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ADOBE INC. - Annual Report: 2023 (Form 10-K)

(dollars in millions)202320222021% Change
2023-2022Subscription$18,284 $16,388 $14,573 12 %Percentage of total revenue94 %93 %92 % Product460 532 555 (14)%Percentage of total revenue2 %3 %4 % Services and other665 686 657 (3)%Percentage of total revenue4 %4 %4 % Total revenue$19,409 $17,606 $15,785 10 %
Subscription
Our subscription revenue is comprised primarily of fees we charge for our subscription and hosted service offerings, and related support, including Creative Cloud and certain of our Adobe Experience Cloud and Document Cloud services. We primarily recognize subscription revenue ratably over the term of agreements with our customers, beginning with commencement of service. Subscription revenue related to certain offerings, where fees are based on a number of transactions and invoicing is aligned to the pattern of performance, customer benefit and consumption, are recognized on a usage basis.
We have the following reportable segments: Digital Media, Digital Experience, and Publishing and Advertising. Subscription revenue by reportable segment for fiscal 2023, 2022 and 2021 is as follows:
(dollars in millions)202320222021% Change
2023-2022
Digital Media$13,838 $12,385 $11,048 12 %
Digital Experience4,331 3,880 3,379 12 %
Publishing and Advertising115 123 146 (7)%
Total subscription revenue$18,284 $16,388 $14,573 12 %
Product
Our product revenue is comprised primarily of fees related to licenses for on-premise software purchased on a perpetual basis, for a fixed period of time or based on usage for certain of our original equipment manufacturer and royalty agreements. We primarily recognize product revenue at the point in time the software is available to the customer, provided all other revenue recognition criteria are met.
Services and Other
Our services and other revenue is comprised primarily of fees related to consulting, training, maintenance and support for certain on-premise licenses that are recognized at a point in time and our advertising offerings. We typically sell our consulting contracts on a time-and-materials or fixed-fee basis. These revenues are recognized as the services are performed for time-and-materials contracts and on a relative performance basis for fixed-fee contracts. Training revenues are recognized as the services are performed. Our maintenance and support offerings, which entitle customers, partners and developers to receive desktop product upgrades and enhancements or technical support, depending on the offering, are generally recognized ratably over the term of the arrangement. Transaction-based advertising revenue is recognized on a usage basis as we satisfy the performance obligations to our customers.
Segments
In fiscal 2023, we categorized our products into the following reportable segments:
•Digital Media—Our Digital Media segment provides products and services that enable individuals, teams, businesses, and enterprises to create, publish and promote their content anywhere and accelerate their productivity by transforming how they view, share, engage with and collaborate on documents and creative content. Our customers include creative professionals, including photographers, video editors, graphic and experience designers
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and game developers; communicators, including content creators, students, marketers and knowledge workers; and consumers.
•Digital Experience—Our Digital Experience segment provides an integrated platform and set of products, services and solutions that enable businesses to create, manage, execute, measure, monetize and optimize customer experiences that span from analytics to commerce. Our customers include marketers, advertisers, agencies, publishers, merchandisers, merchants, web analysts, data scientists, developers and executives across the C-suite.
•Publishing and Advertising—Our Publishing and Advertising segment contains legacy products and services that address diverse market opportunities, including eLearning solutions, technical document publishing, web conferencing, document and forms platform, web app development, high-end printing and our Adobe Advertising offerings.
Segment Information
(dollars in millions)202320222021% Change
2023-2022
Digital Media$14,216 $12,842 $11,520 11 %
Percentage of total revenue73 %73 %73 % 
Digital Experience4,893 4,422 3,867 11 %
Percentage of total revenue25 %25 %24 % 
Publishing and Advertising300 342 398 (12)%
Percentage of total revenue2 %2 %3 % 
Total revenue$19,409 $17,606 $15,785 10 %
Digital Media
Revenue by major offerings in our Digital Media reportable segment for fiscal 2023, 2022 and 2021 were as follows:
(dollars in millions)202320222021% Change
2023-2022
Creative Cloud$11,517 $10,459 $9,546 10 %
Document Cloud2,699 2,383 1,974 13 %
Total Digital Media revenue$14,216 $12,842 $11,520 11 %
Revenue from Digital Media increased $1.37 billion during fiscal 2023 as compared to fiscal 2022, driven by increases in revenue associated with our Creative and Document Cloud subscription offerings due to continued demand amid an increasingly digital environment, strong engagement across customer segments and migrating our customers to higher valued subscription offerings with increased revenue per subscription, partially offset by the impact of foreign currency exchange rate fluctuations.
Digital Experience
Revenue from Digital Experience increased $471 million during fiscal 2023 as compared to fiscal 2022 primarily due to net new additions across our subscription offerings, partially offset by the impact of foreign currency exchange rate fluctuations.
Geographical Information
(dollars in millions)202320222021% Change
2023-2022
Americas$11,654 $10,251 $8,996 14 %
Percentage of total revenue60 %58 %57 % 
EMEA4,881 4,593 4,252 6 %
Percentage of total revenue25 %26 %27 % 
APAC2,874 2,762 2,537 4 %
Percentage of total revenue15 %16 %16 % 
Total revenue$19,409 $17,606 $15,785 10 %
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Overall revenue during fiscal 2023 increased in all geographic regions as compared to fiscal 2022. Within each geographic region, the fluctuations in revenue by reportable segment were attributable to the factors noted in the segment information above.
Included in the overall change in revenue for fiscal 2023 as compared to fiscal 2022 were impacts associated with foreign currency which were mitigated in part by our foreign currency hedging program. During fiscal 2023, the U.S. Dollar primarily strengthened against EMEA and APAC foreign currencies as compared to fiscal 2022, which decreased revenue in U.S. Dollar equivalents by approximately $371 million. During fiscal 2023, the foreign currency impacts to revenue were offset in part by net hedging gains from our cash flow hedging program of $41 million.
See Note 2 of our Notes to Consolidated Financial Statements for additional details of revenue by geography.
Cost of Revenue
(dollars in millions)202320222021% Change
2023-2022
Subscription$1,822 $1,646 $1,374 11 %
Percentage of total revenue9 %9 %9 % 
Product29 35 41 (17)%
Percentage of total revenue*** 
Services and other503 484 450 4 %
Percentage of total revenue3 %3 %3 % 
Total cost of revenue$2,354 $2,165 $1,865 9 %
_________________________________________
(*)    Percentage is less than 1%.
Subscription
Cost of subscription revenue consists of third-party hosting services and data center costs, including expenses related to operating our network infrastructure. Cost of subscription revenue also includes compensation costs associated with network operations, implementation, account management and technical support personnel, royalty fees, software costs and amortization of certain intangible assets.
Cost of subscription revenue increased due to the following:
 Components of
% Change
2023-2022
Hosting services and data center costs7 %
Loss contingency
3 
Royalty costs2 
Amortization of intangibles(1)
Total change11 %
Cost of subscription revenue during fiscal 2023 included a loss contingency associated with an IP litigation matter.
Product    
Cost of product revenue is primarily comprised of third-party royalties, localization costs and costs associated with the manufacturing of our products.
Services and Other
Cost of services and other revenue is primarily comprised of compensation and contracted costs incurred to provide consulting services, training and product support, and hosting services and data center costs.
Cost of services and other revenue increased during fiscal 2023 as compared to fiscal 2022 primarily due to increases in compensation costs partially offset by decreases in professional and consulting fees.
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Operating Expenses
(dollars in millions)
202320222021% Change
2023-2022
Research and development$3,473 $2,987 $2,540 16 %
Percentage of total revenue18 %17 %16 % 
Sales and marketing5,351 4,968 4,321 8 %
Percentage of total revenue28 %28 %27 % 
General and administrative1,413 1,219 1,085 16 %
Percentage of total revenue7 %7 %7 % 
Amortization of intangibles168 169 172 (1)%
Percentage of total revenue1 %1 %1 % 
Total operating expenses$10,405 $9,343 $8,118 11 %
Research and Development
Research and development expenses consist primarily of compensation and contracted costs associated with software development, third-party hosting services and data center costs, related facilities costs and expenses associated with computer equipment and software used in development activities.
Research and development expenses increased due to the following:
 Components of
% Change
2023-2022
Incentive compensation, cash and stock-based6 %
Base compensation and related benefits6 
Hosting services and data center costs
2 
Various individually insignificant items2 
Total change16 %
Investments in research and development, including the recruiting and hiring of software developers, are critical to remain competitive in the marketplace and are directly related to continued timely development of new and enhanced offerings and solutions. We will continue to focus on long-term opportunities available in our end markets and make significant investments in the development of our subscription and service offerings, apps and tools.
Sales and Marketing
Sales and marketing expenses consist primarily of compensation costs, amortization of contract acquisition costs, including sales commissions, travel expenses and related facilities costs for our sales, marketing, order management and global supply chain management personnel. Sales and marketing expenses also include the costs of programs aimed at increasing revenue, such as advertising, trade shows and events, public relations and other market development programs.
Sales and marketing expenses increased due to the following:
 Components of
% Change
2023-2022
Base compensation and related benefits3 %
Incentive compensation, cash and stock-based3 
Various individually insignificant items2 
Total change8 %
General and Administrative
General and administrative expenses consist primarily of compensation and contracted costs, travel expenses and related facilities costs for our finance, facilities, human resources, legal, information services and executive personnel. General and administrative expenses also include outside legal and accounting fees, provision for bad debts, expenses associated with computer equipment and software used in the administration of the business, charitable contributions and various forms of insurance.
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General and administrative expenses increased due to the following:
 Components of
% Change
2023-2022
Professional and consulting fees9 %
Base compensation and related benefits5 
Incentive compensation, cash and stock-based3 
Various individually insignificant items(1)
Total change16 %
Professional and consulting fees increased from fiscal 2023 as compared to fiscal 2022 primarily due to transaction costs associated with our intended acquisition of Figma.
Non-Operating Income (Expense), Net
(dollars in millions)
202320222021% Change
2023-2022
Interest expense$(113)$(112)$(113)1 %
Percentage of total revenue(1)%(1)%(1)%
Investment gains (losses), net16 (19)16 **
Percentage of total revenue*** 
Other income (expense), net246 41 — **
Percentage of total revenue1 %**
Total non-operating income (expense), net$149 $(90)$(97)**
_________________________________________
(*)    Percentage is less than 1%.
(**)    Percentage is not meaningful.

Interest Expense
Interest expense represents interest associated with our debt instruments. Interest on our senior notes is payable semi-annually, in arrears, on February 1 and August 1.
Investment Gains (Losses), Net
Investment gains (losses), net consists principally of unrealized holding gains and losses associated with our deferred compensation plan assets.
Other Income (Expense), Net 
Other income (expense), net consists primarily of interest earned on cash, cash equivalents and short-term fixed income investments. Other income (expense), net also includes realized gains and losses on fixed income investments and foreign exchange gains and losses.
Other income (expense), increased during fiscal 2023 as compared to fiscal 2022 primarily due to increases in interest income driven by higher average interest rates and cash equivalent balances.
Provision for Income Taxes
(dollars in millions)
202320222021% Change
2023-2022
Provision for income taxes
$1,371 $1,252 $883 10 %
Percentage of total revenue7 %7 %6 % 
Effective tax rate20 %21 %15 % 
Our effective tax rate decreased by approximately one percentage point during fiscal 2023 as compared to fiscal 2022, primarily due to an increase in the net tax benefit from effects of non-U.S. operations in fiscal 2023.
Our effective tax rate for fiscal 2023 was lower than the U.S. federal statutory tax rate of 21% primarily due to the tax benefits from the U.S. federal research tax credit and non-U.S. operations, partially offset by state taxes.
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We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized based on evaluation of all available positive and negative evidence. On the basis of this evaluation, we continue to maintain a valuation allowance to reduce our deferred tax assets to the amount realizable. The total valuation allowance was $405 million as of December 1, 2023, primarily related to certain state credits.
We are a U.S.-based multinational company subject to tax in multiple domestic and foreign tax jurisdictions. The current U.S. tax law subjects the earnings of certain foreign subsidiaries to U.S. tax and generally allows an exemption from taxation for distributions from foreign subsidiaries.
In the current global tax policy environment, the domestic and foreign governing bodies continue to consider, and in some cases introduce, changes in regulations applicable to corporate multinationals such as Adobe. As regulations are issued, we account for finalized regulations in the period of enactment.
Beginning in 2023, under the provisions introduced by the U.S. Tax Act, we are required to capitalize and amortize research and development costs. If the rule is not modified, there will continue to be an adverse impact on our effective rates for income taxes paid, which is partially offset by a benefit to our effective tax rates from the increase in the foreign-derived intangible income deduction.
See Note 10 of our Notes to Consolidated Financial Statements for further information regarding our provision for income taxes.
Accounting for Uncertainty in Income Taxes
The gross liabilities for unrecognized tax benefits excluding interest and penalties were $501 million, $321 million and $289 million at the end of fiscal 2023, 2022 and 2021, respectively. If the total unrecognized tax benefits as of December 1, 2023, December 2, 2022 and December 3, 2021 were recognized, $356 million, $203 million and $199 million would decrease the respective effective tax rates.
As of December 1, 2023 and December 2, 2022, the combined amounts of accrued interest and penalties included in long-term income taxes payable related to tax positions taken on our tax returns were not material.
The timing of the resolution of income tax examinations is highly uncertain as are the amounts and timing of tax payments that are part of any audit settlement process. These events could cause large fluctuations in the balance sheet classification of our tax assets and liabilities. We believe that within the next 12 months, it is reasonably possible that either certain audits will conclude or statutes of limitations on certain income tax examination periods will expire, or both. Although the timing of resolution, settlement and closing of audits is not certain, it is reasonably possible that the underlying unrecognized tax benefits may decrease by up to $60 million over the next 12 months.
Our future effective tax rates may be materially affected by changes in the tax rates in jurisdictions where our income is earned, changes in jurisdictions in which our profits are determined to be earned and taxed, changes in the valuation of our deferred tax assets and liabilities, changes in or interpretation of tax rules and regulations in the jurisdictions in which we do business, or unexpected changes in business and market conditions that could reduce certain tax benefits.
In addition, tax laws in the United States as well as other countries and jurisdictions in which we conduct business are subject to change as new laws are passed and/or new interpretations are made available. These countries, governmental bodies, such as the European Commission of the European Union, and intergovernmental economic organizations, such as the Organization for Economic Cooperation and Development, have made or could make unprecedented assertions about how taxation is determined and, in some cases, have proposed or enacted new laws that are contrary to the way in which rules and regulations have historically been interpreted and applied. Changes in our operating landscape, such as changes in laws and/or interpretations of tax rules, could adversely affect our effective tax rates and/or cause us to respond by making changes to our business structure which could adversely affect our operations and financial results.
Moreover, we are subject to the examination of our income tax returns by domestic and foreign tax authorities. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from these examinations. Our policy is to record interest and penalties related to unrecognized tax benefits in income tax expense. While we believe our tax estimates are reasonable, we cannot provide assurance that the final determination of any of these examinations will not have an adverse effect on our financial position and results of operations.
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LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Our primary source of cash is receipts from revenue. Our primary uses of cash are general business expenses including payroll, income taxes, marketing and third-party hosting services, as well as our stock repurchase program as described below. Other customary sources of cash include proceeds from the maturities and sales of short-term investments. Other customary uses of cash include business acquisitions, repayment of maturing senior notes, purchases of property and equipment and payments for taxes related to net share settlement of equity awards.
This data should be read in conjunction with our Consolidated Statements of Cash Flows.
As of
(in millions)December 1, 2023December 2, 2022
Cash and cash equivalents$7,141 $4,236 
Short-term investments$701 $1,860 
Working capital$2,833 $868 
Stockholders’ equity$16,518 $14,051 
A summary of our cash flows for fiscal 2023, 2022 and 2021 is as follows:
(in millions)202320222021
Net cash provided by operating activities$7,302 $7,838 $7,230 
Net cash provided by (used for) investing activities
776 (570)(3,537)
Net cash used for financing activities(5,182)(6,825)(4,301)
Effect of foreign currency exchange rates on cash and cash equivalents9 (51)(26)
Net change in cash and cash equivalents$2,905 $392 $(634)
Cash Flows from Operating Activities
For fiscal 2023, net cash provided by operating activities of $7.30 billion was primarily comprised of net income adjusted for the net effect of non-cash items. Beginning in 2023, under the provisions introduced by the U.S. Tax Act, we are required to capitalize and amortize research and development costs. This had an adverse impact on our effective rate for income taxes paid and, consequently, on our cash flows from operations. In addition, the primary working capital uses of cash were increases in prepaid expenses attributable to the timing of billings. These impacts were partially offset by working capital sources of cash driven by increases in deferred revenue from our Digital Media and Digital Experience offerings.
Cash Flows from Investing Activities
For fiscal 2023, net cash provided by investing activities of $776 million was primarily due to maturities and sales of short-term investments partially offset by ongoing capital expenditures.
Cash Flows from Financing Activities
For fiscal 2023, net cash used for financing activities of $5.18 billion was primarily due to payments for our common stock repurchases, taxes paid related to the net share settlement of equity awards and the repayment of our 2023 Notes. These uses of cash were offset in part by proceeds from re-issuance of treasury stock mainly for our employee stock purchase plan. See the section titled “Stock Repurchase Program” below.
Liquidity and Capital Resources Considerations
Our existing cash, cash equivalents and investment balances may fluctuate during fiscal 2024 due to changes in our planned cash outlay.
Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, risks detailed in the section titled “Risk Factors” in Part I, Item 1A of this report. Based on our current business plan and revenue prospects, we believe that our existing cash, cash equivalents and investment balances, our anticipated cash flows from operations and our available credit facility will be sufficient to meet our working capital, operating resource expenditure and capital expenditure requirements for the next twelve months and for the foreseeable future.
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Our cash equivalent and short-term investment portfolio as of December 1, 2023 consisted of asset-backed securities, corporate debt securities, money market funds, time deposits, U.S. agency securities and U.S. Treasury securities. We use professional investment management firms to manage a large portion of our invested cash.
We expect to continue our investing activities, including short-term and long-term investments, purchases of computer and server hardware to operate our network infrastructure, sales and marketing, product support and administrative staff, and facilities expansion. Furthermore, cash reserves may be used to repurchase stock under our stock repurchase program and to strategically acquire companies, products or technologies that are complementary to our business.
On September 15, 2022, we entered into a definitive merger agreement under which we intended to acquire Figma, Inc. (“Figma”) for approximately $20 billion, comprised of approximately half cash and half stock. On December 17, 2023, we entered into a mutual termination agreement with Figma to terminate the proposed merger. In accordance with the terms of the termination agreement, on December 20, 2023, we paid Figma a termination fee of $1 billion using cash on hand.
Term Loan Credit Agreement
In January 2023, we entered into a delayed draw credit agreement, providing for a senior unsecured term loan (the “Term Loan”) of up to $3.5 billion for the purpose of partially funding the purchase price and related fees for our acquisition of Figma. As of December 1, 2023, there were no outstanding borrowings under the Term Loan. Subsequent to December 1, 2023, following execution of the mutual termination agreement with Figma discussed above, the delayed draw term loan agreement was terminated.
Revolving Credit Agreement
We have a $1.5 billion senior unsecured revolving credit agreement (the “Revolving Credit Agreement”) with a syndicate of lenders, providing for loans to us and certain of our subsidiaries through June 30, 2027. Subject to the agreement of lenders, we may obtain up to an additional $500 million in commitments, for a maximum aggregate commitment of $2 billion. As of December 1, 2023, there were no outstanding borrowings under the Revolving Credit Agreement and the entire $1.5 billion credit line remains available for borrowing. Under the terms of our Revolving Credit Agreement, we are not prohibited from paying cash dividends unless payment would trigger an event of default or if one currently exists. We do not anticipate paying any cash dividends in the foreseeable future.
Commercial Paper Program
In September 2023, we established a commercial paper program under which we may issue unsecured commercial paper up to a total of $3 billion outstanding at any time, with maturities of up to 397 days from the date of issue. The net proceeds from the issuance of commercial paper are expected to be used for general corporate purposes, which may include working capital, capital expenditures, acquisitions, stock repurchases, refinancing indebtedness or any other general corporate purposes. As of December 1, 2023, there were no outstanding borrowings under the commercial paper program.
Senior Notes
We have $3.65 billion senior notes outstanding, which rank equally with our other unsecured and unsubordinated indebtedness. As of December 1, 2023, the carrying value of our senior notes was $3.63 billion and our maximum commitment for interest payments was $321 million for the remaining duration of our outstanding senior notes. Interest is payable semi-annually, in arrears on February 1 and August 1. Our senior notes do not contain any financial covenants. See Note 17 of our Notes to Consolidated Financial Statements for further details regarding our debt.
Contractual Obligations
Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business. As of December 1, 2023, the value of our non-cancellable unconditional purchase obligations was $4.93 billion, primarily relating to contracts with vendors for third-party hosting and data center services. Subsequent to December 1, 2023, we executed agreements associated with certain of our long-term supplier commitments that increased our minimum purchase obligations by $2.3 billion through December 2028. See Note 16 of our Notes to Consolidated Financial Statements for additional information regarding our purchase obligations.
We lease certain facilities and data centers under non-cancellable operating lease arrangements that expire at various dates through 2032. As of December 1, 2023, the value of our obligations under operating leases was $484 million. See Note 18 of our Notes to Consolidated Financial Statements for additional information regarding our lease obligations.
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Other
Beginning in 2023, under the provisions introduced by the U.S. Tax Act, we are required to capitalize and amortize research and development costs. If the rule is not modified, there will continue to be an adverse impact to our effective rates for income taxes paid, which is partially offset by a benefit from the increase in the foreign-derived intangible income deduction.
Stock Repurchase Program
To facilitate our stock repurchase program, designed to return value to our stockholders and minimize dilution from stock issuances, we may repurchase our shares in the open market or enter into structured repurchase agreements with third parties. In December 2020, our Board of Directors granted authority to repurchase up to $15 billion in our common stock through the end of fiscal 2024.
During fiscal 2023, we repurchased a total of 11.5 million shares, including approximately 7.5 million shares at an average price of $429.65 through structured repurchase agreements, as well as 4.0 million shares at an average purchase price of $348.46 through an accelerated share repurchase agreement.
During the fourth quarter of fiscal 2023, we entered into a structured stock repurchase agreement with a large financial institution whereupon we provided them with a prepayment of $1 billion. As of December 1, 2023, $354 million of prepayment remained under our outstanding structured stock repurchase agreement.
Subsequent to December 1, 2023, as part of the December 2020 stock repurchase authority, we entered into an accelerated share repurchase agreement with a large financial institution whereupon we provided them with a prepayment of $2 billion and received an initial delivery of 2.5 million shares, which represents approximately 75% of our prepayment. Upon completion of the $2 billion accelerated share repurchase agreement, $150 million remains under our December 2020 authority.
See section titled “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in Part II, Item 5 of this report for stock repurchases during the quarter ended December 1, 2023 and Note 14 of our Notes to Consolidated Financial Statements for further details regarding our stock repurchase program.
Indemnifications
In the ordinary course of business, we provide indemnifications of varying scope to customers and channel partners against claims of intellectual property infringement made by third parties arising from the use of our products and from time to time, we are subject to claims by our customers under these indemnification provisions. Historically, costs related to these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.
To the extent permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid.
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ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All market risk sensitive instruments were entered into for non-trading purposes.
Foreign Currency Risk
Foreign Currency Exposures and Hedging Instruments
In countries outside the United States, we transact business in U.S. Dollars and various other currencies, which subject us to exposure from movements in exchange rates. We may use foreign exchange option contracts and forward contracts to hedge a portion of our forecasted foreign currency denominated revenue and expenses. Additionally, we hedge our net recognized foreign currency monetary assets and liabilities with foreign exchange forward contracts to reduce the risk that our earnings and cash flows will be adversely affected by changes in exchange rates.
Our significant foreign currency revenue exposures for fiscal 2023, 2022 and 2021 were as follows:
(in millions)202320222021
Euro€2,842 €2,487 €2,209 
Japanese Yen¥129,127 ¥118,456 ¥104,829 
British Pounds£818 £737 £669 
Australian Dollars$973 $876 $768 
As of December 1, 2023, the total notional amounts of all outstanding foreign exchange contracts, including options and forwards, were $3.83 billion, which included the notional equivalent of $1.52 billion in Euros, $773 million in Indian Rupees, $634 million in British Pounds, $409 million in Japanese Yen, $350 million in Australian Dollars and $135 million in other foreign currencies. As of December 1, 2023, all contracts were set to expire at various dates through November 2024. The bank counterparties in these contracts could expose us to credit-related losses that would be largely mitigated with master netting arrangements with the same counterparty by permitting net settlement transactions. In addition, we enter into collateral security agreements that provide for collateral to be received or posted when the net fair value of these contracts fluctuates from contractually established thresholds.
A sensitivity analysis was performed on all of our foreign exchange derivatives as of December 1, 2023. This sensitivity analysis measures the hypothetical market value resulting from a 10% shift in the value of exchange rates relative to the U.S. Dollar. For option contracts, the Black-Scholes option pricing model was used. A 10% increase in the value of the U.S. Dollar and a corresponding decrease in the value of the hedged foreign currency asset would lead to an increase in the fair value of our financial hedging instruments by $142 million. A 10% decrease in the value of the U.S. Dollar would lead to a decrease in the fair value of these financial instruments by $1 million.
As a general rule, we do not use foreign exchange contracts to hedge local currency denominated operating expenses in countries where a natural hedge exists. For example, in many countries, revenue in the local currencies substantially offsets the local currency denominated operating expenses. We also have long-term investment exposures consisting of the capitalization and retained earnings in our non-U.S. Dollar functional currency foreign subsidiaries. As of December 1, 2023 and December 2, 2022, this long-term investment exposure totaled an absolute notional equivalent of $1.03 billion and $770 million, respectively. At this time, we do not hedge these long-term investment exposures.
We do not use foreign exchange contracts for speculative trading purposes, nor do we hedge our foreign currency exposure in a manner that entirely offsets the effects of changes in foreign exchange rates. We regularly review our hedging program and assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis.
Cash Flow Hedges of Forecasted Foreign Currency Revenue and Expenses
We may use foreign exchange purchased options or forward contracts to hedge foreign currency revenue denominated in Euros, British Pounds, Japanese Yen and Australian Dollars, or foreign currency expenses in Indian Rupees. We hedge these cash flow exposures to reduce the risk that our earnings and cash flows will be adversely affected by changes in exchange rates. These foreign exchange contracts, carried at fair value, have maturities of up to twelve months. We enter into these foreign exchange contracts to hedge forecasted revenue and expenses in the normal course of business and accordingly, they are not speculative in nature.
We record changes in fair value of these cash flow hedges of foreign currency denominated revenue and expenses in accumulated other comprehensive income (loss) in our Consolidated Balance Sheets, until the forecasted transaction occurs. When the forecasted transaction affects earnings, we reclassify the related gain or loss on the cash flow hedge to revenue or
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operating expenses, as applicable. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, we reclassify the gain or loss on the related cash flow hedge from accumulated other comprehensive income (loss) to revenue or operating expenses, as applicable. For the fiscal year ended December 1, 2023, there were no net gains or losses recognized in revenue or operating expenses relating to hedges of forecasted transactions that did not occur.
Non-Designated Hedges of Foreign Currency Assets and Liabilities
Our derivatives not designated as hedging instruments consist of foreign currency forward contracts that we primarily use to hedge monetary assets and liabilities denominated in non-functional currencies to reduce the risk that our earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These foreign exchange contracts are carried at fair value with changes in fair value of these contracts recorded to other income (expense), net in our Consolidated Statements of Income. These contracts reduce the impact of currency exchange rate movements on our assets and liabilities. At December 1, 2023, the outstanding balance sheet hedging derivatives had maturities of 180 days or less.
See Note 6 of our Notes to Consolidated Financial Statements for information regarding our derivative financial instruments.
Interest Rate Risk
Short-Term Investments and Fixed Income Securities
At December 1, 2023, we had debt securities classified as short-term investments of $701 million. Changes in interest rates could adversely affect the market value of these investments. A sensitivity analysis was performed on our short-term investment portfolio as of December 1, 2023, based on an estimate of the hypothetical changes in market value of the portfolio that would result from an immediate parallel shift in the yield curve. A 150 basis point increase in interest rates would lead to a $6 million decrease in the market value of our short-term investments. Conversely, a 150 basis point decrease in interest rates would lead to a $6 million increase in the market value of our short-term investments.
Senior Notes
As of December 1, 2023, we had $3.65 billion of senior notes outstanding which bear interest at fixed rates, and therefore do not subject us to financial statement risk associated with changes in interest rates. As of December 1, 2023, the total carrying amount of our senior notes was $3.63 billion and the related fair value based on observable market prices in less active markets was $3.39 billion.
See Note 17 of our Notes to Consolidated Financial Statements for information regarding our senior notes.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Page No.
52
53
54
55
56
57
90
All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements and Notes thereto.
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ADOBE INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except par value)
 December 1,
2023		December 2,
2022
ASSETS
Current assets:  
Cash and cash equivalents$ $ 
Short-term investments  
Trade receivables, net of allowances for doubtful accounts of $ and of $, respectively
  
Prepaid expenses and other current assets  
Total current assets  
Property and equipment, net  
Operating lease right-of-use assets, net  
Goodwill  
Other intangibles, net  
Deferred income taxes  
Other assets  
Total assets$ $ 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:  
Trade payables$ $ 
Accrued expenses  
Debt  
Deferred revenue  
Income taxes payable  
Operating lease liabilities  
Total current liabilities  
Long-term liabilities:
Debt  
Deferred revenue  
Income taxes payable  
Operating lease liabilities  
Other liabilities  
Total liabilities  
Commitments and contingencies
Stockholders’ equity:  
Preferred stock, $ par value; shares authorized;  issued
  
Common stock, $ par value; shares authorized; shares issued; 
   and shares outstanding, respectively
  
Additional paid-in-capital  
Retained earnings  
Accumulated other comprehensive income (loss)()()
Treasury stock, at cost ( and shares, respectively)
()()
Total stockholders’ equity  
Total liabilities and stockholders’ equity$ $ 
See accompanying Notes to Consolidated Financial Statements.
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ADOBE INC.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
 Years Ended
 December 1,
2023		December 2,
2022		December 3,
2021
Revenue: 
Subscription$ $ $ 
Product   
Services and other   
Total revenue   
 
Cost of revenue:
Subscription   
Product   
Services and other   
Total cost of revenue   
 
Gross profit		   
 
Operating expenses:
Research and development   
Sales and marketing   
General and administrative   
Amortization of intangibles   
Total operating expenses   
 
Operating income		   
 
Non-operating income (expense):
Interest expense()()()
Investment gains (losses), net () 
Other income (expense), net   
Total non-operating income (expense), net ()()
Income before income taxes   
Provision for income taxes
   
Net income$ $ $ 
Basic net income per share$ $ $ 
Shares used to compute basic net income per share   
Diluted net income per share$ $ $ 
Shares used to compute diluted net income per share   
See accompanying Notes to Consolidated Financial Statements.

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ADOBE INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
Years Ended
December 1,
2023		December 2,
2022		December 3,
2021
Increase/(Decrease)
Net income$ $ $ 
Other comprehensive income (loss), net of taxes:
Available-for-sale securities:
Unrealized gains / losses on available-for-sale securities ()()
Reclassification adjustment for recognized gains / losses on available-for-sale securities   
Net increase (decrease) from available-for-sale securities ()()
Derivatives designated as hedging instruments:
Unrealized gains / losses on derivative instruments()  
Reclassification adjustment for realized gains / losses on derivative instruments()() 
Net increase (decrease) from derivatives designated as hedging instruments()() 
Foreign currency translation adjustments ()()
Other comprehensive income (loss), net of taxes () 
Total comprehensive income, net of taxes$ $ $ 
See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
 
  Common Stock
Additional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		 Treasury Stock 
 SharesAmountSharesAmountTotal
Balances at November 27, 2020
 $ $ $ $()()$()$ 
Net income— — —  — — —  
Other comprehensive income (loss), net of taxes— — — —  — —  
Re-issuance of treasury stock under stock compensation plans
— — — ()—   ()
Repurchases of common stock— — — — — ()()()
Equity awards assumed for acquisition— —  — — — —  
Stock-based compensation— —  — — — —  
Value of shares in deferred compensation plan— — — — — — ()()
Balances at December 3, 2021
 $ $ $ $()()$()$ 
Net income— — —  — — —  
Other comprehensive income (loss), net of taxes— — — — ()— — ()
Re-issuance of treasury stock under stock compensation plans
— — — ()—   ()
Repurchases of common stock— — — — — ()()()
Stock-based compensation— —  — — — —  
Value of shares in deferred compensation plan— — — — — —   
Balances at December 2, 2022
 $ $ $ $()()$()$ 
Net income— — —  — — —  
Other comprehensive income (loss), net of taxes— — — —  — —  
Re-issuance of treasury stock under stock compensation plans
— — — ()—   ()
Repurchases of common stock— — — — — ()()()
Stock-based compensation— —  — — — —  
Value of shares in deferred compensation plan— — — — — —   
Balances at December 1, 2023
 $ $ $ $()()$()$ 
See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 Years Ended
 December 1,
2023		December 2,
2022		December 3,
2021
Cash flows from operating activities:  
Net income$ $ $ 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion   
Stock-based compensation   
Reduction of operating lease right-of-use assets   
Deferred income taxes()  
Unrealized losses (gains) on investments, net() ()
Other non-cash items   
Changes in operating assets and liabilities, net of acquired assets and
    assumed liabilities:
Trade receivables, net()()()
Prepaid expenses and other assets()()()
Trade payables() ()
Accrued expenses and other liabilities   
Income taxes payable()  
Deferred revenue   
Net cash provided by operating activities   
Cash flows from investing activities:  
Purchases of short-term investments ()()
Maturities of short-term investments   
Proceeds from sales of short-term investments   
Acquisitions, net of cash acquired ()()
Purchases of property and equipment()()()
Purchases of long-term investments, intangibles and other assets()()()
Proceeds from sales of long-term investments and other assets   
Net cash provided by (used for) investing activities
 ()()
Cash flows from financing activities:  
Repurchases of common stock()()()
Proceeds from re-issuance of treasury stock   
Taxes paid related to net share settlement of equity awards()()()
Repayment of debt()  
Other financing activities, net()() 
Net cash used for financing activities()()()
Effect of foreign currency exchange rates on cash and cash equivalents ()()
Net change in cash and cash equivalents  ()
Cash and cash equivalents at beginning of year   
Cash and cash equivalents at end of year$ $ $ 
Supplemental disclosures: 
Cash paid for income taxes, net of refunds$ $ $ 
Cash paid for interest$ $ $ 
See accompanying Notes to Consolidated Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.  
-week year compared with fiscal 2023 and 2022 which were -week years.
Significant Accounting Policies
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to months, for hosted services that are priced based on a committed number of transactions where the delivery and consumption of the benefit of the services occur evenly over time, beginning on the date the services associated with the committed transactions are first made available to the customer and continuing through the end of the contractual service term. Over-usage fees and fees based on the actual number of transactions are billed in accordance with contract terms as these fees are incurred and are included in the transaction price of an arrangement as variable consideration. Fees based on a number of transactions, where invoicing is aligned to the pattern of performance, customer benefit and consumption, are typically accounted for utilizing the “as-invoiced” practical expedient. Revenue for subscriptions sold as a fee per period is recognized ratably over the contractual term as the customer simultaneously receives and consumes the benefit of the underlying service.
When cloud-enabled services are highly integrated and interrelated with on-premise software, such as in our cloud-enabled Creative Cloud and Document Cloud offerings, the individual components are not considered distinct and revenue is recognized ratably over the subscription period for which the cloud-enabled services are provided.
The subscription support plans related to those customer arrangements whose revenues we classify as subscription revenues represent stand-ready performance obligations. Revenue from these subscription support plans is recognized ratably over their respective contractual terms and classified as subscription revenue.
Licenses for on-premise software may be purchased on a perpetual basis, as a subscription for a fixed period of time or based on usage for certain of our original equipment manufacturer (“OEM”) and royalty agreements. Revenue from non-cloud enabled on-premise licenses without unilateral cancellation rights or monthly renewal options is recognized at the point in time the software is available to the customer, provided all other revenue recognition criteria are met, and classified as product revenue on our Consolidated Statements of Income. Revenue from on-premise term license or term licensing arrangements with unilateral cancellation rights or monthly renewal options, and any associated maintenance and support, is classified as subscription revenue.
Our services and other revenue is comprised primarily of fees related to consulting, training, maintenance and support for certain on-premise licenses that are recognized at a point in time and our advertising offerings. We typically sell our consulting contracts on a time-and-materials or fixed-fee basis. These revenues are recognized as the services are performed for time-and-materials contracts and on a relative performance basis for fixed-fee contracts. Training revenues are recognized as the services are performed. Our maintenance and support offerings, which entitle customers, partners and developers to receive desktop product upgrades and enhancements or technical support, depending on the offering, are generally recognized ratably over the term of the arrangement. Our transaction-based advertising offerings, where fees are based on a number of impressions per month and invoicing is aligned to the pattern of performance, customer benefit and consumption, are typically accounted for utilizing the “as-invoiced” practical expedient.
Judgments
Our contracts with customers may include multiple goods and services. For example, some of our offerings include both on-premise and/or on-device software licenses and cloud services. Determining whether the software licenses and the cloud services are distinct from each other, and therefore performance obligations to be accounted for separately, or not distinct from each other, and therefore part of a single performance obligation, may require significant judgment. We have concluded that the on-premise/on-device software licenses and cloud services provided in our Creative Cloud and Document Cloud subscription offerings are not distinct from each other such that revenue from each offering should be recognized ratably over the subscription period for which the cloud services are provided. In reaching this conclusion, we considered the nature of our promise to Creative Cloud and Document Cloud customers, which is to provide a complete end-to-end creative design or document workflow solution that operates seamlessly across multiple devices and teams. We fulfill this promise by providing access to a solution that integrates cloud-based and on-premise/on-device features that, together through their integration, provide functionalities, utility and workflow efficiencies that could not be obtained from either the on-premise/on-device software or cloud services on their own.
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years. We evaluated qualitative and quantitative factors to determine the period of amortization, including contract length, renewals, customer life and the useful lives of our products and acquired products. When the expected period of benefit of an asset which would be capitalized is less than one year, we expense the amount as incurred, utilizing the practical expedient. We regularly evaluate whether there have been changes in the underlying assumptions and data used to determine the amortization period.
When revenue arrangements include components of third-party goods and services, for example in transactions which involve resale, fulfillment or providing advertising impressions to our end customer, we evaluate whether we are the principal, and report revenues on a gross basis, or an agent, and report revenues on a net basis. In this assessment, we consider if we obtain control of the specified goods or services before they are transferred to the customer by evaluating indicators such as which party is primarily responsible for fulfilling the promise to provide the goods or services, which party has discretion in establishing price and the underlying terms and conditions between the parties to the transaction.
We offer limited rights of return, rebates and price protection of our products under various policies and programs with our distributors, resellers and/or end-user customers. We estimate and record reserves for these programs as variable consideration when estimating transaction price. Returns, rebates and other offsets to transaction price are estimated at contract inception on a portfolio basis and assessed for reasonableness each reporting period when additional information becomes available.
General Contract Provisions
We maintain revenue reserves for rebates, rights of return and other limited price adjustments. Distributors are allowed limited rights of return of products purchased during the previous quarter. In addition, distributors are allowed to return products that have reached the end of their lives, as defined by us, and for products that are being replaced by new versions. We offer rebates to our distributors, resellers and/or end-user customers. Transaction price is reduced for these amounts based on actual performance against objectives set forth by us for a particular reporting period, such as volume and timely reporting.
On a quarterly basis, the amount of revenue that is reserved is calculated based on our historical trends and data specific to each reporting period. The primary method of establishing these reserves is to review historical data from prior periods as a percent of revenue to determine a historical reserve rate. We then apply the historical rate to the current period revenue as a basis for estimating future returns. When necessary, we also provide a specific reserve in excess of portfolio-level estimated requirements. This estimate can be affected by the amount of a particular product in the channel, the rate of sell-through, product plans and other factors.
Although our subscription contracts are generally non-cancellable, a limited number of customers have the right to cancel their contracts by providing prior written notice to us of their intent to cancel the remainder of the contract term and consumers have a period of time to terminate certain agreements without penalty. In the event a customer cancels their contract, they are generally not entitled to a refund for prior services we have provided to them. Contracts that include termination rights without substantive penalty are accounted for as contracts only for the committed period. Periods of time after the right of
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to years for computers and other equipment, which includes our corporate jet, years for furniture and fixtures, years for building improvements and years for buildings. Leasehold improvements are amortized using the straight-line method over the lesser of the remaining respective lease term or estimated useful life of the asset. years, some of which included options to extend the lease for up to years and options to terminate the lease within approximately year. Optional periods to extend the lease, including by not exercising a termination option, are included in the lease term when it is reasonably certain that the option will be exercised. We also have one land lease that expires in 2091. Operating lease expense is recognized on a straight-line basis over the lease term. We account for lease and non-lease components, principally common area maintenance for our facilities leases, as a single lease component for our facilities and data center leases.
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to years. Amortization is based on the pattern in which the economic benefits of the intangible asset will be consumed or on a straight-line basis when the consumption pattern is not apparent.
Purchased technologyTrademarksOther
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million, $ billion and $ million, respectively.
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NOTE 2.  
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 $ $ $ Cost of revenue    Gross profit$ $ $ $ Gross profit as a percentage of revenue % % % %Fiscal 2022Revenue$ $ $ $ Cost of revenue    Gross profit$ $ $ $ Gross profit as a percentage of revenue % % % %Fiscal 2021Revenue$ $ $ $ Cost of revenue    Gross profit$ $ $ $ Gross profit as a percentage of revenue % % % %
We generally categorize revenue by geographic area based on where the customer manages their utilization of our offerings.
 $ $ Other   Total Americas   EMEA   APAC   Revenue$ $ $  $ $ Document Cloud   Total Digital Media revenue$ $ $ 
Subscription revenue by segment for fiscal 2023, 2022 and 2021 were as follows:
(in millions)202320222021
Digital Media $ $ $ 
Digital Experience   
Publishing and Advertising   
Total subscription revenue$ $ $ 
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billion, inclusive of unbilled receivables of $ million. As of December 2, 2022, the balance of trade receivables, net of allowance for doubtful accounts, was $ billion, inclusive of unbilled receivables of $ million.
The allowance for doubtful accounts was $ million and $ million as of December 1, 2023 and December 2, 2022, respectively.
Contract Assets
A contract asset is recognized when a conditional right to consideration exists and transfer of control has occurred. Contract assets are typically related to subscription and hosted service contracts where the transaction price allocated to the satisfied performance obligations exceeds the value of billings to date. Contract assets are included in prepaid expenses and other current assets for the current portion and other assets for the long-term portion on the Consolidated Balance Sheets. We regularly review contract asset balances for impairment, considering factors such as historical experience, credit-worthiness, age of the balance, current economic conditions and a reasonable and supportable forecast of future economic conditions. Contract asset impairments were not material in fiscal 2023 and 2022. Contract assets were $ million and $ million as of December 1, 2023 and December 2, 2022, respectively.
Deferred Revenue and Remaining Performance Obligations
Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from subscription services, including non-cancellable and non-refundable committed funds and refundable customer deposits. Deferred revenue is recognized as revenue when transfer of control to customers has occurred. Customers are typically invoiced for these agreements in regular installments and revenue is recognized ratably over the contractual subscription period. The deferred revenue balance is influenced by several factors, including the compounding effects of renewals, invoice duration, invoice timing, size and new business linearity within the quarter. Deferred revenue does not represent the total contract value of annual or multi-year non-cancellable subscription agreements.
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, such as invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period, and not to receive financing from our customers. Any potential financing fees are considered insignificant in the context of our contracts.
As of December 1, 2023, the balance of deferred revenue was $ billion, which includes $ million of refundable customer deposits. Refundable customer deposits represent arrangements in which the customer has a unilateral cancellation right for which we are obligated to refund amounts paid related to products or services not yet delivered or provided at the time of cancellation on a prorated basis. Arrangements with some of our enterprise customers with non-cancellable and non-refundable committed funds provide options to either renew monthly on-premise term-based licenses or use some or all funds to purchase other Adobe products or services. Non-cancellable and non-refundable committed funds related to these agreements comprised approximately % of the total deferred revenue.
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billion. Significant movements in the deferred revenue balance during the period consisted of increases due to payments received prior to transfer of control of the underlying performance obligations to the customer, which were offset by decreases due to revenue recognized in the period. During the year ended December 1, 2023, approximately $ billion of revenue was recognized that was included in the balance of deferred revenue as of December 2, 2022.
Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and unbilled amounts that will be recognized as revenue in future periods. Transaction price allocated to remaining performance obligations is influenced by several factors, including the timing of renewals and average contract term. We applied practical expedients to exclude amounts related to performance obligations that are billed and recognized as they are delivered, optional purchases that do not represent material rights, sales and usage-based royalties not yet consumed and any estimated amounts of variable consideration that are subject to constraint.
Remaining performance obligations were approximately $ billion as of December 1, 2023. Non-cancellable and non-refundable committed funds related to some of our enterprise customer agreements referred to in the paragraph above comprised approximately % of the total remaining performance obligations. Approximately % of the remaining performance obligations, excluding the aforementioned enterprise customer agreements, are expected to be recognized over the next 12 months with the remainder recognized thereafter.
Contract Acquisition Costs
We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized.
The costs capitalized are primarily sales commissions paid to our sales force personnel. Capitalized costs may also include portions of fringe benefits and payroll taxes associated with compensation for incremental costs to acquire customer contracts and incentive payments to partners.
Capitalized costs to obtain a contract are amortized over the expected period of benefit, which we have determined, based on analysis, to be years. Amortization of capitalized costs are included in sales and marketing expense in our Consolidated Statements of Income. During fiscal 2023, 2022 and 2021, we amortized $ million, $ million and $ million of capitalized contract acquisition costs into sales and marketing expense, respectively. We did not incur any impairment losses for all periods presented.
Capitalized contract acquisition costs were $ million and $ million as of December 1, 2023 and December 2, 2022, of which $ million and $ million was long-term and included in other assets in the Consolidated Balance Sheets, respectively. The remaining balance of the capitalized costs to obtain contracts was current and included in prepaid expenses and other current assets.
Refund Liabilities
We record refund liabilities for amounts that may be subject to future refunds, which include sales returns reserves and customer rebates and credits. Refund liabilities are included in accrued expenses on the Consolidated Balance Sheets. Refund liabilities were $ million and $ million as of December 1, 2023 and December 2, 2022, respectively.
Significant Customers
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NOTE 3.  
billion, comprised of approximately half cash and half stock.
On December 17, 2023, we entered into a mutual termination agreement with Figma to terminate the proposed merger. In accordance with the terms of the termination agreement, on December 20, 2023, we paid Figma a termination fee of $ billion, which we recorded in operating expenses in the first quarter of fiscal year 2024.
Frame.io
On October 7, 2021, we completed the acquisition of Frame.io, a privately held company that provides a cloud-based video collaboration platform, for approximately $ billion, primarily in cash consideration. The financial results of Frame.io have been included in our Consolidated Financial Statements since the date of the acquisition. Frame.io is reported as part of our Digital Media reportable segment.
 
In-process research and development (1)
 N/ATrademarks Customer contracts and relationships Total identifiable intangible assets Net liabilities assumed()N/A
Goodwill (2)
 N/ATotal purchase price$ 
_________________________________________
(1)    Capitalized as purchased technology and considered indefinite lived until the completion or abandonment of the associated research and development efforts.
(2)    Non-deductible for tax purposes.
Workfront
On December 7, 2020, we completed the acquisition of Workfront, a privately held company that provides a workflow platform, for approximately $ billion in cash consideration. The financial results of Workfront have been included in our Consolidated Financial Statements since the date of the acquisition. Workfront is reported as part of our Digital Experience reportable segment.
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 Purchased technology Backlog Trademarks Total identifiable intangible assets Net liabilities assumed()N/A
Goodwill (1)
 N/ATotal purchase price$ 
_________________________________________
(1)    Non-deductible for tax purposes.
NOTE 4.  
 $ $ $ Cash equivalents:Money market funds    Time deposits    Total cash equivalents    Total cash and cash equivalents    Short-term fixed income securities:Asset-backed securities    Corporate debt securities  () U.S. agency securities  () U.S. Treasury securities  () Total short-term investments  () Total cash, cash equivalents and short-term investments$ $ $()$ 
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 $ $ $ Cash equivalents:  Corporate debt securities    Money market funds    Time deposits    Total cash equivalents    Total cash and cash equivalents    Short-term fixed income securities: Asset-backed securities  () Corporate debt securities  () Foreign government securities    Municipal securities    U.S. agency securities    U.S. Treasury securities  () Total short-term investments  () Total cash, cash equivalents and short-term investments$ $ $()$ 
See Note 5 for further information regarding the fair value of our financial instruments.
 Due between one and two years Due between two and three years Total$ 
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NOTE 5.  
 $ $ $ Time deposits    Short-term investments:Asset-backed securities    Corporate debt securities    U.S. agency securities    U.S. Treasury securities    Prepaid expenses and other current assets:   Foreign currency derivatives    Other assets:   Deferred compensation plan assets    Total assets$ $ $ $ 
Liabilities:    
Accrued expenses:    
Foreign currency derivatives$ $ $ $ 
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 $ $ $ Money market funds    Time deposits    Short-term investments: Asset-backed securities    Corporate debt securities    Foreign government securities    Municipal securities    
U.S. agency securities
    U.S. Treasury securities     Prepaid expenses and other current assets:    Foreign currency derivatives    Other assets:    Deferred compensation plan assets    Total assets$ $ $ $ 
Liabilities:    
Accrued expenses:    
Foreign currency derivatives$ $ $ $ 
See Note 4 for further information regarding the fair value of our financial instruments. 
Our fixed income available-for-sale debt securities consist of high quality, investment grade securities from diverse issuers with a weighted average credit rating of AA-. We value these securities based on pricing from independent pricing vendors who use matrix pricing valuation techniques including market approach methodologies that model information generated by market transactions involving identical or comparable assets, as well as discounted cash flow methodologies. Inputs include quoted prices in active markets for identical assets or inputs other than quoted prices that are observable either directly or indirectly in determining fair value, including benchmark yields, issuer spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. We therefore categorize all of our fixed income available-for-sale securities as Level 2. We perform routine procedures such as comparing prices obtained from multiple independent sources to ensure that appropriate fair values are recorded.
The fair values of our money market funds, time deposits and deferred compensation plan assets, which consist of money market and other mutual funds, are based on quoted prices in active markets at the measurement date.
Our over-the-counter foreign currency derivatives are valued using pricing models and discounted cash flow methodologies based on observable foreign exchange and interest rate data at the measurement date.
Our other current financial assets and current financial liabilities have fair values that approximate their carrying values.
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billion as of December 1, 2023, based on observable market prices in less active markets and categorized as Level 2. See Note 17 for further details regarding our debt.
NOTE 6.  
Cash Flow Hedges
In countries outside the United States, we transact business in U.S. Dollars and in various other currencies. We may use foreign exchange option contracts and forward contracts to hedge a portion of our forecasted foreign currency denominated revenue and expenses. These foreign exchange contracts, carried at fair value, have maturities of up to months. As of December 1, 2023 and December 2, 2022, total notional amounts of outstanding cash flow hedges were $ billion and $ billion, respectively, hedging exposures denominated in Euros, Indian Rupees, British Pounds, Japanese Yen and Australian Dollars.
In June 2019, we entered into Treasury lock agreements with large financial institutions which fixed benchmark U.S. Treasury rates for an aggregate notional amount of $ billion of our future debt issuance. These derivative instruments hedged the impact of changes in the benchmark interest rate to future interest payments and were settled upon debt issuance in the first quarter of fiscal 2020. We incurred a loss related to the settlement of the instruments which is amortized to interest expense over the term of our debt due February 1, 2030. See Note 17 for further details regarding our debt.
As of December 1, 2023, we had net derivative losses on our foreign exchange option contracts expected to be recognized within the next months, of which $ million of losses are expected to be recognized into revenue within the next 12 months. In addition, we had net derivative gains of $ million on our foreign exchange forward contracts, which are expected to be recognized into operating expenses within the next 12 months.We also had net derivative losses on our Treasury lock agreements, of which $ million is expected to be recognized into interest expense within the next 12 months.
To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. We record changes in fair value of these cash flow hedges in accumulated other comprehensive income (loss) in our Consolidated Balance Sheets, until the forecasted transaction occurs. When the forecasted transaction affects earnings, we reclassify the related gain or loss on the foreign currency revenue, foreign currency expense or Treasury lock cash flow hedge to revenue, operating expense or interest expense, as applicable. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, we reclassify the gain or loss on the related cash flow hedge from accumulated other comprehensive income (loss) to the same income statement line item as the hedged item. We evaluate hedge effectiveness at the inception of the hedge prospectively, and on an ongoing basis both retrospectively and prospectively. If we do not elect hedge accounting, or the contract does not qualify for hedge accounting treatment, the changes in fair value from period to period are recorded in the same income statement line item as the hedged item.
For fiscal 2023, 2022 and 2021, there were no net gains or losses recognized in income relating to hedges of forecasted transactions that did not occur.
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million, primarily hedging exposures denominated in Euros, Indian Rupees, British Pounds and Australian Dollars. As of December 2, 2022, total notional amounts of outstanding contracts were $ million, primarily hedging exposures denominated in Euros, British Pounds, Indian Rupees and Australian Dollars. At December 1, 2023 and December 2, 2022, the outstanding balance sheet hedging derivatives had maturities of days or less. $ $ $ Foreign exchange forward contracts    Derivatives not designated as hedging instruments: Foreign exchange forward contracts    Total derivatives$ $ $ $ )$ $ Foreign exchange forward contracts$ $()$  $ $()
Foreign exchange forward contracts
Net gain (loss) reclassified from accumulated OCI into income
Operating expenses
$()$ $ 
Treasury lock
Net gain (loss) reclassified from accumulated OCI into incomeInterest expense$()$()$()Derivatives not designated as hedging relationships:
Foreign exchange forward contracts
Other income (expense), net$ $()$()
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NOTE 7.  
 $ Buildings  Building improvements  Leasehold improvements  Furniture and fixtures  Land  Capital projects in-progress  Total  Less: Accumulated depreciation and amortization()()Property and equipment, net$ $ 
Depreciation and amortization expense of property and equipment for fiscal 2023, 2022 and 2021 was $ million, $ million and $ million, respectively.
 $ Other  Total Americas  EMEA  APAC  Property and equipment, net$ $ 
NOTE 8.  
 $ $ $ 
Acquisitions
    
Foreign currency translation
()() ()
Balances at December 2, 2022
$ $ $ $ 
Foreign currency translation
    
Balances at December 1, 2023
$ $ $ $ 
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 $()$ $ $()$ Purchased technology ()  () Trademarks ()  () Other ()  () Other intangibles, net$ $()$ $ $()$ 
Amortization expense related to other intangibles was $ million, $ million and $ million for fiscal 2023, 2022 and 2021 respectively. Of these amounts, $ million, $ million and $ million were included in cost of sales for fiscal 2023, 2022 and 2021 respectively.
Other intangibles are amortized over their estimated useful lives of to years.
 2025 2026 2027 2028 Thereafter Total expected amortization expense$ 
_________________________________________
(1)Excludes capitalized in-process research and development which is considered indefinite lived until the completion or abandonment of the associated research and development efforts.
NOTE 9.  
 $ Accrued compensation and benefits  Accrued corporate marketing  
Sales and use taxes
  Refund liabilities  Other  Accrued expenses$ $ 
Other primarily includes general business accruals, royalties payable, accrued hosting fees and derivative collateral liabilities.
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NOTE 10.  
 $ $ Foreign   Income before income taxes$ $ $  $ $ Foreign   State and local   Total current   Deferred:   United States federal()()()Foreign   State and local() ()Total deferred()  
Provision for income taxes
$ $ $ 
Reconciliation of Provision for Income Taxes
% as a result of the following:
(in millions)
202320222021
Tax expense computed at U.S. federal statutory rate$ $ $ 
Tax credits()()()
Effects of non-U.S. operations()()()
Tax settlements()()()
State tax expense, net of federal benefit   
Stock-based compensation  ()
Other   
Provision for income taxes
$ $ $ 
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 $ Intangible assets  Credit carryforwards  Reserves and accruals  Operating lease liabilities  Stock-based compensation  Net operating loss carryforwards of acquired companies  Benefits relating to tax positions  Other  Total gross deferred tax assets  Valuation allowance()()Total deferred tax assets  Deferred tax liabilities:Acquired intangible assets  Prepaid expenses  Operating lease right-of-use assets  Depreciation and amortization  Total deferred tax liabilities  Net deferred tax assets$ $ 
Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards.
As of December 1, 2023, we had state net operating loss and tax credit carryforwards of approximately $ million and $ million, respectively. We also had federal tax credit carryforwards of approximately $ million. The majority of the state tax credits can be carried forward indefinitely, and the remaining net operating loss and tax credit carryforwards will expire in various years from fiscal 2024 through 2040. Certain net operating loss and tax credit carryforwards are subject to an annual limitation and/or are reduced by a valuation allowance. The net carrying amount of such assets is expected to be fully realized.
In assessing the realizability of deferred tax assets, management determined that it is more likely than not that we will not fully realize certain available tax assets in domestic and foreign jurisdictions. Deferred tax assets are offset by a valuation allowance to the extent it is more likely than not that they are not expected to be realized. As of December 1, 2023, we continue to maintain a valuation allowance of $ million primarily related to certain state credits. For fiscal 2023, the increase in the valuation allowance was $ million.
As we repatriate foreign earnings for use in the United States, the distributions will generally be exempt from federal income taxes. As of December 1, 2023, the cumulative amount of foreign earnings considered permanently reinvested upon which taxes have not been provided, and the corresponding unrecognized deferred tax liability, was not material.
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 $ Gross increases in unrecognized tax benefits – prior year tax positions  Gross decreases in unrecognized tax benefits – prior year tax positions()()Gross increases in unrecognized tax benefits – current year tax positions  Lapse of statute of limitations()()Tax settlements()()Foreign exchange gains and losses ()Ending balance$ $ 
Our policy is to record interest and penalties related to uncertain tax positions within the provision for income taxes. As of December 1, 2023 and December 2, 2022, the combined amounts of accrued interest and penalties included in long-term income taxes payable related to tax positions taken on our tax returns were not material.
While we file federal, state and local income tax returns globally, our major tax jurisdictions are Ireland, California and the United States. We are subject to the examination of our income tax returns by various domestic and foreign tax authorities with 2019 being the earliest fiscal year open for examination in all of our major tax jurisdictions. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from these examinations. While we believe our tax estimates are reasonable, we cannot provide assurance that the final determination of any of these examinations will not have an adverse effect on our financial position and results of operations.
The timing of the resolution of income tax examinations is highly uncertain as are the amounts and timing of tax payments that are part of any audit settlement process. These events could cause large fluctuations in the balance sheet classification of our tax assets and liabilities. We believe that within the next 12 months, it is reasonably possible that either certain audits will conclude or statutes of limitations on certain income tax examination periods will expire, or both. Although the timing of resolution, settlement and closing of audits is not certain, it is reasonably possible that the underlying unrecognized tax benefits may decrease by up to $ million over the next 12 months.
NOTE 11.  
% of their pretax or after-tax salary, subject to the IRS annual contribution limits. In fiscal 2023, we matched % of the first % of the employee’s eligible compensation. We contributed $ million, $ million and $ million in fiscal 2023, 2022 and 2021, respectively. We are under no obligation to continue matching future employee contributions and, at our discretion, may change our practices at any time.
Deferred Compensation Plan
The Adobe Inc. Deferred Compensation Plan is an unfunded, non-qualified, deferred compensation arrangement under which certain executives are able to defer a portion of their annual compensation. Participants may elect to contribute up to % of their base salary and % of other specified compensation, including commissions and bonuses. Members of the Board of Directors are also eligible to participate and are able to defer their directors’ fees and elect cash benefit distributions in the same manner as executives. Additionally, members of the Board are permitted to defer equity awards. Participants are able to elect the payment of benefits to begin on a specified date at least three years after the end of the plan year in which election is made or, with respect to equity awards, vests. For cash benefit elections, distributions are made in cash in the form of a lump sum, or
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million and $ million, respectively. As of December 1, 2023 and December 2, 2022, undistributed deferred compensation due to participants totaled $ million and $ million, respectively.
NOTE 12.  
. Certain grants have other vesting periods approved by the Executive Compensation Committee of our Board of Directors (the “ECC”).
As of December 1, 2023, we had reserved million shares of our common stock for issuance under our 2019 Plan and had million shares available for grant.
Our Performance Share Programs aim to help focus key employees on building stockholder value, provide significant award potential for achieving outstanding company performance and enhance our ability to attract and retain highly talented and competent individuals. The ECC approves the terms of each of our Performance Share Programs, including the award calculation methodology. In January 2023, the ECC approved the 2023 Performance Share Program.
Shares outstanding under our 2023 and 2022 Performance Share Programs may be earned based on the achievement of (i) an objective relative total stockholder return measured over a performance period, as well as (ii) revenue-based financial metrics measured over performance periods. Each type of performance goal is weighted % and achievement of each performance goal is determined independently of the other. Shares associated with each performance goal are not awarded until the corresponding performance targets are defined.
Shares outstanding under our 2021 Performance Share Program may be earned based on the achievement of an objective relative total stockholder return measured over a performance period.
Performance share awards in each of our 2023, 2022 and 2021 Performance Share Programs will cliff-vest upon the later of (i) the three-year anniversary of the earliest vesting commencement date in the respective Performance Share Program, or (ii) the ECC's certification of the level of achievement of the final performance period in the respective Performance Share Program, contingent upon the participant’s continued service. Participants can earn between % and % of the target number of performance shares.
As of December 1, 2023, the shares awarded under our 2023, 2022 and 2021 Performance Share Programs remained outstanding and unvested.
Employee Stock Purchase Plan
Our Employee Stock Purchase Plan (“ESPP”) allows eligible employee participants to purchase shares of our common stock at a discount through payroll deductions. The ESPP consists of twenty-four-month offering periods with six-month purchase periods in each offering period. Employees purchase shares in each purchase period at % of the market value of our common stock at either the beginning of the offering period or the end of the purchase period, whichever price is lower. If the
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million shares of our common stock for issuance under the ESPP and approximately million shares remain available for future issuance.
Issuance of Shares
Upon vesting of restricted stock units and performance shares or purchase of shares under the ESPP, we will issue treasury stock. If treasury stock is not available, common stock will be issued. In order to minimize the impact of on-going dilution from issuance of shares, we instituted a stock repurchase program. See Note 14 for information regarding our stock repurchase programs.
Valuation of Stock-Based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award.
Our restricted stock units are valued based on the fair market value of the award on the grant date. Our performance share awards which are contingent upon achievement of relative total stockholder return are valued using a Monte Carlo Simulation model. Our performance share awards which are contingent upon achievement of revenue-based financial metrics are valued based on the fair market value of the award on the grant date.
We use the Black-Scholes option pricing model to determine the fair value of ESPP purchase rights. The determination of the grant date fair value of our ESPP purchase rights is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the expected term of the awards, actual and projected employee stock option exercise behaviors, a risk-free interest rate and any expected dividends.
Summary of Restricted Stock Units
 $ Awarded $ Released()$ Forfeited()$ Ending outstanding balance $ $ Expected to vest $ $ 
_________________________________________
(1)    The aggregate fair value is calculated using the closing stock price as of December 1, 2023 of $.
The weighted average grant date fair values of restricted stock units granted during fiscal 2023, 2022 and 2021 were $, $ and $, respectively. The total fair value of restricted stock units vested during fiscal 2023, 2022 and 2021 was $ billion, $ billion and $ billion, respectively.
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 $ Awarded $ Released()$ Forfeited $ Ending outstanding balance $ $ Expected to vest $ $ 
_________________________________________
(1)    The aggregate fair value is calculated using the closing stock price as of December 1, 2023 of $.
Shares released during fiscal 2023 resulted from % achievement of target for the 2020 Performance Share Program, as certified by the ECC in the first quarter of fiscal 2023.
The weighted average grant date fair values of performance share awards granted during fiscal 2023, 2022 and 2021 were $, $ and $, respectively. The total fair value of performance share awards vested during fiscal 2023, 2022 and 2021 was $ million, $ million and $ million, respectively.
Summary of Employee Stock Purchase Plan Shares
Employees purchased million shares at an average price of $, million shares at an average price of $, and million shares at an average price of $ for fiscal 2023, 2022 and 2021, respectively. The intrinsic value of shares purchased during fiscal 2023, 2022 and 2021 was $ million, $ million and $ million, respectively. The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.
During fiscal 2023, the rollover provision of our ESPP was triggered and resulted in incremental expense to be recognized over the new twenty-four-month offering period, which did not have a material impact on our Consolidated Statements of Income.
Compensation Costs
We recognize the estimated compensation costs of restricted stock units, net of estimated forfeitures, on a straight-line basis over the requisite service period of the entire award, which is generally the vesting period. The estimated compensation cost is based on the fair value of our common stock on the date of grant.
Compensation costs for our performance share awards which are contingent upon achievement of relative total stockholder return are recognized, net of estimated forfeitures, on a straight-line basis over the requisite performance period or service period of the entire award, whichever is longer. Compensation costs for our performance share awards which are contingent upon achievement of revenue-based financial metrics are recognized, net of estimated forfeitures, based upon the expected levels of achievement, which are assessed periodically until certification by the ECC.
We estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate forfeitures and record stock-based compensation expense only for those awards that are expected to vest.
As of December 1, 2023, there was $ billion of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based awards and purchase rights which will be recognized over a weighted average period of years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. 
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 $ $ Research and development   Sales and marketing   General and administrative   
Total (1)
$ $ $ 
_________________________________________
(1)During fiscal 2023, 2022 and 2021, we recorded tax benefits related to stock-based compensation costs of $ million, $ million and $ million, respectively.
NOTE 13.  
)$ $ 
(1)
$()
Net unrealized gains / losses on derivative instruments designated as hedging instruments
 ()()
(2)
()Cumulative foreign currency translation adjustments()  ()Total accumulated other comprehensive income (loss), net of taxes$()$ $()$()
_________________________________________
(1)    Reclassification adjustments for gains / losses on available-for-sale securities are classified in other income (expense), net.
Taxes related to each component of other comprehensive income (loss) were immaterial for the fiscal years presented.
NOTE 14.  
billion in our common stock through the end of fiscal 2024.
During fiscal 2023 and 2022, we entered into accelerated share repurchase agreements (“ASRs”) with large financial institutions whereupon we provided them with prepayments of $ billion and $ billion, respectively. Under the terms of our ASRs, the financial institutions agree to deliver a portion of shares to us at contract inception and the remaining shares at settlement. The total number of shares delivered and average purchase price paid per share are determined upon settlement based on the Volume Weighted Average Price (“VWAP”) over the term of the ASR, less an agreed upon discount.
During fiscal 2023, 2022 and 2021, we also entered into structured stock repurchase agreements with large financial institutions whereupon we provided them with prepayments totaling $ billion, $ billion and $ billion, respectively. Under the terms of these structured stock repurchase agreements, the financial institutions agree to deliver shares to us at monthly intervals during the respective contract terms, and the number of shares delivered each month are determined based on the total notional amount of the contracts, the number of trading days in the intervals and the VWAP during the intervals, less an agreed upon discount.
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million shares, including approximately million shares at an average price of $ through structured repurchase agreements, as well as million shares at an average price of $ through the ASR entered into during fiscal 2023. During fiscal 2022, we repurchased approximately million shares, including approximately million shares at an average price of $ through structured repurchase agreements, as well as million shares at an average price of $ through the ASR entered into during fiscal 2022. During fiscal 2021, we repurchased approximately million shares at an average price of $ through structured repurchase agreements.
For fiscal 2023, 2022 and 2021, the prepayments were classified as treasury stock on our Consolidated Balance Sheets at the payment date, though only shares physically delivered to us by December 1, 2023, December 2, 2022 and December 3, 2021 were excluded from the computation of net income per share. As of December 1, 2023, $ million of prepayment remained under our outstanding structured stock repurchase agreement.
Subsequent to December 1, 2023, as part of the December 2020 stock repurchase authority, we entered into an accelerated share repurchase agreement with a large financial institution whereupon we provided them with a prepayment of $ billion and received an initial delivery of million shares, which represents approximately % of our prepayment. Upon completion of the $ billion accelerated share repurchase agreement, $ million remains under our December 2020 authority.
NOTE 15.  
 $ $ Shares used to compute basic net income per share   Dilutive potential common shares from stock plans and programs   Shares used to compute diluted net income per share   Basic net income per share$ $ $ Diluted net income per share$ $ $ Anti-dilutive potential common shares   
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NOTE 16.  
 2025 2026 2027 2028 Thereafter Total$ 
Subsequent to December 1, 2023, we executed agreements associated with certain of our long-term supplier commitments that increased our minimum purchase obligations by $ billion through December 2028.
Royalties
We have royalty commitments associated with the licensing of certain offerings and products. Royalty expense is generally based on a dollar amount per unit or a percentage of the underlying revenue. Royalty expense, which was recorded in our cost of revenue on our Consolidated Statements of Income, was approximately $ million, $ million and $ million in fiscal 2023, 2022 and 2021, respectively.
Indemnifications
In the ordinary course of business, we provide indemnifications of varying scope to customers and channel partners against claims of intellectual property infringement made by third parties arising from the use of our products and from time to time, we are subject to claims by our customers under these indemnification provisions. Historically, costs related to these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.
To the extent permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.
Legal Proceedings
We are subject to legal proceedings, claims, including claims relating to intellectual property, commercial, employment and other matters, and investigations, including government investigations, that arise in the ordinary course of our business. Some of these disputes, legal proceedings and investigations may include speculative claims for substantial or indeterminate amounts of damages. We consider all claims on a quarterly basis in accordance with GAAP and based on known facts assess whether potential losses are considered reasonably possible or probable and estimable. Based upon this assessment, we then evaluate disclosure requirements and whether to accrue for such claims in our financial statements. This determination is then reviewed and discussed with the Audit Committee of the Board of Directors.
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NOTE 17.  
% 2023 NotesFebruary 2020February 2023%$ $ 
% 2025 Notes
February 2020February 2025%  
% 2025 Notes
January 2015February 2025%  
% 2027 Notes
February 2020February 2027%  
% 2030 Notes
February 2020February 2030%  Total debt outstanding, at par$ $ 
Less: Current portion of debt, at par
 ()Unamortized discount and debt issuance costs()()Carrying value of long-term debt$ $ Carrying value of current debt, net of unamortized discount and debt issuance costs$ $ 
Senior Notes
In January 2015, we issued $ billion of senior notes due February 1, 2025. The related discount and issuance costs are amortized to interest expense over the term of the notes using the effective interest method. Interest is payable semi-annually, in arrears, on February 1 and August 1.
In February 2020, we issued $ million of senior notes due February 1, 2023, $ million of senior notes due February 1, 2025, $ million of senior notes due February 1, 2027 and $ billion of senior notes due February 1, 2030. Our total proceeds of approximately $ billion, net of issuance discount, were used for general corporate purposes including repayment of debt instruments due in fiscal 2020. The related discount and issuance costs are amortized to interest expense over the respective terms of the notes using the effective interest method. Interest is payable semi-annually, in arrears, on February 1 and August 1.
During the first quarter of fiscal 2023, the $ million of senior notes due February 1, 2023 became due and were repaid.
Our senior notes rank equally with our other unsecured and unsubordinated indebtedness. We may redeem the notes at any time, subject to a make-whole premium. In addition, upon the occurrence of certain change of control triggering events, we may be required to repurchase the notes, at a price equal to % of their principal amount, plus accrued and unpaid interest to the date of repurchase. The notes do not contain financial covenants but include covenants that limit our ability to grant liens on assets and to enter into sale and leaseback transactions, subject to significant allowances.
Term Loan Credit Agreement
In January 2023, we entered into a delayed draw term loan credit agreement (the “Term Loan Credit Agreement”), providing for a senior unsecured term loan (the “Term Loan”) of up to $ billion for the purpose of partially funding the purchase price for our intended acquisition of Figma and the related fees and expenses incurred in connection with the acquisition. The Term Loan was available for funding in a single drawing upon the closing of the Figma acquisition at any time
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%, (b) the agent’s prime rate, or (c) term SOFR plus %. The margin for term SOFR and adjusted daily SOFR loans was based on our debt ratings, and ranges from % to %. The margin for base rate loans was based on our debt ratings, and ranged from % to %. In addition, commitment fees determined according to our debt ratings were payable quarterly in an amount ranging from % to % per annum until the funding of the Term Loan.
The Term Loan Credit Agreement contained customary representations, warranties, affirmative and negative covenants, events of default and indemnification provisions in favor of the lenders similar to those contained in the Revolving Credit Agreement. As of December 1, 2023, there were outstanding borrowings under the Term Loan.
Subsequent to December 1, 2023, we entered into a mutual termination agreement with Figma to terminate the previously announced merger agreement. Consequently, the Term Loan Credit Agreement was terminated. See Note 3 of our Notes to Consolidated Financial Statements for further information regarding the Figma transaction.
Revolving Credit Agreement
In June 2022, we entered into a credit agreement (“Revolving Credit Agreement”), providing for a $ billion senior unsecured revolving credit facility, which replaced our previous $ billion senior unsecured revolving credit agreement entered into in October 2018 (the “Prior Revolving Credit Agreement”). The Revolving Credit Agreement provides for loans to Adobe and certain of its subsidiaries that may be designated from time to time as additional borrowers. Pursuant to the terms of the Revolving Credit Agreement, we may, subject to the agreement of lenders to provide additional commitments, obtain up to an additional $ million in commitments, for a maximum aggregate commitment of $ billion. At our election, loans under the Revolving Credit Agreement will bear interest at either (i) term SOFR, plus a margin, (ii) adjusted daily SOFR, plus a margin, (iii) alternative currency rate, plus a margin, or (iv) base rate, which is defined as the highest of (a) the federal funds rate plus %, (b) the agent’s prime rate, or (c) term SOFR plus %. The margin for term SOFR, adjusted daily SOFR and alternative currency rate loans is based on our debt ratings, and ranges from % to %. In addition, facility fees determined according to our debt ratings are payable on the aggregate commitments, regardless of usage, quarterly in an amount ranging from % to % per annum. We are permitted to permanently reduce the aggregate commitment under the Revolving Credit Agreement at any time. Subject to certain conditions stated in the Revolving Credit Agreement, Adobe and any of its subsidiaries designated as additional borrowers may borrow, prepay and re-borrow amounts at any time during the term of the Revolving Credit Agreement.
The Revolving Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including events of default and indemnification provisions in favor of the lenders. The negative covenants include restrictions regarding the incurrence of liens and indebtedness, certain merger transactions, dispositions and other matters, all subject to certain exceptions.
The facility will terminate and all amounts owing thereunder will be due and payable on the maturity date unless (a) the commitments are terminated earlier upon the occurrence of certain events, including an event of default, or (b) the maturity date is further extended upon our request, subject to the agreement of the lenders.
As of December 1, 2023, there were outstanding borrowings under this Revolving Credit Agreement.
Commercial Paper Program
In September 2023, we established a commercial paper program under which we may issue unsecured commercial paper up to a total of $ billion outstanding at any time, with maturities of up to days from the date of issue. The net proceeds from the issuance of commercial paper are expected to be used for general corporate purposes, which may include working capital, capital expenditures, acquisitions, stock repurchases, refinancing indebtedness or any other general corporate purposes. As of December 1, 2023, there were outstanding borrowings under the commercial paper program.
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NOTE 18.  
 million, $ million and $ million for fiscal 2023, 2022 and 2021, respectively. We recognized operating lease expense in cost of revenue and operating expenses in our Consolidated Statements of Income. Our operating lease expense includes variable lease costs and is net of sublease income, both of which are not material. $ $ Right-of-use assets obtained in exchange for operating lease liabilities$ $ $ 
The weighted-average remaining lease term and weighted-average discount rate for our operating lease liabilities as of December 1, 2023 were years and %, respectively.
 2025 2026 2027 2028 Thereafter 
Total lease liabilities
$ Less: Imputed interest 
Present value of lease liabilities
$ 
_________________________________________
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NOTE 19.  
)$()$()Investment gains (losses), net: Realized investment gains$ $ $ Realized investment losses () Unrealized investment gains (losses), net () Investment gains (losses), net$ $()$ Other income (expense), net:Interest income$ $ $ Foreign exchange gains (losses)()()()Realized losses on fixed income investments()  Other   Other income (expense), net$ $ $ Non-operating income (expense), net$ $()$()
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Adobe Inc.:
    
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Adobe Inc. and subsidiaries (the Company) as of December 1, 2023 and December 2, 2022, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the fiscal years in the three fiscal year period ended December 1, 2023, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 1, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 1, 2023 and December 2, 2022, and the results of its operations and its cash flows for each of the fiscal years in the three fiscal year period ended December 1, 2023, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 1, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Performance obligations in cloud-enabled software subscriptions
As discussed in Note 1 to the consolidated financial statements, cloud-enabled services are highly integrated and interrelated with on-premise or on-device software licenses in the Company’s Creative Cloud and Document Cloud subscription offerings. Because of this, the cloud-based services and the on-premise/on-device software licenses are not considered distinct from each other and the applicable subscription is accounted for as a single performance obligation.
We identified the assessment of performance obligations in these cloud-enabled software subscription offerings as a critical audit matter. A high degree of subjective auditor judgment was required to assess the nature of the Company’s Creative Cloud and Document Cloud offerings, their intended benefit to customers as an integrated offering, and the level of integration that exists between the cloud-enabled services and the on-premise/on-device licenses.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of an internal control related to the assessment of distinct performance obligations. We read the Creative Cloud and Document Cloud subscription offering agreements to understand the contractual terms and conditions. We participated in product demonstrations and performed interviews with the Company’s product and engineering department to both understand and observe specific functionalities of the integrated offering and evaluate the nature of the promise made to the Company’s Creative Cloud and Document Cloud customers. We evaluated the features and functionalities of the Creative Cloud and Document Cloud subscription that can be accessed only when using the on-premise/on-device software while connected to the Adobe cloud to assess that customers receive the intended benefit from each solution only as an integrated offering.

/s/

We have served as the Company’s auditor since 1983.
January 16, 2024
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ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.  CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of December 1, 2023. Based on their evaluation as of December 1, 2023, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective at the reasonable assurance level to ensure that the information required to be disclosed by us in this Annual Report on Form 10-K was (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Adobe have been detected.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our management assessed the effectiveness of our internal control over financial reporting as of December 1, 2023. In making this assessment, our management used the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management has concluded that, as of December 1, 2023, our internal control over financial reporting is effective based on these criteria.
KPMG LLP, the independent registered public accounting firm that audited our financial statements included in this Annual Report on Form 10-K, has issued an attestation report on our internal control over financial reporting, which is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 1, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 
ITEM 9B.  OTHER INFORMATION
ITEM 9C.  DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item 10 of Form 10-K that is found in our 2024 Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for the Company’s 2024 Annual Meeting of Stockholders (“2024 Proxy Statement”) is incorporated herein by reference to our 2024 Proxy Statement. The 2024 Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year to which this report relates. For information with respect to our executive officers, see the section titled “Executive Officers” in Part I, Item 1 of this report.
ITEM 11.  EXECUTIVE COMPENSATION
The information required by this Item 11 of Form 10-K is incorporated herein by reference to our 2024 Proxy Statement.
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item 12 of Form 10-K is incorporated herein by reference to our 2024 Proxy Statement.
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 of Form 10-K is incorporated herein by reference to our 2024 Proxy Statement.
ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 of Form 10-K is incorporated herein by reference to our 2024 Proxy Statement.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
1.    Financial Statements. See Index to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.
 Incorporated by Reference
Exhibit
Number		Exhibit DescriptionFormFiling DateExhibit NumberSEC File No.Filed
Herewith
2.18-K9/15/222.1000-15175
3.18-K4/26/113.3 000-15175
3.28-K10/9/183.1 000-15175
3.38-K1/18/223.1 000-15175
4.110-K1/25/194.1 000-15175
4.2S-32/26/164.1 333-209764
4.38-K2/3/204.1 000-15175
4.48-K1/26/154.1 000-15175
4.5X
10.110-K1/15/2110.1 000-15175
10.2A8-K4/13/1810.2 000-15175
10.2B8-K1/26/1810.6 000-15175
10.2C8-K1/28/1910.5 000-15175
10.3A8-K4/24/2310.1 000-15175
10.3B
8-K1/27/2110.2 000-15175
10.3C
8-K1/27/2110.3 000-15175
10.3D
8-K1/27/2210.2 000-15175
10.3E
8-K
1/26/2310.4 000-15175
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 Incorporated by Reference
Exhibit
Number		Exhibit DescriptionFormFiling DateExhibit NumberSEC File No.Filed
Herewith
10.3F
8-K1/27/2210.3 000-15175
10.3G
10-Q6/26/1910.35B000-15175
10.3H
8-K
1/26/2310.2 000-15175
10.3I
8-K
1/26/2310.3 000-15175
10.3J
10-K1/15/2110.3E000-15175
10.3K
10-Q 3/29/2310.7 000-15175
10.3L
10-Q
3/29/2310.6 000-15175
10.48-K12/11/1410.2 000-15175
10.5
X
10.6A10-K1/20/1510.19 000-15175
10.6B10-K1/21/2010.6B000-15175
10.78-K7/1/2210.1 000-15175
10.88-K12/13/2310.1 000-15175
10.9
8-K
1/26/2310.5000-15175
10.10
10-K
1/17/2310.11000-15175

10.11
8-K9/15/2210.1000-15175
10.12
8-K
1/19/2310.1000-15175
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 Incorporated by Reference
Exhibit
Number		Exhibit DescriptionFormFiling DateExhibit NumberSEC File No.Filed
Herewith
10.13
8-K
9/14/2310.1000-15175
10.14
8-K
12/18/2310.1
000-15175
21X
23.1X
24.1X
31.1   X
31.2   X
32.1   X
32.2   X
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X
101.INSInline XBRL Instance - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.   X
101.SCHInline XBRL Taxonomy Extension Schema   X
101.CALInline XBRL Taxonomy Extension Calculation   X
101.LABInline XBRL Taxonomy Extension Labels   X
101.PREInline XBRL Taxonomy Extension Presentation   X
101.DEFInline XBRL Taxonomy Extension DefinitionX
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
___________________________
*
Management contract or compensatory plan or arrangement. 
†The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Adobe Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-K, irrespective of any general incorporation language contained in such filing.

ITEM 16. FORM 10-K SUMMARY
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 ADOBE INC.
  
 By:/s/ DANIEL DURN
  Daniel Durn
  
Chief Financial Officer and
  
Executive Vice President, Finance,
Technology Services and Operations
  (Principal Financial Officer)
Date: January 16, 2024


POWER OF ATTORNEY 
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Shantanu Narayen and Daniel Durn, and each or any one of them, his or her lawful attorneys-in-fact and agents, for such person in any and all capacities, to sign any and all amendments to this report and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorneys-in-fact and agent, or substitute or substitutes, may do or cause to be done by virtue hereof. 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SignatureTitleDate
/s/ SHANTANU NARAYENJanuary 16, 2024
Shantanu Narayen
Chair of the Board of Directors and
Chief Executive Officer
(Principal Executive Officer)
/s/ DANIEL DURNJanuary 16, 2024
Daniel Durn
Chief Financial Officer and
Executive Vice President, Finance,
Technology Services and Operations
(Principal Financial Officer)
/s/ MARK GARFIELDJanuary 16, 2024
Mark GarfieldSenior Vice President, Chief Accounting Officer
(Principal Accounting Officer)
/s/ FRANK CALDERONIJanuary 16, 2024
Frank CalderoniDirector
/s/ CRISTIANO AMON
January 16, 2024
Cristiano Amon
Director
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SignatureTitleDate
/s/ AMY BANSEJanuary 16, 2024
Amy BanseDirector
/s/ BRETT BIGGSJanuary 16, 2024
Brett BiggsDirector
/s/ MELANIE BOULDENJanuary 16, 2024
Melanie BouldenDirector
/s/ LAURA DESMONDJanuary 16, 2024
Laura DesmondDirector
/s/ SPENCER NEUMANNJanuary 16, 2024
Spencer NeumannDirector
/s/ KATHLEEN OBERGJanuary 16, 2024
Kathleen ObergDirector
/s/ DHEERAJ PANDEYJanuary 16, 2024
Dheeraj PandeyDirector
/s/ DAVID RICKSJanuary 16, 2024
David RicksDirector
/s/ DAN ROSENSWEIGJanuary 16, 2024
Dan RosensweigDirector


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SUMMARY OF TRADEMARKS 
 The following trademarks of Adobe Inc. or its subsidiaries, which may be registered in the United States and/or other countries, are referenced in this Form 10-K:
Acrobat
Acrobat Reader
Acrobat Sign
Adobe
Adobe Audition
Adobe Campaign
Adobe Commerce
Adobe Experience Cloud
Adobe Express
Adobe Firefly
Adobe Fonts
Adobe Fresco
Adobe Premiere
Adobe Scan
Adobe Sensei
Adobe Stock
Adobe Target
After Effects
Behance
Camera to Cloud
Creative Cloud
Document Cloud
Frame.io
Illustrator
InCopy
InDesign
Journey Optimizer
Lightroom
Marketo Engage
Photoshop
PostScript
Premiere Pro
Reader
Sensei
Substance 3D
Substance 3D Designer
Substance 3D Modeler
Substance 3D Painter
Substance 3D Sampler
Substance 3D Stager
Workfront


All other trademarks are the property of their respective owners.
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