Note 8 - Derivative Instruments

In the normal course of business, our operations are exposed to fluctuations in foreign currency values and interest rate changes. We may seek to control a portion of these risks through a risk management program that includes the use of derivative instruments.

Foreign Currency Risk Management

Our foreign currency denominated contract receivables, billings in excess of revenue earned and subcontractor accruals that are related to the outstanding foreign exchange contracts are remeasured at the end of each period into our functional currency, using the current exchange rate at the end of the period. The gain or (loss) resulting from such remeasurement is also included in gain (loss) on derivative instruments, net in the consolidated statements of operations.

We utilize foreign currency exchange contracts to manage market risks associated with fluctuations in foreign currency exchange rates and to minimize credit exposure by limiting counterparties to nationally recognized financial institutions.

As of September 30, 2020, we had no foreign exchange contracts outstanding.

Interest Rate Risk Management

In June 2018, as part of our overall risk management policies, we entered into a pay-fixed, receive-floating interest rate swap contract with a notional amount of $9.0 million to reduce the impact associated with interest rate fluctuations on our outstanding term loans (see Note 10). The loan bears interest at adjusted one-month USD LIBOR, plus a margin ranging between 2.00% and 2.75% depending on our overall leverage ratio. The notional value amortizes monthly in equal amounts based on the 5-year principal repayment terms. Per the terms of the swap, we are required to pay interest on the basis of a fixed rate of 3.02%, and we receive interest on the basis of one-month USD LIBOR.

As discussed in Note 10, we signed the Eighth Amendment and Reaffirmation Agreement with our Bank and repaid the $9.1 million outstanding balance on our term loans. Accordingly, we exited the swap agreement related to this loan and paid $0.2 million in cash.

For the periods presented, we did not elect to designate any of our derivative contracts as hedges. Changes in the fair value of the derivative contracts are included in gain (loss) on derivative instruments, net in the consolidated statements of operations.

We recognized a net gain (loss) on our derivative instruments as outlined below:

	Three months ended					Nine months ended
(in thousands)	September 30, 2020		September 30, 2019			September 30, 2020			September 30, 2019

Interest rate swap	$	25	$	(1	)	$	(49	)	$	(89	)
Foreign exchange contracts		-		(45	)		17			25
Remeasurement of related contract receivables, billings-in-excess of revenue earned, and subcontractor accruals		6		(15	)		67			(5	)
Gain (loss) on derivative instruments, net	$	31	$	(61	)	$	35		$	(69	)