CREDIT AGREEMENT AND RELATED INSTRUMENTS	3 Months Ended
Jan. 01, 2012
CREDIT AGREEMENT AND RELATED INSTRUMENTS	14. CREDIT AGREEMENT AND RELATED INSTRUMENTS Credit Agreement In connection with the acquisition of Zarlink in the quarter ended January 1, 2012, we entered into Amendment No. 2 to our Credit Agreement dated as of November 2, 2010 with Morgan Stanley Senior Funding, Inc. (“MSSF”), Morgan Stanley & Co. Incorporated, East West Bank, Raymond James Bank, FSB and the lenders referred to therein, as amended by Amendment No. 1 to the Credit Agreement, dated as of March 2, 2011 (as amended, the “Amended and Restated Credit Agreement”). We accounted for the amendment as a debt extinguishment and recorded $34.0 million in debt extinguishment costs in other income (expense) in accordance with ASC 470-50. Pursuant to the Amended and Restated Credit Agreement, MSSF has provided $850.0 senior secured lien credit facilities, consisting of a term loan facility in an aggregate principal amount of $800.0 million and a revolving credit facility in an aggregate principal amount of $50.0 million. We accounted for the amendment as a debt extinguishment and recorded $34.0 million in debt issuance and extinguishment costs in other income (expense) in accordance with ASC 470-50. Under the Amended and Restated Credit Agreement, the current applicable margin on revolving loans and swingline loans determined at the Base Rate is 3.00% to 3.75% and revolving loans and swingline loans determined at the Eurodollar Rate is 4.00% to 4.75%, depending on Microsemi’s consolidated leverage ratio. For term loans, the current applicable margin on term loans determined at the Base Rate is 3.50% and on term loans determined at the Eurodollar Rate is 4.50%. The “Base Rate” is defined as a rate per annum equal to the greatest of (a) the prime rate, (b) ¹/2 of 1% per annum above the federal funds effective rate, (c) the one-month Eurodollar Rate plus 1%, and (d) in the case of any term loans, 2.25%. The “Eurodollar Rate” is defined as (a) the rate per annum offered for deposits of dollars for the applicable interest period that appears on Reuters Screen LIBOR01 Page as of 11:00 A.M., London, England time, two (2) business days prior to the first day of such interest period or (b) if no such offered rate exists, such rate will be the rate of interest per annum as determined by the administrative agent (rounded upwards, if necessary, to the nearest ¹/100 of 1%) at which deposits of dollars in immediately available funds are offered at 11:00 A.M., London, England time, two (2) business days prior to the first day in the applicable interest period by major financial institutions reasonably satisfactory to the administrative agent in the London interbank market for such interest period and for an amount equal or comparable to the principal amount of the loans to be borrowed, converted or continued as Eurodollar Rate loans on such date of determination. In the case of term loans, the Eurodollar Rate will not be lower than 1.25%. The principal amount outstanding under our term loan facility is a LIBOR-based loan and is subject to an interest rate of 5.75% as of January 1, 2012. As of January 1, 2012, we had $798.0 million borrowed under the term loan facility and no direct borrowings and $0.4 million in letters of credit outstanding under the revolving facility. As of October 2, 2011, we had $372.2 million borrowed under the term loan facility and no direct borrowings and $0.4 million in letters of credit outstanding under the revolving facility. The amended term loan facility matures on February 2, 2017 and requires minimum principal payments of $2.0 million per quarter or $8.0 million per year. Pursuant to the Amended and Restated Credit Agreement, Microsemi can request, at any time and from time to time, the establishment of one or more term loan and/or revolving credit facilities with commitments in an aggregate amount not to exceed $200.0 million. Microsemi paid upfront fees or original issue discount equal to 2.00% of the term loan facility and an amendment fee on the revolving facility of 0.25%. Additionally, Microsemi expects to pay an undrawn commitment fee ranging from 0.25% to 0.625% depending on Microsemi’s consolidated leverage ratio, on the unused portion of the revolving facility. If any letters of credit are issued, then Microsemi expects to pay a fronting fee equal to 0.25% per annum of the aggregate face amount of each letter of credit and a participation fee on all outstanding letters of credit at a per annum rate equal to the margin then in effect with respect to Eurodollar Rate-based loans on the face amount of such letter of credit. The Amended and Restated Credit Agreement includes financial covenants requiring a maximum leverage ratio and minimum fixed charge coverage ratio and also contains other customary affirmative and negative covenants and events of default. We were in compliance with all financial covenants as of January 1, 2012. Fair Value Option We elected the fair value option in accounting for the term loan balance outstanding as of October 2, 2011. We classified term loan balances currently outstanding under our Credit Agreement as Level 2 where valuations are based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. Our valuation was based on market quotes provided to us by MSSF. We determined the fair value of the outstanding term loan balance as of January 2, 2011 to be $378.8 million compared to a par value of $375.0 million, and as such, recorded expense of $3.8 million in other income (expense), net, during the quarter then ended. In addition, upon election of the fair value option in the quarter ended January 2, 2011, we were required to immediately expense up front debt issuance costs of $13.4 million that we recorded in other income (expense), net. We determined the fair value of the term loan balance as of October 2, 2011 to be $361.0 million compared to a par value of $372.2 million, a difference of $11.2 million. Subsequent to entering into Amendment No. 2 to the credit agreement, we did not elect the fair value option on term loan balances and are reporting the $798.0 million outstanding at par. As we extinguished the existing $372.2 million term loan balance at par, we recorded an expense of $11.2 million in other income (expense), net, in the quarter ended January 1, 2012. Interest Rate Swap Agreements In connection with the Credit Agreement, we entered into interest rate swap agreements for the purpose of minimizing the variability of cash flows in the interest rate payments of our variable rate borrowings. The cash flows received under the interest rate swap agreements are expected to offset the change in cash flows associated with LIBOR rate borrowings between the effective and maturity dates of the swaps. Our three swap agreements have notional amounts, fixed rates and initial terms as follows: $24.0 million at 1.49% for two years, $121.0 million at 1.83% for three years and $24.0 million at 2.21% for four years. We classified interest rate swap balances as Level 2 fair value measurements. We determined the fair value of our interest rate swap agreements based on mid-market valuations reported to us by RJ Capital Services, Inc., the counterparty to the swap agreements. Related to these interest rate swap agreements, we recorded a current liability of $0.1 million and a long-term liability of $3.0 million as of January 1, 2012 and a $2.8 million long-term liability as of October 2 2011. We reflected the change in fair value of the swaps through other income (expense), net, and for the quarters ended January 1, 2012 and January 2, 2011, we recorded expense of $0.3 million and 0.7 million, respectively. Foreign Currency Forward In connection with the acquisition of Zarlink, we entered into a foreign currency forward agreement in the fourth quarter of 2011 to minimize our foreign currency risk associated with the transaction that we funded in Canadian Dollars (“CAD”). We agreed to purchase CAD 623.0 million for $608.2 million that settled in October 2011. We classified interest rate forward balances as Level 1 fair value measurements where there are quoted prices in active markets for identical instruments. We determined the fair value of our foreign currency forward agreement based on a corresponding quote from Morgan Stanley Capital Services LLC, the counterparty to the forward transaction. As the forward currency forward contract did not qualify for hedge accounting, we reflected the change in fair value of the swap through other income (expense), net. At October 2, 2011, we recorded a current liability and corresponding expense of $11.7 million for the change in fair value. During the quarter ended January 1, 2012, we recorded income of $15.4 million related to the settlement of this forward.

14. CREDIT AGREEMENT AND RELATED INSTRUMENTS

Credit Agreement

In connection with the acquisition of Zarlink in the quarter ended January 1, 2012, we entered into Amendment No. 2 to our Credit Agreement dated as of November 2, 2010 with Morgan Stanley Senior Funding, Inc. (“MSSF”), Morgan Stanley & Co. Incorporated, East West Bank, Raymond James Bank, FSB and the lenders referred to therein, as amended by Amendment No. 1 to the Credit Agreement, dated as of March 2, 2011 (as amended, the “Amended and Restated Credit Agreement”). We accounted for the amendment as a debt extinguishment and recorded $34.0 million in debt extinguishment costs in other income (expense) in accordance with ASC 470-50. Pursuant to the Amended and Restated Credit Agreement, MSSF has provided $850.0 senior secured lien credit facilities, consisting of a term loan facility in an aggregate principal amount of $800.0 million and a revolving credit facility in an aggregate principal amount of $50.0 million. We accounted for the amendment as a debt extinguishment and recorded $34.0 million in debt issuance and extinguishment costs in other income (expense) in accordance with ASC 470-50.

Under the Amended and Restated Credit Agreement, the current applicable margin on revolving loans and swingline loans determined at the Base Rate is 3.00% to 3.75% and revolving loans and swingline loans determined at the Eurodollar Rate is 4.00% to 4.75%, depending on Microsemi’s consolidated leverage ratio. For term loans, the current applicable margin on term loans determined at the Base Rate is 3.50% and on term loans determined at the Eurodollar Rate is 4.50%. The “Base Rate” is defined as a rate per annum equal to the greatest of (a) the prime rate, (b) ¹/2 of 1% per annum above the federal funds effective rate, (c) the one-month Eurodollar Rate plus 1%, and (d) in the case of any term loans, 2.25%. The “Eurodollar Rate” is defined as (a) the rate per annum offered for deposits of dollars for the applicable interest period that appears on Reuters Screen LIBOR01 Page as of 11:00 A.M., London, England time, two (2) business days prior to the first day of such interest period or (b) if no such offered rate exists, such rate will be the rate of interest per annum as determined by the administrative agent (rounded upwards, if necessary, to the nearest ¹/100 of 1%) at which deposits of dollars in immediately available funds are offered at 11:00 A.M., London, England time, two (2) business days prior to the first day in the applicable interest period by major financial institutions reasonably satisfactory to the administrative agent in the London interbank market for such interest period and for an amount equal or comparable to the principal amount of the loans to be borrowed, converted or continued as Eurodollar Rate loans on such date of determination. In the case of term loans, the Eurodollar Rate will not be lower than 1.25%. The principal amount outstanding under our term loan facility is a LIBOR-based loan and is subject to an interest rate of 5.75% as of January 1, 2012.

As of January 1, 2012, we had $798.0 million borrowed under the term loan facility and no direct borrowings and $0.4 million in letters of credit outstanding under the revolving facility. As of October 2, 2011, we had $372.2 million borrowed under the term loan facility and no direct borrowings and $0.4 million in letters of credit outstanding under the revolving facility. The amended term loan facility matures on February 2, 2017 and requires minimum principal payments of $2.0 million per quarter or $8.0 million per year.

Pursuant to the Amended and Restated Credit Agreement, Microsemi can request, at any time and from time to time, the establishment of one or more term loan and/or revolving credit facilities with commitments in an aggregate amount not to exceed $200.0 million.

Microsemi paid upfront fees or original issue discount equal to 2.00% of the term loan facility and an amendment fee on the revolving facility of 0.25%. Additionally, Microsemi expects to pay an undrawn commitment fee ranging from 0.25% to 0.625% depending on Microsemi’s consolidated leverage ratio, on the unused portion of the revolving facility. If any letters of credit are issued, then Microsemi expects to pay a fronting fee equal to 0.25% per annum of the aggregate face amount of each letter of credit and a participation fee on all outstanding letters of credit at a per annum rate equal to the margin then in effect with respect to Eurodollar Rate-based loans on the face amount of such letter of credit.

The Amended and Restated Credit Agreement includes financial covenants requiring a maximum leverage ratio and minimum fixed charge coverage ratio and also contains other customary affirmative and negative covenants and events of default. We were in compliance with all financial covenants as of January 1, 2012.

Fair Value Option

We elected the fair value option in accounting for the term loan balance outstanding as of October 2, 2011. We classified term loan balances currently outstanding under our Credit Agreement as Level 2 where valuations are based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. Our valuation was based on market quotes provided to us by MSSF.

We determined the fair value of the outstanding term loan balance as of January 2, 2011 to be $378.8 million compared to a par value of $375.0 million, and as such, recorded expense of $3.8 million in other income (expense), net, during the quarter then ended. In addition, upon election of the fair value option in the quarter ended January 2, 2011, we were required to immediately expense up front debt issuance costs of $13.4 million that we recorded in other income (expense), net.

We determined the fair value of the term loan balance as of October 2, 2011 to be $361.0 million compared to a par value of $372.2 million, a difference of $11.2 million. Subsequent to entering into Amendment No. 2 to the credit agreement, we did not elect the fair value option on term loan balances and are reporting the $798.0 million outstanding at par. As we extinguished the existing $372.2 million term loan balance at par, we recorded an expense of $11.2 million in other income (expense), net, in the quarter ended January 1, 2012.

Interest Rate Swap Agreements

In connection with the Credit Agreement, we entered into interest rate swap agreements for the purpose of minimizing the variability of cash flows in the interest rate payments of our variable rate borrowings. The cash flows received under the interest rate swap agreements are expected to offset the change in cash flows associated with LIBOR rate borrowings between the effective and maturity dates of the swaps. Our three swap agreements have notional amounts, fixed rates and initial terms as follows: $24.0 million at 1.49% for two years, $121.0 million at 1.83% for three years and $24.0 million at 2.21% for four years. We classified interest rate swap balances as Level 2 fair value measurements. We determined the fair value of our interest rate swap agreements based on mid-market valuations reported to us by RJ Capital Services, Inc., the counterparty to the swap agreements. Related to these interest rate swap agreements, we recorded a current liability of $0.1 million and a long-term liability of $3.0 million as of January 1, 2012 and a $2.8 million long-term liability as of October 2 2011. We reflected the change in fair value of the swaps through other income (expense), net, and for the quarters ended January 1, 2012 and January 2, 2011, we recorded expense of $0.3 million and 0.7 million, respectively.

Foreign Currency Forward

In connection with the acquisition of Zarlink, we entered into a foreign currency forward agreement in the fourth quarter of 2011 to minimize our foreign currency risk associated with the transaction that we funded in Canadian Dollars (“CAD”). We agreed to purchase CAD 623.0 million for $608.2 million that settled in October 2011. We classified interest rate forward balances as Level 1 fair value measurements where there are quoted prices in active markets for identical instruments. We determined the fair value of our foreign currency forward agreement based on a corresponding quote from Morgan Stanley Capital Services LLC, the counterparty to the forward transaction. As the forward currency forward contract did not qualify for hedge accounting, we reflected the change in fair value of the swap through other income (expense), net. At October 2, 2011, we recorded a current liability and corresponding expense of $11.7 million for the change in fair value. During the quarter ended January 1, 2012, we recorded income of $15.4 million related to the settlement of this forward.