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## FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES 

## NOTES TO THE FINANCIAL STATEMENTS 

## NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued) 

Fair Value Hedges . We use derivatives to reduce the risk of changes in the fair value of debt. We have designated certain receive-fixed, pay-float interest rate and cross-currency interest rate swaps as fair value hedges of fixed-rate debt. The risk being hedged is the risk of changes in the fair value of the hedged debt attributable to changes in the benchmark interest rate and foreign exchange. We report the change in fair value of the hedged debt related to the change in benchmark interest rate in Debt  and Interest expense . We report the change in fair value of the hedged debt and hedging instrument related to foreign currency in Other income, net . Net interest settlements and accruals, and fair value changes on hedging instruments due to the benchmark interest rate change are reported in Interest expense . The cash flows associated with fair value hedges are reported in Net cash provided by / (used in) operating activities  on our statements of cash flows. 

When a fair value hedge is de-designated, or when the derivative is terminated before maturity, the fair value adjustment to the hedged debt continues to be reported as part of the carrying value of the debt and is recognized in Interest expense  over its remaining life. 

Derivatives Not Designated as Hedging Instruments. We report net interest settlements and accruals and changes in the fair value of interest rate swaps not designated as hedging instruments in Other income, net . Foreign currency revaluation on accrued interest along with gains and losses on foreign exchange contracts and cross-currency interest rate swaps are reported in Other income, net.  Cash flows associated with non-designated or de-designated derivatives are reported in Net cash provided by / (used in) investing activities  on our statements of cash flows. 

## Income Effect of Derivative Financial Instruments 

The gains / (losses), by hedge designation, reported in income for the years ended December 31 were as follows (in millions): 

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__________ (a) Reflects forward contracts between Ford Credit and an affiliated company. 

