8-KMaterial AgreementsFinancial EventsExhibits & Filings

CADENCE DESIGN SYSTEMS INC 8-K Report, Material Agreement (Dec 21, 2005)

Filed December 21, 2005For Securities:CDNS

Summary

Cadence Design Systems, Inc. (CDNS) announced a significant financial transaction involving the repatriation of approximately $500 million in foreign earnings through its Irish subsidiary, Castlewilder. This repatriation is facilitated by the American Jobs Creation Act of 2004 and will result in an incremental tax liability of approximately $35 million for Cadence, to be recognized in the fourth quarter of 2005. The majority of the dividend, about $340 million, will be funded by existing foreign cash reserves. To fund the remaining $160 million of the dividend, Castlewilder entered into a three-year, $160 million unsecured term loan facility agreement. This loan, guaranteed by Cadence and another subsidiary, Cadence Technology Limited, carries flexible interest rate options (base rate or LIBOR-plus) and a structured repayment schedule. The transaction represents a strategic move to utilize foreign cash and potentially reduce future tax burdens, while also introducing new debt obligations for the company's subsidiaries.

Key Highlights

  • 1Cadence Design Systems to repatriate approximately $500 million in foreign earnings via its Irish subsidiary, Castlewilder, under the American Jobs Creation Act of 2004.
  • 2An incremental tax liability of approximately $35 million is expected to be recorded in Q4 2005 due to the repatriation.
  • 3Approximately $340 million of the repatriated funds will be sourced from existing foreign cash on hand.
  • 4A new three-year, $160 million unsecured term loan facility was secured by Castlewilder to fund the remaining portion of the dividend.
  • 5The term loan offers flexible interest rate options, including a base rate or a LIBOR-based rate plus a margin.
  • 6Both Cadence Design Systems and its subsidiary Cadence Technology Limited have provided unconditional guarantees for Castlewilder's obligations under the term loan.
  • 7The term loan features a phased repayment schedule, with increasing quarterly principal payments over its three-year term, adjustable if the maturity is extended.

Frequently Asked Questions

The primary purpose is to announce Cadence Design Systems' intention to repatriate approximately $500 million in foreign earnings through its Irish subsidiary, Castlewilder, leveraging the American Jobs Creation Act of 2004. This also involves securing a new $160 million term loan to facilitate the repatriation.

Cadence will recognize an incremental tax liability of approximately $35 million in the fourth quarter of 2005. The company will also record the cash inflow of $500 million and the associated $160 million debt obligation.

The loan is a three-year unsecured term facility for Castlewilder, guaranteed by Cadence and Cadence Technology Limited. It allows Castlewilder to choose between a base rate or a LIBOR-based interest rate. Repayment involves quarterly installments, starting at 5.0% of the principal in the first year and increasing thereafter. The maturity date can potentially be extended by one year.

The Act incentivized companies to repatriate foreign earnings that might otherwise have remained overseas. Cadence is utilizing this provision to bring back its foreign earnings, presumably for strategic use within the company, while acknowledging the associated tax implications.