v3.7.0.1
Derivative Instruments
 3 Months Ended
Apr. 30, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
Derivative Instruments
Derivative Financial Instruments
We conduct business on a global basis in multiple foreign currencies, subjecting Workday to foreign currency risk. To mitigate this risk, we utilize hedging contracts as described below. We do not enter into any derivatives for trading or speculative purposes.
Our foreign currency contracts are classified within Level 2 of the fair value hierarchy because the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates.
Cash Flow Hedges
We are exposed to foreign currency fluctuations resulting from customer contracts denominated in foreign currencies. We have a hedging program in which we enter into foreign currency forward contracts related to certain customer contracts. We designate these forward contracts as cash flow hedging instruments as the accounting criteria for such designation have been met. The effective portion of the gains or losses resulting from changes in the fair value of these hedges is recorded in Accumulated other comprehensive income (loss) ("OCI") on the condensed consolidated balance sheets and will be subsequently reclassified to the related revenue line item in the condensed consolidated statements of operations in the same period that the underlying revenues are earned. The changes in value of these contracts resulting from changes in forward points are excluded from the assessment of hedge effectiveness and are recorded as incurred in Other expense, net in the condensed consolidated statements of operations. Cash flows from such forward contracts are classified as operating activities.
As of April 30, 2017 and January 31, 2017, we had outstanding foreign currency forward contracts designated as cash flow hedges with total notional values of $325 million and $252 million, respectively. All contracts have maturities not greater than 25 months. The notional value represents the amount that will be bought or sold upon maturity of the forward contract.
During the three months ended April 30, 2017 and 2016, all cash flow hedges were considered effective.
Foreign Currency Forward Contracts not Designated as Hedges
We also enter into foreign currency forward contracts to hedge a portion of our net outstanding monetary assets and liabilities. These forward contracts are not designated as hedging instruments under applicable accounting guidance, and therefore all changes in the fair value of the forward contracts are recorded in Other expense, net in the condensed consolidated statements of operations. These forward contracts are intended to offset the foreign currency gains or losses associated with the underlying monetary assets and liabilities. Cash flows from such forward contracts are classified as operating activities.
As of April 30, 2017 and January 31, 2017, we had outstanding forward contracts with total notional values of $42 million and $51 million, respectively. All contracts have maturities not greater than 15 months.
The fair values of outstanding derivative instruments were as follows (in thousands):
 
 
Condensed Consolidated Balance Sheets Location
 
April 30, 2017
 
January 31, 2017
Derivative Assets:
 
 
 
 
 
 
Foreign currency forward contracts designated as cash flow hedges
 
Prepaid expenses and other current assets and Other assets
 
$
5,882

 
$
7,149

Foreign currency forward contracts not designated as hedges
 
Prepaid expenses and other current assets
 
1,052

 
760

Derivative Liabilities:
 
 
 
 
 
 
Foreign currency forward contracts designated as cash flow hedges
 
Accrued expenses and other current liabilities and Other liabilities
 
$
3,728

 
$
1,605

Foreign currency forward contracts not designated as hedges
 
Accrued expenses and other current liabilities
 
501

 
522


Gains (losses) associated with foreign currency forward contracts designated as cash flow hedges were as follows (in thousands):
 
 
Condensed Consolidated Statement of Operations and Statement of Comprehensive Loss Locations
 
Three Months Ended April 30,
 
 
 
2017
 
2016
Gains (losses) recognized in OCI (effective portion)(1)
 
Net change in market value of effective foreign currency forward exchange contracts
 
$
(975
)
 
$
(10,954
)
Gains (losses) reclassified from OCI into income (effective portion)
 
Revenues
 
234

 
110

Gains (losses) recognized in income (amount excluded from effectiveness testing and ineffective portion)
 
Other expense, net
 
623

 
151

(1) 
Of the total effective portion of foreign currency forward contracts designated as cash flow hedges as of April 30, 2017, net gains of $4 million are expected to be reclassified out of OCI within the next 12 months.
Gains (losses) associated with foreign currency forward contracts not designated as cash flow hedges were as follows (in thousands):
 
 
Condensed Consolidated Statement of Operations Location
 
Three Months Ended April 30,
Derivative Type
 
 
2017
 
2016
Foreign currency forward contracts not designated as hedges
 
Other expense, net
 
$
(6
)
 
$
(1,319
)

We are subject to master netting agreements with certain counterparties of the foreign exchange contracts, under which we are permitted to net settle transactions of the same currency with a single net amount payable by one party to the other. It is our policy to present the derivatives gross in the condensed consolidated balance sheets. Our foreign currency forward contracts are not subject to any credit contingent features or collateral requirements and we do not believe we are subject to significant counterparty concentration risk given the short-term nature, volume, and size of the derivative contracts outstanding.
As of April 30, 2017, information related to these offsetting arrangements was as follows (in thousands):
 
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset in the Condensed Consolidated Balance Sheets
 
Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheets
 
Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
 
Net Assets Exposed
 
 
 
 
 
Financial Instruments
 
Cash Collateral Received
 
Derivative Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Counterparty A
 
$
1,081

 
$
—

 
$
1,081

 
$
(1,081
)
 
$
—

 
$
—

Counterparty B
 
5,827

 
—

 
5,827

 
(2,720
)
 
—

 
3,107

Counterparty C
 
2

 
—

 
2

 
—

 
—

 
2

Counterparty D
 
24

 
—

 
24

 
—

 
—

 
24

Total
 
$
6,934

 
$
—

 
$
6,934

 
$
(3,801
)
 
$
—

 
$
3,133


 
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset in the Condensed Consolidated Balance Sheets
 
Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheets
 
Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
 
Net Liabilities Exposed
 
 
 
 
 
Financial Instruments
 
Cash Collateral Pledged
 
Derivative Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Counterparty A
 
$
1,509

 
$
—

 
$
1,509

 
$
(1,081
)
 
$
—

 
$
428

Counterparty B
 
2,720

 
—

 
2,720

 
(2,720
)
 
—

 
—

Total
 
$
4,229

 
$
—

 
$
4,229

 
$
(3,801
)
 
$
—

 
$
428