Business Context and Reporting Period
This Form 8-K Current Report was filed by NetApp, Inc. on April 14, 2010. The filing addresses the termination of a material definitive agreement related to a convertible bond hedge transaction originally entered into in June 2008.
Key Financial Metrics
The filing does not provide comprehensive financial statements, revenue, profit, cash flow, or margin data. The specific financial metric disclosed relates to the resolution of a derivative contract:
- Termination Claim: NetApp agreed to terminate hedge documents in exchange for a general, unsecured claim against Lehman Brothers in the amount of $57,000,000.
- Underlying Instrument: The hedge was associated with $1.265 billion aggregate principal amount of 1.75% Convertible Senior Notes due 2013.
Material Changes
The material change reported is the formal termination of the "Hedge Documents" between NetApp and Lehman Brothers OTC Derivatives Inc. This action was necessitated by Lehman Brothers' Chapter 11 bankruptcy filing on September 15, 2008. The termination agreement, executed on April 14, 2010, converts the outstanding hedge position into a fixed unsecured claim against the bankrupt entity.
Outlook, Risks, and Contingencies
Contingencies: The $57,000,000 claim is classified as a general, unsecured claim against Lehman Brothers. Recovery of this amount is subject to the proceedings of the Lehman Brothers bankruptcy case and is not guaranteed.
Risks: The filing highlights the risk associated with the counterparty (Lehman Brothers) insolvency, which led to the termination of the hedging strategy originally designed to offset the convertible notes.
Management Commentary: The filing contains no forward-looking guidance or management commentary beyond the factual description of the termination agreement.
Investor Verification Checklist
- Verify the status and expected recovery rate of the $57,000,000 unsecured claim against Lehman Brothers in ongoing bankruptcy proceedings.
- Review the impact of the terminated hedge on the effective interest rate and conversion economics of the $1.265 billion Convertible Senior Notes due 2013.
- Confirm whether the $57,000,000 claim has been recorded as an asset or if a provision for loss has been recognized in prior financial statements.