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Item 8. Financial Statements and Supplementary Data

2023-01-17 compared with 2022-01-21 · 204 added, 231 removed, 1035 unchanged (30% of the section changed)

7 unchanged sentences

Notes to Consolidated Financial Statements

Report of KPMG LLP, Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm ( KPMG LLP , Santa Clara, California , PCAOB ID 185 )

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.

Table of Content s

CONSOLIDATED BALANCE SHEETS

(In millions, except par value)

2021 November 27,

2022 December 3,

Current assets:

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Income taxes payable 530 534

Deferred income taxes 5 10

Operating lease liabilities 417 453

17 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

2021 November 27,

2022 December 3,

2021 November 27,

29 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

2021 November 27,

2022 December 3,

2021 November 27,

14 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

Table of Content s

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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601 $ — $ 6,504 $ 14,829 $ ( 188 ) ( 118 ) $ ( 10,615 ) $ 10,530

Impacts of adoption of the new revenue standard

— — — 442 — — — 442

Net income — — — 5,260 — — — 5,260

12 unchanged sentences

Repurchases of common stock — — — — — ( 7 ) ( 3,950 ) ( 3,950 )

Equity awards assumed for

— — 2 — — — — 2

Stock-based compensation — — 1,069 — — — — 1,069

Value of shares in deferred compensation plan — — — — — — ( 3 ) ( 3 )

Balances at November 27, 2020

Balances at December 3, 2021

601 $ — $ 8,428 $ 23,905 $ ( 137 ) ( 126 ) $ ( 17,399 ) $ 14,797

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Repurchases of common stock — — — — — ( 16 ) ( 6,550 ) ( 6,550 )

Equity awards assumed for acquisition — — 2 — — — — 2

Stock-based compensation — — 1,440 — — — — 1,440

3 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

Table of Content s

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

2021 November 27,

2022 December 3,

2021 November 27,

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Effect of foreign currency exchange rates on cash and cash equivalents ( 51 ) ( 26 ) 3

Net increase (decrease) in cash and cash equivalents ( 634 ) 1,828 1,007

Net change in cash and cash equivalents 392 ( 634 ) 1,828

Cash and cash equivalents at beginning of year 3,844 4,478 2,650

28 unchanged sentences

Our fiscal year is a 52- or 53-week year that ends on the Friday closest to November 30.

Our financial results for fiscal 2021 benefited from an extra week in the first quarter of fiscal 2021 due to our 52/53 week financial calendar whereby fiscal 2021 is a 53 -week year compared with fiscal 2020 and 2019 which were 52 -week years.

Our financial results for fiscal 2021 benefited from an extra week in the first quarter of fiscal 2021 due to our 52/53 week financial calendar whereby fiscal 2021 was a 53 -week year compared with fiscal 2022 and 2020 which were 52 -week years.

Reclassifications

Certain prior year amounts, which are not material, have been reclassified to conform to current year presentation in the Notes to Consolidated Financial Statements.

Certain prior year amounts, which are not material, have been reclassified to conform to current year presentation in the Consolidated Balance Sheets and Notes to Consolidated Financial Statements.

Significant Accounting Policies

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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 and fixed-fee basis.

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.

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Creative Cloud Libraries, which enable customers to access their work, settings, preferences and other assets seamlessly across desktop and mobile devices and collaborate across teams in real time;

shared reviews which enable simultaneous editing and commenting of PDFs across desktop, mobile and web;

shared reviews which enable simultaneous editing and commenting of digital assets across desktop, mobile and web;

automatic cloud rendering of a design which enables it to be worked on in multiple mediums;

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Goodwill, Intangibles and Other Long-Lived Assets

Goodwill is assigned to one or more reporting segments on the date of acquisition.

Goodwill is assigned to one or more reporting units on the date of acquisition.

We review our goodwill for impairment annually during our second quarter of each fiscal year and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of any one of our reporting units below its respective carrying amount.

In performing our goodwill impairment test, we first perform a qualitative assessment, which requires that we consider

In performing our goodwill impairment test, we first perform a qualitative assessment, which requires that we consider events or

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

events or circumstances including macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, changes in the composition or carrying amount of a reporting segment’s net assets and changes in our stock price.

If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair values of our reporting segments are greater than the carrying amounts, then the quantitative goodwill impairment test is not performed.

If the qualitative assessment indicates that the quantitative analysis should be performed, we then evaluate goodwill for impairment by comparing the fair value of each of our reporting segments to its carrying value, including the associated goodwill.

circumstances including macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, changes in the composition or carrying amount of a reporting unit’s net assets and changes in our stock price.

If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair values of our reporting units are greater than the carrying amounts, then the quantitative goodwill impairment test is not performed.

If the qualitative assessment indicates that the quantitative analysis should be performed, we then evaluate goodwill for impairment by comparing the fair value of each of our reporting units to its carrying value, including the associated goodwill.

To determine the fair values, we use the equal weighting of the market approach based on comparable publicly traded companies in similar lines of businesses and the income approach based on estimated discounted future cash flows.

1 unchanged sentence

We completed our annual goodwill impairment test in the second quarter of fiscal 2022.

We determined, after performing a qualitative review of each reporting segment, that it is more likely than not that the fair value of each of our reporting segments substantially exceeds the respective carrying amounts.

We determined, after performing a qualitative review of each reporting unit, that it is more likely than not that the fair value of each of our reporting units substantially exceeds the respective carrying amounts.

Accordingly, there was no indication of impairment and the quantitative goodwill impairment test was not performed.

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We did not recognize any intangible asset impairment charges for all periods presented.

During fiscal 2021, our intangible assets were amortized over their estimated useful lives ranging from 2 to 15 years.

Our intangible assets are amortized over their estimated useful lives ranging from 2 to 14 years.

Amortization is based on the pattern in which the economic benefits of the intangible asset will be consumed or on a straight-line basis when the consumption pattern is not apparent.

6 unchanged sentences

Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year.

In addition, deferred tax assets and liabilities are recognized for expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards.

In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards.

Significant judgment is required in determining our current provision for income taxes and deferred tax assets or liabilities.

We record a valuation allowance to reduce deferred tax assets to an amount for which realization is more likely than not.

Our assumptions, judgments and estimates relative to the current provision for income taxes take into account our interpretation and application of current tax laws and possible outcomes of current and future examinations conducted by domestic and foreign tax authorities.

We have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities.

We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and associated reserves.

Our policy is to record interest and penalties related to unrecognized tax benefits in income tax expense.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Taxes Collected from Customers

1 unchanged sentence

Accordingly, taxes collected from customers are not reported as revenue.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Treasury Stock

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Advertising costs are expensed as incurred.

Advertising expenses for fiscal 2021, 2020 and 2019 were $ 540 million, $ 362 million and $ 221 million, respectively.

Advertising expenses for fiscal 2022, 2021 and 2020 were $ 1.04 billion, $ 865 million and $ 592 million, respectively.

Prior year amounts have been recast to conform to current year presentation, which reflect changes to modernize the categorization of costs reported as advertising expenses, primarily associated with the inclusion of certain digital advertising costs.

There was no impact to the Consolidated Statements of Income resulting from this change.

Foreign Currency Translation

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Dollars and in various other currencies.

We may use foreign exchange option contracts or forward contracts to hedge a portion of our forecasted foreign currency denominated revenue primarily in Euros, British Pounds, Japanese Yen and Australian Dollars.

We may use foreign exchange option contracts or forward contracts to hedge a portion of our forecasted foreign currency denominated revenue and expenses primarily in Euros, British Pounds, Japanese Yen, Australian Dollars and Indian Rupees.

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.

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Contracts that do not qualify for hedge accounting are adjusted to fair value through earnings.

Gains and losses related to changes in the fair value of interest rate swaps and foreign exchange forward contracts which hedge certain balance sheet positions are recorded each period as a component of other income (expense), net in our Consolidated Statements of Income.

Foreign exchange option contracts hedging forecasted foreign currency revenue and Treasury lock agreements are designated as cash flow hedges with gains and losses recorded net of tax as a component of 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 and Treasury lock cash flow hedges to revenue and interest expense, respectively.

Gains and losses related to changes in the fair value of foreign exchange forward contracts which hedge certain balance sheet positions are recorded each period as a component of other income (expense), net in our Consolidated Statements of Income.

Foreign exchange option contracts and forward contracts hedging forecasted foreign currency revenue and expenses and Treasury lock agreements are designated as cash flow hedges with gains and losses recorded net of tax as a component of 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.

Concentration of Risk

Financial instruments that potentially subject us to concentrations of credit risk are short-term fixed-income investments, structured repurchase transactions, foreign currency and interest rate hedge contracts and trade receivables.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Our investment portfolio consists of investment-grade securities diversified among security types, industries and issuers.

2 unchanged sentences

We enter into master netting arrangements to mitigate credit risk in derivative transactions by permitting net settlement of transactions with the same counterparty.

We also enter into collateral security agreements with certain of our counterparties

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

to exchange cash collateral when the net fair value of certain derivative instruments fluctuates from contractually established thresholds.

We also enter into collateral security agreements with certain of our counterparties to exchange cash collateral when the net fair value of certain derivative instruments fluctuates from contractually established thresholds.

Credit risk in receivables is limited to OEMs, dealers and distributors of hardware and software products to the retail market, customers to whom we license software directly and our SaaS offerings.

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Accordingly, we will not recognize any consideration received as revenue until termination or substantive completion of the services.

Recently Adopted Accounting Guidance

On June 16, 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments-Credit Losses (Topic 326).

The FASB subsequently issued ASU No.

2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.

These updates require the measurement and recognition of expected credit losses for financial assets held at amortized cost, which include our trade receivables and contract assets.

The standard also requires that we recognize credit impairment losses related to our available-for-sale debt securities through an allowance for credit losses instead of a reduction in the cost basis.

On November 28, 2020, the beginning of our fiscal year 2021, we adopted the accounting requirements of the updated standard utilizing the modified retrospective method of transition.

The adoption of this standard did not have a material impact on our Consolidated Financial Statements and related disclosures.

There have been no other new accounting pronouncements made effective during fiscal 2021 that have significance, or potential significance, to our Consolidated Financial Statements.

Recent Accounting Pronouncements Not Yet Effective

To date, there have been no recent accounting pronouncements not yet effective that have significance, or potential significance, to our Consolidated Financial Statements.

Adopted Accounting Guidance and Accounting Pronouncements Not Yet Effective

There have been no recent accounting pronouncements, changes in accounting pronouncements or recently adopted accounting guidance during fiscal 2022 that are of significance or potential significance to us.

Segment Information

6 unchanged sentences

Our customers include creative professionals, including photographers, video editors, graphic and experience designers and game developers, communicators, including content creators, students, marketers and knowledge workers, and consumers.

• Digital Experience —Our Digital Experience segment provides an integrated platform and set of applications and services that enable brands and businesses to create, manage, execute, measure, monetize and optimize customer

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

experiences that span from analytics to commerce.

Our customers include marketers, advertisers, agencies, publishers, merchandisers, merchants, web analysts, data scientists, developers and executives across the C-suite.

• Publishing and Advertising —Our Publishing and Advertising segment contains legacy products and services that address diverse market opportunities, including eLearning solutions, technical document publishing, web conferencing, document and forms platform, web application development, high-end printing and our Adobe Advertising Cloud offerings.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Our segment revenue and results for fiscal 2022, 2021 and 2020 were as follows:

29 unchanged sentences

Total Digital Media revenue $ 12,842 $ 11,520 $ 9,233

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Subscription revenue by segment for fiscal 2022, 2021 and 2020 were as follows:

4 unchanged sentences

Total subscription revenue $ 16,388 $ 14,573 $ 11,626

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contract Balances

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As of December 2, 2022, the balance of trade receivables, net of allowances for doubtful accounts, was $ 2.07 billion, inclusive of unbilled receivables of $ 93 million.

As of November 27, 2020, the balance of trade receivables, net of allowance for doubtful accounts, was $ 1.40 billion, inclusive of unbilled receivables of $ 84 million.

As of December 3, 2021, the balance of trade receivables, net of allowance for doubtful accounts, was $ 1.88 billion, inclusive of unbilled receivables of $ 82 million.

Allowance for Doubtful Accounts

1 unchanged sentence

We maintain general reserves on a collective basis by considering factors such as historical experience, credit-worthiness, the age of the trade receivable balances, current economic conditions and a reasonable and supportable forecast of future economic conditions.

During fiscal 2021, 2020 and 2019, our allowance for doubtful accounts activities were as follows:

(in millions) 2021 2020 2019

Beginning balance $ 21 $ 10 $ 15

Increase due to acquisition 3 — —

Adjustments to reserve balance ( 3 ) 31 5

Write-offs, net of recoveries ( 5 ) ( 20 ) ( 10 )

Ending balance $ 16 $ 21 $ 10

The allowance for doubtful accounts was $ 23 million and $ 16 million as of December 2, 2022 and December 3, 2021, respectively.

Contract Assets

2 unchanged sentences

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 and other economic or business factors.

Contract asset impairments were not material in fiscal 2021.

Contract assets were $ 85 million and $ 81 million as of December 3, 2021 and November 27, 2020, respectively.

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 2022 and 2021.

Contract assets were $ 97 million and $ 85 million as of December 2, 2022 and December 3, 2021, respectively.

Deferred Revenue and Remaining Performance Obligations

2 unchanged sentences

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,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

invoice timing, size and new business linearity within the quarter.

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.

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Non-cancellable and non-refundable committed funds related to these agreements comprised approximately 5 % of the total deferred revenue.

As of November 27, 2020, the balance of deferred revenue was $ 3.76 billion.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 3, 2021, the balance of deferred revenue was $ 4.88 billion.

Significant movements in the deferred revenue balance during the period consisted of increases due to payments received prior to transfer of control of the underlying performance obligations to the customer and deferred revenue assumed through acquisition, which were offset by decreases due to revenue recognized in the period.

During the year ended December 3, 2021, approximately $ 3.55 billion of revenue was recognized that was included in the balance of deferred revenue as of November 27, 2020.

During the year ended December 2, 2022, approximately $ 4.72 billion of revenue was recognized that was included in the balance of deferred revenue as of December 3, 2021.

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.

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Amortization of capitalized costs are included in sales and marketing expense in our Consolidated Statements of Income.

During fiscal 2021 and 2020, we amortized $ 212 million and $ 186 million of capitalized contract acquisition costs into sales and marketing expense, respectively.

We did not incur any impairment losses in fiscal 2021 and 2020.

Capitalized contract acquisition costs were $ 611 million and $ 530 million as of December 3, 2021 and November 27, 2020, of which $ 406 million and $ 352 million was long-term and included in other assets in the Consolidated Balance Sheets,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

respectively.

During fiscal 2022, 2021 and 2020, we amortized $ 238 million, $ 212 million and $ 186 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 $ 629 million and $ 611 million as of December 2, 2022 and December 3, 2021, of which $ 406 million was long-term and included in other assets in the Consolidated Balance Sheets for both periods presented.

The remaining balance of the capitalized costs to obtain contracts was current and included in prepaid expenses and other current assets.

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Refund liabilities are included in accrued expenses on the Consolidated Balance Sheets.

Refund liabilities were $ 128 million and $ 127 million as of December 3, 2021 and November 27, 2020, respectively.

Refund liabilities were $ 106 million and $ 128 million as of December 2, 2022 and December 3, 2021, respectively.

Significant Customers

For all periods presented, there were no customers that represented at least 10% of net revenue or that were responsible for over 10% of our trade receivables.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On September 15, 2022, we entered into a definitive agreement under which we intend to acquire Figma, Inc.

(“Figma”) for approximately $ 20 billion, comprised of approximately half cash and half stock, subject to customary purchase price adjustments.

Approximately 6 million additional restricted stock units will be granted to Figma’s Chief Executive Officer and employees that will vest over four years subsequent to closing.

The transaction is subject to regulatory approvals and customary closing conditions, and is expected to close in 2023.

We will be required to pay Figma a reverse termination fee of $ 1 billion if the transaction fails to receive regulatory clearance, assuming all other closing conditions have been satisfied or waived, or if it fails to close within 18 months from September 15, 2022.

Figma is a privately held company that provides a web-first collaborative product design platform.

Following the closing, we intend to integrate Figma into our Digital Media reportable segment for financial reporting purposes.

On October 7, 2021, we completed the acquisition of Frame.io, a privately held company that provides a cloud-based video collaboration platform, for approximately $ 1.24 billion, primarily in cash consideration.

1 unchanged sentence

Frame.io is reported as part of our Digital Media reportable segment.

The table below represents the preliminary purchase price allocation to total identifiable intangible assets acquired and net liabilities assumed based on their respective estimated fair values as of October 7, 2021.

The fair values assigned to assets acquired and liabilities assumed are based on management’s best estimates and assumptions as of the reporting date.

Fair values associated with the net tax liabilities assumed and their related impact to goodwill were pending finalization as of the reporting date.

During fiscal 2022, we recorded purchase accounting adjustments that were not material based on changes to management’s estimates and assumptions primarily in regards to the total purchase price and its related impact to goodwill.

The table below represents the final purchase price allocation to total identifiable intangible assets acquired and net liabilities assumed based on their respective estimated fair values as of October 7, 2021.

(dollars in millions) Amount Weighted Average Useful Life (years)

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(2) Non-deductible for tax purposes.

Pro forma financial information has not been presented for the Frame.io acquisition as the impact to our Consolidated Financial Statements was not material.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On December 7, 2020, we completed the acquisition of Workfront, a privately held company that provides a workflow platform, for approximately $ 1.52 billion in cash consideration.

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Workfront is reported as part of our Digital Experience reportable segment.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The fair values assigned to assets acquired and liabilities assumed are based on management’s best estimates and assumptions as of the reporting date.

During fiscal 2021, we recorded immaterial purchase accounting adjustments based on changes to management’s estimates and assumptions in regards to net tax liabilities assumed and their related impact to goodwill.

(dollars in millions) Amount Weighted Average Useful Life (years)

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(1) Non-deductible for tax purposes.

Pro forma financial information has not been presented for the Workfront acquisition as the impact to our Consolidated Financial Statements was not material.

Allegorithmic

On January 23, 2019, we completed the acquisition of Allegorithmic, a privately held 3D editing and authoring software company for gaming and entertainment, and integrated it into our Digital Media reportable segment.

Prior to the acquisition, we held an equity interest that was accounted for as an equity-method investment.

We acquired the remaining equity interest for approximately $ 106 million in cash consideration.

The total purchase price, inclusive of the acquisition-date fair-value of our pre-existing equity interest, was approximately $ 161 million.

In conjunction with the Allegorithmic acquisition, we separately recognized an investment gain of approximately $ 42 million, which represents the difference between the $ 55 million acquisition-date fair value of our pre-existing equity interest and our previous carrying amount.

Under the acquisition method of accounting, the total final purchase price was allocated to Allegorithmic’s net tangible and intangible assets based upon their estimated fair values as of the acquisition date.

The excess purchase price over the value of the net tangible and identifiable intangible assets was recorded as goodwill.

Of the total purchase price, $ 126 million was allocated to goodwill that was non-deductible for tax purposes, $ 45 million to identifiable intangible assets and the remainder to net liabilities assumed.

Pro forma financial information has not been presented for the Allegorithmic acquisition as the impact to our Consolidated Financial Statements was not material.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

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Corporate debt securities 1,290 — ( 24 ) 1,266

Foreign government securities 5 — — 5

Municipal securities 24 — — 24

agency securities 34 — — 34

Treasury securities 450 — ( 16 ) 434

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash, cash equivalents and short-term investments consisted of the following as of November 27, 2020:

Cash, cash equivalents and short-term investments consisted of the following as of December 3, 2021:

(in millions) Amortized

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Corporate debt securities 1,426 2 ( 3 ) 1,425

Foreign government securities 3 — — 3

Municipal securities 28 — — 28

Treasury securities 378 — ( 1 ) 377

Total short-term investments 1,956 2 ( 4 ) 1,954

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We consider factors such as the extent to which the market value has been less than the cost, any noted failure of the issuer to make scheduled payments, changes to the rating of the security and other relevant credit-related factors in determining whether or not a credit loss exists.

During fiscal 2021, we did not recognize an allowance for credit-related losses on any of our investments.

During fiscal 2022 and 2021, we did not recognize an allowance for credit-related losses on any of our investments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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Corporate debt securities 1,266 — 1,266 —

Foreign government securities 5 — 5 —

Municipal securities 24 — 24 —

agency securities 34 — 34 —

Treasury securities 434 — 434 —

7 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The fair value of our financial assets and liabilities at November 27, 2020 was determined using the following inputs:

The fair value of our financial assets and liabilities at December 3, 2021 was determined using the following inputs:

(in millions) Fair Value Measurements at Reporting Date Using

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Corporate debt securities 1,425 — 1,425 —

Foreign government securities 3 — 3 —

Municipal securities 28 — 28 —

Treasury securities 377 — 377 —

Prepaid expenses and other current assets:

29 unchanged sentences

Dollars and in various other currencies.

We may use foreign exchange option contracts or forward contracts to hedge a portion of our forecasted foreign currency denominated revenue.

We may use foreign exchange option contracts or forward contracts to hedge a portion of our forecasted foreign currency denominated revenue and expenses.

These foreign exchange contracts, carried at fair value, have maturities of up to twelve months .

As of December 3, 2021 and November 27, 2020, total notional amounts of outstanding cash flow hedges were $ 2.06 billion and $ 1.53 billion, respectively, hedging exposures denominated in Euros, British Pounds, Japanese Yen and Australian Dollars.

As of December 2, 2022 and December 3, 2021, total notional amounts of outstanding cash flow hedges were $ 2.43 billion and $ 2.06 billion, respectively, hedging exposures denominated in Euros, Indian Rupees, British Pounds, Japanese Yen and Australian Dollars.

In June 2019, we entered into Treasury lock agreements with large financial institutions which fixed benchmark U.S.

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As of December 2, 2022, we had net derivative gains on our foreign exchange option contracts expected to be recognized within the next 18 months, of which $ 53 million of gains are expected to be recognized into revenue within the next 12 months.

In addition, we had net derivative losses on our Treasury lock agreements, of which $ 4 million is expected to be recognized into interest expense within the next 12 months.

In addition, we had net derivative losses on our foreign exchange forward contracts, of which $ 7 million of losses are expected to be recognized into operating expenses within the next 12 months, and net derivative losses on our Treasury lock agreements, of which $ 5 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 and Treasury lock cash flow hedges to revenue and interest expense, respectively.

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.

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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.

Effective in the third quarter of fiscal 2019, all changes in fair value of our foreign currency cash flow hedges are recorded in accumulated other comprehensive income (loss).

Prior to this, we recorded the time value of purchased contracts in other income (expense), net in our Consolidated Statements of Income.

The impact of the de-designation of our hedges due to the change in methodology in the third quarter of fiscal 2019 was not material.

For fiscal 2022, 2021 and 2020, there were no net gains or losses recognized in income relating to hedges of forecasted transactions that did not occur.

1 unchanged sentence

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

contracts are recorded to other income (expense), net in our Consolidated Statements of Income.

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.

As of December 3, 2021, total notional amounts of outstanding foreign currency forward contracts were $ 973 million, primarily hedging exposures denominated in Euros, British Pounds, Australian Dollars and Canadian Dollars.

As of November 27, 2020, total notional amounts of outstanding contracts were $ 492 million, primarily hedging exposures denominated in Euros, British Pounds, Japanese Yen, Indian Rupees and Australian Dollars.

At December 3, 2021 and November 27, 2020, the outstanding balance sheet hedging derivatives had maturities of 180 days or less.

The fair value of derivative instruments on our Consolidated Balance Sheets as of December 3, 2021 and November 27, 2020 were as follows:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 2, 2022, total notional amounts of outstanding foreign currency forward contracts hedging monetary assets and liabilities were $ 814 million, primarily hedging exposures denominated in Euros, British Pounds, Indian Rupees and Australian Dollars.

As of December 3, 2021, total notional amounts of outstanding contracts were $ 973 million, primarily hedging exposures denominated in Euros, British Pounds, Japanese Yen, Indian Rupees and Australian Dollars.

At December 2, 2022 and December 3, 2021, the outstanding balance sheet hedging derivatives had maturities of 180 days or less.

Fair value asset derivatives are included in prepaid expenses and other current assets and fair value liability derivatives are included in accrued expenses on our Consolidated Balance Sheets.

The fair value of derivative instruments on our Consolidated Balance Sheets as of December 2, 2022 and December 3, 2021 were as follows:

(in millions) 2022 2021

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Foreign exchange option contracts $ 36 $ — $ 91 $ —

$ 91 $ — $ 12 $ —

Foreign exchange forward contracts — 7 — —

Derivatives not designated as hedging instruments:

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Total derivatives $ 51 $ 15 $ 98 $ 8

_________________________________________

(1) Fair value asset derivatives are included in prepaid expenses and other current assets and fair value liability derivatives are included in accrued expenses on our Consolidated Balance Sheets.

Gains (losses) on derivative instruments, net of tax, recognized in our Consolidated Statements of Comprehensive Income for fiscal 2022, 2021 and 2020 were as follows:

3 unchanged sentences

$ 144 $ 69 $ ( 43 )

Foreign exchange forward contracts $ ( 5 ) $ — $ —

Treasury lock

4 unchanged sentences

Foreign exchange option contracts

Net gain (loss) reclassified from accumulated OCI into income, net of tax Revenue $ ( 16 ) $ 3 $ 39

Amount excluded from effectiveness testing and ineffective portion Other income (expense), net $ — $ — $ ( 24 )

Net gain (loss) reclassified from accumulated OCI into income Revenue $ 176 $ ( 16 ) $ 3

Treasury lock

Net gain (loss) reclassified from accumulated OCI into income, net of tax Interest expense $ ( 4 ) $ ( 3 ) $ ( 1 )

Net gain (loss) reclassified from accumulated OCI into income Interest expense $ ( 4 ) $ ( 4 ) $ ( 3 )

Derivatives not designated as hedging relationships:

Foreign exchange option contracts Revenue $ — $ — $ 1

Foreign exchange forward contracts

Other income (expense), net $ ( 29 ) $ ( 3 ) $ 5

_________________________________________

(1) Starting the third quarter of fiscal 2019, all changes in fair value of our foreign currency cash flow hedges are recorded in accumulated other comprehensive income (loss) (“OCI”).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

PROPERTY AND EQUIPMENT

Property and equipment, net consisted of the following as of December 3, 2021 and November 27, 2020:

Property and equipment, net consisted of the following as of December 2, 2022 and December 3, 2021:

(in millions) 2022 2021

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Depreciation and amortization expense of property and equipment for fiscal 2022, 2021 and 2020 was $ 189 million, $ 207 million and $ 192 million, respectively.

Property and equipment, net, by geographic area as of December 3, 2021 and November 27, 2020 was as follows:

Property and equipment, net, by geographic area as of December 2, 2022 and December 3, 2021 was as follows:

(in millions) 2022 2021

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Goodwill by reportable segment and activity for fiscal 2022 and 2021 was as follows:

(in millions) 2019 Reclassification (2)

(in millions) 2020 Acquisitions Other (1)

2021 Acquisitions Other (1)

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(1) Amounts consist of foreign currency translation adjustments.

(2) In the fourth quarter of fiscal 2020, we moved our Advertising Cloud offerings from our Digital Experience segment into our new Publishing and Advertising segment, which combined Advertising Cloud with our previous Publishing segment.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other intangibles, net, as of December 3, 2021 and November 27, 2020 were as follows:

Other intangibles, net, as of December 2, 2022 and December 3, 2021 were as follows:

(in millions)

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Other intangibles, net $ 2,700 $ ( 1,251 ) $ 1,449 $ 2,702 $ ( 882 ) $ 1,820

In fiscal 2021, other intangibles increased primarily due to identifiable intangible assets acquired through Workfront and Frame.io, partially offset by certain other intangibles associated with our previous acquisitions that became fully amortized and were removed from the Consolidated Balance Sheets.

Amortization expense related to other intangibles was $ 405 million, $ 354 million and $ 367 million for fiscal 2022, 2021 and 2020 respectively.

7 unchanged sentences

_________________________________________

(1) Excludes $ 19 million of capitalized in-process research and development which is considered indefinite lived until the completion or abandonment of the associated research and development efforts.

(1) Excludes capitalized in-process research and development which is considered indefinite lived until the completion or abandonment of the associated research and development efforts.

ACCRUED EXPENSES

Accrued expenses as of December 3, 2021 and November 27, 2020 consisted of the following:

Accrued expenses as of December 2, 2022 and December 3, 2021 consisted of the following:

(in millions) 2022 2021

Accrued compensation and benefits $ 490 $ 375

Accrued bonuses $ 489 $ 455

Refund liabilities 128 127

Taxes payable 119 95

Accrued compensation and benefits 485 490

Accrued corporate marketing 154 96

Royalties payable 40 34

Accrued hosting fees 37 66

Accrued interest expense 34 32

Taxes payable 117 119

Refund liabilities 106 128

Other 439 448

Accrued expenses $ 1,790 $ 1,736

Other primarily includes general accruals for local and regional expenses, derivative collateral liabilities and royalties payable.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other primarily includes accrued media costs, collateral received related to master netting arrangements and general corporate accruals for local and regional expenses, including accruals for fees associated with the cancellation of corporate events.

Income before income taxes for fiscal 2022, 2021 and 2020 consisted of the following:

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The tax-deductible amortization related to the transferred IP rights is recognized over the period of economic benefit.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Reconciliation of Provision for (Benefit from) Income Taxes

Total income tax expense differed from the expected tax expense, computed by multiplying the U.S.

federal statutory rate of 21 % in fiscal 2021, 2020 and 2019 by income before income taxes, as a result of the following:

Total income tax expense differed from the income tax expense computed at the U.S.

federal statutory rate of 21 % as a result of the following:

(in millions) 2022 2021 2020

Computed “expected” tax expense $ 1,198 $ 877 $ 673

Impacts of intra-entity IP transfers — ( 1,360 ) —

Tax expense computed at U.S.

federal statutory rate $ 1,262 $ 1,198 $ 877

Tax credits ( 116 ) ( 149 ) ( 101 )

Tax settlements ( 14 ) ( 58 ) ( 23 )

Effects of non-U.S.

operations ( 7 ) ( 23 ) ( 337 )

Stock-based compensation ( 157 ) ( 154 ) ( 86 )

Tax credits ( 149 ) ( 101 ) ( 100 )

Resolution of income tax examinations ( 58 ) ( 23 ) ( 39 )

State tax expense, net of federal benefit 113 66 10

Stock-based compensation — ( 157 ) ( 154 )

Impacts of intra-entity IP transfers — — ( 1,360 )

Provision for (benefit from) income taxes $ 1,252 $ 883 $ ( 1,084 )

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Deferred Tax Assets and Liabilities

The tax effects of the temporary differences that gave rise to significant portions of the deferred tax assets and liabilities as of December 3, 2021 and November 27, 2020 were as follows:

The tax effects of the temporary differences that gave rise to significant portions of the deferred tax assets and liabilities as of December 2, 2022 and December 3, 2021 were as follows:

(in millions) 2022 2021

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Depreciation and amortization 67 49

Undistributed earnings of foreign subsidiaries 12 51

Total deferred tax liabilities 628 730

Net deferred tax assets $ 749 $ 1,080

Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards.

In assessing the realizability of deferred tax assets, management determined that it is not more likely than not that we will have sufficient taxable income in certain states and foreign jurisdictions to fully utilize available tax credits and other attributes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

We provide U.S.

income taxes on the earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered permanently reinvested outside the United States or are exempted from further taxation.

As of December 3, 2021, the cumulative amount of foreign earnings upon which U.S.

income taxes have not been provided, and the corresponding unrecognized deferred tax liability, was not material.

As of December 3, 2021, we had federal, state and foreign net operating loss carryforwards of approximately $ 395 million, $ 467 million and $ 61 million, respectively.

We also had federal, state and foreign tax credit carryforwards of approximately $ 35 million, $ 307 million and $ 9 million, respectively.

As of December 2, 2022, we had federal and state net operating loss carryforwards of approximately $ 202 million and $ 467 million, respectively.

We also had federal and state tax credit carryforwards of approximately $ 39 million and $ 362 million, respectively.

The majority of the federal net operating loss and state tax credit carryforwards can be carried forward indefinitely, and the remaining will expire in various years from fiscal 2023 through 2040.

Certain net operating loss carryforward assets and tax credits are reduced by a valuation allowance and/or are subject to an annual limitation under Internal Revenue Code Section 382.

The carrying amount of such assets and credits is expected to be fully realized.

As of December 3, 2021, a valuation allowance of $ 335 million was established for deferred tax assets related to certain state and foreign assets.

Certain net operating loss and tax credit carryforwards are subject to an annual limitation and/or are reduced by a valuation allowance.

The net carrying amount of such assets is expected to be fully realized.

In assessing the realizability of deferred tax assets, management determined that it is more likely than not that we will not fully realize certain available tax attributes and other tax assets in domestic and foreign jurisdictions.

Deferred tax assets are offset by a valuation allowance to the extent it is more likely than not that they are not expected to be realized.

As of December 2, 2022, we continue to maintain a valuation allowance of $ 402 million primarily related to certain state credits.

For fiscal 2022, the increase in the valuation allowance was $ 67 million.

As we repatriate foreign earnings for use in the United States, the distributions will generally be exempt from federal income taxes.

As of December 2, 2022, 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accounting for Uncertainty in Income Taxes

3 unchanged sentences

Gross increases in unrecognized tax benefits – prior year tax positions 20 30

Gross decreases in unrecognized tax benefits – prior year tax positions ( 18 ) —

Gross increases in unrecognized tax benefits – current year tax positions 53 86

Lapse of statute of limitations ( 4 ) ( 21 )

Settlements with taxing authorities ( 4 ) ( 11 )

Tax settlements ( 18 ) ( 4 )

Foreign exchange gains and losses ( 1 ) ( 3 )

Ending balance $ 321 $ 289

The combined amount of accrued interest and penalties related to tax positions taken on our tax returns were approximately $ 22 million and $ 26 million for fiscal 2021 and 2020, respectively.

These amounts were included in long-term income taxes payable in their respective years.

Our policy is to record interest and penalties related to uncertain tax positions within the provision for (benefit from) income taxes.

The combined amount of accrued interest and penalties included in long-term income taxes payable related to tax positions taken on our tax returns were approximately $ 17 million and $ 22 million for fiscal 2022 and 2021, respectively.

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 the U.S.

Internal Revenue Service and other domestic and foreign tax authorities.

These tax examinations are expected to focus on our research and development tax credits, intercompany transfer pricing practices and other matters.

For Ireland, California and the United States, the earliest fiscal years open for examination are 2008, 2017 and 2018, respectively.

We are subject to the examination of our income tax returns by various domestic and foreign tax authorities with 2018 being the earliest fiscal year open for examination in all of our major tax jurisdictions.

We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from these examinations.

We believe such estimates to be reasonable;

however, we cannot provide assurance that the final determination of any of these examinations will not have an adverse effect on our operating results and financial position.

We believe our tax estimates to be reasonable;

however, 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.

1 unchanged sentence

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.

Given the uncertainties described above, we can only determine a range of estimated potential decreases in underlying unrecognized tax benefits ranging from $ 0 to approximately $ 5 million over the next 12 months.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 $ 25 million over the next 12 months.

BENEFIT PLANS

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Beginning January 1, 2020, only members of the Board are permitted to defer equity awards.

For cash benefit elections, distributions are made in cash in the form of a lump sum, or five, ten, or fifteen-year annual installments.

For cash benefit elections, distributions are made in

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

cash in the form of a lump sum, or five, ten, or fifteen-year annual installments.

For equity award elections, distributions are made in stock in the form of a lump sum payment only.

As of December 3, 2021 and November 27, 2020, the invested amounts under the plan total $ 151 million and $ 117 million, respectively and were recorded as other assets on our Consolidated Balance Sheets.

As of December 3, 2021 and November 27, 2020, $ 174 million and $ 137 million, respectively, were recorded as long-term liabilities to recognize undistributed deferred compensation due to participants.

Certain deferred compensation is invested in money market and other mutual funds and subsequently recorded as other assets on our Consolidated Balance Sheets, with corresponding unrealized holding gains and losses recorded as investment gains (losses) in our Consolidated Statements of Income.

Undistributed deferred compensation is recorded as long-term liabilities on our Consolidated Balance Sheets.

As of December 2, 2022 and December 3, 2021, the invested amounts under the plan totaled $ 160 million and $ 151 million, respectively.

As of December 2, 2022 and December 3, 2021, undistributed deferred compensation due to participants totaled $ 178 million and $ 174 million, respectively.

STOCK-BASED COMPENSATION

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Restricted stock units generally vest over four years .

Certain grants have other vesting periods approved by the Executive Compensation Committee of our Board of Directors.

Certain grants have other vesting periods approved by the Executive Compensation Committee of our Board of Directors (the “ECC”).

As of December 2, 2022, we had reserved 52.0 million shares of our common stock for issuance under our 2019 Plan and had 30.5 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 the ability of the Company to attract and retain highly talented and competent individuals.

The Executive Compensation Committee of our Board of Directors approves the terms of each of our Performance Share Programs, including the award calculation methodology.

Shares under outstanding Performance Share Programs may be earned based on the achievement of an objective relative total stockholder return measured over a three-year performance period.

Performance share awards will be awarded and cliff-vest upon the later of the Executive Compensation Committee's certification of the level of achievement or the three -year anniversary of each vesting commencement date.

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 2022, the ECC approved the 2022 Performance Share Program.

Shares outstanding under our 2022 Performance Share Program may be earned based on the achievement of (i) an objective relative total stockholder return measured over a three-year performance period, as well as (ii) revenue-based financial metrics measured over three one-year performance periods.

Each type of performance goal is weighted 50% and achievement of each performance goal is determined independently of the other.

Shares associated with each performance goal are not awarded until the corresponding performance targets are defined.

Shares outstanding under our 2021 and 2020 Performance Share Programs may be earned based on the achievement of an objective relative total stockholder return measured over a three-year performance period.

Performance share awards in each of our 2022, 2021 and 2020 Performance Share Programs will be earned and 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 0 % and 200 % of the target number of performance shares.

In January 2021, the Executive Compensation Committee approved the 2021 Performance Share Program, the terms of which are similar to prior year performance share programs as discussed above.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 3, 2021, the shares awarded under our 2021, 2020 and 2019 Performance Share Programs remained outstanding and were yet to be achieved.

As of December 2, 2022, the shares awarded under our 2022, 2021 and 2020 Performance Share Programs remained outstanding and were yet to be earned.

Employee Stock Purchase Plan

1 unchanged sentence

The ESPP consists of twenty-four -month offering periods with four six -month purchase periods in each offering period.

Employees purchase shares in each purchase period at 85 % 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.

Employees purchase shares in each purchase period at 85 % of the market value of our

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

The ESPP will continue until the earlier of termination by the Board of Directors or the date on which all of the shares available for issuance under the plan have been issued.

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Our restricted stock units are valued based on the fair market value of the award on the grant date.

Our performance share awards are valued using a Monte Carlo Simulation model.

The fair value of the awards are fixed at the grant date and amortized over the longer of the remaining performance or service period.

We use the Black-Scholes option pricing model to determine the fair value of ESPP shares.

The determination of the fair value of stock-based payment awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables.

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.

12 unchanged sentences

Forfeited ( 0.7 ) $ 441.41

Increase due to acquisition 0.1 $ 548.91

Ending outstanding balance 7.4 $ 449.94 $ 2,511 1.33

2 unchanged sentences

(1) The aggregate fair value is calculated using the closing stock price as of December 2, 2022 of $ 341.53 .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The weighted average grant date fair values of restricted stock units granted during fiscal 2022, 2021 and 2020 were $ 457.96 , $ 504.69 and $ 358.68 , respectively.

The total fair value of restricted stock units vested during fiscal 2021, 2020 and 2019 was $ 1.83 billion, $ 1.61 billion and $ 970 million, respectively.

The total fair value of restricted stock units vested during fiscal 2022, 2021 and 2020 was $ 1.30 billion, $ 1.83 billion and $ 1.61 billion, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Summary of Performance Shares

9 unchanged sentences

Awarded 0.3 $ 402.24

Achieved ( 0.4 ) $ 218.55

Released ( 0.4 ) $ 291.15

Forfeited ( 0.1 ) $ 490.50

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The remaining awarded shares were for the 2022 Performance Share Program.

Shares achieved during fiscal 2021 resulted from 200 % achievement of target for the 2018 Performance Share Program.

The weighted average grant date fair values of performance awards granted during fiscal 2021, 2020 and 2019 were $ 325.24 , $ 271.62 and $ 177.33 , respectively.

The total fair value of performance awards achieved during fiscal 2021, 2020 and 2019 was $ 212 million, $ 273 million and $ 204 million, respectively.

Shares released during fiscal 2022 resulted from 168 % achievement of target for the 2019 Performance Share Program.

The weighted average grant date fair values of performance share awards granted during fiscal 2022, 2021 and 2020 were $ 402.24 , $ 325.24 and $ 271.62 , respectively.

The total fair value of performance share awards vested during fiscal 2022, 2021 and 2020 was $ 192 million, $ 212 million and $ 273 million, respectively.

Summary of Employee Stock Purchase Plan Shares

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The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.

During fiscal 2022, the rollover provision of our ESPP was triggered and resulted in incremental expense to be recognized over the new twenty-four -month offering period, which did not have a material impact on our Consolidated Statements of Income.

Compensation Costs

We recognize the estimated compensation cost 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.

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.

We also recognize the estimated compensation cost of performance shares, net of estimated forfeitures, on a straight-line basis over the requisite performance period or service period of the entire award, whichever is longer.

Our performance share awards are earned upon achievement of an objective total stockholder return measure at the end of the three-year performance period, as described above.

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.

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The components of accumulated other comprehensive income (loss) and activity, net of related taxes, for fiscal 2022 were as follows:

(in millions) November 27,

(in millions) December 3,

2021 Increase / Decrease Reclassification Adjustments December 2,

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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 May 2018, our Board of Directors granted authority to repurchase up to $ 8 billion in common stock, which we fully utilized during fiscal 2021.

In December 2020, our Board of Directors granted additional authority to repurchase up to $ 15 billion in common stock through the end of fiscal 2024.

During fiscal 2022, we entered into an accelerated share repurchase agreement (“ASR”) with a large financial institution whereupon we provided them with a prepayment of $ 2.4 billion.

Under the terms of the ASR, the financial institution agreed to deliver a portion of shares to us at contract inception and the remaining shares at settlement, which occurred in fiscal 2022.

The total number of shares delivered and average purchase price paid per share were determined upon settlement based on the Volume Weighted Average Price (“VWAP”) over the term of the ASR, less an agreed upon discount.

During fiscal 2022, 2021 and 2020, we entered into several structured stock repurchase agreements with large financial institutions, whereupon we provided them with prepayments totaling $ 4.15 billion, $ 3.95 billion and $ 3.05 billion, respectively.

We enter into these agreements in order to take advantage of repurchasing shares at a guaranteed discount to the Volume Weighted Average Price (“VWAP”) of our common stock over a specified period of time.

Under the terms of these structured stock repurchase agreements, the financial institutions agreed to deliver shares to us at monthly intervals during the respective contract terms, and the number of shares delivered each month was determined based

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

on the total notional amount of the contracts, the number of trading days in the intervals and the VWAP of our stock during the intervals less an agreed upon discount.

We enter into these agreements in order to take advantage of repurchasing shares at a guaranteed discount to the VWAP of our common stock over a specified period of time.

We only enter into such transactions when the discount that we receive is expected to be higher than the foregone return on our cash prepayments to the financial institutions.

1 unchanged sentence

Under the terms of the agreements, there is no requirement for the financial institutions to return any portion of the prepayment to us.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The financial institutions agree to deliver shares to us at monthly intervals during the contract term.

The parameters used to calculate the number of shares deliverable are:

the total notional amount of the contract, the number of trading days in the contract, the number of trading days in the interval and the average VWAP of our stock during the interval less the agreed upon discount.

We repurchased approximately 7.2 million shares at an average price of $ 536.17 per share in fiscal 2021, 8.0 million shares at an average price of $ 376.38 per share in fiscal 2020, and 9.9 million shares at an average price of $ 270.23 per share in fiscal 2019.

For fiscal 2021, 2020 and 2019, the prepayments were classified as treasury stock on our Consolidated Balance Sheets at the payment date, though only shares physically delivered to us by December 3, 2021, November 27, 2020 and November 29, 2019 were excluded from the computation of earnings per share.

As of December 3, 2021, $ 334 million of prepayments remained under the agreement.

During fiscal 2022, we repurchased a total of 15.7 million shares, including approximately 10.4 million shares at an average price of $ 375.03 through structured repurchase agreements, as well as 5.3 million shares at an average purchase price of $ 451.55 through the ASR described above.

Comparatively, we repurchased approximately 7.2 million shares at an average price of $ 536.17 per share in fiscal 2021 and 8.0 million shares at an average price of $ 376.38 per share in fiscal 2020.

For fiscal 2022, 2021 and 2020, the prepayments were classified as treasury stock on our Consolidated Balance Sheets at the payment date, though only shares physically delivered to us by December 2, 2022, December 3, 2021 and November 27, 2020 were excluded from the computation of earnings per share.

As of December 2, 2022, $ 583 million of prepayment remained under our outstanding structured stock repurchase agreement.

Subsequent to December 2, 2022, as part of the December 2020 stock repurchase authority, we entered into an accelerated share repurchase agreement with a large financial institution whereupon we provided them with a prepayment of $ 1.4 billion and received an initial delivery of 3.2 million shares, which represents approximately 75% of our prepayment.

The remaining balance will be settled during our third quarter of fiscal 2022.

Upon completion of the $ 1.4 billion accelerated share repurchase agreement, $ 5.15 billion remains under our December 2020 authority.

1 unchanged sentence

Basic net income per share is computed using the weighted average number of common shares outstanding for the period, excluding unvested restricted stock units and performance awards.

Diluted net income per share is based upon the weighted average common shares outstanding for the period plus dilutive potential common shares, including unvested restricted stock units, stock purchase rights, performance share awards and stock options using the treasury stock method.

Diluted net income per share is based upon the weighted average common shares outstanding for the period plus dilutive potential common shares, including unvested restricted stock units, stock purchase rights and performance share awards using the treasury stock method.

Performance share awards are included based on the number of shares that would be issued as if the end of the reporting period was the end of the performance period and the result was dilutive.

The following table sets forth the computation of basic and diluted net income per share for fiscal 2022, 2021 and 2020:

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Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business.

The following table summarizes our non-cancellable unconditional purchase obligations for each of the next five years and thereafter as of December 3, 2021:

The following table summarizes our non-cancellable unconditional purchase obligations for each of the next five years and thereafter as of December 2, 2022, primarily relating to contracts with vendors for third-party hosting and data center services:

(in millions)

Fiscal Year Purchase Obligations

Thereafter 1,226

Total $ 6,090

16 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In addition to intellectual property disputes, we are also subject to legal proceedings, claims, including claims relating to commercial, employment and other matters, and investigations, including government investigations.

In addition to intellectual property disputes, we are subject to legal proceedings, claims, including claims relating to commercial, employment and other matters, and investigations, including government investigations.

Some of these disputes, legal proceedings and investigations may include speculative claims for substantial or indeterminate amounts of damages.

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However, we believe that we have valid defenses with respect to the legal matters pending against us.

It is possible, nevertheless, that our consolidated financial position, cash flows or results of operations could be negatively affected by an unfavorable resolution of one or more of such proceedings, claims or investigations.

It is possible, nevertheless, that our consolidated financial position, results of operations or cash flows could be negatively affected by an unfavorable resolution of one or more of such proceedings, claims or investigations.

In connection with our anti-piracy efforts, conducted both internally and through organizations such as the Business Software Alliance, from time to time we undertake litigation against alleged copyright infringers.

1 unchanged sentence

We believe we have valid defenses with respect to such counter-claims;

however, it is possible that our consolidated financial position, cash flows or results of operations could be negatively affected in any particular period by the resolution of one or more of these counter-claims.

The carrying value of our borrowings as of December 3, 2021 and November 27, 2020 were as follows:

however, it is possible that our consolidated financial position, results of operations or cash flows could be negatively affected in any particular period by the resolution of one or more of these counter-claims.

The carrying value of our borrowings as of December 2, 2022 and December 3, 2021 were as follows:

(dollars in millions) Issuance Date Due Date Effective Interest Rate 2022 2021

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Total debt outstanding, at par $ 4,150 $ 4,150

Current portion of debt ( 500 ) —

Unamortized discount and debt issuance costs ( 21 ) ( 27 )

Carrying value of long-term debt $ 3,629 $ 4,123

Carrying value of current debt, net of unamortized discount and debt issuance costs $ 500 $ —

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In January 2015, we issued $ 1 billion of senior notes due February 1, 2025.

The related discount and issuance costs are being amortized to interest expense over the term of the notes using the effective interest method.

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.

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Interest is payable semi-annually, in arrears on February 1 and August 1.

During the first quarter of fiscal 2022, we reclassified the senior notes due February 1, 2023 as current debt in our Consolidated Balance Sheets.

As of December 2, 2022, the carrying value of our current debt was $ 500 million, net of the related discount and issuance costs.

We intend to repay the current portion of our debt on or before the due date.

Our senior notes rank equally with our other unsecured and unsubordinated indebtedness.

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Revolving Credit Agreement

In October 2018, we entered into a credit agreement (“Revolving Credit Agreement”), providing for a five-year $ 1 billion senior unsecured revolving credit facility, which replaced our previous five-year $ 1 billion senior unsecured revolving credit agreement dated as of March 2, 2012 (as amended, the “Prior Revolving Credit Agreement”).

In addition, we incurred issuance costs of $ 1 million which is amortized to interest expense over the term using the straight-line method.

In June 2022, we entered into a credit agreement (“Revolving Credit Agreement”), providing for a five-year $ 1.5 billion senior unsecured revolving credit facility, which replaced our previous five-year $ 1 billion senior unsecured revolving credit agreement entered into in October 2018 (the “Prior Revolving Credit Agreement”).

The Revolving Credit Agreement provides for loans to Adobe and certain of its subsidiaries that may be designated from time to time as additional borrowers.

Pursuant to the terms of the Revolving Credit Agreement, we may, subject to the agreement of lenders to provide additional commitments, obtain up to an additional $ 500 million in commitments, for a maximum aggregate commitment of $ 2 billion.

At our election, loans under the Revolving Credit Agreement will bear interest at either (i) LIBOR plus a margin, based on our debt ratings, ranging from 0.585 % to 1.015 % or (ii) a base rate, which is defined as the highest of (a) the agent’s prime rate, (b) the federal funds effective rate plus 0.500 % or (c) LIBOR plus 1.00 % plus a margin, based on our debt ratings, ranging from 0.000 % to 0.015 %.

At our election, loans under the Revolving Credit Agreement will bear interest at either the (i) term Secured Overnight Financing Rate (“SOFR”), plus a margin, (ii) adjusted daily SOFR rate, plus a margin, (iii) alternative currency rate, plus a margin, or (iv) base rate, which is defined as the highest of (a) the federal funds rate plus 0.500 %, (b) the agent’s prime rate, or (c) term SOFR plus 1.00 %.

The margin for term SOFR, adjusted daily SOFR, and alternative currency rate loans is based on our debt ratings, and ranges from 0.460 % to 0.900 %.

In addition, facility fees determined according to our debt ratings are payable on the aggregate commitments, regardless of usage, quarterly in an amount ranging from 0.04 % to 0.10 % per annum.

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Subject to certain conditions stated in the Revolving Credit Agreement, Adobe and any of its subsidiaries designated as additional borrowers may borrow, prepay and re-borrow amounts at any time during the term of the Revolving Credit Agreement.

The Revolving Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including a financial covenant, 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 and acquisition transactions, dispositions and other matters, all subject to certain exceptions.

The financial covenant, based on a quarterly financial test, requires us not to exceed a maximum leverage ratio.

As of December 3, 2021, we were in compliance with this covenant.

The Revolving Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including events of default and indemnification provisions in favor of the lenders.

The negative covenants include restrictions regarding the incurrence of liens and indebtedness, certain merger transactions, dispositions and other matters, all subject to certain exceptions.

The facility will terminate and all amounts owing thereunder will be due and payable on the maturity date unless (a) the commitments are terminated earlier upon the occurrence of certain events, including an event of default, or (b) the maturity date is further extended upon our request, subject to the agreement of the lenders.

As of December 3, 2021, there were no outstanding borrowings under this Credit Agreement .

As of December 2, 2022, there were no outstanding borrowings under this Revolving Credit Agreement.

In connection with and at the time that we entered into the Revolving Credit Agreement, the Prior Revolving Credit Agreement originally scheduled to expire in October 2023 was terminated.

There were no outstanding borrowings or letters of credit issued under the Prior Revolving Credit Agreement at the time of termination.

There were no penalties paid as a result of the termination of the Prior Revolving Credit Agreement.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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Our lease agreements do not contain any material residual value guarantees, material variable payment provisions or material restrictive covenants.

Operating lease expense was $ 119 million for both fiscal 2021 and 2020.

Prior to our adoption of ASC 842 in fiscal 2020, operating lease expense was $ 170 million for fiscal 2019.

Operating lease expense was $ 121 million for fiscal 2022 and $ 119 million for both fiscal 2021 and 2020.

We recognized operating lease expense in cost of revenue and operating expenses in our Consolidated Statements of Income.

Our operating lease expense is net of sublease income and includes variable lease costs, both of which are not material.

Our operating lease expense includes variable lease costs and is net of sublease income, both of which are not material.

Supplemental cash flow information for fiscal 2022, 2021 and 2020 related to operating leases was as follows:

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_________________________________________

(1) Operating lease payments exclude $ 16 million of legally binding minimum lease payments for leases signed but not yet commenced.

(1) Legally binding minimum lease payments for leases signed but not yet commenced as of December 2, 2022 were not material.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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Foreign exchange gains (losses) ( 21 ) ( 17 ) ( 2 )

Realized gains on fixed income investments — 1 —

Other income (expense), net $ 41 $ — $ 42

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We have audited the accompanying consolidated balance sheets of Adobe Inc.

and subsidiaries (the Company) as of December 3, 2021 and November 27, 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the fiscal years in the three fiscal year period ended December 3, 2021, and the related notes (collectively, the consolidated financial statements).

and subsidiaries (the Company) as of December 2, 2022 and December 3, 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the fiscal years in the three fiscal year period ended December 2, 2022, and the related notes (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of December 2, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 3, 2021 and November 27, 2020, and the results of its operations and its cash flows for each of the fiscal years in the three fiscal year period ended December 3, 2021, in conformity with U.S.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 2, 2022 and December 3, 2021, and the results of its operations and its cash flows for each of the fiscal years in the three fiscal year period ended December 2, 2022, in conformity with U.S.

generally accepted accounting principles.

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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 Controls over Financial Reporting.

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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data