voting common shares, an unlimited number of non-voting, redeemable, retractable Class A common shares and an unlimited number of non-voting, cumulative, redeemable, retractable preferred shares. As at February 29, 2020 and February 28, 2019, there were no Class A common shares or preferred shares outstanding.
The following details the changes in issued and outstanding common shares for the years ended February 29, 2020, February 28, 2019 and February 28, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock and
Additional Paid-in Capital
|
|
|
|
Stock
Outstanding
(000s)
|
|
Amount
|
Common shares outstanding as at February 28, 2017
|
530,497
|
|
|
$
|
2,512
|
|
Exercise of stock options
|
536
|
|
|
4
|
|
Common shares issued for restricted share unit settlements
|
7,258
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
49
|
|
Share repurchase
|
(1,992)
|
|
|
(9)
|
|
|
|
|
|
Common shares issued for employee share purchase plan
|
435
|
|
|
4
|
|
|
|
|
|
Common shares outstanding as at February 28, 2018
|
536,734
|
|
|
2,560
|
|
Exercise of stock options
|
105
|
|
|
1
|
|
Common shares issued for restricted share unit settlements
|
10,156
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
67
|
|
|
|
|
|
Exchange shares issued from Cylance acquisition (see note 5)
|
—
|
|
|
35
|
|
Value of pre-combination service related to Replacement Awards included in purchase consideration
|
—
|
|
|
21
|
|
Common shares issued for employee share purchase plan
|
363
|
|
|
4
|
|
|
|
|
|
Common shares outstanding as at February 28, 2019
|
547,358
|
|
|
2,688
|
|
Exercise of stock options
|
1,189
|
|
|
3
|
|
Common shares issued for restricted share unit settlements
|
3,361
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued related to exchanges shares (see note 5)
|
1,380
|
|
|
—
|
|
Common shares issued for employee share purchase plan
|
911
|
|
|
6
|
|
Common shares outstanding as at February 29, 2020
|
554,199
|
|
|
$
|
2,760
|
|
The Company had 554 million voting common shares outstanding, 6 million options to purchase voting common shares, 24 million RSUs and 1 million DSUs outstanding as at March 26, 2020. In addition, 60.5 million common shares are issuable upon conversion in full of the Debentures as described in Note 7.
On June 23, 2017, the Company announced that it received acceptance from the Toronto Stock Exchange with respect to a normal course issuer bid to purchase for cancellation up to 31 million common shares of the Company, or approximately 6.4% of the outstanding public float as at May 31, 2017. During fiscal 2018, the Company repurchased approximately 2 million common shares at a cost of approximately $18 million. The Company recorded a reduction of approximately $9 million to capital stock and the amount paid in excess of the per share paid-in capital of the common shares of approximately $9 million was charged to deficit. All common shares repurchased by the Company pursuant to the normal course issuer bid have been canceled. The common share repurchase program expired on June 26, 2018. During fiscal 2019 and fiscal 2020, the Company did not repurchase any common shares.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
(b)Stock-based Compensation
Replacement awards
In connection with the Cylance acquisition in fiscal 2019, the Company granted 8,320,130 options and 824,046 RSUs (“Replacement Awards”) to replace unvested Cylance employee stock options and unvested restricted share units, all of which were canceled upon the closing of the transaction. The Company was obligated to replace the unvested Cylance employee equity awards under the merger agreement governing the acquisition.
In accordance with ASC Topic 805, Business Combinations, as the Company was obligated to conduct the replacement, these awards are considered to be replacement awards. Exchanges of share options or other share-based payment awards in conjunction with a business combination are modifications of share-based payment awards in accordance with ASC Topic 718, Compensation - Stock Compensation (“ASC 718”). As a result, a portion of the fair-value-based measure of the Replacement Awards is included in measuring the consideration transferred in the Cylance business combination. To determine the portion of the Replacement Awards that is consideration transferred, the Company measured the value of both the Replacement Awards granted by the Company and the historical Cylance awards as of February 21, 2019 in accordance with ASC 718. The portion of the fair-value-based measure of the Replacement Awards that was part of the consideration transferred equaled the portion of the replaced Cylance award that was attributable to pre-combination service. The Company attributed a portion of the Replacement Awards to post-combination service as these awards require post-combination service. The fair value of the rollover consideration was estimated to be $39 million, net of forfeitures, of which $21 million was attributable to pre-acquisition services. The remaining fair value of $18 million is recorded as stock-based compensation over the remaining vesting period subsequent to the acquisition date. As of February 29, 2020, the remaining amount of unrecognized expense for the replacement awards totaled $6 million (February 28, 2019 - $18 million).
Stock options
The Company recorded a charge to income and a credit to paid-in capital of approximately $5 million in fiscal 2020 (fiscal 2019 - $1 million; fiscal 2018 - $1 million) in relation to stock option-based compensation expense.
Stock options previously granted under the Equity Plan generally vest over a period of three years, and are generally exercisable over a period of five years from the grant date. Replacement stock options granted under the Cylance Stock Plan generally vest between three months and four years and are generally exercisable over a period of five to ten years. The Company issues new shares to satisfy stock option exercises.
A summary of option activity for fiscal 2020 is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
Number
(000’s)
|
|
Weighted
Average
Exercise
Price
|
|
Average
Remaining
Contractual
Life in Years
|
|
Aggregate
Intrinsic
Value
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at February 28, 2019
|
9,014
|
|
|
4.21
|
|
|
|
|
|
Granted during the year
|
—
|
|
|
—
|
|
|
|
|
|
Exercised during the year
|
(1,189)
|
|
|
2.80
|
|
|
|
|
|
Forfeited/canceled/expired during the year
|
(2,120)
|
|
|
4.47
|
|
|
|
|
|
Balance as at February 29, 2020
|
5,705
|
|
|
$
|
4.41
|
|
|
6.86
|
|
$
|
8
|
|
Vested and expected to vest as at February 29, 2020
|
5,204
|
|
|
$
|
4.35
|
|
|
6.76
|
|
$
|
7
|
|
Exercisable as at February 29, 2020
|
3,465
|
|
|
$
|
4.04
|
|
|
6.15
|
|
$
|
6
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that would have been received by the option holders if all in-the-money options had been exercised on February 29, 2020. The intrinsic value of stock options exercised during fiscal 2020, calculated using the average market price during the year, was approximately $4.30 per share (February 28, 2019 - $2.55; February 28, 2018 - $2.89).
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
A summary of unvested stock options since February 28, 2019 is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
Number
(000’s)
|
|
Weighted Average
Grant Date Fair
Value
|
Balance as at February 28, 2019
|
8,458
|
|
|
$
|
5.45
|
|
|
|
|
|
Vested during the year
|
(4,317)
|
|
|
5.77
|
|
Forfeited during the year
|
(1,901)
|
|
|
5.37
|
|
Balance as at February 29, 2020
|
2,240
|
|
|
$
|
4.91
|
|
As at February 29, 2020, there was $4 million of unrecognized stock-based compensation expense related to unvested stock options that will be expensed over the vesting period, which, on a weighted average basis, results in a period of approximately 1.56 years. The total fair value of stock options vested during the year ended February 29, 2020 amounted to $25 million (February 28, 2019 - $1 million; February 28, 2018 - $1 million).
Cash received from the stock options exercised for the year ended February 29, 2020 amounted to $3 million (February 28, 2019 - $1 million; February 28, 2018 - $4 million). There were no tax deficiencies incurred by the Company related to stock options exercised as at February 29, 2020 (February 28, 2019 - tax deficiency of nil; February 28, 2018 - tax deficiency of nil).
During the year ended February 29, 2020, there were no stock options granted (February 28, 2019 - 8,320,130; February 28, 2018 - nil). The weighted average fair value of these grants was calculated using the BSM option pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Weighted average grant date fair value of stock options granted during the period
|
$
|
—
|
|
|
$3.97 to $7.48
|
|
|
$
|
—
|
|
Assumptions:
|
|
|
|
|
|
Risk-free interest rates
|
—
|
%
|
|
2.50% to 2.56%
|
|
|
—
|
%
|
Expected life in years
|
0
|
|
3.91 to 6.16
|
|
|
—
|
%
|
Expected dividend yield
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Volatility
|
—
|
%
|
|
37% to 40%
|
|
|
—
|
%
|
The Company has no current expectation of paying cash dividends on its common shares. The risk-free interest rates utilized during the life of the stock options are based on a U.S. Treasury security for an equivalent period. The Company estimates the volatility of its common shares at the date of grant based on a combination of the implied volatility of publicly traded options on its common shares and historical volatility, as the Company believes that this is a reasonable indicator of expected volatility going forward. The expected life of stock options granted under the Equity Plan is based on historical exercise patterns, which the Company believes are representative of future exercise patterns. The expected life of stock options granted under the Cylance Stock Plan is based on the simplified method, as the terms and conditions are different than those previously granted under the Equity Plan.
Restricted share units
The Company recorded compensation expense with respect to RSUs of approximately $57 million in the year ended February 29, 2020 (February 28, 2019 - $66 million; February 28, 2018 - $48 million).
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
A summary of RSU activity during fiscal 2020 is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs Outstanding
|
|
|
|
|
|
|
|
Number
(000’s)
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Average
Remaining
Contractual
Life in Years
|
|
Aggregate
Intrinsic
Value
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at February 28, 2019
|
17,758
|
|
|
9.48
|
|
|
|
|
|
Granted during the year
|
16,902
|
|
|
7.19
|
|
|
|
|
|
Vested during the year
|
(3,361)
|
|
|
9.90
|
|
|
|
|
|
Forfeited/cancelled during the year
|
(6,797)
|
|
|
9.15
|
|
|
|
|
|
Balance as at February 29, 2020
|
24,502
|
|
|
$
|
7.93
|
|
|
1.65
|
|
$
|
127
|
|
Expected to vest February 29, 2020
|
22,284
|
|
|
$
|
7.88
|
|
|
1.65
|
|
$
|
115
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the aggregate closing share price of the Company’s common shares on February 29, 2020 that would have been received by RSU holders if all RSUs had been vested on February 29, 2020).
Tax deficiencies incurred by the Company related to the RSUs vested were nil for the year ended February 29, 2020 (February 28, 2019 - tax deficiency of nil; February 28, 2018 - tax deficiency of nil).
As at February 29, 2020, there was $104 million of unrecognized compensation expense related to RSUs that will be expensed over the vesting period, which, on a weighted average basis, results in a period of approximately 1.84 years.
During the year ended February 29, 2020, there were 16,902,445 RSUs granted, of which 4,182,189 were inducement awards in connection with the Cylance acquisition (February 28, 2019 - 14,245,412, of which 824,046 RSUs were Replacement Awards in connection with the Cylance acquisition, all of which will be settled upon vesting by the issuance of new common shares).
During the year ended February 29, 2020, the weighted average fair value for RSUs granted was $7.19 (February 28, 2019 - $9.45; February 28, 2018 - $10.84). During the year ended February 29, 2020, the fair value of RSUs that vested was $33 million (February 28, 2019 - $73 million; February 28, 2018 - $54 million).
Inducement awards
In the first quarter of fiscal 2020, the Board approved an agreement to grant performance-based equity awards (“Inducement Awards”) to the co-founders of Cylance covering up to 4,182,189 common shares. Up to 25%, 35% and 40% of the Inducement Awards may be earned at the end of the Company’s 2020, 2021 and 2022 fiscal years, respectively, if certain performance conditions are met, and any earned amounts will vest at the end of fiscal 2022. The Company also notes that 75% of the awards eligible to vest in a given year are based on achievement of a billings goal and 25% are based on achievement of a contribution margin goal. In the third quarter of fiscal 2020, 3,122,140 common shares subject to Inducement Awards were forfeited due to the departure of one of the co-founders of Cylance. As at February 29, 2020, there were 1,060,049 common shares subject to Inducement Awards outstanding. The Company recorded compensation expense with respect to the Inducement Awards of approximately $3 million for the year ended February 29, 2020.
2019 Executive Chair Incentive Grant
In the first quarter of fiscal 2019, the Board approved an agreement to grant a time-based equity award, a long-term market performance-based equity award and a contingent cash award (together, the “2019 Executive Chair Grant”) to the Company’s Executive Chair and CEO as an incentive to remain as Executive Chair until November 3, 2023. The expense associated with the time-based equity award and market performance-based equity award is included in the compensation expense noted above. The equity and liability components of the agreement are summarized below:
Time-based equity award
The time-based equity award consists of 5 million time-based RSUs that will vest annually in five equal tranches beginning on November 3, 2019.
Market performance-based equity award
The market performance-based equity award consists of five tranches, each of 1 million market-condition RSUs that will become earned and vested in increments of 1 million RSUs when the 10-day average closing price of the Company’s
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
common shares on the New York Stock Exchange reaches $16, $17, $18, $19 and $20, respectively. The grant date fair value and the derived service period for each of the market condition equity awards were determined through the use of a Monte Carlo simulation model utilizing Level 2 inputs. Should the target price of an award be reached prior to the derived service date, the remaining unrecognized compensation cost for the award will be accelerated and recorded at that time. Any market-condition RSUs that have not been earned before November 3, 2023 will terminate on such date.
Contingent cash award
The contingent cash award consists of a cash amount of $90 million that becomes payable should the 10-day average closing price of the Company’s common shares on the New York Stock Exchange reach $30. As the award is triggered by the Company’s share price, it is considered stock-based compensation and accounted for as a share-based liability award, the fair value of which is determined at each reporting period end utilizing an option pricing model using Level 2 inputs and the associated compensation expense for the reporting period recorded. If unearned, the contingent cash award will terminate on November 3, 2023. See also the discussion under “Other contingencies” in Note 11. The Company recorded compensation expense with respect to the contingent cash award of approximately $1 million for the year ended February 29, 2020 (February 28, 2019 - $1 million). The liability recorded in respect to the award was $1 million as at February 29, 2020 and is included within accrued liabilities (February 28, 2019 - $1 million).
Deferred share units
The Company issued 270,164 DSUs in the year ended February 29, 2020. There were 1.1 million DSUs outstanding as at February 29, 2020 (February 28, 2019 - 0.8 million). The Company had a liability of $6 million in relation to the DSU Plan as at February 29, 2020 (February 28, 2019 - $7 million) included in accrued liabilities.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
9. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Net income (loss) for basic and diluted earnings (loss) per share available to common shareholders
|
$
|
(152)
|
|
|
$
|
93
|
|
|
$
|
405
|
|
Less: Debentures fair value adjustment (1) (2)
|
(66)
|
|
|
(117)
|
|
|
—
|
|
Add: interest expense on Debentures (1) (2)
|
23
|
|
|
24
|
|
|
—
|
|
Net income (loss) for diluted earnings (loss) per share available to common shareholders
|
$
|
(195)
|
|
|
$
|
—
|
|
|
$
|
405
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding (000’s) - basic (3)
|
553,861
|
|
|
540,477
|
|
|
532,888
|
|
Effect of dilutive securities (000’s)
|
|
|
|
|
|
Stock-based compensation (4) (5)
|
—
|
|
|
11,308
|
|
|
12,998
|
|
Conversion of Debentures (1) (2)
|
60,500
|
|
|
60,500
|
|
|
—
|
|
Exchange shares from Cylance acquisition (6)
|
—
|
|
|
4,182
|
|
|
—
|
|
Weighted average number of shares and assumed conversions (000’s) diluted
|
614,361
|
|
|
616,467
|
|
|
545,886
|
|
Earnings (loss) per share - reported
|
|
|
|
|
|
Basic
|
$
|
(0.27)
|
|
|
$
|
0.17
|
|
|
$
|
0.76
|
|
Diluted
|
$
|
(0.32)
|
|
|
$
|
0.00
|
|
|
$
|
0.74
|
|
______________________________
(1) The Company has not presented the dilutive effect of the Debentures using the if-converted method in the calculation of diluted earnings (loss) per share for the year ended February 28, 2018, as to do so would be antidilutive. See Note 7 for details on the Debentures.
(2) The Company has presented the dilutive effect of the Debentures using the if-converted method, assuming conversion at the beginning of the fiscal year for the years ended February 29, 2020 and February 28, 2019. Accordingly, to calculate diluted earnings (loss) per share, the Company adjusted net income (loss) by eliminating the fair value adjustment made to the Debentures and interest expense incurred on the Debentures in the years ended February 29, 2020 and February 28, 2019, and added the number of shares that would have been issued upon conversion to the diluted weighted average number of shares outstanding. See Note 7 for details on the Debentures.
(3) Includes approximately 2,802,067 common shares remaining to be issued in equal installments on the next two anniversary dates of the Cylance acquisition, in consideration for the acquisition in the year ended February 28, 2019. There are no service or other requirements associated with the issuance of these shares.
(4) The Company has not presented the dilutive effect of in-the-money options and RSUs that will be settled upon vesting by the issuance of new common shares in the calculation of diluted earnings (loss) per share for the year ended February 29, 2020, as to do so would be antidilutive.
(5) The Company has presented the dilutive effect of in-the-money options and RSUs that will be settled upon vesting by the issuance of new common shares in the calculation of diluted earnings (loss) per share for the years ended February 28, 2019 and February 28, 2018. As at February 28, 2019, there were 8,985,836 options and 9,300,191 RSUs outstanding that were in-the-money and may have a dilutive effect on earnings (loss) per share in future periods (February 28, 2018 - 790,918 options and 14,068,069 RSUs).
(6) The Company has presented the dilutive effect of the exchange shares in connection with the Cylance acquisition completed on February 21, 2019 in the calculation of diluted earnings (loss) per share for the year ended February 28, 2019. The remaining exchange shares are included in the calculation of weighted average number of shares outstanding for the year ended February 29, 2020 as noted in footnote 3 above.
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
10. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Accumulated net unrealized gains (losses) on available-for-sale debt securities
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
(7)
|
|
Accumulated net unrealized losses on derivative instruments designated as cash flow hedges, net of tax
|
(1)
|
|
|
—
|
|
|
(1)
|
|
Foreign currency cumulative translation adjustment
|
(9)
|
|
|
(7)
|
|
|
(1)
|
|
Change in fair value from instruments-specific credit risk on Debentures
|
(22)
|
|
|
(14)
|
|
|
—
|
|
Actuarial losses associated with other post-employment benefit obligations
|
(1)
|
|
|
(1)
|
|
|
(1)
|
|
Accumulated other comprehensive loss
|
$
|
(33)
|
|
|
$
|
(20)
|
|
|
$
|
(10)
|
|
As a result of the adoption of ASU 2016-01 in fiscal 2019, the Company reclassified $8 million in unrecognized losses on equity securities that had previously been recorded to other comprehensive income (loss), through a cumulative addition to deficit in the consolidated balance sheet as of March 1, 2018. The Company recognized approximately $14 million on the change in fair value from instrument-specific credit risk that had previously been recorded to deficit through a cumulative increase to accumulated other comprehensive loss in the consolidated balance sheet as of March 1, 2018.
During the year ended February 29, 2020, nil gains (pre-tax and post-tax) associated with cash flow hedges were reclassified from AOCI into selling, marketing and administration expenses (February 28, 2019 - $3 million in gains).
11. COMMITMENTS AND CONTINGENCIES
(a)Letters of Credit
The Company has $42 million in collateralized outstanding letters of credit in support of certain leasing arrangements entered into in the ordinary course of business and in support of patent litigation in certain jurisdictions as of February 29, 2020. See the discussion of restricted cash in Note 3.
(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, subject the Company to significant liabilities and could have the other effects that are described in greater detail under Part I, Item 1A “Risk Factors” for the fiscal year ended February 29, 2020, which is included in the Company’s Annual Report on Form 10-K, including the risk factors entitled “Litigation against the Company may result in adverse outcomes” and “The Company could be found to have infringed on the intellectual property rights of others”.
Management reviews all of the relevant facts for each claim and applies judgment in evaluating the likelihood and, if applicable, the amount of any potential loss. Where a potential loss is considered probable and the amount is reasonably estimable, provisions for loss are made based on management’s assessment of the likely outcome. Where a range of loss can be reasonably estimated with no best estimate in the range, the Company records the minimum amount in the range.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
The Company does not provide for claims for which the outcome is not determinable or claims for which the amount of the loss cannot be reasonably estimated. Any settlements or awards under such claims are provided for when reasonably determinable.
As of February 29, 2020, there are no material claims outstanding for which the Company has assessed the potential loss as both probable to result and reasonably estimable; therefore, no accrual has been made. Further, there are claims outstanding for which the Company has assessed the potential loss as reasonably probable to result; however, an estimate of the amount of loss cannot reasonably be made. There are many reasons that the Company cannot make these assessments, including, among others, one or more of the following: the early stages of a proceeding does not require the claimant to specifically identify the patent claims that have allegedly been infringed or the products that are alleged to infringe; damages sought are unspecified, unsupportable, unexplained or uncertain; discovery has not been started or is incomplete; the facts that are in dispute are highly complex (e.g., once a patent is identified, the analysis of the patent and a comparison to the activities of the Company is a labour-intensive and highly technical process); the difficulty of assessing novel claims; the parties have not engaged in any meaningful settlement discussions; the possibility that other parties may share in any ultimate liability; and the often slow pace of litigation.
Though they do not meet the test for accrual described above, the Company has included the following summaries of certain of its legal proceedings that it believes may be of interest to its investors.
Between October and December 2013, several purported class action lawsuits and one individual lawsuit were filed against the Company and certain of its former officers in various jurisdictions in the U.S. and Canada alleging that the Company and certain of its officers made materially false and misleading statements regarding the Company’s financial condition and business prospects and that certain of the Company’s financial statements contain material misstatements. The individual lawsuit was voluntarily dismissed.
On March 14, 2014, the four putative U.S. class actions were consolidated in the U.S. District Court for the Southern District of New York, and on May 27, 2014, a consolidated amended class action complaint was filed. On March 13, 2015, the Court issued an order granting the Company’s motion to dismiss. The Court denied the plaintiffs’ motion for reconsideration and for leave to file an amended complaint on November 13, 2015. On August 24, 2016, the U.S. Court of Appeals for the Second Circuit affirmed the District Court order dismissing the complaint, but vacated the order denying leave to amend and remanded to the District Court for further proceedings in connection with the plaintiffs’ request for leave to amend. The Court granted the plaintiffs’ motion for leave to amend on September 13, 2017. On September 29, 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. During the first quarter of fiscal 2019, the U.S. class actions lawsuit proceeded to discovery. Fact discovery was completed on January 31, 2020, and expert discovery is scheduled to be completed on June 29, 2020. On August 2, 2019, the Magistrate Judge issued a Report and Recommendation that the Court grant the defendants’ motion for judgment on the pleadings dismissing the claims of additional plaintiffs Cho and Ulug. On September 24, 2019, the District Court Judge accepted the Magistrate Judge’s recommendation and dismissed the claims of Cho and Ulug against all defendants. On October 17, 2019, Cho and Ulug filed a Notice of Appeal. All other proceedings, including plaintiffs’ pending motion for class certification but excluding fact and expert discovery, are currently suspended pending the decision of the Second Circuit Court of Appeals in Arkansas Teachers Retirement System et al. v. Goldman Sachs Group, Inc., et al., which involves an issue relevant to the motion for class certification.
On July 23, 2014, the plaintiffs in the putative Ontario class action filed a motion for certification and leave to pursue statutory misrepresentation claims. On November 16, 2015, the Ontario Superior Court of Justice issued an order granting the plaintiffs’ motion for leave to file a statutory claim for misrepresentation. On December 2, 2015, the Company filed a notice of motion seeking leave to appeal this ruling. On January 22, 2016, the Court postponed the hearing on the plaintiffs’ certification motion to an undetermined date after asking the Company to file a motion to dismiss the claims of the U.S. plaintiffs for forum non conveniens. Before that motion was heard, the parties agreed to limit the class to purchasers who reside in Canada or purchased on the Toronto Stock Exchange. On November 15, 2018, the Court denied the Company’s motion for leave to appeal the order granting the plaintiffs leave to file a statutory claim for misrepresentation. On February 5, 2019, the Court entered an order certifying a class comprised persons (a) who purchased BlackBerry common shares between March 28, 2013, and September 20, 2013, and still held at least some of those shares as of September 20, 2013, and (b) who acquired those shares on a Canadian stock exchange or acquired those shares on any other stock exchange and were a resident of Canada when the shares were acquired. Notice of class certification was published on March 6, 2019. The Company filed its Statement of Defence on April 1, 2019, and discovery is proceeding.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
On February 15, 2017, a putative employment class action was filed against the Company in the Ontario Superior Court of Justice. The Statement of Claim alleges that actions the Company took when certain of its employees decided to accept offers of employment from Ford Motor Company of Canada amounted to a wrongful termination of the employees’ employment with the Company. The claim seeks (i) an unspecified quantum of statutory, contractual, or common law termination entitlements; (ii) punitive or breach of duty of good faith damages of CAD$20,000,000, or such other amount as the Court finds appropriate, (iii) pre- and post- judgment interest, (iv) attorneys’ fees and costs, and (v) such other relief as the Court deems just. The Court granted the plaintiffs’ motion to certify the class action on May 27, 2019. The Company commenced a motion for leave to appeal the certification order on June 11, 2019. The Court denied the motion for leave to appeal on September 17, 2019.
On February 4, 2019, a putative employment class action and California Private Attorney General Act claim was filed against the Company in the San Joaquin County Superior Court alleging the Company (i) failed to provide itemized wage statements in violation of California Labor Code Section 226(a); and (ii) failed to pay all wages due at termination in violation of California Labor Code Section 201. The complaint seeks statutory penalties, injunctive relief, interest, costs, and attorneys’ fees. The Company filed its answer denying the allegations in the complaint on March 18, 2019, and discovery is proceeding. On August 22, 2019, the Company filed a Motion for Summary Adjudication of the named plaintiff’s wage statement claims. The Court took the motion under submission following oral argument on November 13, 2019, and the motion remains pending. The Court denied the motion on January 21, 2020. The parties have reached a tentative settlement and will provide notice of the settlement to the class after the Court enters its order preliminarily approving the settlement.
Other contingencies
In the first quarter of fiscal 2019, the Board approved the 2019 Executive Chair Grant. As part of the agreement, the Company’s Executive Chair and CEO is entitled to receive a contingent performance-based cash award in the amount of $90 million that will become earned and payable should the 10-day average closing price of the Company’s common shares on the New York Stock Exchange reach $30 before November 3, 2023. As the award is triggered by the Company’s share price, it is considered stock-based compensation and accounted for as a share-based liability award. As at February 29, 2020, the liability recorded in association with this award is approximately $1 million.
During the year ended February 29, 2020, the Company received $10 million in funds from claims filed with the Ministry of Innovation, Science and Economic Development Canada relating to its Strategic Innovation Fund program’s investment in BlackBerry QNX. 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) Arbitration awards and settlements, net
Panasonic settlement agreement
In fiscal 2019, the Company and Panasonic Corporation entered into a settlement agreement whereby the Company received approximately $12 million in connection with previously purchased components utilized by the legacy handheld devices business. This amount, net of legal costs of approximately $3 million, was recorded within arbitration awards and settlements, net on the consolidated statements of operations in the fourth quarter of fiscal 2019.
Qualcomm arbitration award
On April 20, 2016, the Company and Qualcomm Incorporated (“Qualcomm”) entered into an agreement to arbitrate a dispute regarding whether Qualcomm’s agreement to cap certain royalties applied to payments made by the Company under a license between the parties. Following a joint stipulation by the parties, the arbitration panel issued a final award on May 26, 2017 providing for the payment by Qualcomm to the Company of a total amount of $940 million including interest and attorneys’ fees, which was net of $22 million in certain royalties owed by the Company to Qualcomm for calendar 2016 and the first quarter of calendar 2017 previously recorded within accrued liabilities on the consolidated balance sheets.
Approximately $815 million of the arbitration award represents the return of royalty overpayments. The Company also recorded on the consolidated statements of operations recoveries of legal expenses of approximately $8 million included in selling, marketing and administration, and $139 million of interest income within investment income, net, for a total gain associated with the award of $962 million.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
Nokia arbitration decision
On April 28, 2016, Nokia Corporation (“Nokia”) filed a Request for Arbitration with the International Chamber of Commerce International Court of Arbitration. The dispute related to whether certain payments due under a patent agreement between the parties were in fact owed under the terms of the agreement. The arbitration panel issued a decision, finding in favour of Nokia. In the third quarter of fiscal 2018, the Company recorded $148 million in charges associated with the arbitration, consisting of $132 million within arbitration awards and settlements, net and $16 million in interest expense within investment income, net on the consolidated statements of operations.
(d) Concentrations in Certain Areas of the Company’s Business
The Company attempts to ensure that most components essential to the Company’s business are generally available from
multiple sources; however, certain components are currently obtained from limited sources within a competitive market,
which subjects the Company to supply, availability and pricing risks. The Company has also entered into various agreements for the supply of components, and the manufacturing of its products; however, there can be no guarantee that the Company will be able to extend or renew these agreements on similar terms, or at all. Therefore, the Company remains subject to risks of supply shortages.
(e) Indemnifications
The Company enters into certain agreements that contain indemnification provisions under which the Company could be subject to costs and damages, including in the event of an infringement claim against the Company or an indemnified third party. Such intellectual property infringement indemnification clauses are generally not subject to any dollar limits and remain in effect for the term of the Company’s agreements. To date, the Company has not encountered material costs as a result of such indemnifications.
The Company has entered into indemnification agreements with its current and former directors and executive officers. Under these agreements, the Company agreed, subject to applicable law, to indemnify its current and former directors and executive officers against all costs, charges and expenses reasonably incurred by such individuals in respect of any civil, criminal or administrative action that could arise by reason of their status as directors or officers. The Company maintains liability insurance coverage for the benefit of the Company, and its current and former directors and executive officers. The Company has not encountered material costs as a result of such indemnifications in fiscal 2020. See the Company’s Management Information Circular for its 2019 annual meeting of shareholders for additional information regarding the Company’s indemnification agreements with its current and former directors and executive officers.
12. LEASES
The Company has operating and finance leases primarily for corporate offices, research and development facilities, data centers and certain equipment. The Company’s leases have remaining lease terms of between one year and eight years, some of which may include options to extend the lease for up to 10 years, and some of which may include options to terminate the lease within one month.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
February 29, 2020
|
Operating lease cost, included in selling, marketing and administration
|
|
$
|
33
|
|
|
|
|
Finance lease cost
|
|
|
|
Amortization of ROU assets, included in amortization
|
|
$
|
2
|
|
Interest on lease liabilities, included in investment income, net
|
|
—
|
|
Total finance lease cost
|
|
$
|
2
|
|
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
February 29, 2020
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Cash used in operating activities related to operating lease payments
|
|
$
|
40
|
|
Cash used in financing activities related to finance lease payments
|
|
2
|
|
During the year ended February 29, 2020, the Company entered into $1 million in lease obligations and recognized a corresponding ROU asset of $1 million. During the year ended February 29, 2020, the Company incurred losses of $8 million on LLA impairment of ROU assets (cost of $18 million, accumulated amortization of $10 million, and a net book value of approximately $8 million). The Company also had sublease income of $2 million and incurred $2 million in short-term lease costs during the year ended February 29, 2020.
Supplemental consolidated balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
|
February 29, 2020
|
|
March 1, 2019 (adoption)
|
Operating leases
|
|
|
|
|
|
|
Operating lease assets
|
|
|
|
|
Operating lease ROU assets
|
|
$
|
124
|
|
|
$
|
161
|
|
Operating lease liabilities
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
31
|
|
|
$
|
36
|
|
Operating lease liabilities
|
|
120
|
|
|
153
|
|
Total operating lease liabilities
|
|
$
|
151
|
|
|
$
|
189
|
|
|
|
|
|
|
Finance leases
|
|
|
|
|
Finance lease assets
|
|
|
|
|
Property, plant and equipment
|
|
$
|
5
|
|
|
$
|
8
|
|
Accumulated amortization
|
|
(4)
|
|
|
(5)
|
|
Total finance lease assets
|
|
$
|
1
|
|
|
$
|
3
|
|
|
|
|
|
|
Finance lease liabilities
|
|
|
|
|
Accrued liabilities
|
|
$
|
1
|
|
|
$
|
2
|
|
Other long-term liabilities
|
|
—
|
|
|
1
|
|
Total finance lease liabilities
|
|
$
|
1
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
February 29, 2020
|
Weighted average remaining lease term
|
|
|
|
Operating leases
|
|
5.5 years
|
Finance leases
|
|
1.3 years
|
Weighted average discount rate
|
|
|
|
Operating lease
|
|
3.6
|
%
|
Finance leases
|
|
2.2
|
%
|
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
Maturities of undiscounted lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
|
February 29, 2020
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
Fiscal year 2021
|
|
$
|
36
|
|
|
$
|
1
|
|
Fiscal year 2022
|
|
34
|
|
|
—
|
|
Fiscal year 2023
|
|
28
|
|
|
—
|
|
Fiscal year 2024
|
|
22
|
|
|
—
|
|
Fiscal year 2025
|
|
17
|
|
|
—
|
|
Thereafter
|
|
29
|
|
|
—
|
|
Total future minimum lease payments
|
|
166
|
|
|
1
|
|
Less:
|
|
|
|
|
Imputed interest
|
|
(15)
|
|
|
—
|
|
Total
|
|
$
|
151
|
|
|
$
|
1
|
|
Supplemental Information for Comparative Periods
As of February 28, 2019, prior to the adoption of ASC 842, future minimum annual lease payments related to operating leases were as follows:
|
|
|
|
|
|
2020
|
$
|
36
|
|
2021
|
28
|
|
2022
|
27
|
|
2023
|
27
|
|
2024
|
20
|
|
Thereafter
|
47
|
|
|
$
|
185
|
|
For the year ended February 28, 2019, the Company incurred rental expense of $31 million (February 28, 2018 - $32 million).
13. REVENUE AND SEGMENT DISCLOSURES
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 described in Note 1.
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
The Company’s revenue, classified by major geographic region in which the Company’s customers are located, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2020 (1)
|
|
|
|
February 28, 2019 (1)
|
|
|
|
February 28, 2018 (2)
|
|
|
North America (3)
|
743
|
|
|
71.4
|
%
|
|
599
|
|
|
66.2
|
%
|
|
540
|
|
|
58.0
|
%
|
Europe, Middle East and Africa
|
221
|
|
|
21.3
|
%
|
|
222
|
|
|
24.6
|
%
|
|
278
|
|
|
29.8
|
%
|
Other regions
|
76
|
|
|
7.3
|
%
|
|
83
|
|
|
9.2
|
%
|
|
114
|
|
|
12.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
1,040
|
|
|
100.0
|
%
|
|
$
|
904
|
|
|
100.0
|
%
|
|
$
|
932
|
|
|
100.0
|
%
|
______________________________
(1) As reported under ASC 606.
(2) Comparative information has not been restated and continues to be reported under the accounting standards in effect for the year ended February 28, 2018.
(3) 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.
Total revenue, classified by product and service type (see Note 1), was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
|
February 29, 2020 (1)
|
|
February 28, 2019 (1)
|
|
February 28, 2018 (2)
|
IoT
|
$
|
540
|
|
|
$
|
554
|
|
|
$
|
551
|
|
BlackBerry Cylance
|
151
|
|
|
5
|
|
|
—
|
|
Licensing
|
328
|
|
|
286
|
|
|
196
|
|
Other
|
21
|
|
|
59
|
|
|
185
|
|
|
|
|
|
|
|
Total
|
$
|
1,040
|
|
|
$
|
904
|
|
|
$
|
932
|
|
______________________________
(1) As reported under ASC 606.
(2) Comparative information has not been restated and continues to be reported under the accounting standards in effect for the year ended February 28, 2018.
Revenue, classified by timing of recognition, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
Products and services transferred over time
|
$
|
512
|
|
|
$
|
488
|
|
Products and services transferred at a point in time
|
528
|
|
|
416
|
|
Total
|
$
|
1,040
|
|
|
$
|
904
|
|
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
Revenue contract balances
The following table sets forth the activity in the Company’s revenue contract balances for the fiscal year ended February 29, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
Deferred Revenue
|
|
Deferred Commissions
|
Opening balance as at February 28, 2019, as corrected
|
|
$
|
252
|
|
|
$
|
389
|
|
|
$
|
23
|
|
Increases due to invoicing of new or existing contracts, associated contract acquisition costs, or other
|
761
|
|
|
585
|
|
|
37
|
|
Decrease due to payment, fulfillment of performance obligations, or other
|
(746)
|
|
|
(601)
|
|
|
(32)
|
|
|
|
|
|
|
|
Increase (decrease), net
|
15
|
|
|
(16)
|
|
|
5
|
|
Closing balance as at February 29, 2020
|
$
|
267
|
|
|
$
|
373
|
|
|
$
|
28
|
|
Transaction price allocated to the remaining performance obligations
The table below discloses the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as at February 29, 2020 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 February 29, 2020
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
12 to 24 Months
|
|
Thereafter
|
|
Total
|
Remaining performance obligations
|
$
|
279
|
|
|
$
|
101
|
|
|
$
|
43
|
|
|
$
|
423
|
|
Revenue recognized for performance obligations satisfied in prior periods
For the fiscal year ended February 29, 2020, $1 million in revenue was recognized relating to performance obligations satisfied in a prior period (fiscal year ended February 28, 2019 - $11 million, in revenue recognized relating to the legacy handheld devices business).
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, reviews financial information, makes decisions and assesses the performance of the Company as a single operating segment.
Property, plant and equipment, intangible assets, operating lease ROU assets and goodwill, classified by geographic segments in which the Company’s assets are located, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
|
|
|
|
February 29, 2020
|
|
|
|
February 28, 2019
|
|
|
|
Property, Plant and Equipment, Intangible Assets, Operating Lease ROU Assets and Goodwill
|
|
Total Assets
|
|
Property, Plant and Equipment, Intangible Assets and Goodwill
|
|
Total Assets
|
Canada
|
$
|
374
|
|
|
$
|
657
|
|
|
$
|
396
|
|
|
$
|
667
|
|
United States
|
2,132
|
|
|
3,071
|
|
|
2,178
|
|
|
3,099
|
|
Other
|
40
|
|
|
160
|
|
|
42
|
|
|
202
|
|
|
$
|
2,546
|
|
|
$
|
3,888
|
|
|
$
|
2,616
|
|
|
$
|
3,968
|
|
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
Information About Major Customers
There was one customer that comprised 13% of the Company’s revenue in fiscal 2020 (fiscal 2019 - one customer that comprised more than 10%; fiscal 2018 - no customers that comprised more than 10%).
14. CASH FLOW AND ADDITIONAL INFORMATION
(a) Certain consolidated statements of cash flow information related to interest and income taxes paid is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
|
February 29, 2020
|
|
February 28, 2019
|
|
February 28, 2018
|
Interest paid during the year
|
$
|
23
|
|
|
$
|
24
|
|
|
$
|
39
|
|
Income taxes paid during the year
|
8
|
|
|
6
|
|
|
6
|
|
Income tax refunds received during the year
|
9
|
|
|
15
|
|
|
7
|
|
(b) Additional Information
Advertising expense, which includes media, agency and promotional expenses totaling $39 million (February 28, 2019 - $22 million; February 28, 2018 - $23 million) is included in selling, marketing and administration expenses for the fiscal year ended February 29, 2020.
Selling, marketing and administration expenses for the fiscal year ended February 29, 2020 included nil with respect to foreign exchange gain or losses, net of foreign exchange hedging (February 28, 2019 - gain of $2 million; February 28, 2018 - losses of nil).
Foreign exchange
The Company is exposed to foreign exchange risk as a result of transactions in currencies other than its functional currency, the U.S. dollar. The majority of the Company’s revenue in fiscal 2020 was transacted in U.S. dollars. Portions of the revenue were denominated in Canadian dollars, euros and British pounds. Other expenses, consisting mainly of salaries and certain other operating costs, were incurred primarily in Canadian dollars, but were also incurred in U.S. dollars, euros and British pounds. At February 29, 2020, approximately 12% of cash and cash equivalents, 17% of accounts receivable and 17% of accounts payable were denominated in foreign currencies (February 28, 2019 – 9%, 29% and 4%, 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 the Debentures as described in Note 7 with a fixed 3.75% interest rate. The fair value of the Debentures will fluctuate with changes in prevailing interest rates. Consequently, the Company is exposed to interest rate risk as a result of the Debentures. The Company does not currently utilize interest rate derivative instruments to hedge its investment portfolio.
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 February 29, 2020, no single issuer represented more than 8% of the total cash, cash equivalents and investments (February 28, 2019 - no single issuer represented more than 16% of the total cash, cash equivalents and investments), representing cash balances at 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
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
counterparties on a daily basis, subject to exposure and transfer thresholds. As at February 29, 2020, the Company had $1 million in collateral posted with counterparties (February 28, 2019 - nil collateral posted or held).
Liquidity risk
Cash, cash equivalents, and investments were approximately $990 million as at February 29, 2020. The Company’s management remains focused on maintaining appropriate cash balances, 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.