What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-01-13 compared with 2024-01-17 · 228 added, 226 removed, 1047 unchanged (30% of the section changed)

49 unchanged sentences

Additional paid-in capital

13,419 11,586

Retained earnings 38,470 33,346

23 unchanged sentences

General and administrative 1,529 1,413 1,219

Acquisition termination fee

Amortization of intangibles 169 168 169

41 unchanged sentences

Shares Amount Shares Amount Total

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 acquisition — — 2 — — — — 2

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

17 unchanged sentences

Stock-based compensation — — 1,833 — — — — 1,833

Value of shares in deferred compensation plan — — — — — — 2 2

Balances at December 1, 2023

Balances at November 29, 2024

601 $ — $ 13,419 $ 38,470 $ ( 201 ) ( 160 ) $ ( 37,583 ) $ 14,105

10 unchanged sentences

Reduction of operating lease right-of-use assets 77 72 83

Lease-related asset impairments

Deferred income taxes ( 468 ) ( 426 ) 328

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Taxes paid related to net share settlement of equity awards ( 677 ) ( 589 ) ( 518 )

Proceeds from issuance of debt 1,997 — —

Repayment of debt — ( 500 ) —

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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 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”).

Securities and Exchange Commission (the “SEC”).

Use of Estimates

In preparing Consolidated Financial Statements and related disclosures in conformity with GAAP and pursuant to the rules and regulations of the SEC, we must make estimates and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes.

In preparing the Consolidated Financial Statements and related disclosures in conformity with GAAP and pursuant to the rules and regulations of the SEC, we must make estimates and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes.

Estimates are used for, but not limited to, sales allowances and programs, bad debts, stock-based compensation, determining the fair value of acquired assets and assumed liabilities, litigation and income taxes.

1 unchanged sentence

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 was a 53 -week year compared with fiscal 2023 and 2022 which were 52 -week years.

Fiscal years 2024, 2023 and 2022 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.

Significant Accounting Policies

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Subscription, Product and Services Offerings

1 unchanged sentence

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.

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We have concluded that the on-premise/on-device software licenses and cloud services provided in our Creative Cloud and Document Cloud subscription offerings are not distinct from each other such that revenue from each offering should be recognized ratably over the subscription period for which the cloud services are provided.

In reaching this conclusion, we considered the nature of our promise to Creative Cloud and Document Cloud customers, which is to provide a complete end-to-end creative design or document workflow solution that operates seamlessly across multiple devices and teams.

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

In reaching this conclusion, we considered the nature of our

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

promise to Creative Cloud and Document Cloud customers, which is to provide a complete end-to-end creative design or document workflow solution that operates seamlessly across multiple devices and teams.

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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This estimate can be affected by the amount of a particular product in the channel, the rate of sell-through, product plans and other factors.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Although our subscription contracts are generally non-cancellable, a limited number of customers have the right to cancel their contracts by providing prior written notice to us of their intent to cancel the remainder of the contract term and consumers have a period of time to terminate certain agreements without penalty.

1 unchanged sentence

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Periods of time after the right of 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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Operating leases are recorded in our Consolidated Balance Sheets.

Right-of-use (“ROU”) assets and lease liabilities are measured at the lease commencement date based on the present value of the remaining lease payments over the lease term, determined using the discount rate for the lease at the commencement date.

Right-of-use assets and lease liabilities are measured at the lease commencement date based on the present value of the remaining lease payments over the lease term, determined using the discount rate for the lease at the commencement date.

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 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.

We also have one land lease that expires in 2091.

Our lease terms include optional periods to extend or terminate the lease when it is reasonably certain that the option will be exercised.

Operating lease expense is recognized on a straight-line basis over the lease term.

We account for lease and non-lease components, principally common area maintenance for our facilities leases, as a single lease component for our facilities and data center leases.

We generally account for lease and non-lease components, principally common area maintenance for our facilities leases, as a single lease component for our facilities and data center leases.

In accordance with accounting requirements, leases with an initial term of 12 months or less are recorded on the balance sheet, with lease expense for these leases recognized on a straight-line basis over the lease term.

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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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 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.

We completed our annual goodwill impairment test in the second quarter of fiscal 2023.

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.

We did not identify any events or changes in circumstances since the performance of our annual goodwill impairment test that would require us to perform another goodwill impairment test during the fiscal year.

We amortize intangible assets with finite lives over their estimated useful lives and review them for impairment whenever an impairment indicator exists.

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of our long-lived assets, including our intangible assets, may not be recoverable.

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.

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of our long-lived assets, including our property and equipment, leases and intangible assets, may not be recoverable.

When such events or changes in circumstances occur, we assess recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows.

If the future undiscounted cash flows are less than the carrying amount of these assets, we recognize an impairment loss based on any excess of the carrying amount over the fair value of the assets.

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

Our intangible assets are amortized over their estimated useful lives ranging from 3 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.

The weighted average useful lives of our intangible assets were as follows:

Weighted Average

Useful Life (years )

Customer contracts and relationships 10

Purchased technology 5

We use the asset and liability method of accounting for income taxes.

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 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.

7 unchanged sentences

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Treasury Stock

6 unchanged sentences

Advertising costs are expensed as incurred.

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

Advertising expenses for fiscal 2024, 2023 and 2022 were $ 1.04 billion, $ 970 million and $ 1.04 billion, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Foreign Currency Translation

5 unchanged sentences

Dollars and in various other currencies.

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

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

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.

3 unchanged sentences

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.

Foreign exchange forward contracts and option 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.

5 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.

Adopted Accounting Guidance and Accounting Pronouncements Not Yet Effective

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Recent Accounting Pronouncements Not Yet Effective

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.

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

2 unchanged sentences

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

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes, which prescribes standardized categories and disaggregation of information in the reconciliation of provision for income taxes, requires disclosure of disaggregated income taxes paid, and modifies other income tax-related disclosure requirements.

The updated standard is effective for us beginning with our fiscal year 2026 annual reporting period.

Early adoption is permitted.

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

In November 2024, the FASB issued ASU No.

2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures, which requires additional disclosure of certain costs and expenses within the notes to the financial statements.

The updated standard is effective for our annual periods beginning in fiscal 2028 and interim periods beginning in the first quarter of fiscal 2029.

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 2024 that are of significance or potential significance to us.

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Included in trade receivables on the Consolidated Balance Sheets are unbilled receivable balances which have not yet been invoiced, and are typically related to license revenue or services which are delivered prior to invoicing.

As of November 29, 2024, the balance of trade receivables, net of allowances for doubtful accounts, was $ 2.07 billion, inclusive of unbilled receivables of $ 66 million.

As of December 1, 2023, the balance of trade receivables, net of allowances for doubtful accounts, was $ 2.22 billion, inclusive of unbilled receivables of $ 80 million.

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

The allowance for doubtful accounts was $ 16 million and $ 23 million as of December 1, 2023 and December 2, 2022, respectively.

The allowance for doubtful accounts was $ 14 million and $ 16 million as of November 29, 2024 and December 1, 2023, respectively.

Contract Assets

4 unchanged sentences

Contract asset impairments were not material in fiscal 2024 and 2023.

Contract assets were $ 141 million and $ 97 million as of December 1, 2023 and December 2, 2022, respectively.

Contract assets were $ 248 million and $ 141 million as of November 29, 2024 and December 1, 2023, respectively.

Deferred Revenue and Remaining Performance Obligations

8 unchanged sentences

Any potential financing fees are considered insignificant in the context of our contracts.

As of December 1, 2023, the balance of deferred revenue was $ 5.95 billion, which includes $ 115 million of refundable customer deposits.

As of November 29, 2024, the balance of deferred revenue was $ 6.26 billion, which includes $ 83 million of refundable customer deposits.

Refundable customer deposits represent arrangements in which the customer has a unilateral cancellation right for which we are obligated to refund amounts paid related to products or services not yet delivered or provided at the time of cancellation on a prorated basis.

4 unchanged sentences

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.

During the year ended November 29, 2024, approximately $ 5.87 billion of revenue was recognized that was included in the balance of deferred revenue as of December 1, 2023.

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.

1 unchanged sentence

We applied practical expedients to exclude amounts related to performance obligations that are billed and recognized as they are delivered, optional purchases that do not represent material rights, sales and usage-based royalties not yet consumed and any estimated amounts of variable consideration that are subject to constraint.

Remaining performance obligations were approximately $ 17.22 billion as of December 1, 2023.

Remaining performance obligations were approximately $ 19.96 billion as of November 29, 2024.

Non-cancellable and non-refundable committed funds related to some of our enterprise customer agreements referred to in the paragraph above comprised approximately 4 % of the total remaining performance obligations.

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We did not incur any impairment losses for all 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.

Capitalized contract acquisition costs were $ 717 million and $ 656 million as of November 29, 2024 and December 1, 2023, of which $ 464 million and $ 422 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.

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

Refund liabilities were $ 111 million and $ 106 million as of December 1, 2023 and December 2, 2022, respectively.

Refund liabilities were $ 141 million and $ 111 million as of November 29, 2024 and December 1, 2023, respectively.

Significant Customers

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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.

The financial results of Frame.io have been included in our Consolidated Financial Statements since the date of the acquisition.

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

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)

Purchased technology $ 331 4

In-process research and development (1)

Trademarks 4 3

Customer contracts and relationships 3 10

Total identifiable intangible assets 357

Net liabilities assumed ( 36 ) N/A

Total purchase price $ 1,236

_________________________________________

(1) Capitalized as purchased technology and considered indefinite lived until the completion or abandonment of the associated research and development efforts.

(2) Non-deductible for tax purposes.

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.

The financial results of Workfront have been included in our Consolidated Financial Statements since the date of the acquisition.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Customer contracts and relationships $ 290 10

Purchased technology 100 3

Trademarks 30 5

Total identifiable intangible assets 460

Net liabilities assumed ( 31 ) N/A

Total purchase price $ 1,524

_________________________________________

(1) Non-deductible for tax purposes.

In accordance with the terms of the termination agreement, we paid Figma a termination fee of $ 1 billion.

The termination fee was recorded in operating expenses in our Consolidated Statements of Income during fiscal 2024, and was not tax-deductible for financial statement purposes.

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

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Gains and losses are determined using the specific identification method and recognized when realized in our Consolidated Statements of Income.

Cash, cash equivalents and short-term investments consisted of the following as of December 1, 2023:

Cash, cash equivalents and short-term investments consisted of the following as of November 29, 2024:

(in millions)

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Cash equivalents:

Corporate debt securities 41 — — 41

Money market funds 6,726 — — 6,726

Time deposits 57 — — 57

Treasury securities 2 — — 2

Total cash equivalents 6,826 — — 6,826

16 unchanged sentences

Cash equivalents:

Corporate debt securities 39 — — 39

Money market funds 6,498 — — 6,498

5 unchanged sentences

Corporate debt securities 438 — ( 4 ) 434

Foreign government securities 5 — — 5

Municipal securities 24 — — 24

agency securities 13 — ( 1 ) 12

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See Note 5 for further information regarding the fair value of our financial instruments.

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:

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 November 29, 2024:

(in millions)

1 unchanged sentence

Due between one and two years 4

Due between two and three years 9

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

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Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

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

The fair value of our financial assets and liabilities at November 29, 2024 was determined using the following inputs:

(in millions)

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Cash equivalents:

Corporate debt securities $ 41 $ — $ 41 $ —

Money market funds 6,726 6,726 — —

Time deposits 57 57 — —

Treasury securities 2 — 2 —

Short-term investments:

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Deferred compensation plan assets 283 283 — —

Foreign currency derivatives

Total assets $ 7,511 $ 7,066 $ 445 $ —

1 unchanged sentence

Foreign currency derivatives $ 9 $ — $ 9 $ —

Other liabilities:

Foreign currency derivatives

Total liabilities $ 11 $ — $ 11 $ —

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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Cash equivalents:

Corporate debt securities $ 39 $ — $ 39 $ —

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

3 unchanged sentences

Corporate debt securities 434 — 434 —

Foreign government securities 5 — 5 —

Municipal securities 24 — 24 —

agency securities

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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

The fair value of our senior notes was $ 3.39 billion as of December 1, 2023, based on observable market prices in less active markets and categorized as Level 2.

The fair value of our senior notes was $ 5.51 billion as of November 29, 2024, based on observable market prices in less active markets and categorized as Level 2.

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 and forward contracts to hedge a portion of our forecasted foreign currency denominated revenue and expenses.

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

These foreign exchange contracts, carried at fair value, have maturities of up to 24 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.

As of November 29, 2024 and December 1, 2023, total notional amounts of outstanding cash flow hedges were $ 5.51 billion and $ 2.83 billion, respectively, hedging exposures denominated in Euros, Japanese Yen, British Pounds, Indian Rupees, Australian Dollars and Canadian Dollars.

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

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See Note 17 for further details regarding our debt.

As of December 1, 2023, we had net derivative losses on our foreign exchange option contracts expected to be recognized within the next 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.

As of November 29, 2024, we had net derivative gains on our foreign currency cash flow hedges expected to be recognized within the next 36 months, of which $ 64 million of net gains are expected to be recognized into revenue within the next 12 months and $ 1 million of net losses are expected to be recognized into operating expenses within the next 12 months.

We also had net derivative losses on our Treasury lock agreements, of which $ 3 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 2024, 2023 and 2022, 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.

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.

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 1, 2023 and December 2, 2022 were as follows:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of November 29, 2024, total notional amounts of outstanding foreign currency forward contracts hedging monetary assets and liabilities were $ 381 million, primarily hedging exposures denominated in Indian Rupees, Australian Dollars, British Pounds and Euros.

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

At November 29, 2024 and December 1, 2023, 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 for the current portion and other assets for the long-term portion, and fair value liability derivatives are included in accrued expenses for the current portion and other liabilities for the long-term portion on our Consolidated Balance Sheets.

The fair value of derivative instruments as of November 29, 2024 and December 1, 2023 were as follows:

(in millions)

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Derivatives designated as hedging instruments:

Foreign exchange option contracts $ 42 $ — $ 36 $ —

Foreign exchange forward contracts 1 — — 7

Foreign exchange contracts

$ 128 $ 10 $ 43 $ —

Derivatives not designated as hedging instruments:

Foreign exchange forward contracts 9 4 15 8

Foreign exchange contracts

Total derivatives $ 129 $ 11 $ 52 $ 4

2 unchanged sentences

Derivatives in cash flow hedging relationships:

Foreign exchange option contracts

Foreign exchange contracts

$ 89 $ ( 12 ) $ 139

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

The effects of derivative instruments on our Consolidated Statements of Income for fiscal 2024, 2023 and 2022 were as follows:

1 unchanged sentence

Derivatives in cash flow hedging relationships:

Foreign exchange option contracts

Foreign exchange contracts

Net gain (loss) reclassified from accumulated OCI into income Revenue $ ( 20 ) $ 41 $ 176

Foreign exchange forward contracts

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

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Derivatives not designated as hedging relationships:

Foreign exchange forward contracts

Foreign exchange contracts

Other income (expense), net $ 3 $ 12 $ ( 29 )

1 unchanged sentence

PROPERTY AND EQUIPMENT

Property and equipment, net consisted of the following as of December 1, 2023 and December 2, 2022:

Property and equipment, net, consisted of the following as of November 29, 2024 and December 1, 2023:

(in millions) 2024 2023

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Depreciation and amortization expense of property and equipment for fiscal 2024, 2023 and 2022 was $ 239 million, $ 235 million and $ 189 million, respectively.

Property and equipment, net, by geographic area as of December 1, 2023 and December 2, 2022 was as follows:

Property and equipment, net, by geographic area as of November 29, 2024 and December 1, 2023 was as follows:

(in millions) 2024 2023

11 unchanged sentences

Foreign currency translation

( 3 ) ( 39 ) — ( 42 )

Balances at December 1, 2023

1 unchanged sentence

Foreign currency translation

Balances at December 1, 2023

( 1 ) ( 16 ) — ( 17 )

Balances at November 29, 2024

$ 3,889 $ 8,501 $ 398 $ 12,788

During the second quarter of fiscal 2024, we completed our annual goodwill impairment test associated with our reporting units and, based on the qualitative assessment, determined there was no impairment of goodwill.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other intangibles, net, as of December 1, 2023 and December 2, 2022 were as follows:

(in millions)

Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net

Other intangibles, net, as of November 29, 2024 and December 1, 2023 were as follows:

(dollars in millions)

Gross Carrying Amount Accumulated Amortization Net Weighted Average

Useful Life (years) Gross Carrying Amount Accumulated Amortization Net

Customer contracts and relationships $ 1,203 $ ( 742 ) $ 461 10 $ 1,204 $ ( 619 ) $ 585

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Amortization expense related to other intangibles was $ 336 million, $ 375 million and $ 405 million for fiscal 2024, 2023 and 2022 respectively.

Of these amounts, $ 207 million, $ 236 million and $ 181 million were included in cost of sales for fiscal 2023, 2022 and 2021 respectively.

Of these amounts, $ 167 million, $ 207 million and $ 236 million was included in cost of sales for fiscal 2024, 2023 and 2022 respectively.

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

Other intangibles are amortized over their estimated useful lives of 3 to 14 years.

As of December 1, 2023, the estimated aggregate amortization expense for each of the five succeeding fiscal years was as follows:

As of November 29, 2024, the estimated aggregate amortization expense for each of the five succeeding fiscal years was as follows:

(in millions)

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Total expected amortization expense $ 782

_________________________________________

(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 1, 2023 and December 2, 2022 consisted of the following:

Accrued expenses as of November 29, 2024 and December 1, 2023 consisted of the following:

(in millions) 2024 2023

Accrued bonuses $ 547 $ 489

Accrued compensation and benefits $ 646 $ 535

Accrued bonuses 575 547

Accrued corporate marketing 176 132

Sales and use taxes

Derivative collateral liabilities

Refund liabilities 141 111

Sales and use taxes

Other 509 445

Accrued expenses $ 2,336 $ 1,942

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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federal statutory rate $ 1,456 $ 1,428 $ 1,262

Tax credits ( 130 ) ( 116 ) ( 149 )

Effects of non-U.S.

operations ( 198 ) ( 116 ) ( 7 )

Tax credits ( 150 ) ( 130 ) ( 116 )

Tax settlements ( 85 ) ( 14 ) ( 14 )

State tax expense, net of federal benefit 132 113 66

Stock-based compensation ( 23 ) 29 —

Acquisition termination fee

State tax expense, net of federal benefit 139 132 113

Other 22 42 14

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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 1, 2023 and December 2, 2022 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 November 29, 2024 and December 1, 2023 were as follows:

(in millions)

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Capitalized expenses $ 1,625 $ 984

Intangible assets 320 653

Credit carryforwards 343 366

Net operating loss and capital loss carryforwards

Intangible assets 117 320

Reserves and accruals 129 125

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Stock-based compensation 66 65

Net operating loss carryforwards of acquired companies 44 88

Benefits relating to tax positions 64 68

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Prepaid expenses 112 107

Operating lease right-of-use assets 89 97

Depreciation and amortization 70 77

Operating lease right-of-use assets 52 89

Total deferred tax liabilities 414 536

Net deferred tax assets $ 1,626 $ 1,176

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

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

As of November 29, 2024, we had federal and state tax credit carryforwards of approximately $ 93 million and $ 308 million, respectively, as well as state net operating loss carryforwards of approximately $ 408 million.

We also had federal and state capital loss carryforwards of $ 1.15 billion mainly from the Figma acquisition termination fee which was not deductible for financial statement purposes.

The majority of the state tax credits can be carried forward indefinitely, and the remaining federal and state tax loss and credit carryforwards will expire in various years from fiscal 2025 through 2040.

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

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

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

As of December 1, 2023, we continue to maintain a valuation allowance of $ 405 million primarily related to certain state credits.

For fiscal 2023, the increase in the valuation allowance was $ 3 million.

As of November 29, 2024, we continue to maintain a valuation allowance of $ 725 million primarily related to certain state credits and federal capital loss carryforwards.

For fiscal 2024, the increase in the valuation allowance was $ 321 million, mainly related to the capital loss generated from the Figma acquisition termination fee.

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

As of December 1, 2023, the cumulative amount of foreign earnings considered permanently reinvested upon which taxes have not been provided, and the corresponding unrecognized deferred tax liability, was not material.

As of November 29, 2024, the cumulative amount of foreign earnings considered permanently reinvested upon which taxes have not been provided, and the corresponding unrecognized deferred tax liability, was not material.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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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.

As of November 29, 2024 and December 1, 2023, the combined amounts of accrued interest and penalties included in long-term income taxes payable related to tax positions taken on our tax returns were not material.

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

We are subject to the examination of our income tax returns by various domestic and foreign tax authorities with 2020 being the earliest fiscal year open for examination in all of our major tax jurisdictions.

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

While we believe our tax estimates are reasonable, we cannot provide assurance that the final determination of any of these examinations will not have an adverse effect on our financial position and results of operations.

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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 1, 2023 and December 2, 2022, the invested amounts under the plan totaled $ 206 million and $ 160 million, respectively.

As of December 1, 2023 and December 2, 2022, undistributed deferred compensation due to participants totaled $ 222 million and $ 178 million, respectively.

Undistributed deferred compensation is recorded as other liabilities on our Consolidated Balance Sheets.

As of November 29, 2024 and December 1, 2023, the invested amounts under the plan totaled $ 283 million and $ 206 million, respectively.

As of November 29, 2024 and December 1, 2023, undistributed deferred compensation due to participants totaled $ 297 million and $ 222 million, respectively.

STOCK-BASED COMPENSATION

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

As of December 1, 2023, we had reserved 64.0 million shares of our common stock for issuance under our 2019 Plan and had 34.3 million shares available for grant.

As of November 29, 2024, we had reserved 69.0 million shares of our common stock for issuance under our 2019 Plan and had 34.3 million shares available for grant.

Our Performance Share Programs aim to help focus key employees on building stockholder value, provide significant award potential for achieving outstanding company performance and enhance our ability to attract and retain highly talented and competent individuals.

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

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

Performance share awards in each of our 2024, 2023 and 2022 Performance Share Programs will cliff-vest upon the later of (i) the three -year anniversary of the earliest vesting commencement date in the respective Performance Share Program, or (ii) the ECC's certification of the level of achievement of the final performance period in the respective Performance Share Program, contingent upon the participant’s continued service.

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

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

As of November 29, 2024, the shares awarded under our 2024, 2023 and 2022 Performance Share Programs remained outstanding and unvested.

Employee Stock Purchase Plan

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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.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

As of December 1, 2023, we had reserved 103.0 million shares of our common stock for issuance under the ESPP and approximately 9.6 million shares remain available for future issuance.

As of November 29, 2024, we had reserved 103.0 million shares of our common stock for issuance under the ESPP and approximately 8.4 million shares remain available for future issuance.

Issuance of Shares

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If treasury stock is not available, common stock will be issued.

In order to minimize the impact of on-going dilution from issuance of shares, we instituted a stock repurchase program.

In order to minimize the impact of ongoing dilution from issuance of shares, we instituted a stock repurchase program.

See Note 14 for information regarding our stock repurchase programs.

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_________________________________________

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

(1) The aggregate fair value is calculated using the closing stock price as of November 29, 2024 of $ 515.93 .

The weighted average grant date fair values of restricted stock units granted during fiscal 2024, 2023 and 2022 were $ 579.87 , $ 376.83 and $ 457.96 , respectively.

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_________________________________________

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

(1) The aggregate fair value is calculated using the closing stock price as of November 29, 2024 of $ 515.93 .

Shares released during fiscal 2024 resulted from 83 % achievement of target for the 2021 Performance Share Program, as certified by the ECC in the first quarter of fiscal 2024.

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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 2023, the rollover provision of our ESPP was triggered and resulted in incremental expense to be recognized over the new twenty-four -month offering period, which did not have a material impact on our Consolidated Statements of Income.

Compensation Costs

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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.

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.

As of November 29, 2024, there was $ 2.93 billion of unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock-based awards and purchase rights which will be recognized over a weighted average period of 2.19 years.

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

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(in millions) December 1,

2022 Increase / Decrease Reclassification Adjustments December 1,

2023 Increase / Decrease Reclassification Adjustments November 29,

Net unrealized gains / losses on available-for-sale securities $ ( 12 ) $ 11 $ — (1)

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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 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.

In December 2020, our Board of Directors granted authority to repurchase up to $ 15 billion in our common stock, which became fully utilized during fiscal 2024.

In March 2024, our Board of Directors granted additional authority to repurchase up to $25 billion in our common stock through March 14, 2028.

During fiscal 2024, 2023 and 2022, we entered into accelerated share repurchase agreements (“ASRs”) with large financial institutions whereupon we provided them with prepayments totaling $ 9.5 billion, $ 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Share repurchase activities for fiscal 2024, 2023 and 2022 were as follows:

Number of Shares Delivered

(in millions)

Average Price Paid Per Share

Structured stock repurchase agreement entered into in fiscal 2023 0.6 $ 626.68

ASR entered into in December 2023 3.5 $ 578.11

ASR entered into in March 2024 5.2 $ 475.94

ASR entered into in June 2024 4.6 $ 546.30

ASR entered into in September 2024 3.6 $ — (1)

Total shares delivered 17.5

Structured stock repurchase agreements entered into in fiscal 2023 and 2022 7.5 $ 429.65

ASR entered into in December 2022 4.0 $ 348.46

Total shares delivered 11.5

Structured stock repurchase agreements entered into in fiscal 2022 and 2021 10.4 $ 375.03

ASR entered into in December 2021 5.3 $ 451.55

Total shares delivered 15.7

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(1) During fiscal 2024, we received the initial delivery of shares under the ASR entered into in September 2024, which remained outstanding as of November 29, 2024.

Subsequent to November 29, 2024, the outstanding ASR was settled which resulted in total repurchases of 5.0 million shares at an average price of $ 501.37 .

Prepayments for stock repurchases are classified as treasury stock, a component of stockholders’ equity on our Consolidated Balance Sheets, at the payment date, though only shares physically delivered to us by the end of the respective period are excluded from the computation of net income per share.

As of November 29, 2024, a portion of the $ 2.5 billion prepayment under the ASR entered into in September 2024 was evaluated as an unsettled forward contract indexed to our own stock, classified within stockholders’ equity.

Subsequent to November 29, 2024, as part of the March 2024 stock repurchase authority, we entered into stock repurchase arrangements with a large financial institution which totaled $ 3.25 billion, including a $ 2.75 billion ASR and a trading plan under which we may execute up to $ 500 million in open market repurchases.

Under the ASR, we received an initial delivery of 4.5 million shares, which represents approximately 75 % of our $ 2.75 billion prepayment.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

NET INCOME PER SHARE

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.

Basic net income per share is computed using the weighted average number of common shares outstanding for the period, excluding unvested stock-based awards and purchase rights.

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.

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Anti-dilutive potential common shares 1.9 2.7 4.2

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

COMMITMENTS AND CONTINGENCIES

Unconditional Purchase Obligations

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 1, 2023, primarily relating to contracts with vendors for third-party hosting and data center services:

Our principal commitments consist of purchase obligations resulting from agreements to purchase goods and services 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 November 29, 2024, primarily relating to contracts with vendors for third-party hosting and data center services:

(in millions)

Fiscal Year Purchase Obligations

Thereafter 411

Total $ 5,789

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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Royalty expense, which was recorded in our cost of revenue on our Consolidated Statements of Income, was approximately $ 259 million, $ 246 million and $ 228 million in fiscal 2024, 2023 and 2022, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Indemnifications

In the ordinary course of business, we provide indemnifications of varying scope to customers and channel partners against claims of intellectual property infringement made by third parties arising from the use of our products and from time to time, we are subject to claims by our customers under these indemnification provisions.

In the ordinary course of business, we provide indemnifications of varying scope to our customers and channel partners against claims of intellectual property infringement made by third parties arising from the use of our products and from time to time, we are subject to claims by our customers under these indemnification provisions.

Historically, costs related to these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.

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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.

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

As of November 29, 2024, accrued provisions for legal proceedings were immaterial.

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

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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.

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.

On March 20, 2024, we were informed that the FTC had voted to authorize a filing of the case.

The FTC then referred the case to the Department of Justice (the “DOJ”), and on June 17, 2024, the DOJ filed a civil complaint in the United States District Court for the Northern District of California, naming Adobe and certain of our employees as defendants.

The complaint alleges that Adobe failed to clearly and conspicuously disclose material terms, failed to obtain express informed consent and failed to provide a simple cancellation mechanism regarding our disclosure and subscription cancellation practices in violation of ROSCA and the FTC Act.

The DOJ is seeking injunctive relief, civil penalties, equitable monetary relief and other relief.

On October 7, 2024, we filed a motion to dismiss the DOJ’s civil complaint, and that motion was fully briefed as of December 23, 2024.

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.

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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.

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 litigation.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

et al, Case No.

et al, renamed as In Re Adobe Inc.

Securities Litigation, 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 purports to be brought on behalf of purchasers of the Company’s stock between July 23, 2021 and September 22, 2022 (the “Class Period”).

The complaint, which was amended on February 23, 2024, 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.

We filed a motion to dismiss the Securities Action, which was fully briefed as of May 23, 2024.

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

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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.

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

On January 24, 2024, the Court consolidated the Shah and Gervat Actions (together, the “Consolidated Derivative Action”).

On January 18, 2024, a shareholder derivative action captioned Sbriglio v.

Narayen et al., Case No.

24-cv-429458, was filed in California Superior Court (the “Sbriglio Action”), purportedly on behalf of Adobe.

On January 29, 2024, a shareholder derivative action captioned Roy v.

Narayen et al., No.

1:24-cv-00633, was filed in the U.S.

District Court for the Southern District of New York, (the “Roy Action,” and together with the Consolidated Derivative Action and the Sbriglio 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.

The Derivative Actions together allege claims for breach of fiduciary duty and/or aiding and abetting breach of fiduciary duties, unjust enrichment, waste of corporate assets, abuse of control, and violations of Section 10(b) (and Rule 10b-5 promulgated thereunder), Section 20(a), and/or Section 21D of the Securities Exchange Act of 1934, as amended, and seek recovery of unspecified damages, restitution, 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.

The Derivative Actions are presently stayed pending the final resolution of the motion to dismiss in the Securities Action.

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

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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.

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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The carrying value of our borrowings as of November 29, 2024 and December 1, 2023 were as follows:

(dollars in millions) Issuance Date Due Date Effective Interest Rate 2024 2023

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3.25 % 2025 Notes

February 2020 February 2025 2.07 % 500 500

3.25 % 2025 Notes

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

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4.85 % 2027 Notes

April 2024 April 2027 5.03 % 500 —

4.80 % 2029 Notes

April 2024 April 2029 4.93 % 750 —

2.30 % 2030 Notes

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

4.95 % 2034 Notes

April 2024 April 2034 5.03 % 750 —

Total debt outstanding, at par $ 5,650 $ 3,650

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Carrying value of long-term debt $ 4,129 $ 3,634

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

Current portion of debt, at par $ 1,500 $ —

Unamortized discount and debt issuance costs ( 1 ) —

Carrying value of current debt

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.

In February 2020, we issued $ 500 million of senior notes due February 1, 2023, $ 500 million of senior notes due February 1, 2025, $ 850 million of senior notes due February 1, 2027 and $ 1.30 billion of senior notes due February 1, 2030.

Our total proceeds of approximately $ 3.14 billion, net of issuance discount, were used for general corporate purposes including repayment of debt instruments due in fiscal 2020.

In February 2020, we issued $ 500 million of senior notes due February 1, 2025, $ 850 million of senior notes due February 1, 2027 and $ 1.30 billion of senior notes due February 1, 2030.

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

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

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.

In April 2024, we issued $ 500 million of senior notes due April 4, 2027, $ 750 million of senior notes due April 4, 2029 and $ 750 million of senior notes due April 4, 2034.

Our total proceeds were approximately $ 1.99 billion, net of an issuance discount of $ 3 million and total issuance costs of $ 9 million.

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

Interest is payable semi-annually, in arrears, on April 4 and October 4.

During the first quarter of fiscal 2024, we reclassified the senior notes due February 1, 2025 as current debt in our Consolidated Balance Sheets.

As of November 29, 2024, the carrying value of our current debt was $ 1.50 billion, net of the related discount and issuance costs.

Our senior notes rank equally with our other unsecured and unsubordinated indebtedness, and do not contain financial covenants.

We may redeem the notes at any time, subject to a make-whole premium.

In addition, upon the occurrence of certain change of control triggering events, we may be required to repurchase the notes, at a price equal to 101 % of their principal amount, plus accrued and unpaid interest to the date of repurchase.

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

Term Loan Credit Agreement

In January 2023, we entered into a delayed draw term loan credit agreement (the “Term Loan Credit Agreement”), providing for a senior unsecured term loan (the “Term Loan”) of up to $ 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

For the senior notes issued in January 2015 and February 2020, upon the occurrence of certain change of control triggering events, we may be required to repurchase the notes, at a price equal to 101 % of their principal amount, plus accrued and unpaid interest to the date of repurchase.

In addition, these notes include covenants that limit our ability to grant liens on assets and to enter into sale and leaseback transactions, subject to significant allowances.

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

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”).

In June 2022, we entered into a credit agreement (the “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 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) 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 %.

At our election, loans under the Revolving Credit Agreement will bear interest at either (i) term Secured Overnight Financing Rate (“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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The facility will terminate and all amounts owing thereunder will be due and payable on the maturity date unless (a) the commitments are terminated earlier upon the occurrence of certain events, including an event of default, or (b) the maturity date is further extended upon our request, subject to the agreement of the lenders.

As of December 1, 2023, there were no outstanding borrowings under this Revolving Credit Agreement.

As of November 29, 2024, there were no outstanding borrowings under this Revolving Credit Agreement.

Commercial Paper Program

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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)

As of November 29, 2024, there were no outstanding borrowings under the commercial paper program.

Term Loan Credit Agreement

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

During fiscal 2024, we entered into a mutual termination agreement with Figma to terminate the previously announced merger agreement.

Consequently, the Term Loan Credit Agreement was terminated.

There were no outstanding borrowings under the Term Loan Credit Agreement at the time of termination.

We lease certain facilities and data centers under non-cancellable operating lease arrangements that expire at various dates through 2034.

4 unchanged sentences

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During fiscal 2024, we recognized impairment charges of $ 78 million associated with the optimization of our leased facilities, primarily for operating lease right-of-use assets and leasehold improvements, which were recorded as general and administrative expenses.

There was no impairment recognized in the other periods presented.

Supplemental cash flow information for fiscal 2024, 2023 and 2022 related to operating leases was as follows:

2 unchanged sentences

Right-of-use assets obtained in exchange for operating lease liabilities $ 62 $ 32 $ 59

The weighted-average remaining lease term and weighted-average discount rate for our operating lease liabilities as of December 1, 2023 were 6 years and 2.50 %, respectively.

As of December 1, 2023, the maturities of lease liabilities under operating leases were as follows:

The weighted-average remaining lease term and weighted-average discount rate for our operating lease liabilities as of November 29, 2024 were 6 years and 2.69 %, respectively.

As of November 29, 2024, the maturities of lease liabilities under operating leases were as follows:

(in millions)

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Present value of lease liabilities $ 428

_________________________________________

(1) Legally binding minimum lease payments for leases signed but not yet commenced as of December 1, 2023 were not material.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NON-OPERATING INCOME (EXPENSE)

17 unchanged sentences

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

and subsidiaries (the Company) as of December 1, 2023 and December 2, 2022, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the fiscal years in the three fiscal year period ended December 1, 2023, and the related notes (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of December 1, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 1, 2023 and December 2, 2022, and the results of its operations and its cash flows for each of the fiscal years in the three fiscal year period ended December 1, 2023, in conformity with U.S.

and subsidiaries (the Company) as of November 29, 2024 and December 1, 2023, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the fiscal years in the three fiscal year period ended November 29, 2024, and the related notes (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of November 29, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of November 29, 2024 and December 1, 2023, and the results of its operations and its cash flows for each of the fiscal years in the three fiscal year period ended November 29, 2024, in conformity with U.S.

generally accepted accounting principles.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 1, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of November 29, 2024 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

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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