What I Learned Reading Research In Motion Ltd (BBRY)’s Annual Report

Digging into a company’s annual report is a great way to find hidden risks and trends that may be otherwise missed. Research In Motion Ltd (NASDAQ:BBRY)‘s 40-F didn’t disappoint.

Here are three things I learned from the company’s annual report.

1) Dodd-Frank

I didn’t think Dood-Frank would have a significant impact on non-financial companies, but I was wrong.

“In fiscal 2013, the SEC adopted new disclosure requirements implementing Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 for manufacturers of products containing certain minerals that are mined from the Democratic Republic of Congo and adjoining countries. These so-called “conflict minerals” are commonly found in metals used in the manufacture of certain of the Company’s products.” BlackBerry 40-F

The new Dodd-Frank legislation requires companies to report all products containing conflict minerals – like tin, tantalum, tungsten, and gold – from the Congo. Conflict for control of the mineral wealth is behind some of the most violent human rights violations in the country.

For Research In Motion Ltd (NASDAQ:BBRY) and other technology companies, this regulation creates several problems including higher compliance costs, higher component prices, and potential reputational risks.

Apparently, Apple Inc. (NASDAQ:AAPL) is the best prepared for this new legislation.

In 2010, the company was named the worse abuser of so-called ‘conflict-minerals’ by The Enough Project – a non-profit humanitarian organization.

Since being called out, the company has made significant efforts to clean up their operations by surveying suppliers and auditing smelters. Apple Inc. (NASDAQ:AAPL) now requires its suppliers to move their sourcing of tin, tungsten, and gold to certified conflict-free sources.

Last year, Apple was given top marks against other technology giants for its reduce use of conflict minerals. This means Apple Inc. (NASDAQ:AAPL) will have the lowest compliance costs and reputational risks when the law comes into effect next year.

2) Significant credit risk to….Venezuela?

Sometimes when digging through annual reports I’m surprised to find where companies have exposures that could result in unexpected losses.

“As of March 2, 2013, the Company has accounts receivables outstanding related to service access fees provided to wireless service providers in Venezuela […] As a result of the currency devaluation and given the uncertainty around future changes to the Venezuela leadership, the Company could face additional challenges in obtaining payment on its receivables if the Venezuela carriers cannot secure governmental approvals to buy and remit USD for services provided.” Blackberry 40-F

Latin America accounts for 20% of Research In Motion Ltd (NASDAQ:BBRY)’s revenues and Venezuela was chosen to spearhead the continent’s BB10 launch. But doing business in this country comes with risks.

On Feb. 13, the Venezuela government devalued the Bolivar 32% against the U.S. dollar. Yet despite the move, there’s still a shortage of American currency in the country. As a result, Venezuelan companies could default on their obligations to Research In Motion Ltd (NASDAQ:BBRY) because they cannot convert funds into U.S. dollars.

3) Patent trolls

I knew about the growing problem of patent trolls – entities that hold patents for no other reason than to sue companies – in the technology industry.

But their influence really hits homes when you start digging through Research In Motion Ltd (NASDAQ:BBRY)’s annual report. In all, Research In Motion Ltd (NASDAQ:BBRY) is involved in 42 intellectual property cases, almost all of which involve patent trolls.

Here’s an amusing case.

“On March 15, 2012 Varia Holdings LLC (“Varia”) filed a lawsuit against the Company in the U.S. District Court for the District of Delaware. The complaint alleges infringement of U.S. Patent No 7,167,731 […] The court has stayed proceedings while the parties negotiate settlement.” BlackBerry 40-F

Basically, Varia Holdings is suing Samsung and Research In Motion Ltd (NASDAQ:BBRY) for the unlawful use of its ’emoticon input apparatus’ – a method of inputting emoticons into text through a button the user presses to bring up a list.

Sad amusement aside, I did find this footnote alarming. Research In Motion Ltd (NASDAQ:BBRY) has valued its patent portfolio at $3.26 billion representing nearly 35% of the company’s book value.

But this valuation could be in serious jeopardy.

Last week, U.S. President Barack Obama started efforts to crack down on patent trolls by ordering tighter scrutiny of overly broad patent claims. This could significantly reduce the value of patent portfolios for both BlackBerry and other technology companies.

Google Inc (NASDAQ:GOOG)‘s Motorola Mobility acquisition may be a case in point. Two years ago, Google paid $12.5 billion primarily for the Motorola’s 17,000 patents and 7,000 patent pending applications.

So far, Google Inc (NASDAQ:GOOG)’s efforts to assert these patents to protect its Android operating system have failed. Earlier this year, a judge ruled for Microsoft to pay Google $1.7 million per year due to violations of its Wi-Fi and video encoding patents. This settlement was much less than the $4 billion per year Google Inc (NASDAQ:GOOG) originally demanded.

This means Motorola’s patents might not be worth anything close to what was originally estimated. The $12.5 billion Google spent may have been wasted.

Foolish bottom line

So what should investors make of Research In Motion Ltd (NASDAQ:BBRY)?

In spit of the risks highlighted in this post, the stock is still an attractive bet. Even if you heavily discount the firm’s patents, the company is still priced below liquidation value with the market almost completely discounting any possible success of BB10.

If BB10 is successful, BlackBerry will once again be valued as a going concern.

If BB10 flops, the company is liquidated near its current price.

Looks like a good risk/reward to me.

The article 3 Things I Learned Reading BlackBerry’s Annual Report originally appeared on Fool.com.

Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.