What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-01-17 compared with 2023-01-17 · 215 added, 181 removed, 1058 unchanged (27% of the section changed)

59 unchanged sentences

2023 December 2,

2021 November 27,

2022 December 3,

Subscription $ 18,284 $ 16,388 $ 14,573

21 unchanged sentences

Income before income taxes 6,799 6,008 5,705

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

Provision for income taxes

1,371 1,252 883

Net income $ 5,428 $ 4,756 $ 4,822

7 unchanged sentences

2023 December 2,

2021 November 27,

2022 December 3,

Increase/(Decrease)

27 unchanged sentences

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

Equity awards assumed for acquisition — — 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

4 unchanged sentences

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

Equity awards assumed for

— — 2 — — — — 2

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

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2023 December 2,

2021 November 27,

2022 December 3,

Cash flows from operating activities:

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Proceeds from sales of long-term investments and other assets 1 — —

Net cash used for investing activities ( 570 ) ( 3,537 ) ( 414 )

Net cash provided by (used for) investing activities

776 ( 570 ) ( 3,537 )

Cash flows from financing activities:

2 unchanged sentences

Taxes paid related to net share settlement of equity awards ( 589 ) ( 518 ) ( 719 )

Proceeds from issuance of debt — — 3,144

Repayment of debt ( 500 ) — —

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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Founded in 1982, Adobe is one of the largest and most diversified software companies in the world.

We offer a line of products and services used by creative professionals, including photographers, video editors, graphic and experience designers and game developers;

communicators, including content creators, students, marketers and knowledge workers;

businesses of all sizes;

and consumers for creating, managing, delivering, measuring, optimizing, engaging and transacting with compelling content and experiences across personal computers, smartphones, other electronic devices and digital media formats.

We market our products and services directly to enterprise customers through our sales force and local field offices.

We license our products to end users through app stores and our own website at www.adobe.com.

We offer many of our products via a Software-as-a-Service (“SaaS”) model or a managed services model (both of which are referred to as hosted or cloud-based) as well as through term subscription and pay-per-use models.

We also distribute certain products and services through a network of distributors, value-added resellers (“VARs”), systems integrators (“SIs”), independent software vendors (“ISVs”), retailers, software developers and original equipment manufacturers (“OEMs”).

In addition, we license our technology to hardware manufacturers, software developers and service providers for use in their products and solutions.

Our products run on desktop and laptop computers, smartphones, tablets, other devices and the web, depending on the product.

Adobe is a global technology company with a mission to change the world through personalized digital experiences.

For over four decades, Adobe’s innovations have transformed how individuals, teams, businesses, enterprises, institutions, and governments engage and interact across all types of media.

Our products, services and solutions are used around the world to imagine, create, manage, deliver, measure, optimize and engage with content across surfaces and fuel digital experiences.

We have a diverse user base that includes consumers, communicators, creative professionals, developers, students, small and medium businesses and enterprises.

We are also empowering creators by putting the power of artificial intelligence (“AI”) in their hands, and doing so in ways we believe are responsible.

Our products and services help unleash creativity, accelerate document productivity and power businesses in a digital world.

We have operations in the Americas;

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The accompanying Consolidated Financial Statements include those of Adobe and its subsidiaries, after elimination of all intercompany accounts and transactions.

We have prepared the accompanying Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”).

We have prepared the accompanying Consolidated Financial Statements in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”).

Use of Estimates

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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 2023 and 2022 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 Consolidated Balance Sheets and Notes to Consolidated Financial Statements.

Significant Accounting Policies

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Revenue is recognized when a contract exists between us and a customer and upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.

We enter into contracts that can include various combinations of products and services, which may be

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

capable of being distinct and accounted for as separate performance obligations, or in the case of offerings such as cloud-enabled Creative Cloud and Document Cloud, accounted for as a single performance obligation.

We enter into contracts that can include various combinations of products and services, which may be capable of being distinct and accounted for as separate performance obligations, or in the case of offerings such as cloud-enabled Creative Cloud and Document Cloud, accounted for as a single performance obligation.

Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

Subscription, Product and Services Offerings

We enter into revenue arrangements in which a customer may purchase a combination of cloud-enabled subscriptions, cloud-hosted offerings, term-based, royalty, and perpetual software licenses, associated software maintenance and support plans, consulting services, training and technical support.

We enter into revenue arrangements in which a customer may purchase a combination of our products, services and/or solutions as described above.

Certain revenue arrangements provide customers with unilateral cancellation rights, or options to either renew monthly on-premise term-based licenses or use committed funds to purchase other Adobe products or services.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fully hosted subscription services (“SaaS”) allow customers to access hosted software during the contractual term without taking possession of the software.

Cloud-hosted subscription services may be sold on a fee-per-subscription period basis or based on consumption or usage.

We recognize revenue ratably over the contractual service term for hosted services that are priced based on a committed number of transactions where the delivery and consumption of the benefit of the services occur evenly over time, beginning on the date the services associated with the committed transactions are first made available to the customer and continuing through the end of the contractual service term.

We recognize revenue ratably over the contractual service term, which typically ranges from 1 to 36 months, for hosted services that are priced based on a committed number of transactions where the delivery and consumption of the benefit of the services occur evenly over time, beginning on the date the services associated with the committed transactions are first made available to the customer and continuing through the end of the contractual service term.

Over-usage fees and fees based on the actual number of transactions are billed in accordance with contract terms as these fees are incurred and are included in the transaction price of an arrangement as variable consideration.

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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 OEM and royalty agreements.

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.

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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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

each other, and therefore part of a single performance obligation, may require significant judgment.

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.

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We fulfill this promise by providing access to a solution that integrates cloud-based and on-premise/on-device features that, together through their integration, provide functionalities, utility and workflow efficiencies that could not be obtained from either the on-premise/on-device software or cloud services on their own.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cloud-based features that are integral to our Creative Cloud and Document Cloud offerings and that work together with the on-premise/on-device software include, but are not limited to:

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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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

percent of revenue to determine a historical reserve rate.

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.

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Contracts that include termination rights without substantive penalty are accounted for as contracts only for the committed period.

Periods of time after the right of termination are accounted for as optional purchases when they do not represent material rights.

Periods of time after the right of

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

termination are accounted for as optional purchases when they do not represent material rights.

For certain of our usage-based license agreements, typically in our royalty and OEM businesses, reporting may be received after the end of a fiscal period.

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We record property and equipment at cost less accumulated depreciation and amortization.

Property and equipment are depreciated using the straight-line method over their estimated useful lives ranging from 3 to 20 years for computers and other equipment, which includes our corporate jet, 2 to 5 years for furniture and fixtures, 5 to 25 years for building improvements and up to 40 years for buildings.

Leasehold improvements are amortized using the straight-line method over the lesser of the remaining respective lease term or estimated useful lives ranging from 2 to 15 years.

Property and equipment are depreciated using the straight-line method over their estimated useful lives, generally as follows:

3 to 20 years for computers and other equipment, which includes our corporate jet, 5 years for furniture and fixtures, 15 years for building improvements and 35 years for buildings.

Leasehold improvements are amortized using the straight-line method over the lesser of the remaining respective lease term or estimated useful life of the asset.

We determine if an arrangement is or contains a lease at contract inception.

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Because the rate implicit in our leases is not readily determinable, we use our incremental borrowing rate as the discount rate, which approximates the interest rate at which we could borrow on a collateralized basis with similar terms and payments and in similar economic environments.

As of December 2, 2022, our leases had remaining lease terms of up to 9 years, some of which included options to extend the lease for up to 14 years and options to terminate the lease within 1 year.

As of December 1, 2023, our leases had remaining lease terms of up to 8 years, some of which included options to extend the lease for up to 14 years and options to terminate the lease within approximately 1 year.

Optional periods to extend the lease, including by not exercising a termination option, are included in the lease term when it is reasonably certain that the option will be exercised.

6 unchanged sentences

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 events or

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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

To determine the fair values, we use the equal weighting of the market approach based on comparable publicly traded

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

companies in similar lines of businesses and the income approach based on estimated discounted future cash flows.

Our cash flow assumptions consider historical and forecasted revenue, operating costs and other relevant factors.

24 unchanged sentences

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

Prepayments made for repurchases of our common stock are classified as treasury stock on our Consolidated Balance Sheets and only shares physically delivered to us at period ends are excluded from the computation of earnings per share.

Prepayments made for repurchases of our common stock are classified as treasury stock on our Consolidated Balance Sheets and only shares physically delivered to us by each period end are excluded from the computation of net income per share.

We account for treasury stock under the cost method.

4 unchanged sentences

Advertising costs are expensed as incurred.

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.

Advertising expenses for fiscal 2023, 2022 and 2021 were $ 970 million, $ 1.04 billion and $ 865 million, respectively.

Foreign Currency Translation

5 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 and expenses primarily in Euros, British Pounds, Japanese Yen, Australian Dollars and Indian Rupees.

We may use foreign exchange option contracts and 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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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 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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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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.

In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update No.

2023-07, Segment Reporting, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses.

The updated standard is effective for our annual periods beginning in fiscal 2025 and interim periods beginning in the first quarter of fiscal 2026.

Early adoption is permitted.

We are currently evaluating the impact that the updated standard will have on our financial statement disclosures.

There have been no other recent accounting pronouncements, changes in accounting pronouncements or recently adopted accounting guidance during fiscal 2023 that are of significance or potential significance to us.

Segment Information

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Our business is organized into the following reportable segments:

• Digital Media —Our Digital Media segment provides products, services and solutions that enable individuals, teams and enterprises to create, publish and promote their content anywhere and accelerate their productivity by modernizing how they view, share, engage with and collaborate on documents and creative content.

Our customers include creative professionals, including photographers, video editors, graphic and experience designers 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 experiences that span from analytics to commerce.

• Digital Media —Our Digital Media segment provides products and services that enable individuals, teams, businesses, and enterprises to create, publish and promote their content anywhere and accelerate their productivity by transforming how they view, share, engage with and collaborate on documents and creative content.

Our customers include creative professionals, including photographers, video editors, graphic and experience designers and game developers;

communicators, including content creators, students, marketers and knowledge workers;

and consumers.

• Digital Experience —Our Digital Experience segment provides an integrated platform and set of products, services and solutions that enable businesses to create, manage, execute, measure, monetize and optimize customer experiences that span from analytics to commerce.

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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As of December 2, 2022, the balance of deferred revenue was $ 5.41 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.

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

During the year ended December 1, 2023, approximately $ 5.24 billion of revenue was recognized that was included in the balance of deferred revenue as of December 2, 2022.

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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.

Capitalized contract acquisition costs were $ 656 million and $ 629 million as of December 1, 2023 and December 2, 2022, of which $ 422 million and $ 406 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.

6 unchanged sentences

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

(“Figma”) for approximately $ 20 billion, comprised of approximately half cash and half stock.

On December 17, 2023, we entered into a mutual termination agreement with Figma to terminate the proposed merger.

In accordance with the terms of the termination agreement, on December 20, 2023, we paid Figma a termination fee of $ 1 billion, which we recorded in operating expenses in the first quarter of fiscal year 2024.

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.

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.

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Cash equivalents:

Corporate debt securities 39 — — 39

Money market funds 6,498 — — 6,498

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Corporate debt securities 438 — ( 4 ) 434

Foreign government securities 5 — — 5

Municipal securities 24 — — 24

agency securities 13 — ( 1 ) 12

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Cash, cash equivalents and short-term investments consisted of the following as of December 2, 2022:

(in millions) Amortized

(in millions)

Cost Unrealized

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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

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The following table summarizes the estimated fair value of short-term fixed income debt securities classified as short-term investments based on stated effective maturities as of December 1, 2023:

(in millions) Estimated

(in millions)

Due within one year $ 472

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Due between two and three years 9

Due after three years 9

Total $ 1,860

We review our debt securities classified as short-term investments on a regular basis for impairment.

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The fair value of our financial assets and liabilities at December 1, 2023 was determined using the following inputs:

(in millions) Fair Value Measurements at Reporting Date Using

(in millions)

Fair Value Measurements at Reporting Date Using

Quoted Prices

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Cash equivalents:

Corporate debt securities $ 39 $ — $ 39 $ —

Money market funds $ 6,498 $ 6,498 $ — $ —

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Corporate debt securities 434 — 434 —

Foreign government securities 5 — 5 —

Municipal securities 24 — 24 —

agency securities 12 — 12 —

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The fair value of our financial assets and liabilities at December 2, 2022 was determined using the following inputs:

(in millions) Fair Value Measurements at Reporting Date Using

(in millions)

Fair Value Measurements at Reporting Date Using

Quoted Prices

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Corporate debt securities 1,266 — 1,266 —

Foreign government securities 5 — 5 —

Municipal securities 24 — 24 —

agency securities

Treasury securities 434 — 434 —

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Our other current financial assets and current financial liabilities have fair values that approximate their carrying values.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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See Note 17 for further details regarding our debt.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DERIVATIVE FINANCIAL INSTRUMENTS

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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 and expenses.

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

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

These foreign exchange contracts, carried at fair value, have maturities of up to 12 months.

As of December 1, 2023 and December 2, 2022, total notional amounts of outstanding cash flow hedges were $ 2.83 billion and $ 2.43 billion, respectively, hedging exposures denominated in Euros, Indian Rupees, British Pounds, Japanese Yen and Australian Dollars.

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See Note 17 for further details regarding our debt.

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 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.

As of December 1, 2023, we had net derivative losses on our foreign exchange option contracts expected to be recognized within the next 18 months, of which $ 9 million of losses are expected to be recognized into revenue within the next 12 months.

In addition, we had net derivative gains of $ 1 million on our foreign exchange forward contracts, which are expected to be recognized into operating expenses within the next 12 months.We also had net derivative losses on our Treasury lock agreements, of which $ 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.

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For fiscal 2023, 2022 and 2021, there were no net gains or losses recognized in income relating to hedges of forecasted transactions that did not occur.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Non-Designated Hedges

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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.

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.

As of December 1, 2023, total notional amounts of outstanding foreign currency forward contracts hedging monetary assets and liabilities were $ 998 million, primarily hedging exposures denominated in Euros, Indian Rupees, British Pounds and Australian Dollars.

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

At December 1, 2023 and December 2, 2022, the outstanding balance sheet hedging derivatives had maturities of 180 days or less.

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

Treasury lock

$ — $ — $ ( 1 )

The effects of derivative instruments on our Consolidated Statements of Income for fiscal 2023, 2022 and 2021 were as follows:

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Net gain (loss) reclassified from accumulated OCI into income Revenue $ 41 $ 176 $ ( 16 )

Foreign exchange forward contracts

Net gain (loss) reclassified from accumulated OCI into income Operating expenses

$ ( 2 ) $ — $ —

Treasury lock

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GOODWILL AND OTHER INTANGIBLES

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

(in millions) 2020 Acquisitions Other (1)

2021 Acquisitions Other (1)

Digital Media $ 2,868 $ 865 $ ( 2 ) $ 3,731 $ 161 $ ( 3 ) $ 3,889

Digital Experience 7,476 1,095 ( 32 ) 8,539 — ( 39 ) 8,500

Publishing and Advertising 398 — — 398 — — 398

Goodwill $ 10,742 $ 1,960 $ ( 34 ) $ 12,668 $ 161 $ ( 42 ) $ 12,787

Goodwill by reportable segment and activity was as follows:

(in millions) Digital

Media Digital

Experience Publishing and

Advertising Total Goodwill

Balances at December 3, 2021

$ 3,731 $ 8,539 $ 398 $ 12,668

(1) Amounts consist of foreign currency translation adjustments.

Foreign currency translation

( 3 ) ( 39 ) — ( 42 )

Balances at December 2, 2022

$ 3,889 $ 8,500 $ 398 $ 12,787

Foreign currency translation

Balances at December 1, 2023

$ 3,890 $ 8,517 $ 398 $ 12,805

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

23 unchanged sentences

Accrued corporate marketing 132 154

Taxes payable 117 119

Sales and use taxes

Refund liabilities 111 106

1 unchanged sentence

Accrued expenses $ 1,942 $ 1,790

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

Other primarily includes general business accruals, royalties payable, accrued hosting fees and derivative collateral liabilities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1 unchanged sentence

(in millions)

2023 2022 2021

Domestic $ 3,465 $ 1,958 $ 1,736

1 unchanged sentence

Income before income taxes $ 6,799 $ 6,008 $ 5,705

The provision for (benefit from) income taxes for fiscal 2022, 2021 and 2020 consisted of the following:

The provision for income taxes for fiscal 2023, 2022 and 2021 consisted of the following:

(in millions)

2023 2022 2021

United States federal $ 1,198 $ 465 $ 391

6 unchanged sentences

Total deferred ( 422 ) 326 192

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

Intra-Entity Transfers of Certain Intellectual Property Rights (“IP rights”)

During fiscal 2020, we completed intra-entity transfers of certain IP rights to our Irish subsidiary in order to better align the ownership of these rights with how our business operates.

The transfers did not result in taxable gains;

however, our Irish subsidiary recognized deferred tax assets for the book and tax basis difference of the transferred IP rights.

As a result of these transactions, we recorded deferred tax assets, net of valuation allowance, and related tax benefits totaling $ 1.35 billion, based on the fair value of the IP rights transferred.

The determination of the fair value involves significant judgment on future revenue growth, operating margins and discount rates.

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

Reconciliation of Provision for (Benefit from) Income Taxes

Provision for income taxes

$ 1,371 $ 1,252 $ 883

Reconciliation of Provision for Income Taxes

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

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(in millions)

2023 2022 2021

Tax expense computed at U.S.

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Tax credits ( 130 ) ( 116 ) ( 149 )

Tax settlements ( 14 ) ( 58 ) ( 23 )

Effects of non-U.S.

operations ( 116 ) ( 7 ) ( 23 )

Tax settlements ( 14 ) ( 14 ) ( 58 )

State tax expense, net of federal benefit 132 113 66

Stock-based compensation 29 — ( 157 )

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

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

Other 42 14 6

Provision for income taxes

$ 1,371 $ 1,252 $ 883

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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Deferred tax assets:

Intangible assets $ 653 $ 997

Capitalized expenses $ 984 $ 298

Intangible assets 320 653

Credit carryforwards 366 333

Reserves and accruals 125 98

Operating lease liabilities 97 104

Net operating loss carryforwards of acquired companies 88 131

Stock-based compensation 65 108

Reserves and accruals 98 89

Net operating loss carryforwards of acquired companies 44 88

Benefits relating to tax positions 68 56

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Acquired intangible assets 263 354

Operating lease right-of-use assets 97 111

Prepaid expenses 107 110

Operating lease right-of-use assets 89 97

Depreciation and amortization 77 67

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

As of December 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.

As of December 1, 2023, we had state net operating loss and tax credit carryforwards of approximately $ 446 million and $ 352 million, respectively.

We also had federal tax credit carryforwards of approximately $ 80 million.

The majority of the state tax credits can be carried forward indefinitely, and the remaining net operating loss and tax credit carryforwards will expire in various years from fiscal 2024 through 2040.

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

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

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

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.

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Ending balance $ 501 $ 321

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.

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

As of December 1, 2023 and December 2, 2022, the combined amounts of accrued interest and penalties included in long-term income taxes payable related to tax positions taken on our tax returns were not material.

While we file federal, state and local income tax returns globally, our major tax jurisdictions are Ireland, California and the United States.

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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 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.

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.

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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 75 % of their base salary and 100 % of other specified compensation, including commissions, bonuses and directors’ fees.

Participants may elect to contribute up to 75 % of their base salary and 100 % 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.

Members of the Board of Directors are also eligible to participate and are able to defer cash compensation and elect cash benefit distributions in the same manner as executives.

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

For cash benefit elections, distributions are made in

For cash benefit elections, distributions are made in cash in the form of a lump sum, or

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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.

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In January 2023, the ECC approved the 2023 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.

Shares outstanding under our 2023 and 2022 Performance Share Programs may be earned based on the achievement of (i) an objective relative total stockholder return measured over a 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.

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

Performance share awards in each of our 2023, 2022 and 2021 Performance Share Programs will cliff-vest upon the later of (i) the three -year anniversary of the earliest vesting commencement date in the respective Performance Share Program, or (ii) the ECC's certification of the level of achievement of the final performance period in the respective Performance Share Program, contingent upon the participant’s continued service.

Participants can earn between 0 % and 200 % of the target number of performance shares.

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.

As of December 1, 2023, the shares awarded under our 2023, 2022 and 2021 Performance Share Programs remained outstanding and unvested.

Employee Stock Purchase Plan

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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

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.

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.

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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(1) The aggregate fair value is calculated using the closing stock price as of December 1, 2023 of $ 612.47 .

Shares awarded during fiscal 2022 include 0.2 million additional shares awarded for the final achievement of the 2019 Performance Share Program which was certified in the first quarter of fiscal 2022.

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

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

Shares released during fiscal 2023 resulted from 63 % achievement of target for the 2020 Performance Share Program, as certified by the ECC in the first quarter of fiscal 2023.

The weighted average grant date fair values of performance share awards granted during fiscal 2023, 2022 and 2021 were $ 437.58 , $ 402.24 and $ 325.24 , respectively.

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We use historical data to estimate forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 1, 2023, there was $ 2.87 billion of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based awards and purchase rights which will be recognized over a weighted average period of 2.24 years.

Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Total stock-based compensation costs included in our Consolidated Statements of Income for fiscal 2023, 2022 and 2021 were as follows:

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(1) Reclassification adjustments for gains / losses on available-for-sale securities are classified in other income (expense), net.

(2) Reclassification adjustments for gains / losses on foreign currency hedges are classified in revenue and reclassification adjustments for gains / losses on Treasury lock hedges are classified in interest expense.

(2) Reclassification adjustments for gains / losses on foreign currency hedges are classified in revenue or operating expenses, depending on the nature of the underlying transaction, and reclassification adjustments for gains / losses on Treasury lock hedges are classified in interest expense.

Taxes related to each component of other comprehensive income (loss) were immaterial for the fiscal years presented.

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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 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.

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

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

During fiscal 2023 and 2022, we entered into accelerated share repurchase agreements (“ASRs”) with large financial institutions whereupon we provided them with prepayments of $ 1.4 billion and $ 2.4 billion, respectively.

Under the terms of our ASRs, the financial institutions agree to deliver a portion of shares to us at contract inception and the remaining shares at settlement.

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

During fiscal 2023, 2022 and 2021, we also entered into structured stock repurchase agreements with large financial institutions whereupon we provided them with prepayments totaling $ 3 billion, $ 4.15 billion and $ 3.95 billion, respectively.

Under the terms of these structured stock repurchase agreements, the financial institutions agree to deliver shares to us at monthly intervals during the respective contract terms, and the number of shares delivered each month are determined based on the total notional amount of the contracts, the number of trading days in the intervals and the VWAP during the intervals, less an agreed upon discount.

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.

There were no explicit commissions or fees on these structured repurchases.

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

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.

During fiscal 2023, we repurchased a total of 11.5 million shares, including approximately 7.5 million shares at an average price of $ 429.65 through structured repurchase agreements, as well as 4.0 million shares at an average price of $ 348.46 through the ASR entered into during fiscal 2023.

During fiscal 2022, we repurchased approximately 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 price of $ 451.55 through the ASR entered into during fiscal 2022.

During fiscal 2021, we repurchased approximately 7.2 million shares at an average price of $ 536.17 through structured repurchase agreements.

For fiscal 2023, 2022 and 2021, the prepayments were classified as treasury stock on our Consolidated Balance Sheets at the payment date, though only shares physically delivered to us by December 1, 2023, December 2, 2022 and December 3, 2021 were excluded from the computation of net income per share.

As of December 1, 2023, $ 354 million of prepayment remained under our outstanding structured stock repurchase agreement.

Subsequent to December 1, 2023, as part of the December 2020 stock repurchase authority, we entered into an accelerated share repurchase agreement with a large financial institution whereupon we provided them with a prepayment of $ 2 billion and received an initial delivery of 2.5 million shares, which represents approximately 75 % of our prepayment.

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

Upon completion of the $ 2 billion accelerated share repurchase agreement, $ 150 million remains under our December 2020 authority.

NET INCOME PER SHARE

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Total $ 4,930

Subsequent to December 1, 2023, we executed agreements associated with certain of our long-term supplier commitments that increased our minimum purchase obligations by $ 2.3 billion through December 2028.

We have royalty commitments associated with the licensing of certain offerings and products.

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Legal Proceedings

In connection with disputes relating to the validity or alleged infringement of third-party intellectual property rights, including patent rights, we have been, are currently and may in the future be subject to claims, negotiations or complex, protracted litigation.

Intellectual property disputes and litigation may be very costly and can be disruptive to our business operations by diverting the attention and energies of management and key technical personnel.

Although we have successfully defended or resolved past litigation and disputes, we may not prevail in any ongoing or future litigation and disputes.

Third-party intellectual property disputes could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from licensing certain of our products or offering certain of our services, subject us to injunctions restricting our sale of products or services, cause severe disruptions to our operations or the markets in which we compete, or require us to satisfy indemnification commitments with our customers including contractual provisions under various license arrangements and service agreements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

We are subject to legal proceedings, claims, including claims relating to intellectual property, commercial, employment and other matters, and investigations, including government investigations, that arise in the ordinary course of our business.

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

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This determination is then reviewed and discussed with the Audit Committee of the Board of Directors.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case.

Unless otherwise specifically disclosed in this note, we have determined that no provision for liability nor disclosure is required related to any claim against us because:

As of December 1, 2023, we accrued provisions for legal liabilities that were probable and estimable, which were not material to our financial statements.

Unless otherwise specifically disclosed in this note, we have determined that no disclosure is required related to any claim against us because:

(a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim;

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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.

Such lawsuits may lead to counter-claims alleging improper use of litigation or violation of other laws.

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

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.

Since June 2022, we have been cooperating with the Federal Trade Commission (the “FTC”) staff in response to a Civil Investigative Demand seeking information regarding our disclosure and subscription cancellation practices relative to the Restore Online Shoppers’ Confidence Act.

In November 2023, the FTC staff asserted that they had the authority to enter into consent negotiations to determine if a settlement regarding their investigation of these issues could be reached.

We are currently engaging in discussion with the FTC.

The defense or resolution of this matter could involve significant monetary costs or penalties and have a significant impact on our financial results and operations.

There can be no assurance that we will be successful in negotiating a favorable settlement or in litigation.

Any remedies or compliance requirements could adversely affect our ability to operate our business or have a materially adverse impact on our financial results.

At this stage, we are unable to estimate a reasonably possible financial loss or range of any potential financial loss, if any, as a result of this investigation.

On October 20, 2023, a securities class action captioned Pembroke Pines Firefighters & Police Officers Pension Fund et al v.

et al, Case No.

1:23-cv-09260, was filed in the U.S.

District Court for the Southern District of New York (the “Securities Action”) naming Adobe and certain of our current and former officers as defendants.

The Securities Action purports to be brought on behalf of purchasers of the Company’s stock between July 23, 2021 and September 15, 2022 (the “Class Period”), and alleges that certain public statements made by Adobe during the Class Period related to competition from Figma and the adequacy of Adobe’s existing offerings to counter harms Adobe may have faced due to Figma’s growing market position were materially false and misleading.

The Securities Action seeks unspecified compensatory damages, attorneys’ fees and costs, and extraordinary equitable and/or injunctive relief.

On November 16, 2023, a shareholder derivative action captioned Shah v.

Narayen et al, Case No.

1:23-cv-01315, was filed in the U.S.

District Court for the District of Delaware (the “Shah Action”), purportedly on behalf of Adobe.

On January 3, 2024, a second shareholder derivative action captioned Gervat v.

Narayen et al, Case No.

1:24-cv-00006, was filed in the U.S.

District Court for the District of Delaware (the “Gervat Action,” and together with the Shah Action, the “Derivative Actions”), purportedly on behalf of Adobe.

The Derivative Actions are based largely on the same alleged facts and circumstances as the Securities Action, and name certain of our current and former officers and members of our Board of Directors as defendants and Adobe as a nominal defendant.

The Derivative Actions allege claims for breach of fiduciary duty, unjust enrichment, waste of corporate assets, and violations of Section 10(b) of the Securities Exchange Act of 1934 and seek recovery of unspecified damages and attorney’s fees and costs, as well as disgorgement of profits and certain payments and benefits, in the case of the Gervat Action, and improvements to Adobe’s corporate governance and internal procedures, in the case of the Shah Action, on behalf of Adobe.

We dispute the allegations of wrongdoing in the Securities Action and the Derivative Actions and intend to vigorously defend ourselves in these matters.

In view of the complexity and ongoing and uncertain nature of the outstanding proceedings and inquiries, at this time we are unable to estimate a reasonably possible financial loss or range of financial loss, if any, that we may incur to resolve or settle the Securities Action and the Derivative Actions.

Intellectual property disputes and litigation may be very costly and can be disruptive to our business operations by diverting the attention and energies of management and key technical personnel.

Although we have successfully

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

defended or resolved past litigation and disputes, we may not prevail in any ongoing or future litigation and disputes.

The carrying value of our borrowings as of December 1, 2023 and December 2, 2022 were as follows:

(dollars in millions) Issuance Date Due Date Effective Interest Rate 2023 2022

1.70% 2023 Notes February 2020 February 2023 1.92 % $ 500 $ 500

1.90% 2025 Notes February 2020 February 2025 2.07 % 500 500

3.25% 2025 Notes January 2015 February 2025 3.67 % 1,000 1,000

2.15% 2027 Notes February 2020 February 2027 2.26 % 850 850

2.30% 2030 Notes February 2020 February 2030 2.69 % 1,300 1,300

1.70 % 2023 Notes

February 2020 February 2023 1.92 % $ — $ 500

1.90 % 2025 Notes

February 2020 February 2025 2.07 % 500 500

3.25 % 2025 Notes

January 2015 February 2025 3.67 % 1,000 1,000

2.15 % 2027 Notes

February 2020 February 2027 2.26 % 850 850

2.30 % 2030 Notes

February 2020 February 2030 2.69 % 1,300 1,300

Total debt outstanding, at par $ 3,650 $ 4,150

Current portion of debt ( 500 ) —

Current portion of debt, at par

Unamortized discount and debt issuance costs ( 16 ) ( 21 )

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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.

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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.

During the first quarter of fiscal 2023, the $ 500 million of senior notes due February 1, 2023 became due and were repaid.

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

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The notes do not contain financial covenants but include covenants that limit our ability to grant liens on assets and to enter into sale and leaseback transactions, subject to significant allowances.

Term Loan Credit Agreement

In January 2023, we entered into a delayed draw term loan credit agreement (the “Term Loan Credit Agreement”), providing for a senior unsecured term loan (the “Term Loan”) of up to $ 3.5 billion for the purpose of partially funding the purchase price for our intended acquisition of Figma and the related fees and expenses incurred in connection with the acquisition.

The Term Loan was available for funding in a single drawing upon the closing of the Figma acquisition at any time

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

prior to March 15, 2024.

The Term Loan would mature two years following the initial funding date and required no scheduled principal amortization payments prior to maturity.

The Term Loan could be prepaid and terminated at our election at any time without premium or penalty.

At our election, the Term Loan would bear interest at either (i) term Secured Overnight Financing Rate (“SOFR”), plus a margin, (ii) adjusted daily SOFR, plus a margin, or (iii) base rate, plus a margin.

Base rate is defined as the highest of (a) the federal funds rate plus 0.50 %, (b) the agent’s prime rate, or (c) term SOFR plus 1.00 %.

The margin for term SOFR and adjusted daily SOFR loans was based on our debt ratings, and ranges from 0.750 % to 1.250 %.

The margin for base rate loans was based on our debt ratings, and ranged from 0.000 % to 0.250 %.

In addition, commitment fees determined according to our debt ratings were payable quarterly in an amount ranging from 0.040 % to 0.100 % per annum until the funding of the Term Loan.

The Term Loan Credit Agreement contained customary representations, warranties, affirmative and negative covenants, events of default and indemnification provisions in favor of the lenders similar to those contained in the Revolving Credit Agreement.

As of December 1, 2023, there were no outstanding borrowings under the Term Loan.

Subsequent to December 1, 2023, we entered into a mutual termination agreement with Figma to terminate the previously announced merger agreement.

Consequently, the Term Loan Credit Agreement was terminated.

See Note 3 of our Notes to Consolidated Financial Statements for further information r e g a r d i n g the F i g m a transaction .

Revolving Credit Agreement

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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 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 %.

At our election, loans under the Revolving Credit Agreement will bear interest at either (i) term SOFR, plus a margin, (ii) adjusted daily SOFR, plus a margin, (iii) alternative currency rate, plus a margin, or (iv) base rate, which is defined as the highest of (a) the federal funds rate plus 0.50 %, (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 %.

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As of December 1, 2023, 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.

Commercial Paper Program

In September 2023, we established a commercial paper program under which we may issue unsecured commercial paper up to a total of $ 3 billion outstanding at any time, with maturities of up to 397 days from the date of issue.

The net proceeds from the issuance of commercial paper are expected to be used for general corporate purposes, which may include working capital, capital expenditures, acquisitions, stock repurchases, refinancing indebtedness or any other general corporate purposes.

As of December 1, 2023, there were no outstanding borrowings under the commercial paper program.

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 $ 121 million for fiscal 2022 and $ 119 million for both fiscal 2021 and 2020.

Operating lease expense was $ 117 million, $ 121 million and $ 119 million for fiscal 2023, 2022 and 2021, respectively.

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

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

Realized losses on fixed income investments ( 7 ) — —

Other income (expense), net $ 246 $ 41 $ —

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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