ADBE Cash Flows

Our primary source of cash is receipts from revenue. Our primary uses of cash are general business expenses including payroll, income taxes, marketing and third-party hosting services, as well as our stock repurchase program as described below. Other customary sources of cash include proceeds from the maturities and sales of short-term investments. Other customary uses of cash include business acquisitions, repayment of maturing senior notes, purchases of property and equipment and payments for taxes related to net share settlement of equity awards.


ADBE Cash Flows

This data should be read in conjunction with our Consolidated Statements of Cash Flows. ######As of#### (in millions)####December 1, 2023######December 2, 2022 Cash and cash equivalents##$##7,141####$##4,236 Short-term investments##$##701####$##1,860 Working capital##$##2,833####$##868 Stockholders’ equity##$##16,518####$##14,051


ADBE Cash Flows

A summary of our cash flows for fiscal 2023, 2022 and 2021 is as follows: (in millions)####2023####2022####2021 Net cash provided by operating activities##$##7,302##$##7,838##$##7,230 Net cash provided by (used for) investing activities####776####(570)####(3,537) Net cash used for financing activities####(5,182)####(6,825)####(4,301) Effect of foreign currency exchange rates on cash and cash equivalents####9####(51)####(26) Net change in cash and cash equivalents##$##2,905##$##392##$##(634)


ADBE Cash Flows from Operating Activities

For fiscal 2023, net cash provided by operating activities of $7.30 billion was primarily comprised of net income adjusted for the net effect of non-cash items. Beginning in 2023, under the provisions introduced by the U.S. Tax Act, we are required to capitalize and amortize research and development costs. This had an adverse impact on our effective rate for income taxes paid and, consequently, on our cash flows from operations. In addition, the primary working capital uses of cash were increases in prepaid expenses attributable to the timing of billings. These impacts were partially offset by working capital sources of cash driven by increases in deferred revenue from our Digital Media and Digital Experience offerings.


ADBE Cash Flows from Investing Activities

For fiscal 2023, net cash provided by investing activities of $776 million was primarily due to maturities and sales of short-term investments partially offset by ongoing capital expenditures.


ADBE Cash Flows from Financing Activities

For fiscal 2023, net cash used for financing activities of $5.18 billion was primarily due to payments for our common stock repurchases, taxes paid related to the net share settlement of equity awards and the repayment of our 2023 Notes. These uses of cash were offset in part by proceeds from re-issuance of treasury stock mainly for our employee stock purchase plan. See the section titled “Stock Repurchase Program” below.


ADBE Liquidity and Capital Resources Considerations

Our existing cash, cash equivalents and investment balances may fluctuate during fiscal 2024 due to changes in our planned cash outlay.


Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, risks detailed in the section titled “Risk Factors” in Part I, Item 1A of this report. Based on our current business plan and revenue prospects, we believe that our existing cash, cash equivalents and investment balances, our anticipated cash flows from operations and our available credit facility will be sufficient to meet our working capital, operating resource expenditure and capital expenditure requirements for the next twelve months and for the foreseeable future.


Our cash equivalent and short-term investment portfolio as of December 1, 2023 consisted of asset-backed securities, corporate debt securities, money market funds, time deposits, U.S. agency securities and U.S. Treasury securities. We use professional investment management firms to manage a large portion of our invested cash.


We expect to continue our investing activities, including short-term and long-term investments, purchases of computer and server hardware to operate our network infrastructure, sales and marketing, product support and administrative staff, and facilities expansion. Furthermore, cash reserves may be used to repurchase stock under our stock repurchase program and to strategically acquire companies, products or technologies that are complementary to our business.


On September 15, 2022, we entered into a definitive merger agreement under which we intended to acquire Figma, Inc. (“Figma”) for approximately $20 billion, comprised of approximately half cash and half stock. On December 17, 2023, we entered into a mutual termination agreement with Figma to terminate the proposed merger. In accordance with the terms of the termination agreement, on December 20, 2023, we paid Figma a termination fee of $1 billion using cash on hand.


ADBE Term Loan Credit Agreement

In January 2023, we entered into a delayed draw credit agreement, providing for a senior unsecured term loan (the “Term Loan”) of up to $3.5 billion for the purpose of partially funding the purchase price and related fees for our acquisition of Figma. As of December 1, 2023, there were no outstanding borrowings under the Term Loan. Subsequent to December 1, 2023, following execution of the mutual termination agreement with Figma discussed above, the delayed draw term loan agreement was terminated.


ADBE Revolving Credit Agreement

We have a $1.5 billion senior unsecured revolving credit agreement (the “Revolving Credit Agreement”) with a syndicate of lenders, providing for loans to us and certain of our subsidiaries through June 30, 2027. Subject to the agreement of lenders, we may obtain up to an additional $500 million in commitments, for a maximum aggregate commitment of $2 billion. As of December 1, 2023, there were no outstanding borrowings under the Revolving Credit Agreement and the entire $1.5 billion credit line remains available for borrowing. Under the terms of our Revolving Credit Agreement, we are not prohibited from paying cash dividends unless payment would trigger an event of default or if one currently exists. We do not anticipate paying any cash dividends in the foreseeable future.


ADBE 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.


ADBE Senior Notes

We have $3.65 billion senior notes outstanding, which rank equally with our other unsecured and unsubordinated indebtedness. As of December 1, 2023, the carrying value of our senior notes was $3.63 billion and our maximum commitment for interest payments was $321 million for the remaining duration of our outstanding senior notes. Interest is payable semi-annually, in arrears on February 1 and August 1. Our senior notes do not contain any financial covenants. See Note 17 of our Notes to Consolidated Financial Statements for further details regarding our debt.


ADBE Contractual Obligations

Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business. As of December 1, 2023, the value of our non-cancellable unconditional purchase obligations was $4.93 billion, primarily relating to contracts with vendors for third-party hosting and data center services. Subsequent to December 1, 2023, we executed agreements associated with certain of our long-term supplier commitments that increased our minimum purchase obligations by $2.3 billion through December 2028. See Note 16 of our Notes to Consolidated Financial Statements for additional information regarding our purchase obligations.


ADBE Contractual Obligations

We lease certain facilities and data centers under non-cancellable operating lease arrangements that expire at various dates through 2032. As of December 1, 2023, the value of our obligations under operating leases was $484 million. See Note 18 of our Notes to Consolidated Financial Statements for additional information regarding our lease obligations.


ADBE Other

Beginning in 2023, under the provisions introduced by the U.S. Tax Act, we are required to capitalize and amortize research and development costs. If the rule is not modified, there will continue to be an adverse impact to our effective rates for income taxes paid, which is partially offset by a benefit from the increase in the foreign-derived intangible income deduction.


ADBE Stock Repurchase Program

To facilitate our stock repurchase program, designed to return value to our stockholders and minimize dilution from stock issuances, we may repurchase our shares in the open market or enter into structured repurchase agreements with third parties. In December 2020, our Board of Directors granted authority to repurchase up to $15 billion in our common stock through the end of fiscal 2024.


ADBE Stock Repurchase Program

During fiscal 2023, we repurchased a total of 11.5 million shares, including approximately 7.5 million shares at an average price of $429.65 through structured repurchase agreements, as well as 4.0 million shares at an average purchase price of $348.46 through an accelerated share repurchase agreement.


ADBE Stock Repurchase Program

During the fourth quarter of fiscal 2023, we entered into a structured stock repurchase agreement with a large financial institution whereupon we provided them with a prepayment of $1 billion. As of December 1, 2023, $354 million of prepayment remained under our outstanding structured stock repurchase agreement.


ADBE Stock Repurchase Program

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.


ADBE Stock Repurchase Program

See section titled “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in Part II, Item 5 of this report for stock repurchases during the quarter ended December 1, 2023 and Note 14 of our Notes to Consolidated Financial Statements for further details regarding our stock repurchase program.


ADBE Indemnifications

In the ordinary course of business, we provide indemnifications of varying scope to customers and channel partners against claims of intellectual property infringement made by third parties arising from the use of our products and from time to time, we are subject to claims by our customers under these indemnification provisions. Historically, costs related to these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.


ADBE Indemnifications

To the extent permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid.


ADBE QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

All market risk sensitive instruments were entered into for non-trading purposes.


ADBE Foreign Currency Exposures and Hedging Instruments

In countries outside the United States, we transact business in U.S. Dollars and various other currencies, which subject us to exposure from movements in exchange rates. We may use foreign exchange option contracts and forward contracts to hedge a portion of our forecasted foreign currency denominated revenue and expenses. Additionally, we hedge our net recognized foreign currency monetary assets and liabilities with foreign exchange forward contracts to reduce the risk that our earnings and cash flows will be adversely affected by changes in exchange rates.


Our significant foreign currency revenue exposures for fiscal 2023, 2022 and 2021 were as follows: (in millions)####2023####2022####2021 Euro##€##2,842##€##2,487##€##2,209 Japanese Yen##¥##129,127##¥##118,456##¥##104,829 British Pounds##£##818##£##737##£##669 Australian Dollars##$##973##$##876##$##768


As of December 1, 2023, the total notional amounts of all outstanding foreign exchange contracts, including options and forwards, were $3.83 billion, which included the notional equivalent of $1.52 billion in Euros, $773 million in Indian Rupees, $634 million in British Pounds, $409 million in Japanese Yen, $350 million in Australian Dollars and $135 million in other foreign currencies. As of December 1, 2023, all contracts were set to expire at various dates through November 2024. The bank counterparties in these contracts could expose us to credit-related losses that would be largely mitigated with master netting arrangements with the same counterparty by permitting net settlement transactions. In addition, we enter into collateral security agreements that provide for collateral to be received or posted when the net fair value of these contracts fluctuates from contractually established thresholds.


A sensitivity analysis was performed on all of our foreign exchange derivatives as of December 1, 2023. This sensitivity analysis measures the hypothetical market value resulting from a 10% shift in the value of exchange rates relative to the U.S. Dollar. For option contracts, the Black-Scholes option pricing model was used. A 10% increase in the value of the U.S. Dollar and a corresponding decrease in the value of the hedged foreign currency asset would lead to an increase in the fair value of our financial hedging instruments by $142 million. A 10% decrease in the value of the U.S. Dollar would lead to a decrease in the fair value of these financial instruments by $1 million.


As a general rule, we do not use foreign exchange contracts to hedge local currency denominated operating expenses in countries where a natural hedge exists. For example, in many countries, revenue in the local currencies substantially offsets the local currency denominated operating expenses. We also have long-term investment exposures consisting of the capitalization and retained earnings in our non-U.S. Dollar functional currency foreign subsidiaries. As of December 1, 2023 and December 2, 2022, this long-term investment exposure totaled an absolute notional equivalent of $1.03 billion and $770 million, respectively. At this time, we do not hedge these long-term investment exposures.


We do not use foreign exchange contracts for speculative trading purposes, nor do we hedge our foreign currency exposure in a manner that entirely offsets the effects of changes in foreign exchange rates. We regularly review our hedging program and assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis.


ADBE Cash Flow Hedges of Forecasted Foreign Currency Revenue and Expenses

We may use foreign exchange purchased options or forward contracts to hedge foreign currency revenue denominated in Euros, British Pounds, Japanese Yen and Australian Dollars, or foreign currency expenses in Indian Rupees. We hedge these cash flow exposures to reduce the risk that our earnings and cash flows will be adversely affected by changes in exchange rates. These foreign exchange contracts, carried at fair value, have maturities of up to twelve months. We enter into these foreign exchange contracts to hedge forecasted revenue and expenses in the normal course of business and accordingly, they are not speculative in nature.


We record changes in fair value of these cash flow hedges of foreign currency denominated revenue and expenses in accumulated other comprehensive income (loss) in our Consolidated Balance Sheets, until the forecasted transaction occurs. When the forecasted transaction affects earnings, we reclassify the related gain or loss on the cash flow hedge to revenue or


operating expenses, as applicable. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, we reclassify the gain or loss on the related cash flow hedge from accumulated other comprehensive income (loss) to revenue or operating expenses, as applicable. For the fiscal year ended December 1, 2023, there were no net gains or losses recognized in revenue or operating expenses relating to hedges of forecasted transactions that did not occur.


ADBE Non-Designated Hedges of Foreign Currency Assets and Liabilities

Our derivatives not designated as hedging instruments consist of foreign currency forward contracts that we primarily use to hedge monetary assets and liabilities denominated in non-functional currencies to reduce the risk that our earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These foreign exchange contracts are carried at fair value with changes in fair value of these contracts recorded to other income (expense), net in our Consolidated Statements of Income. These contracts reduce the impact of currency exchange rate movements on our assets and liabilities. At December 1, 2023, the outstanding balance sheet hedging derivatives had maturities of 180 days or less.


See Note 6 of our Notes to Consolidated Financial Statements for information regarding our derivative financial instruments.


ADBE Short-Term Investments and Fixed Income Securities

At December 1, 2023, we had debt securities classified as short-term investments of $701 million. Changes in interest rates could adversely affect the market value of these investments. A sensitivity analysis was performed on our short-term investment portfolio as of December 1, 2023, based on an estimate of the hypothetical changes in market value of the portfolio that would result from an immediate parallel shift in the yield curve. A 150 basis point increase in interest rates would lead to a $6 million decrease in the market value of our short-term investments. Conversely, a 150 basis point decrease in interest rates would lead to a $6 million increase in the market value of our short-term investments.


ADBE Senior Notes

As of December 1, 2023, we had $3.65 billion of senior notes outstanding which bear interest at fixed rates, and therefore do not subject us to financial statement risk associated with changes in interest rates. As of December 1, 2023, the total carrying amount of our senior notes was $3.63 billion and the related fair value based on observable market prices in less active markets was $3.39 billion.


ADBE Senior Notes

See Note 17 of our Notes to Consolidated Financial Statements for information regarding our senior notes.


ADBE INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

##Page No. Consolidated Balance Sheets##52 Consolidated Statements of Income##53 Consolidated Statements of Comprehensive Income##54 Consolidated Statements of Stockholders' Equity##55 Consolidated Statements of Cash Flows##56


ADBE Notes to Consolidated Financial Statements##57

Report of Independent Registered Public Accounting Firm (KPMG LLP, Santa Clara, California, PCAOB ID 185)##90


All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements and Notes thereto.


ADOBE INC.


ADBE CONSOLIDATED BALANCE SHEETS (In millions, except par value)

####December 1, 2023####December 2, 2022 ASSETS######## Current assets:######## Cash and cash equivalents##$##7,141##$##4,236 Short-term investments####701####1,860 Trade receivables, net of allowances for doubtful accounts of $16 and of $23, respectively####2,224####2,065 Prepaid expenses and other current assets####1,018####835 Total current assets####11,084####8,996 Property and equipment, net####2,030####1,908 Operating lease right-of-use assets, net####358####407 Goodwill####12,805####12,787 Other intangibles, net####1,088####1,449 Deferred income taxes####1,191####777 Other assets####1,223####841 Total assets##$##29,779##$##27,165 LIABILITIES AND STOCKHOLDERS’ EQUITY######## Current liabilities:######## Trade payables##$##314##$##379 Accrued expenses####1,942####1,790 Debt####—####500 Deferred revenue####5,837####5,297 Income taxes payable####85####75 Operating lease liabilities####73####87 Total current liabilities####8,251####8,128 Long-term liabilities:######## Debt####3,634####3,629 Deferred revenue####113####117 Income taxes payable####514####530 Operating lease liabilities####373####417 Other liabilities####376####293 Total liabilities####13,261####13,114 Commitments and contingencies######## Stockholders’ equity:######## Preferred stock, $0.0001 par value; 2 shares authorized; none issued####—####— Common stock, $0.0001 par value; 900 shares authorized; 601 shares issued;  455 and 462 shares outstanding, respectively####—####— Additional paid-in-capital####11,586####9,868 Retained earnings####33,346####28,319 Accumulated other comprehensive income (loss)####(285)####(293) Treasury stock, at cost (146 and 139 shares, respectively)####(28,129)####(23,843) Total stockholders’ equity####16,518####14,051 Total liabilities and stockholders’ equity##$##29,779##$##27,165


See accompanying Notes to Consolidated Financial Statements.


ADBE CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share data)

########Years Ended#### ####December 1, 2023####December 2, 2022####December 3, 2021 Revenue:############ Subscription##$##18,284##$##16,388##$##14,573 Product####460####532####555 Services and other####665####686####657 Total revenue####19,409####17,606####15,785 Cost of revenue:############ Subscription####1,822####1,646####1,374 Product####29####35####41 Services and other####503####484####450 Total cost of revenue####2,354####2,165####1,865 Gross profit####17,055####15,441####13,920 Operating expenses:############ Research and development####3,473####2,987####2,540 Sales and marketing####5,351####4,968####4,321 General and administrative####1,413####1,219####1,085 Amortization of intangibles####168####169####172 Total operating expenses####10,405####9,343####8,118 Operating income####6,650####6,098####5,802 Non-operating income (expense):############ Interest expense####(113)####(112)####(113) Investment gains (losses), net####16####(19)####16 Other income (expense), net####246####41####— Total non-operating income (expense), net####149####(90)####(97) Income before income taxes####6,799####6,008####5,705 Provision for income taxes####1,371####1,252####883 Net income##$##5,428##$##4,756##$##4,822 Basic net income per share##$##11.87##$##10.13##$##10.10 Shares used to compute basic net income per share####457####470####477 Diluted net income per share##$##11.82##$##10.10##$##10.02 Shares used to compute diluted net income per share####459####471####481


ADBE CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions)

########Years Ended#### ####December 1, 2023####December 2, 2022####December 3, 2021 ########Increase/(Decrease)#### Net income##$##5,428##$##4,756##$##4,822 Other comprehensive income (loss), net of taxes:############ Available-for-sale securities:############ Unrealized gains / losses on available-for-sale securities####24####(39)####(8) Reclassification adjustment for recognized gains / losses on available-for-sale securities####5####—####— Net increase (decrease) from available-for-sale securities####29####(39)####(8) Derivatives designated as hedging instruments:############ Unrealized gains / losses on derivative instruments####(12)####139####69 Reclassification adjustment for realized gains / losses on derivative instruments####(31)####(151)####20 Net increase (decrease) from derivatives designated as hedging instruments####(43)####(12)####89 Foreign currency translation adjustments####22####(105)####(60) Other comprehensive income (loss), net of taxes####8####(156)####21 Total comprehensive income, net of taxes##$##5,436##$##4,600##$##4,843


ADBE CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In millions)

####Common Stock########Additional Paid-In Capital####Retained Earnings####Accumulated Other Comprehensive Income (Loss)####Treasury Stock######## ##Shares######Amount##############Shares######Amount####Total Balances at November 27, 2020##601####$##—##$##7,357##$##19,611##$##(158)##(122)####$##(13,546)##$##13,264 Net income##—######—####—####4,822####—##—######—####4,822 Other comprehensive income (loss), net of taxes##—######—####—####—####21##—######—####21 Re-issuance of treasury stock under stock compensation plans##—######—####—####(528)####—##3######100####(428) 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 December 3, 2021##601####$##—##$##8,428##$##23,905##$##(137)##(126)####$##(17,399)##$##14,797 Net income##—######—####—####4,756####—##—######—####4,756 Other comprehensive income (loss), net of taxes##—######—####—####—####(156)##—######—####(156) Re-issuance of treasury stock under stock compensation plans##—######—####—####(342)####—##3######102####(240) Repurchases of common stock##—######—####—####—####—##(16)######(6,550)####(6,550) Stock-based compensation##—######—####1,440####—####—##—######—####1,440 Value of shares in deferred compensation plan##—######—####—####—####—##—######4####4 Balances at December 2, 2022##601####$##—##$##9,868##$##28,319##$##(293)##(139)####$##(23,843)##$##14,051 Net income##—######—####—####5,428####—##—######—####5,428 Other comprehensive income (loss), net of taxes##—######—####—####—####8##—######—####8 Re-issuance of treasury stock under stock compensation plans##—######—####—####(401)####—##5######126####(275) Repurchases of common stock##—######—####—####—####—##(12)######(4,414)####(4,414) Stock-based compensation##—######—####1,718####—####—##—######—####1,718 Value of shares in deferred compensation plan##—######—####—####—####—##—######2####2 Balances at December 1, 2023##601####$##—##$##11,586##$##33,346##$##(285)##(146)####$##(28,129)##$##16,518


ADBE CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions)

########Years Ended#### ####December 1, 2023####December 2, 2022####December 3, 2021 Cash flows from operating activities:############ Net income##$##5,428##$##4,756##$##4,822 Adjustments to reconcile net income to net cash provided by operating activities:############ Depreciation, amortization and accretion####872####856####788 Stock-based compensation####1,718####1,440####1,069 Reduction of operating lease right-of-use assets####72####83####73 Deferred income taxes####(426)####328####183 Unrealized losses (gains) on investments, net####(10)####29####(4) Other non-cash items####3####10####7 Changes in operating assets and liabilities, net of acquired assets and  assumed liabilities:############ Trade receivables, net####(159)####(198)####(430) Prepaid expenses and other assets####(818)####(94)####(475) Trade payables####(49)####66####(20) Accrued expenses and other liabilities####146####7####162 Income taxes payable####(11)####19####2 Deferred revenue####536####536####1,053 Net cash provided by operating activities####7,302####7,838####7,230 Cash flows from investing activities:############ Purchases of short-term investments####—####(909)####(1,533) Maturities of short-term investments####965####683####877 Proceeds from sales of short-term investments####223####270####191 Acquisitions, net of cash acquired####—####(126)####(2,682) Purchases of property and equipment####(360)####(442)####(348) Purchases of long-term investments, intangibles and other assets####(53)####(46)####(42) Proceeds from sales of long-term investments and other assets####1####—####— Net cash provided by (used for) investing activities####776####(570)####(3,537) Cash flows from financing activities:############ Repurchases of common stock####(4,400)####(6,550)####(3,950) Proceeds from re-issuance of treasury stock####314####278####291 Taxes paid related to net share settlement of equity awards####(589)####(518)####(719) Repayment of debt####(500)####—####— Other financing activities, net####(7)####(35)####77 Net cash used for financing activities####(5,182)####(6,825)####(4,301) Effect of foreign currency exchange rates on cash and cash equivalents####9####(51)####(26) Net change in cash and cash equivalents####2,905####392####(634) Cash and cash equivalents at beginning of year####4,236####3,844####4,478 Cash and cash equivalents at end of year##$##7,141##$##4,236##$##3,844 Supplemental disclosures:############ Cash paid for income taxes, net of refunds##$##1,854##$##778##$##843 Cash paid for interest##$##106##$##103##$##100


ADBE Operations

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; Europe, Middle East and Africa (“EMEA”); and Asia-Pacific (“APAC”).


ADBE Basis of Presentation

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”).


ADBE 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. 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. Actual results may differ materially from these estimates.


ADBE Fiscal Year

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.


ADBE Revenue Recognition

Our revenue is derived from the sale of cloud-enabled software subscriptions, cloud-hosted offerings, term-based, royalty, and perpetual software licenses, associated software maintenance and support plans, consulting services, training and technical support. Most of our enterprise customer arrangements involve multiple promises to our customers.


ADBE Revenue Recognition

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 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.


ADBE Subscription, Product and Services Offerings

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.


ADBE 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, 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. Fees based on a number of transactions, where invoicing is aligned to the pattern of performance, customer benefit and consumption, are typically accounted for utilizing the “as-invoiced” practical expedient. Revenue for subscriptions sold as a fee per period is recognized ratably over the contractual term as the customer simultaneously receives and consumes the benefit of the underlying service.


When cloud-enabled services are highly integrated and interrelated with on-premise software, such as in our cloud-enabled Creative Cloud and Document Cloud offerings, the individual components are not considered distinct and revenue is recognized ratably over the subscription period for which the cloud-enabled services are provided.


The subscription support plans related to those customer arrangements whose revenues we classify as subscription revenues represent stand-ready performance obligations. Revenue from these subscription support plans is recognized ratably over their respective contractual terms and classified as subscription revenue.


Licenses for on-premise software may be purchased on a perpetual basis, as a subscription for a fixed period of time or based on usage for certain of our original equipment manufacturer (“OEM”) and royalty agreements. Revenue from non-cloud enabled on-premise licenses without unilateral cancellation rights or monthly renewal options is recognized at the point in time the software is available to the customer, provided all other revenue recognition criteria are met, and classified as product revenue on our Consolidated Statements of Income. Revenue from on-premise term license or term licensing arrangements with unilateral cancellation rights or monthly renewal options, and any associated maintenance and support, is classified as subscription revenue.


Our services and other revenue is comprised primarily of fees related to consulting, training, maintenance and support for certain on-premise licenses that are recognized at a point in time and our advertising offerings. We typically sell our consulting contracts on a time-and-materials or fixed-fee basis. These revenues are recognized as the services are performed for time-and-materials contracts and on a relative performance basis for fixed-fee contracts. Training revenues are recognized as the services are performed. Our maintenance and support offerings, which entitle customers, partners and developers to receive desktop product upgrades and enhancements or technical support, depending on the offering, are generally recognized ratably over the term of the arrangement. Our transaction-based advertising offerings, where fees are based on a number of impressions per month and invoicing is aligned to the pattern of performance, customer benefit and consumption, are typically accounted for utilizing the “as-invoiced” practical expedient.


ADBE Judgments

Our contracts with customers may include multiple goods and services. For example, some of our offerings include both on-premise and/or on-device software licenses and cloud services. Determining whether the software licenses and the cloud services are distinct from each other, and therefore performance obligations to be accounted for separately, or not distinct from each other, and therefore part of a single performance obligation, may require significant judgment. We have concluded that the on-premise/on-device software licenses and cloud services provided in our Creative Cloud and Document Cloud subscription offerings are not distinct from each other such that revenue from each offering should be recognized ratably over the subscription period for which the cloud services are provided. In reaching this conclusion, we considered the nature of our promise to Creative Cloud and Document Cloud customers, which is to provide a complete end-to-end creative design or document workflow solution that operates seamlessly across multiple devices and teams. We fulfill this promise by providing access to a solution that integrates cloud-based and on-premise/on-device features that, together through their integration, provide functionalities, utility and workflow efficiencies that could not be obtained from either the on-premise/on-device software or cloud services on their own.


ADBE Judgments

ADOBE INC.


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: Creative Cloud Libraries, which enable customers to access their work, settings, preferences and other assets seamlessly across desktop and mobile devices and collaborate across teams in real time; shared reviews which enable simultaneous editing and commenting of digital assets across desktop, mobile and web; automatic cloud rendering of a design which enables it to be worked on in multiple mediums; and Sensei, Adobe’s cloud-hosted artificial intelligence and machine learning framework, which enables features such as automated photo-editing, photograph content-awareness, natural language processing, optical character recognition and automated document tagging.


Standalone selling price is established by maximizing the amount of observable inputs, primarily actual historical selling prices for performance obligations where available, and includes consideration of factors such as go-to-market model and geography. Individual products may have multiple values for standalone selling price depending on factors such as where they are sold and what channel they are sold through. Where standalone selling price may not be directly observable (e.g., the performance obligation is not sold separately), we maximize the use of observable inputs by using information that may include reviewing pricing practices, performance obligations with similar customers and selling models.


Capitalized costs to obtain a contract are amortized over the expected period of benefit, which we have determined, based on analysis, to be 5 years. We evaluated qualitative and quantitative factors to determine the period of amortization, including contract length, renewals, customer life and the useful lives of our products and acquired products. When the expected period of benefit of an asset which would be capitalized is less than one year, we expense the amount as incurred, utilizing the practical expedient. We regularly evaluate whether there have been changes in the underlying assumptions and data used to determine the amortization period.


When revenue arrangements include components of third-party goods and services, for example in transactions which involve resale, fulfillment or providing advertising impressions to our end customer, we evaluate whether we are the principal, and report revenues on a gross basis, or an agent, and report revenues on a net basis. In this assessment, we consider if we obtain control of the specified goods or services before they are transferred to the customer by evaluating indicators such as which party is primarily responsible for fulfilling the promise to provide the goods or services, which party has discretion in establishing price and the underlying terms and conditions between the parties to the transaction.


We offer limited rights of return, rebates and price protection of our products under various policies and programs with our distributors, resellers and/or end-user customers. We estimate and record reserves for these programs as variable consideration when estimating transaction price. Returns, rebates and other offsets to transaction price are estimated at contract inception on a portfolio basis and assessed for reasonableness each reporting period when additional information becomes available.


ADBE General Contract Provisions

We maintain revenue reserves for rebates, rights of return and other limited price adjustments. Distributors are allowed limited rights of return of products purchased during the previous quarter. In addition, distributors are allowed to return products that have reached the end of their lives, as defined by us, and for products that are being replaced by new versions. We offer rebates to our distributors, resellers and/or end-user customers. Transaction price is reduced for these amounts based on actual performance against objectives set forth by us for a particular reporting period, such as volume and timely reporting.


ADBE General Contract Provisions

On a quarterly basis, the amount of revenue that is reserved is calculated based on our historical trends and data specific to each reporting period. The primary method of establishing these reserves is to review historical data from prior periods as a percent of revenue to determine a historical reserve rate. We then apply the historical rate to the current period revenue as a basis for estimating future returns. When necessary, we also provide a specific reserve in excess of portfolio-level estimated requirements. This estimate can be affected by the amount of a particular product in the channel, the rate of sell-through, product plans and other factors.


ADBE General Contract Provisions

Although our subscription contracts are generally non-cancellable, a limited number of customers have the right to cancel their contracts by providing prior written notice to us of their intent to cancel the remainder of the contract term and consumers have a period of time to terminate certain agreements without penalty. In the event a customer cancels their contract, they are generally not entitled to a refund for prior services we have provided to them. Contracts that include termination rights without substantive penalty are accounted for as contracts only for the committed period. Periods of time after the right of


ADBE General Contract Provisions

ADOBE INC.


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. In such instances, we estimate and accrue license revenue. We base our estimates on multiple factors, including historical sales information, seasonality and other business information which may impact our estimates. We do not estimate variable consideration for our sales and usage-based license royalty agreements, consistent with the associated exception for sales and usage-based royalties for the license of intellectual property under the revenue recognition standard.


ADBE Property and Equipment

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, 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.


ADBE Leases

We determine if an arrangement is or contains a lease at contract inception. In certain of our lease arrangements, primarily those related to our data center arrangements, judgment is required in determining if a contract contains a lease. For these arrangements, there is judgment in evaluating if the arrangement involves an identified asset that is physically distinct or whether we have the right to substantially all of the capacity of an identified asset that is not physically distinct. In arrangements that involve an identified asset, there is also judgment in evaluating if we have the right to direct the use of that asset.


ADBE Leases

We do not have any finance leases. 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. 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. 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.


ADBE 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.


ADBE Goodwill, Intangibles and Other Long-Lived Assets

Goodwill is assigned to one or more reporting units on the date of acquisition. We review our goodwill for impairment annually during our second quarter of each fiscal year and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of any one of our reporting units below its respective carrying amount. In performing our goodwill impairment test, we first perform a qualitative assessment, which requires that we consider 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


ADOBE INC.


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. 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 Trademarks##9 Other##7


ADBE Income Taxes

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


ADBE Income Taxes

Our assumptions, judgments and estimates relative to the current provision for income taxes take into account our interpretation and application of current tax laws and possible outcomes of current and future examinations conducted by domestic and foreign tax authorities. We have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and associated reserves. Our policy is to record interest and penalties related to unrecognized tax benefits in income tax expense.


ADBE Taxes Collected from Customers

We net taxes collected from customers against those remitted to government authorities in our financial statements. Accordingly, taxes collected from customers are not reported as revenue.


ADBE Taxes Collected from Customers

ADOBE INC.


ADBE 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 by each period end are excluded from the computation of net income per share.


ADBE Treasury Stock

We account for treasury stock under the cost method. When treasury stock is re-issued at a price higher than its cost, the difference is recorded as a component of additional paid-in-capital in our Consolidated Balance Sheets. When treasury stock is re-issued at a price lower than its cost, the difference is recorded as a component of additional paid-in-capital to the extent that there are previously recorded gains to offset the losses. If there are no treasury stock gains in additional paid-in-capital, the losses upon re-issuance of treasury stock are recorded as a reduction of retained earnings in our Consolidated Balance Sheets.


ADBE Advertising Expenses

Advertising costs are expensed as incurred. Advertising expenses for fiscal 2023, 2022 and 2021 were $970 million, $1.04 billion and $865 million, respectively.


ADBE Foreign Currency Translation

We translate assets and liabilities of foreign subsidiaries, whose functional currency is their local currency, at exchange rates in effect at the balance sheet date. We translate revenue and expenses at the monthly average exchange rates. We include accumulated net translation adjustments in stockholders’ equity as a component of accumulated other comprehensive income (loss).


ADBE Derivative Financial Instruments

In countries outside the United States, we transact business in U.S. Dollars and in various other currencies. We may use foreign exchange option contracts and forward contracts to hedge a portion of our forecasted foreign currency denominated revenue and expenses 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.


ADBE Derivative Financial Instruments

We recognize all derivative instruments as either assets or liabilities in our Consolidated Balance Sheets and measure them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. Contracts that do not qualify for hedge accounting are adjusted to fair value through earnings.


ADBE Derivative Financial Instruments

Gains and losses related to changes in the fair value of foreign exchange forward contracts which hedge certain balance sheet positions are recorded each period as a component of other income (expense), net in our Consolidated Statements of Income. Foreign exchange option contracts and forward contracts hedging forecasted foreign currency revenue and expenses and Treasury lock agreements are designated as cash flow hedges with gains and losses recorded net of tax as a component of accumulated other comprehensive income (loss) in our Consolidated Balance Sheets until the forecasted transaction occurs. When the forecasted transaction affects earnings, we reclassify the related gain or loss on the foreign currency revenue, foreign currency expense or Treasury lock cash flow hedge to revenue, operating expense or interest expense, as applicable.


ADBE Concentration of Risk

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


ADBE Concentration of Risk

Our investment portfolio consists of investment-grade securities diversified among security types, industries and issuers. Our cash and investments are held and primarily managed by recognized financial institutions that follow our investment policy. Our policy limits the amount of credit exposure to any one security issue or issuer and we believe no significant concentration of credit risk exists with respect to these investments.


ADBE Concentration of Risk

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


ADBE Concentration of Risk

ADOBE INC.


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. A credit review is completed for our new distributors, dealers and OEMs. We also perform ongoing credit evaluations of our customers’ financial condition and require letters of credit or other guarantees, whenever deemed necessary. The credit limit given to the customer is based on our risk assessment of their ability to pay, country risk and other factors and is not contingent on the resale of the product or on the collection of payments from their customers. Certain contracts with advertising agencies contain sequential liability provisions, under which the agency is not required to pay until payment is received from the agency’s customers. In these circumstances, we evaluate the credit-worthiness of the agency’s customers in addition to the agency itself. If we license our software or provide SaaS services to a customer where we have a reason to believe the customer’s ability and intention to pay is not probable, the arrangement is not considered to be a revenue contract. Accordingly, we will not recognize any consideration received as revenue until termination or substantive completion of the services.


ADBE Adopted Accounting Guidance and Accounting Pronouncements Not Yet Effective

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.


ADBE Segment Information

We report segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of our reportable segments.


ADBE Segment Information

Our Chief Executive Officer, the chief operating decision maker, reviews revenue and gross margin information for each of our reportable segments, but does not review operating expenses on a segment by segment basis. In addition, with the exception of goodwill, we do not identify or allocate our assets by the reportable segments.


ADBE Segment Information

Our business is organized into the following reportable segments: •Digital Media—Our Digital Media segment provides products and services that enable individuals, teams, businesses, and enterprises to create, publish and promote their content anywhere and accelerate their productivity by transforming how they view, share, engage with and collaborate on documents and creative content. Our customers include creative professionals, including photographers, video editors, graphic and experience designers and game developers; communicators, including content creators, students, marketers and knowledge workers; and consumers. •Digital Experience—Our Digital Experience segment provides an integrated platform and set of products, services and solutions that enable businesses to create, manage, execute, measure, monetize and optimize customer experiences that span from analytics to commerce. Our customers include marketers, advertisers, agencies, publishers, merchandisers, merchants, web analysts, data scientists, developers and executives across the C-suite. •Publishing and Advertising—Our Publishing and Advertising segment contains legacy products and services that address diverse market opportunities, including eLearning solutions, technical document publishing, web conferencing, document and forms platform, web app development, high-end printing and our Adobe Advertising offerings.


ADBE Segment Information

ADOBE INC.


Our segment revenue and results for fiscal 2023, 2022 and 2021 were as follows: (dollars in millions)####Digital Media######Digital Experience######Publishing and Advertising######Total## Fiscal 2023######################## Revenue##$##14,216####$##4,893####$##300####$##19,409## Cost of revenue####665######1,603######86######2,354## Gross profit##$##13,551####$##3,290####$##214####$##17,055## Gross profit as a percentage of revenue####95##%####67##%####71##%####88##% Fiscal 2022######################## Revenue##$##12,842####$##4,422####$##342####$##17,606## Cost of revenue####561######1,502######102######2,165## Gross profit##$##12,281####$##2,920####$##240####$##15,441## Gross profit as a percentage of revenue####96##%####66##%####70##%####88##% Fiscal 2021######################## Revenue##$##11,520####$##3,867####$##398####$##15,785## Cost of revenue####429######1,321######115######1,865## Gross profit##$##11,091####$##2,546####$##283####$##13,920## Gross profit as a percentage of revenue####96##%####66##%####71##%####88##%


We generally categorize revenue by geographic area based on where the customer manages their utilization of our offerings. Revenue by geographic area for fiscal 2023, 2022 and 2021 were as follows: (in millions)####2023####2022####2021 Americas:############ United States##$##10,460##$##9,217##$##8,104 Other####1,194####1,034####892 Total Americas####11,654####10,251####8,996 EMEA####4,881####4,593####4,252 APAC####2,874####2,762####2,537 Revenue##$##19,409##$##17,606##$##15,785


Revenue by major offerings in our Digital Media reportable segment for fiscal 2023, 2022 and 2021 were as follows: (in millions)####2023####2022####2021 Creative Cloud##$##11,517##$##10,459##$##9,546 Document Cloud####2,699####2,383####1,974 Total Digital Media revenue##$##14,216##$##12,842##$##11,520


Subscription revenue by segment for fiscal 2023, 2022 and 2021 were as follows: (in millions)####2023####2022####2021 Digital Media##$##13,838##$##12,385##$##11,048 Digital Experience####4,331####3,880####3,379 Publishing and Advertising####115####123####146 Total subscription revenue##$##18,284##$##16,388##$##14,573


ADOBE INC.


ADBE Trade Receivables

A receivable is recorded when an unconditional right to invoice and receive payment exists, such that only the passage of time is required before payment of consideration is due. Timing of revenue recognition may differ from the timing of invoicing to customers. Certain performance obligations may require payment before delivery of the license or service to the customer. 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 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.


ADBE Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts which reflects our best estimate of potentially uncollectible trade receivables and is based on both specific and general reserves. 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.


ADBE Contract Assets

A contract asset is recognized when a conditional right to consideration exists and transfer of control has occurred. Contract assets are typically related to subscription and hosted service contracts where the transaction price allocated to the satisfied performance obligations exceeds the value of billings to date. Contract assets are included in prepaid expenses and other current assets for the current portion and other assets for the long-term portion on the Consolidated Balance Sheets. We regularly review contract asset balances for impairment, considering factors such as historical experience, credit-worthiness, age of the balance, current economic conditions and a reasonable and supportable forecast of future economic conditions. Contract asset impairments were not material in fiscal 2023 and 2022. Contract assets were $141 million and $97 million as of December 1, 2023 and December 2, 2022, respectively.


ADBE Deferred Revenue and Remaining Performance Obligations

Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from subscription services, including non-cancellable and non-refundable committed funds and refundable customer deposits. Deferred revenue is recognized as revenue when transfer of control to customers has occurred. Customers are typically invoiced for these agreements in regular installments and revenue is recognized ratably over the contractual subscription period. The deferred revenue balance is influenced by several factors, including the compounding effects of renewals, invoice duration, invoice timing, size and new business linearity within the quarter. Deferred revenue does not represent the total contract value of annual or multi-year non-cancellable subscription agreements.


Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, such as invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period, and not to receive financing from our customers. Any potential financing fees are considered insignificant in the context of our contracts.


As of December 1, 2023, the balance of deferred revenue was $5.95 billion, which includes $115 million of refundable customer deposits. Refundable customer deposits represent arrangements in which the customer has a unilateral cancellation right for which we are obligated to refund amounts paid related to products or services not yet delivered or provided at the time of cancellation on a prorated basis. Arrangements with some of our enterprise customers with non-cancellable and non-refundable committed funds provide options to either renew monthly on-premise term-based licenses or use some or all funds to purchase other Adobe products or services. Non-cancellable and non-refundable committed funds related to these agreements comprised approximately 5% of the total deferred revenue.


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, 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.


Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and unbilled amounts that will be recognized as revenue in future periods. Transaction price allocated to remaining performance obligations is influenced by several factors, including the timing of renewals and average contract term. We applied practical expedients to exclude amounts related to performance obligations that are billed and recognized as they are delivered, optional purchases that do not represent material rights, sales and usage-based royalties not yet consumed and any estimated amounts of variable consideration that are subject to constraint.


Remaining performance obligations were approximately $17.22 billion as of December 1, 2023. Non-cancellable and non-refundable committed funds related to some of our enterprise customer agreements referred to in the paragraph above comprised approximately 5% of the total remaining performance obligations. Approximately 69% of the remaining performance obligations, excluding the aforementioned enterprise customer agreements, are expected to be recognized over the next 12 months with the remainder recognized thereafter.


ADBE Contract Acquisition Costs

We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized.


ADBE Contract Acquisition Costs

The costs capitalized are primarily sales commissions paid to our sales force personnel. Capitalized costs may also include portions of fringe benefits and payroll taxes associated with compensation for incremental costs to acquire customer contracts and incentive payments to partners.


ADBE Contract Acquisition Costs

Capitalized costs to obtain a contract are amortized over the expected period of benefit, which we have determined, based on analysis, to be 5 years. Amortization of capitalized costs are included in sales and marketing expense in our Consolidated Statements of Income. During fiscal 2023, 2022 and 2021, we amortized $254 million, $238 million and $212 million of capitalized contract acquisition costs into sales and marketing expense, respectively. We did not incur any impairment losses for all periods presented.


ADBE Contract Acquisition Costs

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.


ADBE Refund Liabilities

We record refund liabilities for amounts that may be subject to future refunds, which include sales returns reserves and customer rebates and credits. Refund liabilities are included in accrued expenses on the Consolidated Balance Sheets. Refund liabilities were $111 million and $106 million as of December 1, 2023 and December 2, 2022, respectively.


ADBE Significant Customers

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


ADBE Significant Customers

ADOBE INC.


ADBE Figma

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.


ADBE Figma

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.


ADBE Frame.io

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


ADBE Frame.io

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##$##331##4 In-process research and development (1)####19##N/A Trademarks####4##3 Customer contracts and relationships####3##10 Total identifiable intangible assets####357## Net liabilities assumed####(36)##N/A Goodwill (2)####915##N/A Total purchase price##$##1,236##


ADBE _________________________________________

(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.


ADBE Workfront

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.


ADBE Workfront

ADOBE INC.


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 December 7, 2020. (dollars in millions)####Amount##Weighted Average Useful Life (years) Customer contracts and relationships##$##290##10 Purchased technology####100##3 Backlog####40##2 Trademarks####30##5 Total identifiable intangible assets####460## Net liabilities assumed####(31)##N/A Goodwill (1)####1,095##N/A Total purchase price##$##1,524##


(1) Non-deductible for tax purposes.


ADBE NOTE 4. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash equivalents consist of highly liquid marketable securities with remaining maturities of three months or less at the date of purchase. We classify our investments in marketable debt securities as “available-for-sale.” We carry these investments at fair value, based on quoted market prices or other readily available market information. Unrealized gains and unrealized non-credit-related losses of marketable debt securities are included in accumulated other comprehensive income, net of taxes, in our Consolidated Balance Sheets. Unrealized credit-related losses are recorded to other income (expense), net in our Consolidated Statements of Income with a corresponding allowance for credit-related losses in our Consolidated Balance Sheets. 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: (in millions)####Amortized Cost####Unrealized Gains####Unrealized Losses####Estimated Fair Value Current assets:################ Cash##$##618##$##—##$##—##$##618 Cash equivalents:################ Money market funds####6,498####—####—####6,498 Time deposits####25####—####—####25 Total cash equivalents####6,523####—####—####6,523 Total cash and cash equivalents####7,141####—####—####7,141 Short-term fixed income securities:################ Asset-backed securities####15####—####—####15 Corporate debt securities####438####—####(4)####434 U.S. agency securities####13####—####(1)####12 U.S. Treasury securities####247####—####(7)####240 Total short-term investments####713####—####(12)####701 Total cash, cash equivalents and short-term investments##$##7,854##$##—##$##(12)##$##7,842


ADOBE INC.


Cash, cash equivalents and short-term investments consisted of the following as of December 2, 2022: (in millions)####Amortized Cost####Unrealized Gains####Unrealized Losses####Estimated Fair Value Current assets:################ Cash##$##657##$##—##$##—##$##657 Cash equivalents:################ Corporate debt securities####39####—####—####39 Money market funds####3,479####—####—####3,479 Time deposits####61####—####—####61 Total cash equivalents####3,579####—####—####3,579 Total cash and cash equivalents####4,236####—####—####4,236 Short-term fixed income securities:################ Asset-backed securities####98####—####(1)####97 Corporate debt securities####1,290####—####(24)####1,266 Foreign government securities####5####—####—####5 Municipal securities####24####—####—####24 U.S. agency securities####34####—####—####34 U.S. Treasury securities####450####—####(16)####434 Total short-term investments####1,901####—####(41)####1,860 Total cash, cash equivalents and short-term investments##$##6,137##$##—##$##(41)##$##6,096


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: (in millions)####Estimated Fair Value Due within one year##$##472 Due between one and two years####220 Due between two and three years####9 Total##$##701


We review our debt securities classified as short-term investments on a regular basis for impairment. For debt securities in unrealized loss positions, we determine whether any portion of the decline in fair value below the amortized cost basis is due to credit-related factors if we neither intend to sell nor anticipate that it is more likely than not that we will be required to sell prior to recovery of the amortized cost basis. We consider factors such as the extent to which the market value has been less than the cost, any noted failure of the issuer to make scheduled payments, changes to the rating of the security and other relevant credit-related factors in determining whether or not a credit loss exists. During fiscal 2023 and 2022, we did not recognize an allowance for credit-related losses on any of our investments.


ADBE NOTE 5. FAIR VALUE MEASUREMENTS

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


ADBE NOTE 5. FAIR VALUE MEASUREMENTS

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######## ########Quoted Prices in Active Markets for Identical Assets######Significant Other Observable Inputs####Significant Unobservable Inputs ####Total####(Level 1)######(Level 2)####(Level 3) Assets:################## Cash equivalents:################## Money market funds##$##6,498##$##6,498####$##—##$##— Time deposits####25####25######—####— Short-term investments:################## Asset-backed securities####15####—######15####— Corporate debt securities####434####—######434####— U.S. agency securities####12####—######12####— U.S. Treasury securities####240####—######240####— Prepaid expenses and other current assets:################## Foreign currency derivatives####52####—######52####— Other assets:################## Deferred compensation plan assets####206####206######—####— Total assets##$##7,482##$##6,729####$##753##$##— Liabilities:################ Accrued expenses:################ Foreign currency derivatives##$##4##$##—##$##4##$##—


ADBE NOTE 5. FAIR VALUE MEASUREMENTS

ADOBE INC.


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######## ########Quoted Prices in Active Markets for Identical Assets######Significant Other Observable Inputs####Significant Unobservable Inputs ####Total####(Level 1)######(Level 2)####(Level 3) Assets:################## Cash equivalents:################## Corporate debt securities##$##39##$##—####$##39##$##— Money market funds####3,479####3,479######—####— Time deposits####61####61######—####— Short-term investments:################## Asset-backed securities####97####—######97####— Corporate debt securities####1,266####—######1,266####— Foreign government securities####5####—######5####— Municipal securities####24####—######24####— U.S. agency securities####34####—######34####— U.S. Treasury securities####434####—######434####— Prepaid expenses and other current assets:################## Foreign currency derivatives####51####—######51####— Other assets:################## Deferred compensation plan assets####160####160######—####— Total assets##$##5,650##$##3,700####$##1,950##$##— Liabilities:################ Accrued expenses:################ Foreign currency derivatives##$##15##$##—##$##15##$##—


See Note 4 for further information regarding the fair value of our financial instruments.


Our fixed income available-for-sale debt securities consist of high quality, investment grade securities from diverse issuers with a weighted average credit rating of AA-. We value these securities based on pricing from independent pricing vendors who use matrix pricing valuation techniques including market approach methodologies that model information generated by market transactions involving identical or comparable assets, as well as discounted cash flow methodologies. Inputs include quoted prices in active markets for identical assets or inputs other than quoted prices that are observable either directly or indirectly in determining fair value, including benchmark yields, issuer spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. We therefore categorize all of our fixed income available-for-sale securities as Level 2. We perform routine procedures such as comparing prices obtained from multiple independent sources to ensure that appropriate fair values are recorded.


The fair values of our money market funds, time deposits and deferred compensation plan assets, which consist of money market and other mutual funds, are based on quoted prices in active markets at the measurement date.


Our over-the-counter foreign currency derivatives are valued using pricing models and discounted cash flow methodologies based on observable foreign exchange and interest rate data at the measurement date.


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


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. See Note 17 for further details regarding our debt.


ADBE NOTE 6. DERIVATIVE FINANCIAL INSTRUMENTS

We may use derivatives to partially offset our business exposure to foreign currency and interest rate risk on expected future cash flows, and certain existing assets and liabilities. We do not use any of our derivative instruments for trading purposes.


We enter into master netting arrangements to mitigate credit risk in derivative transactions by permitting net settlement of transactions with the same counterparty. We do not offset fair value amounts recognized for derivative instruments under master netting arrangements. 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. Collateral posted is included in prepaid expenses and other current assets and collateral received is included in accrued expenses on our Consolidated Balance Sheets.


ADBE Cash Flow Hedges

In countries outside the United States, we transact business in U.S. Dollars and in various other currencies. We may use foreign exchange option contracts and forward contracts to hedge a portion of our forecasted foreign currency denominated revenue and expenses. These foreign exchange contracts, carried at fair value, have maturities of up to 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.


ADBE Cash Flow Hedges

In June 2019, we entered into Treasury lock agreements with large financial institutions which fixed benchmark U.S. Treasury rates for an aggregate notional amount of $1 billion of our future debt issuance. These derivative instruments hedged the impact of changes in the benchmark interest rate to future interest payments and were settled upon debt issuance in the first quarter of fiscal 2020. We incurred a loss related to the settlement of the instruments which is amortized to interest expense over the term of our debt due February 1, 2030. See Note 17 for further details regarding our debt.


ADBE Cash Flow Hedges

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.


ADBE Cash Flow Hedges

To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. We record changes in fair value of these cash flow hedges in accumulated other comprehensive income (loss) in our Consolidated Balance Sheets, until the forecasted transaction occurs. When the forecasted transaction affects earnings, we reclassify the related gain or loss on the foreign currency revenue, foreign currency expense or Treasury lock cash flow hedge to revenue, operating expense or interest expense, as applicable. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, we reclassify the gain or loss on the related cash flow hedge from accumulated other comprehensive income (loss) to the same income statement line item as the hedged item. We evaluate hedge effectiveness at the inception of the hedge prospectively, and on an ongoing basis both retrospectively and prospectively. If we do not elect hedge accounting, or the contract does not qualify for hedge accounting treatment, the changes in fair value from period to period are recorded in the same income statement line item as the hedged item.


ADBE Cash Flow Hedges

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.


ADBE Cash Flow Hedges

ADOBE INC.


ADBE Non-Designated Hedges

Our derivatives not designated as hedging instruments consist of foreign currency forward contracts that we primarily use to hedge monetary assets and liabilities denominated in non-functional currencies. The changes in fair value of these contracts are recorded to other income (expense), net in our Consolidated Statements of Income. Changes in the fair value of the underlying assets and liabilities associated with the hedged risk are generally offset by the changes in the fair value of the related contracts.


ADBE Non-Designated Hedges

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.


ADBE Non-Designated Hedges

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: (in millions)######2023##########2022#### ####Fair Value Asset Derivatives######Fair Value Liability Derivatives####Fair Value Asset Derivatives######Fair Value Liability Derivatives Derivatives designated as hedging instruments:#################### Foreign exchange option contracts##$##42####$##—##$##36####$##— Foreign exchange forward contracts####1######—####—######7 Derivatives not designated as hedging instruments:#################### Foreign exchange forward contracts####9######4####15######8 Total derivatives##$##52####$##4##$##51####$##15


ADBE Non-Designated Hedges

Gains (losses) on derivative instruments, net of tax, recognized in our Consolidated Statements of Comprehensive Income for fiscal 2023, 2022 and 2021 were as follows: (in millions)####2023####2022####2021 Derivatives in cash flow hedging relationships:############ Foreign exchange option contracts##$##(17)##$##144##$##69 Foreign exchange forward contracts##$##5##$##(5)##$##—


ADBE Non-Designated Hedges

The effects of derivative instruments on our Consolidated Statements of Income for fiscal 2023, 2022 and 2021 were as follows: (in millions)####Financial Statement Classification####2023####2022####2021 ##Derivatives in cash flow hedging relationships:############## ##Foreign exchange option contracts############## 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############## Net gain (loss) reclassified from accumulated OCI into income####Interest expense##$##(5)##$##(4)##$##(4) ##Derivatives not designated as hedging relationships:############## Foreign exchange forward contracts####Other income (expense), net##$##12##$##(29)##$##(3)


ADBE Non-Designated Hedges

ADOBE INC.


ADBE NOTE 7. PROPERTY AND EQUIPMENT

Property and equipment, net consisted of the following as of December 1, 2023 and December 2, 2022: (in millions)####2023####2022 Computers and other equipment##$##1,490##$##1,352 Buildings####1,069####555 Building improvements####591####347 Leasehold improvements####275####259 Furniture and fixtures####171####145 Land####163####144 Capital projects in-progress####2####675 Total####3,761####3,477 Less: Accumulated depreciation and amortization####(1,731)####(1,569) Property and equipment, net##$##2,030##$##1,908


ADBE NOTE 7. PROPERTY AND EQUIPMENT

Depreciation and amortization expense of property and equipment for fiscal 2023, 2022 and 2021 was $235 million, $189 million and $207 million, respectively.


ADBE NOTE 7. PROPERTY AND EQUIPMENT

Property and equipment, net, by geographic area as of December 1, 2023 and December 2, 2022 was as follows: (in millions)####2023####2022 Americas:######## United States##$##1,740##$##1,690 Other####1####1 Total Americas####1,741####1,691 EMEA####87####69 APAC####202####148 Property and equipment, net##$##2,030##$##1,908


ADBE NOTE 8. GOODWILL AND OTHER INTANGIBLES

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 Acquisitions####161####—####—####161 Foreign currency translation####(3)####(39)####—####(42) Balances at December 2, 2022##$##3,889##$##8,500##$##398##$##12,787 Foreign currency translation####1####17####—####18 Balances at December 1, 2023##$##3,890##$##8,517##$##398##$##12,805


ADOBE INC.


Other intangibles, net, as of December 1, 2023 and December 2, 2022 were as follows: (in millions)########2023############2022#### ####Gross Carrying Amount####Accumulated Amortization####Net####Gross Carrying Amount####Accumulated Amortization####Net Customer contracts and relationships##$##1,204##$##(619)##$##585##$##1,204##$##(495)##$##709 Purchased technology####984####(647)####337####1,060####(530)####530 Trademarks####376####(217)####159####375####(172)####203 Other####22####(15)####7####61####(54)####7 Other intangibles, net##$##2,586##$##(1,498)##$##1,088##$##2,700##$##(1,251)##$##1,449


Amortization expense related to other intangibles was $375 million, $405 million and $354 million for fiscal 2023, 2022 and 2021 respectively. Of these amounts, $207 million, $236 million and $181 million were included in cost of sales for fiscal 2023, 2022 and 2021 respectively.


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: (in millions)#### Fiscal Year####Other Intangibles (1) 2024##$##334 2025####299 2026####146 2027####105 2028####62 Thereafter####122 Total expected amortization expense##$##1,068


(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.


ADBE NOTE 9. ACCRUED EXPENSES

Accrued expenses as of December 1, 2023 and December 2, 2022 consisted of the following: (in millions)####2023####2022 Accrued bonuses##$##547##$##489 Accrued compensation and benefits####535####485 Accrued corporate marketing####132####154 Sales and use taxes####122####117 Refund liabilities####111####106 Other####495####439 Accrued expenses##$##1,942##$##1,790


ADBE NOTE 9. ACCRUED EXPENSES

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


ADBE NOTE 9. ACCRUED EXPENSES

ADOBE INC.


ADBE NOTE 10. INCOME TAXES

Income before income taxes for fiscal 2023, 2022 and 2021 consisted of the following: (in millions)####2023####2022####2021 Domestic##$##3,465##$##1,958##$##1,736 Foreign####3,334####4,050####3,969 Income before income taxes##$##6,799##$##6,008##$##5,705


ADBE NOTE 10. INCOME TAXES

The provision for income taxes for fiscal 2023, 2022 and 2021 consisted of the following: (in millions)####2023####2022####2021 Current:############ United States federal##$##1,198##$##465##$##391 Foreign####335####329####197 State and local####260####132####103 Total current####1,793####926####691 Deferred:############ United States federal####(556)####(45)####(148) Foreign####227####360####359 State and local####(93)####11####(19) Total deferred####(422)####326####192 Provision for income taxes##$##1,371##$##1,252##$##883


ADBE Reconciliation of Provision for Income Taxes

Total income tax expense differed from the income tax expense computed at the U.S. federal statutory rate of 21% as a result of the following: (in millions)####2023####2022####2021 Tax expense computed at U.S. federal statutory rate##$##1,428##$##1,262##$##1,198 Tax credits####(130)####(116)####(149) Effects of non-U.S. operations####(116)####(7)####(23) Tax settlements####(14)####(14)####(58) State tax expense, net of federal benefit####132####113####66 Stock-based compensation####29####—####(157) Other####42####14####6 Provision for income taxes##$##1,371##$##1,252##$##883


ADBE 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: (in millions)####2023####2022 Deferred tax assets:######## Capitalized expenses##$##984##$##298 Intangible assets####320####653 Credit carryforwards####366####333 Reserves and accruals####125####98 Operating lease liabilities####97####104 Stock-based compensation####65####108 Net operating loss carryforwards of acquired companies####44####88 Benefits relating to tax positions####68####56 Other####48####41 Total gross deferred tax assets####2,117####1,779 Valuation allowance####(405)####(402) Total deferred tax assets####1,712####1,377 Deferred tax liabilities:######## Acquired intangible assets####263####354 Prepaid expenses####107####110 Operating lease right-of-use assets####89####97 Depreciation and amortization####77####67 Total deferred tax liabilities####536####628 Net deferred tax assets##$##1,176##$##749


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.