BBRY Blackberry Limited

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2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Three and Six Months Ended August 31, 2017 .

3.	Canadian Forms 52-109F2 - Certification of Interim Filings

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BlackBerry Limited

Incorporated under the Laws of Ontario

(United States dollars, in millions) (unaudited)

Consolidated Balance Sheets

	As at
	August 31, 2017				February 28, 2017
Assets
Current
Cash and cash equivalents	$	586			$	734
Short-term investments	1,766				644
Accounts receivable, net	155				200
Other receivables	38				27
Inventories	8				26
Income taxes receivable	27				31
Other current assets	44				55
	2,624				1,717
Long-term receivables	37				7
Long-term investments	129				269
Restricted cash and cash equivalents	53				51
Property, plant and equipment, net	71				91
Goodwill	567				559
Intangible assets, net	531				602
	$	4,012			$	3,296
Liabilities
Current
Accounts payable	$	85			$	128
Accrued liabilities	206				258
Income taxes payable	18				14
Deferred revenue	197				239
	506				639
Long-term debt	739				591
Deferred income tax liability	8				9
	1,253				1,239
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 - 530,411,368 voting common shares (February 28, 2017 - 530,497,193)	2,530				2,512
Retained earnings (deficit)	238				(438		)
Accumulated other comprehensive loss	(9		)		(17		)
	2,759				2,057
	$	4,012			$	3,296

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BlackBerry Limited

(United States dollars, in millions, except per share data) (unaudited)

Consolidated Statements of Operations

 

	Three Months Ended								Six Months Ended
	August 31, 2017				August 31, 2016				August 31, 2017				August 31, 2016
Revenue	$	238			$	334			$	473			$	734
Cost of sales
Cost of sales	63				139				148				338
Inventory write-down	—				97				—				144
	63				236				148				482
Gross margin	175				98				325				252
Operating expenses
Research and development	60				85				121				174
Selling, marketing and administration	110				138				219				267
Amortization	39				44				79				98
Impairment of goodwill	—				—				—				57
Impairment of long-lived assets	11				—				11				501
Loss on sale, disposal and abandonment of long-lived assets	3				124				4				127
Debentures fair value adjustment	(70		)		62				148				38
Qualcomm arbitration award	—				—				(815		)		—
	153				453				(233		)		1,262
Operating income (loss)	22				(355		)		558				(1,010		)
Investment income (loss), net	1				(16		)		137				(31		)
Income (loss) before income taxes	23				(371		)		695				(1,041		)
Provision for income taxes	4				1				5				1
Net income (loss)	$	19			$	(372	)		$	690			$	(1,042	)
Earnings (loss) per share
Basic	$	0.04			$	(0.71	)		$	1.30			$	(1.99	)
Diluted	$	(0.07	)		$	(0.71	)		$	1.26			$	(1.99	)

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BlackBerry Limited

(United States dollars, in millions) (unaudited)

Consolidated Statements of Comprehensive Income (Loss)

	Three Months Ended								Six Months Ended
	August 31, 2017				August 31, 2016				August 31, 2017				August 31, 2016
Net income (loss)	$	19			$	(372	)		$	690			$	(1,042	)
Other comprehensive income (loss)
Net change in unrealized losses on available-for-sale investments	—				(1		)		(3		)		(2		)
Net change in fair value of derivatives designated as cash flow hedges during the period, net of income tax recovery of nil for the three and six months ended August 31, 2017 (three and six months ended August 31, 2016 - income tax recovery of nil)	3				—				3				3
Amounts reclassified to net income (loss) during the period for derivatives designated as cash flow hedges, net of income tax recovery of nil for the three and six months ended August 31, 2017 (three and six months ended August 31, 2016 - income taxes of nil)	—				(1		)		—				(2		)
Foreign currency translation adjustment	5				—				9				1
Actuarial losses associated with other post-employment benefit obligations	—				—				(1		)		—
Other comprehensive income (loss)	8				(2		)		8				—
Comprehensive income (loss)	$	27			$	(374	)		$	698			$	(1,042	)

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BlackBerry Limited

(United States dollars, in millions) (unaudited)

Consolidated Statements of Cash Flows

 

	Six Months Ended
	August 31, 2017				August 31, 2016
Cash flows from operating activities
Net income (loss)	$	690			$	(1,042	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization	96				129
Deferred income taxes	(2		)		32
Stock-based compensation	24				30
Impairment of goodwill	—				57
Impairment of long-lived assets	11				501
Loss on sale, disposal and abandonment of long-lived assets	4				127
Other-than-temporary impairment on cost-based investments	—				7
Debentures fair value adjustment	148				38
Long-term receivables	(30		)		—
Other	(3		)		1
Net changes in working capital items:
Accounts receivable, net	45				116
Other receivables	(11		)		4
Inventories	18				102
Income taxes receivable	(2		)		(27		)
Other current assets	13				28
Accounts payable	(43		)		(42		)
Income taxes payable	4				(9		)
Accrued liabilities	(53		)		(63		)
Deferred revenue	(42		)		(82		)
Net cash provided by (used in) operating activities	867				(93		)
Cash flows from investing activities
Acquisition of long-term investments	(25		)		(328		)
Proceeds on sale or maturity of long-term investments	1				112
Acquisition of property, plant and equipment	(6		)		(7		)
Proceeds on sale of property, plant and equipment	3				—
Acquisition of intangible assets	(14		)		(19		)
Business acquisitions, net of cash acquired	—				(5		)
Acquisition of short-term investments	(1,693		)		(665		)
Proceeds on sale or maturity of short-term investments	732				1,745
Conversion of cost-based investment to equity securities	—				10
Net cash provided by (used in) investing activities	(1,002		)		843
Cash flows from financing activities
Issuance of common shares	3				2
Payment of contingent consideration from business acquisitions	—				(15		)
Common shares repurchased	(17		)		—
Effect of foreign exchange loss on restricted cash and cash equivalents	—				(3		)
Transfer to restricted cash and cash equivalents	(2		)		—
Repurchase of 6% Debentures	—				(5		)
Net cash used in financing activities	(16		)		(21		)
Effect of foreign exchange gain on cash and cash equivalents	3				1
Net increase (decrease) in cash and cash equivalents during the period	(148		)		730
Cash and cash equivalents, beginning of period	734				957
Cash and cash equivalents, end of period	$	586			$	1,687

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1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES

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2.	CASH, CASH EQUIVALENTS AND INVESTMENTS

•	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.

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BlackBerry Limited

Notes to the Consolidated Financial Statements

(In millions of United States dollars, except share and per share data, and except as otherwise indicated) (unaudited)

The components of cash, cash equivalents and investments by fair value level as at February 28, 2017 were as follows:

	Cost Basis				Unrealized Gains				Unrealized Losses				Other-than- temporary Impairment				Fair Value				Cash and Cash Equivalents				Short-term Investments				Long-term Investments				Restricted Cash and Cash Equivalents
Bank balances	$	218			$	—			$	—			$	—			$	218			$	216			$	—			$	—			$	2
Other investments	34				—				—				—				34				—				—				34				—
	252				—				—				—				252				216				—				34				2
Level 1:
Equity securities	10				—				(5		)		—				5				—				5				—				—
Level 2:
Term deposits, certificates of deposits, and GICs	242				—				—				—				242				143				50				—				49
Bankers' acceptances	125				—				—				—				125				125				—				—				—
Commercial paper	274				—				—				—				274				212				62				—				—
Non-U.S. promissory notes	117				—				—				—				117				38				79				—				—
Non-U.S. government sponsored enterprise notes	49				—				—				—				49				—				49				—				—
Non-U.S. treasury bills/notes	300				—				—				—				300				—				300				—				—
U.S. treasury bills/notes	315				—				(1		)		—				314				—				99				215				—
	1,422				—				(1		)		—				1,421				518				639				215				49
Level 3:
Corporate notes/bonds	1				—				—				—				1				—				—				1				—
Auction rate securities	20				2				—				(3		)		19				—				—				19				—
	21				2				—				(3		)		20				—				—				20				—
	$	1,705			$	2			$	(6	)		$	(3	)		$	1,698			$	734			$	644			$	269			$	51

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BlackBerry Limited

Notes to the Consolidated Financial Statements

(In millions of United States dollars, except share and per share data, and except as otherwise indicated) (unaudited)

The contractual maturities of available-for-sale investments as at August 31, 2017 and February 28, 2017 were as follows:

	As at
	August 31, 2017								February 28, 2017
	Cost Basis				Fair Value				Cost Basis				Fair Value
Due in one year or less	$	2,246			$	2,245			$	1,206			$	1,206
Due in one to five years	76				76				217				216
Due after five years	17				19				17				19
No fixed maturity	10				2				10				5
	$	2,349			$	2,342			$	1,450			$	1,446

	Three Months Ended								Six Months Ended
	August 31, 2017				August 31, 2016				August 31, 2017				August 31, 2016
Balance, beginning of period	$	20			$	21			$	20			$	21
Principal repayments	—				(1		)		—				(1		)
Balance, end of period	$	20			$	20			$	20			$	20

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4.	DERIVATIVE FINANCIAL INSTRUMENTS

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	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)
							Three Months Ended August 31, 2016				Six months ended August 31, 2016
Currency forward contracts	$	—			Selling, marketing and administration		$	—			$	(1	)
Currency option contracts	—				Selling, marketing and administration		1				3
Total	$	—					$	1			$	2

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5.	CONSOLIDATED BALANCE SHEETS DETAILS

	As at
	August 31, 2017				February 28, 2017
Raw materials	$	1			$	4
Work in process	—				1
Finished goods	7				21
	$	8			$	26

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	As at
	August 31, 2017				February 28, 2017
Cost
Buildings, leasehold improvements and other	$	88			$	101
BlackBerry operations and other information technology	1,005				1,070
Manufacturing equipment, research and development equipment and tooling	79				87
Furniture and fixtures	13				15
	1,185				1,273
Accumulated amortization	1,114				1,182
Net book value	$	71			$	91

	As at August 31, 2017
	Cost				Accumulated Amortization				Net Book Value
Acquired technology	$	681			$	481			$	200
Intellectual property	403				194				209
Other acquired intangibles	197				75				122
	$	1,281			$	750			$	531
	As at February 28, 2017
	Cost				Accumulated Amortization				Net Book Value
Acquired technology	$	676			$	446			$	230
Intellectual property	418				184				234
Other acquired intangibles	197				59				138
	$	1,291			$	689			$	602

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	Carrying Amount
Carrying amount as at February 28, 2017	$	559
Effect of foreign exchange on non-U.S. dollar denominated goodwill	8
Carrying amount as at August 31, 2017	$	567

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BlackBerry Limited

Notes to the Consolidated Financial Statements

(In millions of United States dollars, except share and per share data, and except as otherwise indicated) (unaudited)

Long-term receivables

The Company’s long-term receivables comprised the following:

	As at
	August 31, 2017				February 28, 2017
Mortgage receivable	$	7			$	7
Long-term intellectual property licensing receivable	30				—
	$	37			$	7

	As at
	August 31, 2017				February 28, 2017
Warranty	$	4			$	8
Accrued royalties	14				43
Resource Alignment Program liability	25				36
Other	163				171
	$	206			$	258

6.	BUSINESS ACQUISITIONS

7.	RESTRUCTURING AND INTEGRATION

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BlackBerry Limited

Notes to the Consolidated Financial Statements

(In millions of United States dollars, except share and per share data, and except as otherwise indicated) (unaudited)

The following table sets forth the activity in the Company’s RAP liability for the six months ended August 31, 2017 :

	Employee Termination Benefits				Facilities Costs				Other Charges (1)				Total
Balance as at February 28, 2017	$	9			$	27			$	—			$	36
Charges incurred	8				1				16				25
Cash payments made	(14		)		(6		)		(16		)		(36		)
Balance as at August 31, 2017	$	3			$	22			$	—			$	25

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		Three Months Ended								Six Months Ended
		August 31, 2017				August 31, 2016				August 31, 2017				August 31, 2016
Cost of sales		$	3			$	7			$	6			$	14
Research and development		1				—				4				2
Selling, marketing and administration		12				17				22				30
Total RAP charges		$	16			$	24			$	32			$	46

8.	INCOME TAXES

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9.	LONG-TERM DEBT

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10.	CAPITAL STOCK

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11.	EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted earnings (loss) per share:    

	Three Months Ended								Six Months Ended
	August 31, 2017				August 31, 2016				August 31, 2017				August 31, 2016
Net income (loss) for basic earnings (loss) per share available to common shareholders	$	19			$	(372	)		$	690			$	(1,042	)
Less: Debentures fair value adjustment (1)(2)	(70		)		—				—				—
Add: Interest expense on Debentures (1)(2)	6				—				—				—
Net income (loss) for diluted earnings (loss) per share available to common shareholders	$	(45	)		$	(372	)		$	690			$	(1,042	)
Weighted average number of shares outstanding (000’s) - basic	531,381				522,826				531,234				522,362
Effect of dilutive securities (000’s) (3)(4)
Stock-based compensation (3)(4)	14,764				—				14,898				—
Conversion of Debentures (1)(2)	60,500				—				—				—
Weighted average number of shares and assumed conversions (000’s) - diluted	606,645				522,826				546,132				522,362
Earnings (loss) per share - reported
Basic	$	0.04			$	(0.71	)		$	1.30			$	(1.99	)
Diluted	$	(0.07	)		$	(0.71	)		$	1.26			$	(1.99	)

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12.	ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

		Foreign Currency Cumulative Translation Adjustment				Accumulated Net Unrealized Gains on Cash Flow  Hedges				Other Post-Employment Benefit Obligations				Accumulated Net Unrealized Losses on Available-for-Sale Investments				Total
AOCI as at February 28, 2017		$	(13	)		$	—			$	—			$	(4	)		$	(17	)
Other comprehensive income (loss) before reclassifications		9				3				(1		)		(3		)		8
Amounts reclassified from AOCI into income		—				—				—				—				—
Other comprehensive loss for the period		9				3				(1		)		(3		)		8
AOCI as at August 31, 2017		$	(4	)		$	3			$	(1	)		$	(7	)		$	(9	)

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13.	COMMITMENTS AND CONTINGENCIES

(a)	Credit facility and letters of credit

(b)	Qualcomm arbitration award

(c)	Contingencies

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(d)	Concentrations in certain areas of the Company’s business

(e)	Indemnifications

14.	SEGMENT DISCLOSURES

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BlackBerry Limited

Notes to the Consolidated Financial Statements

(In millions of United States dollars, except share and per share data, and except as otherwise indicated) (unaudited)

Revenues, classified by major geographic regions in which the Company’s customers are located, was as follows:

	Three Months Ended								Six Months Ended
	August 31, 2017				August 31, 2016				August 31, 2017				August 31, 2016
North America
Canada	$	43			$	31			$	58			$	104
United States	90				139				202				282
	133				170				260				386
Europe, Middle East and Africa	76				111				146				254
Latin America	4				13				8				23
Asia Pacific	25				40				59				71
Total	$	238			$	334			$	473			$	734
North America
Canada	18.1		%		9.3		%		12.3		%		14.2		%
United States	37.8		%		41.6		%		42.7		%		38.4		%
	55.9		%		50.9		%		55.0		%		52.6		%
Europe, Middle East and Africa	31.9		%		33.2		%		30.8		%		34.6		%
Latin America	1.7		%		3.9		%		1.7		%		3.1		%
Asia Pacific	10.5		%		12.0		%		12.5		%		9.7		%
Total	100.0		%		100.0		%		100.0		%		100.0		%

	Three Months Ended								Six Months Ended
	August 31, 2017				August 31, 2016				August 31, 2017				August 31, 2016
Enterprise software and services	$	91			$	84			$	183			$	166
BlackBerry Technology Solutions	38				38				74				73
Licensing, IP and other	56				16				88				41
Handheld devices	16				105				53				257
SAF	37				91				75				197
Total	$	238			$	334			$	473			$	734

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	As at
	August 31, 2017								February 28, 2017
	Property, Plant and Equipment, Intangible Assets and Goodwill				Total Assets				Property, Plant and Equipment, Intangible Assets and Goodwill				Total Assets
Canada	$	272			$	516			$	312			$	526
United States	806				3,241				871				2,490
United Kingdom	18				81				21				112
Other	73				174				48				168
	$	1,169			$	4,012			$	1,252			$	3,296

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•	the Company’s plans, strategies and objectives, including the anticipated benefits of its strategic initiatives;

•	the Company’s expectations regarding anticipated demand for, and the timing of, product and service offerings;

•	the Company’s expectations regarding its free cash flow, adjusted net income and adjusted earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for fiscal 2018;

•	the Company’s expectations regarding the generation of software and services revenues;

•	the Company’s expectations regarding the growth in enterprise software and services, BTS, and licensing, IP and other adjusted revenues for fiscal 2018;

•	the Company’s expectations regarding its total non-GAAP revenue for fiscal 2018;

•	the Company’s anticipated level of decline in service access fees revenue in the third quarter of fiscal 2018;

•	the Company’s expectations regarding non-GAAP consolidated gross margin in fiscal 2018;

•	the Company’s expectations regarding operating expenses in the third quarter of fiscal 2018;

•	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;

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•	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, achieve sustained profitability or offset the decline in the Company’s service access fees;

•	the intense competition faced by the Company;

•	risks related to the Company’s 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 occurrence or perception of a breach of the Company’s security measures, or an inappropriate disclosure of confidential or personal information;

•	the risk that sales to large enterprise customers and to customers in highly regulated industries and governmental entities can be highly competitive and require compliance with stringent regulation;

•	risks related to the Company’s products and services being dependent upon the interoperability with rapidly changing systems provided by third parties;

•	the Company’s ability to successfully generate revenue and profitability through the licensing of security software and services or the BlackBerry brand to device manufacturers;

•	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; and

•	the risk of litigation against the Company resulting in adverse outcomes.

•

Enterprise software and services, which provides mobile-first security, productivity, collaboration and end-point management solutions for the Enterprise of Things through the BlackBerry Secure platform, which integrates BlackBerry Unified Endpoint Manager (“UEM”, formerly BES12), BlackBerry Dynamics (formerly Good Dynamics) and BlackBerry Workspaces (formerly WatchDox), among other products and applications;

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•	BlackBerry Technology Solutions, which includes BlackBerry QNX, Certicom, Paratek, BlackBerry Radar and Intellectual Property and Licensing (the Company’s technology licensing business);

•	AtHoc, which provides secure, networked crisis communications solutions;

•	SecuSmart, which provides secure voice and text messaging solutions with advanced encryption and anti-eavesdropping capabilities;

•	Licensing and services related to BlackBerry Messenger (BBM), including BBM Enterprise and the BBM Enterprise SDK for the Communications Platform as a Service market; and

•	Professional Cybersecurity Services, which offers cybersecurity consulting services and tools.

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•	Reached an agreement with Qualcomm Incorporated resolving all amounts payable in connection with its outstanding arbitration. Following a joint stipulation by the parties, the Company received payment from Qualcomm of $940 million including interest and attorneys' fees, net of certain royalties due from the Company to Qualcomm for calendar 2016 and the first quarter of calendar 2017;

•	Partnered with TCL Communication (“TCL”) and BB Merah Putih to introduce the BlackBerry-branded KEYone and Aurora smartphones, offering the most secure Android smartphone experience;

•	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;

•	Named a Leader in Gartner, Inc.’s June 2017 Magic Quadrant for Enterprise Mobility Management Suites and received the highest score for all six use cases in Gartner’s Critical Capabilities for High-Security Mobility Management report for the second year in a row;

•	Announced a commercial partnership agreement with Delphi Automotive PLC to provide the operating system for its autonomous driving system;

•	Entered into certain patent licensing agreements with strategic partners;

•	Delivered day zero support for the BlackBerry Enterprise Mobility Suite under the iOS 11 mobile operating system, ensuring that all the essential BlackBerry apps companies rely on to secure the work of their iOS users were updated and available for immediate download upon launch of iOS 11;

•

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 BlackBerry's cybersecurity expertise through the BlackBerry SHIELD online self-assessment tool that will identify areas of weakness, after which BlackBerry will work to improve the policyholders’ security posture by providing its cybersecurity products and services;

•	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;

•	Announced that FedEx has chosen BlackBerry Radar for its Custom Critical service in North America;

•	Entered into a reselling partnership with Fleet Complete for BlackBerry Radar, which will significantly improve and simplify operational matrices for fleet and logistics managers; and

•	Expanded NIAP-Certified SecuSUITE for Government availability to include the Canadian and U.S. governments.

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•	the Q2 Fiscal 2018 Debentures Fair Value Adjustment (as defined below under “ Second Quarter Fiscal 2018 Summary Results of Operations – Financial Highlights – Debentures Fair Value Adjustment”) of approximately $70 million ;

•	a long-lived asset impairment charge (the “ Fiscal 2018 LLA Impairment Charge ”), recognized when the carrying value exceeds the fair value of an asset group of $11 million ;

•	selective patent abandonment charge of $2 million ;

•	Resource Allocation Program (“RAP”) charges consisting of amounts associated with employee termination benefits, facilities, and certain other costs of approximately $16 million ;

•	software deferred revenue acquired but not recognized due to business combination accounting rules of approximately $11 million ;

•	stock compensation expense of approximately $12 million ;

•	amortization of intangible assets acquired through business combinations of approximately $24 million ; and

•	business acquisition and integration costs resulting from business combinations of approximately $1 million .

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Q2 Fiscal 2018 Non-GAAP Adjustments			For the Three Months Ended August 31, 2017 (in millions, except for per share amounts)
	Income statement location		Revenue				Gross margin (before taxes)				Gross margin % (before taxes)			Income (loss) before income taxes				Net income (loss)				Basic earnings (loss) per share
As reported			$	238			$	175			73.5	%		$	23			$	19			$	0.04
Debentures fair value adjustment (1)	Debentures fair value adjustment		—				—				—	%		(70		)		(70		)
LLA impairment charge	Impairment of long-lived assets		—				—				—	%		11				11
Patent abandonment	Loss on sale, disposal and abandonment of long-lived assets		—				—				—	%		2				2
RAP charges (2)	Cost of sales		—				3				1.3	%		3				3
RAP charges (2)	Research and development		—				—				—	%		1				1
RAP charges (2)	Selling, marketing and administration		—				—				—	%		12				12
Software deferred revenue acquired (3)	Revenue		11				11				1.1	%		11				11
Stock compensation expense	Cost of sales		—				1				0.4	%		1				1
Stock compensation expense	Research and development		—				—				—	%		3				3
Stock compensation expense	Selling, marketing and administration		—				—				—	%		8				8
Acquired intangibles amortization	Amortization		—				—				—	%		24				24
Business acquisition and integration costs	Selling, marketing and administration		—				—				—	%		1				1
Adjusted			$	249			$	190			76.3	%		$	30			$	26			$	0.05

(1)	See “ Second Quarter Fiscal 2018 Summary Results of Operations – Financial Highlights - Debentures Fair Value Adjustment ”.

(2)	See “ Second Quarter Fiscal 2018 Summary Results of Operations – Financial Highlights - RAP ”.

(3)	Included in enterprise software and services revenue.

•	recovery of the overpayment of royalties from the Qualcomm arbitration award of $815 million ;

•	interest income related to the overpayment of the above royalties of $139 million ;

•	the Fiscal 2018 LLA Impairment Charge of $11 million ;

•	selective patent abandonment of $3 million ;

•	the Fiscal 2018 Debentures Fair Value Adjustment (as defined below under “ Second Quarter Fiscal 2018 Summary Results of Operations – Financial Highlights – Debentures Fair Value Adjustment”) of approximately $148 million ;

•	RAP charges consisting of amounts associated with employee termination benefits, facilities, and certain other costs of approximately $32 million ;

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•	software deferred revenue acquired but not recognized due to business combination accounting rules of approximately $20 million ;

•	stock compensation expense of approximately $25 million ;

•	amortization of intangible assets acquired through business combinations of approximately $49 million ; and

•	business acquisition and integration costs incurred through business combinations of approximately $12 million .

Fiscal 2018 Non-GAAP Adjustments			For the Six Months Ended August 31, 2017 (in millions, except for per share amounts)
	Income statement location		Revenue				Gross margin (before taxes)				Gross margin % (before taxes)			Income (loss) before income taxes				Net income (loss)				Basic earnings (loss) per share
As reported			$	473			$	325			68.7	%		$	695			$	690			$	1.30
Debentures fair value adjustment (1)	Debentures fair value adjustment		—				—				—	%		148				148
LLA impairment charge	Impairment of long-lived assets		—				—				—	%		11				11
Patent abandonment	Loss on sale, disposal and abandonment of long-lived assets		—				—				—	%		3				3
RAP charges (2)	Cost of sales		—				6				1.3	%		6				6
RAP charges (2)	Research and development		—				—				—	%		4				4
RAP charges (2)	Selling, marketing and administration		—				—				—	%		22				22
Software deferred revenue acquired (3)	Revenue		20				20				1.2	%		20				20
Stock compensation expense	Cost of sales		—				2				0.4	%		2				2
Stock compensation expense	Research and development		—				—				—	%		7				7
Stock compensation expense	Selling, marketing and administration		—				—				—	%		16				16
Acquired intangibles amortization	Amortization		—				—				—	%		49				49
Business acquisition and integration costs	Selling, marketing and administration		—				—				—	%		12				12
Qualcomm arbitration award (4)	Qualcomm arbitration award		—				—				—	%		(815		)		(815		)
Qualcomm arbitration award (4)	Investment income		—				—				—	%		(139		)		(139		)
Adjusted			$	493			$	353			71.6	%		$	41			$	36			$	0.07

(1)	See “ Second Quarter Fiscal 2018 Summary Results of Operations – Financial Highlights - Debentures Fair Value Adjustment ”.

(2)	See “ Second Quarter Fiscal 2018 Summary Results of Operations – Financial Highlights - RAP ”.

(3)	Included in enterprise software and services revenue.

(4)	See “ Business Overview - Qualcomm Arbitration Award ”

•	the write-down related to assets held for sale to fair value less costs to sell of approximately $123 million ;

•	the write-down of inventory in the amount of $96 million relating to certain BlackBerry 10 hardware;

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•	a fair value adjustment associated with the Company’s previously issued $1.25 billion 6% convertible debentures (the “6% Debentures”) of approximately $62 million ;

•	RAP charges of approximately $24 million ;

•	Cost Optimization and Resource Efficiency (“CORE”) program recoveries of approximately $2 million ;

•	software deferred revenue acquired but not recognized due to business combination accounting rules of approximately $18 million ;

•	stock compensation expense of approximately $18 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 $4 million .

•	a long-lived asset impairment charge (the “ Fiscal 2017 LLA Impairment Charge ”), recognized when the carrying value exceeds the fair value of an asset group of $501 million ;

•	the write-down related to assets held for sale to fair value less costs to sell of approximately $123 million ;

•	selective patent abandonment of approximately $3 million ;

•	an impairment charge associated with the fair value of goodwill (the “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 $137 million relating to certain BlackBerry 10 hardware;

•	a fair value adjustment associated with the Company’s previously issued $1.25 billion 6% Debentures of approximately $38 million ;

•	RAP charges of approximately $46 million ;

•	CORE program recoveries of approximately $4 million ;

•	software deferred revenue acquired but not recognized due to business combination accounting rules of approximately $42 million ;

•	stock compensation expense of approximately $30 million ;

•	amortization of intangible assets acquired through business combinations of approximately $56 million ; and

•	business acquisition and integration costs incurred through business combinations of approximately $11 million .

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

A reconciliation from the most directly comparable U.S. GAAP measures to these non-GAAP financial measures for the three and six months ended August 31, 2016 was included in the Company’s press release, dated June 23, 2016 , and is reflected in the table below.

		For the Three Months Ended August 31, 2016 (in millions)																For the Six Months Ended August 31, 2016 (in millions)
	Income statement location		Revenue			Gross margin (before taxes)				Income (loss) before income taxes				Net loss				Revenue			Gross margin (before taxes)				Loss before income taxes				Net loss
As reported			$	334		$	98			$	(371	)		$	(372	)		$	734		$	252			$	(1,041	)		$	(1,042	)
LLA Impairment Charge	Impairment of long-lived assets		—			—				—				—				—			—				501				501
Write-down of assets held for sale	Loss on sale, disposal and abandonment of long-lived assets		—			—				123				123				—			—				123				123
Patent abandonment	Loss on sale, disposal and abandonment of long-lived assets		—			—				—				—				—			—				3				3
Goodwill Impairment Charge	Impairment of goodwill		—			—				—				—				—			—				57				57
Inventory write-down	Cost of sales		—			96				96				96				—			137				137				137
Debentures fair value adjustment	Debentures fair value adjustment		—			—				62				62				—							38				38
RAP charges	Cost of sales		—			7				7				7				—			14				14				14
RAP charges	Research and development		—			—				—				—				—			—				2				2
RAP charges	Selling, marketing and administration		—			—				17				17				—			—				30				30
CORE program recovery	Selling, marketing and administration		—			—				(2		)		(2		)		—			—				(4		)		(4		)
Software deferred revenue acquired (1)	Revenue		18			18				18				18				42			42				42				42
Stock compensation expense	Research and development		—			—				4				4				—			—				8				8
Stock compensation expense	Selling, marketing and administration		—			—				14				14				—			—				22				22
Acquired intangibles amortization	Amortization		—			—				28				28				—			—				56				56
Business acquisition and integration costs	Selling, marketing and administration		—			—				4				4				—			—				11				11
Adjusted			$	352		$	219			$	—			$	(1	)		$	776		$	445			$	(1	)		$	(2	)

(1)	Included in enterprise software and services revenue

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company also reported adjusted EBITDA and adjusted EBITDA margin, as presented in the tables below, for the three and six months ended August 31, 2017 of $50 million and 20% , and $90 million and 18% , 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 August 31, 2017 (in millions)				For the Six Months Ended August 31, 2017 (in millions)
Operating income		$	22			$	558
Non-GAAP adjustments to operating income
Debentures fair value adjustment		(70		)		148
LLA impairment		11				11
Patent abandonment		2				3
RAP charges		16				32
Software deferred revenue acquired		11				20
Stock compensation expense		12				25
Acquired intangibles amortization		24				49
Business acquisition and integration costs		1				12
Qualcomm arbitration award		—				(815		)
Total non-GAAP adjustments to operating income (loss)		7				(515		)
Non-GAAP operating income		29				43
Amortization		45				96
Acquired intangibles amortization		(24		)		(49		)
Adjusted EBITDA		$	50			$	90
Adjusted revenues (per above)		249				493
Adjusted EBITDA margin		20%				18%

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Adjusted EBITDA and adjusted EBITDA margin for the three and six months ended August 31, 2016 are reflected in the table below:

		For the Three Months Ended August 31, 2016 (in millions)				For the Six Months Ended August 31, 2016 (in millions)
Operating loss		$	(355	)		$	(1,010	)
Non-GAAP adjustments to operating loss
LLA impairment		—				501
Write-down of assets held for sale		123				123
Patent abandonment		—				3
Goodwill impairment		—				57
Inventory write-down		96				137
Debentures fair value adjustment		62				38
RAP charges		24				46
CORE program recoveries		(2		)		(4		)
Software deferred revenue acquired		18				42
Stock compensation expense		18				30
Acquired intangibles amortization		28				56
Business acquisition and integration costs		4				11
Total non-GAAP adjustments to operating loss		371				1,040
Non-GAAP operating income		16				30
Amortization		57				129
Acquired intangibles amortization		(28		)		(56		)
Adjusted EBITDA		$	45			$	103
Adjusted revenue (per above)		352				776
Adjusted EBITDA margin		13%				13%

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	For the Three Months Ended (in millions, except for share and per share amounts)
	August 31, 2017							August 31, 2016							Change
Revenue (1)(2)	$	238			100.0	%		$	334			100.0	%		$	(96	)
Gross margin (1)(2)	175				73.5	%		98				29.3	%		77
Operating expenses (1)(2)	153				64.3	%		453				135.6	%		(300		)
Income (loss) before income taxes	23				9.7	%		(371		)		(111.1	%)		394
Provision for income taxes	4				1.7	%		1				0.3	%		3
Net income (loss)	$	19			8.0	%		$	(372	)		(111.4	%)		$	391
Earnings (loss) per share - reported
Basic	$	0.04						$	(0.71	)					$	0.75
Diluted (3)	$	(0.07	)					$	(0.71	)					$	0.64
Weighted-average number of shares outstanding (000’s)
Basic	531,381							522,826
Diluted (3)	606,645							522,826

(1)	See “ Non-GAAP Financial Measures ” for the impact of the Q2 Fiscal 2018 Non-GAAP Adjustments on adjusted revenue, adjusted gross margin and adjusted operating expenses in the second quarter of fiscal 2018 .

(2)	See “ Non-GAAP Financial Measures ” for the impact of the Q2 Fiscal 2017 Non-GAAP Adjustments on adjusted revenue, adjusted gross margin and adjusted operating expenses in the second quarter of fiscal 2017 .

(3)	Diluted loss per share on a U.S. GAAP basis for the second quarter of fiscal 2017 does not include the dilutive effect of the 6% Debentures (as defined below in “Financial Highlights”) as it would be anti-dilutive. See Note 11 to the Consolidated Financial Statements for the Company’s calculation of diluted loss per share.

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	For the Three Months Ended (in millions)
	August 31, 2017							August 31, 2016							Change
Revenue by Geography
North America	$	133			55.9	%		$	170			50.9	%		$	(37	)		(21.8	)%
Europe, Middle East and Africa	76				31.9	%		111				33.2	%		(35		)		(31.5	)%
Latin America	4				1.7	%		13				3.9	%		(9		)		(69.2	)%
Asia Pacific	25				10.5	%		40				12.0	%		(15		)		(37.5	)%
	$	238			100.0	%		$	334			100.0	%		$	(96	)		(28.7	)%

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	For the Three Months Ended (in millions)
	August 31, 2017							August 31, 2016							Change
Revenue by Product and Service
Enterprise software and services (1)(2)	$	102			41.0	%		$	102			29.0	%		$	—			—	%
BTS	38				15.3	%		$	38			10.8	%		—				—	%
Licensing, IP and other	56				22.5	%		16				4.5	%		40				250.0	%
Handheld devices	16				6.4	%		105				29.8	%		(89		)		(84.8	)%
SAF	37				14.8	%		91				25.9	%		(54		)		(59.3	)%
	$	249			100.0	%		$	352			100.0	%		$	(103	)		(29.3	)%

(1)	See “ Non-GAAP Financial Measures ” for the relevant Q2 Fiscal 2018 Non-GAAP Adjustments made to enterprise software and services revenue.

(2)	See “ Non-GAAP Financial Measures ” for the relevant Q2 Fiscal 2017 Non-GAAP Adjustments made to enterprise software and services revenue.

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Operating Expenses

The table below presents a comparison of research and development, selling, marketing and administration, and amortization expense for the quarter ended August 31, 2017 , compared to the quarter ended May 31, 2017 and the quarter ended August 31, 2016 . The Company believes it is meaningful to also provide a comparison between the second quarter of fiscal 2018 and the first quarter of fiscal 2018 given that the Company’s quarterly operating results vary substantially.

	For the Three Months Ended (in millions)
	August 31, 2017							May 31, 2017							August 31, 2016
					% of Revenue							% of Revenue							% of Revenue
Revenue	$	238						$	235						$	334
Operating expenses
Research and development (1)(2)(3)	$	60			25.2	%		$	61			26.0	%		$	85			25.4	%
Selling, marketing and administration (1)(2)(3)	110				46.2	%		109				46.4	%		138				41.3	%
Amortization  (1)(2)(3)	39				16.4	%		40				17.0	%		44				13.2	%
Impairment of long-lived assets (2)	11				4.6	%		—				—	%		—				—	%
Loss on sale, disposal and abandonment of long-lived assets (2)	3				1.3	%		1				0.4	%		124				37.1	%
Debentures fair value adjustment  (1)(2)(3)	(70		)		(29.4	)%		218				92.8	%		62				18.6	%
Qualcomm arbitration award (3)	—				—	%		(815		)		(346.8	)%		—				—	%
Total	$	153			64.3	%		$	(386	)		(164.2	)%		$	453			135.6	%

(1)	See “ Non-GAAP Financial Measures ” for the impact of the Q2 Fiscal 2018 Non-GAAP Adjustments on adjusted operating expenditures in the second quarter of fiscal 2018 .

(2)	See “ Non-GAAP Financial Measures ” for the impact of the Q2 Fiscal 2017 Non-GAAP Adjustments on adjusted operating expenditures in the second quarter of fiscal 2017 .

(3)

In the first quarter of fiscal 2018 , the Company recognized a non-cash charge associated with a change in the fair value of the 3.75% Debentures of approximately $218 million (the “ Q1 Fiscal 2018 Debentures Fair Value Adjustment ”), a recovery of the overpayment of royalties from the Qualcomm arbitration award of $815 million , RAP charges of approximately $3 million and $10 million in research and development and selling, marketing and administration expenses, respectively, selective patent abandonment of $1 million , stock compensation expense of $4 million and $8 million in research and development and selling, marketing and administration expenses, respectively, acquired intangibles amortization of $25 million , and $11 million in business acquisition and integration costs in selling, marketing and administration expenses (collectively the “ Q1 Fiscal 2018 Non-GAAP Adjustments ”).

Operating expenses increased by $539 million , or 139.6% , to $153 million , or 64.3% of revenue, in the second quarter of fiscal 2018 , compared to $(386) million , or (164.2)% of revenue, in the first quarter of fiscal 2017 . The increase was primarily attributable to the Qualcomm arbitration award in the first quarter of fiscal 2018, partially offset by difference between the Q2 Fiscal 2018 Debentures Fair Value Adjustment and Q1 Fiscal 2018 Debentures Fair Value Adjustment .

Excluding the impact of the relevant Q2 Fiscal 2018 Non-GAAP Adjustments and Q1 Fiscal 2018 Non-GAAP Adjustments , operating expenses from Q1 Fiscal 2018 to Q2 Fiscal 2018 increased by $12 million . The increase was primarily attributable to a recovery of legal expenses in the first quarter of fiscal 2018 that did not recur in the second quarter of fiscal 2018.

Operating expenses decreased by $300 million , or 66.2% , to $153 million or 64.3% of revenue in the second quarter of fiscal 2018 , compared to approximately $453 million or 135.6% of revenue in the second quarter of fiscal 2017 . The decrease was primarily attributable to the write-down of assets held for sale in the second quarter of fiscal 2017, the change in fair value of the Debentures, and a decrease in salaries and benefits costs.

Excluding the impact of the relevant Q2 Fiscal 2018 Non-GAAP Adjustments and Q2 Fiscal 2017 Non-GAAP Adjustments , operating expenses decreased by $42 million . The decrease was primarily attributable to a decrease in salaries and benefits, a decrease in infrastructure costs, a reduction in legal costs, and reduced outsourcing expenses.

The Company expects operating expenses to increase modestly in the third quarter of fiscal 2018 compared to the second quarter of fiscal 2018 due to increased investment in sales and marketing.

Research and Development Expenses

Research and development expenses consist primarily of salaries and benefits for technical personnel, new product development costs, travel expenses, office and building costs, infrastructure costs and other employee costs.

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Research and development expenses decreased by $25 million , or 29.4% , to $60 million in the second quarter of fiscal 2018 , compared to $85 million in the second quarter of fiscal 2017 . Excluding the impact of the relevant Q2 Fiscal 2018 Non-GAAP Adjustments and Q2 Fiscal 2017 Non-GAAP Adjustments , research and development expenses decreased by $25 million . The decrease was primarily attributable to reduced salaries and benefits costs, primarily associated with a decline in hardware development engineering staff, and a decrease in infrastructure 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 $28 million , or 20.3% , to $110 million in the second quarter of fiscal 2018 compared to $138 million in the second quarter of fiscal 2017 . Excluding the impact of the relevant Q2 Fiscal 2018 Non-GAAP Adjustments and Q2 Fiscal 2017 Non-GAAP Adjustments , selling, marketing and administration expenses decreased by $16 million . The decrease was primarily attributable to reduced legal costs, a reduction in headcount-related expenses such as professional fees and travel expenses, and a decrease in salaries and benefits.

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 second quarter of fiscal 2018 compared to the second quarter of fiscal 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
	August 31, 2017				August 31, 2016				Change				August 31, 2017				August 31, 2016				Change
Property, plant and equipment	$	5			$	8			$	(3	)		$	4			$	12			$	(8	)
Intangible assets	34				36				(2		)		2				1				1
Total	$	39			$	44			$	(5	)		$	6			$	13			$	(7	)

Amortization

Amortization expense relating to certain property, plant and equipment and intangible assets decreased by $5 million to $39 million for the second quarter of fiscal 2018 , compared to $44 million for the second quarter of fiscal 2017 . The decrease in amortization expense reflects the held for sale classification of data centers midway through the second quarter of fiscal 2017 and the subsequent sale thereof in the fourth quarter of fiscal 2017, and certain assets becoming fully depreciated.

Excluding the impact of the relevant Q2 Fiscal 2018 Non-GAAP Adjustments and Q2 Fiscal 2017 Non-GAAP Adjustments , amortization decreased by $1 million .

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 $7 million to $6 million for the second quarter of fiscal 2018 , compared to $13 million for second quarter of fiscal 2017 . The decrease primarily reflects the held for sale classification of data centers midway through the second quarter of fiscal 2017 and the subsequent sale thereof in the fourth quarter of fiscal 2017, and certain assets becoming fully depreciated.

Investment Income (Loss)

Investment income (loss), which includes the interest expense from the 3.75% Debentures, increased by $17 million to $1 million in investment income in the second quarter of fiscal 2018 from an investment loss of $16 million in the second quarter of fiscal 2017 . The increase in investment income (loss) was due to the lower rate of interest and lower principal amount of the 3.75% Debentures in the second quarter of fiscal 2018 versus the 6% Debentures in the second quarter of fiscal 2017 , the absence of an other-than-temporary impairment present in the second quarter of fiscal 2017 , and a higher yield on the Company’s average cash and investment balances.

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Income Taxes

For the second quarter of fiscal 2018 , the Company’s net effective income tax expense rate was approximately 17% , compared to a net effective income tax expense rate of approximately 0% for the same period in the prior fiscal year. The Company’s net effective income tax rate reflects the fact that the Company has a significant valuation allowance against its deferred tax assets, and in particular, the change in fair value of the 3.75% Debentures and the impact of the Qualcomm arbitration award, amongst other items, was offset by a corresponding adjustment of the valuation allowance. The Company’s net effective income tax rate also reflects the geographic mix of earnings in jurisdictions with different income tax rates.

Net Income (Loss)

The Company’s net income for the second quarter of fiscal 2018 was $19 million , reflecting an increase in net income of $391 million , compared to net loss of $372 million in the second quarter of fiscal 2017 , primarily due to the lower amount of the Fiscal 2018 LLA Impairment Charge versus the Fiscal 2017 LLA Impairment charge, and the absence of the Goodwill Impairment Charge and the write-down to fair value for the data center assets held for sale in the first six months of fiscal 2017, partially offset by a positive fair value adjustment on the 3.75% Debentures in the second quarter of fiscal 2018 compared to a negative fair value adjustment on the 6% Debentures in the second quarter of fiscal 2017 . After giving effect to the relevant Q2 Fiscal 2018 Non-GAAP Adjustments and Q2 Fiscal 2017 Non-GAAP Adjustments , the Company’s non-GAAP net income was $26 million compared to a non-GAAP net loss of $1 million , reflecting an increase in non-GAAP net income of $27 million primarily due to the lower rate of interest on the 3.75% Debentures in the first six months of fiscal 2018 than the 6% Debentures in the first six months of fiscal 2017 , the absence of an other-than-temporary impairment present in the first six months of fiscal 2017 , and a reduction in operating expenditures.

For the second quarter of fiscal 2018 , basic earnings per share was $0.04 and diluted earnings (loss) per share was $(0.07) , compared to a basic and diluted loss per share of $0.71 for the same period in the prior fiscal year. The Company expects positive adjusted net income and positive adjusted EBITDA for fiscal 2018.

The weighted average number of shares outstanding was approximately 531 million common shares for basic earnings per share and 607 million for diluted loss per share for the three months ended August 31, 2017 , and approximately 523 million common shares for basic and diluted loss per share for the three months ended August 31, 2016 .

Common Shares Outstanding

On September 26, 2017 , there were 530 million common shares, options to purchase 1 million common shares, 19 million restricted share units and 0.6 million deferred share units outstanding. In addition, 60.5 million common shares are issuable upon conversion in full of the 3.75% Debentures as described in Note 9 to the Consolidated Financial Statements.

The Company has not paid any cash dividends during the last three fiscal years.  

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations - Six months ended August 31, 2017 compared to six months ended August 31, 2016

The following table sets forth certain unaudited consolidated statements of operations data as at August 31, 2017 and August 31, 2016 under U.S. GAAP.

	For the Six Months Ended (in millions, except for share and per share amounts)
	August 31, 2017							August 31, 2016							Change
Revenue (1)(2)	$	473			100.0	%		$	734			100.0	%		$	(261	)
Gross margin (1)(2)	325				68.7	%		252				34.3	%		73
Operating expenses (1)(2)	(233		)		(49.3	%)		1,262				171.9	%		(1,495		)
Income (loss) before income taxes	695				146.9	%		(1,041		)		(141.8	%)		1,736
Provision for income taxes	5				1.1	%		1				0.1	%		4
Net income (loss)	$	690			146.0	%		$	(1,042	)		(142.0	%)		$	1,732
Earnings (loss) per share - reported
Basic	$	1.30						$	(1.99	)					$	3.29
Diluted	$	1.26						$	(1.99	)					$	3.25
Weighted-average number of shares outstanding (000’s)
Basic	531,234							522,362
Diluted	546,132							522,362

(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 .

Consolidated Revenue

Consolidated revenue decreased by $261 million to approximately $473 million in the first six months of fiscal 2018 from $734 million in the first six months of fiscal 2017 . The decrease was primarily due to a decrease of $204 million in handheld devices revenue to $53 million from $257 million and a decrease of $122 million in SAF revenues to $75 million from $197 million , net of increases in enterprise software and services, BTS, and licensing, IP and other revenues.

The decrease in handheld devices revenues of $204 million was primarily attributable to decreased demand, the Company’s aging product portfolio, and 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 $122 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, lower revenue from those users and a continued shift in the mix of the Company’s customers from higher-tiered unlimited plans to prepaid and lower-tiered plans, compared to the first six months of fiscal 2017 .

Consolidated Gross Margin

Consolidated gross margin increased by $73 million to approximately $325 million in the first six months of fiscal 2018 from $252 million in the first six months of fiscal 2017 . The increase was primarily due to the increase in gross margin associated with handheld devices and licensing, IP and other, and enterprise software and services, partially offset by declines in SAF.

The increase in margin associated with handheld devices was primarily attributable to the $137 million write-down on inventory taken during the first six months of fiscal 2017 which did not recur during the first six months of fiscal 2018 (see “ Non-GAAP Financial Measures ” above), offset by the changes described above in “ Consolidated Revenue ”. The increase in gross margin from licensing, IP and other revenues was primarily due to the meeting of revenue recognition criteria for a previously signed intellectual property arrangement during the first six months of fiscal 2018 and revenue from the Company’s mobility licensing software arrangements. The increase in gross margin from enterprise software and services was primarily due to growth in the business from new customers and expanded services to existing customers. The decrease in gross margin associated with SAF was primarily attributable to the same reasons as discussed above in “ Consolidated Revenue ”, as cost of

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

goods sold associated with SAF revenues were consistent in the first six months of fiscal 2018 and the first six months of fiscal 2017 .

Revenue

Revenue by Product and Service

Comparative breakdowns of revenues by product and service on a non-GAAP basis are set forth below.

	For the Six Months Ended (in millions)
	August 31, 2017							August 31, 2016							Change
Revenue by Product and Service
Enterprise software and services (1)(2)	$	203			41.2	%		$	208			26.8	%		$	(5	)		(2.4	)%
BTS	74				15.0	%		73				9.4	%		1				1.4	%
Licensing, IP and other	88				17.7	%		41				5.3	%		47				114.6	%
Handheld devices	53				10.8	%		257				33.1	%		(204		)		(79.4	)%
SAF	75				15.2	%		197				25.4	%		(122		)		(61.9	)%
	$	493			100.0	%		$	776			100.0	%		$	(283	)		(36.5	)%

(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 decreased by $5 million , or 2.4% , to $203 million , or 41.2% of revenues, in the first six months of fiscal 2018 , compared to $208 million , or 26.8% of revenues, in the first six months of fiscal 2017 .

The $5 million decrease in enterprise software and services revenue was primarily attributable to to a decrease of $22 million in the non-GAAP adjustment of deferred software revenue acquired to $20 million in the first six months of fiscal 2018 versus $42 million in the first six months of fiscal 2017, partially offset by increases in new business.

Excluding the deferred software revenue acquired adjustment, enterprise software and services revenue was $183 million , or 38.7% of revenue in the first six months of fiscal 2018, compared to $166 million , or 22.6% of revenue, in the first six months of fiscal 2017, representing an increase of $17 million , or 10.2% .

BTS

BTS revenue increased by $1 million , or 1.4% , to 74 million , or 15.0% of revenues, in the first six months of fiscal 2018 , compared to 73 million , or 9.4% of revenue, in the first six months of fiscal 2017 .

Licensing, IP and Other

Licensing, IP and other revenues increased by $47 million , or 114.6% , to $88 million , or 17.7% of revenues in the first six months of fiscal 2018 , compared to $41 million , or 5.3% of revenue, in the first six months of fiscal 2017 . The $47 million increase was primarily due to the meeting of revenue recognition criteria for a previously signed intellectual property arrangement during the first six months of fiscal 2018 and revenue from the Company’s mobility licensing software arrangements.

Handheld Devices

Handheld devices revenue was $53 million , or 10.8% of revenues, in the first six months of fiscal 2018 compared to $257 million , or 33.1% of revenues, in the first six months of fiscal 2017 , representing a decrease of $204 million , or 79.4% .

The $204 million decrease in handheld devices revenue was was primarily due to the reasons discussed above in “ Consolidated Revenue ”.

Service Access Fees

SAF revenue decreased by $122 million , or 61.9% , to $75 million , or 15.2% of revenues, in the first six months of fiscal 2018 , compared to $197 million , or 25.4% of revenues, in the first six months of fiscal 2017 .

The decrease in SAF revenue is primarily due to the reasons discussed above in “ Consolidated Revenue ”.

21

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Operating Expenses

The table below presents a comparison of research and development, selling, marketing and administration, and amortization expenses for the six months ended August 31, 2017 , compared to the six months ended August 31, 2016 .

 

	For the Six Months Ended
	(in thousands)
	August 31, 2017							August 31, 2016							Change
					% of Revenue							% of Revenue							% of Change
Revenue	$	473						$	734						$	(261	)		(35.6	%)
Operating expenses
Research and development (1)(2)	$	121			25.6	%		$	174			23.7	%		$	(53	)		(30.5	)%
Selling, marketing and administration (1)(2)	219				46.3	%		267				36.4	%		(48		)		(18.0	)%
Amortization	79				16.7	%		98				13.4	%		(19		)		(19.4	)%
Impairment of goodwill (1)	—				—	%		57				7.8	%		(57		)		(100.0	)%
Impairment of long-lived assets (1)	11				2.3	%		501				68.3	%		(490		)		(97.8	)%
Loss on sale, disposal and abandonment of long-lived assets (1)(2)	4				0.8	%		127				17.3	%		(123		)		(96.9	)%
Debentures fair value adjustment (1)	148				31.3	%		38				5.2	%		110				289.5	%
Qualcomm arbitration award	(815		)		(172.3	)%		—				—	%		(815		)		—	%
Total	$	(233	)		(49.3	)%		$	1,262			172.1	%		$	(1,495	)		(118.5	)%

(1)	See “Non-GAAP Financial Measures” for the impact of the Fiscal 2018 Non-GAAP Adjustments on adjusted operating expenditures in fiscal 2018 .

(2)	See “Non-GAAP Financial Measures” for the impact of the Fiscal 2017 Non-GAAP Adjustments on adjusted operating expenditures in fiscal 2017 .

Operating expenses decreased by $1.50 billion , or 118.5% , to $(233) million or (49.3)% of revenue in the first six months of fiscal 2018 , compared to approximately $1.26 billion or 172.1% of revenue in the first six months of 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 in the first six months of fiscal 2017, reduced salaries and benefits costs and a decrease in amortization expense, partially offset by an increase in the Debentures fair value adjustment. Excluding the impact of the relevant Q2 Fiscal 2018 Non-GAAP Adjustments and Q2 Fiscal 2017 Non-GAAP Adjustments , operating expenses decreased by $108 million due to the reasons discussed below in “Research and Development Expenses”, “Selling, Marketing and Administrative Expenses” and “Amortization Expense”.

Research and Development Expenses

Research and development expenses decreased by $53 million to $121 million , or 25.6% of revenue, in the first six months of fiscal 2018 , compared to $174 million , or 23.7% of revenue, in the first six months of 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 $54 million . The decrease is primarily attributable to reduced salaries and benefits costs, as well as reductions in research costs related to handheld devices and outsourcing costs compared to the first six months of fiscal 2017 .

Selling, Marketing and Administration Expenses

Selling, marketing and administration expenses decreased by $48 million to $219 million for the first six months of fiscal 2018 compared to approximately $267 million for the comparable period in fiscal 2017 . As a percentage of revenue, selling, marketing and administration expenses increased to 46.3% in the first six months of fiscal 2018 as compared to 36.4% in the first six months of fiscal 2017 . Excluding the impact of the relevant Fiscal 2018 Non-GAAP Adjustments and Fiscal 2017 Non-GAAP Adjustments , selling marketing and administration expenses decreased by $39 million . The decrease is primarily attributable to reduced salaries and benefits costs, a decrease in legal costs, and reduced marketing and advertising costs compared to the first six months of fiscal 2017 .

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 six months ended August 31, 2017 compared to the six months ended August 31, 2016 . Intangible assets are comprised of patents, licenses and acquired technology.

 

	For the Six Months Ended
	(in thousands)
	Included in Amortization												Included in Cost of sales
	August 31, 2017				August 31, 2016				Change				August 31, 2017				August 31, 2016				Change
Property, plant and equipment	$	10			$	20			$	(10	)		$	11			$	24			$	(13	)
Intangible assets	69				78				(9		)		6				7				(1		)
Total	$	79			$	98			$	(19	)		$	17			$	31			$	(14	)

Amortization

Amortization expense relating to certain property, plant and equipment and certain intangible assets decreased by $19 million to $79 million in the first six months of fiscal 2018 compared to $98 million for the comparable period in fiscal 2017 . The decrease in amortization expense reflects the sale of data centers during the fourth quarter of fiscal 2017, the LLA impairment charge, 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 $12 million .

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 $14 million to $17 million in the first six months of fiscal 2018 compared to $31 million for the comparable period in fiscal 2017 . This decrease primarily reflects the lower cost base of assets as a result of the LLA impairment charges and patent abandonments during fiscal 2017 and fiscal 2018.

Investment Income (loss)

Investment income (loss), which includes the interest expense from the Debentures, increased by $168 million to $137 million in investment income in the first six months of fiscal 2018 , from an investment income (loss) of $(31) million in the comparable period of fiscal 2017 . The increase is primarily attributable to the interest paid by Qualcomm on the arbitration award, the lower rate of interest on the 3.75% Debentures in the first six months of fiscal 2018 versus the 6% Debentures in the six months of fiscal 2017 and the absence of an other-than-temporary impairment which was present in the six months of fiscal 2017 . See “ Financial Condition – Liquidity and Capital Resources ”.

Income Taxes

For the first six months of fiscal 2018 , the Company’s net effective income tax expense rate was approximately 1% , compared to a net effective income tax expense rate of approximately 0% for the same period in the prior fiscal year. The Company’s net effective income tax rate reflects the fact that the Company has a significant valuation allowance against its deferred tax assets, and in particular, the impairment charges and the change in fair value of the Debentures and the impact of the Qualcomm arbitration award, amongst other items, was offset by a corresponding adjustment of the valuation allowance. The Company’s net effective income tax rate also reflects the geographic mix of earnings in jurisdictions with different income tax rates.

Net Income (Loss)

The Company’s net income for the first six months of fiscal 2018 was $690 million , reflecting an increase in net income of $1.73 billion compared to net loss of approximately $1.04 billion in the first six months of fiscal 2017 , primarily due to the Qualcomm arbitration award, the lower amount of the Fiscal 2018 LLA Impairment Charge versus the Fiscal 2017 LLA Impairment charge, the absence of the Goodwill Impairment Charge and the write-down to fair value for the data center assets held for sale in the first six months of 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 the first six months of fiscal 2018 was $36 million compared to a non-GAAP net loss of $2 million for the first six months of fiscal 2017 , reflecting an increase in net income of $38 million primarily due to the lower rate of interest and principal amount of the 3.75% Debentures in the first six

23

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

months of fiscal 2018 than the 6% Debentures in the first six months of fiscal 2017 , the absence of an other-than-temporary impairment present in the first six months of fiscal 2017 , and a reduction in operating expenditures.

Basic and diluted earnings per share were $1.30 and $1.26 , respectively, in the first six months of fiscal 2018 , compared to basic and diluted loss per share of $1.99 in the first six months of fiscal 2017 , due to the reasons noted above.

The weighted average number of shares outstanding was approximately 531 million common shares for basic earnings (loss) per share and 546 million for diluted earnings (loss) per share for the six months ended August 31, 2017 , and approximately 522 million common shares for basic and diluted earnings (loss) per share for the six months ended August 31, 2016 .

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 August 31, 2017 . 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																Fiscal Year 2016
	Second Quarter				First Quarter				Fourth Quarter				Third Quarter				Second Quarter				First Quarter				Fourth Quarter				Third Quarter
Revenue	$	238			$	235			$	286			$	289			$	334			$	400			$	464			$	548
Gross margin	175				150				172				193				98				154				210				236
Operating expenses	153				(386		)		229				307				453				809				451				340
Income (loss) before income taxes	23				672				(49		)		(118		)		(371		)		(670		)		(256		)		(120		)
Provision for (recovery of) income taxes	4				1				(2		)		(1		)		1				—				(18		)		(31		)
Net income (loss)	19				$	671			$	(47	)		$	(117	)		$	(372	)		$	(670	)		$	(238	)		$	(89	)
Earnings (loss) per share
Basic earnings (loss) per share	$	0.04			$	1.26			$	(0.09	)		$	(0.22	)		$	(0.71	)		$	(1.28	)		$	(0.45	)		$	(0.17	)
Diluted earnings (loss) per share	$	(0.07	)		$	1.23			$	(0.10	)		$	(0.22	)		$	(0.71	)		$	(1.28	)		$	(0.45	)		$	(0.17	)

Financial Condition

Liquidity and Capital Resources

Cash, cash equivalents, and investments increased by $836 million to approximately $2.53 billion as at August 31, 2017 from approximately $1.70 billion as at February 28, 2017 , primarily as a result of the Qualcomm arbitration award, which was partially offset by changes in working capital. The majority of the Company’s cash, cash equivalents, and investments are denominated in U.S. dollars as at August 31, 2017 .

A comparative summary of cash, cash equivalents, and investments is set out below:

	As at (in millions)
	August 31, 2017				February 28, 2017				Change
Cash and cash equivalents	$	586			$	734			$	(148	)
Restricted cash and cash equivalents	53				51				2
Short-term investments	1,766				644				1,122
Long-term investments	129				269				(140		)
Cash, cash equivalents, and investments	$	2,534			$	1,698			$	836

24

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The table below summarizes the current assets, current liabilities, and working capital of the Company:

	As at (in millions)
	August 31, 2017				February 28, 2017				Change
Current assets	$	2,624			$	1,717			$	907
Current liabilities	506				639				(133		)
Working capital	$	2,118			$	1,078			$	1,040

Current Assets

The increase in current assets of $907 million at the end of the second quarter of fiscal 2018 from the end of the fourth quarter of fiscal 2017 was primarily due to increases in short-term investments of $1,122 million and cash and cash equivalents of $148 million , partially offset by decreases in accounts receivable of $ 45 million and inventories of $18 million .

At August 31, 2017 , accounts receivable was $ 155 million , a decrease of $ 45 million from February 28, 2017 . The decrease reflects the lower revenues recognized over the six months ended August 31, 2017 as well as a decrease in days sales outstanding to 60 days at the end of the second quarter of fiscal 2018 from 65 days at the end of the fourth quarter of fiscal 2017 .

At August 31, 2017 , income taxes receivable was $27 million , a decrease of $4 million from February 28, 2017 . The decrease in income tax receivable was primarily due to the adoption of ASU 2016-16 as described above in “ Accounting Policies and Critical Accounting Estimates ”.

At August 31, 2017 , inventories were $8 million , a decrease of $18 million from February 28, 2017 . The decrease in inventories was primarily due to the sale of handheld devices.

At August 31, 2017 , other current assets were $44 million , a decrease of $11 million from February 28, 2017 . The decrease in other current assets was primarily due to the recognition of previously deferred cost of goods sold, upon recognition of the related deferred revenue, partially offset by an increase in prepaid maintenance.

Current Liabilities

The decrease in current liabilities of $133 million at the end of the second quarter of fiscal 2018 from the end of the fourth quarter of fiscal 2017 was primarily due to a decrease in accounts payable of $43 million , a decrease in deferred revenue of $42 million and a decrease in accrued liabilities of $52 million . As at August 31, 2017 , deferred revenue was $197 million , reflecting a decrease of $42 million from February 28, 2017 , which was primarily attributable to the recognition of handheld devices sold through to end users and the recognition of legacy perpetual software arrangements. Accrued liabilities were $206 million , reflecting a decrease of $52 million from February 28, 2017 , which was primarily attributable to decreases in accrued royalties, vendor liabilities, and restructuring and manufacturing accruals compared to the fourth quarter of fiscal 2017 .

Cash flows for the six months ended August 31, 2017 compared to the six months ended August 31, 2016 were as follows:

	For The Six Months Ended
	(in millions)
	August 31, 2017				August 31, 2016				Change
Net cash flows provided by (used in):
Operating activities	$	867			$	(93	)		$	960
Investing activities	(1,002		)		843				(1,845		)
Financing activities	(16		)		(21		)		5
Effect of foreign exchange on cash and cash equivalents	3				1				2
Net increase (decrease) in cash and cash equivalents	$	(148	)		$	730			$	(878	)

Operating Activities

The increase in net cash flows provided by operating activities of $960 million for the first six months of fiscal 2018 primarily reflects the Qualcomm Arbitration Award. The Company also reported break-even free cash flow as described above in “Second Quarter Fiscal 2018 Summary Results - Free Cash Flow”.

25

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Investing Activities

During the six months ended August 31, 2017 , cash flows used in investing activities were $1,002 million and included cash used in transactions involving the acquisitions of short-term and long-term investments, net of the proceeds on sale or maturity in the amount of $985 million , intangible asset additions of $14 million , and acquisitions of property, plant and equipment of $6 million . For the same period in the prior fiscal year, cash flows provided by investing activities were $843 million and included cash provided by transactions involving the acquisitions of short-term and long-term investments, net of the proceeds on sale or maturity in the amount of $864 million , offset by intangible asset additions of $19 million and acquisitions of property, plant and equipment of $7 million .

Financing Activities

The decrease in cash flows used in financing activities was $5 million for the first six months of fiscal 2018 and was primarily a result of the payment of contingent consideration from business acquisitions and repurchases of the 6% Debentures during the six months ended August 31, 2016 that did not recur during the six months ended August 31, 2017 , partially offset by common share repurchases under the normal course issuer bid discussed under “ Business Overview - Normal Course Issuer Bid ” above.

Aggregate Contractual Obligations

Purchase obligations and commitments amounted to approximately $353 million as at August 31, 2017 , including future interest payments of $73 million on the 3.75% Debentures and operating lease obligations of $143 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 August 31, 2017 decreased by $45 million as compared to the February 28, 2017 balance of approximately $398 million , which was attributable to decreases in operating lease obligations, interest payments on the Debentures, and purchase orders for goods and services used in operations.

Debenture Financing and Other Funding Sources

See Note 9 to the Consolidated Financial Statements for a description of the Debentures.

The Company had $46 million in collateralized outstanding letters of credit in support of certain leasing arrangements entered into in the ordinary course of business as of August 31, 2017. See Note 2 to the Consolidated Financial Statements for further information concerning the Company’s restricted cash.

Cash, cash equivalents, and investments were approximately $2.53 billion as at August 31, 2017 . 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, 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 August 31, 2017 , with the exception of an accrual for $10 million in legal costs related to litigation arising out of the Company’s acquisition of Good as described in Note 13 to the Consolidated Financial Statements, 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 13 to the Consolidated Financial Statements for a further discussion of the Company’s legal matters.

26

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BlackBerry Limited

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 the second quarter of 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 and manufacturing overhead were incurred primarily in Canadian dollars, but were also incurred in U.S. dollars, euros and British pounds. At August 31, 2017 , approximately 9% of cash and cash equivalents, 26% of accounts receivables and 12% 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 4 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 nature 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 August 31, 2017 was $19 million ( February 28, 2017 - $12 million ). There was one customer that comprised more than 10% of accounts receivable as at August 31, 2017 ( February 28, 2017 - one customer that comprised more than 10%). There was one customer that comprised more than 10% of the Company’s revenue in the second quarter of fiscal 2018 (no customer comprised more than 10% of the Company’s revenue in the second quarter of fiscal 2017 ). During the second quarter of fiscal 2018 , the percentage of the Company’s receivable balance that was past due decreased by 10.4% 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 of receivables exists. The occurrence 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, in the case of debt securities, the Company’s ability and intent to hold the investments to maturity. During the six months ended August 31, 2017 the Company did not record any other-than-temporary impairment charges related to investments ( six months ended August 31, 2016 - $7 million relating to certain cost-based investments)

See Note 4 to the Consolidated Financial Statements for additional information regarding the Company’s credit risk as it pertains to its foreign exchange derivative counterparties.

Changes in Internal Control Over Financial Reporting

During the three months ended August 31, 2017 , no changes were made to 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.

27

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FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, J OHN C HEN , Chief Executive Officer of BlackBerry Limited, certify the following:

1	Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of BlackBerry Limited (the “issuer”) for the interim period ended August 31, 2017 .

2	No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3	Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

4	Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings , for the issuer.

5	Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a)	designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)	material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)	information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b)	designed ICFR, or caused it 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 the issuer’s GAAP.

5.1	Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

5.2 N/A

5.3 N/A

6.	Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on June 1, 2017 and ended on August 31, 2017 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

DATE: September 28, 2017

 

/S/ JOHN CHEN

J OHN  C HEN

Chief Executive Officer

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FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, S TEVEN C APELLI , Chief Financial Officer of BlackBerry Limited, certify the following:

1	Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of BlackBerry Limited (the “issuer”) for the interim period ended August 31, 2017 .

2	No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3	Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

4	Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings , for the issuer.

5	Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a)	designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)	material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)	information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b)	designed ICFR, or caused it 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 the issuer’s GAAP.

5.1	Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

5.2 N/A

5.3 N/A

6.	Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on June 1, 2017 and ended on August 31, 2017 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

DATE: September 28, 2017

 

/S/ STEVEN CAPELLI

STEVEN CAPELLI

Chief Financial Officer

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

		BLACKBERRY LIMITED
		(Registrant)
Date:	September 28, 2017	By:	/S/ STEVEN CAPELLI
			Name: Steven Capelli
			Title:   Chief Financial Officer

BlackBerry Ltd. (NASDAQ:BBRY)
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