Blackberry 2016 Annual Report Download

Download and view the complete annual report

Please find the complete 2016 Blackberry annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 138

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138

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 29, 2016 Commission File Number 0-29898
__________________________________________________________
BlackBerry Limited
(Exact name of Registrant as specified in its charter)
Ontario 3661 Not Applicable
(Province or other Jurisdiction
of Incorporation or Organization) (Primary Standard Industrial
Classification Code Number) (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
6700 Koll Center Parkway, 2nd Floor
Pleasanton, California, USA 94566
(925) 931-6060
(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 NASDAQ Stock Market, LLC
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 521,172,271 Common Shares outstanding as at February 29, 2016.

Table of contents

  • Page 1
    ... 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...

  • Page 2
    ... 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 has submitted...

  • Page 3
    ... Management's Annual Report on Internal Control Over Financial Reporting On October 30, 2015 and September 22, 2015, the Registrant completed the acquisition of Good Technology Corporation and AtHoc, Inc., respectively, which are included in the fiscal 2016 consolidated financial statements of the...

  • Page 4
    ...EY for the fiscal years ended February 29, 2016 and February 28, 2015, 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 $13,042 and...

  • Page 5
    ... can be found in its Management's Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended February 29, 2016, included in Exhibit No. 1.3 to this Annual Report, under the heading "Accounting Policies and Critical Accounting Estimates - Critical Accounting...

  • Page 6
    ...more than one class of shares outstanding at the time), enjoying voting rights at such meeting. The Registrant's quorum requirements comply with the requirements of the Business Corporations Act (Ontario) and are consistent with the quorum requirements of other Canadian public companies. On November...

  • Page 7
    UNDERTAKING AND CONSENT TO SERVICE OF PROCESS A. Undertaking The Registrant undertakes to make available, in ...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 ...

  • Page 8
    ... 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. BLACKBERRY LIMITED Date: April 1, 2016 By: Name: Title: /s/ James Yersh James Yersh Chief Financial Officer

  • Page 9
    ... accepted accounting principles. Management's Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended February 29, 2016. Consent of Ernst & Young LLP. Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the...

  • Page 10
    Table of Contents BLACKBERRY LIMITED 2200 University Avenue East Waterloo, Ontario Canada N2K 0A7 Annual Information Form For the fiscal year ended February 29, 2016 DATE: April 1, 2016 1

  • Page 11
    ... 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...

  • Page 12
    ... to address its business challenges, the launch of new products and services, general economic conditions, product pricing levels and competitive intensity, supply constraints, and the Company's expectations regarding the cash flow generation of its business and the sufficiency of its financial...

  • Page 13
    ... 30, 2015, the Company, through its wholly-owned subsidiary, BlackBerry Corporation, 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...

  • Page 14
    ... positive free cash flow and positive adjusted EBITDA in each of the quarters in fiscal 2016; • Achieved non-GAAP revenue of approximately $527 million from software and services for the year; • Commenced a normal course issuer bid to purchase up to 27 million common shares of the Company...

  • Page 15
    ... explore strategic alternatives to enhance value and increase scale to accelerate BlackBerry 10 deployment; • Announced on September 23, 2013, that the Company had signed a letter of intent (the "LOI") with Fairfax Financial Holdings Limited ("Fairfax"), a Canadian company founded by V. Prem Watsa...

  • Page 16
    ...and based in Waterloo, Ontario, the Company operates offices in North America, Europe, Middle East and Africa, Asia Pacific and Latin America. The Company's common shares are listed on the NASDAQ Global Select Market ("NASDAQ") (NASDAQ: BBRY) and the Toronto Stock Exchange ("TSX") (TSX: BB), and its...

  • Page 17
    ... its enterprise software offerings and long-term product strategy. With the acquisitions of Good and Watchdox in fiscal 2016, the Company has expanded its ability to offer a unified, secure mobility platform with applications and services for any mobile device on any operating system, supported by...

  • Page 18
    ... building its direct enterprise sales force. Achieving best in class operational metrics. The Company has significantly improved its operational metrics through the Resource Alignment Program and its previous cost and management initiatives. BlackBerry intends to further simplify business processes...

  • Page 19
    ..., mission and values. • Continuing to invest in highly qualified personnel. BlackBerry believes that the quality and skills of its employees are key factors in achieving success. The Company intends to continue its recruiting strategies and operations worldwide to support its product development...

  • Page 20
    ... mobile operators to provide customers with one monthly bill to subscribe to BlackBerry EMM services and BES. This ESBL offering supports iOS, Android, Windows Phone and BlackBerry 10 smartphones. WorkLife by BlackBerry Following the acquisition of Movirtu in fiscal 2015, the Company introduced...

  • Page 21
    ... AtHoc In fiscal 2016, the Company expanded its focus and footprint in the messaging business with the acquisition of AtHoc. The AtHoc software platform enables people, devices and organizations to exchange critical information in real time during business continuity and life safety operations. The...

  • Page 22
    ...and complementary third-party applications via its direct sales force and value added resellers. The Company also licenses cross-platform enterprise mobile software and services via global wireless communications carriers and other distribution partners throughout the world. The Company licenses QNX...

  • Page 23
    ... solutions to address new applications, network protocols, and evolving transmission frequencies. The Company's tunable closed loop radio transceiver technology can be adapted to support multiple protocols in the wireless data communications market. The Company has developed its own radio code stack...

  • Page 24
    ... Party Software Developers The Company provides a feature-rich open standards-based development platform, which allows third party commercial and enterprise software developers to build and deploy custom applications to run on BlackBerry smartphones. To facilitate this, the Company provides a number...

  • Page 25
    ... by BlackBerry. The Company's hardware model also strives to provide a supply chain with speed advantages in designing for faster product life cycles, as well as to leverage scale and manufacturing strength beyond current volumes. The Company generally controls sourcing decisions for materials and...

  • Page 26
    ... 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 29, 2016, the Company had 4,534 full-time employees. Facilities The Company's headquarters are located in Waterloo, Ontario...

  • Page 27
    ...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...

  • Page 28
    ... management activities undertaken by business group management and the SRCC. The RMCC meets at least quarterly with the Chief Risk Officer serving as the Chair. The RMCC reviews the Company's risk profile, risk criteria and limits, and monitors remediation activities to address gaps. The RMCC also...

  • Page 29
    ... to generate service revenue, the amount of those revenues is expected to continue to decline in the coming quarters, particularly as users of BlackBerry Bold and BlackBerry Curve smartphones upgrade to BlackBerry devices (such as the Classic and PRIV) that do not generate service access fees...

  • Page 30
    ... the value of the BlackBerry brand and may adversely affect the Company's ability to sell software products and services. The Company may not be able to enhance its current products and services, or develop new products and services, in a timely manner, at competitive prices, or to meet customer...

  • Page 31
    ... the number of countries where the Company operates, and expands its ecosystem to offer third party products and services in conjunction with its own. Third party applications that are downloaded by a user on their BlackBerry smartphone could also increase the risk of a potential unauthorized access...

  • Page 32
    ...promote competitive products and services; activations of BlackBerry user accounts, as well as retention of existing ones; the carriers' interest in testing, and certifying in a timely manner, the Company's products on their networks; network performance and required investments in upgrades; support...

  • Page 33
    ... products, services or technologies to market successfully or in a timely manner, or its operations could be affected adversely. 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...

  • Page 34
    .... The Company's direct and outsourced manufacturing activity depends on obtaining adequate supplies of functional components, such as displays, semi-conductors, batteries, printed circuit boards, plastics, tooling equipment and memory, on a timely basis. The Company purchases components and...

  • Page 35
    ... are complicated, require preferential pricing or "most favoured nation" terms and conditions, or are otherwise time-consuming and expensive to satisfy. Government demand and payment for the Company's products and services may be impacted by public sector budgetary cycles and funding authorizations...

  • Page 36
    ...on commercially reasonable terms) or develop such technology internally (which would require significant unplanned investment on the Company's part). The Company also enables access to the Amazon Appstore to users of the BlackBerry 10.3 operating system through a licensing agreement with Amazon, and...

  • Page 37
    ..., levels of sales, returns on the Company's investment portfolio, timing of deliveries and collection of receivables, inventory levels, capital expenditures, operating expenses, and customer and supplier terms and conditions. The Company's ability to maintain or increase its cash flow and working...

  • Page 38
    ... 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...

  • Page 39
    ... the Company's business, results of operations and financial condition may be adversely affected. The Company's network carriers or other customers, partners or members of its ecosystem may also have differing expectations or impose particular requirements for the collection, storage, processing and...

  • Page 40
    ...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 international market growth opportunities. The Company has limited experience conducting...

  • Page 41
    ... a result of actions of activist shareholders. Publicly-traded companies have increasingly become subject to campaigns by investors seeking to advocate certain governance changes or corporate actions such as financial restructuring, special dividends, share repurchases or even sales of assets or the...

  • Page 42
    ... of the Company's products or services. 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...

  • Page 43
    ... 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...

  • Page 44
    ... 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...

  • Page 45
    ... 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...

  • Page 46
    ... 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...

  • Page 47
    ... amount, purchase price or any Change of Control Repurchase Price when due; (ii) a default in payment of interest on any 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...

  • Page 48
    ... of any of the foregoing. MARKET FOR SECURITIES OF THE COMPANY The Company's common shares are listed and posted for trading on the TSX under the symbol "BB" and are listed on NASDAQ under the symbol "BBRY". The volume of trading and price ranges of the Company's common shares on the TSX 39

  • Page 49
    ... incentive plan increasing the number of shares available thereunder, both as approved by the shareholders of the Company on June 23, 2015. Daily purchases are limited to 578,619 common shares, other than block purchases. The NCIB commenced on June 29, 2015 and will terminate on June 28, 2016 or...

  • Page 50
    ... President, Enterprise Products and Value Added Solutions President, Devices and Emerging Solutions Ron Louks North Carolina, USA Chief Executive Officer, The Open NMS Group Inc. (2013); Chief Executive Officer, Plus 1, LLC (2012 to 2013); Chief Strategy Officer, HTC Corporation (2010 to 2011) 41

  • Page 51
    ... Sales SVP, Corporate Development and Corporate Strategy, Open Text, Inc. (from 2012 to 2013); SVP (and previously, VP), Corporate Development, SAP AG (from 2004 to 2012) Chief People Officer, SuccessFactors (an SAP company) (from December 2012 to December 2013); Vice President, Worldwide Human...

  • Page 52
    ... appointed to hold the assets of the director, executive officer or shareholder. On November 7, 2006, as a result of the Company failing to file its second quarter financial statements for fiscal 2007 before the statutory filing deadline of October 17, 2006, a management cease trade order (the...

  • Page 53
    ... 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...

  • Page 54
    ... of Capital Structure - Convertible Debentures"; and the Agreement and Plan of Merger among BlackBerry Corporation, Good, Greenbrier Merger Corp. and Shareholder Representative Services LLC dated September 4, 2015, providing for the acquisition of Good by the Company for a purchase price of...

  • Page 55
    ... 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...

  • Page 56
    ...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...

  • Page 57
    ... communicated to the Committee under applicable auditing standards by the independent auditors; (4) Review the Corporation's interim financial statements and quarterly earnings press releases and report thereon to the Board before such documents are approved by the Board and disclosed to the public...

  • Page 58
    ... 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...

  • Page 59
    ...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...

  • Page 60
    ... should be addressed by the Committee; 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...

  • Page 61
    ...' REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of BlackBerry Limited We have audited the accompanying consolidated financial statements of BlackBerry Limited [the "Company"], which are comprised of the consolidated balance sheets as at February 29, 2016 and...

  • Page 62
    ... OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING To the Board of Directors and Shareholders of BlackBerry Limited We have audited BlackBerry Limited's [the "Company"] internal control over financial reporting as of February 29, 2016, based on criteria...

  • Page 63
    ... 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...

  • Page 64
    ...2015 Assets Current Cash and cash equivalents Short-term investments Accounts receivable, net Other receivables Inventories Income taxes receivable Other current assets Deferred income tax asset Long-term investments Restricted cash Property, plant and equipment, net Goodwill Intangible assets, net...

  • Page 65
    ... 28, 2015 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 See notes to consolidated financial statements. $ 2,431...

  • Page 66
    ...per share data) Consolidated Statements of Operations For the Years Ended February 28, 2015 February 29, 2016 March 1, 2014 Revenue Software, services and service access fees Hardware and other Cost of sales Software, services and service access fees Hardware and other Inventory write-down Supply...

  • Page 67
    ... Statements of Comprehensive Loss For the Years Ended February 29, 2016 February 28, 2015 March 1, 2014 Net loss Other comprehensive income (loss) Net change in unrealized gains (losses) on available-for-sale investments Net change in fair value of derivatives designated as cash flow hedges...

  • Page 68
    ...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...

  • Page 69
    ... in 1984 and based in Waterloo, Ontario, the Company operates offices in North America, Europe, Middle East and Africa, Asia Pacific and Latin America. The Company's common shares are listed on the NASDAQ Global Select Market (NASDAQ: BBRY) and the Toronto Stock Exchange (TSX: BB), and its unsecured...

  • Page 70
    ..., provisions for warranty, 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, implied fair value of goodwill, long-lived asset impairment, amortization...

  • Page 71
    ...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...

  • Page 72
    ... and other BlackBerry operations and other information technology Manufacturing equipment, research and development equipment and tooling Furniture and fixtures Goodwill Goodwill represents the excess of the acquisition price over the fair value of identifiable net assets acquired. Goodwill is...

  • Page 73
    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 future operating or cash flow losses, significant disposal activity, a significant decline in the Company's share price, a ...

  • Page 74
    ... software upgrade rights related to BlackBerry 10 devices. Software and Services Revenue from term licensed software and value added services is recognized upon delivery or ratably over the license or subscription term. Revenue from perpetual licenses are recognized over the estimated customer life...

  • Page 75
    ... 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...

  • Page 76
    ... 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...

  • Page 77
    ...be a director, 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...

  • Page 78
    ... The Company will adopt this guidance in the first quarter of fiscal 2017 and is currently evaluating the impact that the adoption will have on its results of operations, financial position and disclosures. In July 2015, the FASB issued a new accounting standard update on the topic of inventory. The...

  • Page 79
    ... the first quarter of fiscal 2018 and is currently evaluating the impact that the adoption will have 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...

  • Page 80
    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 29, 2016 were as follows: Other-...

  • Page 81
    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, 2015 were as follows: Unrealized ...

  • Page 82
    ... materially at risk. As there is uncertainty as to when market liquidity for auction rate securities will return to normal, the Company has classified the auction rate securities as long-term investments on the consolidated balance sheets as at February 29, 2016 and February 28, 2015. 4. FAIR VALUE...

  • Page 83
    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, 2015 ...

  • Page 84
    ...2015 Fair Value of Derivatives Designated as Cash Flow Hedges Fair Value of Derivatives Not Designated as Cash Flow Hedges Fair Value of Derivatives Not Subject to Hedge Accounting Balance Sheet Location Total Estimated Fair Value Notional Amount Derivative Assets (1): Currency forward contracts...

  • Page 85
    ... Selling, marketing and administration Research and development Research and development $ $ (1) (1) (5) (4) (3) (1) (15) The Company has also occasionally entered into other forward and option contracts hedging anticipated foreign currency transactions which it did not designate as cash flow...

  • Page 86
    ..., 2016 February 28, 2015 Currency forward contracts Currency option contracts Total Selling, marketing and administration Selling, marketing and administration $ $ 44 $ (4) 40 $ 156 11 167 For information concerning the impact of foreign exchange on the consolidated statement of operations net...

  • Page 87
    ... decreased significantly during fiscal 2014 due to the maturing smartphone market, very intense competition and, the Company believes, the uncertainty created by the Company's strategic review process. These factors caused the number of BlackBerry 10 devices in the channel to increase above...

  • Page 88
    ... Intellectual property Other acquired intangibles Abandonment/impairment of long-lived assets 4.4 years 7.7 years 6.0 years 3.6 years 5.7 years 3.5 years During fiscal 2016 and as part of its resource alignment program (the "RAP") as described in Note 8, the Company completed a targeted review of...

  • Page 89
    ... further identified the continuing decline in revenue, the generation of operating losses and the decrease in cash flows from operations as indicators of potential LLA impairment. Further, the Company believed that its strategic review process may have increased market uncertainty as to the future...

  • Page 90
    ...as a value added service through BES12 that complements the Company's enterprise mobility management portfolio. AtHoc, Inc. On September 22, 2015, the Company acquired all of the issued and outstanding shares of AtHoc, Inc. ("AtHoc"), a leading provider of secure networked crisis communications, for...

  • Page 91
    ...of the acquisition price over the fair value of net assets acquired, which is not expected to be deductible for tax purposes when goodwill results from share purchases. The fair value of deferred revenue represents the costs to service the assumed obligations, plus a normal profit margin as required...

  • Page 92
    ... related to deferred revenue, the fair value of which represents the costs to service the assumed obligations, plus a normal margin, as required under purchase accounting. Net loss before income taxes reflects costs associated with ongoing integration activities completed after the acquisition date...

  • Page 93
    ... fair value allocations of the acquisition price of the assets and liabilities acquired during fiscal 2015: Assets purchased Current assets Property, plant and equipment Intangible assets Goodwill(1)(4) Liabilities assumed Accounts payable Deferred revenue Deferred income tax liability Net non-cash...

  • Page 94
    ...foreign exchange. The RAP charges, including non-cash charges incurred in fiscal 2016 were as follows: Cost of sales Research and development Selling, marketing and administration Total RAP charges $ 44 47 253 344 $ As discussed in Note 6, during fiscal 2016 the Company completed a targeted review...

  • Page 95
    ...to fair value less costs to sell have been included in the selling, marketing and administration expenses on the Company's consolidated statements of operations and included in the total CORE program charges in fiscal 2015 and prior periods. In fiscal 2015, the Company completed the Real Estate Sale...

  • Page 96
    ... 29, 2016 February 28, 2015 Assets Property, plant, equipment and intangibles 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...

  • Page 97
    ... 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 29, 2016 was...

  • Page 98
    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 29, 2016, the Company has the following net operating loss carryforwards and tax credits which are scheduled to ...

  • Page 99
    ... selling, marketing and administration expenses in the statement of operations. 11. (a) CAPITAL STOCK 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...

  • Page 100
    ... 24, 2015, the Board authorized an increase in the number of common shares that may be purchased for cancellation under the Repurchase Program by up to 15 million common shares, subject to regulatory approval. On January 29, 2016 the Company sought and received regulatory approval from the TSX to...

  • Page 101
    ... using the BSM option pricing model with the following assumptions: February 29, 2016 February 28, 2015 Weighted average grant date fair value of stock options granted during the period Assumptions: Risk-free interest rates Expected life in years Expected dividend yield Volatility $ 2.49...

  • Page 102
    ... a trustee to purchase shares on the open market in connection with the vesting of certain RSUs awarded by the Company. During the year ended February 29, 2016, the trustee purchased nil and sold nil common shares (February 28, 2015 - 6,032,719 common shares were sold for total cash consideration of...

  • Page 103
    ... 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 Debentures. (3) The Company has not presented the dilutive effect of in-the-money options or RSUs that...

  • Page 104
    ..., 2016 were as follows: Gains and Losses on Available-for-Sale Securities Location of loss reclassified from AOCI into income Gains and Losses on Cash Flow Hedges Total Selling, marketing and administration Investment income Recovery of income taxes Total amount reclassified into income, net of...

  • Page 105
    ... 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...

  • Page 106
    ... agreements on similar terms, or at all. Therefore, the Company remains subject to significant risks of supply shortages and intellectual property litigation risk, as well as potential price increases that can materially adversely affect its financial condition and operating results. The Company...

  • Page 107
    ...Revenue mix Software and services Hardware Service access fees Other $ $ 494 862 779 25 2,160 $ $ 248 1,431 1,606 50 3,335 $ $ 235 3,785 2,698 95 6,813 Property, plant and equipment, intangible assets and goodwill, classified by geographic segments in which the Company's assets are located...

  • Page 108
    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 16. (a) CASH FLOW AND ADDITIONAL INFORMATION Certain consolidated statements of cash flow information related to interest and ...

  • Page 109
    ...forward-looking statements in this MD&A, including in the sections entitled "Business Overview - Strategy, Products and Services", "Business Overview - Common Share Repurchase Program", "Business Overview - Operating Segments", "Fiscal 2016 Summary Results of Operations - Financial Highlights - Free...

  • Page 110
    ... 2015 - Revenue Revenue by Category - Service Access Fees Revenue", "Results of Operations - Three months ended February 29, 2016 compared to the three months ended February 28, 2015 - Gross Margin" and "Financial Condition - Debenture Financing and Other Funding Sources". Forward-looking statements...

  • Page 111
    ...the market price of the Company's common shares; risks related to adverse economic and geopolitical conditions; market and credit risk associated with the Company's cash, cash equivalents and short-term or long-term investments; and risks related to the fluctuation of the Company's quarterly revenue...

  • Page 112
    ... the highly competitive smartphone and devices market. This strategy includes increasing the Company's product and service offerings through strategic acquisitions and targeted growth in internal investments. The Company's goal is to maintain its market leadership in the enterprise mobility segment...

  • Page 113
    ... complete its purchases under such program. On January 29, 2016 the Company sought and received regulatory approval from the Toronto Stock Exchange to increase the maximum number of common shares that may be repurchased from 12 million common shares to 27 million common shares, or 5.8% of the public...

  • Page 114
    BlackBerry Limited Management's Discussion and Analysis of Financial Condition and Results of Operations As the Company's recent acquisitions are integrated into its overall business structure and strategy, the Company is expecting to change the internal reporting utilized by the CODM for decision ...

  • Page 115
    ...CORE program charges Software deferred revenue acquired Stock compensation expense Stock compensation expense Acquired intangibles amortization Business acquisition and integration costs (0.03) See "Fiscal 2016 Summary Results of Operations - Financial Highlights - Debentures Fair Value Adjustment...

  • Page 116
    ... Limited Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2016 Non-GAAP Adjustments Income statement location As reported Debentures fair value adjustment(1) RAP charges (2) RAP charges (2) For the Year Ended February 29, 2016 (in millions) Gross margin...

  • Page 117
    ... Three Months Ended February 28, 2015 (in millions) Income Statement Location As reported Rockstar sale adjustment Debentures fair value adjustment CORE program charges CORE program charges CORE program charges Stock compensation expense Stock compensation expense Stock compensation expense Acquired...

  • Page 118
    ... 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...

  • Page 119
    ... and Analysis of Financial Condition and Results of Operations written down to net realizable value or excess inventory is written off. Significant judgment was required in calculating the inventory charges, which involved forecasting future demand and the associated pricing at which the Company can...

  • Page 120
    BlackBerry Limited Management's Discussion and Analysis of Financial Condition and Results of Operations 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...

  • Page 121
    BlackBerry Limited Management's Discussion and Analysis of Financial Condition and Results of Operations 2016. Early adoption is permitted. The Company has adopted this guidance early and applied it prospectively in the fourth quarter of fiscal 2016. In January 2016, the FASB issued a new accounting...

  • Page 122
    ... Revenue(1) Gross margin(1)(2) Operating expenses(1)(2) Investment income (loss), net (2) Loss before income taxes Recovery of income taxes Net loss Loss per share - reported Basic Diluted Weighted-average number of shares outstanding (000's) Basic Diluted(3) Total assets Total long-term financial...

  • Page 123
    ...the three months ended February 29, 2016, the Company reported free cash flow of $6 million, which consisted of operating cash flows of $9 million, minus capital expenditures of $3 million. The Company anticipates continuing to generate positive free cash flow and adjusted EBITDA for the 2017 fiscal...

  • Page 124
    ... in service access fees revenue in fiscal 2017, and to exceed the growth rate of the mobility software market. The Company expects total software and services revenue to grow at around 30% on a year-over-year basis and expects continued gains in market share at that level. The Company's software and...

  • Page 125
    ... 2015. The decrease in service access fees revenue, which is generated from users of BlackBerry 7 and prior BlackBerry operating systems, is primarily attributable to a lower number of BlackBerry 7 users and lower revenue from those users (particularly as those users upgrade to BlackBerry devices...

  • Page 126
    ... in service access fees revenue, partially offset by the increase in software and services revenue, as well as an increase in the average selling prices of certain devices recognized, as previously described compared to fiscal 2015. Generally, service revenues earn higher gross margins than sales of...

  • Page 127
    ... in acquired technology from business acquisitions. Cost of sales Amortization expense relating to certain property, plant and equipment and intangible assets employed in the Company's manufacturing operations and BlackBerry service operations decreased by $57 million to $339 million for fiscal 2016...

  • Page 128
    ...per share amounts) February 29, 2016 February 28, 2015 Change Revenue Gross margin (1)(2) Operating expenses (1)(2) Investment income (loss), net (2) Loss before income taxes Recovery of income taxes Net income (loss) Earnings (loss) per share - reported Basic and diluted Weighted-average number of...

  • Page 129
    ... regions are set forth in the following table: For the Three Months Ended (in millions) February 29, 2016 February 28, 2015 Change BlackBerry handheld devices recognized Revenue Software and services Hardware Service access fees Other Revenue by Geography North America Europe, Middle East and...

  • Page 130
    ... quarter of fiscal 2016, compared to $301 million, or 45.6% of revenue, in the fourth quarter of fiscal 2015. The decrease in service access fees revenue, which is generated from users of BlackBerry 7 and prior BlackBerry operating systems, is primarily attributable to a lower number of those users...

  • Page 131
    ... 2016 given that the Company's quarterly operating results vary substantially. For the Three Months Ended (in millions) February 29, 2016 % of Revenue November 28, 2015 % of Revenue February 28, 2015 % of Revenue Revenue(1)(2) Operating expenses Research and development(1)(2)(3) Selling, marketing...

  • Page 132
    .... Cost of sales Amortization expense relating to certain property, plant and equipment and certain intangible assets employed in the Company's manufacturing operations and BlackBerry service operations decreased by $44 million to $50 million for the fourth quarter of fiscal 2016 compared to $94...

  • Page 133
    ...Research and development $ Selling, marketing and administration Amortization Abandonment/impairment of long-lived assets Debentures fair value adjustment Operating expenses $ Financial Condition Liquidity and Capital Resources $ $ $ 431 Cash, cash equivalents, and investments decreased by $642...

  • Page 134
    ...and Analysis of Financial Condition and Results of Operations A comparative summary of cash, cash equivalents, and investments is set out below: As at (in millions) February 29, 2016 February 28, 2015 Change Cash and cash equivalents Restricted cash Short-term investments Long-term investments Cash...

  • Page 135
    ...$439 million and included cash flows used in business acquisitions of $698 million, intangible asset additions of $70 million, acquisitions of property, plant and equipment of $32 million, offset by proceeds on sale or maturity of short-term investments and long-term investments, net of the costs of...

  • Page 136
    BlackBerry Limited Management's Discussion and Analysis of Financial Condition and Results of Operations Debenture Financing and Other Funding Sources Please see Note 10 to the Consolidated Financial Statements for a description of the Debentures. The Company has $44 million in collateralized ...

  • Page 137
    ...22, 2015, the Company completed the acquisitions of Good and AtHoc, respectively, which are included in the fiscal 2016 consolidated financial statements of the Company and constituted 19% and 23% of total and net assets, respectively, as of February 29, 2016, and 3% and 13% of revenues and net loss...

  • Page 138
    BlackBerry Limited Management's Discussion and Analysis of Financial Condition and Results of Operations year then ended. In conducting their evaluation of the effectiveness of the Company's internal controls over financial reporting, management has excluded Good and AtHoc from its assessment of ...