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_________________________________________
(*) Percentage is less than 1%.
Our effective tax rate for fiscal 2024 remained relatively flat compared to fiscal 2023, as the impact of the Figma acquisition termination fee, which was not deductible for financial statement purposes, was largely offset by increases in the net tax benefits from effects of non-U.S. operations and stock-based compensation in fiscal 2024.
Our effective tax rate for fiscal 2024 was lower than the U.S. federal statutory tax rate of 21% primarily due to the net tax benefits from effects of non-U.S. operations and the U.S. federal research tax credit, partially offset by the impacts of the Figma acquisition termination fee and state taxes.
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 $725 million as of November 29, 2024, primarily related to certain state credits and federal capital loss carryforwards.
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.
The provision from the U.S. Tax Act which requires us to capitalize and amortize research and development costs became effective in fiscal 2023. This requirement continues to have 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.
Several countries have enacted, or have committed to enact, the Organization for Economic Cooperation and Development’s 15% global minimum tax regime effective for our fiscal 2025. The currently enacted legislation is not expected to have a material impact on our provision for income taxes, however we continue to monitor developments and evaluate impacts, if any, of these provisions on our results of operations and cash flows.
Accounting for Uncertainty in Income Taxes
The gross liabilities for unrecognized tax benefits excluding interest and penalties were $683 million and $501 million at the end of fiscal 2024 and 2023, respectively. If the total unrecognized tax benefits as of November 29, 2024 and December 1, 2023 were recognized, $519 million and $356 million would decrease the respective effective tax rates.
As of November 29, 2024 and December 1, 2023, 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 $50 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Our primary source of cash is receipts from revenue. Other customary sources of cash include proceeds from maturities and sales of short-term investments. Our primary uses of cash are general business expenses including payroll and related benefits costs, income taxes, marketing and third-party hosting services, as well as our stock repurchase program as described below. Other customary uses of cash include 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) | November 29, 2024 | | December 1, 2023 |
| Cash and cash equivalents | $ | 7,613 | | | $ | 7,141 | |
| Short-term investments | $ | 273 | | | $ | 701 | |
| Working capital | $ | 711 | | | $ | 2,833 | |
| Stockholders’ equity | $ | 14,105 | | | $ | 16,518 | |
A summary of our cash flows for fiscal 2024, 2023 and 2022 is as follows:
| | | | | | | | | | | | | | | | | |
| (in millions) | 2024 | | 2023 | | 2022 |
| Net cash provided by operating activities | $ | 8,056 | | | $ | 7,302 | | | $ | 7,838 | |
Net cash provided by (used for) investing activities | 149 | | | 776 | | | (570) | |
| Net cash used for financing activities | (7,724) | | | (5,182) | | | (6,825) | |
| Effect of foreign currency exchange rates on cash and cash equivalents | (9) | | | 9 | | | (51) | |
| Net change in cash and cash equivalents | $ | 472 | | | $ | 2,905 | | | $ | 392 | |
Cash Flows from Operating Activities
For fiscal 2024, net cash provided by operating activities of $8.06 billion was primarily comprised of net income adjusted for the net effect of non-cash items. Payment of the $1 billion Figma termination fee during fiscal 2024 had an adverse impact on net income and cash flows from operations.
Cash Flows from Investing Activities
For fiscal 2024, net cash provided by investing activities of $149 million was primarily due to maturities of short-term investments, partially offset by ongoing capital expenditures and purchases of long-term and short-term investments.
Cash Flows from Financing Activities
For fiscal 2024, net cash used for financing activities of $7.72 billion was primarily due to payments for our common stock repurchases, partially offset by proceeds from the issuance of senior notes. See the sections titled “Senior Notes” and “Stock Repurchase Program” below.
Liquidity and Capital Resources Considerations
Our existing cash, cash equivalents and investment balances may fluctuate during fiscal 2025 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.
Our cash equivalent and short-term investment portfolio as of November 29, 2024 consisted of money market funds, corporate debt securities, U.S. Treasury securities, time deposits, U.S. agency securities and asset-backed 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. 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.
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 November 29, 2024, 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
We have 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 November 29, 2024, there were no outstanding borrowings under the commercial paper program.
Senior Notes
In April 2024, we issued $500 million of senior notes due April 4, 2027, $750 million of senior notes due April 4, 2029 and $750 million of senior notes due April 4, 2034. In total, we have $5.65 billion of senior notes outstanding, which rank equally with our other unsecured and unsubordinated indebtedness. As of November 29, 2024, the carrying value of our senior notes was $5.63 billion and our maximum commitment for interest payments was $806 million for the remaining duration of our outstanding senior notes. Interest is payable semi-annually, in arrears. 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.
During the first quarter of fiscal 2024, we reclassified the senior notes due February 1, 2025 as current debt in our Consolidated Balance Sheets. As of November 29, 2024, the carrying value of our current debt was $1.50 billion, net of the related discount and issuance costs. Though we intend to refinance the current portion of our debt on or before the due date, the timing of the refinancing may be impacted by market conditions.
Contractual Obligations
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, which became fully utilized during fiscal 2024. In March 2024, our Board of Directors granted additional authority to repurchase up to $25 billion in our common stock through March 14, 2028.
During fiscal 2024, we entered into accelerated share repurchase agreements (“ASRs”) with large financial institutions whereupon we provided them with prepayments totaling $9.5 billion. Subsequent to November 29, 2024, as part of the March 2024 stock repurchase authority, we entered into stock repurchase arrangements with a large financial institution which totaled $3.25 billion, including a $2.75 billion ASR and a trading plan under which we may execute up to $500 million in open market repurchases.
Indemnifications
In the ordinary course of business, we provide indemnifications of varying scope to our 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.
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 forward contracts and option 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 2024, 2023 and 2022 were as follows:
| | | | | | | | | | | | | | | | | |
| (in millions) | 2024 | | 2023 | | 2022 |
| Euro | € | 3,149 | | | € | 2,842 | | | € | 2,487 | |
| Japanese Yen | ¥ | 144,800 | | | ¥ | 129,127 | | | ¥ | 118,456 | |
| British Pounds | £ | 887 | | | £ | 818 | | | £ | 737 | |
| Australian Dollars | $ | 1,064 | | | $ | 973 | | | $ | 876 | |
As of November 29, 2024, the total notional amounts of all outstanding foreign exchange contracts were $5.89 billion, which included the notional equivalent of $2.73 billion in Euros, $791 million in Japanese Yen, $714 million in British Pounds, $609 million in Indian Rupees, $585 million in Australian Dollars, $386 million in Canadian dollars and $76 million in other foreign currencies. As of November 29, 2024, all contracts were set to expire at various dates through September 2026. 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 November 29, 2024. 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. 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 $434 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 $434 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 November 29, 2024 and December 1, 2023, this long-term investment exposure totaled an absolute notional equivalent of $1.19 billion and $1.03 billion, 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 forward contracts or option contracts to hedge foreign currency revenue denominated in Euros, Japanese Yen, British Pounds, Australian Dollars and Canadian 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 24 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 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 November 29, 2024, 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 November 29, 2024, the outstanding balance sheet hedging derivatives had maturities of 180 days or less.
Interest Rate Risk
Short-Term Investments and Fixed Income Securities
At November 29, 2024, we had debt securities classified as short-term investments of $273 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 November 29, 2024, 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 $1 million decrease in the market value of our short-term investments. Conversely, a 150 basis point decrease in interest rates would lead to a $1 million increase in the market value of our short-term investments.
Senior Notes
As of November 29, 2024, we had $5.65 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 November 29, 2024, the total carrying amount of our senior notes was $5.63 billion and the related fair value based on observable market prices in less active markets was $5.51 billion.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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.
ADOBE INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except par value)
| | | | | | | | | | | |
| | November 29,
2024 | | December 1,
2023 |
| 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.
ADOBE INC.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
| | | | | | | | | | | | | | | | | |
| | Years Ended |
| | November 29,
2024 | | December 1,
2023 | | December 2,
2022 |
| 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 | | | | | | | | |
| |
Acquisition termination fee | | | | | | | | |
| 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.
ADOBE INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
| | | | | | | | | | | | | | | | | |
| Years Ended |
| November 29,
2024 | | December 1,
2023 | | December 2,
2022 |
| | | | | |
| 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.
ADOBE INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | Additional
Paid-In
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | Treasury Stock | | |
| | | Shares | | Amount | | | | | Shares | | Amount | | Total |
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 | | | | | $ | | | | $ | | | | $ | | | | $ | () | | | () | | | $ | () | | | $ | | |
| 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 | | — | | | — | | | | | | — | | | — | | | — | | | — | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Balances at November 29, 2024 | | | | | $ | | | | $ | | | | $ | | | | $ | () | | | () | | | $ | () | | | $ | | |
See accompanying Notes to Consolidated Financial Statements.
ADOBE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| | | | | | | | | | | | | | | | | |
| | Years Ended |
| | November 29,
2024 | | December 1,
2023 | | December 2,
2022 |
| 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 | | | | | | | | |
Lease-related asset impairments | | | | | | | | |
| 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 | () | | | () | | | () | |
| |
| Proceeds from issuance of debt | | | | | | | | |
| 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.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
-week years.Significant Accounting Policies
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | $ | | | | $ | | |
| Cost of revenue | | | | | | | | | | | |
| Gross profit | $ | | | | $ | | | | $ | | | | $ | | |
| Gross profit as a percentage of revenue | | % | | | % | | | % | | | % |
| Fiscal 2023 | | | | | | | |
| Revenue | $ | | | | $ | | | | $ | | | | $ | | |
| Cost of revenue | | | | | | | | | | | |
| Gross profit | $ | | | | $ | | | | $ | | | | $ | | |
| Gross profit as a percentage of revenue | | % | | | % | | | % | | | % |
| Fiscal 2022 | | | | | | | |
| Revenue | $ | | | | $ | | | | $ | | | | $ | | |
| 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 2024, 2023 and 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2024 | | 2023 | | 2022 |
| Digital Media | | $ | | | | $ | | | | $ | | |
| Digital Experience | | | | | | | | | |
| Publishing and Advertising | | | | | | | | | |
| Total subscription revenue | | $ | | | | $ | | | | $ | | |
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The allowance for doubtful accounts was $ million and $ million as of November 29, 2024 and December 1, 2023, 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 2024 and 2023. Contract assets were $ million and $ million as of November 29, 2024 and December 1, 2023, 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 November 29, 2024, 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.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 November 29, 2024. 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 2024, 2023 and 2022, 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 November 29, 2024 and December 1, 2023, 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 November 29, 2024 and December 1, 2023, respectively.
Significant Customers
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, we paid Figma a termination fee of $ billion. The termination fee was recorded in operating expenses in our Consolidated Statements of Income during fiscal 2024, and was not tax-deductible for financial statement purposes.
NOTE 4.
| | $ | | | | $ | | | | $ | | | | Cash equivalents: | | | | | | | |
| Corporate debt securities | | | | | | | | | | | |
| Money market funds | | | | | | | | | | | |
| | | |
| Time deposits | | | | | | | | | | | |
| | | |
| U.S. Treasury securities | | | | | | | | | | | |
| 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 | $ | | | | $ | | | | $ | () | | | $ | | |
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | $ | | | | $ | | | | 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 | | | | | | | () | | | | |
| | | |
| | | |
| | | |
|
|
|
|
|
| | |
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5.
| | $ | | | | $ | | | | $ | | | | Money market funds | | | | | | | | | | | |
| | | |
| Time deposits | | | | | | | | | | | |
| | | |
| U.S. Treasury securities | | | | | | | | | | | |
| 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 | | | | | | | | | | | |
Foreign currency derivatives | | | | | | | | | | | |
| Total assets | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | |
| Accrued expenses: | | | | | | | |
| | | |
| Foreign currency derivatives | $ | | | | $ | | | | $ | | | | $ | | |
| Other liabilities: | | | | | | | |
| | | |
Foreign currency derivatives | | | | | | | | | | | |
| Total liabilities | $ | | | | $ | | | | $ | | | | $ | | |
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | $ | | | | $ | | | | 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 | $ | | | | $ | | | | $ | | | | $ | | |
| | | |
| | | |
| | | |
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.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 forward contracts and option 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 November 29, 2024 and December 1, 2023, total notional amounts of outstanding cash flow hedges were $ billion and $ billion, respectively, hedging exposures denominated in Euros, Japanese Yen, British Pounds, Indian Rupees, Australian Dollars and Canadian 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 November 29, 2024, we had net derivative gains on our foreign currency cash flow hedges expected to be recognized within the next months, of which $ million of net gains are expected to be recognized into revenue within the next 12 months and $ million of net losses 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 2024, 2023 and 2022, there were no net gains or losses recognized in income relating to hedges of forecasted transactions that did not occur.
Non-Designated Hedges
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. The changes in fair value of these contracts are recorded to other income (expense), net in our Consolidated Statements of Income. Changes in the fair value of the underlying assets and liabilities associated with the hedged risk are generally offset by the changes in the fair value of the related contracts.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | $ | | | | $ | | | | | | |
| | | |
| | | |
| | | |
| Derivatives not designated as hedging instruments: | | | | | | | |
Foreign exchange contracts | | | | | | | | | | | |
| Total derivatives | $ | | | | $ | | | | $ | | | | $ | | |
| | $ | () | | | $ | | | | |
| |
| | ) | | $ | | | | $ | | |
| | | |
| | |
| Net gain (loss) reclassified from accumulated OCI into income | Operating expenses | | $ | | | | $ | () | | | $ | | |
Treasury lock | | | | | | |
| Net gain (loss) reclassified from accumulated OCI into income | Interest expense | | $ | () | | | $ | () | | | $ | () | |
| Derivatives not designated as hedging relationships: | | | | | | |
| | | |
|
|
|
|
|
|
|
|
| | |
| | |
| | |
NOTE 8.
| | $ | | | | $ | | | | $ | | |
| | | |
Foreign currency translation | | | | | | | | | | | |
Balances at December 1, 2023 | $ | | | | $ | | | | $ | | | | $ | | |
| | | |
Foreign currency translation | () | | | () | | | | | | () | |
Balances at November 29, 2024 | $ | | | | $ | | | | $ | | | | $ | | |
During the second quarter of fiscal 2024, we completed our annual goodwill impairment test associated with our reporting units and, based on the qualitative assessment, determined there was no impairment of goodwill. We did not identify any events or changes in circumstances since the performance of our annual goodwill impairment test that would require us to perform another goodwill impairment test during the fiscal year.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | () | | | $ | | | | | | $ | | | | $ | () | | | $ | | | | Purchased technology | | | | () | | | | | | | | | | | () | | | | |
| Trademarks | | | | () | | | | | | | | | | | () | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Other | | | | () | | | | | | | | | | | () | | | | |
| Other intangibles, net | $ | | | | $ | () | | | $ | | | | | | $ | | | | $ | () | | | $ | | |
Amortization expense related to other intangibles was $ million, $ million and $ million for fiscal 2024, 2023 and 2022 respectively. Of these amounts, $ million, $ million and $ million was included in cost of sales for fiscal 2024, 2023 and 2022 respectively. We did not recognize any intangible asset impairment charges for all periods presented.
Other intangibles are amortized over their estimated useful lives of to years.
| | 2026 | | | |
| 2027 | | | |
| 2028 | | | |
| 2029 | | | |
| Thereafter | | | |
| Total expected amortization expense | | $ | | |
NOTE 9.
| | $ | | | | Accrued bonuses | | | | | |
| Accrued corporate marketing | | | | | |
Derivative collateral liabilities | | | | | |
| Refund liabilities | | | | | |
Sales and use taxes | | | | | |
|
|
|
|
|
| Other | | | | | |
| Accrued expenses | $ | | | | $ | | |
Other primarily includes general business accruals, accrued hosting fees and royalties payable.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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) | | 2024 | | 2023 | | 2022 |
| Tax expense computed at U.S. federal statutory rate | | $ | | | | $ | | | | $ | | |
| Effects of non-U.S. operations | | () | | | () | | | () | |
| Tax credits | | () | | | () | | | () | |
| Tax settlements | | () | | | () | | | () | |
| | |
| Stock-based compensation | | () | | | | | | | |
Acquisition termination fee | | | | | | | | | |
| State tax expense, net of federal benefit | | | | | | | | | |
| | |
| | |
| Other | | | | | | | | | |
| | |
Provision for income taxes | | $ | | | | $ | | | | $ | | |
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | Credit carryforwards | | | | | | |
Net operating loss and capital loss carryforwards | | | | | | |
| Intangible assets | | | | | | |
| Reserves and accruals | | | | | | |
| Operating lease liabilities | | | | | | |
| Stock-based compensation | | | | | | |
| 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 | | | | | | |
| Depreciation and amortization | | | | | | |
| Operating lease right-of-use assets | | | | | | |
|
| 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 tax loss and credit carryforwards.
As of November 29, 2024, we had federal and state tax credit carryforwards of approximately $ million and $ million, respectively, as well as state net operating loss carryforwards of approximately $ million. We also had federal and state capital loss carryforwards of $ billion mainly from the Figma acquisition termination fee which was not deductible for financial statement purposes. The majority of the state tax credits can be carried forward indefinitely, and the remaining federal and state tax loss and credit carryforwards will expire in various years from fiscal 2025 through 2040. Certain tax loss and 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 November 29, 2024, we continue to maintain a valuation allowance of $ million primarily related to certain state credits and federal capital loss carryforwards. For fiscal 2024, the increase in the valuation allowance was $ million, mainly related to the capital loss generated from the Figma acquisition termination fee.
As we repatriate foreign earnings for use in the United States, the distributions will generally be exempt from federal income taxes. As of November 29, 2024, 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.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | 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 November 29, 2024 and December 1, 2023, 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 2020 being the earliest fiscal year open for examination in all of our major tax jurisdictions. We regularly assess the likelihood of outcomes resulting from examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result. 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 2024, we matched % of the first % of the employee’s eligible compensation. We contributed $ million, $ million and $ million in fiscal 2024, 2023 and 2022, 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
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12.
. Certain grants have other vesting periods approved by the Executive Compensation Committee of our Board of Directors (the “ECC”).As of November 29, 2024, 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 2024, the ECC approved the 2024 Performance Share Program.
Shares outstanding under our 2024, 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.
Performance share awards in each of our 2024, 2023 and 2022 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 November 29, 2024, the shares awarded under our 2024, 2023 and 2022 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 market value of our common stock at the end of a purchase period is lower than the market value at the beginning of the offering period, participants are rolled over into the subsequent offering, resulting in a reset of the offering price and the twenty-four month offering period.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 ongoing 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 November 29, 2024 of $.
The weighted average grant date fair values of restricted stock units granted during fiscal 2024, 2023 and 2022 were $, $ and $, respectively. The total fair value of restricted stock units vested during fiscal 2024, 2023 and 2022 was $ billion, $ billion and $ billion, respectively.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | | | | | Awarded | | | | $ | | | | | | |
| Released | () | | | $ | | | | | | |
| Forfeited | () | | | $ | | | | | | |
| Ending outstanding balance | | | | $ | | | | $ | | | | |
| | | | | | | |
| Expected to vest | | | | $ | | | | $ | | | | |
_________________________________________
(1) The aggregate fair value is calculated using the closing stock price as of November 29, 2024 of $.
Shares released during fiscal 2024 resulted from % achievement of target for the 2021 Performance Share Program, as certified by the ECC in the first quarter of fiscal 2024.
The weighted average grant date fair values of performance share awards granted during fiscal 2024, 2023 and 2022 were $, $ and $, respectively. The total fair value of performance share awards vested during fiscal 2024, 2023 and 2022 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 2024, 2023 and 2022, respectively. The intrinsic value of shares purchased during fiscal 2024, 2023 and 2022 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.
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 November 29, 2024, there was $ billion of unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested 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.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | $ | | | | Research and development | | | | | | | | |
| Sales and marketing | | | | | | | | |
| General and administrative | | | | | | | | |
Total (1) | $ | | | | $ | | | | $ | | |
_________________________________________
(1)During fiscal 2024, 2023 and 2022, 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, which became fully utilized during fiscal 2024. In March 2024, our Board of Directors granted additional authority to repurchase up to $25 billion in our common stock through March 14, 2028.During fiscal 2024, 2023 and 2022, we entered into accelerated share repurchase agreements (“ASRs”) with large financial institutions whereupon we provided them with prepayments totaling $ billion, $ 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.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | | ASR entered into in December 2023 | | | | $ | | | |
| ASR entered into in March 2024 | | | | $ | | | |
| ASR entered into in June 2024 | | | | $ | | | |
| ASR entered into in September 2024 | | | | $ | | | (1) |
| Total shares delivered | | | | | |
Fiscal 2023 | | | | |
| Structured stock repurchase agreements entered into in fiscal 2023 and 2022 | | | | $ | | | |
| ASR entered into in December 2022 | | | | $ | | | |
| Total shares delivered | | | | | |
Fiscal 2022 | | | | |
| Structured stock repurchase agreements entered into in fiscal 2022 and 2021 | | | | $ | | | |
| ASR entered into in December 2021 | | | | $ | | | |
| Total shares delivered | | | | | |
_________________________________________
(1) During fiscal 2024, we received the initial delivery of shares under the ASR entered into in September 2024, which remained outstanding as of November 29, 2024. Subsequent to November 29, 2024, the outstanding ASR was settled which resulted in total repurchases of million shares at an average price of $.
Prepayments for stock repurchases are classified as treasury stock, a component of stockholders’ equity on our Consolidated Balance Sheets, at the payment date, though only shares physically delivered to us by the end of the respective period are excluded from the computation of net income per share. As of November 29, 2024, a portion of the $ billion prepayment under the ASR entered into in September 2024 was evaluated as an unsettled forward contract indexed to our own stock, classified within stockholders’ equity.
Subsequent to November 29, 2024, as part of the March 2024 stock repurchase authority, we entered into stock repurchase arrangements with a large financial institution which totaled $ billion, including a $ billion ASR and a trading plan under which we may execute up to $ million in open market repurchases. Under the ASR, we received an initial delivery of million shares, which represents approximately % of our $ billion prepayment.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 | | | | | | | | |
NOTE 16.
| | 2026 | | | |
| 2027 | | | |
| 2028 | | | |
| 2029 | | | |
| Thereafter | | | |
| Total | | $ | | |
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 2024, 2023 and 2022, respectively.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17.
% 2025 NotesFebruary 2020 | | February 2025 | | % | | $ | | | | $ | | | % 2025 Notes | January 2015 | | February 2025 | | % | | | | | | |
% 2027 Notes | February 2020 | | February 2027 | | % | | | | | | |
% 2027 Notes | April 2024 | | April 2027 | | % | | | | | | |
% 2029 Notes | April 2024 | | April 2029 | | % | | | | | | |
% 2030 Notes | February 2020 | | February 2030 | | % | | | | | | |
% 2034 Notes | April 2024 | | April 2034 | | % | | | | | | |
| Total debt outstanding, at par | | $ | | | | $ | | |
Less: Current portion of debt, at par | | () | | | | |
| Unamortized discount and debt issuance costs | | () | | | () | |
| Carrying value of long-term debt | | $ | | | | $ | | |
| | | | | | | | | |
| Current portion of debt, at par | | $ | | | | $ | | |
| Unamortized discount and debt issuance costs | | () | | | | |
Carrying value of current debt | | $ | | | | $ | | |
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, 2025, $ million of senior notes due February 1, 2027 and $ billion of senior notes due February 1, 2030. 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.
In April 2024, we issued $ million of senior notes due April 4, 2027, $ million of senior notes due April 4, 2029 and $ million of senior notes due April 4, 2034. Our total proceeds were approximately $ billion, net of an issuance discount of $ million and total issuance costs of $ million. 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 April 4 and October 4.
During the first quarter of fiscal 2024, we reclassified the senior notes due February 1, 2025 as current debt in our Consolidated Balance Sheets. As of November 29, 2024, the carrying value of our current debt was $ billion, net of the related discount and issuance costs.
Our senior notes rank equally with our other unsecured and unsubordinated indebtedness, and do not contain financial covenants. We may redeem the notes at any time, subject to a make-whole premium.
For the senior notes issued in January 2015 and February 2020, 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. In addition, these notes include covenants that limit our ability to grant liens on assets and to enter into sale and leaseback transactions, subject to significant allowances.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 November 29, 2024, 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 November 29, 2024, there were outstanding borrowings under the commercial paper program.
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 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. During fiscal 2024, we entered into a mutual termination agreement with Figma to terminate the previously announced merger agreement. Consequently, the Term Loan Credit Agreement was terminated. There were outstanding borrowings under the Term Loan Credit Agreement at the time of termination.
NOTE 18.
million, $ million and $ million for fiscal 2024, 2023 and 2022, 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.
ADOBE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | $ | | | | $ | | | | 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 November 29, 2024 were years and %, respectively.
| | 2026 | | |
| 2027 | | |
| 2028 | | |
| 2029 | | |
| Thereafter | | |
Total lease liabilities | $ | | |
| Less: Imputed interest | () | |
| Present value of lease liabilities | $ | | |
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 | $ | | | | $ | | | | $ | () | |
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 November 29, 2024 and December 1, 2023, 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 November 29, 2024, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of November 29, 2024, 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 November 29, 2024 and December 1, 2023, and the results of its operations and its cash flows for each of the fiscal years in the three fiscal year period ended November 29, 2024, 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 November 29, 2024 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.
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 13, 2025
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 November 29, 2024. Based on their evaluation as of November 29, 2024, 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 November 29, 2024. 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 November 29, 2024, 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 November 29, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
On January 9, 2025, Brett Biggs notified the Board of Directors of the Company (the “Board”) that he has decided not to stand for re-election at the Company’s 2025 Annual Meeting of Stockholders (the “Annual Meeting”) but will serve out his term as a director until the Annual Meeting. The Board expresses its gratitude for Mr. Biggs, and his decision was not due to any disagreement with the Company or any refusal to stand for re-election.
Trading Arrangements
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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 2025 Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for Adobe’s 2025 Annual Meeting of Stockholders (“2025 Proxy Statement”) is incorporated herein by reference to our 2025 Proxy Statement. The 2025 Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year to which this report relates.
Adobe has an governing the purchase, sale and other dispositions of Adobe’s securities that applies to all personnel of Adobe and its subsidiaries, including directors, officers and employees and other covered persons, as well as Adobe itself. Adobe believes that its insider trading policy is reasonably designed to promote compliance with insider trading laws, rules and regulations, as well as applicable listing standards. A copy of Adobe’s insider trading policy is filed as Exhibit 19.1 to this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 of Form 10-K is incorporated herein by reference to our 2025 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 2025 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 2025 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 2025 Proxy Statement.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | | | |
Exhibit
Number | | Exhibit Description | | Form | | Filing Date | | Exhibit Number | | SEC File No. | | Filed
Herewith |
| | | | | | | | | | | | |
| 2.1 | | | | 8-K | | 9/15/22 | | 2.1 | | 000-15175 | | |
| | | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| 3.1 | | | | 8-K | | 4/26/11 | | 3.3 | | | 000-15175 | | |
| | | | | | | | | | | | |
| 3.2 | | | | 8-K | | 10/9/18 | | 3.1 | | | 000-15175 | | |
| | | | | | | | | | | | |
| 3.3 | | | | 8-K | | 1/18/22 | | 3.1 | | | 000-15175 | | |
| | | | | | | | | | | | |
| 4.1 | | | | 10-K | | 1/25/19 | | 4.1 | | | 000-15175 | | |
| | | | | | | | | | | | |
| 4.2 | | | | S-3 | | 2/26/16 | | 4.1 | | | 333-209764 | | |
| | | | | | | | | | | | |
| 4.3 | | | | 8-K | | 2/3/20 | | 4.1 | | | 000-15175 | | |
| | | | | | | | | | | | |
| 4.4 | | | | 8-K | | 1/26/15 | | 4.1 | | | 000-15175 | | |
| | | | | | | | | | | | |
4.5 | | | | 8-K | | 4/4/24 | | 4.1 | | 000-15175 | | |
| | | | | | | | | | | | |
4.6 | | | | 10-K | | 1/17/24 | | 4.5 | | | 000-15175 | | |
| | | | | | | | | | | | |
| 10.1 | | | | 10-K | | 1/15/21 | | 10.1 | | | 000-15175 | | |
| | | | | | | | | | | | |
10.2A | | | | 8-K | | 4/19/24 | | 10.1 | | | 000-15175 | | |
| | | | | | | | | | | | |
10.2B | | | | 8-K | | 1/26/23 | | 10.4 | | | 000-15175 | | |
| | | | | | | | | | | | |
10.2C | | | | 8-K | | 1/27/22 | | 10.3 | | | 000-15175 | | |
| | | | | | | | | | | | |
10.2D | | | | 8-K | | 1/26/23 | | 10.2 | | | 000-15175 | | |
| | | | | | | | | | | | |
10.2E | | | | 8-K | | 1/26/23 | | 10.3 | | | 000-15175 | | |
| | | | | | | | | | | | |
10.2F | | | | 8-K | | 1/26/24 | | 10.2 | | | 000-15175 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | | | |
Exhibit
Number | | Exhibit Description | | Form | | Filing Date | | Exhibit Number | | SEC File No. | | Filed
Herewith |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
10.2G | | | | 8-K | | 1/26/24 | | 10.3 | | | 000-15175 | | |
| | | | | | | | | | | | |
10.2H | | | | | | | | | | | | X |
| | | | | | | | | | | | |
10.2I | | | | | | | | | | | | X |
| | | | | | | | | | | | |
10.3 | | | | 8-K | | 12/11/14 | | 10.2 | | | 000-15175 | | |
| | | | | | | | | | | | |
10.4 | | | | 10-K | | 1/17/24 | | 10.5 | | | 000-15175 | | |
| | | | | | | | | | | | |
10.5A | | | | 10-K | | 1/20/15 | | 10.19 | | | 000-15175 | | |
| | | | | | | | | | | | |
10.5B | | | | 10-K | | 1/21/20 | | 10.6B | | 000-15175 | | |
| | | | | | | | | | | | |
10.6 | | | | 8-K | | 7/1/22 | | 10.1 | | | 000-15175 | | |
| | | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
|
ITEM 16. FORM 10-K SUMMARY
None.
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, Security and Operations |
| | | (Principal Financial Officer) |
Date: January 13, 2025
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.
| | | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | | | |
| | | | |
| /s/ SHANTANU NARAYEN | | | | January 13, 2025 |
| Shantanu Narayen | | Chair of the Board of Directors and Chief Executive Officer (Principal Executive Officer) | | |
| | | | |
| /s/ DANIEL DURN | | | | January 13, 2025 |
| Daniel Durn | | Chief Financial Officer and Executive Vice President, Finance, Technology, Security and Operations (Principal Financial Officer) | | |
| | | | |
/s/ JILLIAN FORUSZ | | | | January 13, 2025 |
Jillian Forusz | | Senior Vice President, Chief Accounting Officer and Corporate Controller (Principal Accounting Officer) | | |
| | | | |
| /s/ FRANK CALDERONI | | | | January 13, 2025 |
| Frank Calderoni | | Director | | |
| | | | |
/s/ CRISTIANO AMON | | | | January 13, 2025 |
Cristiano Amon | | Director | | |
| | | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | | | |
| /s/ AMY BANSE | | | | January 13, 2025 |
| Amy Banse | | Director | | |
| | | | |
| /s/ BRETT BIGGS | | | | January 13, 2025 |
| Brett Biggs | | Director | | |
| | | | |
| /s/ MELANIE BOULDEN | | | | January 13, 2025 |
| Melanie Boulden | | Director | | |
| | | | |
| /s/ LAURA DESMOND | | | | January 13, 2025 |
| Laura Desmond | | Director | | |
| | | | |
| /s/ SPENCER NEUMANN | | | | January 13, 2025 |
| Spencer Neumann | | Director | | |
| | | | |
| /s/ KATHLEEN OBERG | | | | January 13, 2025 |
| Kathleen Oberg | | Director | | |
| | | | |
| /s/ DHEERAJ PANDEY | | | | January 13, 2025 |
| Dheeraj Pandey | | Director | | |
| | | | |
| /s/ DAVID RICKS | | | | January 13, 2025 |
| David Ricks | | Director | | |
| | | | |
| /s/ DAN ROSENSWEIG | | | | January 13, 2025 |
| Dan Rosensweig | | Director | | |
| | | | |
| | | | |
| | | | |
| | | | |
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 AI Assistant
Acrobat Reader
Acrobat Sign
Adobe
Adobe Audition
Adobe Campaign
Adobe Commerce
Adobe Experience Cloud
Adobe Express
Adobe Firefly
Adobe Fonts
Adobe Fresco
Adobe GenStudio
Adobe Mix Modeler
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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