Derivatives and Financial Instruments

We are exposed to the impact of changes in interest rates in the normal course of business. Our financial risk management program is designed to manage the exposure arising from this cash flow risk and uses derivative financial instruments to minimize this risk. We do not enter into derivative financial instruments for trading or speculative purposes.

In July and August 2019, we executed interest rate swap contracts with notional amounts aggregating $500 million that are designated as cash flow hedges to manage interest rate risk on our floating rate debt. These interest rate swap contracts adjust the amount of our total debt that is subject to variable interest rates by effectively fixing the borrowing rates on a portion of our floating rate debt discussed in Note 8 - Debt.

Our interest rate swap agreements exchange payment streams based on the notional principal amount. These agreements fix our future interest rates ranging from 1.63% to 1.70% plus the applicable margin as provided in our debt agreement on an amount of our debt principal equal to the then-outstanding swap notional amount. The base notional amount matures two years from inception on July 31, 2021. On the interest rate swap inception dates, we designated the swaps as a hedge of the variability in cash flows we pay on our variable rate borrowings.

Our derivative instruments at December 29, 2018 primarily included foreign currency forward agreements related to certain intercompany loans and certain forecasted inventory purchase commitments with foreign suppliers. The derivative instruments were allocated to us based on a specific identification basis. Foreign currency forward agreements related to forecasted inventory purchase commitments were designated as cash flow hedges. Foreign currency forward agreements related to foreign currency balance sheet exposure provide economic hedges but were not designated as hedges for accounting purposes. The hedging activities in 2018 did not have a material impact on the combined financial statements. Accordingly, additional disclosures related to derivatives and hedging activities have been omitted.

The following table discloses the fair value and balance sheet location of our derivative instruments:



	Liability Derivatives
Cash Flow Hedging Instruments:	Balance Sheet Location	December 31, 2019		December 29, 2018
Interest rate swap contracts	Other liabilities	$	1	$	—

At inception of the hedging contract, we used statistical regression to assess the effectiveness of the interest rate hedges. The hedging contracts were deemed highly effective and are expected to be highly effective throughout the hedge period. Therefore, we perform a qualitative assessment of the hedge effectiveness at each subsequent quarterly reporting date. As of December 31, 2019, derivative gains and losses were initially reported as a component of Other comprehensive (loss) income and subsequently recorded in the consolidated statement of operations when the hedged transaction was recognized in earnings.

The effect of cash flow hedges on Other comprehensive (loss) income was as follows:



Cash Flow Hedging Instruments:	Location	Year Ended December 31, 2019
Amounts recognized in Other comprehensive (loss) income	Accumulated other comprehensive loss	$	(1	)
Amounts reclassified out of Accumulated other comprehensive (loss) income into earnings	Interest expense	$	1

The net amount of deferred gains on cash flow hedges that are expected to be reclassified from Accumulated other comprehensive income (loss) into Interest expense within the next 12 months is not material.