Derivative 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.

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 OCI on the consolidated balance sheets and will be subsequently reclassified to the related revenue line item on the 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 income (expense), net on the consolidated statements of operations. Cash flows from such forward contracts are classified as operating activities.

As of January 31, 2019 and 2018, we had outstanding foreign currency forward contracts designated as cash flow hedges with total notional values of $717 million and $549 million, respectively. All such contracts have maturities not greater than 36 months. The notional value represents the amount that will be bought or sold upon maturity of the forward contract.

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 income (expense), net on the 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 January 31, 2019 and 2018, we had outstanding forward contracts not designated as hedges with total notional values of $198 million and $75 million, respectively.

The fair values of outstanding derivative instruments were as follows (in thousands):



	Consolidated Balance Sheets Location	January 31,
	Consolidated Balance Sheets Location	2019		2018
Derivative Assets:
Foreign currency forward contracts designated as cash flow hedges	Prepaid expenses and other current assets	$	12,076	$	15
Foreign currency forward contracts designated as cash flow hedges	Other assets	10,015		4
Foreign currency forward contracts not designated as hedges	Prepaid expenses and other current assets	459		79
Foreign currency forward contracts not designated as hedges	Other assets	20		—
Total Derivative Assets		$	22,570	$	98
Derivative Liabilities:
Foreign currency forward contracts designated as cash flow hedges	Accrued expenses and other current liabilities	$	983	$	18,355
Foreign currency forward contracts designated as cash flow hedges	Other liabilities	706		11,650
Foreign currency forward contracts not designated as hedges	Accrued expenses and other current liabilities	1,446		2,805
Foreign currency forward contracts not designated as hedges	Other liabilities	—		102
Total Derivative Liabilities		$	3,135	$	32,912

Gains (losses) associated with foreign currency forward contracts designated as cash flow hedges were as follows (in thousands):



	Consolidated Statements of Operations and Statements of Comprehensive Loss Locations	Year Ended January 31,
		2019			2018			2017
Gains (losses) recognized in OCI (effective portion) ⁽¹⁾	Net change in market value of effective foreign currency forward exchange contracts	$	44,079		$	(45,869	)	$	2,145
Gains (losses) reclassified from OCI into income (effective portion)	Revenues	(7,012		)	1,509			635
Gains (losses) recognized in income (amount excluded from effectiveness testing and ineffective portion)	Other income (expense), net	13,868			1,607			1,386


⁽¹⁾	Of the total effective portion of foreign currency forward contracts designated as cash flow hedges as of January 31, 2019, net gains of $2 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):



	Consolidated Statements of Operations Location	Year Ended January 31,
Derivative Type	Consolidated Statements of Operations Location	2019		2018			2017
Foreign currency forward contracts not designated as hedges	Other income (expense), net	$	4,706	$	(5,641	)	$	662

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 on the consolidated balance sheets. Our foreign currency forward contracts are not subject to any credit contingent features or collateral requirements. We manage our exposure to counterparty risk by entering into contracts with a diversified group of major financial institutions and by actively monitoring outstanding positions.

As of January 31, 2019, information related to these offsetting arrangements was as follows (in thousands):



	Gross Amounts of Recognized Assets		Gross Amounts Offset on the Consolidated Balance Sheets		Net Amounts of Assets Presented on the Consolidated Balance Sheets		Gross Amounts Not Offset on the Consolidated Balance Sheets					Net Assets Exposed
	Gross Amounts of Recognized Assets		Gross Amounts Offset on the Consolidated Balance Sheets				Financial Instruments			Cash Collateral Received		Net Assets Exposed
Derivative Assets:
Counterparty A	$	2,305	$	—	$	2,305	$	(78	)	$	—	$	2,227
Counterparty B	18,053		—		18,053		(1,823		)	—		16,230
Counterparty C	2,212		—		2,212		(1,234		)	—		978
Total	$	22,570	$	—	$	22,570	$	(3,135	)	$	—	$	19,435



	Gross Amounts of Recognized Liabilities		Gross Amounts Offset on the Consolidated Balance Sheets		Net Amounts of Liabilities Presented on the Consolidated Balance Sheets		Gross Amounts Not Offset on the Consolidated Balance Sheets					Net Liabilities Exposed
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset on the Consolidated Balance Sheets				Financial Instruments			Cash Collateral Pledged		Net Liabilities Exposed
Derivative Liabilities:
Counterparty A	$	78	$	—	$	78	$	(78	)	$	—	$	—
Counterparty B	1,823		—		1,823		(1,823		)	—		—
Counterparty C	1,234		—		1,234		(1,234		)	—		—
Total	$	3,135	$	—	$	3,135	$	(3,135	)	$	—	$	—