UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________
FORM 40-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934
or
ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 2018
Commission File Number 1-38232
__________________________________________________________
BlackBerry Limited
(Exact name of Registrant as specified in its charter)
Ontario
(Province or other Jurisdiction
of Incorporation or Organization)
7372
(Primary Standard Industrial
Classification Code Number)
Not Applicable
(I.R.S. Employer
Identification No)
2200 University Ave East
Waterloo, Ontario, Canada,
N2K 0A7
(519) 888-7465
(Address and telephone number of Registrant’s principal executive offices)
BlackBerry Corporation
3001 Bishop Drive, Suite 400
San Ramon, California, USA 94583
(925) 242-5660
(Name, address and telephone number of agent for service in the United States)
__________________________________________________________
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange where registered
Common Shares, without par value
Toronto Stock Exchange
Common Shares, without par value
New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
For annual reports, indicate by check mark the information filed with this Form:
Annual information form
Audited annual financial statements
Indicate the number of outstanding shares of each of the Registrant’s classes of capital or common stock as of the close of the
period covered by this annual report.
The Registrant had 536,733,733 Common Shares outstanding as at February 28, 2018.
Indicate by check mark whether the Registrant by filing the information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). If “Yes”
is marked, indicate the filing number assigned to the Registrant in connection with such Rule.
Yes 82- _________
No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.
Emerging growth company
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards†
provided pursuant to Section 13(a) of the Exchange Act.
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to
its Accounting Standards Codification after April 5, 2012.
A.
Disclosure Controls and Procedures
Disclosure controls and procedures are defined by the Securities and Exchange Commission (the “Commission”) as
those controls and other procedures that are designed to ensure that information required to be disclosed by the Registrant in
reports filed or submitted by it under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,
processed, summarized and reported within the time periods specified in the Commission’s rules and forms.
The Registrant’s Chief Executive Officer and Chief Financial Officer have evaluated the Registrant’s disclosure
controls and procedures as of the end of the period covered by this Annual Report and have determined that such disclosure
controls and procedures were effective. A discussion of the Registrant’s disclosure controls and procedures can be found in its
Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended February 28,
2018, included in Exhibit 1.3 to this Annual Report, under the heading “Disclosure Controls and Procedures and Internal
Controls - Disclosure Controls and Procedures”.
B.
Management’s Annual Report on Internal Control Over Financial Reporting
See Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended
February 28, 2018, included in Exhibit 1.3 to this Annual Report, under the heading “Disclosure Controls and Procedures and
Internal Controls - Management’s Report on Internal Control Over Financial Reporting”.
C.
Attestation Report of the Registered Public Accounting Firm
The attestation report of Ernst & Young LLP (“EY”) is included in EY’s report, dated March 28, 2018, to the
shareholders of the Registrant, which accompanies the Registrant’s audited consolidated financial statements for the fiscal year
ended February 28, 2018, filed as Exhibit 1.2 to this Annual Report.
D.
Changes in Internal Control Over Financial Reporting
See Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended
February 28, 2018, included in Exhibit 1.3 to this Annual Report, under the heading “Disclosure Controls and Procedures and
Internal Controls – Changes in Internal Control Over Financial Reporting”.
E.
Notice of Pension Fund Blackout Period
The Registrant was not required by Rule 104 of Regulation BTR to send any notice to any of its directors or executive
officers during the fiscal year ended February 28, 2018.
F.
Audit Committee Financial Expert
The Registrant’s Board of Directors has determined that Barbara Stymiest, an individual serving on the Audit and Risk
Management Committee of the Registrant’s Board of Directors, is an audit committee financial expert, within the meaning of
General Instruction B(8)(b) of Form 40-F.
The Commission has indicated that the designation of a person as an audit committee financial expert does not make
such person an “expert” for any purpose, impose any duties, obligations or liability on such person that are greater than those
imposed on members of the Audit and Risk Management Committee and the Board of Directors who do not carry this
designation or affect the duties, obligations or liability of any other member of the Audit and Risk Management Committee or
Board of Directors.
G.
Code of Ethics
The Registrant’s Board of Directors has adopted a code of ethics (the “Code”) that applies to all directors, officers and
employees. A copy of the Code may be obtained at www.blackberry.com. The Registrant will provide a copy of the Code
without charge to any person that requests a copy by contacting the Corporate Secretary at the address that appears on the cover
of this Annual Report on Form 40-F.
H.
Principal Accountant Fees and Services
Audit Fees
The aggregate fees billed by EY, the Company’s independent auditor, for the fiscal years ended February 28, 2018 and
February 28, 2017, respectively, for professional services rendered by EY for the audit of the Company’s annual financial
statements or services that are normally provided by EY in connection with statutory and regulatory filings or engagements for
such fiscal years were $4,273,803 (of which $1,926,094 related to prior fiscal years) and $2,891,007, respectively.
Audit-Related Fees
The aggregate fees billed by EY for the fiscal years ended February 28, 2018 and February 28, 2017, respectively, for
assurance and related services rendered by EY that are reasonably related to the performance of the audit or review of the
Company’s financial statements and are not reported above as audit fees were $33,598 and $18,071, respectively. Professional
services provided included procedures related to the audit of new systems implemented.
Tax Fees
The aggregate fees billed by EY for the fiscal years ended February 28, 2018 and February 28, 2017, respectively, for
professional services rendered by EY for tax compliance, tax advice, tax planning and other services were $6,265 and $69,363,
respectively. Tax services provided included international tax compliance engagements.
All Other Fees
The aggregate fees billed by EY for the fiscal years ended February 28, 2018 and February 28, 2017, respectively, for
professional services rendered by EY for acquisition related due diligence were $129,301 and $80,277, respectively.
Audit Committee Pre-Approval Policies and Procedures
Since the enactment of the Sarbanes-Oxley Act of 2002 on July 30, 2002, all audit and non-audit services performed by
the Registrant’s outside auditors are pre-approved by the Audit and Risk Management Committee of the Registrant.
I.
Off-Balance Sheet Arrangements
The Registrant is not a party to any off-balance sheet arrangements that have or are reasonably likely to have a current
or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
J.
Tabular Disclosure of Contractual Obligations
Tabular disclosure of the Registrant’s contractual obligations can be found in its Management’s Discussion and
Analysis of Financial Condition and Results of Operations for the fiscal year ended February 28, 2018, included in Exhibit No.
1.3 to this Annual Report, under the heading “Financial Condition - Aggregate Contractual Obligations”.
K.
Identification of Audit Committee
The Registrant has an Audit and Risk Management Committee comprised of four individuals: Barbara Stymiest
(Chair), Timothy Dattels, Dr. Laurie Smaldone Alsup and the Hon. Wayne Wouters. Each of the members of the Audit and
Risk Management Committee is independent as that term is defined by the rules and regulations of the New York Stock
Exchange.
L.
Critical Accounting Estimates
A discussion of the Registrant’s critical accounting estimates can be found in its Management’s Discussion and
Analysis of Financial Condition and Results of Operations for the fiscal year ended February 28, 2018, included in Exhibit No.
1.3 to this Annual Report, under the heading “Accounting Policies and Critical Accounting Estimates - Critical Accounting
Estimates”.
M.
Interactive Data File
The Registrant has submitted to the Commission, included in Exhibit 101 to this Annual Report, an Interactive Data
File.
N.
Mine Safety
The Registrant is not currently required to disclose the information required by Section 1503(a) of the Dodd-Frank
Wall Street Reform and Consumer Protection Act.
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
A.
Undertaking
The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the
Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to the securities
in relation to which the obligation to file an annual report on Form 40-F arises or transactions in said securities.
B.
Consent to Service of Process
The Registrant has previously filed with the Commission a Form F-X in connection with its Common Shares, as amended on
Form F-X/A filed with the Commission on June 1, 2015 and on Form F-X/A filed with the Commission on June 24, 2016.
Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing
on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.
SIGNATURE
Date: March 28, 2018
BLACKBERRY LIMITED
By:
/s/ Steven Capelli
Name:
Steven Capelli
Title:
Chief Financial Officer and Chief Operating Officer
Exhibit
No.
EXHIBIT INDEX
Document
1.1
Annual Information Form for the fiscal year ended February 28, 2018, dated March 28, 2018.
1.2
1.3
Audited Consolidated Financial Statements for the fiscal year ended February 28, 2018, prepared in accordance
with U.S. generally accepted accounting principles.
Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year
ended February 28, 2018.
23.1
Consent of Ernst & Young LLP.
31.1
32.1
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
101
Interactive Data File.
BLACKBERRY LIMITED
2200 University Avenue East
Waterloo, Ontario
Canada
N2K 0A7
Annual Information Form
For the fiscal year ended
February 28, 2018
DATE: March 28, 2018
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CERTAIN INTERPRETATION MATTERS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
TABLE OF CONTENTS
CORPORATE STRUCTURE
THE COMPANY
INTERCORPORATE RELATIONSHIPS
GENERAL DEVELOPMENT OF THE BUSINESS
NARRATIVE DESCRIPTION OF THE BUSINESS
OVERVIEW
SECURE MOBILE ENTERPRISE SOFTWARE AND SERVICES INDUSTRY
STRATEGY
PRODUCTS AND SERVICES
SALES, MARKETING, DISTRIBUTION AND CUSTOMERS
COMPETITION
PRODUCT DESIGN, ENGINEERING AND RESEARCH & DEVELOPMENT
THIRD PARTY SOFTWARE DEVELOPERS
INTELLECTUAL PROPERTY
PRODUCTION
INDUSTRY ASSOCIATIONS
SOCIAL AND ENVIRONMENTAL REGULATIONS
CORPORATE RESPONSIBILITY
EMPLOYEES
FACILITIES
LEGAL PROCEEDINGS
ENTERPRISE RISK MANAGEMENT
RISK FACTORS
DIVIDEND POLICY AND RECORD
DESCRIPTION OF CAPITAL STRUCTURE
COMMON SHARES
CLASS A COMMON SHARES
PREFERRED SHARES
CONVERTIBLE DEBENTURES
MARKET FOR SECURITIES OF THE COMPANY
NORMAL COURSE ISSUER BID
DIRECTORS AND EXECUTIVE OFFICERS
CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS
CONFLICTS OF INTEREST
AUDIT AND RISK MANAGEMENT COMMITTEE
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
TRANSFER AGENTS AND REGISTRARS
MATERIAL CONTRACTS
INTERESTS OF EXPERTS
ADDITIONAL INFORMATION
APPENDIX A - CHARTER OF THE AUDIT AND RISK MANAGEMENT COMMITTEE OF
THE BOARD OF DIRECTORS
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ANNUAL INFORMATION FORM
CERTAIN INTERPRETATION MATTERS
Unless the context otherwise requires, all references to the “Company” and “BlackBerry” include BlackBerry Limited
(formerly, Research In Motion Limited) and its subsidiaries. All dollar references, unless otherwise noted, are in United States
dollars.
BlackBerry®, BBM™, QNX®, Good® and related trademarks, names and logos are the property of BlackBerry Limited and
are registered and/or used in the United States and countries around the world. All other trademarks are the property of their
respective owners.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Information Form (“AIF”) 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 the anticipated benefits of its strategic initiatives and its
intentions to grow revenue and increase and enhance its product and service offerings;
the Company’s expectations regarding the generation of revenue and margin from its software, services and other
technologies, including its intellectual property and brand assets;
the Company’s intention to maintain its leadership position and increase its market share in unified endpoint
management (“UEM”) and mobile security; and
the Company’s intention to pursue growth in select international markets
The words “expect”, “anticipate”, “estimate”, “may”, “will”, “should”, “could”, “intend”, “believe”, “target”, “plan” and
similar expressions are intended to identify forward-looking statements. 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 risks and
uncertainties facing the Company which are described in the “Risk Factors” section of this AIF.
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. These forward-looking statements
are subject to the inherent risk of difficulties in forecasting the Company’s financial results and performance for future periods,
particularly over longer periods, given the ongoing transition in the Company’s business strategy and the rapid technological
changes, evolving industry standards, intense competition and short product life cycles that characterize the industries in which
the Company operates. These factors should be considered carefully, and readers should not place undue reliance on the
Company’s forward-looking statements. 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.
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CORPORATE STRUCTURE
The Company
The Company was incorporated under the Business Corporations Act (Ontario) (“OBCA”) on March 7, 1984 and commenced
operations at that time. The Company has amalgamated with several of its wholly-owned subsidiaries, the last amalgamation
occurring through the filing of articles of amalgamation under the OBCA on November 4, 2013. The Company’s registered and
principal business office is 2200 University Avenue East, Waterloo, Ontario, Canada N2K 0A7.
Intercorporate Relationships
The Company has four material subsidiaries, all of which are wholly-owned, directly or indirectly, by the Company in each
case as at February 28, 2018.
Name of Subsidiary
BlackBerry Corporation
BlackBerry UK Limited
Good Technology Corporation
QNX Software Systems Limited
Jurisdiction of Incorporation or Organization
Delaware, U.S.A.
England and Wales
Delaware, U.S.A.
Ontario, Canada
GENERAL DEVELOPMENT OF THE BUSINESS
The products, services and developments that have influenced the Company’s business over the last three fiscal years are as
follows:
Fiscal 2018:
Products, Services, Recognitions and Certifications
• Named a leader in the Gartner, Inc. (“Gartner”) June 2017 Magic Quadrant for Enterprise Mobility Management
Suites and received the highest score for all six use cases in the Gartner, Inc. Critical Capabilities for High-Security
Mobility Management report for the second year in a row;
• Received the highest score in two use cases in the Gartner Critical Capabilities for Content Collaboration Platforms
report;
• Became the only vendor recognized by Gartner in all eight categories of their Market Guide for Information-Centric
Endpoint and Mobile Protection with a single platform offering;
• Ranked as a leader in the Forrester Wave: EMM report by Forrester Research, Inc., for the third consecutive year;
• Launched QNX Hypervisor 2.0, a real-time Type 1 hypervisor solution that enables automotive platform developers to
partition and isolate safety-critical environments from non-safety critical environments;
• Launched BlackBerry Jarvis, a cloud-based static binary code-scanning tool that identifies cybersecurity
vulnerabilities in software used in automobiles;
• Expanded its asset tracking portfolio with the launch of Radar-L, a solution for flatbeds, chassis, containers, heavy
•
machinery and other valuable transportation or non-powered assets;
Partnered with TCL Communication (“TCL”) and PT BB Merah Putih to introduce the BlackBerry-branded KEYone,
Motion, and Aurora smartphones, offering the most secure Android smartphone experience;
• Announced that the BlackBerry AtHoc cloud service for crisis communication received U.S. Federal Risk and
Authorization Management Program (“FedRAMP”) authorization;
• Launched AtHoc Account, a FedRAMP-authorized solution that automates personnel accountability and crisis
communication processes by providing safety and availability status updates of people before, during and after a
critical event;
• Expanded SecuSUITE for Government availability to include the Canadian and U.S. governments; and
•
Introduced new cybersecurity consulting services aimed at enabling enterprise General Data Protection Regulation
compliance and mitigating security risks in connected automobiles that threaten personal and public safety.
Joint Ventures, Partnerships and Other Agreements
• Entered into a strategic licensing agreement with Teletry, under which Teletry may sublicense a broad range of the
Company’s patents to a majority of global smartphone manufacturers;
• Entered into an agreement with Qualcomm Technologies, Inc. (“Qualcomm”), to optimize select Qualcomm hardware
platforms with software from its wholly-owned subsidiary QNX Software Systems Limited (“BlackBerry QNX”) for
use in virtual cockpit controllers, telematics, electronic control gateways, digital instrument clusters and infotainment
4
systems, and to optimize the Company’s over-the-air software and secure credential management services for use with
select Qualcomm modems;
• Announced a commercial partnership agreement with Delphi Automotive PLC (now Aptiv) to provide the operating
•
system for its autonomous driving system;
Selected by Baidu to power Baidu’s Apollo autonomous driving open platform, CarLife infotainment platform and
DuerOS artificial intelligence system;
• Announced that NVIDIA Corporation selected BlackBerry QNX to be the software foundation for its functionally safe
self-driving development platform;
• Announced that, in partnership with DENSO Corporation, the Company has developed the world’s first integrated
Human Machine Interface platform for automobiles;
• Added numerous Gold-level partners to the BlackBerry Enterprise Partner Program, furthering the Company’s
commitment to establishing and growing its global ecosystem of enterprise software partners and developers;
• Entered into a reselling partnership with Fleet Complete for BlackBerry Radar and announced that Fleet Complete has
chosen BlackBerry Radar for its BigRoad Freight program;
• Announced a new partnership with Pana-Pacific to make BlackBerry Radar available to more than 2,800 commercial
•
vehicle dealers in North America;
Signed its first white label licensing deal with Yangzhou New Telecom Science and Technology Company Ltd.
(“NTD”), under which handsets developed by NTD and branded by original equipment manufacturers (“OEMs”),
carriers and local smartphone brands will use BlackBerry’s device software and be marketed as “BlackBerry Secure”;
and
• Expanded its distribution channels through a new initiative with Allied World Assurance Company Holdings, AG,
whereby Allied World will provide its cyber policyholders with direct access to the Company’s cybersecurity expertise
through the BlackBerry SHIELD online self-assessment tool that will identify areas of weakness, after which the
Company will work to improve the policyholders’ security posture by providing its cybersecurity products and
services.
Financial Highlights
• Achieved non-GAAP total Company software and services revenue of $782 million for the year, and U.S. GAAP total
Company software and services revenue of $747 million for the year;
• Achieved non-GAAP EPS of $0.14 per basic and diluted share in fiscal 2018, and U.S. GAAP EPS of $0.76 per basic
share and $0.74 per diluted share in fiscal 2018;
• Achieved positive free cash flow for fiscal 2018, before considering the costs of restructuring and transition from the
hardware business as well as the net impact of arbitration awards and damages;
• Resolved all amounts payable in connection with an arbitration with Qualcomm and received payment of $940 million
from Qualcomm including interest and attorneys' fees, net of certain royalties due from the Company; and
• Commenced a normal course issuer bid to repurchase up to 31 million common shares of the Company (see also
“Normal Course Issuer Bid”).
Executive Officer Appointments
• Appointed Steven Capelli as Chief Operating Officer (in addition to Chief Financial Officer); and
• Appointed Mark Wilson as Chief Marketing Officer.
Fiscal 2017:
Products, Services and Certifications
Partnered with TCL in its introduction of the BlackBerry-branded KEYone smartphone;
• Launched the Company’s comprehensive and fully integrated software platform to secure the Enterprise of Things;
•
• Launched DTEK60 and DTEK50 secure Android smartphones;
• Launched BlackBerry Radar, an end-to-end asset tracking system for trucking companies and private fleet operators to
optimize asset utilization, reduce theft and reduce operational costs;
• Announced plans to launch the BlackBerry Autonomous Vehicle Innovation Center (“AVIC”) to focus on developing
secure software for connected cars and autonomous driving, while launching the BlackBerry QNX Software
Development Platform for autonomous drive and connected cars;
Introduced the Enterprise Partner Program to stimulate growth and drive profit for solutions providers, developers and
training partners working with BlackBerry solutions;
•
• Achieved common criteria National Information Assurance Partnership (“NIAP”) certification for BB 10.3.3;
• Announced plans to launch a Federal Cybersecurity Operations Center to support FedRAMP and other government
security certification initiatives, led by former U.S. Coast Guard CIO, Rear Admiral Bob Day Jr. (retired); and
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• Entered the Communications Platform as a Service (“CPaaS”) market with the launch of the BlackBerry Messenger
(“BBM”) Enterprise Software Development Kit (“SDK”), which will enable developers to integrate secure messaging,
voice and video capabilities into applications and services.
Joint Ventures, Partnerships and Other Agreements
• Entered into agreements with TCL, Optiemus Infracom Ltd. (“Optiemus”) and PT BB Merah Putih under which the
Company licensed its security software and service suite, as well as related brand assets, to enable these licensees to
design, manufacture, sell and provide customer support for BlackBerry-branded handsets featuring the Company’s
secure Android software;
• Entered into a strategic alliance and licensing agreement with PT Elang Mahkota Teknologi Tbk (“Emtek”) to provide
cross-platform consumer BBM users with access to enriched content and services; and
• Entered into a non-exclusive agreement with Ford Motor Company for expanded use of the BlackBerry QNX OS,
hypervisor and audio processing software as well as Certicom and other security software.
Financial Highlights
• Reduced leverage through the redemption of the Company’s outstanding 6% convertible debentures (the “6%
Debentures”) through the issuance of $605 million aggregate principal amount of 3.75% convertible debentures of the
Company (the “3.75% Debentures”) (the “Debenture Refinancing”);
• Completed a normal course issuer bid under which the Company repurchased for cancellation approximately 12.6
million common shares;
• Achieved positive adjusted EBITDA in each quarter of fiscal 2017; and
• Achieved non-GAAP total Company software and services revenues of $687 million for the year, and U.S. GAAP
total Company software and services revenues of $622 million for the year.
Executive Officer Appointment
• Appointed Steven Capelli as Chief Financial Officer.
Fiscal 2016:
Acquisitions
• Acquired all of the issued and outstanding shares of Good Technology Corporation (“Good”), a provider of secure
mobility solutions, including secure applications and containerization that protects end user privacy, in a significant
acquisition for aggregate consideration of approximately $417 million;
• Acquired AtHoc, Inc. (“BlackBerry AtHoc”), a provider of secure, networked crisis communications;
• Acquired WatchDox Ltd., a data security company offering secure enterprise file synchronization and sharing
(“EFSS”) solutions; and
• Acquired Encription Holdings Limited and Encription Ireland Limited (“Encription”), a cybersecurity consulting firm
providing industry-leading assessments in penetration testing and security training services.
Products, Services and Approvals
• Launched the PRIV smartphone, running on the Android™ operating system;
• Announced the Good Secure EMM Suites by BlackBerry, a comprehensive set of mobile security, management,
productivity and collaboration offerings;
• Announced the launch of a Professional Cybersecurity Services practice;
• Announced voice encryption solution SecuSUITE for Enterprise;
• Announced BES12 Cloud, a cloud-based, cross-platform enterprise mobility management (“EMM”) solution;
• Obtained the approval of the United States Department of Defense (“DoD”) for the use of Public Key Infrastructure
credentials on BlackBerry OS and BlackBerry 10 smartphones;
• Unveiled a new QNX software platform for Advanced Driver Assistance Systems (“ADAS”) to enable automakers to
•
build autonomous drive features; and
Showcased at the Consumer Electronics Show an over-the-air software platform, as well as the development version
of BlackBerry Radar.
Joint Ventures, Partnerships and Other Agreements
• Entered into a long-term patent cross-licensing agreement with Cisco;
• Entered into a joint development and manufacturing agreement with Wistron Corporation;
• Announced the planned integration of Samsung KNOX™ with WorkLife by BlackBerry and SecuSUITE; and
• Announced the availability of the Company’s multi-OS EMM platform in the Microsoft Azure Marketplace.
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Financial Highlights
• Achieved positive free cash flow and positive adjusted EBITDA in each quarter of fiscal 2016;
• Achieved non-GAAP revenue of $527 million from software and services for the year, and U.S. GAAP software and
services revenue of $494 million for the year;
• Commenced a normal course issuer bid to repurchase up to 27 million common shares of the Company; and
• Commenced the resource alignment program (the “Resource Alignment Program”) with the objectives of reallocating
Company resources to capitalize on growth opportunities and reaching sustainable profitability.
Director and Executive Officer Appointments
• Appointed the Honourable Wayne G. Wouters, PC, an executive leader in government relations, strategic leadership,
international trade and economic policy, to the board of directors of the Company (the “Board”);
• Appointed Laurie Smaldone Alsup, M.D., an executive leader in drug development, regulatory strategy, and regulatory
approvals in the pharmaceutical and biotechnology industries, to the Board; and
• Appointed Carl Wiese as President of Global Sales.
NARRATIVE DESCRIPTION OF THE BUSINESS
Overview
BlackBerry is an enterprise software and services company focused on securing and managing endpoints in the Internet of
Things (“IoT”). Based in Waterloo, Ontario, the Company was founded in 1984 and operates in North America, Europe, Asia,
Australia, the Middle East, Latin America and Africa. The Company’s common shares trade under the ticker symbol “BB” on
the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange (“NYSE”). The Company transferred the listing of its
common shares from the NASDAQ Global Select Market to the NYSE during the third quarter of fiscal 2018.
Secure Mobile Enterprise Software and Services Industry
Today’s workforce expects to be as productive on mobile devices as it is on desktop and laptop computers, with secure, reliable
access to their data, applications and services. Enterprises have embraced a range of device deployment strategies for
employees and are increasingly enabling mobile-first interactions with external partners and customers. In implementing these
strategies, organizations require software and services that optimize productivity and collaboration without compromising on
centralized management or security.
As the digital transformation of enterprises continues to advance, the number and scope of connected devices is expanding to
include not only smartphones but also other endpoints, such as vehicles. With the rapid growth of this network of connected
endpoints, often referred to as the IoT, and the applications that serve them, security has become increasingly important.
Cybercriminals seek to exploit vulnerabilities in IoT connections and continue to develop novel and sophisticated methods of
gaining access to sensitive intellectual property and personal information. Recent data breaches experienced by other
organizations have exposed the potential for hacking to cause significant financial and reputational damage and even to
threaten national security. Enterprises acknowledge the fundamental nature of cybersecurity risk and demand software and
services that can protect their data, ensure privacy and demonstrate compliance with applicable security regulations.
This landscape has created opportunities for secure management solutions, embedded systems, communications platforms,
enterprise applications, networks and analytic tools, as well as for related services that help enterprises to enhance data security
and user privacy.
Strategy
BlackBerry is widely recognized for productivity and security innovations, and the Company believes that it delivers the most
secure end-to-end mobile enterprise solutions in the market. With these core strengths, the Company’s broad portfolio of
products and services is focused on serving enterprise customers, particularly in regulated industries.
The Company is focused on delivering an end-to-end software and services platform for the Enterprise of Things. The
Company defines the Enterprise of Things as the network of devices, computers, vehicles, sensors, equipment and other
connected endpoints within the enterprise that communicate with each other to enable smart business processes. The Company
leverages many elements of its extensive technology portfolio to extend best-in-class security and reliability to its solutions for
the Enterprise of Things, including UEM, embedded systems, crisis communications, enterprise applications, and related
services, with hosting available on the Company’s global, scalable, secure network, as well as on public clouds.
The Company intends to continue to increase and enhance its product and service offerings through both strategic acquisitions
and organic investments. The Company’s goal is to maintain its market leadership in the enterprise mobility segment by
continuing to extend the functionality of its platform for the Enterprise of Things and, on top of this extensive foundation,
deliver software and embedded solutions focused on strategic industry verticals.
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The following five strategic pillars support the Company as it pursues its software-focused strategy:
• Product Platform. The Company’s core software and services offering is BlackBerry Secure, an end-to-end
Enterprise of Things platform comprised of enterprise communication and collaboration software and safety-certified
embedded solutions. The solutions that comprise the BlackBerry Secure platform are informed by deep mobile and
automotive security expertise and experience, continuous technical innovation, professional cybersecurity services,
industry partnerships and academic collaborations. These solutions include the BlackBerry Enterprise Mobility Suite,
BlackBerry Jarvis, BBM Enterprise service, the BBM Enterprise SDK, and the technologies offered by BlackBerry
QNX, Certicom, BlackBerry Athoc and Secusmart.
•
Substantial Target Markets. The Company leverages its expertise in endpoint security and management to capitalize
on opportunities in growing segments of the cybersecurity, connected transportation, healthcare, financial services and
government markets. With its BlackBerry Secure platform, the Company intends to provide enterprises and
governments with the highest standard of security.
• Efficient Go-To-Market. The Company’s sales strategy focuses solely on enterprise software, services and licensing.
The Company continues to build its developer and channel partner programs for BlackBerry Secure to promote the
growth of an enterprise endpoint security ecosystem and to bolster the Company’s direct sales and marketing efforts.
The Company also licenses its brand and secure handset software and applications to select third-party manufacturers
and others seeking the Company’s software expertise. See also “Sales, Marketing, Distribution and Customers”.
• Operational Efficiency. The Company continues to review its operations to optimize its enterprise software and
services business with greater efficiency and speed in bringing new offerings to market.
• Growth and Profitability. The Company intends to drive revenue growth through its software and services portfolio
and to achieve margins that are consistent with those of other enterprise software companies.
Products and Services
The Company is organized and managed as one operating segment. The Company has multiple products and services from
which it derives revenue, which are grouped as follows: Enterprise Software & Services, BlackBerry Technology Solutions
(“BTS”), Licensing, IP and Other, Handheld Devices, and Service Access Fees (“SAF”).
Enterprise Software and Services
Enterprise Software and Services consists of operations relating to certain of the Company’s software products and service
offerings, including:
BlackBerry Enterprise Mobility Suite
Security, reliability, productivity and collaboration are hallmark strengths of the Company’s enterprise software offerings and
are instrumental to the Company’s success in the enterprise market.
A core software component of the BlackBerry Secure platform is the BlackBerry Enterprise Mobility Suite, which combines
and integrates mobile security, management, productivity and collaboration solutions with best-in-class application security and
containerization, identity and access management, and EFSS with file level data protection, all at a global scale. The
BlackBerry Enterprise Mobility Suite supports all of the major operating systems and device ownership models employed in
the enterprise.
The Enterprise Mobility Suite integrates a broad portfolio of technologies and solutions, including BlackBerry UEM,
BlackBerry Dynamics and BlackBerry Workspaces. BlackBerry UEM offers a “single pane of glass”, or unified console view,
for managing and securing devices, applications, identity, content, and IoT endpoints across all leading operating systems.
BlackBerry Dynamics offers a best-in-class development platform and secure container for mobile applications, including the
Company’s own enterprise applications such as BlackBerry Work and BlackBerry Connect for secure collaboration.
BlackBerry Workspaces is a document collaboration solution that embeds digital rights management protection in shared files
to address the challenges of document security, manageability, tracking and compliance among multiple users in the enterprise.
The Company intends to maintain its leadership position and increase its market share in UEM and mobile security by
continuing to expand its enterprise software portfolio through both the internal development and acquisition of technologies
focused on identity management, authentication and other value-added security and productivity solutions.
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BlackBerry AtHoc
In fiscal 2016, the Company expanded its messaging capabilities with the acquisition of AtHoc, Inc., a secure, networked crisis
communications solutions market leader. The BlackBerry AtHoc software platform enables people, devices and organizations
to exchange critical information in real time during business continuity and life safety operations. The platform securely
connects with a diverse set of endpoints to distribute emergency mass notifications, improve personnel accountability and
facilitate the bidirectional collection and sharing of data within and between organizations. BlackBerry AtHoc has earned
FedRAMP authorization and helps to protect more than 70% of U.S. government personnel.
SecuSUITE for Government
The acquisition of Secusmart in fiscal 2015 strengthened the Company’s secure enterprise mobility portfolio by adding a
leading secure voice and text messaging solution with Secusmart’s advanced encryption and anti-eavesdropping capabilities for
businesses and public authorities. The Company has since expanded on Secusmart’s original hardware-based offering by
launching SecuSUITE for Government, a certified, multi-OS voice encryption software solution that protects mobile calls and
texts with a maximum level of security on the individual device level.
BlackBerry Professional Services
The BlackBerry Professional Services practice is comprised of BlackBerry Enterprise Consulting and BlackBerry
Cybersecurity Consulting. BlackBerry Enterprise Consulting enables customers to optimize their experience with their chosen
software solutions. Services include expert deployment support, end-to-end delivery (from system design to user training),
application consulting, and experienced project management. As a platform-agnostic service, BlackBerry Enterprise Consulting
offers customized strategy consultation, focusing on mobility-based challenges.
The acquisition of Encription in fiscal 2017 led to the announcement of the Company’s professional cybersecurity services
practice, BlackBerry Cybersecurity Consulting, which further expanded the Company’s security portfolio. The Company’s
cybersecurity consultancy practice aligns clients’ security with their business objectives to mitigate risk and enable digital
transformation. The Company’s cybersecurity consulting services and tools, combined with the Company’s existing security
solutions, help customers identify the latest cybersecurity threats, test for vulnerabilities, develop risk-appropriate mitigations,
maintain IT security standards and techniques, and defend against the risk of future attacks.
BBM Enterprise
The Company continues to support and enhance BBM Enterprise, an enterprise-grade secure instant messaging solution
compatible on both smartphones and desktops for messaging, voice, and video. BBM Enterprise offers rich features such as
“read” and “delivered” statuses, message retraction and editing, and encrypts data both at rest and in transit.
Communications Platform as a Service
In fiscal 2017, the Company entered the CPaaS market by launching BBM Enterprise SDK to enable developers to integrate
the secure messaging, voice, video and data sharing capabilities of BBM Enterprise into their own mobile and web
applications. BBM Enterprise SDK enables developers to create in-app experiences that leverage the same secure, reliable
network infrastructure that protects the BBM Enterprise solution.
BTS
The BTS business includes BlackBerry QNX, Certicom, Paratek and BlackBerry Radar, as well as other units advancing
emerging innovations such as BlackBerry Jarvis. The BTS business was created to position the Company’s technology
licensing businesses together under one leadership umbrella with a view to creating new revenue streams and enhancing value
from the Company’s technology.
BlackBerry QNX
The largest BTS business unit is BlackBerry QNX. BlackBerry QNX is a global provider of real-time operating systems,
middleware, development tools, and professional services for connected embedded systems, primarily in the automotive,
medical and industrial automation markets. BlackBerry QNX is the recognized leader in software for automotive electronics,
with products deployed in digital instrument clusters and in the infotainment and telematics systems of more than 60 million
vehicles. Over 40 automotive OEMs use BlackBerry QNX technology in major car brands around the world. With its field-
proven technology and suite of safety certifications, BlackBerry QNX is also a preferred supplier for companies building
medical devices, train-control systems, industrial robots, hardware security modules, building automation systems, green
energy solutions, and other mission-critical and safety-critical applications.
Recently, BlackBerry QNX has enhanced its focus on the future of the automotive industry with enhancements to the QNX
CAR Platform and a growing portfolio of other innovative software products for instrument clusters, infotainment,
connectivity, in-car network security, ADAS and acoustics. BlackBerry QNX also offers a Type 1 hypervisor that isolates and
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manages safety-critical and non-safety-critical systems in virtual machines. In fiscal 2017, BlackBerry QNX announced the
AVIC to advance technology innovation for connected and autonomous vehicles, independently as well as in collaboration with
private and public sector organizations and research institutes.
BlackBerry Jarvis
In fiscal 2018, the Company introduced BlackBerry Jarvis, a cloud-based static binary code-scanning solution that identifies
vulnerabilities in software used in automobiles. BlackBerry Jarvis enables OEMs to scan software components from third
party suppliers quickly and cost-effectively and provides actionable insights to help automakers to harden their cybersecurity
posture and comply with industry standards. The Company also intends to market BlackBerry Jarvis in other industry
segments, such as healthcare, industrial automation, aerospace and defense.
Certicom
Certicom specializes in applied elliptical curve-based cryptography, managed public key infrastructure and key management,
offering both software components and end-to-end security solutions targeted at bandwidth and resource-constrained
applications. Certicom’s offerings include its Managed Certificate Service, which helps device manufacturers and service
providers to secure their IoT networks and ecosystems by ensuring that the endpoints they connect are known and trusted, and
its Asset Management System, a security and authentication solution for semiconductor vendors using outsourced
manufacturing processes.
Paratek
Paratek designs, develops and licenses its adaptive radio frequency (“RF”) antenna tuning technology. With the growth of RF
bands to be covered, increasingly stringent performance requirements and design constraints, and the advent of carrier
aggregation, RF antenna tuning is becoming a key differentiator to improve the antenna performance of smartphones. Paratek’s
proprietary closed loop tuning technology has been adopted by multiple OEMs and had numerous handset design wins.
BlackBerry Radar
The Company has developed and markets the BlackBerry Radar family of asset tracking and telematics products for the
transportation and logistics industry. The BlackBerry Radar solution includes devices and web-based applications for tracking
trailers, chassis, and containers, for reporting locations and sensor data, and for enabling custom alerts and fleet management
analytics, all in real time.
The BlackBerry Radar unit also markets the Company’s cloud-based secure over-the-air software update management service,
which enables the secure delivery of firmware, applications and content to a variety of devices deploying software, such as
connected cars, consumer devices and embedded systems.
Licensing, IP and Other
The Licensing, IP and Other business consists of three units: Intellectual Property and Licensing (“IP&L”), Mobility Licensing,
and other licensing programs such as BBM Consumer.
IP&L
The IP&L unit is responsible for the management and monetization of the Company’s global patent portfolio. The patent
portfolio continues to provide a competitive advantage in the Company’s core product areas as well as providing leverage in the
development of future technologies and licensing programs in both core and adjacent vertical markets. The Company owns
rights to an array of patented and patent pending technologies which include, but are not limited to, operating systems,
networking infrastructure, acoustics, messaging, enterprise software, automotive subsystems, cybersecurity and wireless
communications. As of February 28, 2018, the Company owned approximately 37,500 worldwide patents and applications,
with an average life of about 11 years.
In fiscal 2018, the Company entered into a strategic licensing agreement with Teletry under which Teletry may sublicense a
broad range of the Company’s patents to a majority of global smartphone manufacturers. The Company also continues to
operate its own licensing program outside of Teletry’s sublicensing rights and intends to increase recurring revenue from this
program.
Mobility Licensing
The BlackBerry brand, security and other product features continue to have appeal to a wide range of smartphone users and, as
such, the Company continues to develop and license its secure device software. In fiscal 2017, the Company licensed its
security software and service suite, as well as related brand assets, to three outsourcing partners who design, manufacture, sell
and provide customer support for BlackBerry-branded handsets featuring the Company’s secure Android software. TCL is the
Company’s exclusive licensee partner for all global markets other than India, Sri Lanka, Nepal and Bangladesh, where the
Company’s licensee partner is Optiemus, and Indonesia, where the Company’s licensee partner is PT BB Merah Putih. During
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fiscal 2018, the Company’s partners introduced several smartphones under this program: TCL launched the BlackBerry-
branded KEYone and Motion smartphones, and PT BB Merah Putih launched the BlackBerry-branded Aurora smartphone.
In fiscal 2018, the Company entered into a licensing arrangement with NTD, under which handsets developed by NTD and
branded by OEMs, carriers and local smartphone brands will use BlackBerry’s device software and be marketed as
“BlackBerry Secure”. The Company intends to further expand its device software and brand licensing program to include a
broader set of devices and endpoints.
The Company delivers BlackBerry productivity applications to Android smartphone users around the world via the Google
Play store, and also continues to develop updates for its legacy BlackBerry 10 platform.
BBM Consumer
In fiscal 2017, the Company entered into a strategic alliance and licensing agreement with Emtek, a leading media company in
Indonesia, to provide cross-platform consumer BBM users with access to enriched content and services. This arrangement
enables Emtek to develop and commercialize new consumer BBM applications and services for Android, iOS and Windows
Phone devices.
Handheld Devices
During fiscal 2017, the Company launched its last BlackBerry-designed Android smartphones, the DTEK50 and DTEK60.
During fiscal 2018, the Company sold through its remaining inventory for these and other legacy devices such as the PRIV
secure Android smartphone and the Passport and Leap BlackBerry 10 smartphones, as well as smartphone accessories and non-
warranty repair services, and no longer expects significant revenue from these activities.
SAF
The SAF business consists of operations relating to subscribers using mobile devices with the Company’s legacy BlackBerry 7
and prior operating systems. The Company continues to earn service access fees on these subscribers, whose network traffic
utilizes the Company’s infrastructure. In recent years, service revenue from the SAF business has declined significantly and the
Company expects it to continue to decline. SAF is a legacy business and not a part of the Company’s strategic focus.
Sales, Marketing, Distribution and Customers
The Company primarily generates revenue from the licensing of enterprise software and sales of associated services, including
its secure messaging products and services, cybersecurity consulting services, and the licensing of device software and
BlackBerry branding. The Company also generates revenue from; (i) the embedded market through licensing BlackBerry QNX
software products and providing professional services to support customers in developing their products; (ii) its BBM service;
and (iii) technology licensing, accessories, and non-warranty repairs. The Company focuses on strategic industries with
vertical-specific use cases, including regulated enterprise markets, such as financial services, government, healthcare and
transportation, and other markets where embedded software and critical infrastructure are important, such as utilities, mining
and manufacturing. For revenue and other financial information on the two most recently completed fiscal years, see the
Company’s Management Discussion and Analysis (“MD&A”) for the fiscal year ended February 28, 2018, in the section
entitled “Results of Operations - Fiscal year ended February 28, 2018 compared to fiscal year ended February 28, 2017 -
Revenue”.
The Company licenses the BlackBerry Secure platform, including its individual components and applications and
complementary third-party applications via its direct sales force and value-added resellers. The Company also licenses its
enterprise software and services through global wireless communications carriers, which are able to bill separately for
BlackBerry UEM services, and other distribution partners around the world.
The Company licenses BlackBerry QNX, Certicom and Paratek technology and provides professional engineering services to
OEM customers in the automotive, mobile and other embedded software markets via a direct sales force and indirectly through
channel partnerships. The licenses are monetized as royalties on units shipped and through project development, tools and
maintenance fees.
The Company has entered into device software licensing agreements, enabling selected partners to design, manufacture, sell
and provide customer support for BlackBerry-branded smartphones on a global basis. BlackBerry continues to control and
develop its handset security and software solutions, serve its customers and maintain trusted BlackBerry security software and
the BlackBerry brand.
The Company markets and sells its BlackBerry Radar secure asset tracking products and services to enterprise users through its
internal sales force as well as through third party distribution channels.
The Company maintains a geographically-dispersed salesforce that is organized regionally and by channel.
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For revenues by geographic region for the two most recently completed fiscal years, see the Company’s MD&A for the fiscal
year ended February 28, 2018, in the section entitled “Results of Operations - Fiscal year ended February 28, 2018 compared to
fiscal year ended February 28, 2017 - Revenue - Revenue by Geography”.
For customer concentration information during the two most recently completed fiscal years, see the Company’s MD&A for the
fiscal year ended February 28, 2018, in the section entitled “Market Risk of Financial Instruments - Credit and Customer
Concentration.”
Competitive Strengths
The Company’s competitive strengths include the following:
Enterprise Solutions and Services
The Company’s enterprise software portfolio offers leading unified endpoint management, secure business productivity,
application containerization, secure collaboration and digital rights management capabilities. The inclusion of a sophisticated
network operations center in the BlackBerry infrastructure is also a key differentiator. The Company pioneered the use of this
architecture to route messages reliably and efficiently to and from mobile devices, and over time has expanded capabilities to
enable end-to-end secure communications between mobile devices and applications and enterprise networks. In addition, the
Company offers a rich development platform for partners to build custom enterprise applications.
The Company is recognized for attaining the highest levels of security certifications and approvals for many of its mobility and
communications solutions. In fiscal 2018, the Company achieved the highest scores in all six use cases in the Gartner Critical
Capabilities for High Security Mobility Management report, for the second year in a row. The Company is also the only vendor
recognized by Gartner in all eight categories of their Market Guide for Information-Centric Endpoint and Mobile Protection
with a single platform offering.
BTS
The Company’s competitive strengths in its BTS business are rooted in the Company’s proprietary technology, including
BlackBerry QNX’s POSIX compliant micro-kernel architecture for embedded software applications, Certicom’s cryptography
applications, and Paratek’s adaptive RF antenna tuning technology. In addition, BlackBerry QNX, as a trusted and recognized
leader in software for automotive electronics, brings decades of accumulated knowledge and proven reliability to the embedded
software market. In fiscal 2018, BlackBerry QNX announced development and partnership agreements with leading new and
traditional Tier 1 automotive vendors, including Delphi Automotive PLC (now Aptiv), DENSO Corporation and Baidu, Inc.,
and with automotive semiconductor suppliers such as Qualcomm and NVIDIA.
BlackBerry AtHoc
BlackBerry AtHoc is a leader in network-centric, interactive crisis communication and is the leading provider of such solutions
to the DoD, the U.S. Department of Homeland Security, and leading healthcare, industrial and commercial organizations. The
BlackBerry AtHoc platform integrates with legacy systems, is mobile, supports on-premise and cloud-based deployments, and
has received FedRAMP authorization for its security.
BBM Enterprise
BBM Enterprise leverages the BlackBerry network infrastructure to offer a rich messaging experience for iPhone, Android and
BlackBerry users with features such as voice calling, one-click sharing of files and photos, and location sharing. BBM
Enterprise provides full end-to-end message encryption (using FIPS 140-2 validated cryptographic libraries) for enterprise
customers, with no separate hardware required.
Handheld Devices
The Company’s most recent BlackBerry-branded handsets are the most secure Android smartphones and feature platform
hardening software as well as unique security features designed to protect personal privacy and sensitive data. Legacy
BlackBerry 10 smartphones continue to be used by governments and regulated industry customers with high security
requirements, and the latest BlackBerry 10 operating system was certified for NIAP compliance.
Competition
The Company is engaged in markets that are highly competitive and rapidly evolving. Frequent new product introductions and
changes to mobile devices, operating systems, applications, security threats, industry standards and the overall technology
landscape result in continuously evolving customer requirements for mobile solutions. The Company competes with a broad
range of vendors in each of its businesses. Key competitive factors important to the Company across its businesses include
product features (including security features), relative price and performance, product quality and reliability, compatibility
across ecosystems, service and support, and corporate reputation.
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Providers of enterprise software solutions that compete with the Company’s enterprise solutions and services offerings,
including the BlackBerry Enterprise Mobility Suite, include VMware Inc., Microsoft Corporation (“Microsoft”), MobileIron
Inc., Citrix Systems, Inc. (“Citrix”), SOTI Inc., SAP SE and IBM Corporation.
Providers of EFSS software that compete with BlackBerry Workspaces include: Accellion, Acronis, VMWare Inc., Box Inc.,
Citrix, Dropbox, Egnyte, Huddle Intralinks (Synchronoss), Microsoft, Syncplicity (Skyview Capital), Thru and Varonis.
BBM Enterprise is a unique secure instant messaging platform that leverages the Company’s network infrastructure.
Competitors that offer some of the feature of BBM Enterprise in less secure solutions include Layer, Nexmo, Twilio, Pilvo and
Sinch. Products that compete with the Company’s BBM service for consumers include Facebook’s WhatsApp, Facebook
Messenger, Microsoft’s Skype, Line Corporation’s LINE, Apple Inc.’s iMessage, Tencent’s WeChat, Viber, Kik, KakaoTalk,
Telegram and Snapchat.
Providers of embedded software that compete with the Company’s BlackBerry QNX automotive business include Microsoft,
which offers its Windows Embedded platform for automotive infotainment applications. Android and Linux operating systems
also compete in the embedded computing space. Both Apple Inc. (“Apple”) and Google have also demonstrated interest in the
automotive sector. Apple’s CarPlay™ software is resident on the iPhone® and enables its own infotainment user experience
onto the screen in an automobile. Google has launched an Android application programming interface, Android Auto, for
Android automobile applications. Other competitors of the Company’s BlackBerry QNX business include Green Hills
Software, Intel Corporation (“Intel”), MontaVista Software, Mentor Graphics Corporation, and Sysgo AG.
Providers of technologies that compete with the Company’s OTA software update management service are Samsung, Delphi
Automotive PLC, Intel and Verizon Telematics, as well as solutions internally developed by automotive OEMs.
Providers of solutions that compete with BlackBerry Radar are I.D. Systems, Inc., SkyBitz, ORBCOMM Inc., Spireon, Inc. and
Omnitracs, LLC.
Manufacturers of mobile devices that compete with the BlackBerry-branded smartphones include Apple, Samsung, Microsoft,
HTC Corporation, LG Electronics Inc., Huawei Technologies Co., Ltd., Lenovo Group Ltd., ZTE Corporation, and Xiaomi,
Inc. Providers of major mobile operating system platforms that compete with the Company’s BlackBerry 10, BBOS and secure
Android platforms include Apple (iOS) and Google (Android).
See also the Risk Factor entitled “The Company faces intense competition”.
Product Design, Engineering and Research and Development
The Company’s research and development (“R&D”) strategy seeks to provide broad market applications for products derived
from its technology base.
The Company dedicates a major portion of its R&D investments to the development of software products and services for the
BlackBerry Secure platform that meet the needs of both enterprise IT departments and end users. This includes enterprise
solutions and services in UEM, cybersecurity, messaging, productivity and collaboration offerings, analytics, application
security and containerization, and EFSS. Solutions include leading security capabilities at each level of the platform in order to
address the needs of customers for securing devices, applications, content and work data at rest and in transit.
Additionally, BlackBerry QNX has developed and continues to enhance an embedded computing platform utilizing its unique
micro-kernel operating system, multimedia and infotainment platform-specific middleware, as well as acoustic processing
products. More recently, BlackBerry QNX has significantly increased its development focus on software innovations for
autonomous and connected vehicles.
The Company’s software development also supports products and services for BlackBerry-branded smartphones, including
updates to the BlackBerry 10 operating system and enhancements for the Android operating system, such as advanced privacy
controls, verified boot and secure bootchain, and Android kernel hardening. The Company is also expanding its mobile
software expertise to develop highly secure operating system software enhancements for non-smartphone endpoints under the
BlackBerry Secure brand.
To support its BlackBerry Radar solution, the Company creates innovative and robust hardware designs combined with
proprietary software and firmware features. These tightly integrated solutions allow the Company to customize its proprietary
technical solutions to address new applications and market demands.
The Company’s investment in longer term research is, in part, supported by taking advantage of specific government financial
assistance programs where available. For example, the Company qualifies for investment tax credits on eligible expenditures
on account of the Canadian Scientific Research and Experimental Development Program. For additional information, see Note
9 to the Consolidated Financial Statements.
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Third Party Software Developers
To facilitate the development of an application ecosystem for its products and services, the Company offers the BlackBerry
Development Platform for third-party enterprise application developers and independent software vendors (“ISVs”), the BBM
Enterprise SDK and BlackBerry QNX development platforms.
BlackBerry Development Platform
The Company offers the BlackBerry Development Platform, an enterprise grade toolset which enables enterprise application
developers and ISVs to build secure, powerful and customized mobility solutions for almost every use case. The platform
augments the capabilities of BlackBerry Dynamics for building secure applications, by adding tools for BlackBerry UEM,
BlackBerry Workspaces, and other products. More than 4,000 third-party applications have been developed on the BlackBerry
Development Platform.
ISVs that use the BlackBerry Development Platform can make their applications available on the BlackBerry Marketplace for
Enterprise Software, which contains over 100 enterprise applications. ISVs that use the BlackBerry Dynamics SDK can certify
their applications to highlight their security compliance on the BlackBerry Development Platform.
The Company also offers the BBM Enterprise SDK to ISVs to integrate the secure messaging, voice and video capabilities of
BBM Enterprise into their applications and services.
BlackBerry QNX Development Platforms
BlackBerry QNX offers several platforms, the core of which is the QNX Software Development Platform used by all QNX
customers for the development of QNX-based systems and includes the QNX Neutrino Realtime Operating System and the
QNX Momentics Tool Suite. BlackBerry QNX also offers the BlackBerry QNX CAR Platform for Infotainment, a
comprehensive stack that enables OEMs to rapidly bring to market secure, full-featured infotainment systems with leading
automotive technologies. This platform integrates the BlackBerry QNX operating system and middleware technologies with
best of breed third-party offerings for navigation, voice recognition, and smartphone connectivity on all major automotive
grade hardware. Other platforms include the QNX Platform for Advanced Driver Assistance Systems, the QNX Platform for
Instrument Clusters, and the QNX Acoustics Management Platform.
Intellectual Property
The protection of intellectual property is an important part of the Company’s operations. The policy of the Company is to apply
for patents, acquire and/or seek other appropriate proprietary or statutory protection when it develops valuable new or
improved technology. The Company believes that the rapid pace of technological change in the industries in which the
Company operates makes patent and trade secret protection important, and that this protection must be supported by other
means including the ability to attract and retain qualified personnel, new product introductions and frequent product
enhancements.
The Company believes that its patent portfolio continues to provide a competitive advantage in its core product areas as well as
provide leverage in the development of future technologies. The Company does not believe that it is dependent upon a single
patent or even a few patents. Rather, the Company’s success depends more upon its extensive know-how, innovative culture,
and technical leadership.
The Company protects its technology through a combination of patents, designs, copyrights, trade secrets, confidentiality
procedures and contractual arrangements. The Company seeks to patent key concepts, components, protocols, processes and
other inventions that it considers to have commercial value or that will likely give the Company a technological advantage.
Although the Company applies for patent protection primarily in Canada, Europe and the United States, the Company has filed,
and will continue to file, patent applications in other countries where there exists a strategic technological or business reason to
do so. To broadly protect the Company’s inventions, the Company has a team of in-house patent attorneys and also consults
with outside patent attorneys who interact with employees, review invention disclosures and prepare patent applications on a
broad array of core technologies and competencies. As a result, the Company owns rights to an array of patented and patent
pending technologies relating to wireless communication technology and enterprise software. As of February 28, 2018, the
Company owned approximately 37,500 worldwide patents and applications.
It is the Company’s general practice to enter into confidentiality and non-disclosure agreements with its employees,
consultants, contract manufacturers, customers, potential customers and others to attempt to limit access to, and distribution of,
its proprietary information. In addition, the Company generally enters into agreements with employees that include an
assignment to the Company of all intellectual property developed in the course of employment.
In fiscal 2018, the Company entered into a strategic licensing agreement with Teletry under which Teletry may sublicense a
broad range of the Company’s patents to a majority of global smartphone manufacturers. The Company also continues to
operate its own licensing program outside of Teletry’s sublicensing rights.
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The Company does not rely primarily on patents or other intellectual property rights to protect or establish its market position;
however, it is prepared to enforce its intellectual property rights in certain technologies when attempts to negotiate mutually
agreeable licenses are not successful. The Company also enters into inbound licensing agreements related to technology and
intellectual property rights, including to obtain rights that may be necessary to produce and sell products.
Production
The Company completed the transition of its handheld device business from an outsourced hardware manufacturing model to a
software licensing model during fiscal 2018. The Company licenses its device security software and service suite, as well as
related brand assets, to TCL, PT BB Merah Putih, and Optiemus. The design, manufacture, sales, and customer support of
BlackBerry-branded smartphones is undertaken by these licensed partners, who have agreed to adhere to the Company’s
quality, security, and branding guidelines.
The Company outsources the hardware manufacturing requirements for its BlackBerry Radar business to specialized global
electronic manufacturing service providers who are positioned to meet the volumes, scale, timing, cost and quality
requirements of the Company. The Company generally provides sourcing guidance and decisions for materials are made
jointly with the outsourcing partner. In most cases the ongoing supply is the sole responsibility of the outsourcing supplier.
Industry Associations
The Company is an active participant in numerous industry associations and standards bodies. The Company’s involvement
with leading associations includes standards development, government advocacy, joint marketing, participation in conferences
and trade shows, training, technology licensing by the Company and business development.
Social and Environmental Regulations
The Company’s operations are subject to regulation under various provincial, state, federal and international laws relating to
environmental protection, the proliferation of hazardous substances, and social issues such as conflict minerals and human
trafficking and slavery. In parts of Europe, North America, Asia-Pacific and Latin America, the Company is obligated to
comply with substance restrictions, packaging regulations, energy efficiency ratings and certain product take-back and
recycling requirements, principally for the handheld devices and BlackBerry Radar businesses. In addition, a growing list of
jurisdictions have enacted social responsibility regulations such as the conflict minerals provisions of the U.S. Dodd Frank Wall
Street Reform and Consumer Protection Act and the U.K. Modern Slavery Act which require the Company to comply with
certain due diligence and disclosure obligations. These and other similar laws may become more stringent over time, may come
into force in more jurisdictions where the Company operates and may require the Company to incur additional compliance
costs.
Corporate Responsibility
The Company is committed to operating its business consistent with the highest ethical standards and has adopted policies and
practices that require the same of its business partners. The Company’s business is based on trust, and the Company maintains
its position as a global leader in data security and privacy by developing new technologies, complying with established and
evolving regulatory frameworks, and adhering to industry best practices.
In its procurement activities, the Company engages with its suppliers to conduct due diligence into the source of the so-called
“conflict minerals” (which currently include the minerals from which gold, tantalum, tin, and tungsten are derived) that are
necessary to the functionality or production of the Company’s hardware products.
The Company also seeks to make a positive impact in the communities in which it operates by investing in strategic charitable
partnerships, supporting charitable endeavours by employees, and building community relationships through local offices.
The Company has formalized a number of policies to reflect the Company’s commitment to responsible business practices,
including a Human Rights Policy, and periodically issues a corporate responsibility report. This report and other documents and
policies relating to the Company’s corporate responsibility initiatives can be viewed on the Company’s website at http://
ca.blackberry.com/company/about-us/corporate-responsibility.html and are not incorporated by reference in this AIF.
Employees
As of February 28, 2018, the Company had 3,288 full-time employees.
Facilities
The Company’s headquarters are located in Waterloo, Ontario, Canada. The Company’s main campus in Waterloo consists of
three leased buildings. The Company also operates facilities in the United States, Latin America, Asia-Pacific, Europe and the
Middle East.
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LEGAL PROCEEDINGS
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 industries in which the Company competes have 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 “Risk Factors” in this AIF,
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. 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 28, 2018, with the exception noted below relating to the GTC Lawsuit (as defined below), there are no claims
outstanding for which the Company has assessed the potential loss as both probable to result and reasonably estimable;
therefore, no accrual has been made. Further, there are claims outstanding for which the Company has assessed the potential
loss as reasonably possible to result; however, an estimate of the amount of loss cannot reasonably be made. There are many
reasons that the Company cannot make these assessments, including, among others, one or more of the following: the early
stages of a proceeding does not require the claimant to specifically identify the patent that has allegedly been infringed;
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 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 plaintiffs’ request for leave to amend. The Court granted the
plaintiffs’ motion for leave to amend on September 13, 2017. The plaintiffs filed a second consolidated amended class action
complaint (the “Second Amended Complaint”), which added the Company’s Chief Legal Officer as a defendant, on September
29, 2017. The Court denied the motion to dismiss the Second Amended Complaint on March 19, 2018.
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. Briefing is complete and the parties are waiting for a hearing date from the Court. Trial court proceedings are on
hold until all appeals related to the order granting the plaintiffs’ motion for leave to amended are exhausted.
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On October 12, 2015, a group of Good’s institutional investors filed a putative class action lawsuit on behalf of Good’s
common shareholders against members of Good’s former board of directors (the “GTC Directors”) related to the Company’s
acquisition of Good (the “GTC Lawsuit”). The plaintiffs allege that the GTC Directors breached their fiduciary duty by
engaging in a self-interested transaction that benefited the preferred shareholders at the expense of the common shareholders.
The plaintiffs are seeking monetary damages, as well as rescission of the merger agreement between Good and the Company.
While neither Good nor the Company are parties to the GTC Lawsuit, Good has certain obligations to indemnify some of the
defendants and is providing a defense. On October 29, 2015, Good filed a complaint alleging that the plaintiffs breached their
contractual obligations under a voting agreement providing that, in the event of a sale transaction that was approved by both the
GTC Directors and a majority of the Good preferred shareholders, the plaintiffs were required to vote their shares in favour of
the transaction and refrain from exercising any appraisal or dissent rights (the “Voting Rights Lawsuit”). Good alleges that the
filing of the GTC Lawsuit was a breach of the voting agreement. On December 31, 2015, several Good shareholders filed a
petition seeking appraisal against Good (the “Appraisal Lawsuit”). On August 25, 2016, the Court granted the plaintiff’s motion
for leave to file an amended complaint in the GTC Lawsuit naming additional defendants, including JP Morgan Chase and
various venture capital funds whose designees were Good directors (the “Fund Defendants”). Good and the Company are not
named in the amended complaint. On May 23, 2017, the plaintiffs reached a tentative settlement with the GTC Directors and
Fund Defendants of the GTC Lawsuit. On May 31, 2017, the plaintiffs and JP Morgan Chase reached a tentative settlement of
the GTC Lawsuit. On July 24, 2017, Good, the Petitioners in the Appraisal Lawsuit and the defendants in the Voting Rights
Lawsuit entered into an Agreement of Settlement, Dismissal, and Release and filed same with the court. On August 8, 2017, the
Court issued an order granting the parties’ settlement terms. On August 18, 2017, the Company and JP Morgan Chase entered
into a Settlement Funding Agreement, by which the Company agreed to fund JP Morgan Chase’s settlement with plaintiffs. On
August 22, 2017, JP Morgan Chase and the plaintiffs filed a Stipulation and Agreement of Compromise and Settlement with the
Court. On November 9, 2017, the Company filed a demand for arbitration seeking the release of funds from an escrow fund
account established when the Company acquired Good to indemnify the Company for certain costs incurred in connection with
the defense and settlement of the GTC Lawsuit and the Appraisal Lawsuit. The arbitration hearing is scheduled for September
10-12, 2018.
The GTC Lawsuit is stayed pending court approval of all tentative settlements. During the first quarter of fiscal 2018, the
Company accrued $10 million for legal costs related to litigation arising out of its acquisition of Good.
ENTERPRISE RISK MANAGEMENT
The Company recognizes that risks are associated with delivering on its strategy and achieving its corporate objectives.
Managing these risks is an essential part of the Company’s business and the Company aims to promote a culture of risk
management and compliance at all levels in the organization. The Company has defined and implemented an approach to
manage its exposure to risk, consisting of: (i) a risk management framework to regularly identify, assess, treat, monitor and
report on current and potential risks, and (ii) a governance structure that clearly defines the responsibilities of the Board, the
senior leadership team, employees and other stakeholders to support the risk management framework. This approach to
enterprise risk management is integral to the Company’s business activities and is designed to:
•
•
•
•
•
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promote effective corporate governance and decision-making by enabling the consistent identification and evaluation
of risk on a consolidated basis;
ensure that risks are managed proactively and appropriately in the context of the Company’s strategy and objectives;
support the development of internal controls;
facilitate the reliability and transparency of financial and operational reporting;
assist in compliance with laws, regulations, policies, and contracts; and
reduce harm to financial performance and safeguard the Company’s assets.
Risk Management Framework Policy and Risk Appetite
The Company’s risk management framework policy defines responsibilities for the identification, assessment, management and
reporting of risks, and sets out expectations for ownership, resource assignment and compliance. The scope of the framework
embraces internal functions as well as those activities for which the Company engages support from third parties.
To support the risk management framework and risk oversight activities, the Company maintains a risk appetite statement that
defines, by category of risk, the Company’s tolerance for risk-taking having regard to potential rewards and overall business
strategies and objectives. The Company’s four risk categories are: (i) strategy and innovation, (ii) operations, (iii) legal,
compliance and reputation, and (iv) financial management and reporting. The Company risk profile is regularly assessed
against the risk appetite statement, which is reviewed and updated as the Company’s business strategy and operating
environment evolve.
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Risk Governance and Oversight
The Company utilizes a “three lines of defense” governance structure to define how the responsibility for risk management
activities is assigned:
• The first line of defense for managing risks resides with the management of each business unit. Risk exposures are
identified and mitigated at a granular level through various ongoing management activities including business
planning, operations management, reporting, and process improvement projects.
• Oversight of business unit management is provided by the second line of defense, the Security Risk and Compliance
Committee (“SRCC”), which meets at least quarterly and is supported by various compliance, security and control
functions. The SRCC is composed of manager representatives from each major business group and provides strategic
direction by defining key policies, identifying emerging risk trends, and sponsoring training.
• The internal audit function comprises the third line of defense, providing independent assurance of the effectiveness of
the Company’s risk management activities and internal controls related to (i) financial reporting and integrity and (ii)
other areas of risk as assigned by the Audit and Risk Management Committee from time to time, including
cybersecurity risk. The internal audit function may also review the governance structures and mandates of the first
two lines of defense.
Additional governance and oversight is provided by the risk management council (“RMC”), a council of internal senior leaders
which oversee the risk management activities undertaken by business group management and the SRCC. The RMC meets at
least quarterly with the Chief Risk Officer serving as the Chair. The RMC reviews the Company’s risk profile, risk criteria and
limits, and monitors remediation activities to address gaps. The RMC also approves the risk appetite statement and promotes a
culture of risk management and compliance across the Company.
The Chief Risk Officer provides regular reporting to the Board and the Audit and Risk Management Committee on the
Company’s risk profile and the activities overseen by the RMC. The Board is ultimately responsible for overseeing the
Company’s risk identification, assessment, management, monitoring and reporting activities. The Audit and Risk Management
Committee assists the Board with the oversight of enterprise risk management at the Company, including risk assessment, risk
compliance, the internal audit function and the controls, processes and policies used to manage the Company’s risk. The
Compensation, Nomination and Governance Committee of the Board also assists the Board with the oversight of risk
management and controls with respect to the Company’s compensation policies and practices, including the administration of
the Company’s equity-based compensation plans.
Since June 2015, the Chief Information Officer has provided regular updates to the Board on the advancing maturity of the
Company’s cybersecurity program, including reports on threat monitoring, penetration testing, vulnerability remediation,
encryption efforts and compliance activities. The updates also include reports on the Company’s third-party cybersecurity
accreditations and certifications, and on the advancement of the Company’s security posture as scored using the U.S. National
Institute of Standards and Technology (NIST) Cyber Security Framework.
RISK FACTORS
Investors in the Company’s securities should carefully consider the following risks, as well as the other information contained
in this AIF and in the Company’s MD&A for the fiscal year ended February 28, 2018. If any of the following risks actually
occurs, the Company’s business could be materially harmed. The risks and uncertainties described below are not the only ones
the Company faces. Additional risks and uncertainties, including those of which the Company is unaware or the Company
deems immaterial, may also have a material adverse effect on the Company’s business, financial condition and results of
operations.
The Company may not be able to enhance, develop, introduce or monetize products and services for the enterprise
market in a timely manner with competitive pricing, features and performance.
The industries in which the Company competes are characterized by increasingly rapid technological change, frequent new
product introductions, frequent market price reductions, constant improvements in features and short product life cycles. The
Company’s future success depends upon its ability to enhance its current products and services, including the BlackBerry
Secure platform, to provide for their compatibility with evolving industry standards and operating systems, to address
competing technologies and products developed by other companies, and to continue to develop and introduce new products
and services offering enhanced performance and functionality on a timely basis at competitive prices.
The process of developing new technology is complex and uncertain, and involves time, substantial costs and risks, which are
further magnified when the development process involves multiple operating platforms. The Company may be required to
commit significant resources to developing new products, software and services before knowing whether such investment will
result in products or services that the market will accept.
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The Company’s inability, for technological or other reasons, some of which may be beyond the Company’s control, to enhance,
develop, introduce and monetize products and services in a timely manner, or at all, in response to changing market conditions
or customer requirements could have a material adverse effect on the Company’s business, results of operations and financial
condition or could result in its products and services not achieving market acceptance or becoming obsolete. In addition, if the
Company fails to deliver a compelling customer experience or accurately predict emerging technological trends and the
changing needs of customers and end users, or if the features of its new products and services do not meet the demands of its
customers or are not sufficiently differentiated from those of its competitors, the Company’s business, results of operations and
financial condition could be materially harmed.
The Company may not be able to maintain or expand its customer base for its software and services offerings to
grow revenue or achieve sustained profitability.
The Company has focused its strategy on software and services to grow revenue and generate sustainable profitability.
For the Company to increase its software and services revenues, it must continually grow its customer base by attracting new
customers or, in the case of existing customers, deploying software and services across more end points or attracting additional
users in such existing customers’ businesses. The Company also needs to sell additional software and services over time to the
same customers, or have customers upgrade their level of service. If the Company is unable to promote a compelling value
proposition to customers and its efforts to sell or upsell software or services as described above are not successful, its results of
operations could be materially impacted.
Existing customers that purchase the Company’s software and services have no contractual obligation to renew their
subscriptions or purchase additional solutions after the initial subscription or contract period. The Company’s customers’
expansion and renewal rates may decline or fluctuate as a result of a number of factors, including the perceived need for such
additional software and services, the level of satisfaction with the Company’s software and services, features or functionality,
the reliability of the Company’s software and services, the Company’s customer support, customer budgets and other
competitive factors, such as pricing and competitors’ offerings. For smaller or simpler deployments, the switching costs and
time are relatively minor compared to traditional enterprise software deployments and such a customer may more easily decide
not to renew with the Company and switch to a competitor’s offerings. For larger deployments, particularly with enterprise
customers in highly regulated industries such as financial services, government, healthcare and transportation, the Company is
subject to risks related to increased customer bargaining power, longer sales cycles, regulatory changes, and enhanced customer
support obligations.
The Company must invest significant time and resources in providing ongoing value to these customers and in enhancing its
reputation as an enterprise software vendor. If these efforts fail, or if the Company’s customers do not renew for other reasons,
or if they renew on terms less favourable to the Company, the Company’s revenue may decline and its results of operations
could be materially impacted.
The Company’s ability to grow software and service revenue is also dependent on its ability to: (i) expand its distribution
capabilities with partners, resellers and licensees, (ii) build a direct sales force, which requires significant time and resources,
including investment in systems and training, and (iii) increase coordination across business units to leverage sales leads and
synergistic products and services in the Company’s portfolio. There can be no assurance that the Company will be successful in
implementing its sales and distribution strategy. See also the Risk Factor entitled “The Company’s success depends on its
relationships with resellers and distributors”.
The Company faces intense competition.
The Company is engaged in markets that are highly competitive and rapidly evolving, and has experienced, and expects to
continue to experience, intense competition from a number of companies. No technology has been exclusively or commercially
adopted as the industry standard for many of the products and services offered by the Company. Accordingly, both the nature
of the competition and the scope of the business opportunities afforded by the markets in which the Company competes are
uncertain.
The Company’s competitors, including new market entrants, may implement new technologies before the Company does,
deliver new products and services earlier, or provide products and services that are disruptive or that are attractively priced or
enhanced or better quality compared to those of the Company, making it more difficult for the Company to win or preserve
market share.
Some of the Company’s competitors have greater name recognition, larger customer bases and significantly greater financial,
technical, marketing, public relations, sales, distribution and other resources than the Company does. In particular, some of the
Company’s competitors have increased their focus on marketing and product development in the enterprise market. In the
automotive sector, some of the Company’s OEM and Tier 1 customers have accelerated internal development of embedded
solutions. In addition, competition may intensify as the Company’s competitors enter into business combinations or alliances
and established companies in other market segments expand to become competitive with the Company’s business.
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The impact of the competition described above could result in fewer customer orders, loss of market share, pressure to reduce
prices, commoditization of product and service categories in which the Company participates, reduced revenue and reduced
margins. If the Company is unable to compete successfully, there could be a material adverse effect on the Company’s
business, results of operations and financial condition.
The occurrence or perception of a breach of the Company’s network or product security measures or an
inappropriate disclosure of confidential or personal information could harm its business.
BlackBerry products and services frequently involve the transmission, processing and storage of data, including proprietary,
confidential and personally identifiable information, and can include on-premise and cloud deployments. Although malicious
attempts to gain access to such information affect many companies across various industries, the Company is at a relatively
greater risk of being targeted because of its reputation for security and the nature of its network operations.
The Company is continuously exposed to cyber threats through the actions of outside parties, such as hacking, viruses, and
other malicious software, denial of service attacks, industrial espionage and other methods designed to breach the Company’s
network or IT security. The Company is also exposed to risk as a result of employee error or malfeasance and through attempts
by third parties to fraudulently induce employees to provide access to confidential or personal information.
The Company devotes significant resources to network security, encryption and authentication technologies and other
measures, including security policies, procedures and awareness training, to mitigate cyber risk to its systems and data. In
addition, the Company continuously engineers more secure products and services, enhances security and reliability features,
deploys software updates to address vulnerabilities, and maintains the security infrastructure that protects the integrity of the
Company’s network, products and services. The Company also mitigates risk by actively monitoring external threats,
reviewing best practices and implementing appropriate internal controls. However, the techniques used to obtain unauthorized
access or to disable or degrade service are constantly evolving and becoming more sophisticated in nature, and frequently are
not recognized or identified until after they have been deployed against a target. The Company may not be able to anticipate
these techniques, to implement adequate preventative measures or to identify and respond to them in a timely manner, and the
Company’s efforts to do so may have a material adverse impact on the Company’s operating margins, the user experience or
compatibility with third party products and services.
If the network and product security measures implemented by the Company or its partners, including third-party data centre
operators, cloud service providers and product manufacturers are breached, or perceived to be breached, or if there is an
inappropriate disclosure of confidential or personal information from the Company’s systems, the Company could be exposed
to significant litigation, service disruptions, remediation costs, regulatory sanctions, fines and contractual penalties. In addition,
any such event could materially damage the Company’s reputation, which is built in large measure on the security and
reliability of BlackBerry products and services, and could lead customers, including the Company’s most significant
government customers, to reduce or delay future purchases or to purchase products or services of the Company’s competitors.
The Company’s insurance coverage may be insufficient to cover all losses or types of claims that may arise from cyber threats.
The Company’s success depends on its continuing ability to attract new personnel, retain existing key personnel and
manage its staffing effectively.
The Company’s success is largely dependent on its continuing ability to identify, attract, develop, motivate and retain skilled
employees, including members of its executive team, top research developers and experienced salespeople with specialized
knowledge. Competition for such people is intense, continuous, and increasing in the industries in which the Company
participates, and the Company has experienced solicitations of its employees by its competitors.
To attract and retain critical personnel, the Company may experience increased compensation costs that are not offset by
increased productivity or higher prices for our products and services. Also, the Company’s financial results and share price
performance (particularly for those employees for whom equity-based compensation is a key element of their total
compensation), among other factors, may impact the Company’s ability to attract new, and retain existing, employees. Any
failure by the Company to attract and retain key employees could have a material adverse effect on the Company’s business,
results of operations and financial condition.
In addition, during periods of internal reorganization, the Company may experience losses of business continuity and
accumulated knowledge, internal compliance gaps or other inefficiencies, including litigation claims by terminated
employees. If the Company does not maintain appropriate staffing, mitigate turnover and effectively utilize employees with the
right mix of skills and experience across the functions necessary to meet the current and future needs of its business, the
financial and operational performance of the Company could suffer.
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The Company’s success depends on its relationships with resellers and distributors.
The Company’s ability to maintain and expand its market reach is increasingly dependent on establishing, developing and
maintaining relationships with third party resellers and distributors, including network carriers. The Company relies on these
channel partners to promote and deliver the Company’s current and future products and services and to grow its user base.
If the Company is not able to effectively identify and establish new relationships with successful resellers and distributors, or in
maintaining or enhancing existing such relationships without giving rise to conflicts between channels, or if the Company’s
partners do not act in a manner that will promote the success of the Company’s products and services, the Company’s business,
results of operations and financial condition could be materially adversely affected.
Many resellers and distributors sell products and services of the Company’s competitors and may terminate their relationships
with the Company with limited or no notice and limited or no penalty. If the Company’s competitors offer their products and
services to the resellers and distributors on more favorable contractual or business terms, have more products and services
available, or those products and services are, or are perceived to be, in higher demand by end users, or are more lucrative for the
resellers and distributors, there may be continued pressure on the Company to reduce the price of its products and services, or
those resellers and distributors may stop offering the Company’s products or de-emphasize the sale of its products and services
in favor of the Company’s competitors, which would have a material adverse effect on the Company’s business, results of
operations and financial condition.
Network disruptions or other business interruptions could have a material adverse effect on the Company’s
business and harm its reputation.
The Company’s operations rely to a significant degree on the efficient and uninterrupted operation of complex technology
systems and networks, which are in some cases integrated with those of carrier partners, cloud service providers, and third-party
data centre operators. The Company’s network operations and technology systems are potentially vulnerable to damage or
interruption from a variety of sources, including by fire, earthquake, power loss, telecommunications or computer systems
failure, cyber attack, human error, terrorist acts, war, and the threatened or actual suspension of BlackBerry services at the
request of a government for alleged noncompliance with local laws or other events. The increased number of third party
applications on the Company’s network may also enhance the risk of network disruption or cyber attack for the Company.
There may also be system or network interruptions if new or upgraded systems are defective or not installed properly, or if data
centre operators fail to meet agreed service levels.
The Company has experienced network events in the past, and any future outage in a network or system or other unanticipated
problem that leads to an interruption or disruption of BlackBerry services could have a material adverse effect on the
Company’s business, results of operations and financial condition, and could adversely affect the Company’s longstanding
reputation for reliability. As the Company moves to handle increased data traffic and support more applications or services, the
risk of disruption and the expense of maintaining a resilient and secure network services capability may significantly increase.
Acquisitions, divestitures, investments and other business initiatives may negatively affect the Company’s results of
operations.
The Company has acquired, and continues to seek out opportunities to acquire or invest in, businesses, assets, products, services
and technologies that expand, complement or are otherwise related to the Company’s business or provide opportunities for
growth. In addition, the Company is increasingly collaborating and partnering with third parties to develop technologies,
products and services, as well as seek new revenue through partnering arrangements.
These activities involve significant challenges and risks, including: that they may not advance the Company’s strategic
objectives or generate a satisfactory return on investment; that the Company may have difficulty integrating and managing new
employees, business systems, and technology; the potential loss of key employees of an acquired business; additional demands
on the Company’s management, resources, systems, procedures and controls; disruption of the Company’s ongoing business;
and diversion of management’s attention from other business concerns. Acquisitions, investments or other strategic
collaborations or partnerships may involve significant commitments of financial and other resources of the Company. If these
fail to perform as expected, or if the Company fails to enter into and execute the transactions or arrangements needed to
succeed, the Company may not be able to bring its products, services or technologies to market successfully or in a timely
manner, which would have a material adverse impact on results of operations.
Furthermore, an acquisition may have an adverse effect on the Company’s cash position if all or a portion of the purchase price
is paid in cash, and common shares issuable in an acquisition would dilute the percentage ownership of the Company’s existing
shareholders. Any such activity may not be successful in generating revenue, income or other returns to the Company, and the
financial or other resources committed to such activities would not be available to the Company for other purposes. In addition,
the acquisitions may involve unanticipated costs and liabilities, including possible litigation and new or increased regulatory
exposure, which are not covered by the indemnity or escrow provisions, if any, of the relevant acquisition agreements.
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As business circumstances dictate, the Company may also decide to divest itself of assets or businesses. The Company may not
be successful in identifying or managing the risks involved in any divestiture, including its ability to obtain a reasonable
purchase price for the assets, potential liabilities that may continue to apply to the Company following the divestiture, potential
tax implications, employee issues or other matters. The Company’s inability to address these risks could adversely affect the
Company’s business, results of operations and financial condition.
The Company’s products and services are dependent upon interoperability with rapidly changing systems provided
by third parties.
The Company’s platform depends on interoperability with operating systems, such as those provided by Apple, Google and
Microsoft, as well as device manufacturers and automotive OEMs. Mobile operating systems are upgraded frequently in
response to consumer demand and, in order to maintain the interoperability of its platform, the Company may need to release
new software updates at a much greater pace than a traditional enterprise software company that supports only a single
platform. In addition, the Company typically receives limited advance notice of changes in features and functionality of
operating systems and mobile devices, and therefore the Company may be forced to divert resources from its preexisting
product roadmap to accommodate these changes.
If the Company fails to enable IT departments to support operating system upgrades upon release, the Company’s business and
reputation could suffer. This could further disrupt the Company’s product roadmap and cause it to delay introduction of planned
products and services, features and functionality, which could harm the Company’s business. Furthermore, some of the features
and functionality in the Company’s products and services require interoperability with application programming interfaces
(“APIs”) of other operating systems, and if operating system providers decide to restrict the Company’s access to their APIs,
that functionality would be lost and the Company’s business could be impaired.
Operating system providers have included, and may continue to include, features and functionality in their operating systems
that are comparable to elements of the Company’s products and services, thereby making the Company’s platform less valuable.
The inclusion of, or the announcement of an intent to include, functionality perceived to be similar to that offered by the
Company’s products and services in mobile operating systems may have an adverse effect on the Company’s ability to market
and sell its products and services.
The Company may not be able to generate revenue and profitability through the licensing of security software and
services or the BlackBerry brand to device manufacturers.
Although the Company is focused on enterprise software and services, the BlackBerry brand has historically been strongly
associated with devices and the Company has partnered with handset manufacturers for the development, distribution and
marketing of BlackBerry-branded smartphones. The future success of the Company’s handheld devices business is primarily
dependent on the successful commercialization of devices featuring licensed BlackBerry mobile security software and services.
The Company’s results of operations could be adversely affected if such devices, including BlackBerry-branded devices, do not
achieve broad market acceptance. In addition, any failure by a licensee to act consistently with the Company’s compliance,
security or quality standards, including by introducing security vulnerabilities into BlackBerry-branded devices, may erode the
value of the BlackBerry brand, impair the Company’s relationship with current and potential customers, and adversely affect
the Company’s ability to sell software products and services that are commercially viable.
Failure to protect the Company’s intellectual property could harm its ability to compete effectively and the
Company may not earn the revenues it expects from intellectual property rights.
The Company’s commercial success is highly dependent upon its ability to protect its proprietary technology. The Company
relies on a combination of patents, copyrights, trademarks, trade secrets, confidentiality procedures and contractual provisions
to protect its proprietary rights, all of which offer only limited protection. Despite the Company’s efforts, the steps taken to
protect its proprietary rights may not be adequate to preclude misappropriation of its proprietary information or infringement of
its intellectual property rights, and the Company’s ability to police such misappropriation or infringement is uncertain. The
laws of certain countries in which the Company’s products and services are sold or licensed do not protect intellectual property
rights to the same extent as the laws of Canada or the United States.
With respect to patent rights, the Company cannot be certain whether any of its pending patent applications will result in the
issuance of patents or whether the examination process will require the Company to narrow its claims. Furthermore, any patents
issued could be challenged, invalidated or circumvented and may not provide proprietary protection or a competitive advantage.
In addition, a number of the Company’s competitors and other third parties have been issued patents, and may have filed patent
applications or may obtain additional patents and proprietary rights, for technologies similar to those that the Company has
made or may make in the future. Public awareness of new technologies often lags behind actual discoveries, making it difficult
or impossible to know all relevant patent applications at any particular time. Consequently, the Company cannot be certain that
it was the first to develop the technology covered by its pending patent applications or that it was the first to file patent
applications for the technology. In addition, the disclosure in the Company’s patent applications may not be sufficient to meet
22
the statutory requirements for patentability in all cases. As a result, there can be no assurance that the Company’s patent
applications will result in patents being issued.
While the Company enters into confidentiality and non-disclosure agreements with its employees, consultants, contract
manufacturers, customers, potential customers and others to attempt to limit access to, and distribution of, proprietary and
confidential information, it is possible that:
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some or all of its confidentiality agreements will not be honoured;
third parties will independently develop equivalent technology or misappropriate the Company’s technology or
designs;
disputes will arise with the Company’s strategic partners, customers or others concerning the ownership of
intellectual property;
unauthorized disclosure or use of the Company’s intellectual property, including source code, know-how or
trade secrets will occur; or
contractual provisions may not be enforceable.
In addition, the Company expends significant resources to patent and manage the intellectual property it creates with the
expectation that it will generate revenues by incorporating that intellectual property in its products or services. The Company is
also monetizing its patent portfolio through outbound patent licensing. Changes in the law may weaken the Company’s ability
to collect royalty revenue for licensing its patents. Similarly, licensees of the Company’s patents may fail to satisfy their
obligations to pay royalties, or may contest the scope and extent of their obligations. Finally, the royalties the Company can
obtain to monetize its intellectual property may decline because of the evolution of technology, changes in the selling price of
products using licensed patents, or the difficulty of discovering infringements.
Detecting and protecting against the unauthorized use of the Company’s products, technology proprietary rights, and
intellectual property rights is expensive, difficult and, in some cases, impossible. Litigation may be necessary in the future to
enforce or defend the Company’s intellectual property rights and could result in substantial costs and diversion of management
resources, either of which could harm the Company’s business, financial condition and results of operations, and there is no
assurance that the Company will be successful.
The Company could be found to have infringed on the intellectual property rights of others.
Companies in the software and technology industries, including some of the Company’s current and potential competitors, own
large numbers of patents, copyrights, trademarks and trade secrets and frequently engage in litigation based on allegations of
infringement or other violations of intellectual property rights. Although the Company believes that third-party software
included in the Company’s products is licensed from the entity holding the intellectual property rights and that its products do
not infringe on the rights of third parties, third parties have and are expected to continue to assert infringement claims against
the Company in the future. The Company may be subject to these types of claims either directly or indirectly through
indemnities that it provides to certain of its customers, partners and suppliers against these claims. As the Company continues
to develop software products and expand its portfolio using new technology and innovation, its exposure to threats of
infringement may increase.
Many intellectual property infringement claims are brought by entities whose business model is to obtain patent-licensing
revenues from operating companies such as the Company. Because such entities do not typically generate their own products
or services, the Company cannot deter their claims based on counterclaims that they infringe patents in the Company’s portfolio
or by entering into cross-licensing arrangements.
Regardless of whether patent or other intellectual property infringement claims against the Company have any merit, they
could:
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adversely affect the Company’s relationships with its customers;
be time-consuming and expensive to evaluate and defend, including in litigation or other proceedings;
result in negative publicity for the Company;
divert management’s attention and resources;
cause product delays or stoppages;
subject the Company to significant liabilities;
require the Company to develop possible workaround solutions that may be costly and disruptive to implement; and
require the Company to cease certain activities or to cease selling its products and services in certain markets.
In addition, any such claim may require the Company to enter into costly royalty agreements or obtain a license for the
intellectual property rights of third parties. Such licenses may not be available or they may not be available on commercially
reasonable terms.
23
Any of the foregoing infringement claims and related litigation could have a significant adverse impact on the Company’s
business and operating results, as well as the Company’s ability to generate future revenues and profits. See also “Legal
Proceedings” in this AIF.
Litigation against the Company may result in adverse outcomes.
In the course of its business, the Company receives general commercial claims related to the conduct of its business and the
performance of its products and services, including product liability and warranty claims, employment claims and other
litigation claims, which may potentially include claims relating to improper use of, or access to, personal data. In the case of
product liability claims, the Company may be subject to such claims either directly or indirectly through indemnities that it
provides to certain of its customers. The Company’s exposure to product liability risk may increase as the Company continues
to commercialize its software innovations for autonomous and connected vehicles.
In addition, the Company is subject to potential litigation claims arising from its disclosure practices. The Company is
committed to providing a high level of disclosure and transparency and provides commentary that highlights the trends and
uncertainties that the Company anticipates. Given the highly competitive and rapidly evolving industry in which the Company
operates and the recent transition in the Company’s business strategy, the Company’s financial results may not follow any past
trends, making it difficult to predict the Company’s financial results. Consequently, actual results may differ materially from
those expressed or implied by the Company’s forward-looking statements and may not meet the expectations of analysts or
investors, which can contribute to the volatility of the market price of the Company’s common shares. Despite the Company’s
cautions in each earnings release, earnings conference call and securities filings that contain forward-looking statements, the
Company may nevertheless be subject to potential securities litigation or enforcement actions.
Litigation resulting from these claims could be costly and time-consuming and could divert the attention of management and
key personnel from the Company’s business operations. The complexity of the technology involved and the inherent
uncertainty of commercial, class action, securities, employment and other litigation increases these risks. In recognition of
these considerations, the Company may enter into settlements resulting in material expenditures, the payment of which could
have a material adverse effect on the Company’s business, results of operation and financial condition. If the Company is
unsuccessful in its defense of material litigation claims or is unable to settle the claims, the Company may be faced with
significant monetary damages or injunctive relief against it that could have a material adverse effect on the Company’s
business, BlackBerry brand, results of operations and financial condition. Administrative or regulatory actions against the
Company or its employees could also have a material adverse effect on the Company’s business, BlackBerry brand, results of
operations and financial condition. See also “Legal Proceedings” in this AIF.
The use and management of user data and personal information could give rise to liabilities as a result of legal,
customer and other third-party requirements.
This information is increasingly subject to legislation and regulations in numerous jurisdictions around the world, such as the
European Union’s General Data Protection Regulation, that is intended to protect the privacy and security of personal
information, as well as the collection, storage, transmission, use and disclosure of such information.
The interpretation of privacy and data protection laws and their application to the Internet and mobile communications in a
number of jurisdictions is unclear and in a state of flux. There is a risk that these laws may be interpreted and applied in
conflicting ways from country to country and in a manner that is not consistent with the Company’s current data protection
practices. Complying with these varying international requirements could cause the Company to incur additional costs and
change the Company’s business practices. In addition, because the Company’s services are accessible worldwide, certain
foreign jurisdictions may claim that the Company is required to comply with their laws, even where the Company has no local
entity, employees, or infrastructure. Non-compliance could result in penalties or significant legal liability and the Company’s
business, results of operations and financial condition may be adversely affected.
The Company’s customers, partners and members of its ecosystem may also have differing expectations or impose particular
requirements for the collection, storage, processing and transmittal of user data or personal information in connection with
BlackBerry products and services. Such expectations or requirements could subject the Company to additional costs, liabilities
or negative publicity, and limit its future growth. In addition, governmental authorities may use the Company’s products to
access certain personal data of individuals without the Company’s involvement, for example, through so-called lawful intercept
capability of network infrastructure. Even a perception that the Company’s products or practices do not adequately protect
users’ privacy or data collected by the Company, made available to the Company or stored in or through the Company’s
products, or that they are being used by third parties to access personal or consumer data, could impair the Company’s sales or
its reputation and brand value.
The Company may not be able to obtain rights to use third-party software.
Many of the Company’s products include intellectual property which must be licensed from third parties. The termination of
any of these licenses, or the failure of such third parties to adequately maintain, protect or update their software or intellectual
24
property rights, could delay the Company’s ability to offer its products while the Company seeks to implement alternative
technology offered by other sources (which may not be available on commercially reasonable terms) or develop such
technology internally (which would require significant unplanned investment on the Company’s part).
In addition, certain software that the Company uses may be subject to open source licenses. Use and distribution of open
source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not
provide warranties or other contractual protections regarding infringement claims or the quality of the code. Some open source
licenses contain requirements that the Company make available source code for modifications or derivative works created by
the Company based upon the type of open source software used. If the Company combines its proprietary solutions with open
source software in a certain manner, the Company could, under certain of the open source licenses, be required to release the
source code of the Company’s proprietary solutions to the public or offer the Company’s solutions to users at no cost. This
could allow the Company’s competitors to create similar solutions with lower development effort and time and ultimately could
result in a loss of revenue to the Company.
The terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be
construed in a manner that could impose unanticipated conditions or restrictions on the Company’s ability to commercialize its
products and services. In such an event, the Company could be required to obtain licenses from third parties in order to continue
offering its products and services, to re-engineer the Company’s products or services, or to discontinue the sale of its products
and services in the event re-engineering cannot be accomplished on a timely basis, any of which could materially and adversely
affect the Company’s business and operating results.
The Company faces substantial asset risk, including the potential for charges related to its long-lived assets and
goodwill.
The Company’s long-lived assets include items such as the Company’s network infrastructure and certain intellectual property.
As at February 28, 2018, the Company’s long-lived assets had a carrying value of approximately $541 million. Under U.S.
GAAP, the Company reviews its long-lived assets for impairment when events or changes in circumstances indicate the
carrying value may not be recoverable. The Company’s ability to generate sufficient cash flows to fully recover the current
carrying value of these assets depends on the successful execution of its strategies. If it is determined that sufficient future cash
flows do not exist to support the current carrying value, the Company will be required to record an impairment charge for long-
lived assets in order to adjust the value of these assets to the newly established estimated value.
Goodwill represents the excess of the acquisition price over the fair value of identifiable net assets acquired. As at February 28,
2018, the Company’s goodwill had a carrying value of approximately $569 million. Under U.S. GAAP, the Company tests
goodwill for impairment annually, during the fourth quarter, or more frequently if events or changes in circumstances indicate
that 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. If any such events or circumstances arise, the Company may be required to record an impairment charge in the
value of its goodwill.
The Company has incurred indebtedness, which could adversely affect its operating flexibility and financial
condition.
The Company has, and may from time to time in the future have, third-party debt service obligations pursuant to its outstanding
indebtedness, which currently includes $605 million aggregate principal amount of 3.75% Debentures. The degree to which the
Company is leveraged could have important consequences, including that:
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the Company’s ability to obtain additional debt financing may be limited;
a portion of the Company’s cash flow from operations or other capital resources will be dedicated to the payment of
the principal of, and/or interest on, indebtedness, thereby reducing funds available for working capital, capital
expenditures, strategic initiatives or other business purposes; and
the Company’s earnings under U.S. GAAP may be negatively affected to the extent that any indebtedness, such as the
3.75% Debentures, are accounted for by the Company at fair value and include embedded derivatives which fluctuate
in value from period to period.
If the Company does not have sufficient cash flow from operations, it could result in its inability to pay amounts due under its
outstanding indebtedness or to fund other liquidity needs and it may be required to refinance all or part of its then existing
indebtedness (including the 3.75% Debentures), sell assets, reduce or delay capital expenditures or seek to raise additional
capital, any of which could have a material adverse effect on the Company’s business, results of operations and financial
condition.
The 3.75% Debentures are subject to restrictive and other covenants that may limit the discretion of the Company and its
subsidiaries with respect to certain business matters. These covenants place restrictions upon, among other things, the
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Company’s ability to incur additional indebtedness or provide guarantees in respect of obligations, create liens or other
encumbrances, pay dividends, merge or consolidate with another entity and enter into any speculative hedging transaction. A
breach of any of these covenants could result in a default under the Company’s outstanding indebtedness, which would have a
material adverse effect on the Company’s business, results of operations and financial condition. In addition, certain of the
Company’s competitors may operate on a less leveraged basis, or without such restrictive covenants, and therefore could have
greater generating and financing flexibility than the Company.
There can be no assurance that the Company will be able to repay, restructure or refinance its indebtedness, including the 3.75%
Debentures, as principal amounts become due, or that it will be able to do so on terms as favourable as those currently in place.
If the Company is unable to refinance its indebtedness, or is only able to refinance indebtedness on less favourable terms, this
may have a material adverse effect on the Company’s business, results of operations and financial condition.
Government regulations applicable to the Company’s products and services, including products containing
encryption capabilities, could negatively impact the Company’s business.
Certain government regulations applicable to the Company’s products and services may provide opportunities for competitors
or limit growth. The impact of potential incremental obligations may vary based on the jurisdiction, but regulatory changes
could impact whether the Company enters, maintains or expands its presence in a particular market, and whether the Company
must dedicate additional resources to comply with these obligations.
Various countries have enacted laws and regulations, adopted controls, license or permit requirements, and restrictions on the
export, import, and use of products or services that contain encryption technology. In addition, from time to time, governmental
agencies have proposed additional regulations relating to encryption technology, such as requiring certification, notifications,
review of source code, or the escrow and governmental recovery of private encryption keys. Governmental regulation of
encryption technology, including the regulation of imports or exports, could harm the Company’s sales in one or more
jurisdictions and adversely affect the Company’s revenues. Complying with such regulations could also require the Company
to devote additional research and development resources to change the Company’s software or services or alter the methods by
which the Company makes them available, which could be costly. In addition, failure to comply with such regulations could
result in penalties, costs and restrictions on import or export privileges or adversely affect sales to government agencies or
government funded projects.
Some of the Company’s competitors do not have the same level of encryption in their technology and some competitors may be
subject to less stringent controls on the export, import, and use of encryption technologies in certain markets. Also, several
countries have adopted legislation authorizing the circumvention of encryption measures in limited circumstances. These
legislative provisions could potentially be used by competitors to attempt to reverse engineer or find vulnerabilities in the
Company’s products and services. As a result, these competitors may be able to compete more effectively than the Company
can in those markets.
The Company’s business is subject to risks inherent in foreign operations, including fluctuations in foreign
currencies.
Sales outside of North America account for a significant portion of the Company’s revenue. The Company maintains offices in
a number of foreign jurisdictions and intends to continue to pursue growth in select international markets. The Company is
subject to a number of risks associated with its foreign operations that may increase liability and costs, lengthen sales cycles
and require significant management attention. These risks include:
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compliance with the laws of the United States, Canada and other countries that apply to the Company’s international
operations, including import and export legislation, lawful access, and privacy, anti-corruption and consumer
protection laws;
unexpected changes in foreign regulatory requirements;
reliance on third parties to establish and maintain foreign operations;
instability in economic or political conditions;
foreign exchange controls and cash repatriation restrictions;
tariffs and other trade barriers;
increased credit risk and difficulties in collecting accounts receivable;
potential adverse tax consequences;
uncertainties of laws and enforcement relating to the protection of intellectual property or secured technology;
litigation in foreign court systems;
cultural and language differences; and
difficulty in managing a geographically dispersed workforce.
In addition, the Company is exposed to foreign exchange risk as a result of transactions in currencies other than its U.S. dollar
functional currency. The majority of the Company’s revenue is denominated in U.S. dollars; however, some revenue, and a
26
substantial portion of operating costs and capital expenditures are incurred in other currencies, primarily Canadian dollars,
Euros and British Pounds. For more details, please refer to the discussion of foreign exchange and income taxes in the
Company’s MD&A for the fiscal year ended February 28, 2018.
All of the above factors may have a material adverse effect on the Company’s business, results of operations and financial
condition and there can be no assurance that the policies and procedures implemented by the Company to address or mitigate
these risks will be successful, that Company personnel will comply with them, or that the Company will not experience these
factors in the future.
Errors in the Company’s products and services can be difficult to detect and remedy and could have a material
adverse effect on the Company’s business.
The Company’s products and services are highly complex and sophisticated and may contain design defects, bugs or security
vulnerabilities that are difficult to detect and correct. Errors may be found in new products or services or improvements to
existing products or services after delivery to the Company’s customers. If these errors are discovered, the Company may not
be able to successfully correct them in a timely manner or at all. The occurrence of defects, bugs or vulnerabilities in the
Company’s products or services could result in the delay or the denial of their market acceptance and may harm the Company’s
reputation, and correcting them could require significant expenditures by the Company. In addition, the failure of the
Company’s products or services to perform to end user expectations could give rise to product liability and warranty claims,
including class action litigations, or to the withdrawal of certifications. The consequences of any such defects, bugs,
vulnerabilities and claims could have a material adverse effect on the Company’s business, results of operations and financial
condition.
Failure of the Company’s suppliers, subcontractors, third-party distributors and representatives to use acceptable
ethical business practices or to comply with applicable laws could negatively impact the Company’s business.
The Company expects its suppliers, subcontractors, licensees and other partners to operate in compliance with applicable laws,
rules and regulations regarding working conditions, labour and employment practices, environmental compliance, anti-
corruption, and patent and trademark licensing, as detailed in the Company’s Supplier Code of Conduct. However, the
Company does not directly control their labour and other business practices. If one of the Company’s suppliers or
subcontractors violates applicable labour, anti-corruption or other laws, or implements labour or other business practices that
are regarded as unethical, or if a supplier or subcontractor fails to comply with procedures designed by the Company to adhere
to existing or proposed regulations, the delivery of BlackBerry products could be interrupted, orders could be canceled,
relationships could be terminated, the Company’s reputation could be damaged, and the Company may be subject to liability.
Any of these events could have a negative impact on the Company’s business, results of operations and financial condition.
The Company relies on third parties to manufacture and repair its hardware products.
Although the Company has focused its growth strategy on software and services, it continues to outsource the manufacturing
and repair of hardware products to third parties. The resources devoted by these third parties to meet the Company’s
manufacturing and repair requirements are not within the Company’s control and there can be no assurance that manufacturing
or repair problems will not occur in the future.
The Company’s reliance on outsourcing its manufacturing and repair requirements, directly and indirectly, to third parties may
also involve the following risks:
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failure to satisfy the Company’s requirements on a timely basis;
reduced ability to ensure product quality and reliability, and to monitor and manage quality controls;
reduced control over costs as third parties procure inventory to build or repair the Company’s products;
reduced control over the Company’s intellectual property; and
risk of bankruptcy or business interruption on the part of the manufacturer or repair partner.
If the Company’s partners fail to meet the Company’s manufacturing and repair requirements on a timely basis, it could have an
adverse effect on the Company’s cost or quality of finished goods and its results of operations.
The Company may not be successful in fostering an ecosystem of third-party application developers.
The Company believes decisions by customers to purchase its products depend in part on the availability and compatibility of
software applications and services that are developed and maintained by third-party developers. The Company may not be able
to convince third parties to develop and maintain applications for its cybersecurity software and embedded solutions platforms.
The loss of, or inability to maintain these developer relationships may materially and adversely affect the desirability of the
Company’s products and, hence, the Company’s revenue from the sale of its products.
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The Company is subject to risks related to regulations regarding health and safety, hazardous materials usage and
conflict minerals, and to product certification risks.
The Company must comply with a variety of laws, standards and other requirements governing, among other things, health and
safety, hazardous materials usage, packaging and environmental matters, and its products must obtain regulatory approvals and
satisfy other regulatory concerns in the various jurisdictions in which they are sold. The Company is also subject to Securities
and Exchange Commission (“SEC”) disclosure requirements applicable to issuers that have contracted to manufacture products
containing certain minerals that are mined from the Democratic Republic of Congo and adjoining countries. There can be no
assurance that the direct or indirect costs of complying with such laws, standards and requirements will not adversely affect the
Company’s business, results of operations or financial condition. Any failure to comply with such laws, standards and
requirements may subject the Company to regulatory or civil liability, fines or other additional costs, and reputational harm.
In addition to complying with regulatory requirements, the Company must obtain certain product approvals and certifications
from governmental authorities, regulated enterprise customers and network carrier partners. Failure to maintain such approvals
or certifications for the Company’s current products or to obtain such approvals or certifications for any new products on a
timely basis could have a material adverse effect on the Company’s business, results of operations and financial condition.
Tax provision changes, the adoption of new tax legislation or exposure to additional tax liabilities could materially
impact the Company’s financial condition.
The Company is subject to income, indirect (such as sales tax, sales and use tax and value-added tax) and other taxes in Canada
and numerous foreign jurisdictions. Significant judgment is required in determining its worldwide liability for income, indirect
and other taxes, as well as potential penalties and interest. In the ordinary course of the Company’s business, there are many
transactions and calculations where the ultimate tax determination is uncertain. Although the Company believes that its tax
estimates are reasonable, there can be no assurance that the final determination of any tax audits will not be materially different
from that which is reflected in historical income, indirect and other tax provisions and accruals. Should additional taxes or
penalties and interest be assessed as a result of an audit, litigation or changes in tax laws, there could be a material adverse
effect on the Company’s current and future results and financial condition. In addition, there is a risk of recoverability of future
deferred tax assets.
The Company’s future effective tax rate will depend on the relative profitability of the Company’s domestic and foreign
operations, the statutory tax rates and taxation laws of the related tax jurisdictions, the tax treaties between the countries in
which the Company operates, the timing of the release, if any, of the valuation allowance, and the relative proportion of
research and development incentives to the Company’s profitability.
Under U.S. federal income tax laws, if a company is, or for any past period was, a passive foreign investment company
(“PFIC”), there could be adverse U.S. federal income tax consequences to U.S. shareholders even if the Company is no longer a
PFIC. While the Company does not believe that it is currently or has been a PFIC, there can be no assurance that the Company
was not a PFIC in the past and will not be a PFIC in the future.
The Company expects its quarterly revenue and operating results to fluctuate.
The Company’s revenues can change from one quarter to the next, including due to unexpected developments late in a quarter,
such as lower-than-anticipated demand for the Company’s products and services, issues with new product or service
introductions, an internal systems failure, or challenges with one of the Company’s distribution channels or other partners
(including licensees and manufacturers).
Gross margins on the Company’s products and services vary across product lines and can change over time as a result of
product transitions, pricing and configuration changes, and cost fluctuations. In addition, the Company’s gross margin and
operating margin percentages, as well as overall profitability, may be materially adversely impacted as a result of a shift in
product/service, geographic or channel mix, component cost increases, price competition, or the introduction of new products
and services, including those that have higher cost structures or reduced pricing.
The market price of the Company’s common shares is volatile.
The market price of the Company’s outstanding common shares has been and continues to be volatile, due in part to uncertainty
relating to the Company’s ability to realize the benefits of its ongoing strategic initiatives. The market price of the Company’s
shares may fluctuate significantly in response to the risks described elsewhere in these Risk Factors, as well as numerous other
factors, many of which are beyond the Company’s control, including: (i) announcements by the Company or its competitors of
new products and services, acquisitions, customer wins or strategic partnerships; (ii) forward-looking financial guidance
provided by the Company, any updates to this guidance, or the Company’s failure to meet this guidance; (iii) quarterly and
annual variations in operating results, which are difficult to forecast, and the Company’s financial results not meeting the
expectations of analysts or investors; (iv) recommendations by securities analysts or changes in earnings estimates; (v) the
performance of other technology companies or the increasing market share of such companies; (vi) results of existing or
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potential litigation; (vii) trading volume; or (viii) market rumours. In addition, dilutive share issuances (including in connection
with the potential conversion of the 3.75% Debentures) could adversely affect the market price of the Company’s outstanding
common shares.
In addition, broad market and industry factors may decrease the market price of the Company’s common shares, regardless of
the Company’s operating performance. The stock market in general, and the securities of technology companies in particular,
have often experienced extreme price and volume fluctuations. Periods of volatility in the overall market and in the market
price of the Company’s securities may prompt securities class action litigation against the Company which, if not resolved
swiftly, can result in substantial costs and a diversion of management’s attention and resources. See also the Risk Factor
entitled “Litigation against the Company may result in adverse outcomes” and the “Legal Proceedings” section in this AIF.
Adverse economic and geopolitical conditions may negatively affect the Company.
A slowdown in capital spending by end users of the Company’s products and services, coupled with existing economic and
geopolitical uncertainties globally and in the Company’s target vertical markets, could substantially reduce the demand for the
Company’s products and services and adversely affect the Company’s business, results of operations and financial condition.
Current and future conditions in the domestic and global economies remain uncertain, and it is difficult to estimate the level of
economic activity for the economy as a whole. It is even more difficult to estimate growth in various parts of the economy,
including the markets in which the Company participates. Because all components of the Company’s budgeting and forecasting
are dependent upon estimates of economic activity in the markets that the Company serves and demand for its products and
services, economic uncertainties make it difficult to estimate future income and expenditures.
If economic or geopolitical uncertainties cause customers to reduce their IT budgets or to reduce or cancel orders for the
Company’s products and services, the Company’s business, results of operations and financial condition may be adversely
affected.
In addition, acts of terrorism and the outbreak of hostilities and armed conflicts within or between countries have created and
may continue to create uncertainties that may affect the global economy and could have a material adverse effect on the
Company’s business, results of operations and financial condition.
DIVIDEND POLICY AND RECORD
The Company has not paid any cash dividends on its common shares during the last three fiscal years. The Company will
consider paying dividends on its common shares in the future when circumstances permit, having regard to, among other
things, the Company’s earnings, cash flows and financial requirements, as well as relevant legal and business considerations.
DESCRIPTION OF CAPITAL STRUCTURE
The Company’s authorized share capital consists of an unlimited number of voting common shares without par value, an
unlimited number of non-voting, redeemable, retractable class A common shares without par value, and an unlimited number of
non-voting, cumulative, redeemable, retractable preferred shares without par value, issuable in series. Only common shares are
issued and outstanding.
Common Shares
Each common share is entitled to one vote at meetings of the shareholders and to receive dividends if, as and when declared by
the Board. Dividends which the Board determines to declare and pay shall be declared and paid in equal amounts per share on
the common shares and class A common shares at the time outstanding without preference or distinction. Subject to the rights
of holders of shares of any class of share ranking prior to the common shares and class A common shares, holders of common
shares and class A common shares are entitled to receive the Company’s remaining assets ratably on a per share basis without
preference or distinction in the event that it is liquidated, dissolved or wound-up.
Class A Common Shares
The holders of class A common shares are not entitled to receive notice of, or attend or vote at, any meeting of the Company’s
shareholders, except as provided by applicable law. Each such holder is entitled to receive notice of, and to attend, any
meetings of shareholders called for the purpose of authorizing the dissolution or the sale, lease or exchange of all or
substantially all of the Company’s property other than in the ordinary course of business and, at any such meeting, shall be
entitled to one vote in respect of each class A common share on any resolution to approve such dissolution, sale, lease or
exchange. Dividends are to be declared and paid in equal amounts per share on all the common shares and the class A common
shares without preference or distinction. Subject to the rights of holders of any class of share ranking prior to the common
shares and class A common shares, in the event that the Company is liquidated, dissolved or wound-up, holders of common
shares and class A common shares are entitled to receive the remaining assets ratably on a per share basis without preference or
distinction.
29
The Company authorized for issuance the class A common shares when the Company was a private company to permit
employees to participate in equity ownership. Class A common shares previously issued by the Company to such employees
were converted on a one-for-one basis into common shares in December 1996. At this time, the Company has no plans to issue
further class A common shares.
Preferred Shares
The holders of preferred shares are not entitled to receive notice of, or to attend or vote at, any meeting of the Company’s
shareholders, except as provided by applicable law. Preferred shares may be issued in one or more series and, with respect to
the payment of dividends and the distribution of assets in the event that the Company is liquidated, dissolved or wound-up,
rank prior to the common shares and the class A common shares. The Board has the authority to issue series of preferred shares
and determine the price, number, designation, rights, privileges, restrictions and conditions, including dividend rights, of each
series without any further vote or action by shareholders. The holders of preferred shares do not have pre-emptive rights to
subscribe to any issue of the Company’s securities. At this time there are no preferred shares outstanding and the Company has
no plans to issue any preferred shares.
Convertible Debentures
Debenture Refinancing
In fiscal 2014, the Company issued $1.25 billion of 6% Debentures in a private placement. The Company had an option to
redeem the 6% Debentures after November 13, 2016 at specified redemption prices in specified periods. On August 26, 2016,
the Company announced that, with the approval of the holders of the 6% Debentures, the indenture governing the 6%
Debentures had been amended to permit optional redemption by the Company prior to November 13, 2016. On September 2,
2016, the Company redeemed all of the outstanding 6% Debentures for an aggregate redemption amount of approximately
$1.33 billion.
On September 7, 2016, the Company issued the 3.75% Debentures in an aggregate principal amount of $605 million, which
replaced the 6% Debentures in part. The following is a summary of the material attributes and characteristics of the 3.75%
Debentures. This summary does not purport to be complete and is subject to, and qualified in its entirety by, the terms of the
Indenture (as defined below). Reference is made to the Indenture, which contains the complete description of the 3.75%
Debentures, and which has been filed on SEDAR at www.sedar.com and with the SEC at www.sec.gov.
General
The 3.75% Debentures are direct, unsecured debt obligations of the Company and are issued under an indenture (the
“Indenture”) dated as of September 7, 2016 between the Company, as issuer, BlackBerry Corporation, BlackBerry UK Limited,
BlackBerry Singapore Pte. Limited, Good Technology Corporation and QNX Software Systems Limited as guarantors
(collectively, the “Guarantors”) and BNY Trust Company of Canada, as trustee (the “Trustee”). The 3.75% Debentures are
limited in the aggregate principal amount of $605,000,000.
The 3.75% Debentures have a maturity date of November 13, 2020 (the “Maturity Date”), subject to the prior conversion or
payment thereof as provided by the Indenture.
Each of the Guarantors has separately guaranteed the payment of principal, premium (if any) and interest and other amounts
due under the 3.75% Debentures, and the performance of all other obligations of the Company under the Indenture (the
“Guarantees”). Other significant subsidiaries of the Company may be required to provide such Guarantees where they satisfy
certain financial tests.
Interest
The 3.75% Debentures bear interest at a rate of 3.75% per annum, payable in equal quarterly instalments in arrears on the first
day of March, June, September and December of each year. If an Event of Default (as defined below) has occurred and is
continuing, the 3.75% Debentures will bear interest at a rate of 7.75% per annum during the period of the default.
Subordination
The 3.75% Debentures rank pari passu with one another, in accordance with their tenor without discrimination, preference or
priority and, subject to statutory preferred exceptions, shall rank equally with all other present and future unsubordinated
unsecured Indebtedness (as defined below) of the Company, other than the Specified Senior Indebtedness (as defined below) of
the Company and the Guarantors. No payments shall be made on account of the 3.75% Debentures during any default of
payment when due of any principal, interest or other amount owing with respect to Specified Senior Indebtedness, unless such
Specified Senior Indebtedness shall first have been paid in full or provided for. The Trustee, on behalf of the holders of 3.75%
Debentures (the “Holders”), may from time to time enter into subordination agreements with Senior Creditors (as defined
below) to reflect the relative priorities of the Holders and such Senior Creditors.
30
Conversion Privilege
Each Holder shall have the right at its option to convert each $1,000 principal amount of its 3.75% Debentures into common
shares at any time prior to the third business day prior to the Maturity Date. Common shares will be issued based on an initial
conversion price of $10.00 principal amount of 3.75% Debentures per share (the “Conversion Price”), subject to adjustment in
certain circumstances.
No Redemption
The 3.75% Debentures are not redeemable at the option of the Company prior to the Maturity Date.
Change of Control
If a change of control of the Company occurs involving: (i) the acquisition by any person or groups of persons acting jointly or
in concert, directly or indirectly, in a single transaction or a series of related transactions, of voting control or direction over
more than 35% of the then-outstanding common shares; (ii) the acquisition by any person (other than the Company or any of
the Guarantors) or one or more members of a group of persons acting jointly or in concert (other than a group consisting solely
of two or more of the Company and any of the Guarantors), directly or indirectly, in a single transaction or a series of related
transactions, of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole; or (iii) the completion
of a merger, amalgamation, arrangement or similar transaction which results in holders of the Company’s common shares
immediately prior to the completion of the transaction holding less than 50% of the then outstanding common shares of the
resulting entity after the completion of the transaction (a “Change of Control”), the Company is required to make an offer (a
“Repayment Offer”) to purchase all or, at the option of the Holders, a portion (in integral multiples of $1,000) of the principal
amount of the 3.75% Debentures held by such Holders, at a price equal to 115% of the principal amount thereof plus accrued
and unpaid interest, if any, to but excluding the Change of Control Repurchase Date (as defined in the Indenture) (the “Change
of Control Repurchase Price”). The Company is not required to make that Repayment Offer to Fairfax Financial Holdings
Limited (“Fairfax”) or its affiliates, or any of their joint actors, if they caused such a Change of Control. Any 3.75% Debentures
so repurchased will be cancelled and may not be reissued or resold.
Certain Covenants
The Company is bound by certain covenants under the Indenture. Positive covenants include: (i) payment of the Trustee’s
remuneration; (ii) maintenance of corporate existence and books of account; and (iii) payment of principal, premium (if any)
and interest on the 3.75% Debentures when due and payable. Reporting covenants include: (i) provision of an annual
compliance certificate regarding compliance with the terms of the Indenture and confirming that no Events of Default have
occurred under the Indenture; (ii) provision of notice of an Event of Default or any event which, with the passing of time or
giving of notice, would constitute an Event of Default; and (iii) provision of public disclosure documents to the Trustee or
Holders in certain circumstances. Subject to customary exceptions, negative covenants include: (i) no liens on assets of the
Company or its subsidiaries, except Permitted Liens (as defined in the Indenture, which include customary liens arising by
operation of law, liens securing Specified Senior Indebtedness, Purchase Money Security Interests (as defined below) securing
permitted Indebtedness, liens on real property incurred in connection with a sale and leaseback of permitted Indebtedness, and
any other lien not prohibited by the Company’s asset-backed lending facility (now terminated), subject to compliance with
restrictions on incurring Indebtedness); (ii) a limitation on amalgamations and mergers except in compliance with customary
successor entity provisions; and (iii) a limitation on dividends, dividend increases and speculative hedging transactions.
The Company and its subsidiaries are restricted, without consent of Holders of 66-2/3% of the outstanding 3.75% Debentures,
from incurring any indebtedness or permitting any indebtedness to be outstanding, other than:
(a)
(b)
(c)
the 3.75% Debentures and the Guarantees;
Specified Senior Indebtedness in an aggregate principal amount at any one time outstanding not to exceed
$550,000,000;
Indebtedness in an aggregate principal amount at any one time outstanding not to exceed $450,000,000,
comprised of:
(i)
Indebtedness secured by a Purchase Money Security Interest including Capital Leases (as defined
below);
Indebtedness incurred in connection with a sale and leaseback of real property;
Indebtedness incurred under a securitization or factoring of receivables;
Indebtedness of any subsidiary acquired by the Company or its subsidiaries that existed prior to such
acquisition and not incurred in contemplation of such acquisition;
Indebtedness incurred to finance insurance premiums;
other Indebtedness (other than Specified Senior Indebtedness) provided that such Indebtedness shall
be unsecured; or
Indebtedness incurred to refinance any Indebtedness referred to in clauses (i) through (iv) above.
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
31
Events of Default
The Indenture provides for such events of default as are customary for indebtedness of this type (each, an “Event of Default”)
including: (i) a default in payment of any principal amount, purchase price or any Change of Control Repurchase Price when
due; (ii) a default in payment of interest on any 3.75% Debentures when due and the continuance of such default for 10 days;
(iii) a default in maintaining the Company’s reporting issuer status or the listing of the common shares, or in providing an
opinion in respect of new Guarantors, and the continuance of such default for five business days; (iv) a default in the delivery
of common shares or cash due upon conversion of 3.75% Debentures, and the continuance of such default for three business
days; (v) a default by the Company or any Guarantor in performing or observing any of the other covenants, agreements or
material obligations of the Company or the Guarantor under the Indenture, and the continuance of such default for 30 days after
written notice to the Company by the Trustee or by the Holders of not less than 25% in principal amount of outstanding 3.75%
Debentures requiring the same to be remedied; (vi) the failure to make a Repayment Offer following the occurrence of a
Change of Control; (vii) certain events of bankruptcy or insolvency with respect to the Company or any Guarantor; (viii) any of
the Guarantees being held in any judicial proceeding to be unenforceable or invalid or ceasing for any reason to be in full force
and effect or any Guarantor, or any person acting on behalf of a Guarantor, denying or disaffirming its obligations under its
Guarantee; (ix) (A) if the Company or any Guarantor is in default (as principal or as guarantor or other surety) in the payment
of any principal of or premium or make-whole amount on any Indebtedness that is outstanding in an aggregate principal
amount of more than $50,000,000 (or its equivalent in the relevant currency of payment) beyond any period of grace provided
with respect thereto, or (B) if the Company or any Guarantor is in default in the performance of or compliance with any term of
any evidence of any Indebtedness in an aggregate outstanding principal amount of more than $50,000,000 (or its equivalent in
the relevant currency of payment) or of any mortgage, indenture or other agreement relating thereto or any other condition
exists, and in each case as a consequence of such default or condition such Indebtedness has become or has been declared due
and payable before its stated maturity or before its regularly scheduled dates of payment, or (C) as a consequence of the
occurrence or continuation of any event or condition (other than (a) the passage of time or (b) the right of the holder of
Indebtedness to convert such Indebtedness into equity interests or (c) any mandatory prepayment provisions in an agreement
governing Indebtedness unless such provisions also require the permanent prepayment of all Indebtedness then outstanding
and, if applicable, the permanent cancellation of all other amounts available to be borrowed under such agreement), the
Company or any Guarantor has become obligated to purchase or repay Indebtedness (including any Specified Senior
Indebtedness but excluding the 3.75% Debentures) before its regular maturity or before its regularly scheduled dates of
payment in an aggregate outstanding principal amount of more than $50,000,000 (or its equivalent in the relevant currency of
payment); and (x) if the Company or any of its subsidiaries fails to pay final judgments aggregating in excess of an amount
greater than $50,000,000 in cash (net of any amounts for which an insurance company is liable) rendered against the Company
or any of its subsidiaries by a court of competent jurisdiction, which judgments are not paid, discharged or stayed for a period
of 30 days after such judgments become final and non-appealable.
If an Event of Default has occurred and is continuing (other than an Event of Default due to an event of bankruptcy or
insolvency), the Trustee may, in its discretion, and shall, at the written request of Holders of not less than 25% of the aggregate
principal amount of the 3.75% Debentures then outstanding, declare the principal of (and premium, if any), together with
accrued interest on all outstanding 3.75% Debentures to be immediately due and payable. If an Event of Default due to an event
of bankruptcy or insolvency occurs, the principal of (and premium, if any), together with accrued interest on all outstanding
3.75% Debentures will immediately become due and payable without any action on the part of the Trustee or any Holders of
3.75% Debentures. The Holders of more than 66-2/3% of the principal amount of outstanding 3.75% Debentures may, on
behalf of the Holders of all outstanding 3.75% Debentures, waive an Event of Default in the manner set forth below under
“Modification or Waiver”.
Modification or Waiver
The rights of the Holders may be modified or waived in accordance with the terms of the Indenture. For that purpose, among
others, the Indenture contains certain provisions which will make binding on all Holders resolutions passed at meetings of the
Holders (which may be called by the Company or the Trustee upon not less than 21 days’ notice) by votes cast thereat by
Holders of not less than 66-2/3% including waivers for certain events of default, or in the case of Extraordinary Resolutions (as
defined in the Indenture) and waivers of certain defaults in payment or delivery of shares not less than 85%, of the aggregate
principal amount of the 3.75% Debentures present at the meeting or represented by proxy, provided that a quorum for all
meetings of Holders of 3.75% Debentures will be at least 25% of the aggregate principal amount of outstanding 3.75%
Debentures represented in person or by proxy, or rendered by instruments in writing signed by the Holders of not less than
66-2/3%, or in the case of Extraordinary Resolutions not less than 85%, of the aggregate principal amount of the 3.75%
Debentures then outstanding. In addition, without the approval of Holders by Extraordinary Resolution, the Indenture may not
be amended to: (i) alter the manner of calculation of or rate of accrual of interest on the 3.75% Debentures or change the time
of payment; (ii) make the 3.75% Debentures convertible into securities other than common shares; (iii) change the Maturity
Date or any instalment of interest on the 3.75% Debentures; (iv) reduce the principal amount or Change of Control Repurchase
Price with respect to the 3.75% Debentures; (v) make any change that adversely affects the rights of Holders to require the
32
Company to purchase the 3.75% Debentures at the option of Holders; (vi) impair the right to institute suit for the enforcement
of payments or the conversion of the 3.75% Debentures; (vii) change the currency of payment of principal of, or interest on, the
3.75% Debentures; (viii) except as contemplated by the Indenture, change the Conversion Price or otherwise adversely affect
the Holders’ conversion rights; (ix) release any of the Guarantors from any of their obligations under a Guarantee provided for
in the Indenture, except in accordance with the Indenture; or (x) change the provisions in the Indenture that relate to modifying
or amending the Indenture.
Defined Terms
In the foregoing summary, the following terms have the meanings set forth below:
“Capital Lease” means, with respect to any Person (as defined in the Indenture), any lease of any property (whether real,
personal or mixed) by such Person as lessee that, in accordance with U.S. GAAP (as in effect on the date of the Indenture), is
required to be classified and accounted for as a capital lease on a balance sheet of such Person;
“Indebtedness” means, with respect to a person, and without duplication:
(a)
(b)
(c)
(d)
(e)
(f)
indebtedness of such person for monies borrowed or raised, including any indebtedness represented by a
note, bond, debenture or other similar instrument of such person;
reimbursement obligations of such person arising from bankers’ acceptance, letters of credit or letters of
guarantee or similar instruments;
indebtedness of such person for the deferred purchase price of property or services, other than for
consumable non-capital goods and services purchased in the ordinary course of business, including arising
under any conditional sale or title retention agreement, but excluding for greater certainty ordinary course
accounts payable;
obligations of such person under or in respect of Capital Leases, synthetic leases, Purchase Money Security
Interests or sale and leaseback transactions;
the aggregate amount at which shares in the capital of such person that are redeemable at fixed dates or
intervals or at the option of the holder thereof may be redeemed; and
guarantees or liens granted by such person in respect of Indebtedness of another person;
“Purchase Money Security Interest” means a lien created or incurred by the Company or one of its subsidiaries securing
Indebtedness incurred to finance the acquisition of property (including the cost of installation thereof), provided that (i) such
lien is created substantially simultaneously with the acquisition of such property, (ii) such lien does not at any time encumber
any property other than the property financed by such Indebtedness, (iii) the amount of Indebtedness secured thereby is not
increased subsequent to such acquisition, and (iv) the principal amount of Indebtedness secured by any such lien at no time
exceeds 100% of the original purchase price of such property and the cost of installation thereof, and for the purposes of this
definition the term “acquisition” includes a Capital Lease;
“Senior Creditor” means a holder or holders of Specified Senior Indebtedness and includes any representative or
representatives or trustee or trustees of any such holder or holders; and
“Specified Senior Indebtedness” means, without duplication, such Indebtedness as the Company shall designate as “Specified
Senior Indebtedness” by notice to the Trustee in writing; provided that the aggregate principal amount of Specified Senior
Indebtedness shall not exceed $550,000,000 at any one time outstanding; provided, further, that all Specified Senior
Indebtedness must constitute:
(a)
(b)
(c)
Indebtedness referred to in paragraphs (a) and (b) of the definition of Indebtedness above;
renewals, extensions, restructurings, refinancings and refundings of any such Indebtedness; and
guarantees of any of the foregoing.
33
MARKET FOR SECURITIES OF THE COMPANY
The Company’s common shares are listed and posted for trading on the TSX and the NYSE under the symbol “BB”. On
October 16, 2017, the Company transferred the listing of its common shares in the United States from the NASDAQ Global
Select Market (“NASDAQ”) to the NYSE. The volume of trading and price ranges of the Company’s common shares on the
TSX and on NASDAQ and the NYSE during the previous fiscal year are set out in the following table:
Month
March 2017
April 2017
May 2017
June 2017
July 2017
August 2017
September 2017
October 2017
November 2017
December 2017
January 2018
February 2018
Common Shares – TSX
Common Shares – NASDAQ/NYSE
Price Range
(CDN $)
Average Daily
Volume
Price Range
(US $)
Average Daily
Volume
$8.98-$10.75
1,190,441
$6.65-$8.08
$10.02-$12.78
2,061,412
$7.51-$9.37
$12.62-$15.54
1,868,861
$9.19-$11.55
5,935,532
11,539,649
7,637,998
$12.60-$15.82
3,323,383
$9.52-$11.74
12,207,036
$11.67-$13.08
1,370,299
$9.37-$10.38
$10.66-$12.06
1,092,325
$8.47-$9.60
$10.94-$14.14
2,216,419
$8.89-$11.34
$13.63-$14.71
1,682,186
$10.64-$11.78
$12.86-$14.24
1,109,409
$10.06-$11.12
$12.93-$15.87
2,008,283
$10.13-$12.36
$14.10-$18.14
3,195,606
$11.25-$14.55
$14.03-$16.08
2,391,002
$11.11-$12.99
4,008,713
3,491,886
8,909,184
5,429,629
2,689,684
5,707,957
9,232,629
5,083,911
In addition, the 6% Debentures were listed on the TSX from May 2014 until their redemption on September 2, 2016 under the
symbol “BB.DB.U”. There was limited trading in the 6% Debentures. During fiscal 2017, an aggregate of $30,549,138
principal amount of 6% Debentures was traded on only 23 days on the TSX, at prices ranging from $103.50 to $115.00 per
$100 principal amount.
The 3.75% Debentures have been listed on the TSX since January 2017, under the symbol “BB.DB.V”. There is limited trading
in the 3.75% Debentures. During fiscal 2018, an aggregate of $22,003,000 principal amount of 3.75% Debentures was traded
on only eight days on the TSX, at prices ranging from $101.00 to $149.00 per $100 principal amount.
NORMAL COURSE ISSUER BID
On June 23, 2017, the Company announced that it had received acceptance from the TSX with respect to a normal course issuer
bid (“NCIB”) to repurchase up to 31 million common shares of the Company, representing approximately 6.4% of the public
float of common shares outstanding as of May 31, 2017. The purpose of the NCIB is to offset a portion of the expected dilution
from the Company’s equity incentive plan and from the conversion of the 3.75% Debentures. The Company also announced
that it had entered into an automatic purchase plan with its designated broker. The NCIB will terminate on June 26, 2018 or on
such earlier date as the Company may complete its purchases under the NCIB.
During the year ended February 28, 2018, the Company repurchased approximately 2 million common shares at a cost of
approximately $18 million. All common shares repurchased by the Company pursuant to the NCIB have been canceled.
The actual number of shares to be purchased and the timing and pricing of any additional purchases under the NCIB will
depend on future market conditions and upon potential alternative uses for cash resources. There is no assurance that any
additional shares will be purchased under the NCIB and the Company may elect to modify, suspend or discontinue the program
at any time without prior notice.
DIRECTORS AND EXECUTIVE OFFICERS
As at the date hereof, the Company currently has a Board comprised of eight persons. Pursuant to a special resolution of
shareholders, the directors are authorized from time to time to increase the size of the Board and to fix the number of directors,
up to the maximum of 15 persons, as currently provided under the articles of the Company, without the prior consent of the
shareholders.
The Board has determined that each member of the Board except Mr. Chen is “independent” under the NYSE rules and
applicable securities law requirements.
34
The Company made two executive officer appointments during fiscal 2018, naming Steven Capelli as Chief Operating Officer
and naming Mark Wilson as Chief Marketing Officer.
The following table sets forth the name, province or state, and country of residence of each director and executive officer of the
Company and their respective positions and offices held with the Company and their principal occupations during the last five
years. Each director is elected at the annual meeting of shareholders to serve until the next annual meeting or until a successor
is elected or appointed.
Name and Residence
John S. Chen
California, USA
Michael Daniels(1)
Virginia, USA
Timothy Dattels(2)
California, USA
Richard Lynch(1)
Pennsylvania, USA
Current Position with
Company
Chief Executive
Officer; Executive
Chair/Director (since
2013)
Director (since 2014)
Director (since 2012)
Principal Occupation During the Last Five Years (other than Current
Position with Company)
Chairman, Logistics Management Institute (2011 to present);
Chairman, TwoSix Labs, Inc. (2017 to present); Chairman,
Invincea (2011 to 2017); and Chairman, Globallogic (2007 to
2013)
Senior Partner, TPG Capital (current)
Director (since 2013)
President, FB Associates, LLC (current)
Laurie Smaldone Alsup(2)
New Jersey, USA
Director (since 2015)
Chief Operating Officer and Chief Scientific Officer, NDA
Group (2016 to present); President and Chief Scientific
Officer, PharmApprove (2011 to 2016)
Barbara Stymiest, FCPA, FCA(1)(2)
Ontario, Canada
Director (since 2007)
Corporate Director (current)
V. Prem Watsa(1)
Ontario, Canada
Wayne Wouters(2)
Ontario, Canada
Steven Capelli
California, USA
Lead Director (since
2013)(3)
Chief Executive Officer, Fairfax (current)
Director (since 2015)
Strategic and Policy Advisor, McCarthy Tétrault LLP (2015 to
present); Clerk of the Privy Council of Canada (2009 to 2014)
Chief Financial
Officer & Chief
Operating Officer
Corporate Director (2013 to 2016)
Sandeep Chennakeshu
Texas, USA
President, BlackBerry
Technology Solutions
President, PMP LLC (2012 to 2014); Owner, RSI Consulting
LLC (2013 to 2014)
Sai Yuen (Billy) Ho
California, USA
Nita White-Ivy
California, USA
Executive Vice
President, Enterprise
Products and Value
Added Solutions
Executive Vice
President, Human
Resources
Chief People Officer, SuccessFactors (2012 to 2013)
Carl Wiese
Texas, USA
President, Global
Sales
Senior Vice President, Global Collaboration Sales, Cisco
Systems (2009 to 2015)
35
Mark Wilson
California, USA
Steve Zipperstein
California, USA
Notes:
Chief Marketing
Officer
Senior Vice President, Marketing, BlackBerry Limited (2014
to 2017); Chief Marketing Officer, Avaya (2012 - 2014)
Chief Legal Officer &
Corporate Secretary
1 Member of the Compensation, Nomination and Governance Committee (Chair - V. Prem Watsa).
2 Member of the Audit and Risk Management Committee (Chair - Barbara Stymiest).
3 Mr. Watsa first joined the Company as a director in January 2012, but then resigned on August 13, 2013 in connection
with the formation of the Special Committee to explore strategic alternatives and rejoined the Company as a director
in November 2013.
The Board has two active standing committees: an Audit and Risk Management Committee and a Compensation, Nomination
and Governance Committee, the members of which are noted above.
As at February 28, 2018, the above directors and executive officers of the Company beneficially owned, or controlled or
directed, directly or indirectly, 4,934,529 common shares of the Company representing approximately 0.92% of the issued and
outstanding common shares of the Company. In addition, as of such date, Fairfax and certain of its wholly-owned or controlled
subsidiaries beneficially owned approximately 46,724,700 common shares of the Company (the “Fairfax Shares”) representing
approximately 8.71% of the issued and outstanding common shares of the Company, or 96,724,700 common shares of the
Company representing approximately 16.49% of the issued and outstanding common shares of the Company assuming
conversion of all of its 3.75% Debentures and after giving effect to the conversion. Mr. Watsa, a director of the Company, is the
Chairman and Chief Executive Officer of Fairfax and may be deemed under applicable U.S. securities laws to beneficially own
the Fairfax Shares by virtue of his position at Fairfax.
Cease Trade Orders, Bankruptcies, Penalties or Sanctions
None of the directors or executive officers is, as at the date of this AIF, or was within 10 years before the date of the AIF, a
director or chief executive officer or chief financial officer of any company (including the Company) that:
a)
b)
was subject to an order (as defined in National Instrument 51-102F2 of the Canadian Securities Administrators)
that was issued while the director or executive officer was acting in the capacity as director, chief executive
officer or chief financial officer; or
was subject to an order that was issued after the director or executive officer ceased to be a director, chief
executive officer, or chief financial officer, and which resulted from an event that occurred while that person
was acting in the capacity as a director, chief executive officer, or chief financial officer.
Other than as set out below, none of the directors, executive officers or a shareholder holding a sufficient number of securities
of the Company to affect materially the control of the Company,
a)
b)
is, at the date of this AIF, or has been within 10 years before the date of this AIF, a director or executive officer
of any company (including the Company) that, while that person was acting in that capacity, or within a year of
that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to
bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with
creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or
has, within the 10 years before this AIF, become bankrupt, made a proposal under any legislation relating to
bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with
creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, executive
officer or shareholder.
On July 17, 2009, Luna Innovations Inc. (“Luna”) filed a voluntary petition for relief to reorganize under Chapter 11 of the
United States Bankruptcy Code, including a proposed plan of reorganization with the United States Bankruptcy Court for the
Western District of Virginia (the “Bankruptcy Court”). On January 12, 2010, the Bankruptcy Court approved the plan and Luna
emerged from bankruptcy on that date. Mr. Daniels was a member of the board of Luna from June 2007 until his resignation
on July 16, 2009.
On May 27, 2011, Phytomedics, Inc. (“Phytomedics”) filed a voluntary petition for relief under Chapter 7 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey. Dr. Smaldone Alsup was Chief
36
Executive Officer, President and a member of the board of directors of Phytomedics from April 2008 until the date of the
bankruptcy filing when a trustee was appointed.
On November 21, 2013, TranSwitch Corporation (“TranSwitch”) filed a voluntary petition for relief under Chapter 7 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the District of Connecticut. Mr. Lynch was a
member of the board of directors of TranSwitch from November 2010 and the chairman of the board from July 2012, until
termination of the board on the date of the bankruptcy filing when a trustee was appointed.
On December 28, 2015, Kalobios Pharmaceuticals, Inc. (“Kalobios”) filed a voluntary petition for protection under Chapter 11
of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. Dr. Smaldone Alsup
was a member of the board of directors of Kalobios from October 2013 until her resignation on November 19, 2015.
Conflicts of Interest
There is no existing or, to the Company’s knowledge, potential material conflict of interest between the Company or a
subsidiary of the Company and any director or officer of the Company or a subsidiary of the Company. See also “Interest of
Management and Others in Material Transactions” in this AIF.
AUDIT AND RISK MANAGEMENT COMMITTEE
The Audit and Risk Management Committee’s purpose is to provide assistance to the Board in fulfilling its legal and fiduciary
obligations with respect to matters involving the accounting, auditing, financial reporting, internal control, and legal
compliance and risk management functions of the Company and its subsidiaries. It is the objective of the Audit and Risk
Management Committee to maintain free and open means of communications among the Board, the independent auditors and
the financial and senior management of the Company. The full text of the Audit and Risk Management Committee’s Charter is
included as Appendix A to this AIF.
Applicable securities laws require that, subject to certain exceptions, all members of the Audit and Risk Management
Committee be “independent” under Sections 1.4 and 1.5 of National Instrument 52-110 of the Canadian Securities
Administrators - Audit Committees and the rules and regulations of the NYSE, and “financially literate”, meaning that the
committee member has the ability to read and understand a set of financial statements that present a breadth and level of
complexity of accounting issues that are generally comparable to those issues reasonably expected to be raised by the
Company’s financial statements. Ms. Stymiest (Chair), Mr. Dattels, Dr. Smaldone Alsup and Mr. Wouters are the members of
the Audit and Risk Management Committee, and each is an independent director of the Company and financially literate, based
on his or her education and experience as described below. The Audit and Risk Management Committee has also developed, in
conjunction with the Company’s Chief Financial Officer and other accounting personnel and representatives of the Company’s
external auditors, an orientation and continuing education program that will provide the new members of the Audit and Risk
Management Committee with additional information and understanding about the accounting and financial presentation issues
underlying the Company’s financial statements.
The members of the Audit and Risk Management Committee bring significant skill and experience to their responsibilities
including professional experience in accounting, business, management and governance, and finance. The specific education
and experience of each member that is relevant to the performance of his or her responsibilities as such member of the Audit
and Risk Management Committee are set out below:
Barbara Stymiest, FCPA, FCA (Chair) – Ms. Stymiest has an HBA from the Richard Ivey School of Business, University of
Western Ontario and an FCA from the Chartered Professional Accountants of Ontario. From 2004 to 2011, Ms. Stymiest held
various senior management positions in the Royal Bank of Canada and served as a member of the Group Executive responsible
for the overall strategic direction of the Company. Prior to this, Ms. Stymiest held positions as Chief Executive Officer at TMX
Group Inc., Executive Vice-President & CFO at BMO Capital Markets and Partner of Ernst & Young LLP. Ms. Stymiest is
currently a Director of George Weston Limited, Sun Life Financial Inc., University Health Network and the Canadian Institute
for Advanced Research.
Timothy Dattels – Mr. Dattels has an MBA from Harvard Business School and is a Senior Partner of TPG Capital. Prior to
joining TPG, Mr. Dattels served as a partner and Managing Director of Goldman Sachs and was head of Investment Banking
for all Asian countries other than Japan. Through these roles, Mr. Dattels has gained extensive experience with financial
analysis, financial advisory, analytics for mergers and acquisitions, public valuations, and financial valuation.
Dr. Laurie Smaldone Alsup – Dr. Smaldone Alsup has an MD from Yale University, where she completed her residency in
Internal Medicine and fellowship in Medical Oncology. She is Chief Operating Officer and Chief Scientific Officer of NDA
Group AB (which recently merged with PharmApprove where Dr. Smaldone Alsup was President and Chief Scientific Officer),
a leading drug development consulting company. She previously served in clinical and regulatory roles of increasing
responsibility and scope while at Bristol Myers Squibb, including Senior Vice President of Global Regulatory Science, where
she also developed and led Business Risk Management for the company. In addition, she served as CEO of Phytomedics, an
37
early stage biopharmaceutical company focused on arthritis and inflammation. Dr. Smaldone Alsup has extensive risk
management and executive leadership experience.
The Hon. Wayne Wouters – Mr. Wouters has a BComm (Honours) from the University of Saskatchewan and an MA in
economics from Queen’s University. From 2009 to 2014, Mr. Wouters was the Clerk of the Privy Council of Canada and held
the roles of Deputy Minister to the Prime Minister, Secretary to the Cabinet and Head of the Public Service. Prior to his tenure
as Clerk, Mr. Wouters was Secretary of the Treasury Board of Canada and served in deputy ministerial and other senior
positions in the Canadian public service. He is currently Strategic and Policy Advisor to McCarthy Tétrault LLP and a director
of Champion Iron Limited, and serves as a member of the Board of Trustees of United Way Worldwide. Mr. Wouters has
extensive experience with economic policy and international trade matters, which included oversight of multi-billion dollar
budgets on behalf of the Government of Canada.
The Board has also determined that Ms. Stymiest is an audit committee financial expert within the meaning of General
Instruction B(8)(a) of Form 40-F under the U.S. Securities Exchange Act of 1934, as amended. The SEC has indicated that the
designation of a person as an audit committee financial expert does not make such person an “expert” for any purpose, impose
any duties, obligations or liability on such person that are greater than those imposed on members of the Audit Committee and
the Board who do not carry this designation or affect the duties, obligations or liability of any other member of the audit
committee or the Board.
As set out in the Audit and Risk Management Committee’s charter, the committee is responsible for pre-approving all non-audit
services to be provided to the Company by its independent external auditor. The Company’s practice requires senior
management to report to the Audit and Risk Management Committee any provision of services by the auditors and requires
consideration as to whether the provision of the services other than audit services is compatible with maintaining the auditor’s
independence. All audit and audit-related services are pre-approved by the Audit and Risk Management Committee. On
September 27, 2017, for administrative convenience, the Audit and Risk Management Committee delegated to the Chair of the
committee limited authority to pre-approve non-audit services to be provided by the auditors.
Audit Fees
The aggregate fees billed by Ernst & Young LLP (“EY”) chartered accountants, the Company’s independent external auditor,
for the fiscal years ended February 28, 2018 and February 28, 2017, respectively, for professional services rendered by EY for
the audit of the Company’s annual financial statements or services that are normally provided by EY in connection with
statutory and regulatory filings or engagements for such fiscal years were $4,273,803 (of which $1,926,094 related to prior
fiscal years) and $2,891,007, respectively.
Audit-Related Fees
The aggregate fees billed by EY for the fiscal years ended February 28, 2018 and February 28, 2017, respectively, for assurance
and related services rendered by EY that are reasonably related to the performance of the audit or review of the Company’s
financial statements and are not reported above as “Audit Fees” were $33,598 and $18,071, respectively. The fees paid in this
category relate to provision of assurance services related to certain contractual compliance clauses, as well as the Company’s
corporate social responsibility disclosures.
Tax Fees
The aggregate fees billed by EY for the fiscal years ended February 28, 2018 and February 28, 2017, respectively, for
professional services rendered by EY for tax compliance, tax advice, tax planning and other services were $6,265 and $69,363,
respectively. Tax services provided included international tax compliance engagements.
All Other Fees
The aggregate fees billed by EY for the fiscal years ended February 28, 2018 and February 28, 2017, respectively, for
professional services rendered by EY were $129,301 and $80,277, respectively.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
During the three-year period ending February 28, 2018 and during the current fiscal year up to the date hereof, none of the
Company’s directors, executive officers, 10 percent shareholders or any of their associates or affiliates had a material interest,
directly or indirectly, in any transaction that has materially affected or is reasonably expected to materially affect the Company,
other than Mr. Watsa, the Chairman and Chief Executive Officer, and a significant shareholder, of Fairfax, which participated in
the debenture financing in 2013 and continues to hold a significant proportion of the outstanding 3.75% Debentures. See
“Description of Capital Structure - Convertible Debentures” in this AIF.
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TRANSFER AGENTS AND REGISTRARS
The Company’s transfer agent and registrar in Canada is Computershare Investor Services Inc. of Canada at its offices in
Toronto, Ontario. The co-transfer agent and registrar for the common shares in the United States is Computershare Trust
Company, Inc. at its offices in Denver, Colorado.
MATERIAL CONTRACTS
Other than as noted below, the Company has not entered into any material contracts during fiscal 2018 and in prior years has
not entered into any material contracts are still in effect that are required to be filed pursuant to NI 51-102 of the Canadian
Securities Administrators:
•
the Indenture providing for the issuance and conversion of the 3.75% Debentures, dated as of September 7, 2016,
which has been filed on SEDAR, and the terms of which are summarized under “Description of Capital Structure -
Convertible Debentures”.
INTERESTS OF EXPERTS
Ernst & Young LLP, Chartered Professional Accountants, Licensed Public Accountants, is the external auditor who prepared
the Independent Auditors’ Report to Shareholders in respect of the audited annual consolidated financial statements of the
Company for the year ended February 28, 2018 and the Report to Shareholders of an Independent Registered Public
Accounting Firm on the Company’s internal controls over financial reporting. Ernst & Young LLP is independent with respect
to the Company within the meaning of the Rules of Professional Conduct of the Chartered Professional Accountants of Ontario
and applicable securities laws.
ADDITIONAL INFORMATION
Additional information related to the Company can be found on SEDAR at www.sedar.com or on the SEC’s website at
www.sec.gov. Additional financial information is provided in the Company’s audited consolidated financial statements and the
Company’s MD&A for the year ended February 28, 2018, which can be found at www.sedar.com.
Additional information, including directors’ and officers’ remuneration and indebtedness to the Company, principal holders of
the securities of the Company and securities authorized for issuance under equity compensation plans, is contained in the
Company’s most recent management information circular.
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APPENDIX A
CHARTER OF THE AUDIT AND RISK MANAGEMENT COMMITTEE OF THE
BOARD OF DIRECTORS OF BLACKBERRY LIMITED AS ADOPTED BY
THE BOARD ON MARCH 27, 2018
1.
AUTHORITY
The Audit and Risk Management Committee (the “Committee”) of the Board of Directors (the “Board”) of BlackBerry Limited
(the “Corporation”) is established pursuant to Section 5.03 of the Corporation’s Amended and Restated By-law No. A3 and
Section 158 of the Ontario Business Corporations Act. The Committee shall be comprised of three or more directors as determined
from time to time by resolution of the Board. Consistent with the appointment of other Board committees, the members of the
Committee shall be appointed by the Board at the annual organizational meeting of the Board or at such other time as may be
determined by the Board, and shall serve until the earlier of (i) the death of the member; or (ii) the resignation, disqualification
or removal of the member from the Committee or from the Board. The Chair of the Committee shall be a member of the Committee
designated by the Board, provided that if the Board does not so designate a Chair, the members of the Committee, by majority
vote, may designate a Chair. The duties of the Chair are included in Annex A.
The presence in person or by telephone of a majority of the Committee’s members shall constitute a quorum for any meeting of
the Committee. All actions of the Committee will require the vote of a majority of its members present at a meeting of the
Committee at which a quorum is present. Any decision or determination of the Committee reduced to writing and signed by all
members of the Committee who would have been entitled to vote on such decision or determination at a meeting of the Committee
shall be fully as effective as if it had been made at a meeting duly called and held.
2.
PURPOSE OF THE COMMITTEE
The Committee’s purpose is to provide assistance to the Board in fulfilling its legal and fiduciary obligations with respect to matters
involving the accounting, auditing, financial reporting, internal control and legal compliance functions of the Corporation and its
subsidiaries as well as with respect to the oversight of enterprise risk management, including risk compliance, the internal audit
function, and the controls, processes and policies used by management to effectively manage the Corporation’s risks. It is the
objective of the Committee to maintain free and open means of communication among the Board, the independent auditors and
the financial and senior management of the Corporation.
3.
COMPOSITION OF THE COMMITTEE
Each member of the Committee shall be an “independent” director within the meaning of Section 301 of the Sarbanes-Oxley Act
of 2002 (“Sarbanes-Oxley”), the rules promulgated thereunder by the Securities and Exchange Commission (the “SEC”), the
rules of the New York Stock Exchange (“NYSE”) and National Instrument 52-110 “Audit Committees” of the securities regulators
in Canada, and, as such, shall be free from any relationship that may interfere with the exercise of his or her independent judgment
as a member of the Committee.
All members of the Committee shall be financially literate at the time of their election to the Committee. “Financial literacy”
shall be determined by the Board in the exercise of its business judgment, and shall include the ability to read and understand a
set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the
breadth and complexity of issues that can be reasonably expected to be raised by the Corporation’s financial statements. At least
one member of the Committee shall be an “audit committee financial expert” with the meaning of Section 407 of Sarbanes-Oxley
and the rules promulgated thereunder by the SEC. Members of the Committee may not serve, in the aggregate, on more than 3
audit committees of public companies, unless the Board has determined that such service will not impair the member’s ability to
serve on the Committee.
Committee members, if they or the Board deem it appropriate, may enhance their understanding of finance and accounting by
participating in educational programs conducted by the Corporation or an outside consultant or firm. At least annually, the
Committee shall review its performance and the contribution of each of its members. This review will be completed on a confidential
basis in conjunction with the annual Board performance review process.
4.
MEETINGS OF THE COMMITTEE
The Committee shall meet with such frequency and at such intervals as it shall determine is necessary to carry out its duties and
responsibilities. The Chair or any member of the Committee may call meetings of the Committee by notifying the Corporate
Secretary of the Corporation. Notice of meetings may be done through any efficient communication medium (i.e. email, facsimile,
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mail, etc.) provided the notification is capable of being received at least twenty-four (24) hours in advance of the meeting. Each
member of the Committee shall be responsible for providing up-to-date contact information to the Corporate Secretary to ensure
efficient and timely communication. All independent directors may attend Committee meetings, provided that directors who are
not members of the Committee shall not be entitled to vote, nor shall their attendance be counted as part of the quorum of the
Committee.
As part of its purpose to foster open communications, the Committee shall meet at least annually with management and the
Corporation’s independent auditors in separate executive sessions to discuss any matters that the Committee or each of these
groups or persons believe should be discussed privately. The Committee will have unrestricted access to management and employees
of the Corporation in order to carry out its duties and responsibilities. In addition, the Committee should meet or confer with the
independent auditors and management to review the Corporation’s financial statements, MD&A, annual and interim earnings
press releases and related filings prior to their public release and filing with the Ontario Securities Commission (“OSC”), the SEC
or any other regulatory body. The Chair should work with the Chief Financial Officer and management to establish the agendas
for Committee meetings. The Committee, in its discretion, may ask members of management or others to attend its meetings (or
portions thereof) and to provide pertinent information as necessary.
Minutes of the Committee will be recorded and maintained by the Corporate Secretary and presented to the Committee at the next
Committee meeting for approval. The Corporate Secretary, or his/her designate as approved by the Committee Chair, shall act as
secretary for the meetings. For in camera sessions of the Committee without management present, minutes will be recorded and
maintained by the Chair of the Committee or his/her designate. Each member of the Board will have access to the minutes of the
Committee’s meetings, regardless of whether he or she is a member of the Committee, and the Chair shall report to the Board at
its next meeting on the activities, findings and recommendations of the Committee following each meeting. Minutes relating to
in camera sessions may be provided to Board members with the consent of the Chair.
5.
DUTIES AND RESPONSIBILITIES OF THE COMMITTEE
The Committee is responsible for the oversight of the Corporation’s accounting, financial reporting and risk management processes,
including (i) the Corporation’s internal controls, and the nomination and appointment (subject to Board and shareholder approval),
compensation, retention, evaluation and oversight of the work of the Corporation's independent auditors engaged for the purpose
of preparing or issuing an audit report or related work or performing other audit, review or attest services for the Corporation, (ii)
the oversight of enterprise risk management activities and (iii) oversight of the Corporation's internal audit function as more
particularly detailed below. The independent auditors and the leader of the internal audit function or his/her designee must report
and otherwise communicate directly to the Committee and are accountable to the Committee. The Committee's oversight
responsibilities include the authority to approve all audit engagement fees and terms, as well as all permitted non-audit engagements
and resolution of disagreements between management and the independent auditors regarding financial reporting as well as
oversight of the annual internal audit plan. The Committee shall take such actions as it may deem necessary to satisfy itself that
the Corporation's auditors are independent of management within the meaning of applicable law.
While there is no “blueprint” to be followed by the Committee in carrying out its duties and responsibilities, the following should
be considered within the authority of the Committee:
Selection and Evaluation of External Auditors
(1) Make recommendations to the Board as to the selection of the firm of independent public accountants to audit the books
and accounts of the Corporation and its subsidiaries for each fiscal year;
(2) Review and approve the Corporation’s independent auditors’ annual engagement letter, including the proposed fees
contained therein;
(3) Review the performance of the Corporation’s independent auditors, including the lead partner, discuss the timing and
process for implementing the rotation of the lead partner, and make recommendations to the Board regarding the
replacement or termination of the independent auditors when circumstances warrant;
(4) Oversee the independence of the Corporation’s independent auditors by, among other things:
(i)
(ii)
(iii)
requiring the independent auditors to deliver to the Committee on a periodic basis a formal written statement
delineating all relationships between the independent auditors and the Corporation;
reviewing and approving hiring policies concerning partners, employees and former partners and employees of
the present and former independent auditors; and
actively engaging in a dialogue with the independent auditors with respect to any disclosed relationships or services
that may impact the objectivity and independence of the independent auditors and taking appropriate action to
satisfy itself of the auditors’ independence;
41
(5) Instruct the Corporation’s independent auditors that:
(i)
they are ultimately accountable to the Committee;
(ii)
they must report directly to the Committee; and
(iii)
the Committee is responsible for the appointment (subject to Board and shareholder approval), compensation,
retention, evaluation and oversight of the Corporation’s independent auditors;
(6) Review and pre-approve all audit and permitted non-audit services to be provided by the independent auditors to the
Corporation, including tax services;
Oversight of Annual Audit and Quarterly Reviews
(1) Review and accept, if appropriate, the annual audit plan of the Corporation’s independent auditors, including the scope
of audit activities, and monitor such plan’s progress and results during the year;
(2) Confirm through private discussions with the Corporation’s independent auditors and the Corporation’s management that
no management restrictions are being placed on the scope of the independent auditors’ work;
(3) Review the results of the year-end audit of the Corporation, including (as applicable):
(i)
(ii)
the audit reports on the Corporation’s financial statements and management’s assessment of internal control over
financial reporting, the published financial statements, the management representation letter, the “Memorandum
Regarding Accounting Procedures and Internal Control” or similar memorandum prepared by the Corporation’s
independent auditors, any other pertinent reports and management’s responses concerning such memorandum;
the qualitative judgments of the independent auditors about the appropriateness, not just the acceptability, of
accounting principles and financial disclosure practices used or proposed to be adopted by the Corporation and,
particularly, about the degree of aggressiveness or conservatism of its accounting principles and underlying
estimates;
(iii)
the selection and application of the Corporation’s critical accounting policies;
(iv)
the methods used to account for significant unusual transactions;
(v)
the effect of significant accounting policies in controversial or emerging areas for which there is a lack of
authoritative guidance or consensus;
(vi) management’s process for formulating sensitive accounting estimates and the reasonableness of these estimates;
(vii) significant recorded and unrecorded audit adjustments;
(viii) any material accounting issues among management, the internal audit function and the independent auditors; and
(ix)
other matters required to be communicated to the Committee under applicable auditing standards by the independent
auditors;
(4) Review the Corporation’s quarterly earnings press releases before they are disclosed to the public;
(5) Review the Corporation’s interim financial statements and report thereon to the Board before they are approved by the
Board and disclosed to the public;
(6) Review with management and the Corporation’s independent auditors such accounting policies (and changes therein) of
the Corporation, including any financial reporting issues which could have a material impact on the Corporation’s financial
statements, as are deemed appropriate for review by the Committee prior to any year-end or quarterly filings with the
SEC, the OSC or other regulatory body;
Oversight of Risk Management
(1) Require the members of the Corporation’s senior leadership team to identify and provide the Committee with a portfolio
view of the major areas of risk facing the Corporation and management’s strategies to manage those risks;
(2) At least annually, review management’s risk appetite and evaluate the extent to which the Corporation’s risk profile and
business planning are aligned with the risk appetite;
(3) At least annually, review in light of the risk appetite, the Corporation’s enterprise risk management processes, including
key policies and procedures for the effective identification, assessment, reporting, monitoring and control of the
Corporation’s principal risks and the Corporation’s compliance with such policies and procedures;
(4) Require, at least quarterly, management to update the Committee on any material or noteworthy changes relating to (1)-
42
(3), immediately above, and the activities of the Corporation’s Risk Management Council;
(5) Consult periodically with the Compensation, Nomination and Governance Committee on risk management matters within
its purview;
(6) Encourage an open and constructive risk dialogue between the Board and management on areas relating to risk
management, and seek assurances from management on the effectiveness of risk management practices and controls;
(7) Consider emerging industry and regulatory risk management issues and the possible impact on the Corporation;
Oversight of the Internal Audit Function and Quarterly Reviews
(1) Review the Committee’s level of involvement and interaction with the Corporation’s internal audit function, including
the Committee’s line of authority over the internal audit function;
(2) Review and advise on the appointment, replacement, reassignment, or dismissal of the leader of the internal audit function;
(3) Review and approve the engagement of any firm of external advisors to support the internal audit function, including the
fees thereof;
(4) Review the resources, performance, effectiveness, degree of independence and objectivity of the internal audit function
and the adequacy of its audit process, and approve changes to its charter;
(5) Review internal audit reports, as well as management’s response to such reports, and review and approve the annual
internal audit plan, including the proposed audit universe, priorities, resourcing, and, on a quarterly basis, the status of
the audit plan and the then current assessment and management of risks subject to internal audit review;
(6) Review the effectiveness of the internal audit function’s methodology relating to its assessment of risks subject to internal
audit purview, including the factors considered and the relative weighting of such factors, and consider changes in
management’s assessment of such risks;
(7) Review with management the progress and results of all internal audit projects, approve procedures for implementing
accepted recommendations, and, when deemed necessary or appropriate by the Committee, direct the Corporation’s Chief
Executive Officer to assign additional audit projects to the leader of the internal audit function;
(8) Meet privately with the leader of the internal audit function to discuss any areas of concern, and to confirm that (i)
significant issues, including any material disagreements with the senior leadership team, are brought to the Committee’s
attention and (ii) the integrity of the Company’s internal control and management information systems are satisfactory;
Oversight of Financial Reporting Process and Internal Controls
(1) Review the adequacy and effectiveness of the Corporation’s accounting and internal control policies and procedures
through inquiry and discussions with the Corporation’s independent auditors and management of the Corporation;
(2) Review with management the Corporation’s administrative, operational and accounting internal controls and internal
control over financial reporting, including the controls, security and functionality of the financial information technology
systems, and evaluate whether the Corporation is operating in accordance with its prescribed policies, procedures and
codes of conduct;
(3) Review with management and the independent auditors any reportable conditions and material weaknesses affecting the
Corporation’s internal control and financial reporting;
(4) Receive periodic reports from the Corporation’s independent auditors and management of the Corporation to assess the
impact on the Corporation of significant accounting or financial reporting developments proposed by the Chartered
Professional Accountants Canada, the American Institute of Certified Public Accountants, the Financial Accounting
Standards Board, the SEC, the OSC or other regulatory body, or any other significant accounting or financial reporting
related matters that may have a bearing on the Corporation;
(5) Establish and maintain free and open means of communication between and among the Board, the Committee, the
Corporation’s independent auditors, the internal audit function and management;
Other Matters
(1) In addition to meeting regularly with the general counsel, meet as needed with outside counsel to review legal and
regulatory matters, including inquiries from governmental and regulatory authorities and any matters that may have a
material impact on the financial statements of the Corporation;
(2) Review the Corporation’s policies relating to the avoidance of conflicts of interest and review and approve related party
transactions as required by the Corporation’s Code of Business Standards and Principles and applicable laws and listing
43
rules, as well as policies and procedures with respect to officers’ expense accounts and perquisites. The Committee shall
consider the results of any review of these policies and procedures by the Corporation’s independent auditors;
(3) Oversee, review, and periodically update the Corporation’s Code of Business Standards and Principles and the
Corporation’s system to monitor compliance with and enforcement of the Code of Business Standards and Principles;
(4) Review and approve capital and operating expenditure limits on an annual basis and review and approval of any exceptions
to such limits proposed by the Corporation from time to time;
(5) Oversee areas under the responsibility of management, including the examination of securities trading by insiders;
(6) Conduct or authorize investigations into any matters within the Committee's scope of responsibilities, including retaining
outside counsel or other consultants or experts for this purpose;
(7) Establish procedures for the receipt, retention and treatment of complaints received by the Corporation regarding
accounting, internal controls or auditing matters and the confidential, anonymous submission by employees of the
Corporation of concerns regarding questionable accounting or auditing matters; and
(8) Perform such additional activities, and consider such other matters, within the scope of its responsibilities, as the Committee
or the Board deems necessary or appropriate.
With respect to the exercise of its duties and responsibilities, the Committee should:
(1) exercise reasonable diligence in gathering and considering all material information;
(2) remain flexible, so that it may be in a position to best react or respond to changing circumstances or conditions;
(3) understand and weigh alternative courses of conduct that may be available;
(4) focus on weighing the benefit versus harm to the Corporation and its shareholders when considering alternative
recommendations or courses of action;
(5) if the Committee deems it appropriate, secure independent expert advice and understand the expert’s findings and the
basis for such findings, including retaining independent counsel, accountants or others to assist the Committee in fulfilling
its duties and responsibilities; and
(6) provide management, the Corporation’s independent auditors and the leader of the internal audit function with appropriate
opportunities to meet privately with the Committee.
Nothing in this Charter is intended, or should be determined, to impose on any member of the Committee a standard of care or
diligence that is in any way more onerous or extensive than the standard to which all members of the Board are subject at law.
The essence of the Committee’s responsibilities is to monitor and review the activities described in this Charter to gain reasonable
assurance, but not to ensure, that such activities are being conducted properly and effectively by the Corporation.
6.
FUNDING
The Committee’s effectiveness may be compromised if it is dependent on management’s discretion to compensate the independent
auditors or the advisors employed by the Committee. Consequently, the Corporation shall provide for appropriate funding, as
determined by the Committee, for payment of any compensation (1) to any independent auditors engaged for the purpose of
rendering or issuing an audit report or related work or performing other audit, review or attest services for the Corporation, and
(2) to any independent counsel or other advisors employed by the Committee or engaged to support the internal audit function.
7.
DISCLOSURE AND REVIEW OF CHARTER
The Charter shall be (1) published in the Corporation’s annual report, information circular or annual information form, as required
by law, and (2) be posted in an up-to-date format on the Corporation’s web site. The Committee should review and reassess
annually the adequacy of this Charter.
While the Committee has the duties and responsibilities set forth in this Charter, the Committee is not responsible for planning or
conducting the audit or for determining whether the Corporation’s consolidated financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. Similarly, it is not the responsibility of the Committee to
ensure that the Corporation complies with all laws and regulations.
* * *
44
ANNEX A
(Duties and Responsibilities of the Chair)
In addition to the duties and responsibilities set out in the Board of Directors Mandate and this Charter, the Chair will:
1. Provide overall leadership to enhance the effectiveness of the Committee, including:
a. Recommend and oversee the appropriate structure, composition, membership, and activities delegated to the Committee;
b. Chair all meetings of the Committee at which the Chair is in attendance and manage the meeting agenda so that appropriate
time and consideration can be given to the agenda items;
c. Lead discussions, foster candor among meeting participants and encourage Committee members to ask questions of senior
management, its advisors and advisors of the Committee, and express viewpoints during meetings;
d. Schedule and set the agenda for Committee meetings with input from other Committee members, the Committee’s
advisors, the Executive Chair and the Lead Director of the Board of Directors, the CEO, the Corporate Secretary and
senior management as appropriate and consider, on a proactive basis, emerging matters that should be addressed by the
Committee;
e. Facilitate the timely, accurate and proper flow of information to and from the Committee and, with input from Committee
members, maintain an open dialogue with the Corporate Secretary regarding the timeliness, quantity, quality and
completeness of information provided by senior management and advisors to the Committee;
f. Arrange for management, internal personnel, external advisors, and others to attend and present at Committee meetings
as appropriate;
g. Arrange sufficient time during Committee meetings to fully discuss agenda items and, as appropriate, defer matters that
require more information or time for discussion to a subsequent meeting;
h.
In cooperation with the Corporate Secretary and/or the Assistant Corporate Secretary, identify, monitor and report back
to the Committee on the status of matters requiring action by senior management or the Committee following the meeting
with a view to ensuring that matters are acted upon in a timely manner;
i. Review draft minutes of Committee meetings prior to their presentation to the Committee for approval and ensure that
minutes are reviewed and approved by the Committee in accordance with this Charter;
j. Carry out the responsibilities and duties of the Committee, as outlined in this Charter, and
k. Review this Charter and duties and responsibilities with Committee members at least annually.
2. Foster responsible decision-making by the Committee and its individual members.
3. Provide for in-camera sessions at all scheduled meetings of the Committee without management present and, as appropriate,
without the Corporate Secretary present.
4. Following each meeting of the Committee, report to the Board of Directors on the activities, findings and any recommendations
of the Committee.
5. Perform such other duties, within the scope of the Committee’s duties and responsibilities, as may be assigned by the Board
of Directors.
45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 1.2
To the Shareholders and Directors of BlackBerry Limited
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of BlackBerry Limited (the “Company”), which
comprise of the consolidated balance sheets as at February 28, 2018 and February 28, 2017, the consolidated statements of
operations, comprehensive income (loss), shareholders’ equity, and cash flows for the three year period ended February 28,
2018, and the related notes, comprising a summary of significant accounting policies and other explanatory information
(collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position
of the Company as at February 28, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows
for the three year period ended February 28, 2018 in accordance with United States generally accepted accounting principles as
issued by the Financial Accounting Standards Board.
Report on internal control over financial reporting
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 28, 2018, based on the criteria established
in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”), and our report dated March 28, 2018 expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
Basis for Opinion
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with United States generally accepted accounting principles as issued by the Financial Accounting Standards Board, and for
such internal control as management determines is necessary to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing standards and 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 from material misstatement, whether due to error or fraud. Those standards also require that we comply with ethical
requirements, including independence. We are required to be independent with respect to the Company in accordance with the
ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We are a public
accounting firm registered with the PCAOB.
An audit includes performing procedures to assess the risks of material misstatements of the consolidated financial statements,
whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included obtaining and
examining, on a test basis, audit evidence regarding the amounts and disclosures in the consolidated financial statements. The
procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to
the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances.
An audit also includes evaluating the appropriateness of accounting policies and principles used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a reasonable basis for
our audit opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1997.
Kitchener, Canada
March 28, 2018
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of BlackBerry Limited
Opinion on Internal Control over Financial Reporting
We have audited BlackBerry Limited’s internal control over financial reporting as of February 28, 2018, based on criteria established
in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the “COSO criteria”). In our opinion, BlackBerry Limited (the “Company”) maintained, in all material respects,
effective internal control over financial reporting as of February 28, 2018, based on the COSO criteria.
We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company
Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as at February 28, 2018 and 2017, the
consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for the three year period
ended February 28, 2018, and the related notes, comprising a summary of significant accounting policies and other explanatory
information and our report dated March 28, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. 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 ethical requirements that are relevant to our audit of the consolidated financial
statements in Canada, the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally
accepted accounting principles as issued by the Financial Accounting Standards Board. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with United States generally accepted
accounting principles as issued by the Financial Accounting Standards Board, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Kitchener, Canada
March 28, 2018
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
To the Shareholders of BlackBerry Limited
Management of BlackBerry Limited is responsible for the preparation and presentation of the Consolidated Financial
Statements and all of the financial information in this Annual Report. The Consolidated Financial Statements were prepared in
accordance with United States generally accepted accounting principles and include certain amounts based upon estimates and
judgments required for such preparation. The financial information appearing throughout this Annual Report is consistent with
the Consolidated Financial Statements. The Consolidated Financial Statements have been reviewed by the Audit and Risk
Management Committee and approved by the Board of Directors of BlackBerry Limited.
In fulfilling its responsibility for the reliability and integrity of financial information, management has developed and maintains
systems of accounting and internal controls and budgeting procedures. Management believes these systems and controls
provide reasonable assurance that assets are safeguarded, transactions are executed in accordance with management’s
authorization and financial records are reliable for the preparation of accurate and timely Consolidated Financial Statements.
The Company’s Audit and Risk Management Committee of the Board of Directors, which consists entirely of non-management
independent directors, usually meets two times per fiscal quarter with management and the independent registered public
accounting firm to ensure that each is discharging its respective responsibilities, to review the Consolidated Financial
Statements and either the quarterly review engagement report or the independent registered public accounting firm’s report and
to discuss significant financial reporting issues and auditing matters. The Company’s external registered public accounting firm
has full and unrestricted access to the Audit and Risk Management Committee to discuss audit findings, financial reporting and
other related matters. The Audit and Risk Management Committee reports its findings to the Board of Directors for
consideration when the Board approves the Consolidated Financial Statements for issuance to the shareholders.
The Consolidated Financial Statements for fiscal 2018, fiscal 2017 and fiscal 2016 have been audited by Ernst & Young LLP,
the independent registered public accounting firm appointed by the shareholders, in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States).
Waterloo, Ontario
March 28, 2018
/s/ John S. Chen
John S. Chen
President & CEO
BlackBerry Limited
Incorporated under the Laws of Ontario
(United States dollars, in millions)
Consolidated Balance Sheets
Assets
Current
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Other receivables
Inventories
Income taxes receivable
Other current assets
Long-term receivables
Long-term investments
Deferred income tax assets
Restricted cash and cash equivalents
Property, plant and equipment, net
Goodwill
Intangible assets, net
Liabilities
Current
Accounts payable
Accrued liabilities
Income taxes payable
Deferred revenue
Other long-term liabilities
Long-term debt
Deferred income tax liabilities
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 - 536,733,733 voting common shares (February 28, 2017 - 530,497,193)
Deficit
Accumulated other comprehensive loss
See notes to consolidated financial statements.
On behalf of the Board:
John S. Chen
Director
As at
February 28, 2018
February 28, 2017
$
816
$
1,443
151
71
3
26
38
734
644
200
27
26
31
55
2,548
1,717
$
$
25
55
3
39
64
569
477
7
269
—
51
91
559
602
3,780
$
3,296
46
$
205
18
195
464
23
782
6
128
240
14
239
621
18
591
9
1,275
1,239
2,560
(45)
(10)
2,505
$
3,780
$
2,512
(438)
(17)
2,057
3,296
Barbara Stymiest
Director
BlackBerry Limited
(United States dollars, in millions)
Consolidated Statements of Shareholders’ Equity
Capital Stock
and Additional
Paid-in Capital
Retained
Earnings (Deficit)
Accumulated
Other
Comprehensive
Loss
Balance as at February 28, 2015
$
2,444
$
Net loss
Other comprehensive income
Shares issued:
Exercise of stock options
Stock-based compensation
Tax deficiencies related to stock-based compensation
Share repurchase
Employee share purchase plan
Balance as at February 29, 2016
Net loss
Other comprehensive loss
Shares issued:
Exercise of stock options
Stock-based compensation
Tax deficiencies related to stock-based compensation
Employee share purchase plan
Balance as at February 28, 2017
Net income
Other comprehensive income
Shares issued:
Exercise of stock options
Stock-based compensation
Cumulative impact of adoption of ASU 2016-16
Share repurchase
Employee share purchase plan
Balance as at February 28, 2018
See notes to consolidated financial statements.
—
—
3
60
(1)
(59)
1
2,448
—
—
1
60
(1)
4
2,512
—
—
4
49
—
(9)
4
$
2,560
$
$
1,010
(208)
—
—
—
—
(34)
—
768
(1,206)
—
—
—
—
—
(438)
405
—
—
—
(3)
(9)
—
(45) $
(23) $
—
15
—
—
—
—
—
(8)
—
(9)
—
—
—
—
(17)
—
7
—
—
—
—
—
(10) $
Total
3,431
(208)
15
3
60
(1)
(93)
1
3,208
(1,206)
(9)
1
60
(1)
4
2,057
405
7
4
49
(3)
(18)
4
2,505
BlackBerry Limited
(United States dollars, in millions, except per share data)
Consolidated Statements of Operations
Revenue
Cost of sales
Cost of sales
Inventory write-down
Gross margin
Operating expenses
Research and development
Selling, marketing and administration
Amortization
Impairment of goodwill
Impairment of long-lived assets
Loss on sale, disposal and abandonment of long-lived assets
Debentures fair value adjustment
Arbitration awards, net
Operating income (loss)
Investment income (loss), net
Income (loss) before income taxes
Provision for (recovery of) income taxes
Net income (loss)
Earnings (loss) per share
Basic
Diluted
See notes to consolidated financial statements.
For the Years Ended
February 28, 2018
February 28, 2017
February 29, 2016
$
932
$
1,309
$
2,160
262
—
262
670
239
467
153
—
11
9
191
(683)
387
283
123
406
1
405
0.76
0.74
$
$
$
542
150
692
617
306
553
186
57
501
171
24
—
1,798
(1,181)
(27)
(1,208)
(2)
(1,206) $
(2.30) $
(2.30) $
1,183
36
1,219
941
469
653
277
—
—
195
(430)
—
1,164
(223)
(59)
(282)
(74)
(208)
(0.40)
(0.86)
$
$
$
BlackBerry Limited
(United States dollars, in millions)
Consolidated Statements of Comprehensive Income (Loss)
For the Years Ended
February 28, 2018
February 28, 2017
February 29, 2016
(208)
(1,206) $
Net income (loss)
Other comprehensive income (loss)
$
405
$
Net change in unrealized gains (losses) on available-for-sale
investments
Net change in fair value of derivatives designated as cash flow hedges
during the year, net of income taxes of nil (February 28, 2017 - income
taxes of nil; February 29, 2016 - income tax recovery of $2 million)
Amounts reclassified to net income (loss) during the year, net of
income taxes of nil (February 28, 2017 - income taxes of nil; February
29, 2016 - income tax recovery of $2 million)
Foreign currency translation adjustment
Actuarial losses associated with other post-employment benefit
obligations
Other comprehensive income (loss)
Comprehensive income (loss)
See notes to consolidated financial statements.
(3)
1
(2)
12
(1)
7
$
412
$
(7)
2
(1)
(3)
—
(9)
(1,215) $
1
(3)
27
(10)
—
15
(193)
BlackBerry Limited
(United States dollars, in millions)
Consolidated Statements of Cash Flows
For the Years Ended
February 28, 2018
February 28, 2017
February 29, 2016
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Amortization
Deferred income taxes
Stock-based compensation
Impairment of goodwill
Impairment of long-lived assets
Loss on sale, disposal and abandonment of long-lived assets
Debentures fair value adjustment
Long-term receivables
Other long-term liabilities
Other
Net changes in working capital items
Accounts receivable, net
Other receivables
Inventories
Income tax receivable
Other current assets
Accounts payable
Accrued liabilities
Income taxes payable
Deferred revenue
Net cash provided by (used in) operating activities
Cash flows from investing activities
Acquisition of long-term investments
Proceeds on sale or maturity of long-term investments
Acquisition of property, plant and equipment
Proceeds on sale of property, plant and equipment
Acquisition of intangible assets
Business acquisitions, net of cash acquired
Acquisition of short-term investments
Proceeds on sale or maturity of short-term investments
Net cash provided by (used in) investing activities
Cash flows from financing activities
Issuance of common shares
Payment of contingent consideration from business acquisitions
Excess deficiency related to stock-based compensation
Common shares repurchased
Effect of foreign exchange gains on restricted cash and cash equivalents
Repurchase of 6% Debentures
Issuance of 3.75% Debentures
Transfer from restricted cash and cash equivalents
Net cash provided by (used in) financing activities
Effect of foreign exchange gain (loss) on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See notes to consolidated financial statements.
405
177
(7)
49
—
11
9
191
(18)
5
(6)
49
(44)
23
2
16
(82)
(36)
4
(44)
704
(27)
77
(15)
3
(30)
—
(3,499)
2,861
(630)
8
—
—
(18)
—
—
—
12
2
6
82
734
816
$
(1,206)
(208)
239
33
60
57
501
171
24
—
(5)
—
166
17
117
2
45
(179)
(94)
(28)
(144)
(224)
(430)
228
(17)
95
(52)
(5)
(1,366)
2,271
724
5
(15)
(1)
—
(3)
(1,315)
605
2
(722)
(1)
(223)
957
734
$
616
(105)
60
—
—
195
(430)
2
8
16
193
45
(21)
151
257
30
(312)
24
(264)
257
(326)
301
(32)
4
(70)
(698)
(2,764)
3,146
(439)
4
—
(1)
(93)
—
—
—
12
(78)
(16)
(276)
1,233
957
$
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”) is an enterprise software and services company focused on securing and managing
endpoints in the Internet of Things (IoT). Based in Waterloo, Ontario, the Company was founded in 1984 and operates in
North America, Europe, Asia, Middle East, Latin America and Africa. The Company’s common shares trade under the
ticker symbol “BB” on the Toronto Stock Exchange and the New York Stock Exchange. The Company transferred the
listing of its common shares from the NASDAQ Global Select Market to the New York Stock Exchange during the third
quarter of fiscal 2018.
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.
In the first quarter of fiscal 2018, the Company made adjustments to its reporting structure in line with its business shift
towards focusing on enterprise communication and collaboration software and services, the transition of its hardware
strategy from an outsourced handset manufacturing model to a licensing model, and the continued reduction in its service
access fees (“SAF”). As a result, the Chief Operating Decision Maker (the “CODM”), who is the Chief Executive Officer
of the Company, began making decisions and assessing the performance of the Company as a single operating segment.
For additional information concerning the Company’s segment reporting, see Note 15.
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 the determination of reserves for various
litigation claims, revenue-related estimates including vendor-specific objective evidence of selling price (“VSOE”), best
estimated selling price (“BESP”), right of return and customer incentive commitments, royalties, fair value of goodwill,
long-lived asset impairment, amortization expense, 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, and the fair values of financial instruments. Actual results could
differ from these estimates.
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 revenues and expenses are translated at the rates of exchange
prevailing when the transactions occurred. Re-measurement 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 monthly average 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.
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
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 receivables balances could be further adjusted.
Investments
The Company’s cash equivalents and investments, other than cost method investments, 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.
Investments with maturities at 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), 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 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
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
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
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
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.
Inventories
Raw materials, work in process and finished goods are stated at the lower of cost and net realizable value. Cost includes
the cost of materials plus direct labour applied to the product and the applicable share of manufacturing overhead. Cost is
determined on a first-in, first-out basis. Net realizable value is defined as the estimated selling price in the ordinary course
of business, less reasonably predictable costs of completion and disposal.
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
BlackBerry operations and other information technology
Straight-line over terms between 5 and 40 years
Straight-line over terms between 3 and 5 years
Manufacturing, repair and research and development
equipment
Furniture and fixtures
Goodwill
Straight-line over terms between 1 and 5 years
Declining balance at 20% per annum
Goodwill represents the excess of the acquisition price 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, during
the fourth quarter, 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 has historically tested goodwill for impairment as of January 31 during each fiscal year; however, in fiscal
2018 the Company changed the date of its annual goodwill impairment test to December 31 of each fiscal year in order to
allow for more time to complete the test, the complexity of which has increased with the Company’s transition from a
hardware company to a software company and the change in reporting unit structure noted below. The Company does not
believe that this change in goodwill impairment testing date represents a material change in accounting principle as the
change did not have a material effect to the financial statements in light of the continuing requirement to assess goodwill
impairment in the presence of certain indicators and the significant excess of fair value over carrying value at both dates.
The Company did not have any goodwill impairment in fiscal 2018.
As a result of the internal reporting reorganization in fiscal 2017, and the Company’s transition to segmented reporting in
that fiscal year, the change in reporting unit structure necessitated a goodwill impairment assessment preceding and
following the reorganization of reporting units. The impairment test was carried out in two steps. In the first step, the
carrying amount of the reporting unit, including goodwill, is compared with its fair value. Following the reorganization,
3
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
goodwill was assigned to the reporting units based upon the relative fair value allocation approach. The estimated fair
value was determined utilizing multiple approaches based on the reporting units 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 carrying amount of the Company’s assets was assigned to reporting units
using reasonable methodologies based on the asset type. When the carrying amount of a reporting unit exceeds its fair
value, goodwill of the reporting unit is considered to be impaired and the second step is necessary. Different judgments
could yield different results.
The completion of step one of the goodwill impairment test following the internal reporting reorganization 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. Based on the results of step two of the goodwill impairment test in fiscal
2017, it was concluded that the carrying value of goodwill was impaired. Consequently, the Company recorded a goodwill
impairment charge of $57 million (the “Goodwill Impairment Charge”), in the first quarter of fiscal 2017. The results of
step one of the goodwill impairment test also indicated impairment in the asset groups associated with those reporting
units, resulting in the long-lived asset impairment test as discussed below.
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
Intellectual property
Other acquired intangibles
Between 3 and 10 years
Between 1 and 17 years
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 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.
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
4
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
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. In the second quarter of fiscal 2018, the Company performed an LLA impairment
analysis on an asset group associated with certain prepaid royalty arrangements associated with the Company’s sale of
handheld devices, using the procedure described above, which included a cash flow recoverability test. The estimated
undiscounted net cash flows of the asset group were determined utilizing the Company’s internal forecasts. The Company
concluded that the carrying value of the asset group exceeded the undiscounted net cash flows. Consequently, step two of
the LLA impairment test was performed whereby the fair values of certain of the Company’s assets were compared to
their carrying values. As a result of the analysis, the Company recorded a non-cash, pre-tax and after-tax charge against
its LLA of approximately $11 million (the “Fiscal 2018 LLA Impairment Charge”) in the second quarter of fiscal 2018.
In the first quarter of fiscal 2017, as a result of step one of the goodwill impairment assessment, the Company performed
an LLA impairment analysis on the intellectual property within the asset group associated with the Company’s handheld
devices business using the procedure described above. As a result of such LLA impairment test, the Company recorded a
non-cash, pre-tax and after-tax charge against its LLA of approximately $501 million (the “Fiscal 2017 LLA Impairment
Charge”) in the first quarter of fiscal 2017.
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.
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.
Warranty
The Company records the estimated costs of product warranties at the time revenue is recognized. BlackBerry devices are
generally covered by a time-limited warranty for varying periods of time. The Company’s warranty obligation is affected
by product failure rates, differences in warranty periods, regulatory developments with respect to warranty obligations in
the countries in which the Company carries on business, freight expense, and material usage and other related repair costs.
The Company does not have any warranty obligations associated with BlackBerry-branded smartphones sold by licensing
partners.
The Company’s estimates of costs are based upon historical experience and expectations of future return rates and unit
warranty repair costs. If the Company experiences increased or decreased warranty activity, or increased or decreased
costs associated with servicing those obligations, revisions to the estimated warranty liability would be recognized in the
reporting period when such revisions are made.
Convertible debentures
The Company elected to measure its outstanding convertible debentures (collectively, the “Debentures” as defined in Note
10) 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 are recognized in income. The fair value of the
Debentures has been determined using the significant inputs of principal value, interest rate spreads and curves, embedded
5
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
call option prices, the market price and volatility of the Company’s listed common shares and the Company’s implicit
credit spread.
Revenue recognition
The Company recognizes revenue as earned when the following four criteria have been met: (i) when persuasive evidence
of an arrangement exists, (ii) the product has been delivered to a customer and title has been transferred or the services
have been rendered, (iii) the sales price is fixed or determinable, and (iv) collection is reasonably assured. In addition to
this general policy, the following paragraphs describe the specific revenue recognition policies for each of the Company’s
major categories of revenue.
See Note 15 for a description of the Company’s revenues by product and service type and what each grouping contains.
Revenue from Enterprise Software and Services and BlackBerry Technology Solutions
The Company generates revenue from both perpetual and term licenses, both of which are often bundled with other
products and services including maintenance, technical support, professional services and other related services.
Revenue from perpetual licenses is recognized upon delivery, as the software has standalone value, if the Company has
obtained VSOE of fair value of undelivered products and services bundled with the perpetual license. If VSOE of fair
value of all undelivered elements has been established, the license revenue is recognized upon delivery and the
undelivered elements including software maintenance, unspecified upgrades and technical support are recognized over the
period that such items are delivered or those services are provided.
Revenue from term licensed software is recognized in a manner consistent with revenue from perpetual licenses in
instances where VSOE of fair value of all undelivered elements has not been established, in which case all revenue is
recognized ratably over the longer of the service delivery periods or the contract term.
When the VSOE of fair value has not been established, the Company uses the residual method to recognize revenue if the
VSOE of fair value of undelivered elements is determinable. Additional detail regarding the accounting policies for
multiple element arrangements is provided below.
Revenue from professional services can be part of software license arrangements or sold separately. When professional
services are sold as part of software license arrangements, recognition of revenue for the entire transaction either occurs
over the period in which the services are expected to be performed or does not commence until completion and
acceptance of these professional services, depending on the facts and circumstances of the transaction. Revenue from
professional services sold separately from software licenses is recognized upon completion of the services.
Revenue from renewals of support and maintenance contracts is recognized ratably over the contract term.
Revenue from Handheld Devices
Revenue for handheld devices was recognized when the four revenue recognition criteria noted above are met. The
Company recorded reductions to revenue for estimated commitments related to price protection, rights of return and
customer incentive programs. If there was a risk of future pricing concessions and a reliable estimate could not be made at
the time of shipment, the Company recognized the related revenue and costs of goods sold when its products were sold
through to an end user.
Significant judgment was applied by the Company to determine whether shipments of devices met the Company’s revenue
recognition criteria, as the analysis was dependent on many facts and circumstances. The Company recognized revenue
upon shipment provided that the Company was able to conclude that the price was fixed or determinable. Sales of the
Company’s devices to wireless carriers in certain regions were recognized as revenue at the time of shipment. Other
shipments of devices were recognized as revenue only when the devices sold through to end users. For shipments where
the Company recognized revenue when the product was sold through to an end user, the Company determined the point at
which that happened based upon internally generated reporting indicating when the devices are activated on the
Company’s relay infrastructure.
Revenue from Service Access Fees
Revenue from service access fees is recognized ratably on a monthly basis when the service is provided. In instances
where the Company bills the customer prior to performing the service, the pre-billing is recorded as deferred revenue. The
Company has customers for which revenue is recognized on a cash basis due to collectability. Service access fee revenue
also includes the recognition of previously deferred revenue related to multiple-element arrangements for non-software
services and software upgrade rights related to BlackBerry 10 devices.
6
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 from Other Sources
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. Revenue from patent licensing agreements is recorded when the four major criteria of revenue
recognition noted above are met. These criteria are generally fulfilled upon mutual signing of the license agreement. For
perpetual agreements, these criteria are generally fulfilled upon the beginning of the license period, coinciding with the
mutual signing of the license agreement. For term-based agreements, these criteria are generally considered to be fulfilled
over the life of the agreement and revenue is recognized ratably.
Certain outbound patent licensing arrangements may include termination provisions and/or future amounts dependent on
subsequent licensee activity which limit the Company’s ability to determine when the sale price is fixed and determinable
and the amounts collectible. In these instances, revenue is recognized when the amounts become due.
From time to time, the Company may sell patents, which are typically non-strategic, to the Company’s product and patent
portfolio. These patent sales are a part of the technology and patent licensing strategy, and therefore represent a
component of the Company’s major or central operations. Revenue from patent sales is recorded when the four major
criteria of revenue recognition noted above are met.
The Company has agreements under which the Company has licensed its security software and service suite, as well as
related brand assets, to third parties who will design, manufacture, sell and provide customer support for BlackBerry-
branded mobile handsets. Revenue is recognized when the four major criteria of revenue recognition noted above are met.
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 ratably over the license term based on contractual minimum amounts.
Shipping and Handling Costs
Amounts billed to customers related to shipping and handling are classified as revenue, and the Company’s shipping and
handling costs are included in cost of sales. Shipping and handling costs that cannot be reasonably attributed to certain
customers are included in selling, marketing and administration.
Multiple-element arrangements
The Company enters into revenue arrangements that may consist of multiple deliverables of its product and service
offerings. The Company’s typical multiple-element arrangements involve: (i) Enterprise software and services, (ii)
BlackBerry Technology Solutions, and historically (iii) BlackBerry 10 or Android handheld devices with unspecified
software upgrades on a when-and-if available basis along with undelivered non-software services.
For the Company’s arrangements involving multiple deliverables where industry-specific software revenue recognition
accounting guidance is not applicable, the consideration from the arrangement is allocated to each respective element
based on its relative selling price, using VSOE. In certain limited instances when the Company is unable to establish the
selling price using VSOE, the Company attempts to establish the selling price of each element based on acceptable third-
party evidence of selling price (“TPE”); however, the Company is generally unable to reliably determine the selling prices
of similar competitor products and services on a stand-alone basis. In these instances, the Company uses BESP in its
allocation of arrangement consideration, where permitted. The objective of BESP is to determine the price at which the
Company would transact a sale if the product or service was sold on a stand-alone basis.
For arrangements involving multiple deliverables of software with other services, which may include software
maintenance, professional services, unspecified upgrades and technical support, revenue is recognized based on the
industry-specific software revenue recognition accounting guidance. If the Company is not able to determine VSOE for all
of the deliverables of the arrangement, but is able to obtain VSOE for all undelivered elements, revenue is allocated using
the residual method. Under the residual method, the amount of revenue allocated to delivered elements equals the total
arrangement consideration, less the aggregate fair value of any undelivered elements. If VSOE of any undelivered
software element does not exist, revenue from the entire arrangement is deferred and recognized at the earlier of:
(i) delivery of those elements for which VSOE did not exist; or (ii) when VSOE can be established.
For arrangements involving multiple deliverables including the BlackBerry 10 or Android device and the essential
operating system software, as well as unspecified software upgrade rights and non-software services for which the
Company may not charge for separately, the consideration from the arrangement is allocated to each respective element
7
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
based on the relative selling price, using the Company’s BESP, as the device, unspecified software upgrade rights and
non-software services are no longer sold separately. The consideration for the delivered hardware and the related essential
operating system software are recognized at the time of sale provided that the four general revenue recognition criteria
have been met. The consideration allocated to the unspecified software upgrade rights and non-software services is
deferred and recognized on a straight-line basis over the estimated period during which the software upgrades and non-
software services are expected to be provided.
The Company determines BESP for a product or service by considering multiple factors including, but not limited to,
historical pricing practices for similar offerings, market conditions, competitive landscape, internal costs, gross margin
objectives and pricing practices. The determination of BESP is made through consultation with, and formal approval by,
the Company’s management, taking into consideration the Company’s marketing strategy. The Company regularly
reviews VSOE, TPE and BESP, and maintains internal controls over the establishment and updates of these estimates.
Based on the above factors, the Company’s BESP for the unspecified software upgrade right and non-software services is
$4 per device.
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
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.
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 in
Note 5, changes in the fair value of available-for-sale investments as described in Notes 3 and 4, 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.
8
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
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 11(b).
The Equity Incentive Plan (the “Equity Plan”) was adopted during fiscal 2014 and replaced the Company’s previous
Equity Incentive Plan and Restricted Share Unit Plan (the “Prior Plans”). Awards previously granted under the Prior Plans
continue to be governed by the terms of the Prior Plans and by any amendments approved by the Company’s Board of
Directors (the “Board”). The Equity Plan provides for the grants of incentive stock options and restricted share units
(“RSUs”) to officers and employees of the Company or its subsidiaries. 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 after fiscal
2013 are counted against this limit as 0.625 shares for every one option granted, and any shares that are subject to RSUs
granted after fiscal 2013 are counted against this limit as one share for every RSU. Awards previously granted under the
Prior Plans and 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 (i.e., RSUs) that expire or are forfeited, settled in cash or sold to cover withholding tax
requirements are counted as one share added to the shares available under the Equity Plan. In addition to awards under
the Equity Plan, 10,521,418 RSUs were granted to the Chief Executive Officer as an inducement to enter into a contract
of full-time employment.
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. 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 generally vest over a
three-year period, either in equal annual installments or on the third anniversary date. 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 re-measured at each reporting period until settlement.
Advertising costs
The Company expenses all advertising costs as incurred. These costs are included in selling, marketing and administration
expense.
9
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
2. ADOPTION OF ACCOUNTING POLICIES
Accounting Standards Adopted During Fiscal 2018
In October 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-16 on the topic of income
taxes. The amendments in this update improve the accounting for the income tax consequences of intra-entity transfers of
assets other than inventory. This guidance is effective for interim and annual periods beginning after December 15, 2017.
Early adoption is permitted, and the Company chose to early adopt this guidance in the first quarter of fiscal 2018. As a
result of the adoption of ASU 2016-16, the Company recognized approximately $3 million in tax expense on past intra-
entity transfers that had previously been deferred, through a cumulative adjustment to retained earnings.
Recently Issued Accounting Pronouncements
Accounting Standards Codification 606
In May 2014, the FASB issued a new accounting standard on the topic of revenue contracts, which replaces the existing
revenue recognition standard (“ASC 606”). The new standard amends the number of requirements that an entity must
consider in recognizing revenue and requires improved disclosures to help readers of financial statements better
understand the nature, amount, timing and uncertainty of revenue recognized. For public entities, the new standard is
effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting
period. The Company established a cross-functional coordinated team to conduct the implementation of the revenue
recognition standard, which was responsible for identifying and implementing the appropriate changes to the Company’s
business processes, systems and controls surrounding the adoption of ASC 606 in order to support the relevant recognition
and disclosure changes.
The Company will adopt this guidance on March 1, 2018 utilizing the modified retrospective approach, whereby any
historical impact upon adoption is recorded as a cumulative transition adjustment to retained earnings or deficit. As part of
its preparation for adoption of ASC 606, the Company implemented internal controls and certain changes to its Enterprise
Resource Planning systems to analyze its contracts and related financial information and prepare to comply with the dual
reporting requirements during the one year transition period under the modified retrospective approach.
The key area of potential impact to the Company from implementing the guidance relates to the timing of revenue
recognition for the software license component of its enterprise software offerings. There are no significant changes
expected to any of the Company’s other revenue streams as a result of the adoption of ASC 606.
ASC 606 requires the capitalization of all the incremental costs to acquire a contract, and for these costs to be amortized
into income proportionate to the recognition of the associated revenue. The Company currently capitalizes and defers
some, but not all, of its incremental costs to acquire a contract and amortizes that cost into income ratably over the term of
the contract. As a result, the adoption of ASC 606 will result in certain costs incurred in acquiring a contract previously
expensed being reversed through a cumulative adjustment from retained earnings or deficit to other current assets, and
recognized over time in line with the associated revenue.
The Company is in the process of determining the impact of ASC 606, and expects that, in the first quarter of fiscal 2019
when the standard becomes effective for the Company, there likely will be a material impact to its financial statements
consisting of adjustments to the opening balance of its deficit, a change in deferred revenue, and a change in other current
assets.
Accounting Standards Update (“ASU”) 2016-01
In January 2016, the FASB issued a new accounting standard on the topic of financial instruments. The amendments in
this update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The
standard primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the
presentation and disclosure requirements for financial instruments. In addition, the guidance clarifies that an entity should
evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The guidance is
effective for interim and annual periods beginning after December 15, 2017. Changes as a result of this guidance are to be
applied through a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The
Company will adopt this guidance in the first quarter of fiscal 2019.
This guidance requires the Company to present separately in AOCI the portion of the total change in fair value of a
liability resulting from a change in the instrument-specific credit risk, when the Company has elected to measure the
liability at fair value in accordance with the fair value option for financial instruments. The Company has elected the fair
value option on its Debentures. As such, previous fluctuations in the fair value of the Debentures resulting from a change
10
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
in the Company’s assessment of the instrument-specific credit risk will be reversed from deficit and be placed in AOCI as
of March 1, 2018. The Company is still in the process of determining this impact, but the impact likely will be material.
Future fluctuations in the fair value of the Debentures resulting from a change in the Company’s assessment of the
instrument-specific credit risk will be recorded through AOCI.
This guidance also requires that changes in fair value associated with the Company’s equity investment be recorded in net
income as opposed to AOCI. As at February 28, 2018, the Company had total unrealized losses associated with its equity
investments of approximately $8 million. As a result, on March 1, 2018, the Company will record a cumulative
adjustment out of AOCI and into deficit for approximately $8 million. Future fluctuations in the value of the Company’s
equity investment will be recorded in the statement of operations.
Other recently announced accounting pronouncements
In February 2016, the FASB issued a new accounting standard on the topic of leases. The new standards would require
companies and other organizations 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 will result in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability.
For finance leases, the lessee would recognize interest expense and amortization of the ROU asset, and for operating
leases, the lessee would recognize a straight-line total lease expense. The guidance is effective for interim and annual
periods beginning after December 15, 2018. Early adoption is permitted. The Company expects to adopt this guidance in
the first quarter of fiscal 2020 and is currently evaluating the impact that the adoption will have on its results of
operations, financial position and disclosures.
In May 2017, the FASB issued a new accounting standard on the topic of stock compensation. The amendments in this
update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity
to apply modification accounting in Topic 718. The guidance is effective for interim and annual periods beginning after
December 15, 2017. The Company will adopt this guidance in the first quarter of fiscal 2019 and does not expect the
impact to have a material effect on its results of operations, financial position and disclosures.
In August 2017, the FASB issued a new accounting standard on the topic of derivatives and hedging. The amendments in
this update expand and refine the designation and measurement guidance for qualifying hedging relationships and the
presentation of those hedge results. The guidance is effective for interim and annual periods beginning after December 15,
2018. The Company will adopt this guidance in the first quarter of fiscal 2020 and does not expect the impact to have a
material effect on its results of operations, financial position and disclosures.
3. CASH, CASH EQUIVALENTS AND INVESTMENTS
The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. When determining the fair value measurements
for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous
market in which it would transact and considers assumptions that market participants would use in pricing the asset or
liability, such as inherent risk, non-performance risk and credit risk. 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.
11
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
The components of cash, cash equivalents and investments by fair value level as at February 28, 2018 were as follows:
Bank balances
Other investments
Level 1:
Equity securities
Level 2:
Term deposits,
certificates of deposits,
and GICs
Bankers’ acceptances
Commercial paper
Non-U.S. promissory
notes
Non-U.S. government
sponsored enterprise
notes
Non-U.S. treasury
bills/notes
U.S. treasury bills/
notes
Level 3:
Corporate notes/bonds
Auction rate securities
Cost Basis
Unrealized
Gains
Unrealized
Losses
Other-than-
temporary
Impairment
Cash and
Cash
Equivalents
Fair Value
Short-term
Investments
Long-term
Investments
Restricted
Cash
$
169
$ — $ — $ — $
169
$
169
$ — $ — $ —
—
—
—
—
—
—
—
—
—
—
—
35
204
—
169
2
—
332
211
426
227
200
284
447
2,127
—
211
231
102
15
50
38
647
—
—
—
—
—
2
293
—
195
125
185
234
409
1,441
—
—
—
1
19
—
(3)
(3)
20
(3) $ 2,353
$
816
$ 1,443
$
35
35
—
—
—
—
—
—
—
—
—
1
19
20
55
$
—
—
—
39
—
—
—
—
—
—
39
—
—
—
39
35
204
10
332
211
426
227
200
284
448
2,128
1
20
21
$ 2,363
$
—
—
—
—
—
—
—
—
—
—
—
—
2
2
2
—
—
(8)
—
—
—
—
—
—
(1)
(1)
—
—
—
$
(9) $
12
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
The components of cash, cash equivalents and investments by fair value level as at February 28, 2017 were as follows:
Cost Basis
Unrealized
Gains
Unrealized
Losses
Other-than-
temporary
Impairment
Cash and
Cash
Equivalents
Fair Value
Short-term
Investments
Long-term
Investments
Restricted
Cash and
Cash
Equivalents
Bank balances
Other investments
Level 1:
Equity securities
Level 2:
Term deposits,
certificates of deposits,
and GICs
Bankers’ acceptances
Commercial paper
Non-U.S. promissory
notes
Non-U.S. government
sponsored enterprise
notes
Non-U.S. treasury
bills/notes
U.S. treasury bills/
notes
Level 3:
Corporate notes/bonds
Auction rate securities
$
218
$ — $ — $ — $
218
$
216
$ — $ — $
34
252
10
242
125
274
117
49
300
315
1,422
1
20
21
$ 1,705
$
—
—
—
—
—
—
—
—
—
—
—
—
2
2
2
—
—
(5)
—
—
—
—
—
—
(1)
(1)
—
—
—
$
(6) $
—
—
—
—
—
—
—
—
—
—
—
34
252
5
242
125
274
117
49
300
314
1,421
1
19
—
(3)
(3)
20
(3) $ 1,698
—
216
—
143
125
212
38
—
—
—
518
—
—
—
—
—
5
50
—
62
79
49
300
99
639
—
—
—
34
34
—
—
—
—
—
—
—
215
215
1
19
20
$
734
$
644
$
269
$
2
—
2
—
49
—
—
—
—
—
—
49
—
—
—
51
As at February 28, 2018, the Company’s other investments consisted of cost method investments of $35 million
(February 28, 2017 - $34 million). During the year ended February 28, 2018, there were no other-than-temporary
impairment charges (other-than-temporary impairment charges of $8 million and nil relating to certain cost-based
investments for the years ended February 28, 2017 and February 29, 2016) and realized gains of nil relating to the sale of
cost-based investments (realized gains of $12 million and nil for the years ended February 28, 2017 and February 29,
2016).
During the year ended February 28, 2018, the Company recognized realized losses on available-for-sale securities of $1
million. There were no realized gains or losses recognized for the year ended February 28, 2017, and gains of $1 million
for the year ended February 29, 2016.
The Company has restricted cash, 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, for terms ranging from one month to eight years. The Company is legally
restricted from accessing these funds during the term of the leases for which the letters of credit have been issued;
however, the Company can continue to invest the funds and receive investment income thereon.
13
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
The contractual maturities of available-for-sale investments as at February 28, 2018 were as follows:
Due in one year or less
Due in one to five years
Due after five years
No fixed maturity
Cost Basis
Fair Value
2,128
$
2,127
1
17
10
1
19
2
2,156
$
2,149
$
$
As at February 28, 2018, the Company had investments with continuous unrealized losses totaling $9 million, consisting
of $8 million in unrealized losses on equity securities holdings and $1 million in unrealized losses on U.S. treasury bills
(February 28, 2017 - no investments with continuous unrealized losses). The Company has the ability and intent to hold
these securities until such time that their value recovers or the investments mature, and as such does not consider their
current impairments to be other-than-temporary. For a full description of how the Company assesses its investments for
other-than-temporary impairment, see the “Investments” accounting policy in Note 1. For a description of the impact of
ASU 2016-01 on the unrealized losses on equity securities beginning in fiscal 2019, see Note 2.
4.
FAIR VALUE MEASUREMENTS
For a description of the fair value hierarchy, see Note 3.
Recurring Fair Value Measurements
The carrying amounts of the Company’s cash and cash equivalents, accounts receivable, other receivables, accounts
payable and accrued liabilities approximate fair value 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. Pricing inputs used by the independent third-party
valuator are generally received from one primary vendor. The pricing inputs are reviewed for completeness and accuracy,
within a set tolerance level, on a daily basis by the independent third-party valuator. The Company also reviews and
understands 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 the 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
limited amount of equity securities following the initial public offering by the issuer of a previous cost-based investment.
For a description of how the fair value of currency forward contracts and currency option contracts and the fair value of
the Debentures (as defined in Note 10) have been determined, see the “Derivative financial instruments” and “Convertible
debentures” accounting policies in Note 1.
14
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
The following table summarizes the changes in fair value of the Company’s Level 3 assets for the years ended
February 28, 2018 and February 28, 2017:
Balance at February 29, 2016
Principal repayments
Balance at February 28, 2017
Principal repayments
Balance at February 28, 2018
Level 3
21
(1)
20
—
20
$
$
The Company recognizes transfers in and out of levels within the fair value hierarchy at the end of the reporting period in
which the actual event or change in circumstance occurred. There were no significant transfers in or out of Level 3 assets
during the years ended February 28, 2018 or February 28, 2017.
The Company’s Level 3 assets measured on a recurring basis include auction rate securities as well as corporate notes/
bonds consisting of securities received in a payment-in-kind distribution from a former structured investment vehicle.
The auction rate securities are valued using a discounted cash flow method incorporating both observable and
unobservable inputs. The unobservable inputs utilized in the valuation are the estimated weighted average life of each
security based on its contractual details and expected pay down schedule based upon the underlying collateral, the value
of the underlying collateral that would be realized in the event of a waterfall event, an estimate of the likelihood of a
waterfall event, an estimate of the likelihood of a permanent auction suspension, and an estimate of the likelihood of the
securities being called at par. Significant changes in these unobservable inputs would result in significantly different fair
value measurements. Generally, a change in the assumption used for the probability of a waterfall event is accompanied
by a directionally opposite change in the assumption used for the probability of a permanent auction suspension. A
waterfall event occurs if the funded reserves of the securities become insufficient to make the interest payments, resulting
in the disbursement of the securities’ underlying collateral to the security holders.
The following table presents the significant unobservable inputs used in the fair value measurement of the auction rate
securities, as well as the impact on the fair value measurement resulting from a significant increase in each input in
isolation. A significant decrease in each input would produce the opposite impact as shown below:
As at February 28, 2018
Auction rate
securities
Fair
Value
Valuation
Technique
$
19
Discounted
cash flow
Unobservable Input
Range (weighted
average)
Effect of Significant
Increase in
Input on Fair Value
Weighted average life
15 years
Decrease
Collateral value (as a % of fair
value)
Probability of waterfall event
Probability of permanent
suspension of auction
Probability of being called at
par
152%
10%
Increase
Increase
5%
Decrease
25%
Increase
15
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
5. DERIVATIVE FINANCIAL INSTRUMENTS
The notional amounts and fair values of financial instruments outstanding were as follows:
Balance Sheet Location
Derivative Assets (1):
Currency forward contracts Other current assets
Currency option contracts
Other current assets
Total
Derivative Liabilities (1):
Currency forward contracts Accrued liabilities
Currency option contracts
Accrued liabilities
Total
$
$
$
$
As at February 28, 2018
Fair Value of
Derivatives
Designated as
Cash Flow
Hedges
Fair Value of
Derivatives Not
Subject to Hedge
Accounting
Total Estimated
Fair Value
Notional Amount
— $
—
— $
— $
(1)
(1) $
1
$
—
1
$
(1) $
—
(1) $
1
$
—
1
$
(1) $
(1)
(2) $
104
19
123
100
61
161
______________________________
(1) The fair values of derivative assets and liabilities are measured using Level 2 fair value inputs.
Balance Sheet Location
Derivative Assets (1):
Currency forward contracts Other current assets
Currency option contracts
Other current assets
Total
Derivative Liabilities (1):
Currency forward contracts Accrued liabilities
Currency option contracts
Accrued liabilities
$
$
$
As at February 28, 2017
Fair Value of
Derivatives
Designated as
Cash Flow
Hedges
Fair Value of
Derivatives Not
Subject to Hedge
Accounting
Total Estimated
Fair Value
Notional Amount
— $
1
1
$
— $
(1)
1
—
1
$
$
(1) $
—
1
1
2
$
$
(1) $
(1)
(2) $
89
37
126
28
38
66
Total
______________________________
(1) The fair values of derivative assets and liabilities are measured using Level 2 fair value inputs.
(1) $
(1) $
$
Foreign exchange
The Company’s currency risk management objective in holding derivative instruments is to reduce the volatility of current
and future income as a result of changes in foreign currency exchange rates. To limit its exposure to adverse movements
in foreign currency exchange rates, the Company enters into foreign currency forward and option contracts.
The majority of the Company’s revenue for the fiscal year ended February 28, 2018 was transacted in U.S. dollars.
However, portions of the revenue are denominated in Canadian dollars, euros, and British pounds. Expenses, consisting of
the majority of salaries and other certain operating costs, are incurred primarily in Canadian dollars. The Company enters
into forward and option contracts to hedge portions of these anticipated transactions to reduce the volatility on income
associated with the foreign currency exposures. The Company also enters into forward and option contracts to reduce the
effects of foreign exchange gains and losses resulting from the revaluation of certain foreign currency monetary assets and
liabilities. As at February 28, 2018, approximately 9% of cash and cash equivalents, 35% of accounts receivable and 6%
16
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
of accounts payable and accrued liabilities were denominated in foreign currencies (February 28, 2017 - 8%, 35% and
23%, respectively).
See “Derivative financial instruments” in Note 1 for the Company’s accounting policies on these instruments.
As at February 28, 2018 and February 28, 2017, the outstanding derivatives designated as cash flow hedges were
considered to be fully effective. The maturity dates of these instruments range from March 2018 to February 2019. As at
February 28, 2018, the net unrealized loss on these forward and option contracts (including option premiums paid) was $1
million (February 28, 2017 - net unrealized loss of nil). Unrealized gains associated with these contracts were recorded in
other current assets and AOCI. Unrealized losses were recorded in accrued liabilities and AOCI. Option premiums were
recorded in AOCI. As at February 28, 2018, the Company estimates that the net unrealized losses including option
premiums on forward and option contracts that will be reclassified into income within the next 12 months will be
approximately $1 million. For the fiscal years ended February 28, 2018 and February 28, 2017, there were no realized
gains or losses on forward contracts that were ineffective upon maturity.
The following table shows the impact of derivative instruments designated as cash flow hedges on the consolidated
statements of operations and the consolidated statements of comprehensive income (loss) for the year ended February 28,
2018:
Amount of Gain (Loss)
Recognized in Other
Comprehensive
Income (Loss) on
Derivative Instruments
(Effective Portion)
Location of Gain (Loss) Reclassified
from AOCI into Income
(Effective Portion)
Amount of Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
Currency forward contracts
Currency option contracts
Total
$
$
— Selling, marketing and administration
(1) Selling, marketing and administration
(1)
$
$
—
2
2
The following table shows the impact of derivative instruments designated as cash flow hedges on the consolidated
statements of operations and the consolidated statements of comprehensive loss for the year ended February 28, 2017:
Amount of Gain (Loss)
Recognized in Other
Comprehensive
Income (Loss) on
Derivative Instruments
(Effective Portion)
Location of Gain (Loss) Reclassified
from AOCI into Income
(Effective Portion)
Amount of Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
Currency forward contracts
Currency option contracts
Total
$
$
— Selling, marketing and administration
— Selling, marketing and administration
—
$
$
(1)
2
1
As part of its currency risk management strategy, the Company may maintain net monetary asset and/or liability balances
in foreign currencies. The Company enters into foreign exchange forward contracts to hedge certain monetary assets and
liabilities that are exposed to foreign currency risk. The principal currencies hedged include the Canadian dollar, euro, and
British pound. These contracts are not subject to hedge accounting, and any realized and unrealized gains or losses are
recognized in income each period, offsetting the change in the U.S. dollar value of the asset or liability. The maturity dates
of these instruments range from March 2018 to May 2018. As at February 28, 2018, there were no net unrealized gains
(net of premium paid) recorded in respect of these instruments (February 28, 2017 - net unrealized gains or losses of nil).
Unrealized gains associated with these contracts were recorded in other current assets and selling, marketing and
administration expenses. Unrealized losses were recorded in accrued liabilities and selling, marketing and administration
expenses.
The following table shows the impact of derivative instruments that are not subject to hedge accounting on the
consolidated statements of operations for the years ended February 28, 2018 and February 28, 2017:
Currency forward contracts
Selling, marketing and administration
Location of Gain (Loss) Recognized in
Income on Derivative Instruments
17
Amount of Gain (Loss) in
Income on Derivative Instruments
February 28, 2018
February 28, 2017
$
(9) $
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
For information concerning the impact of foreign exchange on the consolidated statement of operations net of the above
derivative instruments, see Note 16.
Credit risk
The Company is exposed to credit risk on derivative financial instruments arising from the potential for counterparties to
default on their contractual obligations. The Company mitigates this risk by limiting counterparties to highly rated
financial institutions and by continuously monitoring their creditworthiness. The Company’s exposure to credit loss and
market risk will vary over time as a function of currency exchange rates. The Company measures its counterparty credit
exposure as a percentage of the total fair value of the applicable derivative instruments. Where the net fair value of
derivative instruments with any counterparty is negative, the Company deems the credit exposure to that counterparty to
be nil. As at February 28, 2018, the maximum credit exposure to a single counterparty, measured as a percentage of the
total fair value of derivative instruments with net unrealized gains, was nil (February 28, 2017 - 100%; February 29, 2016
- 82%). As at February 28, 2018, the Company had a total credit risk exposure across all counterparties with outstanding
or unsettled foreign exchange derivative instruments of nil on a notional value of nil (February 28, 2017 - total credit risk
exposure of nil on a notional value of $24 million).
The Company maintains Credit Support Annexes (“CSAs”) with several of its counterparties. These CSAs require the
outstanding net position of all contracts be made whole by the paying or receiving of collateral to or from the
counterparties on a daily basis, subject to exposure and transfer thresholds. As at February 28, 2018, the Company had $1
million in collateral posted with counterparties (February 28, 2017 - no collateral posted or held).
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 28, 2018, no single issuer represented more than 19% of the total cash, cash equivalents and investments
(February 28, 2017 - no single issuer represented more than 18% of the total cash, cash equivalents and investments), and
the largest single issuer was the U.S. Department of the Treasury.
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 3.75% Debentures (as defined below) as described in Note 10
with a fixed 3.75% interest rate. The fair value of the 3.75% Debentures will fluctuate with changes in prevailing interest
rates. Consequently, the Company is exposed to interest rate risk as a result of the long term of the 3.75% Debentures. The
Company does not currently utilize interest rate derivative instruments to hedge its investment portfolio.
18
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
6. CONSOLIDATED BALANCE SHEET DETAILS
Accounts receivable, net
The allowance for doubtful accounts as at February 28, 2018 was $24 million (February 28, 2017 - $12 million).
There was no customer that comprised more than 10% of accounts receivable as at February 28, 2018 (February 28, 2017
- one customer that comprised more than 10%).
Inventories
Inventories comprised the following:
Raw materials
Work in process
Finished goods
As at
February 28, 2018
February 28, 2017
$
$
— $
—
3
3
$
4
1
21
26
During fiscal 2018, the Company recorded non-cash, pre-tax charges of nil relating to the write-down of inventory (fiscal
2017 - $150 million; fiscal 2016 - $36 million).
Other current assets
Other current assets include items such as deferred cost of sales and prepaid expenses, among other items, none of which
were greater than 5% of the current assets balance in all years presented.
Property, plant and equipment, net
Property, plant and equipment comprised the following:
Cost
Buildings, leasehold improvements and other
BlackBerry operations and other information technology
Manufacturing, repair and research and development equipment
Furniture and fixtures
Accumulated amortization
Net book value
As at
February 28, 2018
February 28, 2017
85
987
75
10
1,157
1,093
$
64
$
101
1,070
87
15
1,273
1,182
91
For the year ended February 28, 2018, amortization expense related to property, plant and equipment amounted to $36
million (February 28, 2017 - $76 million; February 29, 2016 - $124 million).
Sale, disposal and abandonment of LLA - Property, plant and equipment, net
There were $3 million in losses associated with the sale, disposal and abandonment of property, plant and equipment
during the year ended February 28, 2018.
As part of the Company’s resource alignment program (the “RAP”) as described in Note 8, the Company sold or disposed
of a significant amount of property, plant and equipment. The Company incurred losses on the write-down of property,
plant and equipment to fair value (as assets held for sale), the sale thereof, or disposal thereof of $171 million for the year
ended February 28, 2017 (February 29, 2016 - $195 million).
19
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
Intangible assets, net
Intangible assets comprised the following:
Acquired technology
Intellectual property
Other acquired intangibles
Acquired technology
Intellectual property
Other acquired intangibles
As at February 28, 2018
Cost
Accumulated
Amortization
Net Book
Value
$
682
411
197
$
512
212
89
1,290
$
813
$
170
199
108
477
As at February 28, 2017
Cost
Accumulated
Amortization
Net Book
Value
$
676
418
197
1,291
$
446
184
59
689
$
$
230
234
138
602
$
$
$
$
Other acquired intangibles include items such as customer relationships and brand.
For the year ended February 28, 2018, amortization expense related to intangible assets amounted to $141 million
(February 28, 2017 - $163 million; February 29, 2016 - $492 million).
Total additions to intangible assets in fiscal 2018 amounted to $30 million (fiscal 2017 - $57 million). During fiscal 2018,
the additions to intangible assets primarily consisted of 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 28, 2018, 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 2019 - $120 million; fiscal 2020 - $101 million; fiscal 2021 - $82 million; fiscal 2022 - $54 million; and
fiscal 2023 - $20 million.
The weighted average remaining useful lives of the intangible assets are as follows:
Acquired technology
Intellectual property
Other acquired intangibles
Impairment of LLA
As at
February 28, 2018
February 28, 2017
3.2 years
7.0 years
4.4 years
3.4 years
8.5 years
5.0 years
As discussed in Note 1, 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.
During fiscal 2017, the Company recorded the Fiscal 2017 LLA Impairment Charge of $501 million associated with
intellectual property within the asset group associated with the Company’s handheld devices business. There were no LLA
impairment charges taken in fiscal 2016.
Sale, disposal and abandonment of LLA - Intangible assets, net
The Company conducts regular reviews of the individual patents, both organically generated and acquired, composing its
patent portfolio. As a result of this review, for the year ended February 28, 2018, the Company ceased enforcement and
abandoned legal right and title to patents with a cost of $16 million, accumulated amortization of $10 million, and a net
book value of approximately $6 million (February 28, 2017 - $62 million, $55 million, and $7 million respectively;
February 29, 2016 - $592 million, $456 million and $136 million, respectively).
20
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
Goodwill
Changes to the carrying amount of goodwill during the fiscal years ended February 28, 2018, February 28, 2017 and
February 29, 2016 were as follows:
Carrying amount as at February 28, 2015
Effect of foreign exchange on non-U.S. dollar denominated goodwill
Goodwill acquired through business combinations during the year
Carrying amount as at February 29, 2016
Goodwill Impairment Charge
Effect of foreign exchange on non-U.S. dollar denominated goodwill
Carrying amount as at February 28, 2017
Effect of foreign exchange on non-U.S. dollar denominated goodwill
Carrying amount as at February 28, 2018
Carrying Amount
$
$
85
(7)
540
618
(57)
(2)
559
10
569
As discussed in Note 1, the Company recorded the Goodwill Impairment Charge of $57 million during fiscal 2017.
Long-term receivables
The Company’s long-term receivables comprised the following:
Long-term intellectual property licensing receivable
Mortgage receivable
As at
February 28,
2018
February 28,
2017
$
$
25
—
25
$
$
—
7
7
The Company has a long-term intellectual property licensing receivable comprising a series of future amounts owing from
a single licensee. As the amounts of the receivable are long-term in nature, the Company initially measured the payments
at present value using an effective interest rate of 4.5%, and will record interest income over time to arrive at the total face
value of the remaining payments of $27 million.
Accrued liabilities
Accrued liabilities comprised the following:
Accrued royalties
Resource Alignment Program liability, current portion
Variable incentive accrual
Other
As at
February 28, 2018
February 28, 2017
18
19
40
128
205
$
43
18
29
150
240
$
Other accrued liabilities include, among other items, 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 consists of the present value of accrued future lease payments associated with the Company’s
Resource Alignment Program (the “RAP”) as described in Note 8.
21
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
7. BUSINESS ACQUISITIONS
There were no business acquisitions during fiscal 2018.
In fiscal 2017, the Company paid consideration of $5 million in cash to acquire certain intellectual property and employees
of a company, which constituted a business. The Company allocated $4.5 million to intellectual property and $0.5 million
to goodwill. The operating results of the acquired business have been included in the years ended February 28, 2018 and
February 28, 2017, and are immaterial to the Company’s operating results.
8. RESTRUCTURING AND INTEGRATION
Resource Alignment Program
During fiscal 2016, the Company commenced the RAP for its device software, hardware and applications business with
the objectives of reallocating Company resources to capitalize on growth opportunities, providing the operational ability
to better leverage contract research and development services relating to its handheld devices, and reaching sustainable
profitability. Other charges and cash costs may occur as programs are implemented or changes are completed.
The following table sets forth the activity in the Company’s RAP liability for fiscal 2018 and fiscal 2017:
Balance as at February 29, 2016
Charges incurred
Cash payments made
Balance as at February 28, 2017
Charges incurred
Cash payments made
Balance as at February 28, 2018
Current portion
Long-term portion
Employee
Termination
Benefits
Facilities
Costs
Other Charges(1)
Total
12
$
26
$
— $
15
(18)
9
12
(20)
1
1
—
1
$
$
$
16
(15)
27
26
(14)
39
16
23
39
$
$
$
31
(31)
—
29
(27)
2
2
—
2
$
$
$
$
$
$
$
38
62
(64)
36
67
(61)
42
19
23
42
(1) Other charges consist of costs associated with redundant systems from acquisitions that are being integrated into a
single solution, and the effect of foreign exchange.
The RAP charges included employee termination benefits, facilities and manufacturing network simplification costs as
well as integration costs related to the transition and alignment of facilities and systems to the Company’s focus on its
enterprise software business. Total charges, including non-cash charges incurred in fiscal 2018 and fiscal 2017, were as
follows:
Cost of sales
Research and development
Selling, marketing and administration
Total RAP charges
For the Years Ended
February 28, 2018
February 28, 2017
$
$
11
5
62
78
$
$
25
4
235
264
As discussed in Note 6, the Company completes reviews of the individual patents, both organically generated and
acquired, comprising its patent portfolio. As a result of this review, the Company ceased enforcement and abandoned legal
right and title to a number of patents. As part of the RAP, the Company classified certain of the charges associated with
the selective abandonment of certain patents as restructuring activities, incurring a charge of approximately $4 million for
fiscal 2018 (fiscal 2017 - $4 million). The abandonment charges are included in the loss on sale, disposal and
abandonment of long-lived assets line of the Company’s consolidated statements of operations.
22
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
As part of the RAP, the Company decided to sell its data center assets to drive cost savings and efficiencies in the
Company. The Company realized a loss on sale of approximately $165 million in fiscal 2017 in relation to the sale of
these assets. The loss on sale has been included in the loss on sale, disposal and abandonment of long-lived assets line of
the Company’s consolidated statements of operations and included in the total RAP charges.
9.
INCOME TAXES
The difference between the amount of the provision for (recovery of) income taxes and the amount computed by
multiplying net income before income taxes by the statutory Canadian tax rate is reconciled as follows:
Statutory Canadian tax rate
Expected provision for (recovery of) income taxes
Differences in income taxes resulting from:
Valuation allowance
Investment tax credits
Canadian tax rate differences
Change in unrecognized income tax benefits
Foreign tax rate differences
Effect of adjustments to deferred tax amounts for enacted
changes resulting from U.S. tax reform
Other differences
Withholding tax on unremitted earnings
Income (loss) before income taxes:
Canadian
Foreign
The provision for (recovery of) income taxes consists of the following:
Current
Canadian
Foreign
Deferred
Canadian
Foreign
For the Years Ended
February 28, 2018
February 28, 2017
February 29, 2016
26.5%
108
$
26.6%
(320)
$
26.6%
(75)
(169)
(3)
—
8
(6)
67
(5)
1
1
$
302
(20)
1
28
6
—
1
—
(2)
$
58
(29)
2
(9)
6
—
6
(33)
(74)
$
$
For the Years Ended
February 28, 2018
February 28, 2017
February 29, 2016
$
$
413
(7)
406
$
$
(1,301) $
93
(1,208) $
(278)
(4)
(282)
For the Years Ended
February 28, 2018
February 28, 2017
February 29, 2016
$
$
1
7
—
(7)
1
$
$
(3) $
(33)
—
34
(2) $
(10)
38
(35)
(67)
(74)
23
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
Deferred income tax assets and liabilities consist of the following temporary differences:
As at
February 28, 2018
February 28, 2017
Assets
Property, plant, equipment and intangibles
$
190
$
Non-deductible reserves
Minimum taxes
Convertible Debentures (see Note 10)
Research and development
Tax loss carryforwards
Other
Deferred income tax assets
Valuation allowance
Deferred income tax assets net of valuation allowance
Liabilities
Property, plant, equipment and intangibles
Withholding tax on unremitted earnings
Deferred income tax liabilities
Net deferred income tax asset (liability)
Deferred income tax asset
Deferred income tax liability
48
265
47
286
307
94
1,237
1,221
16
(19)
—
(19)
(3) $
3
$
(6)
(3) $
$
$
$
180
103
264
12
259
503
81
1,402
1,361
41
(50)
—
(50)
(9)
—
(9)
(9)
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 2018. In fiscal 2018, the Company was able to utilize a portion of its deferred tax assets resulting in a
reduction in the deferred tax valuation allowance of $169 million (February 28, 2017 - increase of $302 million). As a
result, the deferred tax valuation allowance had an ending balance of $1,221 million (February 28, 2017 - $1,361 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 28, 2018 and February 28, 2017 were $73 million
and $65 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:
Unrecognized income tax benefits, opening balance
Increase for income tax positions of prior years
Increase for income tax positions of current year
Settlement of tax positions
Other
Unrecognized income tax benefits, ending balance
24
February 28, 2018
65
$
4
4
—
—
73
$
For the Years Ended
February 28, 2017
37
$
28
—
—
—
65
$
February 29, 2016
11
$
—
34
(8)
—
37
$
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
As at February 28, 2018, $58 million of the unrecognized tax benefits have been netted against deferred income taxes and
$15 million has been recorded within income taxes payable on the Company’s consolidated balance sheets.
A summary of open tax years by major jurisdiction is presented below:
Jurisdiction
Canada(1)
United States(2)
United Kingdom
______________________________
Fiscal 2010 - 2018
Fiscal 2015 - 2018
Fiscal 2017 - 2018
(1)
(2)
Includes federal as well as provincial jurisdictions, as applicable.
Pertains to federal tax years. Certain state jurisdictions remain open from fiscal 2014 through fiscal 2018.
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 $16 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 (loss). The amount of interest accrued as at February 28, 2018 was
approximately $2 million (February 28, 2017 - approximately $2 million). The amount of penalties accrued as at
February 28, 2018 was nominal (February 28, 2017 - nominal).
As at February 28, 2018, 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)
$
— $
— $
—
—
—
—
—
—
—
—
—
30
30
4
6
3
110
106
52
41
22
13
$
14
371
$
Minimum Taxes
1
109
128
27
—
—
—
—
—
—
—
265
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
Indefinite
$
$
11
—
50
86
92
80
2
341
352
184
—
1,198
$
______________________________
(1)
Includes federal, provincial and state balances.
25
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act (the “Tax
Act”). This significantly changed U.S. tax laws in a number of ways, including but not limited to, reducing the corporate
tax rate from 35% to 21% and moving from a worldwide tax system to a territorial system.
In reporting periods before the adoption of the Tax Act, the Company’s intent was not to repatriate foreign earnings;
therefore deferred tax was not recorded since it was not probable it would reverse in the foreseeable future. As a result of
the enactment of the legislation, the Company incurred a current tax expense of nil in one-time transition tax on deemed
mandatory repatriation of earnings.
As a result of other Tax Act changes, the Company re-assessed the recognition of certain of its deferred tax assets and as a
result, recorded an additional tax recovery of $3 million.
In addition, the Company’s U.S. deferred tax assets and liabilities have been remeasured using a federal tax rate of 21%.
Included in deferred income tax expense for changes in enacted rate is a $67 million expense which is fully offset by a
$67 million tax recovery for a corresponding decrease in the valuation allowance related to the above mentioned deferred
tax assets and liabilities.
The Tax Act requires complex computations to be performed that were not previously required under U.S. tax law,
judgments to be made in interpretation of the provisions of the Tax Act, significant estimates in calculations, and the
preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the
Internal Revenue Service, and other standard-setting bodies could interpret or issue guidance on how provisions of the Tax
Act will be applied or otherwise administered that is different from the Company’s interpretation. At this time, the
Company made its best estimate on each aspect of the tax law changes. As the Company completes its analysis, collects
and prepares necessary data, and interprets any additional guidance, the Company may make changes to its estimates on a
prospective basis.
10. LONG-TERM DEBT
3.75% Convertible 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 “3.75%
Debentures”), which partially replaced $1.25 billion aggregate principal amount of debentures issued in a private
placement in fiscal 2014 (the “6% Debentures”) as described below (collectively, the “Debentures”).
Interest on the 3.75% Debentures is payable quarterly in arrears at a rate of 3.75% per annum. The 3.75% 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 3.75% Debentures, subject to
adjustments. Covenants associated with the 3.75% Debentures include limitations on the Company’s total indebtedness.
Under specified events of default, the outstanding principal and any accrued interest on the 3.75% 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 3.75% Debentures are subject to a change of control provision whereby the Company would be required to make an
offer to repurchase the 3.75% Debentures at 115% of par value if a person or group (not affiliated with Fairfax) acquires
35% of the Company’s outstanding common shares, acquires all or substantially all of its assets, or if the Company
merges with another entity and the Company’s existing shareholders hold less than 50% of the common shares of the
surviving entity.
As of February 28, 2018, the fair value of the 3.75% Debentures was determined to be $782 million. The difference
between the fair value of the 3.75% Debentures and the unpaid principal balance of $605 million is $177 million. The fair
value of the 3.75% Debentures is measured using Level 2 fair value inputs.
The Company recorded total non-cash charges associated with the change in the fair value of the 3.75% Debentures of
$191 million in fiscal 2018. The Company recorded non-cash income associated with the change in the fair value of the
3.75% Debentures of $14 million in fiscal 2017. With the charges associated with the change in the fair value of the 6%
Debentures of $38 million as described below, the Company recorded total charges associated with the change in the
Debentures of $24 million in fiscal 2017 (the “Fiscal 2017 Debentures fair value adjustments”). Non-cash income
associated with the change in the fair value of the 6% Debentures was $430 million in fiscal 2016 (the “Fiscal 2016
Debentures fair value adjustments”). These adjustments are included on their own line of the Company’s consolidated
26
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
statements of operations. For a description of how the adoption of ASU 2016-01 will affect the recording of the fair value
of the Debentures, see Note 2.
The Company recorded interest expense related to the Debentures of $23 million, which has been included in investment
income (loss) on the Company’s consolidated statements of operations in fiscal 2018 (fiscal 2017 - $48 million; fiscal
2016 - $75 million). The Company is required to make quarterly interest-only payments of approximately $6 million
during the remaining term the 3.75% Debentures are outstanding.
Fairfax, a related party under U.S. GAAP, owned $500 million principal amount of the 6% Debentures and also purchased
$500 million principal amount of the 3.75% Debentures. As such, the redemption of Fairfax’s portion of the 6%
Debentures, the investment by Fairfax in the 3.75% Debentures and the payment of interest on the 3.75% Debentures
represent related-party transactions. Fairfax receives interest at the same rate as other Debenture holders.
6% Convertible Debentures
In fiscal 2014, the Company issued $1.25 billion of 6% Debentures. The terms of the 6% Debentures were substantially
similar to those of the 3.75% Debentures, except for an interest rate of 6%, and the Company had an option to redeem the
6% Debentures after November 13, 2016 at specified redemption prices in specified periods.
As at February 28, 2016, the fair value of the 6% Debentures was $1.28 billion. The Company recorded non-cash charges
associated with the change in the fair value of the 6% Debentures of $38 million in fiscal 2017 prior to the redemption as
described below.
On August 4, 2016, the Company announced that the Toronto Stock Exchange had accepted notice of the Company’s
normal course issuer bid to purchase up to $125 million principal amount of the outstanding 6% Debentures, representing
10% of the outstanding 6% Debentures as at July 31, 2016. During the second quarter of fiscal 2017, the Company
repurchased and canceled approximately $5.0 million principal amount of 6% Debentures for approximately $5.3 million.
On August 26, 2016, the Company announced that, with the approval of the holders of the 6% Debentures, the indenture
governing the 6% Debentures had been amended to permit optional redemption by the Company prior to November 13,
2016, the first date the Company would have otherwise been able to redeem the 6% Debentures. The Company
announced that it would redeem the 6% Debentures for a redemption amount of approximately $1.33 billion (the
“Redemption Amount”, which included approximately $19 million in accrued interest), which would settle all outstanding
obligations of the Company in respect of the 6% Debentures. The redemption was completed on September 2, 2016. As
the Company accounted for the 6% Debentures at fair value, the impact to the consolidated statements of operations of the
redemption was recorded in the second quarter of fiscal 2017, as the Redemption Amount represented the fair value of the
6% Debentures at August 31, 2016.
11. CAPITAL STOCK
(a) Capital stock
The Company is authorized to issue an unlimited number of non-voting, redeemable, retractable Class A common shares,
an unlimited number of voting common shares and an unlimited number of non-voting, cumulative, redeemable,
retractable preferred shares. As at February 28, 2018 and February 28, 2017, there were no Class A common shares or
preferred shares outstanding.
27
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
The following details the changes in issued and outstanding common shares for the years ended February 28, 2018,
February 28, 2017 and February 29, 2016:
Common shares outstanding as at February 28, 2015
Exercise of stock options
Common shares issued for RSU settlements
Stock-based compensation
Tax deficiencies related to stock-based compensation
Share repurchase
Common shares issued for employee share purchase plan
Common shares issued on the redemption of deferred share units
Common shares outstanding as at February 29, 2016
Exercise of stock options
Common shares issued for RSU settlements
Stock-based compensation
Tax deficiencies related to stock-based compensation
Common shares issued for employee share purchase plan
Common shares outstanding as at February 28, 2017
Exercise of stock options
Common shares issued for RSU settlements
Stock-based compensation
Share repurchase
Common shares issued for employee share purchase plan
Common shares outstanding as at February 28, 2018
Capital Stock and
Additional Paid-in Capital
Stock
Outstanding
(000’s)
Amount
528,802
$
2,444
402
4,320
—
—
(12,607)
183
72
521,172
131
8,689
—
—
505
3
—
60
(1)
(59)
1
—
2,448
1
—
60
(1)
4
530,497
2,512
536
7,258
—
(1,992)
435
4
—
49
(9)
4
536,734
$
2,560
The Company had 537 million voting common shares outstanding, 1 million options to purchase voting common shares,
15 million RSUs and 0.7 million DSUs outstanding as at March 26, 2018.
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 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.
During fiscal 2017, the Company did not repurchase any common shares.
On May 6, 2015, the Board authorized a share repurchase program to purchase for cancellation up to 12 million common
shares of the Company, or approximately 2.5% of the outstanding public float as of June 22, 2015. This was subsequently
increased to 27 million common shares, or 5.8% of the public float as of June 22, 2015. During fiscal 2016, the Company
repurchased 13 million common shares at a cost of approximately $93 million. The Company recorded a reduction of
approximately $59 million to capital stock and the amount paid in excess of the per share paid-in capital of the common
shares repurchased of approximately $34 million was charged to retained earnings. All common shares repurchased by the
Company were canceled. The common share repurchase program that the Company commenced on June 29, 2015
expired on June 28, 2016.
28
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
(b) Stock-based compensation
Stock options
The Company recorded a charge to income and a credit to paid-in-capital of approximately $1 million in fiscal 2018
(fiscal 2017 - $1 million; fiscal 2016 - $1 million) in relation to stock option-based compensation expense.
The Company has presented excess tax deficiencies from the exercise of stock option-based compensation awards as a
financing activity in the consolidated statements of cash flows.
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. The Company issues new shares to satisfy stock option
exercises. There are approximately 22 million shares in the equity pool available for future grants under the Equity Plan as
at February 28, 2018.
A summary of option activity since February 28, 2015 is shown below:
Balance as at February 28, 2015
Granted during the year
Exercised during the year
Forfeited/canceled/expired during the year
Balance as at February 29, 2016
Granted during the year
Exercised during the year
Forfeited/canceled/expired during the year
Balance as at February 28, 2017
Exercised during the year
Forfeited/canceled/expired during the year
Balance as at February 28, 2018
Vested and expected to vest as at February 28, 2018
Exercisable as at February 28, 2018
Number
(000’s)
1,486
$
772
(402)
(382)
1,474
673
(131)
(393)
1,623
(536)
(225)
862
834
411
$
$
$
Options Outstanding
Weighted
Average
Exercise
Price
Average
Remaining
Contractual
Life in Years
Aggregate
Intrinsic
Value
(millions)
9.34
6.30
6.09
14.45
7.01
7.96
6.14
7.44
7.46
7.31
7.68
7.57
7.58
7.69
3.45
3.43
2.85
$
$
$
4
4
2
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 28, 2018. The intrinsic value of stock
options exercised during fiscal 2018, calculated using the average market price during the year, was approximately $2.89
per share.
A summary of unvested stock options since February 28, 2017 is shown below:
Balance as at February 28, 2017
Vested during the year
Forfeited during the year
Balance as at February 28, 2018
Options Outstanding
Number
(000’s)
Weighted Average
Grant Date Fair
Value
1,020
(421)
(148)
451
$
$
2.55
2.68
2.66
2.40
As at February 28, 2018, there was $1 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
29
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
approximately 1.24 years. The total fair value of stock options vested during the year ended February 28, 2018 amounted
to $1 million (February 28, 2017 - $1 million, February 29, 2016 - $2 million).
Cash received from the stock options exercised for the year ended February 28, 2018 amounted to $4 million
(February 28, 2017 - $1 million; February 29, 2016 - $3 million). There were no tax deficiencies incurred by the
Company related to stock options exercised at February 28, 2018 (February 28, 2017 – tax deficiency of nil; February 29,
2016 – tax deficiency of nil).
During the year ended February 28, 2018, there were no stock options granted (February 28, 2017 - 672,712; February 29,
2016 - 772,056). The weighted average fair value of these grants was calculated using the BSM option pricing model with
the following assumptions:
Weighted average grant date fair value of stock options granted during the period $
— $
2.36
$
2.49
February 28,
2018
February 28,
2017
February 29,
2016
Assumptions:
Risk-free interest rates
Expected life in years
Expected dividend yield
Volatility
—%
0.00
—%
—%
0.92%
3.52
—%
1.00%
3.38
—%
38.86%
54.60%
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.
Restricted Share Units
The Company recorded compensation expense with respect to RSUs of approximately $48 million in the year ended
February 28, 2018 (February 28, 2017 - $59 million; February 29, 2016 - $59 million).
A summary of RSU activity since February 28, 2015 is shown below:
RSUs Outstanding
Weighted
Average
Grant Date
Fair Value
Average
Remaining
Contractual
Life in Years
Aggregate
Intrinsic
Value
(millions)
Number
(000’s)
Balance as at February 28, 2015
Granted during the year
Vested during the year
Forfeited/cancelled during the year
Balance as at February 29, 2016
Granted during the year
Vested during the year
Forfeited/cancelled during the year
Balance as at February 28, 2017
Granted during the year
Vested during the year
Forfeited/cancelled during the year
Balance as at February 28, 2018
Vested and expected to vest February 28, 2018
26,001
8,986
(4,320)
(2,997)
27,670
5,126
(8,691)
(3,273)
20,832
3,503
(7,258)
(2,145)
14,932
14,157
$
$
$
7.84
7.20
8.75
8.84
7.38
7.77
7.69
7.94
7.26
10.84
7.43
8.22
7.87
7.81
30
1.12
1.10
$
$
181
172
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 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 28, 2018, that would have been received by RSU holders if all RSUs
had been vested on February 28, 2018).
Tax deficiencies incurred by the Company related to the RSUs vested were nil for the year ended February 28, 2018
(February 28, 2017 - tax deficiency of $1 million; February 29, 2016 - tax deficiency of $1 million).
As at February 28, 2018, there was $63 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 1.12 years.
During the year ended February 28, 2018, there were 3,502,755 RSUs granted (February 28, 2017 - 5,126,346), all of
which will be settled upon vesting by the issuance of new common shares.
Deferred Share Units
The Company issued 129,015 DSUs in the year ended February 28, 2018. There were 0.7 million DSUs outstanding as at
February 28, 2018 (February 28, 2017 - 0.5 million). The Company had a liability of $8.2 million in relation to the DSU
Plan as at February 28, 2018 (February 28, 2017 - $3.8 million) included in accrued liabilities.
31
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
12. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings (loss) per share:
Net income (loss) for basic and diluted earnings (loss) per share
available to common shareholders
Less: Debentures fair value adjustment (1) (2)
Add: interest expense on Debentures (1) (2)
Net income (loss) for diluted earnings (loss) per share available to
common shareholders
Weighted average number of shares outstanding (000’s) - basic and
diluted (2)(3)
Effect of dilutive securities (000’s)
Stock-based compensation (3) (4)
Conversion of Debentures (1) (2)
Weighted average number of shares and assumed conversions (000’s)
- diluted
Earnings (loss) per share - reported
Basic
Diluted
For the Years Ended
February 28, 2018
February 28, 2017
February 29, 2016
$
$
$
$
405
$
—
—
(1,206) $
—
—
405
$
(1,206) $
(208)
(430)
75
(563)
532,888
525,265
526,303
12,998
—
—
—
—
125,000
545,886
525,265
651,303
0.76
0.74
$
$
(2.30) $
(2.30) $
(0.40)
(0.86)
______________________________
(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 years ended February 28, 2018 and February 28, 2017, as to do so would be antidilutive. See Note 10
for details on the Debentures.
(2) The Company has presented the dilutive effect of the 6% Debentures using the if-converted method, assuming conversion at the
beginning of fiscal 2016 for the year ended February 28, 2016. Accordingly, to calculate diluted earnings (loss) per share, the Company
adjusted net loss by eliminating the Fiscal 2016 Debentures fair value adjustments and interest expense incurred on the 6% Debentures
in the year ended February 29, 2016, and added the number of shares that would have been issued upon conversion to the diluted
weighted average number of shares outstanding. See Note 10 for details on the 6% Debentures.
(3) The Company has not presented the dilutive effect of in-the-money options or 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, 2017 and February 29,
2016, as to do so would be antidilutive.
(4) 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 year ended February 28, 2018. As at February 28,
2018, there were 790,918 options and 14,068,069 RSUs outstanding that were in-the-money and may have a dilutive effect on earnings
(loss) per share in future periods.
13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive loss are as follows:
Accumulated net unrealized gains (losses) on available-for-sale
investments
Accumulated net unrealized losses on derivative instruments
designated as cash flow hedges, net of tax
Foreign currency cumulative translation adjustment
Actuarial losses associated with other post-employment benefit
obligations
Accumulated other comprehensive loss
February 28, 2018
February 28, 2017
February 29, 2016
As at
$
$
(7) $
(4) $
(1)
(1)
(1)
(10) $
—
(13)
—
(17) $
3
(1)
(10)
—
(8)
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
During the year ended February 28, 2018, $2 million in gains (pre-tax and post-tax) associated with cash flow hedges
were reclassified from AOCI into selling, marketing and administration expenses. For details concerning the impact of the
adoption of ASU 2016-01 on AOCI, see Note 2.
14. COMMITMENTS AND CONTINGENCIES
(a) Credit facility and letters of credit
The Company has $33 million in collateralized outstanding letters of credit in support of certain leasing arrangements
entered into in the ordinary course of business. See the discussion of restricted cash in Note 3.
(b) 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. The binding arbitration hearing was held from February 27, 2017 to March 3, 2017
under the Judicial Arbitration and Mediation Services rules in San Diego, California. On April 11, 2017, the arbitration
panel issued an interim decision, finding in favour of the Company. Subsequently, the Company reached an agreement
with Qualcomm resolving all amounts payable in connection with the interim arbitration decision. 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. This amount was
recorded within Arbitration awards, net on the consolidated statements of operations in the first quarter of fiscal 2018. 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
(loss), net, for a total gain associated with the award of $962 million.
(c) 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. An arbitration hearing was held May
8-9, 2017 in New York and on November 29, 2017, the arbitration panel issued a decision, finding in favour of Nokia and
awarding it approximately $137 million. On December 12, 2017, Nokia submitted a Petition for Correction to the
arbitrators requesting correction of a computational error in the amount of pre-award interest provided for in the original
award. On January 31, 2018, the arbitrators issued an addendum correcting this error. As a result, the Company recorded
$148 million in charges associated with the arbitration, consisting of $132 million within Arbitration awards, net and $16
million in interest expense within investment income (loss), net on the consolidated statements of operations.
(d) Lease commitments
The Company is committed to future minimum annual lease payments related to real estate operating leases as follows:
For the fiscal years ending:
2019
2020
2021
2022
2023
Thereafter
$
33
28
18
15
15
29
$
138
For the year ended February 28, 2018, the Company incurred rental expense of $32 million (February 28, 2017 - $37
million; February 29, 2016 - $45 million).
33
BlackBerry Limited
Notes to the Consolidated Financial Statements
In millions of United States dollars, except share and per share data, and except as otherwise indicated
(e) 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 “Risk Factors” in the Company’s unaudited Annual Information Form for
the fiscal year ended February 28, 2018, which is included in the Company’s Annual Report on Form 40-F, 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.
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 28, 2018, with the exception noted below relating to the GTC Lawsuit (as defined below), there are no
claims outstanding for which the Company has assessed the potential loss as both probable to result and reasonably
estimable; therefore, no accrual has been made. Further, there are claims outstanding for which the Company has assessed
the potential loss as reasonably possible to result; however, an estimate of the amount of loss cannot reasonably be made.
There are many reasons that the Company cannot make these assessments, including, among others, one or more of the
following: the early stages of a proceeding does not require the claimant to specifically identify the patent that has
allegedly been infringed; 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 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 plaintiffs’ request for leave
to amend. The Court granted the plaintiffs’ motion for leave to amend on September 13, 2017. The plaintiffs filed a
second consolidated amended class action complaint (the “Second Amended Complaint”), which added the Company’s
Chief Legal Officer as a defendant, on September 29, 2017. The Court denied the motion to dismiss the Second Amended
Complaint on March 19, 2018.
34
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 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. Briefing is complete and the parties are waiting for a hearing date from the
Court. Trial court proceedings are on hold until all appeals related to the order granting the plaintiffs’ motion for leave to
amended are exhausted.
On October 12, 2015, a group of Good’s institutional investors filed a putative class action lawsuit on behalf of Good’s
common shareholders against members of Good’s former board of directors (the “GTC Directors”) related to the
Company’s acquisition of Good (the “GTC Lawsuit”). The plaintiffs allege that the GTC Directors breached their
fiduciary duty by engaging in a self-interested transaction that benefited the preferred shareholders at the expense of the
common shareholders. The plaintiffs are seeking monetary damages, as well as rescission of the merger agreement
between Good and the Company. While neither Good nor the Company are parties to the GTC Lawsuit, Good has certain
obligations to indemnify some of the defendants and is providing a defense. On October 29, 2015, Good filed a complaint
alleging that the plaintiffs breached their contractual obligations under a voting agreement providing that, in the event of a
sale transaction that was approved by both the GTC Directors and a majority of the Good preferred shareholders, the
plaintiffs were required to vote their shares in favour of the transaction and refrain from exercising any appraisal or
dissent rights (the “Voting Rights Lawsuit”). Good alleges that the filing of the GTC Lawsuit was a breach of the voting
agreement. On December 31, 2015, several Good shareholders filed a petition seeking appraisal against Good (the
“Appraisal Lawsuit”). On August 25, 2016, the Court granted the plaintiff’s motion for leave to file an amended
complaint in the GTC Lawsuit naming additional defendants, including JP Morgan Chase and various venture capital
funds whose designees were Good directors (the “Fund Defendants”). Good and the Company are not named in the
amended complaint. On May 23, 2017, the plaintiffs reached a tentative settlement with the GTC Directors and Fund
Defendants of the GTC Lawsuit. On May 31, 2017, the plaintiffs and JP Morgan Chase reached a tentative settlement of
the GTC Lawsuit. On July 24, 2017, Good, the Petitioners in the Appraisal Lawsuit and the defendants in the Voting
Rights Lawsuit entered into an Agreement of Settlement, Dismissal, and Release and filed same with the court. On August
8, 2017, the Court issued an order granting the parties’ settlement terms. On August 18, 2017, the Company and JP
Morgan Chase entered into a Settlement Funding Agreement, by which the Company agreed to fund JP Morgan Chase’s
settlement with plaintiffs. On August 22, 2017, JP Morgan Chase and the plaintiffs filed a Stipulation and Agreement of
Compromise and Settlement with the Court. On November 9, 2017, the Company filed a demand for arbitration seeking
the release of funds from an escrow fund account established when the Company acquired Good to indemnify the
Company for certain costs incurred in connection with the defense and settlement of the GTC Lawsuit and the Appraisal
Lawsuit. The arbitration hearing is scheduled for September 10-12, 2018.
The GTC Lawsuit is stayed pending court approval of all tentative settlements. During the first quarter of fiscal 2018, the
Company accrued $10 million for legal costs related to litigation arising out of its acquisition of Good.
(f) 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 significant supply, availability and pricing risks. The Company has also entered into
various agreements for the supply of components, the manufacturing of its products and agreements that allow the
Company to use intellectual property owned by other companies; 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 and intellectual property litigation risk.
(g)
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,
35
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
criminal or administrative action which could arise by reason of their status as directors or officers. The Company
maintains liability insurance coverage for the benefit of its current and former directors and executive officers. The
Company has not encountered material costs as a result of such indemnifications in fiscal 2018. See the Company’s
Management Information Circular for fiscal 2017 for additional information regarding the Company’s indemnification
agreements with its current and former directors and executive officers.
15. SEGMENT DISCLOSURES
The Company reports segment information based on the “management” approach. The management approach designates
the internal reporting used by the CODM for making decisions and assessing performance as a source of the Company’s
reportable operating segments. In the first quarter of fiscal 2018, the Company made adjustments to its reporting structure
in line with its business shift towards focusing on software and services that secure, manage and connect the Enterprise of
Things, the transition of its hardware strategy from an outsourced handset manufacturing model to a licensing model, and
the continued reduction in its SAF. As a result, the CODM, who is the Chief Executive Officer of the Company, now
reviews financial information, makes decisions and assesses the performance of the Company as a single operating
segment.
Revenue, classified by major geographic regions in which the Company’s customers are located, was as follows:
North America (1)
Europe, Middle East and Africa
Latin America
Asia Pacific
February 28, 2018
For the Years Ended
February 28, 2017
February 29, 2016
540
278
15
99
932
$
58.0%
29.8%
1.6%
10.6%
659
461
35
154
50.3%
35.2%
2.7%
11.8%
893
857
135
275
41.3%
39.7%
6.3%
12.7%
100.0% $
1,309
100.0% $
2,160
100.0%
______________________________
(1) North America includes all revenue from the Company’s intellectual property arrangements, due to the global
applicability of the patent portfolio and licensing arrangements thereof.
Total revenues, classified by product and service type, were as follows:
Enterprise software and services
BlackBerry Technology Solutions
Licensing, IP and other
Handheld devices
SAF
For the Years Ended
February 28, 2018
February 28, 2017
February 29, 2016
$
$
388
163
196
64
121
932
$
$
345
151
126
374
313
211
135
151
884
779
$
1,309
$
2,160
Enterprise software and services includes revenues from the Company’s security, productivity, collaboration and end-
point management solutions through the BlackBerry Secure platform, which includes BlackBerry Unified Endpoint
Manager (UEM), BlackBerry Dynamics, BlackBerry Workspaces and BBM Enterprise, among other products and
applications, as well as revenues from the sale of the Company’s AtHoc Alert secure networked crisis communications
solution, its Secusmart SecuSUITE secure voice and text solution, and professional services from BlackBerry
Cybersecurity Services.
BlackBerry Technology Solutions includes revenues from the Company’s QNX CAR Platform and Neutrino Operating
System, among other BlackBerry QNX products, as well as revenues from the Company’s BlackBerry Radar asset
tracking solution, Paratek antenna tuning technology, and Certicom cryptography and key management products.
36
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
Licensing, IP and other includes revenues from the Company’s mobility licensing software arrangements, including
revenue from licensed hardware sales and intellectual property licensing, and from the Company’s BBM Consumer
licensing arrangement.
Handheld devices includes revenues from the sale of the DTEK60 and all prior BlackBerry smartphone models to carriers
and distributors, accessories and repair services of handheld devices.
SAF includes revenues associated with the Company’s legacy SAF business, relating to subscribers utilizing the
Company’s legacy BlackBerry 7 and prior operating systems, as well as revenues relating to unspecified future software
upgrade rights for devices sold by the Company.
Property, plant and equipment, intangible assets and goodwill, classified by geographic segments in which the Company’s
assets are located, was as follows:
Canada
United States
Other
As at
February 28, 2018
February 28, 2017
Property, Plant and
Equipment, Intangible
Assets and Goodwill
Total Assets
Property, Plant and
Equipment, Intangible
Assets and Goodwill
Total Assets
$
$
257
772
81
$
481
$
3,058
241
$
312
871
69
1,110
$
3,780
$
1,252
$
526
2,490
280
3,296
Information about major customers
There were no customers that comprised more than 10% of the Company’s revenue in fiscal 2018 (fiscal 2017 - no
customers that comprised more than 10%; fiscal 2016 - no customers that comprised more than 10%).
16. CASH FLOW AND ADDITIONAL INFORMATION
(a) Certain consolidated statements of cash flow information related to interest and income taxes paid is summarized as
follows:
Interest paid during the year
Income taxes paid during the year
Income tax refunds received during the year
(b) Additional information
For the Years Ended
February 28, 2018
February 28, 2017
February 29, 2016
$
39
$
6
7
$
48
10
19
75
30
172
Advertising expense, which includes media, agency and promotional expenses totaling $23 million (February 28, 2017 -
$38 million; February 29, 2016 - $102 million) is included in selling, marketing and administration expenses for the fiscal
year ended February 28, 2018.
Selling, marketing and administration expenses for the fiscal year ended February 28, 2018 included nil with respect to
foreign exchange losses (February 28, 2017 - losses of $4 million; February 29, 2016 - losses of $12 million).
37
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE MONTHS AND FISCAL YEAR ENDED FEBRUARY 28, 2018
BLACKBERRY LIMITED
March 28, 2018
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 (the “Company” or “BlackBerry”), for the fiscal year ended February 28, 2018. The
Consolidated Financial Statements are presented in U.S. dollars and have been prepared in accordance with United States
generally accepted accounting principles (“U.S. GAAP”). All financial information in this MD&A is presented in U.S. dollars,
unless otherwise indicated.
The Company has prepared this MD&A with reference to National Instrument 51-102 “Continuous Disclosure Obligations” of
the Canadian Securities Administrators. Under the U.S./Canada Multijurisdictional Disclosure System, the Company is
permitted to prepare this MD&A in accordance with the disclosure requirements of Canada, which are different from those of
the United States. This MD&A provides information for the fiscal year ended February 28, 2018 and up to and including
March 28, 2018.
Additional information about the Company, including the Company’s Annual Information Form for the fiscal year ended
February 28, 2018 (the “AIF”), which is included in the Company’s Annual Report on Form 40-F for the fiscal year ended
February 28, 2018 (the “Annual Report”), can be found on SEDAR at www.sedar.com and on the U.S. Securities and Exchange
Commission’s (“SEC”) 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:
•
•
•
•
•
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the Company’s plans, strategies and objectives, including the anticipated benefits of its strategic initiatives and its
intentions to grow revenue and increase and enhance its product and service offerings;
the Company’s expectations regarding its free cash flow, non-GAAP gross margin, intellectual property licensing
revenue, restructuring costs, non-GAAP earnings per share and total software and services billings growth for fiscal
2019;
the Company’s expectations regarding the impact of the adoption of Accounting Standards Codification 606;
the Company’s expectations of recovering the amount of its Settlement Funding Arrangement with JP Morgan Chase
from escrow relating to the acquisition of Good Technologies (“Good”);
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
“Business Overview - Strategy, Products and Services”, “Accounting Policies and Critical Accounting Estimates - Recently
Issued Accounting Pronouncements - Accounting Standards Codification 606”, “Fiscal 2018 Summary Results of Operations -
Financial Highlights - Free Cash Flow”, “Results of Operations - Fiscal year ended February 28, 2018 compared to fiscal year
ended February 28, 2017 - Consolidated Gross Margin” “Results of Operations - Fiscal year ended February 28, 2018
compared to fiscal year ended February 28, 2017 - Revenue by Product and Service, “Results of Operations - Fiscal year ended
February 28, 2018 compared to fiscal year ended February 28, 2017 - Operating Expenses”, “Results of Operations - Fiscal
year ended February 28, 2018 compared to fiscal year ended February 28, 2017 - Net Income (Loss)”, Financial Condition -
Liquidity and Capital Resources - Current Assets” 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 following factors, most of which are discussed in greater detail in the “Risk
Factors” section of the AIF, which is included in the Annual Report, and the following:
1
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
the Company’s ability to enhance, develop, introduce or monetize products and services for the enterprise market in
a timely manner with competitive pricing, features and performance;
the Company’s ability to maintain or expand its customer base for its software and services offerings to grow
revenue or achieve sustained profitability;
the intense competition faced by the Company;
the occurrence or perception of a breach of the Company’s network or product security measures, or an
inappropriate disclosure of confidential or personal information;
risks related to the Company’s continuing ability to attract new personnel, retain existing key personnel and manage
its staffing effectively;
the Company’s dependence on its relationships with resellers and distributors;
the risk that network disruptions or other business interruptions could have a material adverse effect on the
Company’s business and harm its reputation;
risks related to acquisitions, divestitures, investments and other business initiatives, which may negatively affect the
Company’s results of operations;
risks related to the Company’s products and services being dependent upon interoperability with rapidly changing
systems provided by third parties;
the Company’s ability to generate revenue and profitability through the licensing of security software and services
or the BlackBerry brand to device manufacturers;
the risk that failure to protect the Company’s intellectual property could harm its ability to compete effectively and
the Company may not earn the revenues it expects from intellectual property rights;
the risk that the Company could be found to have infringed on the intellectual property rights of others;
the risk that litigation against the Company may result in adverse outcomes;
risks related to the use and management of user data and personal information, which could give rise to liabilities as
a result of legal, customer and other third-party requirements;
the Company’s ability to obtain rights to use third-party software;
the substantial asset risk faced by the Company, including the potential for charges related to its long-lived assets
and goodwill;
risks related to the Company’s indebtedness, which could adversely affect its operating flexibility and financial
condition;
risks related to government regulations applicable to the Company’s products and services, including products
containing encryption capabilities, which could negatively impact the Company’s business;
risks related to foreign operations, including fluctuations in foreign currencies;
risks associated with any errors in the Company’s products and services, which can be difficult to remedy and could
have a material adverse effect on the Company’s business;
risks related to the failure of the Company’s suppliers, subcontractors, third-party distributors and representatives to
use acceptable ethical business practices or comply with applicable laws;
the Company’s reliance on third parties to manufacture and repair its hardware products;
risks related to fostering an ecosystem of third-party application developers;
risks related to regulations regarding health and safety, hazardous materials usage and conflict minerals, and to
product certification risks;
risks related to tax provision changes, the adoption of new tax legislation, or exposure to additional tax liabilities;
risks related to the fluctuation of the Company’s quarterly revenue and operating results;
the volatility of the market price of the Company’s common shares; and
risks related to adverse economic and geopolitical conditions;
•
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2
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 the ongoing transition in the Company’s business strategy and the rapid technological changes, evolving industry
standards, intense competition and short product life cycles that characterize the industries in which the Company operates. See
“Business Overview - Strategy, Products and Services” in this MD&A.
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 is an enterprise software and services company focused on securing and managing endpoints in the Internet of
Things (IoT). Based in Waterloo, Ontario, the Company was founded in 1984 and operates in North America, Europe, Asia,
Middle East, Latin America and Africa. The Company’s common shares trade under the ticker symbol “BB” on the Toronto
Stock Exchange and the New York Stock Exchange. The Company transferred the listing of its common shares from the
NASDAQ Global Select Market to the New York Stock Exchange during the third quarter of fiscal 2018.
As a result of an internal reporting reorganization and a change in the way in which the Chief Operating Decision Maker
(“CODM”), which for the Company is the Chief Executive Officer (“CEO”), reviews financial information, makes decisions
and assesses the performance of the Company in the first quarter of fiscal 2018, the Company is now organized and managed as
one operating segment. See Note 15 to the Consolidated Financial Statements for further information.
The Company’s core software and services offering is BlackBerry Secure, an end-to-end Enterprise of Things platform
comprised of enterprise communication and collaboration software and safety-certified embedded solutions. Elements of the
BlackBerry Secure platform include:
•
•
•
•
•
the BlackBerry Enterprise Mobility Suite, which includes BlackBerry Unified Endpoint Manager (“UEM”),
BlackBerry Dynamics and BlackBerry Workspaces, among other products and applications;
BlackBerry QNX, Certicom and BlackBerry Jarvis, which are units of the Company’s BlackBerry Technology
Solutions (“BTS”) business;
BlackBerry AtHoc, which provides secure, networked crisis communications solutions;
Secusmart, which provides secure voice and text messaging solutions with advanced encryption and anti-
eavesdropping capabilities; and
the BlackBerry Messenger (“BBM”) Enterprise service and the BBM Enterprise SDK for the Communications
Platform as a Service market; and
The Company’s software and services business also includes:
•
•
•
•
Paratek and BlackBerry Radar, which are other units within BTS;
Intellectual Property and Licensing (the Company’s technology licensing business);
licensing related to the BBM Consumer service; and
Professional Cybersecurity Services, which offers cybersecurity consulting services and tools.
The Company is widely recognized for productivity and security innovations, and the Company believes that it delivers the
most secure end-to-end mobile enterprise solutions in the market. With these core strengths, the Company’s broad portfolio of
products and services is focused on serving enterprise customers, particularly in regulated industries.
The Company is also engaged in the development and licensing of the Company’s secure device software and the outsourcing
to partners of all design, manufacturing, sales and customer support for BlackBerry-branded, and white label handsets. The
Company intends to expand its security software and brand licensing program, under which the BlackBerry KEYone,
BlackBerry Aurora, and BlackBerry Motion smartphones have been released to date, to include a broader set of devices and
non-smartphone endpoints. In addition, the Company also continues to develop software updates for its legacy BlackBerry 10
platform, and delivers BlackBerry productivity applications to Android smartphone users via the Google Play store. The
Company continues to provide non-warranty repair services for its previously released BlackBerry-designed devices.
The Company also continues to generate service access fees (“SAF”) charged to subscribers using the Company’s legacy
BlackBerry 7 and prior BlackBerry operating systems, and an allocation of revenue relating to service obligations and
unspecified future software upgrades associated with BlackBerry 10 devices.
3
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Strategy, Products and Services
The Company is focused on delivering an end-to-end software and services platform for the Enterprise of Things. The
Company defines the Enterprise of Things as the network of devices, computers, vehicles, sensors, equipment and other
connected endpoints within the enterprise that communicate with each other to enable smart business processes. The Company
leverages many elements of its extensive technology portfolio to extend best-in-class security and reliability to its solutions for
the Enterprise of Things, including unified endpoint management (“UEM”), embedded systems, crisis communications,
enterprise applications, and related services, with hosting available on the Company’s global, scalable, secure network, as well
as on public clouds.
The Company’s core software and services offering is the BlackBerry Secure platform, which integrates a broad portfolio of
technologies and solutions, including BlackBerry UEM, BlackBerry Dynamics, the QNX CAR Platform and Neutrino
Operating System, AtHoc Alert, AtHoc Account, SecuSUITE, and BlackBerry Workspaces. BlackBerry UEM offers a “single
pane of glass”, or unified console view, for managing and securing devices, applications, identity, content, and IoT endpoints
across all leading operating systems. BlackBerry Dynamics offers a best-in-class development platform and secure container
for mobile applications, including the Company’s own enterprise applications such as BlackBerry Work and BlackBerry
Connect for secure collaboration.
The Company’s BlackBerry QNX unit is a global provider of real-time operating systems, middleware, development tools, and
professional services for connected embedded systems, primarily in the automotive, medical and industrial automation markets.
The recognized leader in software for automotive electronics, BlackBerry QNX offers a growing portfolio of certified safety-
critical modules and platform solutions and is focusing on achieving design wins with automotive original equipment
manufacturers, Tier 1 vendors and automotive semiconductor suppliers. Through its innovations for connected and autonomous
vehicles, including cybersecurity services and tools, the Company intends to generate incremental software and services
revenue and to increase its revenue and margin on a per-vehicle basis.
The Company also licenses its secure handset software and its intellectual property assets and intends to increase recurring
revenue from these programs.
During the third quarter of fiscal 2018, the Company launched Radar-L, a cost-optimized version of its BlackBerry Radar asset
tracking solution that expands the addressable market, and a vehicle management portal for automotive cybersecurity.
The Company intends to continue to increase and enhance its product and service offerings through both strategic acquisitions
and organic investments, with a view to extending the functionality of the BlackBerry Secure platform and delivering software
and embedded solutions focused on strategic industry verticals. Please also see the “Narrative Description of the Business -
Strategy” section in the AIF, which is included in the Annual Report.
Recent Developments
The Company continued to execute on its strategy in fiscal 2018 through the following two notable arrangements entered into
during fiscal 2018.
The Company entered into a strategic licensing agreement with Teletry, a company with expertise in building relationships
between patent holders and licensees in the wireless technology industry. As part of the arrangement, Teletry has the right to
sublicense a broad range of the Company’s patents to a majority of global smartphone manufacturers. The Company retains
ownership of approximately 37,500 patents and applications and operates its own licensing program outside of Teletry's
sublicensing rights.
The Company also entered into an agreement with Qualcomm Technologies, Inc. (“Qualcomm”), to optimize select Qualcomm
hardware platforms with BlackBerry QNX software for use in virtual cockpit controllers, telematics, electronic control
gateways, digital instrument clusters and infotainment systems. In addition, the Company will optimize its over-the-air
software and Secure Credential Management services for use with select Qualcomm® Snapdragon™ modems.
In executing on its strategy in fiscal 2018, the Company also announced the following achievements:
• Named a leader in the Gartner, Inc. (“Gartner”) June 2017 Magic Quadrant for Enterprise Mobility Management
Suites and received the highest score for all six use cases in the Gartner Critical Capabilities for High-Security
Mobility Management report for the second year in a row;
• Received the highest score in two use cases in the Gartner, Inc. Critical Capabilities for Content Collaboration
Platforms report;
• Became the only vendor recognized by Gartner in all eight categories of their Market Guide for Information-Centric
Endpoint and Mobile Protection with a single platform offering;
• Ranked as a leader in the Forrester Wave: EMM report by Forrester Research, Inc., for the third consecutive year;
4
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
• Launched QNX Hypervisor 2.0, a real-time Type 1 hypervisor solution that enables automotive platform developers to
partition and isolate safety-critical environments from non-safety critical environments;
• Launched BlackBerry Jarvis, a cloud-based static binary code-scanning tool that identifies cybersecurity
vulnerabilities in software used in automobiles;
• Announced a commercial partnership agreement with Delphi Automotive PLC (now Aptiv) to provide the operating
•
system for its autonomous driving system;
Selected by Baidu to power Baidu’s Apollo autonomous driving open platform, CarLife infotainment platform and
DuerOS artificial intelligence system;
• Announced that NVIDIA selected BlackBerry QNX to be the software foundation for its functionally safe self-driving
development platform;
• Announced that, in partnership with DENSO Corporation, the Company has developed the world’s first integrated
Human Machine Interface platform for automobiles;
• Expanded its asset tracking portfolio with the launch of Radar-L, a solution for flatbeds, chassis, containers, heavy
•
machinery and other valuable transportation or non-powered assets;
Partnered with TCL Communication (“TCL”) and PT BB Merah Putih to introduce the BlackBerry-branded KEYone,
Motion, and Aurora smartphones, offering the most secure Android smartphone experience;
• Announced that the BlackBerry AtHoc cloud service for crisis communication received U.S. Federal Risk and
Authorization Management Program (FedRAMP) authorization;
• Launched AtHoc Account, a FedRAMP-authorized solution that automates personnel accountability and crisis
communication processes by providing safety and availability status updates of people before, during and after a
critical event;
• Expanded SecuSUITE for Government availability to include the Canadian and U.S. governments;
• Added numerous Gold-level partners to the BlackBerry Enterprise Partner Program, furthering the Company’s
commitment to establishing and growing its global ecosystem of enterprise software partners and developers;
• Entered into a reselling partnership with Fleet Complete for BlackBerry Radar and announced that Fleet Complete has
chosen BlackBerry Radar for its BigRoad Freight program;
• Announced a new partnership with Pana-Pacific to make BlackBerry Radar available to more than 2,800 commercial
•
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vehicle dealers in North America;
Introduced new cybersecurity consulting services aimed at enabling enterprise General Data Protection Regulation,
compliance and mitigating security risks in connected automobiles that threaten personal and public safety;
Signed its first white label licensing deal with Yangzhou New Telecom Science and Technology Company Ltd. (NTD),
under which handsets developed by NTD and branded by OEMs, carriers and local smartphone brands will use
BlackBerry’s device software and be marketed as “BlackBerry Secure”;
• Expanded its distribution channels through a new initiative with Allied World Assurance Company Holdings, AG,
whereby Allied World will provide its cyber policyholders with direct access to the Company’s cybersecurity expertise
through the BlackBerry SHIELD online self-assessment tool that will identify areas of weakness, after which the
Company will work to improve the policyholders’ security posture by providing its cybersecurity products and
services;
• Appointed Steven Capelli as Chief Operating Officer (in addition to Chief Financial Officer); and
• Appointed Mark Wilson as Chief Marketing Officer.
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. The binding arbitration hearing was held from February 27, 2017 to March 3, 2017 under the Judicial
Arbitration and Mediation Services rules in San Diego, California. On April 11, 2017, the arbitration panel issued an interim
decision, finding in favour of the Company. Subsequently, the Company reached an agreement with Qualcomm resolving all
amounts payable in connection with the interim arbitration decision. 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. This amount was recorded
within Arbitration charges (awards) on the consolidated statements of operations in the first quarter of fiscal 2018. 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 (loss), net, for
a total gain associated with the award of $962 million in the first quarter of fiscal 2018.
5
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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. An arbitration hearing was held May 8-9, 2017 in New York and on
November 29, 2017, the arbitration panel issued a decision, finding in favour of Nokia. On December 12, 2017, Nokia
submitted a Petition for Correction to the arbitrators requesting correction of a computational error in the amount of pre-award
interest provided for in the original award. On January 31, 2018, the arbitrators issued an addendum correcting this error. As a
result, the Company recorded $148 million in charges associated with the arbitration, consisting of $132 million within
Arbitration charges (awards) and $16 million in interest expense within investment income (loss), net on the consolidated
statements of operations.
Normal Course Issuer Bid
On June 23, 2017 the Company announced that it received acceptance from the Toronto Stock Exchange (“TSX”) with respect
to a normal course issuer bid to repurchase for cancellation up to 31,000,000 BlackBerry common shares, representing
approximately 6.4% of the outstanding public float as of May 31, 2017. The share repurchase program will remain in place
until June 26, 2018, or such earlier time as the purchases are completed or the program is terminated by the Company.
The Company may purchase the common shares over the New York Stock Exchange, the TSX or other markets. The price the
Company will pay for any shares under the share repurchase program will be the prevailing market price at the time of
purchase. The share repurchase program will be effected in accordance with Rule 10b-18 under the U.S. Securities Exchange
Act of 1934 and the TSX’s normal course issuer bid rules, which contain restrictions on the number of shares that may be
purchased on a single day, subject to certain exceptions for block purchases, based on the average daily trading volumes of the
Company’s common shares on the applicable exchange.
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.
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 28, 2018, the Company announced financial results for the three months and fiscal
year ended February 28, 2018, which included certain non-GAAP financial measures, including adjusted revenue, adjusted
gross margin, adjusted gross margin percentage, adjusted EBITDA, adjusted EBITDA margin, adjusted income (loss) before
income taxes, adjusted net income (loss) and adjusted income (loss) per share. The Company believes the presentation of these
non-GAAP measures provides management and shareholders with important information regarding the Company’s financial
performance due to the financial statement impact of the Company’s transformation from a hardware focused handset
manufacturer to an enterprise software and services company with recurring revenue streams.
For the three months ended February 28, 2018, these measures were adjusted for the following (collectively, the “Q4 Fiscal
2018 Non-GAAP Adjustments”) (all items pre-tax and after-tax):
•
the Q4 Fiscal 2018 Debentures Fair Value Adjustment (as defined below under “Fiscal 2018 Summary Results of
Operations – Financial Highlights – Debentures Fair Value Adjustment”) consisting of income of approximately $34
million;
•
selective patent abandonment of approximately $2 million;
• Resource Allocation Program (“RAP”) charges consisting of amounts associated with employee termination benefits,
facilities, and certain other costs of approximately $26 million;
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software deferred revenue acquired but not recognized due to business combination accounting rules of approximately
$6 million;
stock compensation expense of approximately $13 million;
amortization of intangible assets acquired through business combinations of approximately $22 million;
an interest true-up gain relating to the interest paid under the Nokia arbitration of $1 million; and
true-ups relating to legacy royalty arrangements under the handheld devices business of $1 million.
6
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the fiscal year ended February 28, 2018, these measures (collectively, the “Fiscal 2018 Non-GAAP Adjustments”)
consisted of the following (all items pre-tax and after-tax):
•
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a long-lived asset impairment charge associated with the Company’s handheld devices business (the “Fiscal 2018 LLA
Impairment Charge”) recognized in the second quarter, when the carrying value exceeded the fair value of an asset
group of $11 million;
the Fiscal 2018 Debentures Fair Value Adjustment (as defined below under “Fiscal 2018 Summary Results of
Operations – Financial Highlights – Debentures Fair Value Adjustment”) consisting of charges of approximately $191
million;
•
selective patent abandonment of approximately $4 million;
• RAP charges consisting of amounts associated with employee termination benefits, facilities, and certain other costs of
approximately $78 million;
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software deferred revenue acquired but not recognized due to business combination accounting rules of approximately
$35 million;
stock compensation expense of approximately $49 million;
amortization of intangible assets acquired through business combinations of approximately $95 million;
business acquisition and integration costs incurred through business combinations of approximately $14 million;
net arbitration awards related to the Qualcomm and Nokia arbitrations of $683 million;
net interest income related to the Qualcomm and Nokia arbitrations of $123 million; and
true-ups relating to legacy royalty arrangements under the handheld devices business of $1 million.
7
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Company believes that presenting non-GAAP financial measures that exclude the impact of those items enables it and its
shareholders to better assess the Company’s operating performance relative to its consolidated financial results in prior and
future periods and improves the comparability of the information presented. Readers are cautioned that adjusted revenue,
adjusted gross margin, adjusted gross margin percentage, adjusted EBITDA, adjusted EBITDA margin, adjusted income (loss)
before income taxes, adjusted net income (loss), adjusted income (loss) per share 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. A reconciliation of non-GAAP financial measures for the three months and fiscal
year ended February 28, 2018 to the most directly comparable U.S. GAAP measures was included in the Company’s March 28,
2018 press release, and is reflected in the tables below:
Q4 Fiscal 2018 Non-GAAP Adjustments
For the Three Months Ended February 28, 2018
(in millions)
Income statement
location
Revenue
Gross margin
(before taxes)
Gross margin
% (before
taxes)
Income (loss)
before
income taxes
Net income
Basic
earnings per
share
As reported
$
233
$
177
76.0 % $
(14) $
(10) $
(0.02)
Debentures fair value
adjustment(1)
Debentures fair
value adjustment
Selective patent
abandonment
RAP charges (2)
RAP charges (2)
Loss on sale,
disposal and
abandonment
Cost of sales
Selling, marketing
and administration
Software deferred revenue
acquired (3)
Revenue(3)
Stock compensation expense
Cost of sales
Stock compensation expense
Stock compensation expense
Acquired intangibles
amortization
Arbitration awards, net (4)
Research and
development
Selling, marketing
and administration
Amortization
Investment income
(loss), net
Legacy royalty adjustments
Cost of sales
—
—
—
—
6
—
—
—
—
—
—
—
—
3
—
6
1
—
—
—
—
1
— %
(34)
(34)
— %
1.3 %
— %
0.5 %
0.4 %
— %
— %
— %
— %
0.5 %
2
3
23
6
1
3
9
22
(1)
1
21
$
2
3
23
6
1
3
9
22
(1)
1
25
$
0.05
$
239
$
188
78.7 % $
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(1) See “Fiscal 2018 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment”
(2) See “Fiscal 2018 Summary Results of Operations - Financial Highlights - RAP”
(3) Included within enterprise software and services revenue
(4) See “Business Overview - Nokia Arbitration Decision”
8
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Fiscal 2018 Non-GAAP Adjustments
For the Year Ended February 28, 2018
(in millions)
Income statement
location
Revenue
Gross margin
(before taxes)
Gross margin
% (before
taxes)
Net income
before
income taxes
Net income
Basic
earnings per
share
$
932
$
670
71.9 % $
406
$
405
$
0.76
As reported
LLA Impairment Charge
Debentures fair value
adjustment (1)
Selective patent
abandonment
RAP charges (2)
RAP charges (2)
RAP charges (2)
Software deferred revenue
acquired (3)
Impairment of
long-lived assets
Debentures fair
value adjustment
Loss on sale,
disposal and
abandonment
Cost of sales
Research and
development
Selling, marketing
and administration
Revenue (3)
Stock compensation expense
Cost of sales
Stock compensation expense
Research and
development
Stock compensation expense Selling, marketing
and administration
Acquired intangibles
amortization
Business acquisition and
integration costs
Arbitration awards, net (4)
Arbitration awards, net (4)
Amortization
Selling, marketing
and administration
Arbitration awards,
net
Investment income
(loss), net
Legacy royalty adjustments
Cost of sales
—
—
—
—
—
—
35
—
—
—
—
—
—
—
—
—
—
—
11
—
—
35
4
—
—
—
—
—
—
1
— %
— %
— %
1.2 %
— %
— %
0.9 %
0.5 %
— %
— %
— %
— %
— %
— %
0.1 %
11
191
4
11
5
62
35
4
12
33
95
14
(683)
(123)
1
78
$
11
191
4
11
5
62
35
4
12
33
95
14
(683)
(123)
1
77
$
0.14
Adjusted
$
967
$
721
74.6 % $
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(1) See “Fiscal 2018 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment”.
(2) See “Fiscal 2018 Summary Results of Operations - Financial Highlights - RAP”.
(3) Included within enterprise software and services revenue.
(4) See “Business Overview - Qualcomm Arbitration Award” and “Business Overview - Nokia Arbitration Decision”.
Similarly, on March 31, 2017, the Company announced financial results for the three months and fiscal year ended
February 28, 2017, which included certain non-GAAP financial measures, including adjusted revenue, adjusted gross margin,
adjusted gross margin percentage, adjusted EBITDA, adjusted EBITDA margin, adjusted income (loss) before income taxes,
adjusted net income (loss), and adjusted earnings (loss) per share.
For the three months ended February 28, 2017, these measures were adjusted for the following (collectively, the “Q4 Fiscal
2017 Non-GAAP Adjustments”) (all items pre-tax and after-tax):
•
•
•
a fair value adjustment (the “Fiscal 2017 Debentures Fair Value Adjustment”) associated with the Company’s 3.75%
convertible debentures (the “3.75% Debentures”) of approximately $16 million;
the write-down of inventory in the amount of $4 million relating to certain BlackBerry-designed smartphones;
selective patent abandonment of approximately $1 million;
• RAP charges of approximately $24 million;
•
•
•
•
software deferred revenue acquired but not recognized due to business combination accounting rules of approximately
$11 million;
stock compensation expense of approximately $15 million;
amortization of intangible assets acquired through business combinations of approximately $28 million; and
business acquisition and integration costs incurred through business combinations of approximately $3 million.
9
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the fiscal year ended February 28, 2017, these measures were adjusted for the following (collectively, the “Fiscal 2017
Non-GAAP Adjustments”) (all items pre-tax and after-tax):
•
•
•
•
•
•
a long-lived asset impairment charge associated with the Company’s handheld devices business (the “Fiscal 2017 LLA
Impairment Charge”), recognized when the carrying value exceeds the fair value of an asset group of $501 million;
an impairment charge associated with the fair value of goodwill (the “Fiscal 2017 Goodwill Impairment Charge”),
recognized when the carrying amount of a reporting unit exceeds its fair value of $57 million;
the write-down of inventory in the amount of $141 million relating to certain BlackBerry-designed smartphones;
a fair value adjustment associated with the Company’s previously issued $1.25 billion 6% convertible debentures (the
“6% Debentures”), and 3.75% Debentures, collectively (the “Debentures”) of approximately $24 million;
selective patent abandonment of approximately $4 million;
the write-down related to assets held for sale to fair value less costs to sell of approximately $165 million;
• RAP charges of approximately $95 million;
• Cost Optimization Resource Efficiency (“CORE”) program recoveries of approximately $7 million;
•
•
•
•
software deferred revenue acquired but not recognized due to business combination accounting rules of approximately
$65 million;
stock compensation expense of approximately $60 million;
amortization of intangible assets acquired through business combinations of approximately $112 million; and
business acquisition and integration costs incurred through business combinations of approximately $19 million.
10
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
A reconciliation of non-GAAP financial measures for the three months and fiscal year ended February 28, 2017 to the most
directly comparable U.S. GAAP measures was included in the Company’s March 31, 2017 press release, and is reflected in the
table below:
For the Three Months Ended February 28, 2017
(in millions)
For the Year Ended February 28, 2017
(in millions)
Income
Statement
Location
Revenue
Gross
Margin
Income
(loss)
before
income
taxes
Net
income
(loss)
Revenue
Gross
Margin
Income
(loss)
before
income
taxes
Net
income
(loss)
As reported
LLA Impairment
Charge
Impairment of
long-lived assets
Goodwill Impairment
Charge
Impairment of
goodwill
Inventory write-down
Cost of sales
Debentures fair value
adjustment
Debentures fair
value adjustment
Selective patent
abandonment
Write-down of assets
held for sale
RAP charges
RAP charges
RAP charges
CORE program
charges
Software deferred
revenue acquired
Stock compensation
expense
Stock compensation
expense
Stock compensation
expense
Acquired intangibles
amortization
Business acquisition
and integration costs
Adjusted
Loss on sale,
disposal and
abandonment of
long-lived assets
Loss on sale,
disposal and
abandonment of
long-lived assets
Cost of sales
Research and
development
Selling, marketing
and
administration
Selling, marketing
and
administration
Revenue
Cost of sales
Research and
development
Selling, marketing
and
administration
Amortization
Selling, marketing
and
administration
$
286
$
172
$
(49) $
(47) $
1,309
$
617
$
(1,208) $
(1,206)
—
—
—
—
—
—
—
—
—
—
11
—
—
—
—
—
—
—
4
—
—
—
6
—
—
—
11
1
—
—
—
—
$
297
$
194
$
—
—
4
—
—
4
(16)
(16)
1
—
6
3
15
—
11
1
5
9
28
3
21
$
1
—
6
3
15
—
11
1
5
9
28
3
23
—
—
—
—
—
—
—
—
—
—
65
—
—
—
—
—
—
—
141
—
—
—
25
—
—
—
65
1
—
—
—
—
$
1,374
$
849
$
501
57
141
24
501
57
141
24
4
4
165
25
4
66
165
25
4
66
(7)
(7)
65
1
17
42
65
1
17
42
112
112
19
28
$
19
30
11
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Company also reported adjusted EBITDA for the three months and fiscal year ended February 28, 2018 of $36 million and
$160 million, respectively. 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
February 28, 2018
(in millions)
For the Year Ended
February 28, 2018
(in millions)
Operating income (loss)
Non-GAAP adjustments to operating income (loss)
$
(17) $
LLA Impairment Charge
Debentures fair value adjustment
Selective patent abandonment
RAP charges
Software deferred revenue acquired
Stock compensation expense
Acquired intangibles amortization
Business acquisition and integration costs
Arbitration awards, net
Legacy royalty adjustments
Total non-GAAP adjustments to operating income (loss)
Non-GAAP operating income
Amortization
Acquired intangibles amortization
Adjusted EBITDA
Adjusted revenues (per above)
Adjusted EBITDA margin
—
(34)
2
26
6
13
22
—
—
1
36
19
$
$
39
(22)
36
239
15%
$
$
283
11
191
4
78
35
49
95
14
(683)
1
(205)
78
177
(95)
160
967
17%
12
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Adjusted EBITDA and adjusted EBITDA margin for the three months and fiscal year ended February 28, 2017 are reflected in
the table below.
Operating loss
Non-GAAP adjustments to operating loss
LLA Impairment Charge
Goodwill Impairment Charge
Inventory write-down
Debentures fair value adjustment
Selective patent abandonment
Write-down of assets held for sale
RAP charges
CORE program recoveries
Software deferred revenue acquired
Stock compensation expense
Acquired intangibles amortization
Business acquisition and integration costs
Total non-GAAP adjustments to operating loss
Non-GAAP operating income
Amortization
Acquired intangibles amortization
Adjusted EBITDA
Adjusted revenues (per above)
Adjusted EBITDA margin
For the Three
Months Ended
February 28, 2017
(in millions)
For the Year Ended
February 28, 2017
(in millions)
$
(57) $
(1,181)
—
—
4
(16)
1
—
24
—
11
15
28
3
70
13
$
$
57
(28)
42
297
14%
$
$
501
57
141
24
4
165
95
(7)
65
60
112
19
1,236
55
239
(112)
182
1,374
13%
The Company also reported free cash flow as described in “Fiscal 2018 Summary Results of Operations - Free Cash Flow”,
below.
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, revenues and expenses and the disclosure of contingent assets and
liabilities. These estimates and assumptions are based upon management’s historical experience and are believed by
management to be reasonable under the circumstances. Such estimates and assumptions are evaluated on an ongoing basis and
form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results could differ from these estimates.
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.
13
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 “Risk
Factors - The market price of the Company’s common shares is volatile” in the AIF. 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 real estate, 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 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 28, 2018 compared to fiscal year ended February 28, 2017 -
Income Taxes” and “Results of Operations - Three months ended February 28, 2018 compared to three months ended
February 28, 2017 - Income Taxes”.
Revenue Recognition
Multiple Element Arrangements
The Company’s process for determining best estimated selling prices (“BESPs”) as it relates to when and if available upgrade
rights to the BlackBerry 10 and Android devices exist involves management’s judgment and multiple factors are considered
that may vary over time depending upon the unique facts and circumstances related to each deliverable. The objective of BESP
is to determine the price at which the Company would transact a sale if the product or service was sold on a stand-alone basis.
Should future facts and circumstances change, the Company’s BESPs and the future rate of related amortization for software
upgrades and non-software services related to future sales of these devices could change. Factors subject to change include the
unspecified software upgrade rights offered, change in pricing of elements sold separately by the Company in the future, the
estimated value of unspecified software upgrade rights, the estimated or actual costs incurred to provide non-software services,
and the estimated period software upgrades and non-software services expected to be provided. Management does not expect
the estimate of BESP to increase in the future given the competitive nature of the industry and the downward trends on its
pricing. It is more likely to decrease in the future, which would result in a positive impact on the results of operations on a go-
forward basis. Management also uses historical data to determine the useful life of the device over which to amortize the
upgrade value. If the life of the device increased, the rate at which revenue is recognized would decrease. Conversely, if the life
of the device decreased, the rate at which revenue is recognized would increase. Management reviews its estimates on an
annual basis unless other facts and circumstances arise to warrant a shorter review cycle.
Hardware
Significant judgment is applied by the Company to determine whether shipments of devices have met the Company’s revenue
recognition criteria, as the analysis is dependent on many facts and circumstances. The Company is able to conclude that the
price of its handheld devices is fixed or determinable on shipment in certain cases and, therefore, the four criteria as described
in Note 1 to the Consolidated Financial Statements for revenue recognition were met upon shipment. As such, sales of the
14
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Company’s Android device to wireless carriers in certain regions, sales of the Company’s latest BlackBerry 10 devices to
wireless carriers in certain regions, and sales of BlackBerry 7 devices to wireless carriers in certain regions are recognized as
revenue at the time of shipment. Other shipments of handheld devices are recognized as revenue when the devices sell through
to end users.
The Company’s use of customer incentives requires management to use significant judgment in evaluating whether prices for
handheld devices are fixed or determinable, which can impact the timing of when hardware revenue is recognized. When the
price is not considered fixed or determinable, the Company recognizes revenue when the product is sold through to its end
users. The Company must take into account its past history with its carrier and distribution partners to determine whether it can
reliably estimate whether any future concessions will be provided on products it has previously sold into the channel. The
Company also makes estimates of the level of channel inventory and the likelihood it will sell-through at the prices sold to its
distribution partners. The Company also has to consider external factors such as end customer demand, market acceptance of its
products, cannibalization of new product introductions, the competitive landscape, and technological obsolescence in
determining whether the price is fixed or determinable at the time of shipment. These factors could result in the Company
increasing its customer incentive programs which could impact the results of the Company’s operations. The Company
recognizes these customer incentives at the later of when the Company has recognized the product sale or when the program is
offered.
The Company also uses estimates in determining return provisions for its hardware sales. The Company has limited rights of
return for quality defects based on contractual terms and conditions. The Company’s historical experience is that returns for
defects are immaterial to the results of operations and represent only 0.5% to 1% of total units shipped. However, if defect rates
were to increase beyond those estimated, the Company would be required to recognize additional reductions to revenue. If the
defect rate were to change such that the Company could no longer reliably estimate the return rate, recognition of revenue
could be delayed until a reliable estimate could be made or the return period lapses.
Adoption of Accounting Policies
In October 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-16 on the topic of income taxes.
The amendments in this update improve the accounting for the income tax consequences of intra-entity transfers of assets other
than inventory. This guidance is effective for interim and annual periods beginning after December 15, 2017. Early adoption is
permitted, and the Company chose to early adopt this guidance in the first quarter of fiscal 2018. As a result of the adoption of
ASU 2016-16, the Company recognized approximately $3 million in tax expense on past intra-entity transfers that had
previously been deferred, through a cumulative adjustment to retained earnings.
Recently Issued Accounting Pronouncements
Accounting Standards Codification 606
In May 2014, the FASB issued a new accounting standard on the topic of revenue contracts, which replaces the existing
revenue recognition standard (“ASC 606”). The new standard amends the number of requirements that an entity must consider
in recognizing revenue and requires improved disclosures to help readers of financial statements better understand the nature,
amount, timing and uncertainty of revenue recognized. For public entities, the new standard is effective for annual reporting
periods beginning after December 15, 2017, including interim periods within that reporting period. The Company established a
cross-functional coordinated team to conduct the implementation of the revenue recognition standard, which was responsible
for identifying and implementing the appropriate changes to the Company’s business processes, systems and controls
surrounding the adoption of ASC 606 in order to support the relevant recognition and disclosure changes.
The Company will adopt this guidance on March 1, 2018 utilizing the modified retrospective approach, whereby any historical
impact upon adoption is recorded as a cumulative transition adjustment to retained earnings or deficit. As part of its preparation
for adoption of ASC 606, the Company implemented internal controls and certain changes to its Enterprise Resource Planning
systems to analyze its contracts and related financial information and prepare to comply with the dual reporting requirements
during the one year transition period under the modified retrospective approach.
The key area of potential impact to the Company from implementing the guidance relates to the timing of revenue recognition
for the software license component of its enterprise software offerings. There are no significant changes expected to any of the
Company’s other revenue streams as a result of the adoption of ASC 606.
ASC 606 requires the capitalization of all the incremental costs to acquire a contract, and for these costs to be amortized into
income proportionate to the recognition of the associated revenue. The Company currently capitalizes and defers some, but not
all, of its incremental costs to acquire a contract and amortizes that cost into income ratably over the term of the contract. As a
result, the adoption of ASC 606 will result in certain costs incurred in acquiring a contract previously expensed being reversed
through a cumulative adjustment from retained earnings or deficit to other current assets, and recognized over time in line with
the associated revenue.
15
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Company is in the process of determining the impact of ASC 606, and expects that, in the first quarter of fiscal 2019 when
the standard becomes effective for the Company, there likely will be a material impact to its financial statements consisting of
adjustments to the opening balance of its deficit, a change in deferred revenue, and a change in other current assets.
Accounting Standards Update 2016-01
In January 2016, the FASB issued a new accounting standard on the topic of financial instruments. The amendments in this
update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The standard
primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and
disclosure requirements for financial instruments. In addition, the guidance clarifies that an entity should evaluate the need for
a valuation allowance on a deferred tax asset related to available-for-sale securities. The guidance is effective for interim and
annual periods beginning after December 15, 2017. Changes as a result of this guidance are to be applied through a cumulative-
effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company will adopt this guidance
in the first quarter of fiscal 2019.
This guidance requires the Company to present separately in accumulated other comprehensive income (“AOCI”) the portion
of the total change in fair value of a liability resulting from a change in the instrument-specific credit risk, when the Company
has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The
Company has elected the fair value option on its Debentures. As such, previous fluctuations in the fair value of the Debentures
resulting from a change in the Company’s assessment of the instrument-specific credit risk will be reversed from deficit and be
placed in AOCI as of March 1, 2018. The Company is still in the process of determining this impact. Future fluctuations in the
fair value of the Debentures resulting from a change in the Company’s assessment of the instrument-specific credit risk will be
recorded through AOCI.
This guidance also requires that changes in fair value associated with the Company’s equity investment be recorded in net
income as opposed to AOCI. As at February 28, 2018, the Company had total unrealized losses associated with its equity
investments of approximately $8 million. As a result, on March 1, 2018, the Company will record a cumulative adjustment out
of AOCI and into deficit for approximately $8 million. Future fluctuations in the value of the Company’s equity investment will
be recorded in the statement of operations.
Other Recently Announced Accounting Pronouncements
In February 2016, the FASB issued a new accounting standard on the topic of leases. The new standards would require
companies and other organizations 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 will result in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability. For
finance leases, the lessee would recognize interest expense and amortization of the ROU asset, and for operating leases, the
lessee would recognize a straight-line total lease expense. The guidance is effective for interim and annual periods beginning
after December 15, 2018. Early adoption is permitted. The Company expects to adopt this guidance in the first quarter of fiscal
2020 and is currently evaluating the impact that the adoption will have on its results of operations, financial position and
disclosures.
In May 2017, the FASB issued a new accounting standard on the topic of stock compensation. The amendments in this update
provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply
modification accounting in Topic 718. The guidance is effective for interim and annual periods beginning after December 15,
2017. The Company will adopt this guidance in the first quarter of fiscal 2019 and does not expect the impact to have a material
effect on its results of operations, financial position and disclosures.
In August 2017, the FASB issued a new accounting standard on the topic of derivatives and hedging. The amendments in this
update expand and refine the designation and measurement guidance for qualifying hedging relationships and the presentation
of those hedge results. The guidance is effective for interim and annual periods beginning after December 15, 2018. The
Company will adopt this guidance in the first quarter of fiscal 2020 and does not expect the impact to have a material effect on
its results of operations, financial position and disclosures.
16
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Fiscal 2018 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 28, 2018, February 28, 2017, and February 29, 2016:
As at and for the Fiscal Years Ended
(in millions, except for share and per share amounts)
February 28, 2018
February 28, 2017
Change
February 29, 2016
Change
Revenue (1)(2)
Gross margin (1)(2)
Operating expenses (1)(2)
Investment income (loss), net
Income (loss) before income taxes
Provision for (recovery of) income taxes
Net income (loss)
Earnings (loss) per share - reported
Basic
Diluted
Weighted-average number of shares
outstanding (000’s)
Basic
Diluted (3)
Total assets
Total long-term financial liabilities
$
$
$
$
$
$
932
670
387
123
406
1
405
0.76
0.74
$
1,309
$
617
1,798
(27)
(1,208)
(2)
(1,206) $
(2.30)
(2.30)
$
$
$
(377) $
53
(1,411)
150
1,614
3
1,611
$
$
$
2,160
$
941
1,164
(59)
(282)
(74)
(208) $
(0.40)
(0.86)
(851)
(324)
634
32
(926)
72
(998)
532,888
546,008
525,265
525,265
526,303
651,303
3,780
782
$
$
3,296
591
$
$
484
191
$
$
5,595
1,277
$
$
(2,299)
(686)
______________________________
(1) See “Non-GAAP Financial Measures” for the impact of the Fiscal 2018 Non-GAAP Adjustments on adjusted revenue,
adjusted gross margin and adjusted operating expenses in fiscal 2018.
(2) See “Non-GAAP Financial Measures” for the impact of the Fiscal 2017 Non-GAAP Adjustments on adjusted revenue,
adjusted gross margin and adjusted operating expenses in fiscal 2017.
(3) Diluted loss per share on a U.S. GAAP basis for fiscal 2018 and fiscal 2017 does not include the dilutive effect of the
Debentures as they would be anti-dilutive. Diluted loss per share on a U.S. GAAP basis for fiscal 2017 and fiscal 2017 does
not include the dilutive effect of stock-based compensation as to do so would be anti-dilutive. See Note 12 to the
Consolidated Financial Statements for the fiscal year ended February 28, 2018 for calculation of the diluted weighted
average number of shares outstanding.
Financial Highlights
The Company had approximately $2.4 billion in cash, cash equivalents and investments as of February 28, 2018.
In fiscal 2018, the Company recognized revenues of $932 million and net income of $405 million, or $0.76 basic and $0.74
diluted earnings per share on a U.S. GAAP basis. The Company recognized adjusted revenues of $967 million and adjusted net
income of $77 million, or earnings of $0.14 per share on a non-GAAP basis in fiscal 2018. See also “Non-GAAP Financial
Measures”.
Free Cash Flow
Free cash flow is a measure of liquidity calculated as operating cash flow minus capital expenditures. Free cash flow does not
have any standardized meaning as prescribed by U.S. GAAP and is therefore may not be comparable to similar measures
presented by other companies. For the three months ended February 28, 2018, the Company’s net cash used in operating
activities was $165 million and capital expenditures were $4 million, resulting in the Company reporting free cash usage of
$169 million.
Free cash flow was $31 million for the three months ended February 28, 2018 before taking into account $17 million in cash
paid related to restructuring and transition from the hardware business, $148 million paid in the Nokia arbitration, and $35
million paid related to the Settlement Funding Agreement with JP Morgan Chase as described in Note 14 to the Consolidated
Financial Statements, which the Company is in arbitration to recover from an escrow fund account established upon the
acquisition of Good also as described in Note 14 to the Consolidated Financial Statements.
17
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the fiscal year ended February 28, 2018, the Company’s net cash provided by operating activities was $704 million and
capital expenditures were $15 million, resulting in the Company reporting free cash flow of $689 million.
Free cash flow for the fiscal year ended February 28, 2018 was $47 million before taking into account $107 million in
restructuring and transition costs, $784 million in net cash received from the Qualcomm and Nokia arbitrations, and the above
mentioned $35 million in relation to Good.
On December 20, 2017, the Company stated it anticipated generating positive free cash flow for fiscal 2018 before taking into
account the net impact of the Qualcomm arbitration, Nokia arbitration and costs related to restructuring and transition from the
hardware business. The Company reported $12 million in free cash flow before taking into account these items in the amounts
noted above.
The Company expects positive free cash flow for fiscal 2019, before considering the impact of restructuring and the impact of
legal proceedings.
Debentures Fair Value Adjustment
As previously disclosed, the Company elected the fair value option to account for the 3.75% 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
3.75% Debentures such as the face value, the redemption features or the conversion price. In the fourth quarter of fiscal 2018,
the Company recorded income associated with the change in the fair value of the 3.75% Debentures of approximately $34
million (pre-tax and after tax) (the “Q4 Fiscal 2018 Debentures Fair Value Adjustment”). In fiscal 2018, the Company recorded
a net charge associated with the change in the fair value of the Debentures of approximately $191 million (pre-tax and after tax)
(the “Fiscal 2018 Debentures Fair Value Adjustment”).
RAP
During the first quarter of fiscal 2016, the Company commenced the RAP with the objectives of (i) reallocating resources to
capitalize on growth opportunities, (ii) providing the operational ability to better leverage contract research and development
services relating to its handheld devices, and (iii) reaching sustainable profitability. Other charges and cash costs may occur as
programs are implemented or changes are completed. During the fourth quarter and fiscal 2018, the Company incurred
approximately $26 million and $78 million, respectively, in total pre-tax charges related to this program.
Results of Operations - Fiscal year ended February 28, 2018 compared to fiscal year ended February 28, 2017
Consolidated Revenue
Consolidated revenue decreased by $377 million to approximately $932 million in fiscal 2018 from $1,309 million in fiscal
2017. The decrease was primarily due to a decrease of $310 million in handheld devices revenue to $64 million from $374
million and a decrease of $192 million in SAF revenues to $121 million from $313 million, net of increases of $70 million, $43
million and $12 million in licensing, IP and other revenues, enterprise software and services, and BTS respectively.
The decrease in hardware and other revenues of $310 million was primarily attributable to the Company’s transition from an
outsourced handset manufacturing model to the development and licensing of the Company’s secure device software and the
outsourcing to partners of all design, manufacturing, sales and customer support for BlackBerry-branded handsets. As a
result, the Company’s handheld device revenue over the period of transition has consisted solely of sales of the Company’s
owned handheld inventory, which is not being replenished as handheld devices are no longer produced by or on behalf of the
Company.
The $192 million decrease in SAF revenues, 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
fiscal 2017.
The increase of $70 million in licensing, IP and other revenue to $196 million from $126 million is primarily due to the
Company’s licensing arrangement with Teletry as discussed above in “Business Overview - Recent Developments” and
meeting revenue recognition criteria during the second quarter of fiscal 2018 for a previously signed intellectual property
licensing arrangement, partially offset by a decline in software engineering services revenue present in the fourth quarter of
fiscal 2017.
The increase of $43 million in enterprise software and services revenue to $388 million from $345 million is primarily due
to a higher number of perpetual licenses sold, increased revenue from Secusmart, and an increase in BlackBerry AtHoc
revenue.
The increase of $12 million in BTS to $163 million from $151 million is due to the Company’s agreement with Qualcomm
as described above in “Business Overview - Recent Developments” and increased revenue from its infotainment product and
services offerings.
18
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Consolidated Gross Margin
Consolidated gross margin increased by $53 million to approximately $670 million in fiscal 2018 from $617 million in fiscal
2017. The increase was primarily due to the increases in gross margin associated with licensing, IP and other, handheld devices
and enterprise software and services and BTS, partially offset by a decline in SAF.
The increase in gross margin associated with handheld devices was primarily attributable to the $141 million write-down on
inventory taken during fiscal 2017 which did not recur during fiscal 2018, and a lower amount of RAP program charges (see
“Non-GAAP Financial Measures” above), offset by the changes described above in “Consolidated Revenue”. The increases in
gross margin from licensing, IP and other, enterprise software and services and BTS were primarily attributable to the same
reasons discussed above in “Consolidated Revenue”. The decrease in gross margin associated with SAF was primarily
attributable to the same reasons as discussed above in “Consolidated Revenue”, as cost of goods sold associated with SAF
revenues were consistent in fiscal 2018 and fiscal 2017.
The Company expects non-GAAP gross margins to be between 70% and 75% in the first half of fiscal 2019, and between 75%
and 79% in the second half of fiscal 2019.
Revenue
Revenue by Geography
Comparative breakdowns of the geographic regions are set forth in the following table:
Revenue by Geography
North America
Europe, Middle East and Africa
Latin America
Asia Pacific
North America Revenues
For the Fiscal Years Ended
(in millions)
February 28, 2018
February 28, 2017
Change
$
$
540
278
15
99
932
58.0% $
29.8%
1.6%
10.6%
659
461
35
154
50.3% $
35.2%
2.7%
11.8%
100.0% $
1,309
100.0% $
(119)
(183)
(20)
(55)
(377)
(18.1)%
(39.7)%
(57.1)%
(35.7)%
(28.8)%
Revenues in North America were $540 million, or 58.0% of revenue, in fiscal 2018, reflecting a decrease of $119 million
compared to $659 million, or 50.3% of revenue in fiscal 2017. The decrease in North American revenue is primarily
attributable to a decrease in handheld devices revenue and a decrease in SAF revenues, partially offset by increases in
licensing, IP and other revenues due to the reasons discussed above in “Consolidated Revenue”, enterprise software and
services revenue due to a higher number of perpetual licenses sold and an increase in BlackBerry AtHoc revenues, and BTS
revenue due to the reasons discussed above in “Consolidated Revenue”.
Europe, Middle East and Africa Revenues
Revenues in Europe, Middle East and Africa were $278 million, or 29.8% of revenue, in fiscal 2018, reflecting a decrease of
$183 million compared to $461 million, or 35.2% of revenue, in fiscal 2017. The decrease in revenue is primarily due to a
decrease in handheld device revenues and SAF revenues due to the reasons discussed above in “Consolidated Revenue”
partially offset by growth in enterprise software and services revenue due to a higher number of perpetual licenses sold and
increased revenues from Secusmart.
Latin America Revenues
Revenues in Latin America were $15 million, or 1.6% of revenue, in fiscal 2018, reflecting a decrease of $20 million compared
to $35 million, or 2.7% of revenue, in fiscal 2017. The decrease in revenues is primarily due to a reduction in SAF revenues
due to the reasons discussed above in “Consolidated Revenue”.
Asia Pacific Revenues
Revenues in Asia Pacific were $99 million, or 10.6% of revenue, in fiscal 2018, reflecting a decrease of $55 million compared
to $154 million, or 11.8% of revenue, in fiscal 2017. The decrease in revenues is due to a decline in SAF and handheld devices
revenues due to the reasons discussed above in “Consolidated Revenue”, partially offset by increases in licensing, IP and other
revenues due to the Company’s secure device licensing arrangements.
19
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Revenue by Product and Service
Comparative breakdowns of revenues by product and service on a non-GAAP basis are set forth below.
Revenue by Product and Service
Enterprise software and services (1)(2)
BTS
Licensing, IP and other
Handheld devices
SAF
______________________________
For the Years Ended
(in millions)
February 28, 2018
February 28, 2017
Change
$
$
423
163
196
64
121
967
43.7% $
16.9%
20.3%
6.6%
12.5%
410
151
126
374
313
29.8% $
11.0%
9.2%
27.2%
22.8%
100.0% $
1,374
100.0% $
13
12
70
(310)
(192)
(407)
3.2 %
7.9 %
55.6 %
(82.9)%
(61.3)%
(29.6)%
(1) See “Non-GAAP Financial Measures” for the relevant Fiscal 2018 Non-GAAP Adjustments made to enterprise software and services
revenue.
(2) See “Non-GAAP Financial Measures” for the relevant Fiscal 2017 Non-GAAP Adjustments made to enterprise software and services
revenue.
Enterprise Software and Services
Enterprise software and services revenue includes revenues from the Company’s security, productivity, collaboration and end-
point management solutions through the BlackBerry Secure platform, which includes BlackBerry UEM, BlackBerry Dynamics,
BlackBerry Workspaces and BBM Enterprise, among other products and applications, as well as revenues from the sale of the
Company’s AtHoc Alert secure networked crisis communications solution, its Secusmart SecuSUITE secure voice and text
solution, and professional services from BlackBerry Cybersecurity Services.
Enterprise software and services revenue increased by $13 million, or 3.2%, to $423 million, or 43.7% of revenues, in fiscal
2018, compared to $410 million, or 29.8% of revenues, in fiscal 2017.
The $13 million increase in enterprise software and services revenue was primarily attributable to the same reasons described
above in “Consolidated Revenue”, partially offset by a decrease in the non-GAAP adjustment of deferred software revenue
acquired in fiscal 2018 versus fiscal 2017.
Excluding the deferred software revenue acquired adjustment, U.S. GAAP enterprise software and services revenue was $388
million, or 41.6% of revenue in fiscal 2018, compared to $345 million, or 26.3% of revenue in fiscal 2017, representing an
increase of $43 million, or 12.5%.
BTS
BTS includes revenues from the Company’s QNX CAR Platform and Neutrino Operating System, among other BlackBerry
QNX products, as well as revenues from the Company’s BlackBerry Radar asset tracking solution, Paratek antenna tuning
technology, and Certicom cryptography and key management products.
BTS revenue increased by $12 million, or 7.9%, to $163 million, or 16.9% of revenues, in fiscal 2018, compared to $151
million, or 11.0% of revenue, in fiscal 2017. The increase was primarily due to the same reason described above in
“Consolidated Revenue”.
Licensing, IP and Other
Licensing, IP and other includes revenues from the Company’s mobility licensing software arrangements, including revenue
from licensed hardware sales and intellectual property licensing, and from the Company’s BBM Consumer licensing
arrangement.
Licensing, IP and other revenues increased by $70 million, or 55.6%, to $196 million, or 20.3% of revenues in fiscal 2018,
compared to $126 million, or 9.2% of revenue, in fiscal 2017. The $70 million increase was primarily due to same reasons
described above in “Consolidated Revenue”.
The Company achieved its objective of reaching $100 million from intellectual property licensing in fiscal 2018 and expects
$100 million in revenue from intellectual property licensing in fiscal 2019.
20
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Handheld Devices
Handheld devices includes revenues from the sale of the DTEK60 and all prior BlackBerry smartphone models to carriers and
distributors, accessories and repair services of handheld devices.
Handheld devices revenue was $64 million, or 6.6% of revenues, in fiscal 2018 compared to $374 million, or 27.2% of
revenues, in fiscal 2017, representing a decrease of $310 million, or 82.9%. The $310 million decrease in handheld devices
revenue was primarily due to the reasons discussed above in “Consolidated Revenue”.
SAF
SAF includes revenues associated with the Company’s legacy SAF business, relating to subscribers utilizing the Company’s
legacy BlackBerry 7 and prior operating systems, as well as revenues relating to unspecified future software upgrade rights for
devices sold by the Company.
SAF revenue decreased by $192 million, or 61.3%, to $121 million, or 12.5% of revenues, in fiscal 2018, compared to $313
million, or 22.8% of revenues, in fiscal 2017.
The decrease in SAF revenue is primarily due to the reasons discussed above in “Consolidated Revenue”.
Operating Expenses
The table below presents a comparison of research and development, selling, marketing and administration, and amortization
expense for fiscal 2018 compared to fiscal 2017.
February 28, 2018
% of
Revenue
For the Fiscal Years Ended
(in millions)
February 28, 2017
% of
Revenue
Change
% of
Change
$
932
$
1,309
$
(377)
(28.8)%
239
467
153
—
11
9
191
(683)
387
$
25.6 %
50.1 %
16.4 %
— %
1.2 %
1.0 %
20.5 %
(73.3)%
306
553
186
57
501
171
24
—
23.4% $
42.2%
14.2%
4.4%
38.3%
13.1%
1.8%
—%
41.5 % $
1,798
137.4% $
(67)
(86)
(33)
(57)
(490)
(162)
167
(683)
(1,411)
(21.9)%
(15.6)%
(17.7)%
(100.0)%
(97.8)%
(94.7)%
695.8 %
— %
(78.5)%
Revenue(1)(2)
Operating expenses
Research and development(1)(2)
Selling, marketing and administration(1)(2)
Amortization(1)(2)
Impairment of goodwill(2)
Impairment of long-lived assets(1)(2)
Loss on sale, disposal and abandonment
of long-lived assets(1)(2)
Debentures fair value adjustment(1)(2)
Arbitration awards, net(1)
Total
______________________________
(1)
(2)
See “Non-GAAP Financial Measures” for the impact of the Fiscal 2018 Non-GAAP Adjustments on revenue and operating
expenses in fiscal 2018.
See “Non-GAAP Financial Measures” for the impact of the Fiscal 2017 Non-GAAP Adjustments on revenue and operating
expenses in fiscal 2017.
Operating expenses decreased by $1.41 billion, or 78.5%, to $387 million, or 41.5% of revenue in fiscal 2018, compared to
$1.80 billion, or 137.4% of revenue, in fiscal 2017. The decrease was primarily attributable to the Qualcomm Arbitration
Award, a decrease in impairment of long-lived assets due to the lower amount of the Fiscal 2018 LLA Impairment Charge
versus the Fiscal 2017 LLA Impairment Charge, a lower amount of loss on sale, disposal and abandonment of long-lived assets
due to the write-down to fair value for assets held for sale during fiscal 2017, reduced salaries and benefits costs, and a
decrease in amortization expense, partially offset by an increase in the Debentures fair value adjustment and the Nokia
Arbitration Decision. Excluding the impact of the relevant Fiscal 2018 Non-GAAP Adjustments and Fiscal 2017 Non-GAAP
Adjustments, operating expenses decreased by $151 million, or 19.0% due to the reasons discussed below in “Research and
Development Expenses”, “Selling, Marketing and Administration Expenses” and “Amortization Expense”.
The Company expects that its restructuring costs will decrease in fiscal 2019 on a year-over-year basis.
21
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 decreased by $67 million, or 21.9%, to $239 million, or 25.6% of revenue, in fiscal 2018,
compared to $306 million, or 23.4% of revenue, in fiscal 2017. Excluding the impact of the relevant Fiscal 2018 Non-GAAP
Adjustments and Fiscal 2017 Non-GAAP Adjustments, research and development expenses decreased by $63 million, or
22.1%. The decrease was primarily attributable to reduced salaries and benefits costs, as well as reductions in infrastructure and
research costs related to handheld devices and outsourcing costs compared to fiscal 2017.
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 decreased by $86 million, or 15.6%, to $467 million, or 50.1% of revenue, in
fiscal 2018 compared to $553 million in fiscal 2017, or 42.2% of revenue. Excluding the impact of the relevant Fiscal 2018
Non-GAAP Adjustments and Fiscal 2017 Non-GAAP Adjustments, selling, marketing and administration expenses decreased
by $75 million, or 17.3%. The decrease was primarily attributable to a decrease in legal costs, reduced salaries and benefits, a
decrease in facilities costs, and lower outsourcing and consulting costs compared to fiscal 2017.
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 2018 compared to fiscal 2017. Intangible assets are comprised of patents,
licenses and acquired technology.
For the Fiscal Years Ended
(in millions)
February 28,
2018
Included in Amortization
February 28,
2017
Change
February 28,
2018
Included in Cost of sales
February 28,
2017
Change
$
$
18
135
153
$
$
33
153
186
$
$
(15) $
(18)
(33) $
18
6
24
$
$
43
10
53
$
$
(25)
(4)
(29)
Property, plant and equipment
Intangible assets
Total
Amortization
Amortization expense relating to certain property, plant and equipment and intangible assets decreased by $33 million to $153
million for fiscal 2018, compared to $186 million for fiscal 2017. The decrease in amortization expense reflects the sale of data
centers during the fourth quarter of fiscal 2017 and certain assets becoming fully depreciated.
Excluding the impact of the relevant Fiscal 2018 Non-GAAP Adjustments and Fiscal 2017 Non-GAAP Adjustments,
amortization decreased by $16 million.
Cost of sales
Amortization expense relating to certain property, plant and equipment and intangible assets employed in the Company’s
service operations and BlackBerry service operations decreased by $29 million to $24 million for fiscal 2018, compared to $53
million for fiscal 2017. This decrease primarily reflects the lower cost base of assets as a result of the Fiscal 2017 LLA
Impairment Charge and Fiscal 2018 LLA Impairment Charge and patent abandonments during fiscal 2017 and fiscal 2018.
Investment Income (Loss), Net
Investment income (loss), net, which includes the interest expense from the Debentures, increased by $150 million to income of
$123 million in fiscal 2018, from a loss of $27 million in fiscal 2017. The increase is primarily attributable to the net interest
received from Qualcomm Arbitration Award and Nokia Arbitration Decision, reduced principal balance of Debentures
outstanding and the lower rate of interest on the 3.75% Debentures relative to the 6% Debentures, partially offset by a gain on
sale of a cost based investment in fiscal 2017 that did not recur in fiscal 2018. See “Financial Condition - Liquidity and Capital
Resources”.
22
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Income Taxes
For fiscal 2018, the Company’s net effective income tax rate was approximately 0%, compared to approximately 0% 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 net change in fair value of the Debentures, the impact of the
Qualcomm Arbitration Award, the Nokia Arbitration Decision and the reduction in the US tax rate and other changes from the
United States enacted tax reform legislation through the Tax Cuts and Jobs Act, amongst other items, was offset by a
corresponding adjustment of the valuation allowance. The Company’s net effective income tax recovery rate also reflects the
geographic mix of earnings in jurisdictions with different income tax rates.
Net Income (Loss)
The Company’s net income for fiscal 2018 was $405 million, reflecting an increase in net income of $1,611 million compared
to a net loss of $1,206 million in fiscal 2017. Excluding the impact of the relevant Fiscal 2018 Non-GAAP Adjustments and
Fiscal 2017 Non-GAAP Adjustments, the Company’s non-GAAP net income for fiscal 2018 was $77 million compared to $30
million in fiscal 2017, reflecting an increase in non-GAAP net income of $45 million, primarily due to a reduction in operating
expenditures and an increase in the Company’s gross margin and investment income (loss).
Basic earnings per share on a U.S. GAAP basis was $0.76 and diluted earnings per share on a U.S. GAAP basis was $0.74 in
fiscal 2018, an increase in earnings per share of 133.0% and 132.2%, respectively, compared to basic and diluted loss per share
on a U.S. GAAP basis of $2.30 in fiscal 2017.
The weighted average number of shares outstanding were 533 million and 546 million for basic and diluted earnings per share,
respectively, for the fiscal year ended February 28, 2018 and 525 million common shares for basic and diluted loss per share for
the fiscal year ended February 28, 2017.
The Company expects positive adjusted non-GAAP EPS for fiscal 2019.
The Company previously stated its expectations of achieving positive adjusted EBITDA for fiscal 2018 and positive non-
GAAP earnings per share for fiscal 2018. Adjusted EBITDA was $36 million and non-GAAP earnings per share was $0.05 in
fiscal 2018.
Total software and services billings grew by double digits in the fourth quarter of fiscal 2018 versus the fourth quarter of fiscal
2017. The Company expects total software and services billings growth of double-digits in fiscal 2019. Total software and
services includes enterprise software and services, BTS, and Licensing, IP and other.
Common Shares Outstanding
On March 26, 2018, there were 537 million voting common shares, options to purchase 1 million voting common shares, 15
million restricted share units and 0.7 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.
23
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations - Three months ended February 28, 2018 compared to the three months ended February 28, 2017
The following table 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 28, 2018
and February 28, 2017:
Revenue (1)(2)
Gross margin (1)(2)
Operating expenses (1)(2)
Investment income, net (1)
Loss before income taxes
Recovery of income taxes
Net loss
Loss per share - reported
Basic
Diluted
For the Three Months Ended
(in millions, except for share and per share amounts)
February 28, 2018
February 28, 2017
Change
233
177
194
3
(14)
(4)
(10)
(0.02)
(0.06)
$
$
$
100.0 %
76.0 %
83.3 %
1.3 %
(6.0)%
(1.7)%
(4.3)% $
286
172
229
8
(49)
(2)
(47)
100.0 %
60.1 %
80.1 %
2.8 %
(17.1)%
(0.7)%
(16.5)% $
(53)
5
(35)
(5)
35
(2)
37
$
$
(0.09)
(0.10)
$
$
0.07
0.04
Weighted-average number of shares outstanding
(000’s)
Basic
Diluted
______________________________
536,594
597,094
530,352
590,852
(1)
(2)
See “Non-GAAP Financial Measures” for the impact of the Q4 Fiscal 2018 Non-GAAP Adjustments on revenue,
gross margin, operating expenses, and investment income (loss), net in the fourth quarter of fiscal 2018.
See “Non-GAAP Financial Measures” for the impact of the Q4 Fiscal 2017 Non-GAAP Adjustments on revenue,
gross margin and operating expenses in the fourth quarter of fiscal 2017.
Consolidated Revenue
Consolidated revenue decreased by $53 million to approximately $233 million in the fourth quarter of fiscal 2018 from $286
million in the fourth quarter of fiscal 2017. The decrease was primarily due to a decrease of $53 million in handheld devices
revenues to $2 million from $55 million and a decrease of $30 million in SAF revenues to $19 million from $49 million,
partially offset by an increase of $17 million in enterprise software and services revenue to $108 million from $91 million
and an increase of $11 million in BTS revenues to $46 million from $35 million.
The decrease in hardware and other revenues of $53 million was primarily attributable to the Company’s transition from an
outsourced handset manufacturing model to the development and licensing of the Company’s secure device software and the
outsourcing to partners of all design, manufacturing, sales and customer support for BlackBerry-branded handsets. As a
result, the Company’s handheld device revenue over the period of transition has consisted solely of sales of the Company’s
owned handheld inventory, which is not being replenished as handheld devices are no longer produced by or on behalf of the
Company
The decrease in SAF revenues of $30 million, 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 2017.
The increase in enterprise software and services revenue of $17 million is primarily due to an increase in the number of
perpetual licenses, partially offset by a decline in subscription licenses, and increased revenue from Secusmart.
The increase in BTS revenue is due to the Company’s agreement with Qualcomm as described above in “Business Overview
- Recent Developments” and increased revenue from the Company’s infotainment products and services.
Consolidated Gross Margin
Consolidated gross margin increased by $5 million to approximately $177 million in the fourth quarter of fiscal 2018 from
$172 million in the fourth quarter of fiscal 2017. The increase was primarily due to increases in gross margin in enterprise
software and services, BTS, and licensing, IP and other, partially offset by the decline in gross margin associated with SAF.
24
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The increase in gross margin in enterprise software and services and BTS is due to the reasons discussed above in
“Consolidated Revenue”. The increase in margin associated with licensing, IP and other was due to a change in revenue mix
more heavily weighted to IP compared to the prior year, where there was a higher proportion of professional services.
The decrease in gross margin associated with handheld devices and SAF was primarily attributable to the decline in SAF
revenues discussed above in “Consolidated Revenue”.
Revenue
Revenue by Geography
Comparative breakdowns of the geographic regions are set forth in the following table:
For the Three Months Ended
(in millions)
February 28, 2018
February 28, 2017
Change
$
$
147
63
4
19
233
63.1% $
27.0%
1.7%
8.2%
100.0% $
166
83
5
32
286
58.0% $
29.0%
1.8%
11.2%
100.0% $
(19)
(20)
(1)
(13)
(53)
(11.4)%
(24.1)%
(20.0)%
(40.6)%
(18.5)%
Revenue by Geography
North America
Europe, Middle East and Africa
Latin America
Asia Pacific
North America Revenues
Revenues in North America were $147 million, or 63.1% of revenue, in the fourth quarter of fiscal 2018, reflecting a decrease
of $19 million compared to $166 million, or 58.0% of revenue, in the fourth quarter of fiscal 2017. Revenues in North America
decreased compared to the fourth quarter of fiscal 2017 primarily from a decrease in handheld devices and SAF revenues,
partially offset by increases in enterprise software and services and BTS revenues due to the reasons discussed above in
“Consolidated Revenue”.
Europe, Middle East and Africa Revenues
Revenues in Europe, Middle East and Africa were $63 million or 27.0% of revenue in the fourth quarter of fiscal 2018,
reflecting a decrease of $20 million compared to $83 million or 29.0% of revenue in the fourth quarter of fiscal 2017. The
decrease in revenues is due to decreased handheld devices and SAF revenues, partially offset by increases in enterprise
software and services and BTS revenues for the reasons discussed above in “Consolidated Revenue”.
Latin America Revenues
Revenues in Latin America were $4 million or 1.7% of revenue in the fourth quarter of fiscal 2018, reflecting a decrease of $1
million compared to $5 million or 1.8% of revenue in the fourth quarter of fiscal 2017. The decrease in revenues is primarily
due to a reduction in SAF revenues, partially offset by an increase in enterprise software and services revenues due to the
reasons discussed above in “Consolidated Revenue”.
Asia Pacific Revenues
Revenues in Asia Pacific were $19 million or 8.2% of revenue in the fourth quarter of fiscal 2018, reflecting a decrease of $13
million compared to $32 million or 11.2% of revenue in the fourth quarter of fiscal 2017. The decrease in revenue is due to the
reduction in handheld devices and SAF revenues, partially offset by growth in licensing, IP and other revenues due to the
reasons discussed above in “Consolidated Revenue”.
25
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Revenue by Product and Service
Comparative breakdowns of revenues by product and service on a non-GAAP basis are set forth below.
Revenue by Product and Service
Enterprise software and services (1)(2)
BTS
Licensing, IP and other
Handheld devices
SAF
______________________________
For the Three Months Ended
(in millions)
February 28, 2018
February 28, 2017
Change
$
114
47.8% $
102
34.3% $
46
58
2
19
19.2%
24.3%
0.8%
7.9%
35
56
55
49
11.8%
18.9%
18.5%
16.5%
$
239
100.0% $
297
100.0% $
12
11
2
(53)
(30)
(58)
11.8 %
31.4 %
3.6 %
(96.4)%
(61.2)%
(19.5)%
(1) See “Non-GAAP Financial Measures” for the relevant Q4 Fiscal 2018 Non-GAAP Adjustments made to enterprise software and
services revenue.
(2) See “Non-GAAP Financial Measures” for the relevant Q4 Fiscal 2017 Non-GAAP Adjustments made to enterprise software and
services revenue.
Enterprise Software and Services
Enterprise software and services revenue was $114 million, or 47.8% of revenue, in the fourth quarter of fiscal 2018, an
increase of $12 million compared to revenue of $102 million, or 34.3% of revenue, in the fourth quarter of fiscal 2017.
Enterprise software and services revenue increased due to the reasons described above in “Consolidated Revenue”, partially
offset by a lower software revenue deferred adjustment.
Excluding the deferred software revenue acquired adjustment described under “Non-GAAP Financial Measures”, U.S. GAAP
enterprise software and services revenue was $108 million, or 46.4% of revenue, in the fourth quarter of fiscal 2018, compared
to $91 million, or 31.8% of revenue, in the fourth quarter of fiscal 2017, representing an increase of $17 million, or 18.7%, due
to the reasons described above in “Consolidated Revenue”.
The Company’s total software, licensing and services revenue, excluding IP and professional services, was approximately 70%
recurring (subscription based) in the fourth quarter of fiscal 2018.
BTS
BTS revenue increased to $46 million, or 19.2% of revenue, in the fourth quarter of fiscal 2018, compared to $35 million, or
11.8% of revenue, in the fourth quarter of fiscal 2017 due to the reasons described above in “Consolidated Revenue”. The
percentage of total revenue increased as a result of the decline in handheld device and SAF revenues.
Licensing, IP and Other
Licensing, IP and other revenues were $58 million, or 24.3% of revenue, in the fourth quarter of fiscal 2018, compared to $56
million, or 18.9% of revenue, in the fourth quarter of fiscal 2017, representing an increase of $2 million, or 3.6%. The $2
million increase was due the Company’s Teletry licensing arrangement discussed above in “Business Overview - Recent
Developments”, offset by a decline in software engineering services revenue present in the fourth quarter of fiscal 2017.
Handheld Devices
Handheld devices includes revenues from the sale of the Company’s remaining inventory of legacy smartphones and
smartphone accessories, as well as non-warranty repair services. Handheld device revenues were $2 million, or 0.8% of
revenue, in the fourth quarter of fiscal 2018, compared to $55 million, or 18.5% of revenue, in the fourth quarter of fiscal
2017, representing a decrease of $53 million, or 96.4%. The $53 million decrease in handheld devices revenue was primarily
due to the reasons discussed above in “Consolidated Revenue”.
SAF
SAF revenue decreased by $30 million, or 61.2%, to $19 million, or 7.9% of revenue, in the fourth quarter of fiscal 2018,
compared to $49 million, or 16.5% of revenue, in the fourth quarter of fiscal 2017. The decrease was due to the reasons
discussed above in “Consolidated Revenue”.
26
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
On September 28, 2017, the Company stated its expectation that SAF revenue in the fourth quarter of fiscal 2018 would be
approximately $16 million. SAF revenue was higher than expectations primarily due to payments received from SAF
customers for which revenue is recognized on a cash basis due to collectability.
Operating Expenses
The table below presents a comparison of research and development, selling, marketing and administration, and amortization
expenses for the quarter ended February 28, 2018, compared to the quarter ended November 30, 2017 and the quarter ended
February 28, 2017. The Company believes it is meaningful to also provide a comparison between the fourth quarter of fiscal
2018 and the third quarter of fiscal 2018 given that the Company’s quarterly operating results in the prior year have changed
significantly as a result of the Company’s shift to software from hardware.
Revenue(1)(2)(3)
Operating expenses
Research and development(1)(2)(3)
Selling, marketing and administration(1)(2)(3)
Amortization(1)(2)(3)
Loss on sale, disposal and abandonment of
long-lived assets(1)(2)(3)
Debentures fair value adjustment(1)(2)(3)
Arbitration awards, net(1)(2)(3)
Total
______________________________
$
$
For the Three Months Ended
(in millions)
February 28, 2018
November 30, 2017
February 28, 2017
% of
Revenue
$
24.9 %
56.2 %
15.9 %
233
58
131
37
2
0.9 %
(34)
(14.6)%
—
194
— %
83.3 % $
% of
Revenue
$
26.5%
52.2%
16.4%
0.9%
34.1%
58.4%
188.4% $
226
60
118
37
2
77
132
426
% of
Revenue
19.9 %
50.3 %
15.7 %
(0.3)%
(5.6)%
— %
80.1 %
286
57
144
45
(1)
(16)
—
229
(1)
(2)
(3)
See “Non-GAAP Financial Measures” for the impact of the Q4 Fiscal 2018 Non-GAAP Adjustments on revenue and
operating expenses in the fourth quarter of fiscal 2018.
In the third quarter of fiscal 2018, the Company had software deferred revenue acquired but not recognized due to
business combination accounting rules of approximately $9 million, and also recorded a non-cash charge associated
with a change in the fair value of the 3.75% Debentures of approximately $77 million (the “Q3 Fiscal 2018
Debentures Fair Value Adjustment”); operating expenses related to the Nokia Arbitration Decision of $132 million;
RAP charges of approximately $1 million and $17 million in research and development and selling, marketing and
administration expenses, respectively; stock compensation expense of approximately $3 million and $8 million in
research and development and selling, marketing and administration expenses, respectively; amortization of intangible
assets acquired through business combinations of approximately $23 million in amortization expense; and business
acquisition and integration costs incurred through business combinations of approximately $1 million in selling,
marketing and administration expense (collectively the “Q3 Fiscal 2017 Non-GAAP Adjustments”).
See “Non-GAAP Financial Measures” for the impact of the Q4 Fiscal 2017 Non-GAAP Adjustments on revenue and
operating expenses in the fourth quarter of fiscal 2017.
Operating expenses decreased by $232 million, or 54.5%, to $194 million, or 83.3% of revenue, in the fourth quarter of fiscal
2018, compared to $426 million, or 188.4% of revenue, in the third quarter of fiscal 2018. The decrease was primarily
attributable to the Nokia Arbitration Decision and the difference between the Q4 Fiscal 2018 Debentures Fair Value Adjustment
and Q3 Fiscal 2018 Debentures Fair Value Adjustment.
Excluding the impact of the relevant Q4 Fiscal 2018 Non-GAAP Adjustments and Q3 Fiscal 2017 Non-GAAP Adjustments,
operating expenses increased by $5 million, or 3.0%. The increase was primarily attributable to unfavourable foreign currency
translation and higher selling expenses, partially offset by lower outsourcing and consulting costs, a decrease in salaries and
benefits, and a reduction in marketing and advertising.
Operating expenses decreased by $35 million, or 15.3%, to $194 million, or 83.3% of revenue, in the fourth quarter of fiscal
2018, compared to $229 million, or 80.1% of revenue, in the fourth quarter of fiscal 2017. The decrease was primarily
attributable to a decrease in amortization expense, lower legal expenses, and a reduction in salaries and benefits, and other
headcount costs in comparison to 2017.
27
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Excluding the impact of the relevant Q4 Fiscal 2018 Non-GAAP Adjustments and Q4 Fiscal 2017 Non-GAAP Adjustments,
operating expenses decreased by $12 million, or 6.6%. This decrease was primarily attributable to decreases in legal expenses,
lower outsourcing and consulting costs, a reduction in marketing and advertising, and a decrease in salaries and benefits
compared to the fourth quarter of fiscal 2017.
In the third quarter of fiscal 2018, the Company stated its expectation that operating expenses would increase modestly in the
fourth quarter of fiscal 2018, compared to the third quarter of fiscal 2018. Operating expenses decreased by $232 million in the
fourth quarter of fiscal 2018, compared to the third quarter of fiscal 2018. Excluding the impact of the relevant Q4 Fiscal 2018
Non-GAAP Adjustments, and Q3 Fiscal 2017 Non-GAAP Adjustments, operating expenses increased by $5 million due to the
reasons discussed above.
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 $1 million, or 1.8% to $58 million in the fourth quarter of fiscal 2018
compared to $57 million in the fourth quarter of fiscal 2017. Excluding the impact of the relevant Q4 Fiscal 2018 Non-GAAP
Adjustments and Q4 Fiscal 2017 Non-GAAP Adjustments, research and development expenses increased by $6 million, or
12.2%. This increase was primarily attributable to increased 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 decreased by $13 million, or 9.0%, to $131 million in the fourth quarter of
fiscal 2018 compared to $144 million in the fourth quarter of fiscal 2017. Excluding the impact of the relevant Q4 Fiscal 2018
Non-GAAP Adjustments and Q4 Fiscal 2017 Non-GAAP Adjustments, selling, marketing and administration expenses
decreased by $18 million, or 15.4%. This decrease was primarily attributable to a decrease in legal costs, a reduction in salaries
and benefits, and other headcount costs, reduced marketing and advertising expenses, partially offset by unfavourable foreign
currency translation.
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 28, 2018 compared to the quarter ended February 28,
2017. Intangible assets are comprised of patents, licenses and acquired technology.
For the Three Months Ended
(in millions)
Included in Amortization
Included in Cost of sales
February 28,
2018
February 28,
2017
Change
February 28,
2018
February 28,
2017
Change
$
$
5
32
37
$
$
7
38
45
$
$
(2) $
(6)
(8) $
2
—
2
$
$
9
3
12
$
$
(7)
(3)
(10)
Property, plant and equipment
Intangible assets
Total
Amortization
Amortization expense relating to certain property, plant and equipment and certain intangible assets decreased by $8 million to
$37 million for the fourth quarter of fiscal 2018 compared to $45 million for the fourth quarter of fiscal 2017. The decrease in
amortization expense reflects the full depreciation of acquired intangible assets.
Excluding the impact of the relevant Q4 Fiscal 2018 Non-GAAP Adjustments and Q4 Fiscal 2017 Non-GAAP Adjustments,
amortization decreased by $2 million.
Cost of sales
Amortization expense relating to certain property, plant and equipment and certain intangible assets employed in the
Company’s service operations decreased by $10 million to $2 million for the fourth quarter of fiscal 2018 compared to $12
million for the fourth quarter of fiscal 2017. This decrease primarily reflects the lower cost base of assets.
28
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Investment Income (Loss), Net
Investment income (loss), net, which includes the interest expense from the Debentures, decreased by $5 million to $3 million
in the fourth quarter of fiscal 2018, compared to $8 million in the fourth quarter of fiscal 2017. The decrease in investment
income is primarily attributable to realized gains relating to the sale of one of the Company’s cost-based investments in the
fourth quarter of fiscal 2017 versus a realized loss on one of the Company’s cost-based investments during the fourth quarter of
fiscal 2018, partially offset by true-up interest received in respect of the Nokia Arbitration Decision.
Income Taxes
For the fourth quarter of fiscal 2018, the Company’s net effective income tax recovery rate was approximately 29%, compared
to approximately 4% for the same period in the prior fiscal year. The Company’s income tax recovery rate reflects the fact that
the Company has a significant valuation allowance against its deferred tax assets, and in particular, the net change in fair value
of the 3.75% Debentures, the reduction in the U.S. tax rate and other changes from the United States enacted tax reform
legislation through the Tax Cuts and Jobs Act, amongst other items, was offset by a corresponding adjustment of the valuation
allowance. The Company’s net effective income tax recovery rate also reflects the geographic mix of earnings in jurisdictions
with different income tax rates.
Net Income (Loss)
The Company’s net loss for the fourth quarter of fiscal 2018 was $10 million, or $0.02 basic loss per share and $0.06 diluted
loss per share on a GAAP basis, reflecting a decrease in net loss of $37 million compared to a net loss of $47 million, or $0.09
basic and diluted earnings per share, in the fourth quarter of fiscal 2017. Excluding the impact of the relevant Q4 Fiscal 2018
Non-GAAP Adjustments and Q4 Fiscal 2017 Non-GAAP Adjustments, the Company’s non-GAAP net income was $25 million
in the fourth quarter of fiscal 2018 compared to $23 million in the fourth quarter of fiscal 2017, reflecting an increase in non-
GAAP net income of $2 million due to a decrease in operating expenditures and an increase in gross margin.
The weighted average number of shares outstanding was 537 million common shares for basic loss per share and 597 million
common shares for diluted loss per share for the fourth quarter of fiscal 2018. The weighted average number of shares
outstanding was 530 million common shares for basic and diluted earnings per share for the fourth quarter of fiscal 2017.
29
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 28, 2018. 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.
(in millions, except per share data)
Fiscal Year 2018
Fiscal Year 2017
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$
233
177
194
$
226
168
426
(14)
(275)
(4)
—
(10) $
(275) $
238
175
153
23
4
19
$
235
$
150
(386)
672
1
$
671
$
$
286
172
229
289
193
307
$
334
$
98
453
400
154
809
(49)
(118)
(371)
(670)
(2)
(47) $
(1)
(117) $
1
(372) $
—
(670)
(0.02) $
(0.52) $
0.04
$
1.26
(0.06) $
(0.52) $
(0.07) $
1.23
58
$
60
$
60
$
61
$
$
$
(0.09) $
(0.22) $
(0.71) $
(1.28)
$
$
(0.22) $
(0.71) $
(1.28)
75
$
85
$
89
131
37
—
—
2
(34)
—
$
194
$
118
37
—
—
2
77
132
426
110
39
11
—
3
(70)
—
$
153
$
109
40
—
—
1
218
(815)
(386) $
141
43
—
—
46
2
—
138
44
—
—
124
62
—
129
54
501
57
3
(24)
—
809
229
$
307
$
453
$
0.10
57
144
45
—
—
(1)
(16)
—
$
$
$
$
$
Revenue
Gross margin
Operating expenses
Income (loss) before income
taxes
Provision for (recovery of)
income taxes
Net income (loss)
Earnings (loss) per share
Basic earnings (loss) per
share
Diluted earnings (loss) per
share
Research and development
Selling, marketing and
administration
Amortization
Impairment of long-lived
assets
Impairment of goodwill
Loss (gain) on sale, disposal
and abandonment of long-
lived assets
Debentures fair value
adjustment
Arbitration awards, net
Operating expenses
Financial Condition
Liquidity and Capital Resources
Cash, cash equivalents, and investments increased by $655 million to $2.4 billion as at February 28, 2018 from $1.7 billion as
at February 28, 2017, primarily as a result of the Qualcomm Arbitration Award and income before amortization, partially offset
by the Nokia Arbitration Decision and changes in working capital. The majority of the Company’s cash, cash equivalents, and
investments are denominated in U.S. dollars as at February 28, 2018.
30
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
A comparative summary of cash, cash equivalents, and investments is set out below:
Cash and cash equivalents
Restricted cash
Short-term investments
Long-term investments
Cash, cash equivalents, and investments
As at
(in millions)
February 28, 2018
February 28, 2017
Change
$
$
816
$
734
$
39
1,443
55
51
644
269
2,353
$
1,698
$
82
(12)
799
(214)
655
The table below summarizes the current assets, current liabilities, and working capital of the Company:
Current assets
Current liabilities
Working capital
Current Assets
As at
(in millions)
February 28, 2018
February 28, 2017
Change
$
$
2,548
464
2,084
$
$
1,717
621
1,096
$
$
831
(157)
988
The increase in current assets of $831 million at the end of fiscal 2018 from the end of fiscal 2017 was primarily due to
increases in short term investments of $799 million, cash and cash equivalents of $82 million, and other receivables of $44
million, partially offset by decreases in accounts receivable, net of $49 million, inventories of $23 million and other current
assets of $17 million.
At February 28, 2018, accounts receivable was $151 million, a decrease of $49 million from February 28, 2017. The decrease
reflects the lower revenues recognized during fiscal 2018, partially offset by an increase in days sales outstanding to
approximately 61 days in the fourth quarter of fiscal 2018 from approximately 57 days in the fourth quarter of 2017.
At February 28, 2018, other receivables increased by $44 million to $71 million compared to $27 million as at February 28,
2017. The increase in other receivables was primarily due to the payment of $35 million under the JP Morgan Chase settlement
funding arrangement as discussed above in “Fiscal 2018 Summary Results of Operations - Free Cash Flow” and Note 14 which
is expected to be recovered from escrow.
At February 28, 2018, inventories decreased by $23 million to $3 million compared to $26 million as at February 28, 2017. The
decrease in inventories was primarily due to the sale of the remaining inventory of the Company’s handheld devices.
At February 28, 2018, other current assets was $38 million, a decrease of $17 million from February 28, 2017. The decrease in
in other current assets was due to the recognition of previously deferred cost of goods sold upon recognition of the related
deferred revenue, partially offset by increases in prepaid rent.
At February 28, 2018, income taxes receivable was $26 million, a decrease of $5 million from February 28, 2017. The decrease
in income tax receivable was due to the recognition of income tax expense on part intra-entity transfers that had previously
been deferred as a result of the adoption of a new accounting standard, and the receipt of income tax refunds in certain
jurisdictions.
Current Liabilities
The decrease in current liabilities of $157 million at the end of fiscal 2018 from the end of fiscal 2017 was primarily due to a
decrease in accounts payable of $82 million, deferred revenue of $44 million and accrued liabilities of $35 million.
As at February 28, 2018, accounts payable were $46 million, reflecting a decrease of $82 million from February 28, 2017,
which was primarily attributable to a decrease in amounts owing for the manufacturing of devices, lower operating expenses as
described above under “Results of Operations - Fiscal year ended February 28, 2018 compared to fiscal year ended
February 28, 2017 - Operating Expenses”, and lower legal expenses.
Deferred revenues were $195 million, which reflects a decrease of $44 million compared to February 28, 2017 that was
primarily attributable to the recognition of devices sold through to end users, the recognition of revenue related to unspecified
future software upgrades from those sales, and the recognition of deferred revenue relating to SAF prepayments.
Accrued liabilities were $205 million, reflecting a decrease of $35 million compared to February 28, 2017, which was primarily
attributable to a decrease in accrued royalties.
31
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cash flows for the fiscal year ended February 28, 2018 compared to the fiscal year ended February 28, 2017 were as follows:
Net cash flows provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of foreign exchange loss on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Operating Activities
For the Fiscal Years Ended
(in millions)
February 28, 2018
February 28, 2017
Change
$
$
704
(630)
2
6
82
$
$
(224) $
724
(722)
(1)
(223) $
928
(1,354)
724
7
305
The increase in net cash flows provided by operating activities of $928 million primarily reflects the net impact of the
Qualcomm Arbitration Award and the Nokia Arbitration Result, as well as a higher net income before amortization.
Investing Activities
During the fiscal year ended February 28, 2018, cash flows used in investing activities were $630 million and included cash
flow of $588 million used in transactions involving the acquisition of short-term and long-term investments, net of the proceeds
on sale or maturity, intangible asset additions of $30 million and acquisitions of property, plant and equipment of $15 million,
partially offset by proceeds on sale of property, plant and equipment of $3 million. For the same period of the prior fiscal year,
cash flows provided by investing activities were $724 million and included cash flows of $703 million provided by transactions
involving the acquisition of short-term and long-term investments and proceeds on sale or maturity and proceeds on the sale of
property, plant and equipment of $95 million, offset by intangible asset additions of $52 million, acquisitions of property, plant
and equipment of $17 million, and business acquisitions, net of cash acquired of $5 million.
Financing Activities
The increase in cash flows provided by financing activities was $724 million for fiscal 2018 and was primarily a result of the
net impact of the repurchase of the 6% Debentures, issuance of the 3.75% Debentures, and payment of contingent consideration
related to business acquisitions during fiscal 2017 that did not recur during fiscal 2018, partially offset by common share
repurchases under the normal course issuer bid discussed under “Business Overview - Normal Course Issuer Bid” above.
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 28, 2018:
Total
Less than One
Year
(in millions)
One to
Three Years
Four to Five
Years
Greater than
Five Years
Operating lease obligations
Purchase obligations and commitments
Long-term debt interest and principal
payments
Total
$
$
$
138
106
61
$
33
106
23
305
$
162
$
46
—
38
84
$
$
30
—
—
30
$
$
29
—
—
29
Purchase obligations and commitments amounted to approximately $305 million as at February 28, 2018, including future
interest payments of $61 million on the 3.75% Debentures, and operating lease obligations of $138 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 28, 2018 decreased by $93 million as compared to the February 28, 2017 balance of
approximately $398 million, which was primarily attributable to decreases in operating lease obligations, interest payments on
the 3.75% Debentures, and purchase orders for goods and services used in operations.
Debenture Financing and Other Funding Sources
See Note 10 to the Consolidated Financial Statements for a description of the Debentures.
The Company has $33 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.
32
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cash, cash equivalents, and investments were approximately $2.4 billion as at February 28, 2018. 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
Securities Exchange Act of 1934, as amended (the “U.S. Exchange Act”), or under applicable Canadian securities laws.
Legal Proceedings
The Company is involved in litigation in the normal course of its business, both as a defendant and as a plaintiff. Management
reviews all of the relevant facts for each claim and applies judgment in evaluating the likelihood and, if applicable, the amount
of any potential loss. Where a potential loss is considered probable and the amount is reasonably estimable, provisions for loss
are made based on management’s assessment of the likely outcome. Where a range of loss can be reasonably estimated with no
best estimate in the range, the Company records the minimum amount in the range. The Company does not provision 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 provisioned for when reasonably determinable.
As of February 28, 2018, there are no 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. See Note 14 to the Consolidated Financial
Statements for a further discussion of the Company’s legal matters.
Market Risk of Financial Instruments
The Company is engaged in operating and financing activities that generate risk in three primary areas:
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 revenues in fiscal 2018 were transacted in U.S. dollars. Portions of the revenues
were denominated in Canadian dollars, euros and British pounds. Purchases of raw materials were primarily transacted in U.S.
dollars. Other expenses, consisting mainly of salaries, certain operating costs were incurred primarily in Canadian dollars, but
were also incurred in U.S. dollars, euros and British pounds. At February 28, 2018, approximately 9% of cash and cash
equivalents, 35% of accounts receivables and 6% of accounts payable were denominated in foreign currencies (February 28,
2017 – 8%, 35% and 23%, 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. See Note 5
to the Consolidated Financial Statements for information concerning the Company’s foreign currency hedging activities.
Interest Rate
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 3.75% Debentures with a fixed 3.75% interest rate. The fair value of the 3.75% Debentures
will fluctuate with changes in prevailing interest rates. Consequently, the Company is exposed to interest rate risk as a result of
the long term of the 3.75% Debentures. The Company does not currently utilize interest rate derivative instruments to hedge its
investment portfolio.
Credit and Customer Concentration
The Company, in the normal course of business, monitors the financial condition of its customers and reviews the credit history
of each new customer. The Company establishes an allowance for doubtful accounts (“AFDA”) that corresponds to the specific
credit risk of its customers, historical trends and economic circumstances. The AFDA as at February 28, 2018 was $24 million
(February 28, 2017 - $12 million). There was no customer that comprised more than 10% of accounts receivable as at
February 28, 2018 (February 28, 2017 – one customer that comprised more than 10%). Additionally, there were no customers
that comprised more than 10% of the Company’s revenue in fiscal 2018, fiscal 2017 or fiscal 2016. During fiscal 2018, the
percentage of the Company’s receivable balance that was past due decreased by 5.6% compared to the fourth quarter of fiscal
2017. Although the Company actively monitors and attempts to collect on its receivables as they become due, the risk of further
delays or challenges in obtaining timely payments from its carrier and distributor partners of receivables exists. The occurrence
33
BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
of such delays or challenges in obtaining timely payments could negatively impact the Company’s liquidity and financial
condition.
Market values are determined for each individual security in the investment portfolio. The Company assesses declines in the
value of individual investments for impairment to determine whether the decline 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 ability and intent to hold the debt securities
to maturity. During fiscal 2018, the Company did not record any other-than-temporary impairment charges related to certain
cost-based investments (fiscal 2017 - $8 million).
See Note 5 to the Consolidated Financial Statements for additional information regarding the Company’s credit risk as it
pertains to its foreign exchange derivative counterparties.
Disclosure Controls and Procedures and Internal Controls
Disclosure Controls and Procedures
As of February 28, 2018, the Company carried out an evaluation, under the supervision and with the participation of the
Company’s management, including the Company’s Chief Executive Officer and its Chief Financial Officer, of the effectiveness
of the design and operation of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the U.S. Exchange Act. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have
concluded that, as of such date, the Company’s disclosure controls and procedures were effective to give reasonable assurance
that the information required to be disclosed by the Company in reports that it files or submits under the U.S. Exchange Act is
(i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and
(ii) accumulated and communicated to management, including its principal executive and principal financial officers, or
persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the U.S. Exchange Act as a process
designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the
Board, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and
procedures that:
•
•
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors of the Company; and
provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisitions, use or
dispositions of the Company’s assets that could have a material effect on the Company’s financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of February 28, 2018. In
making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in its Internal Control-Integrated Framework (2013). Based on this assessment, management believes
that, as of February 28, 2018, the Company’s internal control over financial reporting was effective.
The Company’s independent auditors have issued an audit report on the Company’s internal control over financial reporting.
This report is included with the Consolidated Financial Statements.
Changes in Internal Control Over Financial Reporting
During the three months ended February 28, 2018, the Company implemented additional controls as part of its preparation to
adopt ASC 606, which was effective for the Company on March 1, 2018. The Company implemented new controls related to
gathering information about its contracts with customers, monitoring the process of implementation, and evaluating the impact
upon adoption. There were no other changes in the Company’s internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
34
Exhibit 23.1
CONSENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements [Form S-8 Nos. 333-85294,
333-100684, 333-150470, 333-177149, 333-189880, 333-192986, 333-192987, 333-197636, 333-206480,
333-209525, and 333-220153] pertaining to the Company's equity compensation and benefits plans of BlackBerry
Limited of our reports dated March 28, 2018, with respect to the consolidated financial statements and related notes
of BlackBerry Limited and the effectiveness of internal control over financial reporting of BlackBerry limited,
included in this Annual Report (Form 40-F) for the year ended February 28, 2018.
We also consent to the use of our reports dated March 28, 2018, with respect to the consolidated financial
statements and related notes of BlackBerry Limited and the effectiveness of internal control over financial reporting
of the Company, included in the Annual Report (Form 40-F) for the year ended February 28, 2018, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Kitchener, Canada,
March 28, 2018
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, John Chen, certify that:
1.
I have reviewed this annual report on Form 40-F of BlackBerry Limited;
Exhibit 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for,
the periods presented in this report;
4. The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the issuer, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred
during the period covered by the annual report that has materially affected, or is reasonably likely to
materially affect, the issuer’s internal control over financial reporting; and
5. The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons
performing the equivalent function):
All significant deficiencies and material weaknesses in the design or operation of internal control
a.
over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process,
summarize and report financial information; and
b.
significant role in the issuer’s internal control over financial reporting.
Any fraud, whether or not material, that involves management or other employees who have a
Date: March 28, 2018
/s/ John Chen
Name: John Chen
Title: Chief Executive Officer
I, Steven Capelli, certify that:
1.
I have reviewed this annual report on Form 40-F of BlackBerry Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for,
the periods presented in this report;
4. The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the issuer, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred
during the period covered by the annual report that has materially affected, or is reasonably likely to
materially affect, the issuer’s internal control over financial reporting; and
5. The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons
performing the equivalent function):
All significant deficiencies and material weaknesses in the design or operation of internal control
a.
over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process,
summarize and report financial information; and
b.
significant role in the issuer’s internal control over financial reporting.
Any fraud, whether or not material, that involves management or other employees who have a
Date: March 28, 2018
/s/ Steven Capelli
Name: Steven Capelli
Title: Chief Financial Officer and Chief Operating Officer
Certification of CEO and CFO
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
In connection with the Annual Report of BlackBerry Limited (the “Registrant”) on Form 40-F for the year ended February 28,
2018, as filed with the Commission on the date hereof (the “Report”), John Chen, as Chief Executive Officer of the Registrant,
and Steven Capelli, as Chief Financial Officer of the Registrant, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Registrant.
/s/ John Chen
Name: John Chen
Title: Chief Executive Officer
Date: March 28, 2018
/s/ Steven Capelli
Name: Steven Capelli
Title: Chief Financial Officer and Chief Operating Officer
Date: March 28, 2018
This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent
required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Registrant for purposes of §18 of the Securities Exchange
Act of 1934, as amended.