Interest Rate Risk - The Company manages economic risks, including interest rate variability, primarily by managing the amount, sources and duration of its debt funding and through the use of derivative financial instruments. The Company’s objectives in using interest rate derivatives are to manage its exposure to interest rate movements. To accomplish this objective, the Company uses interest rate swaps.

Cash Flow Hedges of Interest Rate Risk - In October 2018, the Company entered into variable-to-fixed interest rate swap agreements with 12 counterparties to hedge a portion of the cash flows of the Company’s variable rate debt (the “2018 Swap Agreements”). The 2018 Swap Agreements had an aggregate notional amount of $550.0 million and matured on November 30, 2022. Under the terms of the 2018 Swap Agreements, the Company paid a weighted average fixed rate of 3.04% on the notional amount and received payments from the counterparties based on the one-month LIBOR rate.

During 2021 and 2022, Company terminated its 2018 Swap Agreements for aggregate payments of approximately $18.3 million, excluding accrued interest. Following these terminations, unrealized losses related to the terminated swap agreements included in AOCL were amortized on a straight-line basis to Interest expense, net over the remaining original term of the terminated swaps.

On December 5, 2023, OSI entered into six interest rate swap agreements with five counterparties (the “2023 Swap Transactions”) to manage its exposure to fluctuations in variable interest rates. The 2023 Swap Transactions have an aggregate notional amount of $200.0 million and include one and two-year tenors with the following terms:


NOTIONAL AMOUNT		WEIGHTED AVERAGE FIXED INTEREST RATE (1)	EFFECTIVE DATE	TERMINATION DATE
$	100,000,000	4.92%	December 29, 2023	December 31, 2024
$	100,000,000	4.34%	December 29, 2023	December 31, 2025

In connection with the 2023 Swap Transactions, the Company effectively converted $200 million of its outstanding indebtedness from the SOFR, plus a term SOFR adjustment of 0.10% and a spread of 150 to 250 basis points to the weighted average fixed interest rates within the table above, plus a term SOFR adjustment of 0.10% and a spread of 150 to 250 basis points. The 2023 Swap Transactions have an embedded floor of minus 0.10%.

The 2023 Swap Transactions were designated and qualified as cash flow hedges, recognized on the Company’s Consolidated Balance Sheet at fair value as of December 31, 2023 and classified based on the instruments’ maturity dates. As of December 31, 2023, the Company estimated $0.1 million of interest income will be reclassified to Interest expense, net over the next 12 months related to the 2023 Swap Transactions.

The following table presents the fair value and classification of the Company’s swap agreements as of the period indicated:


(dollars in thousands)	DECEMBER 31, 2023		CONSOLIDATED BALANCE SHEET CLASSIFICATION
Interest rate swaps - asset (1)	$	320	Other current assets, net



Interest rate swaps - liability	$	253	Accrued and other current liabilities
Interest rate swaps - liability	893		Other long-term liabilities, net
Total fair value of derivative instruments - liability (1)	$	1,146

The Company’s interest rate swaps are subject to master netting arrangements. As of December 31, 2023, the Company elected not to offset derivative positions in the balance sheet with the same counterparty under the same agreement.


	FISCAL YEAR
(dollars in thousands)	2022		2021
Interest rate swap agreements:
Interest rate swap expense recognized in Interest expense, net	$	(1,284)	$	(9,951)
Income tax benefit recognized in Provision for income taxes	330		2,559
Net effects of interest rate swap agreements	$	(954)	$	(7,392)
Terminated interest rate swap agreements:
Terminated interest rate swap expense recognized in Interest expense, net	$	(12,115)	$	(6,160)
Income tax benefit recognized in Provision for income taxes	3,133		1,584
Net effects of terminated interest rate swap agreements	$	(8,982)	$	(4,576)
Total net effects on Net income	$	(9,936)	$	(11,968)

By utilizing the interest rate swaps, the Company was exposed to credit-related losses in the event that the counterparty failed to perform under the terms of the derivative contract. To mitigate this risk, the Company entered into derivative contracts with major financial institutions based upon credit ratings and other factors. The Company continually assessed the creditworthiness of its counterparties. As of December 31, 2023, all counterparties to the interest rate swaps performed in accordance with their contractual obligations.

The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if the repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on indebtedness.

As of December 31, 2023, the fair value of the Company’s interest rate swaps was in a net liability position, including accrued interest but excluding any adjustment for nonperformance risk, of $0.8 million. As of December 31, 2023, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions as of December 31, 2023, it could have been required to settle its obligations under the agreements at their termination value of $0.8 million.