Derivative Instruments

6 Months Ended

Jul. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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.

Foreign Currency Forward Contracts Designated as 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 since the accounting criteria for such designation have been met.

Foreign currency forward contracts designated as cash flow hedges are recorded on the condensed consolidated balance sheets at fair value. Gains or losses resulting from changes in the fair value of these hedges are recorded in Accumulated other comprehensive income (loss) (“AOCI”) on the condensed consolidated balance sheets and will be subsequently reclassified to the related revenue line item on the condensed consolidated statements of operations in the same period that the underlying revenues are earned. Prior to the adoption of ASU No. 2017-12, the changes in value of these contracts resulting from changes in forward points were excluded from the assessment of hedge effectiveness and were recorded as incurred in Other income (expense), net on the condensed consolidated statements of operations. Upon adoption of ASU No. 2017-12, we elected to prospectively include changes in the value of these contracts resulting from changes in forward points in the assessment of hedge effectiveness. These changes are recorded in AOCI on the condensed consolidated balance sheets and will be subsequently reclassified to the related revenue line item on the condensed consolidated statements of operations in the same period that the underlying revenues are earned. Cash flows from such forward contracts are classified as operating activities.

As of July 31, 2019, and January 31, 2019, we had outstanding foreign currency forward contracts designated as cash flow hedges with total notional values of $822 million and $717 million, respectively. All contracts have maturities not greater than 49 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 intended to offset the foreign currency gains or losses associated with the underlying monetary assets and liabilities and are recorded on the condensed consolidated balance sheet at fair value. The 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 condensed consolidated statements of operations. Cash flows from such forward contracts are classified as operating activities.

As of July 31, 2019, and January 31, 2019, we had outstanding forward contracts not designated as hedges with total notional values of $127 million and $198 million, respectively.

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



	Condensed Consolidated Balance Sheets Location	July 31, 2019		January 31, 2019
Derivative assets:
Foreign currency forward contracts designated as cash flow hedges	Prepaid expenses and other current assets	$	28,469	$	12,076
Foreign currency forward contracts designated as cash flow hedges	Other assets	21,656		10,015
Foreign currency forward contracts not designated as hedges	Prepaid expenses and other current assets	2,823		459
Foreign currency forward contracts not designated as hedges	Other assets	187		20
Total derivative assets		$	53,135	$	22,570
Derivative liabilities:
Foreign currency forward contracts designated as cash flow hedges	Accrued expenses and other current liabilities	$	85	$	983
Foreign currency forward contracts designated as cash flow hedges	Other liabilities	80		706
Foreign currency forward contracts not designated as hedges	Accrued expenses and other current liabilities	276		1,446
Foreign currency forward contracts not designated as hedges	Other liabilities	77		—
Total derivative liabilities		$	518	$	3,135

The effect of foreign currency forward contracts designated as cash flow hedges on the condensed consolidated statements of operations was as follows (in thousands):



	Condensed Consolidated Statements of Operations Location	Three Months Ended July 31, 2019		Six Months Ended July 31, 2019
Total revenues	Revenues	$	887,752	$	1,712,807
Amount of gains (losses) related to foreign currency forward contracts designated as cash flow hedges	Revenues	896		912

Pre-tax gains (losses) associated with foreign currency forward contracts designated as cash flow hedges were as follows (in thousands):



	Condensed Consolidated Statements of Operations and Statements of Comprehensive Loss Locations	Three Months Ended July 31,					Six Months Ended July 31,
		2019		2018			2019		2018
Gains (losses) recognized in OCI ⁽¹⁾	Net change in market value of effective foreign currency forward exchange contracts	$	21,928	$	17,891		$	37,790	$	36,165
Gains (losses) reclassified from AOCI into income	Revenues	896		(1,960		)	912		(3,077		)
Gains (losses) recognized in income (amount excluded from effectiveness testing and ineffective portion)	Other income (expense), net	—		4,027			—		6,258


⁽¹⁾	Of the total value accumulated in OCI from foreign currency forward contracts designated as cash flow hedges as of July 31, 2019, net gains of $14 million are expected to be reclassified out of AOCI 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 Statements of Operations Location	Three Months Ended July 31,				Six Months Ended July 31,
Derivative Type	Condensed Consolidated Statements of Operations Location	2019		2018		2019		2018
Foreign currency forward contracts not designated as hedges	Other income (expense), net	$	2,229	$	1,884	$	4,627	$	3,678

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 condensed 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 July 31, 2019, information related to these offsetting arrangements was as follows (in thousands):



	Gross Amounts of Recognized Assets		Gross Amounts Offset on the Condensed Consolidated Balance Sheets		Net Amounts of Assets Presented on the Condensed Consolidated Balance Sheets		Gross Amounts Not Offset on the Condensed Consolidated Balance Sheets					Net Assets Exposed
	Gross Amounts of Recognized Assets						Financial Instruments			Cash Collateral Received		Net Assets Exposed
Derivative assets:
Counterparty A	$	4,101	$	—	$	4,101	$	—		$	—	$	4,101
Counterparty B	44,336		—		44,336		(102		)	—		44,234
Counterparty C	4,698		—		4,698		(416		)	—		4,282
Total	$	53,135	$	—	$	53,135	$	(518	)	$	—	$	52,617



	Gross Amounts of Recognized Liabilities		Gross Amounts Offset on the Condensed Consolidated Balance Sheets		Net Amounts of Liabilities Presented on the Condensed Consolidated Balance Sheets		Gross Amounts Not Offset on the Condensed Consolidated Balance Sheets					Net Liabilities Exposed
	Gross Amounts of Recognized Liabilities						Financial Instruments			Cash Collateral Pledged		Net Liabilities Exposed
Derivative liabilities:
Counterparty A	$	—	$	—	$	—	$	—		$	—	$	—
Counterparty B	102		—		102		(102		)	—		—
Counterparty C	416		—		416		(416		)	—		—
Total	$	518	$	—	$	518	$	(518	)	$	—	$	—