UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~_________________________~~

FORM 10-Q

(Mark One)


☒
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March ~~2, 2018~~1, 2024


☐
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission File Number: 0-15175

ADOBE ~~SYSTEMS INCORPORATED~~INC.

(Exact name of registrant as specified in its charter)

~~_________________________~~


Delaware		77-0019522

~~Delaware~~ (State or other jurisdiction of incorporation or organization)	~~77-0019522~~ (I.R.S. Employer Identification No.)

345 Park Avenue, San Jose, California 95110-2704

(Address of principal executive offices and zip code)

(408) 536-6000

(Registrant’s telephone number, including area code)

~~_________________________~~

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	ADBE	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or ~~15 (d)~~15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x☒ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerx

☒

Accelerated filero

☐

Non-accelerated filero

~~(Do not check if a smaller~~

~~reporting company)~~

☐

Smaller reporting companyo

☐

Emerging growth companyo

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒

~~The number~~As of March 22, 2024, 448.0 million shares ~~outstanding~~ of the registrant’s common stock, ~~as of March 23, 2018 was 492,470,335.~~

$0.0001 par value per share, were issued and outstanding.

ADOBE ~~SYSTEMS INCORPORATED~~INC.

FORM 10-Q

TABLE OF CONTENTS


				Page No.

		~~Page No.~~
PART I—FINANCIAL INFORMATION
Item 1.			Condensed Consolidated Financial Statements:	3
			Condensed Consolidated Balance Sheets March ~~2, 2018~~ 1, 202 4 and December 1 ~~2017~~, 202 3	3
			Condensed Consolidated Statements of Income Three Months Ended March ~~2, 2018~~ 1, 202 4 and March 3 ~~2017~~, 202 3	4
			Condensed Consolidated Statements of Comprehensive Income Three Months Ended March ~~2, 2018~~ 1, 202 4 and March 3 ~~2017~~, 202 3	5
			Condensed Consolidated Statements of Stockholders’ Equity Three Months Ended March 1, 202 4 and March 3 , 202 3	6
			Condensed Consolidated Statements of Cash Flows Three Months Ended March ~~2, 2018~~ 1, 202 4 and March 3 ~~2017~~, 202 3	67
			Notes to Condensed Consolidated Financial Statements	78
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	2724
Item 3.			Quantitative and Qualitative Disclosures about Market Risk	3936
Item 4.			Controls and Procedures	4036

PART II—OTHER INFORMATION
Item 1.			Legal Proceedings	4037
Item 1A.			Risk Factors	4037
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	5249

Item 4.5.			~~Mine Safety Disclosures~~Other Information	5249
Item 5.6.			~~Other Information~~Exhibits	5250
~~Item 6.~~	~~Exhibits~~	53
Signature				5851
Summary of Trademarks				5952

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ADOBE ~~SYSTEMS INCORPORATED~~INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In ~~thousands,~~millions, except par value)


	March 1, 2024		December 1, 2023
	(Unaudited)		(*)
ASSETS
Current assets:
Cash and cash equivalents	$	6,254	$	7,141
Short-term investments	566		701
Trade receivables, net of allowances for doubtful accounts of $16 for both periods	2,057		2,224
Prepaid expenses and other current assets	1,131		1,018
Total current assets	10,008		11,084
Property and equipment, net	1,988		2,030
Operating lease right-of-use assets, net	366		358
Goodwill	12,803		12,805
Other intangibles, net	1,011		1,088
Deferred income taxes	1,310		1,191
Other assets	1,265		1,223
Total assets	$	28,751	$	29,779

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables	$	300	$	314
Accrued expenses	1,569		1,942
Debt	1,497		—
Deferred revenue	5,975		5,837
Income taxes payable	123		85
Operating lease liabilities	73		73
Total current liabilities	9,537		8,251
Long-term liabilities:
Debt	2,138		3,634
Deferred revenue	135		113
Income taxes payable	668		514

Operating lease liabilities	378		373
Other liabilities	435		376
Total liabilities	13,291		13,261
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; 453 and 455 shares outstanding, respectively	—		—
Additional paid-in capital	12,037		11,586
Retained earnings	33,809		33,346
Accumulated other comprehensive income (loss)	(277)		(285)
Treasury stock, at cost (148 and 146 shares, respectively)	(30,109)		(28,129)
Total stockholders’ equity	15,460		16,518
Total liabilities and stockholders’ equity	$	28,751	$	29,779

(*)The condensed consolidated balance sheet as of December 1, 2023 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

March 2,
2018 December 1,
2017
(Unaudited) (*)
ASSETS
Current assets:
Cash and cash equivalents $ 2,666,981
$ 2,306,072
Short-term investments 3,480,989
3,513,702
Trade receivables, net of allowances for doubtful accounts of $9,284 and $9,151, respectively 1,062,690
1,217,968
Prepaid expenses and other current assets 270,154
210,071
Total current assets 7,480,814
7,247,813
Property and equipment, net 991,674
936,976
Goodwill 5,843,899
5,821,561
Purchased and other intangibles, net 353,740
385,658
Deferred income taxes 149,710
—
Other assets 153,648
143,548
Total assets $ 14,973,485
$ 14,535,556

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:

Trade payables $ 131,090
$ 113,538
Accrued expenses 911,044
993,773
Income taxes payable 10,591
14,196
Deferred revenue 2,483,744
2,405,950
Total current liabilities 3,536,469
3,527,457
Long-term liabilities:
Debt 1,874,794
1,881,421
Deferred revenue 88,460
88,592
Income taxes payable 690,468
173,088
Deferred income taxes —
279,941
Other liabilities 149,266
125,188
Total liabilities 6,339,457
6,075,687
Stockholders’ equity:
Preferred stock, $0.0001 par value; 2,000 shares authorized, none issued —
—
Common stock, $0.0001 par value; 900,000 shares authorized; 600,834 shares issued;
492,880 and 491,262 shares outstanding, respectively
61
61
Additional paid-in-capital 5,208,588
5,082,195
Retained earnings 9,830,399
9,573,870
Accumulated other comprehensive income (loss) (109,939 ) (111,821 )
Treasury stock, at cost (107,954 and 109,572 shares, respectively), net of reissuances (6,295,081 ) (6,084,436 )
Total stockholders’ equity 8,634,028
8,459,869
Total liabilities and stockholders’ equity $ 14,973,485
$ 14,535,556

^{_________________________________________}


(*)	The condensed consolidated balance sheet as of December 1, 2017 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ADOBE ~~SYSTEMS INCORPORATED~~INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In ~~thousands,~~millions, except per share data)

(Unaudited)


	Three Months Ended
	March 1, 2024		March 3, 2023
Revenue:
Subscription	$	4,916	$	4,373
Product	119		120
Services and other	147		162
Total revenue	5,182		4,655
Cost of revenue:
Subscription	455		434
Product	5		8
Services and other	130		126
Total cost of revenue	590		568
Gross profit	4,592		4,087
Operating expenses:
Research and development	939		827
Sales and marketing	1,352		1,301
General and administrative	352		331

Acquisition termination fee	1,000		—
Amortization of intangibles	42		42
Total operating expenses	3,685		2,501
Operating income	907		1,586
Non-operating income (expense):
Interest expense	(27)		(32)
Investment gains (losses), net	18		1
Other income (expense), net	70		43
Total non-operating income (expense), net	61		12
Income before income taxes	968		1,598
Provision for income taxes	348		351
Net income	$	620	$	1,247
Basic net income per share	$	1.37	$	2.72
Shares used to compute basic net income per share	453		459
Diluted net income per share	$	1.36	$	2.71
Shares used to compute diluted net income per share	456		460

Three Months Ended
March 2,
2018 March 3,
2017
Revenue:
Subscription $ 1,793,358
$ 1,383,856
Product 171,608
183,385
Services and support 113,981
114,405
Total revenue 2,078,947
1,681,646

Cost of revenue:

Subscription 164,685
141,181
Product 12,877
14,333
Services and support 81,340
81,823
Total cost of revenue 258,902
237,337
Gross profit 1,820,045
1,444,309

Operating expenses:

Research and development 348,769
285,077
Sales and marketing 580,957
520,297
General and administrative 170,440
150,808
Amortization of purchased intangibles 17,146
19,128
Total operating expenses 1,117,312
975,310
Operating income 702,733
468,999

Non-operating income (expense):

Interest and other income (expense), net 16,672
7,206
Interest expense (19,899 ) (18,130 )
Investment gains (losses), net 2,996
2,557
Total non-operating income (expense), net (231 ) (8,367 )
Income before income taxes 702,502
460,632
Provision for income taxes 119,426
62,186
Net income $ 583,076
$ 398,446
Basic net income per share $ 1.18
$ 0.81
Shares used to compute basic net income per share 492,061
494,612
Diluted net income per share $ 1.17
$ 0.80
Shares used to compute diluted net income per share 499,433
500,861

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ADOBE ~~SYSTEMS INCORPORATED~~INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In ~~thousands)~~millions)

(Unaudited)


	Three Months Ended
	March 1, 2024		March 3, 2023
	Increase/(Decrease)
Net income	$	620	$	1,247
Other comprehensive income (loss), net of taxes:
Available-for-sale securities:
Unrealized gains / losses on available-for-sale securities	4		7


Derivatives designated as hedging instruments:
Unrealized gains / losses on derivative instruments	3		(9)
Reclassification adjustment for realized gains / losses on derivative instruments	4		(16)
Net increase (decrease) from derivatives designated as hedging instruments	7		(25)
Foreign currency translation adjustments	(3)		4
Other comprehensive income (loss), net of taxes	8		(14)
Total comprehensive income, net of taxes	$	628	$	1,233

Three Months Ended
March 2,
2018 March 3,
2017
Increase/(Decrease)
Net income $ 583,076
$ 398,446
Other comprehensive income (loss), net of taxes:
Available-for-sale securities:
Unrealized gains / losses on available-for-sale securities (23,150 ) 1,024
Reclassification adjustment for recognized gains / losses on available-for-sale securities 121
(160 )
Net increase (decrease) from available-for-sale securities (23,029 ) 864
Derivatives designated as hedging instruments:
Unrealized gains / losses on derivative instruments (1,336 ) 6,709
Reclassification adjustment for recognized gains / losses on derivative instruments (2,139 ) (18,184 )
Net increase (decrease) from derivatives designated as hedging instruments (3,475 ) (11,475 )
Foreign currency translation adjustments 28,386
(1,196 )
Other comprehensive income (loss), net of taxes 1,882
(11,807 )
Total comprehensive income, net of taxes $ 584,958
$ 386,639

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ADOBE ~~SYSTEMS INCORPORATED~~INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions)

(Unaudited)


	Three Months Ended March 1, 2024
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock
	Shares	Amount								Shares	Amount		Total
Balances at December 1, 2023	601	$	—	$	11,586	$	33,346	$	(285)	(146)	$	(28,129)	$	16,518
Net income	—	—		—		620		—		—	—		620
Other comprehensive income (loss), net of taxes	—	—		—		—		8		—	—		8
Re-issuance of treasury stock under stock compensation plans	—	—		—		(157)		—		1	32		(125)
Repurchases of common stock	—	—		—		—		—		(3)	(2,013)		(2,013)

Stock-based compensation	—	—		451		—		—		—	—		451
Value of shares in deferred compensation plan	—	—		—		—		—		—	1		1
Balances at March 1, 2024	601	$	—	$	12,037	$	33,809	$	(277)	(148)	$	(30,109)	$	15,460


	Three Months Ended March 3, 2023
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock
	Shares	Amount								Shares	Amount		Total
Balances at December 2, 2022	601	$	—	$	9,868	$	28,319	$	(293)	(139)	$	(23,843)	$	14,051
Net income	—	—		—		1,247		—		—	—		1,247
Other comprehensive income (loss), net of taxes	—	—		—		—		(14)		—	—		(14)
Re-issuance of treasury stock under stock compensation plans	—	—		—		(131)		—		2	36		(95)
Repurchases of common stock	—	—		—		—		—		(5)	(1,400)		(1,400)

Stock-based compensation	—	—		416		—		—		—	—		416
Value of shares in deferred compensation plan	—	—		—		—		—		—	1		1
Balances at March 3, 2023	601	$	—	$	10,284	$	29,435	$	(307)	(142)	$	(25,206)	$	14,206

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ADOBE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In ~~thousands)~~millions)

(Unaudited)


	Three Months Ended
	March 1, 2024		March 3, 2023
Cash flows from operating activities:
Net income	$	620	$	1,247
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	212		212
Stock-based compensation	451		416
Reduction of operating lease right-of-use assets	18		21
Deferred income taxes	(116)		(49)
Unrealized losses (gains) on investments, net	(13)		3
Other non-cash items	1		(5)
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Trade receivables, net	166		269
Prepaid expenses and other assets	(173)		(258)
Trade payables	(12)		(55)
Accrued expenses and other liabilities	(332)		(323)
Income taxes payable	192		152
Deferred revenue	160		63
Net cash provided by operating activities	1,174		1,693
Cash flows from investing activities:

Maturities of short-term investments	135		254
Proceeds from sales of short-term investments	4		33

Purchases of property and equipment	(37)		(101)
Purchases of long-term investments, intangibles and other assets	(38)		(30)
Proceeds from sale of long-term investments and other assets	2		—
Net cash provided by investing activities	66		156
Cash flows from financing activities:
Repurchases of common stock	(2,000)		(1,400)
Proceeds from re-issuance of treasury stock	97		69
Taxes paid related to net share settlement of equity awards	(222)		(164)

Repayment of debt	—		(500)
Other financing activities, net	(3)		(19)

Net cash used for financing activities	(2,128)		(2,014)
Effect of foreign currency exchange rates on cash and cash equivalents	1		1
Net change in cash and cash equivalents	(887)		(164)
Cash and cash equivalents at beginning of period	7,141		4,236
Cash and cash equivalents at end of period	$	6,254	$	4,072
Supplemental disclosures:
Cash paid for income taxes, net of refunds	$	205	$	214
Cash paid for interest	$	47	$	55

Three Months Ended
March 2,
2018 March 3,
2017
Cash flows from operating activities:
Net income $ 583,076
$ 398,446
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, amortization and accretion 76,522
80,809
Stock-based compensation 130,488
98,310
Deferred income taxes (431,494 ) 60,315
Unrealized losses (gains) on investments, net (929 ) (1,021 )
Other non-cash items 1,457
115
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Trade receivables, net 154,398
184,250
Prepaid expenses and other current assets (64,953 ) (10,758 )
Trade payables 17,552
32,816
Accrued expenses (65,470 ) (92,105 )
Income taxes payable 511,292
(61,639 )
Deferred revenue 77,662
40,832
Net cash provided by operating activities 989,601
730,370
Cash flows from investing activities:

Purchases of short-term investments (332,105 ) (476,014 )
Maturities of short-term investments 153,885
219,091
Proceeds from sales of short-term investments 186,114
426,243
Acquisitions, net of cash acquired —
(459,626 )
Purchases of property and equipment (95,142 ) (30,903 )
Purchases of long-term investments and other assets (9,391 ) (18,218 )
Proceeds from sale of long-term investments and other assets 2,877
545
Net cash used for investing activities (93,762 ) (338,882 )
Cash flows from financing activities:

Purchases of treasury stock (300,000 ) (200,000 )
Proceeds from reissuance of treasury stock 64,384
51,787
Taxes paid related to net share settlement of equity awards (305,353 ) (183,014 )
Repayment of capital lease obligations (304 ) (268 )
Net cash used for financing activities (541,273 ) (331,495 )
Effect of foreign currency exchange rates on cash and cash equivalents 6,343
(2,412 )
Net increase in cash and cash equivalents 360,909
57,581
Cash and cash equivalents at beginning of period 2,306,072
1,011,315
Cash and cash equivalents at end of period $ 2,666,981
$ 1,068,896
Supplemental disclosures:

Cash paid for income taxes, net of refunds $ 31,107
$ 27,254
Cash paid for interest $ 26,410
$ 24,888
Non-cash investing activities:
Issuance of common stock and stock awards assumed in business acquisitions $ —
$ 10,348

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ADOBE ~~SYSTEMS INCORPORATED~~INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Pursuant to these rules and regulations, we have condensed or omitted certain information and footnote disclosures we normally include in our annual consolidated financial statements prepared in accordance with generally accepted accounting principles ~~generally accepted~~ in the United States ~~of America~~ (“GAAP”). In management’s opinion, we have made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present our financial position, results of operations and cash flows. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 1, ~~2017~~2023 on file with the SEC (our “Annual Report”).

~~Recently Adopted Accounting Guidance~~Use of Estimates

~~On January 26, 2017,~~In preparing the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2017-14, Simplifying the Test for Goodwill Impairment, which eliminated step two from the goodwill impairment test. In assessing impairment of goodwill, if it is concluded that it is more likely than not that the carrying amount of a reportable segment exceeds its fair value during the qualitative assessment, a one-step goodwill impairment test will be performed. If it is concluded during the quantitative test that the carrying amount of a reportable segment exceeds its fair value, an impairment loss shall be recognizedcondensed consolidated financial statements and related disclosures in ~~an amount equal to that excess, limited~~conformity with GAAP and pursuant to the ~~total amount of goodwill allocated to that reportable segment. The effective date~~rules and regulations of the ~~new standard for public companies is for fiscal years beginning after December 15, 2019~~SEC, we must make estimates and ~~interim periods within those fiscal years. Early adoption is permitted.~~

Injudgments that affect the ~~first quarter of 2018, we early adopted ASU 2017-04. We will apply~~amounts reported in the provisions of this standard during our annual goodwill impairment test which we perform during the second quarter of our fiscal year. We do not expect the standard to have a significant impact to our goodwill impairment test.condensed consolidated financial statements and accompanying notes. Actual results may differ materially from these estimates.

Significant Accounting Policies

There have been no ~~other~~ material changes to our significant accounting policies ~~during the three months ended March 2, 2018,~~ as compared to the significant accounting policies described in our Annual Report.

Recent Accounting Pronouncements Not Yet Effective

~~On May 28, 2014,~~In November 2023, the ~~FASB~~Financial Accounting Standards Board (“the FASB”) issued ~~ASU~~Accounting Standards Update (“ASU”) No. ~~2014-09, Revenue from Contracts with Customers, requiring an entity to recognize the amount of revenue to~~2023-07, Segment Reporting, which ~~it expects to be entitled~~expands annual and interim disclosure requirements for ~~the transfer of promised goods or services to customers.~~reportable segments, primarily through enhanced disclosures about significant segment expenses. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the full retrospective or modified retrospective transition method. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective date of the new revenue standard for periods beginning after December 15, 2016 to December 15, 2017, with early adoption permitted but not earlier than the original effective date. Accordingly, the updated standard is effective for usour annual periods beginning in fiscal 2025 and interim periods beginning in the first quarter of fiscal ~~2019. We expect to adopt this updated standard in the first quarter of fiscal 2019 on a modified retrospective basis.~~2026. Early adoption is permitted. We are currently evaluating the ~~effect~~impact that the updated standard will have on our ~~condensed consolidated~~ financial ~~statements and related~~statement disclosures.

While we are continuing to assess all potential impacts of the new standard, we currently believe that the most significant impact relates to our accounting for arrangements that include on-premise term-based software licenses bundled with maintenance and support. Under current GAAP, the revenue attributable to these software licenses is recognized ratably over the term of the arrangement because VSOE does not exist for the undelivered maintenance and support element as it is not sold separately. The requirement to have VSOE for undelivered elements to enable the separation of revenue for the delivered software licenses is eliminated under the new standard. Accordingly, under the new standard we will be required to recognize as revenue a portion of the arrangement fee upon delivery of the software licenses. We expect revenue related to our professional services and cloud offerings, including Creative Cloud and Document Cloud for business enterprises, individuals and teams, to remain substantially unchanged. When sold with cloud-enabled services, Creative Cloud and Document Cloud require a significant level of integration and interdependency with software and the individual components are not considered distinct. Revenue for these offerings will continue to be recognized over the period in which the cloud services are provided. Under current GAAP, we expense costs related

~~ADOBE SYSTEMS INCORPORATED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

to the acquisition of revenue-generating contracts as incurred. Under the new standard, we will be required to capitalize certain costs incremental to contract acquisition and amortize them over the expected period of benefit. Due to the complexity of certain of our contracts, the actual accounting treatment required under the new standard for these arrangements may be dependent on contract-specific terms and therefore may vary in some instances.

~~On February 24, 2016,~~In December 2023, the FASB issued ASU No. ~~2016-02, Leases, requiring lessees to recognize a right-of-use asset~~2023-09, Income Taxes, which prescribes standardized categories and ~~a lease liability on the balance sheet for all leases with the exception~~disaggregation of ~~short-term leases with a lease term of twelve months or less. For lessees, leases will continue to be classified as either operating or finance leases~~information in the reconciliation of provision for income statement. Lessor accounting is similar to the current model but updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases. The effective datetaxes, requires disclosure of ~~the new standard for public companies is for fiscal years beginning after December 15, 2018~~disaggregated income taxes paid, and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented.modifies other income tax-related disclosure requirements. The updated standard is effective for us beginning ~~in the first quarter of~~with our fiscal ~~2020 and we do not plan to early adopt.~~year 2026 annual reporting period. Early adoption is permitted. We are currently evaluating the ~~effect~~impact that the updated standard will have on our ~~condensed consolidated~~ financial ~~statements and related disclosures.~~

On August 28, 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging, requiring expanded hedge accounting for both non-financial and financial risk components and refining the measurement of hedge results to better reflect an entity's hedging strategies. The updated standard also amends the presentation and disclosure requirements and changes how entities assess hedge effectiveness. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition with a cumulative effect adjustment recorded to opening retained earnings as of the initial adoption date. The updated standard is effective for us beginning in the first quarter of fiscal 2020 and we do not plan to early adopt. We are currently evaluating the effect that the updated standard will have on our condensed consolidated financial statements and relatedstatement disclosures.

With the exception of the new standards discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the three months ended March ~~2, 2018,~~1, 2024, as compared to the recent accounting pronouncements described in our Annual Report, that are of significance or potential significance to us.

Table of Contents

ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 2. REVENUE

Segment Information

Our segment results for the three months ended March 1, 2024 and March 3, 2023 were as follows:


(dollars in millions)	Digital Media			Digital Experience			Publishing and Advertising			Total
Three months ended March 1, 2024
Revenue	$	3,816		$	1,289		$	77		$	5,182
Cost of revenue	171			397			22			590
Gross profit	$	3,645		$	892		$	55		$	4,592
Gross profit as a percentage of revenue	96		%	69		%	71		%	89		%
Three months ended March 3, 2023
Revenue	$	3,395		$	1,176		$	84		$	4,655
Cost of revenue	142			404			22			568
Gross profit	$	3,253		$	772		$	62		$	4,087
Gross profit as a percentage of revenue	96		%	66		%	74		%	88		%

Revenue by geographic area for the three months ended March 1, 2024 and March 3, 2023 were as follows:



(in millions)	2024		2023
Americas	$	3,110	$	2,779
EMEA	1,319		1,173
APAC	753		703
Total	$	5,182	$	4,655

Revenue by major offerings in our Digital Media reportable segment for the three months ended March 1, 2024 and March 3, 2023 were as follows:



(in millions)	2024		2023
Creative Cloud	$	3,066	$	2,761
Document Cloud	750		634
Total Digital Media revenue	$	3,816	$	3,395

Subscription revenue by segment for the three months ended March 1, 2024 and March 3, 2023 were as follows:



(in millions)	2024		2023
Digital Media	$	3,725	$	3,301
Digital Experience	1,164		1,042
Publishing and Advertising	27		30
Total subscription revenue	$	4,916	$	4,373

Contract Balances

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. Included in trade receivables on the condensed 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 March 1, 2024, the balance of trade receivables, net of allowances for doubtful accounts, was $2.06 billion, inclusive of unbilled receivables of $99 million. As of December 1, 2023, the balance of trade receivables, net of allowances for doubtful accounts, was $2.22 billion, inclusive of unbilled receivables of $80 million.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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. As of March 1, 2024 and December 1, 2023, the allowance for doubtful accounts was $16 million for both periods.

A contract asset is recognized when a conditional right to consideration exists and transfer of control has occurred. 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 condensed 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 for the three months ended March 1, 2024. Contract assets were $153 million and $141 million as of March 1, 2024 and December 1, 2023, respectively.

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. As of March 1, 2024, the balance of deferred revenue was $6.11 billion, which includes $87 million of refundable customer deposits. 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 4% of the total deferred revenue.

As of December 1, 2023, the balance of deferred revenue was $5.95 billion. During the three months ended March 1, 2024, approximately $2.67 billion of revenue was recognized that was included in the balance of deferred revenue as of December 1, 2023.

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and unbilled amounts that will be recognized as revenue in future periods. As of March 1, 2024, remaining performance obligations were approximately $17.58 billion. Non-cancellable and non-refundable funds related to some of our enterprise customer agreements referred to above comprised approximately 4% of the total remaining performance obligations. Approximately 68% 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.

Incremental costs of obtaining a contract with a customer are capitalized if we expect the benefit of those costs to be longer than one year and primarily relate to sales commissions paid to our sales force personnel. Capitalized contract acquisition costs are included in prepaid expenses and other current assets for the current portion and other assets for the long-term portion on the condensed consolidated balance sheets. Capitalized contract acquisition costs were $707 million and $656 million as of March 1, 2024 and December 1, 2023, respectively.

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 condensed consolidated balance sheets. Refund liabilities were $107 million and $111 million as of March 1, 2024 and December 1, 2023, respectively.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 3. ACQUISITIONS

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.

On December ~~19, 2016,~~17, 2023, we ~~completed our acquisition~~entered into a mutual termination agreement with Figma to terminate the proposed merger. In accordance with the terms of ~~TubeMogul,~~the termination agreement, we paid Figma a ~~publicly held video advertising platform company. Under the acquisition method~~termination fee of ~~accounting, the total purchase price~~$1 billion. The termination fee was allocated to TubeMogul’s net tangible and intangible assets based upon their estimated fair values as of December 19, 2016. The total final purchase price for TubeMogul was $560.8 million of which $348.4 million, was allocated to goodwill that was non-deductible for tax purposes, $113.1 million to identifiable intangible assets and $99.3 million to net assets acquired.

~~Proforma financial information has not been presented for this acquisition as the impact to~~recorded in operating expenses in our condensed consolidated ~~financial~~ statements of income during the three months ended March 1, 2024, and was not ~~material.~~tax-deductible for financial statement purposes.

NOTE 3.4. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash equivalents consist of ~~instruments~~highly liquid marketable securities with remaining maturities of three months or less at the date of purchase. We classify ~~all of~~ our ~~cash equivalents and short-term~~ investments in marketable debt securities as “available-for-sale.” ~~In general, these investments are free of trading restrictions.~~ 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 ~~net~~ of ~~taxes,~~marketable debt securities are included in accumulated other comprehensive income, ~~which is reflected as~~net of taxes, in our condensed consolidated balance sheets. Unrealized credit-related losses are recorded to other income (expense), net in our condensed consolidated statements of income with a ~~separate component of stockholders’ equity~~corresponding allowance for credit-related losses in our condensed consolidated balance sheets. Gains and losses are determined using the specific identification method and recognized when realized in our condensed consolidated statements of income. When we have determined that an other-than-temporary decline in fair value has occurred, the amount of the decline that is related to a credit loss is recognized in income. Gains and losses are determined using the specific identification method.

~~ADOBE SYSTEMS INCORPORATED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

Cash, cash equivalents and short-term investments consisted of the following as of March ~~2, 2018 (in thousands):~~1, 2024:


(in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Current assets:
Cash	$	612	$	—	$	—	$	612
Cash equivalents:

Money market funds	5,642		—		—		5,642





Total cash and cash equivalents	6,254		—		—		6,254
Short-term fixed income securities:
Asset-backed securities	11		—		—		11
Corporate debt securities	337		—		(2)		335


U.S. agency securities	13		—		(1)		12
U.S. Treasury securities	213		—		(5)		208


Total short-term investments	574		—		(8)		566
Total cash, cash equivalents and short-term investments	$	6,828	$	—	$	(8)	$	6,820

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair Value
Current assets:
Cash $ 336,972
$ —
$ —
$ 336,972
Cash equivalents:
Money market mutual funds 2,322,247
—
—
2,322,247
Time deposits 7,762
—
—
7,762
Total cash equivalents 2,330,009
—
—
2,330,009
Total cash and cash equivalents 2,666,981
—
—
2,666,981
Short-term fixed income securities:
Asset-backed securities 92,067
—
(810 ) 91,257
Corporate debt securities 2,461,348
797
(29,828 ) 2,432,317
Foreign government securities 3,852
—
(55 ) 3,797
Municipal securities 19,249
—
(268 ) 18,981
U.S. Treasury securities 939,016
7
(4,386 ) 934,637
Total short-term investments 3,515,532
804
(35,347 ) 3,480,989
Total cash, cash equivalents and short-term investments $ 6,182,513
$ 804
$ (35,347 ) $ 6,147,970

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Cash, cash equivalents and short-term investments consisted of the following as of December 1, ~~2017 (in thousands):~~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

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair Value
Current assets:
Cash $ 280,488
$ —
$ —
$ 280,488
Cash equivalents:

Money market mutual funds 2,006,741
—
—
2,006,741
Time deposits 18,843
—
—
18,843
Total cash equivalents 2,025,584
—
—
2,025,584
Total cash and cash equivalents 2,306,072
—
—
2,306,072
Short-term fixed income securities:
Asset-backed securities 98,403
1
(403 ) 98,001
Corporate debt securities 2,461,691
2,694
(10,125 ) 2,454,260
Foreign government securities 2,396
—
(8 ) 2,388
Municipal securities 21,189
8
(132 ) 21,065
U.S. Treasury securities 941,538
2
(3,552 ) 937,988
Total short-term investments 3,525,217
2,705
(14,220 ) 3,513,702
Total cash, cash equivalents and short-term investments $ 5,831,289
$ 2,705
$ (14,220 ) $ 5,819,774

See Note 45 for further information regarding the fair value of our financial instruments.

~~ADOBE SYSTEMS INCORPORATED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

The following table summarizes the fair value and gross unrealized losses related to available-for-sale securities, aggregated by investment category, that have been in an unrealized loss position for less than twelve months, as of March 2, 2018 and December 1, 2017 (in thousands):

2018 2017

Fair
Value

Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses
Corporate debt securities $ 1,811,370
$ (22,326 ) $ 1,338,232
$ (5,459 )
Asset-backed securities 57,439
(495 ) 64,618
(193 )
Municipal securities 18,389
(246 ) 11,805
(115 )
Foreign government securities 3,796
(55 ) 2,388
(8 )
U.S. Treasury securities 592,296
(3,050 ) 593,296
(2,087 )
Total $ 2,483,290
$ (26,172 ) $ 2,010,339
$ (7,862 )

~~There were 1,237 securities and 894 securities in an unrealized loss position for less than twelve months at March 2, 2018 and at December 1, 2017, respectively.~~

The following table summarizes the fair value and gross unrealized losses related to available-for-sale securities, aggregated by investment category, that were in a continuous unrealized loss position for more than twelve months, as of March 2, 2018 and December 1, 2017 (in thousands):

2018 2017

Fair
Value

Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses
Corporate debt securities $ 479,654
$ (7,502 ) $ 500,689
$ (4,666 )
Asset-backed securities 33,818
(315 ) 32,383
(210 )
Municipal securities 592
(22 ) 598
(17 )
U.S. Treasury securities 299,842
(1,336 ) 338,950
(1,465 )
Total $ 813,906
$ (9,175 ) $ 872,620
$ (6,358 )

~~There were 342 securities and 360 securities in an unrealized loss position for more than twelve months at March 2, 2018 and at December 1, 2017, respectively.~~

~~The following table summarizes the cost and~~ estimated fair value of short-term fixed income debt securities classified as short-term investments based on stated effective maturities as of March ~~2, 2018 (in thousands):~~1, 2024:


(in millions)	Estimated Fair Value
Due within one year	$	440
Due between one and two years	123
Due between two and three years	3

Total	$	566

Amortized
Cost

Estimated
Fair Value
Due within one year $ 1,210,398
$ 1,205,298
Due between one and two years 1,099,330
1,088,663
Due between two and three years 856,020
844,181
Due after three years 349,784
342,847
Total $ 3,515,532
$ 3,480,989

We review our debt securities classified as short-term investments on a regular basis ~~to evaluate~~for impairment. For debt securities in unrealized loss positions, we determine whether ~~or not~~ any ~~security has experienced an other-than-temporary~~portion of the decline in fair ~~value.~~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 ~~length of time and~~ extent to which the market value has been less than the cost, ~~the financial condition and near-term prospects~~any noted failure of the issuer ~~and our intent~~ to ~~sell, or whether it is more likely than not we will be required~~make scheduled payments, changes to ~~sell~~ the ~~investment before recovery~~rating of the ~~investment’s amortized cost basis. If we believe that an other-than-temporary decline exists~~security and other relevant credit-related factors in ~~one of these securities, we write down these investments to fair value. The portion of the write-down related to~~determining whether or not a credit loss ~~would be recorded to interest~~exists. During the three months ended March 1, 2024 and ~~other income, net in~~March 3, 2023, we did not recognize an allowance for credit-related losses on any of our ~~condensed~~investments.

Table of Contents

ADOBE ~~SYSTEMS INCORPORATED~~INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

consolidated statements of income. Any portion not related to credit loss would be recorded to accumulated other comprehensive income, which is reflected as a separate component of stockholders’ equity in our condensed consolidated balance sheets. During the three months ended March 2, 2018 and March 3, 2017, we did not consider any of our investments to be other-than-temporarily impaired.

NOTE 4.5. FAIR VALUE MEASUREMENTS

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

~~We measure certain financial assets and liabilities at fair value on a recurring basis. There have been no transfers between fair value measurement levels during the three months ended March 2, 2018.~~

The fair value of our financial assets and liabilities at March ~~2, 2018~~1, 2024 was determined using the following ~~inputs (in thousands):~~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	$	5,642	$	5,642	$	—	$	—




Short-term investments:
Asset-backed securities	11		—		11		—
Corporate debt securities	335		—		335		—




U.S. agency securities	12		—		12		—
U.S. Treasury securities	208		—		208		—
Prepaid expenses and other current assets:
Foreign currency derivatives	52		—		52		—

Other assets:
Deferred compensation plan assets	246		246		—		—

Total assets	$	6,506	$	5,888	$	618	$	—


Liabilities:
Accrued expenses:

Foreign currency derivatives	$	4	$	—	$	4	$	—

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 mutual funds $ 2,322,247
$ 2,322,247
$ —
$ —
Time deposits 7,762
7,762
—
—
Short-term investments:
Asset-backed securities 91,257
—
91,257
—
Corporate debt securities 2,432,317
—
2,432,317
—
Foreign government securities 3,797
—
3,797
—
Municipal securities 18,981
—
18,981
—
U.S. Treasury securities 934,637
—
934,637
—
Prepaid expenses and other current assets:

Foreign currency derivatives 11,302
—
11,302
—
Other assets:

Deferred compensation plan assets 64,667
2,617
62,050
—
Total assets $ 5,886,967
$ 2,332,626
$ 3,554,341
$ —

Table of Contents

Liabilities:

Accrued expenses:

Foreign currency derivatives $ 2,221
$ —
$ 2,221
$ —
Other Liabilities:
Interest rate swap derivatives 8,517
—
8,517
—
Total liabilities $ 10,738
$ —
$ 10,738
$ —

ADOBE ~~SYSTEMS INCORPORATED~~INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The fair value of our financial assets and liabilities at December 1, ~~2017~~2023 was determined using the following ~~inputs (in thousands):~~

inputs:


	Fair Value Measurements at Reporting Date Using
(in millions)									(in millions)	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs				Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs	Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)			Total	(Level 1)	(Level 2)	(Level 3)
Assets:									Assets:
Cash equivalents:									Cash equivalents:
Money market mutual funds	$	2,006,741	$	2,006,741	$	—	$	—

Money market funds
Money market funds
Money market funds

Time deposits	18,843		18,843		—		—
Time deposits
Time deposits

Short-term investments:
Short-term investments:
Short-term investments:
Asset-backed securities	98,001		—		98,001		—
Asset-backed securities
Asset-backed securities
Corporate debt securities	2,454,260		—		2,454,260		—
Foreign government securities	2,388		—		2,388		—
Municipal securities	21,065		—		21,065		—

U.S. agency securities

U.S. agency securities

U.S. agency securities
U.S. Treasury securities	937,988		—		937,988		—
Prepaid expenses and other current assets:									Prepaid expenses and other current assets:
Foreign currency derivatives	14,198		—		14,198		—
Other assets:									Other assets:
Deferred compensation plan assets	56,690		2,573		54,117		—

Total assets	$	5,610,174	$	2,028,157	$	3,582,017	$	—
Total assets
Total assets


Liabilities:
Accrued expenses:

Foreign currency derivatives	$	4	$	—	$	4	$	—

Liabilities:

Accrued expenses:

Foreign currency derivatives $ 1,598
$ —
$ 1,598
$ —
Other liabilities:
Interest rate swap derivatives 1,058
—
1,058
—
Total liabilities $ 2,656
$ —
$ 2,656
$ —

See Note 34 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 classify 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, ~~and time deposits~~ are based on quoted prices in active markets at the ~~closing price of these assets as of the reporting~~measurement date. ~~We classify our money market mutual funds and time deposits as Level 1.~~

Our ~~Level 2~~ over-the-counter foreign currency ~~and interest rate swap~~ 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 ~~deferred compensation plan~~other current financial assets ~~consist of money market mutual funds~~ and ~~other mutual funds.~~

~~ADOBE SYSTEMS INCORPORATED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

current financial liabilities have fair values that approximate their carrying values.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We also have direct investments in privately held companies accounted for under the cost and equity method, which are periodically assessed for other-than-temporary impairment. If we determine that an other-than-temporary impairment has occurred, we write down the investment to its fair value. We estimate fair value of our cost and equity method investments considering available information such as pricing in recent rounds of financing, current cash positions, earnings and cash flow forecasts, recent operational performance and any other readily available market data. For the three months ended March 2, 2018 and March 3, 2017, we determined there were no other-than-temporary impairments of our cost and equity method investments.

The fair value of our senior notes was ~~$1.93~~$3.40 billion as of March ~~2, 2018,~~1, 2024, based on observable market prices in less active markets and categorized as Level 2. See Note 1314 for further details regarding our debt.

Table of Contents

ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE ~~5. DERIVATIVES AND HEDGING ACTIVITIES~~

~~Hedge Accounting and Hedging Programs~~6. DERIVATIVE FINANCIAL INSTRUMENTS

We ~~recognize~~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 ~~and hedging activities as either assets or liabilities~~for trading purposes.

We enter into master netting arrangements to mitigate credit risk in ~~our condensed consolidated balance sheets and measure them at fair value. Gains and losses resulting from changes in~~derivative transactions by permitting net settlement of transactions with the same counterparty. We do not offset fair value ~~are accounted~~amounts recognized for ~~depending on the use of the~~ derivative ~~and whether it is designated and qualifies for hedge accounting.~~

instruments under master netting arrangements. We evaluate hedge effectiveness at the inception of the hedge prospectively as well as retrospectively, and record any ineffective portion of the hedging instruments in interest and other income (expense), net on our condensed consolidated statements of income. The net gain (loss) recognized in interest and other income (expense), net for cash flow hedges due to hedge ineffectiveness was insignificant for all fiscal years presented. The time value of purchased contracts is recorded in interest and other income (expense), net in our condensed consolidated statements of income.

~~The bank counterparties to these contracts expose us to credit-related losses in the event of their nonperformance which are largely mitigated with~~also enter into collateral security agreements ~~that provide for~~with certain of our counterparties to exchange cash collateral ~~to be received or posted~~ when the net fair value of certain ~~financial~~derivative instruments fluctuates from contractually established thresholds. ~~In addition, we enter into master netting arrangements which have the ability to further limit credit-related losses with the same counterparty by permitting net settlement of transactions.~~

~~Balance Sheet Hedging~~—~~Hedges of Foreign Currency Assets and Liabilities~~

We also hedge our net recognized foreign currency denominated assets and liabilities with foreign exchange forward contracts to reduce the risk that the value of these assets and liabilities will be adversely affected by changes in exchange rates. These contracts hedge assets and liabilities that are denominated in foreign currencies and are carried at fair value with changes in the fair value recorded to interest and other income (expense), net in our condensed consolidated statements of income. These contracts do not subject us to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the assets and liabilities being hedged.

Cash Flow ~~Hedging—~~Hedges ~~of Forecasted Foreign Currency Revenue and Interest Rate Risk~~

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 orand forward contracts to hedge ~~certain cash flow exposures resulting from changes in these~~a portion of our forecasted foreign currency ~~exchange rates.~~denominated revenue and expenses. These foreign exchange contracts, carried at fair value, have maturities of up to ~~twelve~~12 months. ~~We enter into these~~

As of March 1, 2024, we had net derivative losses on our foreign exchange option contracts expected to be recognized within the next 18 months, of which $7 million of net losses are expected to be recognized into revenue within the next 12 months.

Non-Designated Hedges

Our derivatives not designated as hedging instruments consist of foreign currency forward contracts that we primarily use to hedge ~~a portion of our forecasted foreign currency~~monetary assets and liabilities denominated ~~revenue~~ in ~~the normal course of business~~non-functional currencies.

Fair value asset derivatives are included in prepaid expenses and ~~accordingly, they~~other current assets and fair value liability derivatives are ~~not speculative~~included in ~~nature.~~

~~ADOBE SYSTEMS INCORPORATED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

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 flowsaccrued expenses on ~~hedged transactions. We record changes in the intrinsic value of these cash flow hedges in accumulated other comprehensive income (loss) in~~ our condensed consolidated balance ~~sheets, until~~sheets. The fair value of derivative instruments as of March 1, 2024 and December 1, 2023 were as follows:


(in millions)	2024				2023
	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	$	44	$	—	$	42	$	—
Foreign exchange forward contracts	4		—		1		—


Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	4		4		9		4
Total derivatives	$	52	$	4	$	52	$	4

For the ~~forecasted transaction occurs. When the forecasted transaction occurs, we reclassify the related gain or loss~~three months ended March 1, 2024 and March 3, 2023, gains and losses on the cash flow hedge to revenue. 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 interest and other income (expense),derivative instruments, net of tax, recognized in our condensed consolidated statements of comprehensive income ~~at that time. If we do not elect hedge accounting, or~~and the contract does not qualify for hedge accounting treatment, the changes in fair value from period to period are recorded in interest and other income (expense), net in our condensed consolidated statements of income.

~~Fair Value Hedging - Hedges of Interest Rate Risk~~

In fiscal 2014, we entered into interest rate swaps designated as fair value hedges related to our $900 million of 4.75% fixed interest rate senior notes due February 1, 2020. In effect, the interest rate swaps convert the fixed interest rate on these senior notes to a floating interest rate based on LIBOR. Under the terms of the swaps, we will pay monthly interest at the one-month LIBOR interest rate plus a fixed number of basis points on the $900 million notional amount through February 1, 2020. In exchange, we will receive 4.75% fixed rate interest from the swap counterparties. ~~See Note 13 for further details regarding our debt.~~

The interest rate swaps are accounted for as fair value hedges and substantially offset the changes in fair value of the hedged portion of the underlying debt that are attributable to the changes in market risk. Therefore, the gains and losses related to changes in the fair value of the interest rate swaps are included in interest and other income (expense), net in our condensed consolidated statements of income. The fair value of the interest rate swaps is reflected in other liabilities or other assets in our condensed consolidated balance sheets.

~~The fair value~~effects of derivative instruments on our condensed consolidated ~~balance sheets as~~statements of ~~March 2, 2018 and December 1, 2017~~income were ~~as follows (in thousands):~~immaterial.

2018 2017

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^{(1) (2)}
$ 9,668
$ —
$ 12,918
$ —
Interest rate swap ⁽³⁾
—
8,517
—
1,058
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts ⁽¹⁾
1,634
2,221
1,280
1,598
Total derivatives $ 11,302
$ 10,738
$ 14,198
$ 2,656

Table of Contents

^{_________________________________________}


⁽¹⁾	~~Included in prepaid expenses and other current assets and accrued expenses for asset derivatives and liability derivatives, respectively, on our condensed consolidated balance sheets.~~


⁽²⁾	~~Hedging effectiveness expected to be recognized into income within the next twelve months.~~


⁽³⁾	~~Included in other liabilities on our condensed consolidated balance sheets.~~

ADOBE ~~SYSTEMS INCORPORATED~~INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The effect of foreign currency derivative instruments designated as cash flow hedges and of foreign currency derivative instruments not designated as hedges in our condensed consolidated statements of income for the three months ended March 2, 2018 and March 3, 2017 was as follows (in thousands):

2018 2017
Foreign
Exchange
Option
Contracts Foreign
Exchange
Forward
Contracts Foreign
Exchange
Option
Contracts Foreign
Exchange
Forward
Contracts
Derivatives in cash flow hedging relationships:
Net gain (loss) recognized in OCI, net of tax⁽¹⁾
$ (1,336 ) $ —
$ 6,709
$ —
Net gain (loss) reclassified from accumulated
OCI into income, net of tax⁽²⁾
$ 1,022
$ —
$ 18,309
$ —
Net gain (loss) recognized in income⁽³⁾
$ (10,326 ) $ —
$ (6,037 ) $ —
Derivatives not designated as hedging relationships:
Net gain (loss) recognized in income⁽⁴⁾
$ —
$ (3,661 ) $ —
$ 1,088

^{_________________________________________}


⁽¹⁾	~~Net change in the fair value of the effective portion classified in other comprehensive income (“OCI”).~~


⁽²⁾	~~Effective portion classified as revenue.~~


⁽³⁾	~~Ineffective portion and amount excluded from effectiveness testing classified in interest and other income (expense), net.~~


⁽⁴⁾	~~Classified in interest and other income (expense), net.~~

NOTE 6.7. GOODWILL ~~AND PURCHASED~~ AND OTHER INTANGIBLES

Goodwill as of March ~~2, 2018~~1, 2024 and December 1, ~~2017~~2023 was ~~$5.84~~$12.80 billion and ~~$5.82~~$12.81 billion, respectively. ~~The increase was due to foreign currency translation adjustments during the three months ended March 2, 2018.~~

~~Purchased and other~~Other intangible assets subject to amortization as of March ~~2, 2018~~1, 2024 and December 1, ~~2017~~2023 were as ~~follows (in thousands):~~follows:

2018 2017
Cost Accumulated Amortization Net Cost Accumulated Amortization Net
Purchased technology $ 194,099
$ (90,103 ) $ 103,996
$ 223,252
$ (110,433 ) $ 112,819
Customer contracts and relationships $ 549,227
$ (345,797 ) $ 203,430
$ 577,484
$ (356,613 ) $ 220,871
Trademarks 35,255
(16,247 ) 19,008
76,255
(56,094 ) 20,161
Acquired rights to use technology 65,285
(50,488 ) 14,797
71,130
(54,223 ) 16,907
Localization 620
(329 ) 291
603
(170 ) 433
Other intangibles 38,019
(25,801 ) 12,218
38,693
(24,226 ) 14,467
Total other intangible assets $ 688,406
$ (438,662 ) $ 249,744
$ 764,165
$ (491,326 ) $ 272,839
Purchased and other intangible assets, net $ 882,505
$ (528,765 ) $ 353,740
$ 987,417
$ (601,759 ) $ 385,658


(in millions)	2024						2023
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Customer contracts and relationships	$	1,204	$	(650)	$	554	$	1,204	$	(619)	$	585
Purchased technology	884		(589)		295		984		(647)		337
Trademarks	376		(228)		148		376		(217)		159


Other	23		(9)		14		22		(15)		7
Other intangibles, net	$	2,487	$	(1,476)	$	1,011	$	2,586	$	(1,498)	$	1,088

Amortization expense related to ~~purchased and~~ other ~~intangible assets~~intangibles was ~~$33.9~~$84 million and ~~$38.1~~$96 million for the three months ended March ~~2, 2018~~1, 2024 and March 3, ~~2017,~~2023, respectively. Of these amounts, ~~$16.7~~$42 million and ~~$18.7~~$54 million were included in cost of ~~sales~~revenue for the three months ended March ~~2, 2018~~1, 2024 and March 3, ~~2017,~~2023, respectively.

During the three months ended March 2, 2018, certain purchased intangibles associated with our acquisitions of Omniture, Inc. and Day Software Holding AG became fully amortized and were removed from the condensed consolidated balance sheets.

~~ADOBE SYSTEMS INCORPORATED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

As of March ~~2, 2018, we expect~~1, 2024, the estimated aggregate amortization expense in future periods ~~to be~~was as ~~follows (in thousands):~~follows:


(in millions)
Fiscal Year	Other Intangibles (1)
Remainder of 2024	$	250
2025	300
2026	147
2027	106
2028	63
Thereafter	125
Total expected amortization expense	$	991

(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.

Fiscal Year
Purchased
Technology

Other Intangible
Assets
Remainder of 2018 $ 27,988
$ 73,208
2019 34,029
70,156
2020 31,737
39,880
2021 9,125
17,474
2022 1,117
14,467
Thereafter —
34,559
Total expected amortization expense $ 103,996
$ 249,744

NOTE 7.8. ACCRUED EXPENSES

Accrued expenses as of March ~~2, 2018~~1, 2024 and December 1, ~~2017~~2023 consisted of the ~~following (in thousands):~~following:


(in millions)	2024		2023
Accrued compensation and benefits	$	592	$	535
Accrued bonuses	158		547

Accrued corporate marketing	125		132

Sales and use taxes	116		122
Refund liabilities	107		111




Other	471		495
Accrued expenses	$	1,569	$	1,942

2018 2017
Accrued compensation and benefits $ 349,727
$ 417,742
Accrued media costs 109,243
134,525
Sales and marketing allowances 50,806
47,389
Accrued corporate marketing 75,642
72,087
Taxes payable 48,236
49,550
Royalties payable 45,482
46,411
Accrued interest expense 6,984
25,594
Other 224,924
200,475
Accrued expenses $ 911,044
$ 993,773

Accrued media costs primarily relate to our advertising platform offerings from TubeMogul, which are part of the Advertising Cloud. We accrue for media costs related to impressions purchased from third-party ad inventory sources. Other primarily includes general ~~corporate~~business accruals, ~~for local~~accrued hosting fees, royalties payable, and ~~regional expenses. Other is also comprised~~derivative collateral liabilities.

Table of ~~deferred rent related to office locations with rent escalations and foreign currency liability derivatives.~~Contents

~~NOTE 8. INCOME TAXES~~

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law, which significantly changes existing U.S. tax law and includes many provisions applicable to us, such as reducing the U.S. federal statutory tax rate, imposing a one-time transition tax on deemed repatriation of deferred foreign income, and adopting a territorial tax system. The Tax Act reduces the U.S. federal statutory tax rate from 35% to 21% effective January 1, 2018. For fiscal 2018, our blended U.S. federal statutory tax rate is 22.2%. This is the result of using the tax rate of 35% for the first month of fiscal 2018 and the reduced tax rate of 21% for the remaining eleven months of fiscal 2018. The Tax Act also requires us to incur a one-time transition tax on deferred foreign income not previously subject to U.S. income tax at a rate of 15.5% for foreign cash and certain other net current assets, and 8% on the remaining income, in each case reduced by certain foreign tax credits. The Tax Act also includes a provision to tax global intangible low-taxed income of foreign subsidiaries, a special tax deduction for foreign-derived intangible income, and a base erosion anti-abuse tax measure that may tax certain payments between a U.S. corporation and its subsidiaries. These additional provisions of the Tax Act will be effective for us beginning December 1, 2018.

The Tax Act is effective in the first quarter of our fiscal 2018. As of March 2, 2018, we have not completed our accounting for the tax effects of the Tax Act. During the quarter, we recorded a provisional tax charge based on reasonable estimates for those tax effects using the current available information and technical guidance on the interpretations of the Tax Act. In order to complete our accounting for the impact of the Tax Act, we continue to obtain, analyze and interpret additional guidance as such guidance

ADOBE ~~SYSTEMS INCORPORATED~~INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

becomes available from the U.S. Treasury Department, the Internal Revenue Service (“IRS”), state taxing jurisdictions, the FASB, and other standard-setting and regulatory bodies. New guidance or interpretations may materially impact our provision for income taxes in future periods. Additional information that is needed to complete the analysis but is currently unavailable includes, but is not limited to, the amount of earnings of certain subsidiaries as well as the amount of foreign taxes paid on such earnings for our fiscal 2018, the final determination of certain net deferred tax assets subject to remeasurement and when the related temporary differences will be settled or realized, and the tax treatment of such provisions of the Tax Act by various state tax authorities. In addition, we do not currently have sufficient information and guidance to determine the impact of certain changes to the taxation of our foreign earnings that will become effective for us in fiscal 2019. The provisional accounting impacts may change in future reporting periods until our accounting analysis is finalized, which will occur no later than one year from the enactment date, as permitted by SEC Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act.

As a result of the reduction in the federal corporate tax rate, we remeasured our deferred taxes as of the date of enactment of the Tax Act resulting in a provisional tax charge of $10 million based on the tax rate that is expected to apply when such deferred taxes are settled or realized in future periods. We have not yet completed our accounting for the measurement of deferred taxes. To calculate the remeasurement of deferred taxes, we estimated when the existing deferred taxes will be settled or realized. The remeasurement of deferred taxes included in our financial statements will be subject to further revisions if our current estimates are different from our actual future operating results.

As part of the adoption of a new territorial tax system we recorded a provisional transition tax expense of $118 million on deferred foreign earnings, which is comprised of $86 million for fiscal 2018 plus other ancillary effects recorded in the first fiscal quarter, long term income taxes payable of $533 million, and a reduction in our deferred tax liability of $415 million. To calculate the transition tax, we estimated our deferred foreign income for fiscal 2017 and 2018 because these tax returns are not complete or due. The fiscal 2017 and fiscal 2018 taxable income will be known once the respective tax returns are completed and filed. In addition, U.S. and foreign audit settlements may significantly impact the estimated transition tax. The impact of the U.S. and foreign audits on the transition tax will be known as the audits are concluded. We currently intend to elect to pay the federal transition tax over a period of eight years as permitted by the Tax Act.

Certain international provisions introduced in the Tax Act will be effective for us in fiscal 2019. We need additional information to complete our analysis on whether to adopt an accounting policy to account for the tax effects of these provisions in the period that it is subject to such tax, or to provide deferred taxes for book and tax basis differences that upon reversal may be subject to these taxes. Accordingly, we have not recorded any tax with respect to these provisions in the three months ended March 2, 2018. We will make an accounting policy election and complete the required accounting no later than the first quarter of fiscal 2019.

NOTE 9. STOCK-BASED COMPENSATION

~~Summary of~~ Restricted Stock Units

Restricted stock unit activity for the three months ended March ~~2, 2018 and the fiscal year ended December~~ 1, ~~2017~~2024 was as ~~follows (in thousands):~~follows:


	Number of Shares (in millions)	Weighted Average Grant Date Fair Value		Aggregate Fair Value (1) (in millions)
Beginning outstanding balance	7.8	$	418.63
Awarded	2.3	$	605.02
Released	(0.9)	$	415.19
Forfeited	(0.1)	$	442.35

Ending outstanding balance	9.1	$	466.10	$	5,191

Expected to vest	8.3	$	465.10	$	4,753

(1) The aggregate fair value is calculated using the closing stock price as of March 1, 2024 of $570.93.

2018 2017
Beginning outstanding balance 9,304
8,316
Awarded 2,996
5,018
Released (2,950 ) (3,859 )
Forfeited (155 ) (766 )
Increase due to acquisition —
595
Ending outstanding balance 9,195
9,304

~~ADOBE SYSTEMS INCORPORATED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Information regarding~~The total fair value of restricted stock units ~~outstanding at~~vested during the three months ended March ~~2, 2018 and March 3, 2017 is summarized below:~~1, 2024 was $541 million.

Number of
Shares
(thousands)

Weighted
Average
Remaining
Contractual
Life
(years)

Aggregate
Intrinsic
Value^(*)
(millions)
2018
Restricted stock units outstanding 9,195
1.52 $ 1,928.9
Restricted stock units vested and expected to vest 8,259
1.47 $ 1,732.6
2017

Restricted stock units outstanding 9,822
1.59 $ 1,002.3
Restricted stock units vested and expected to vest 8,646
1.53 $ 882.2

^{_________________________________________}


^(*)	The intrinsic value is calculated as the market value as of the end of the fiscal period. As reported by the NASDAQ Global Select Market, the market values as of March 2, 2018 and March 3, 2017 were $209.79 and $120.04, respectively.

~~Summary of~~ Performance Shares

~~Our Performance Share Programs aim to help focus key employees on building stockholder value, provide significant award potential for achieving outstanding Company performance and enhance~~In the ~~ability~~first quarter of fiscal 2024, the ~~Company to attract and retain highly talented and competent individuals. The~~ Executive Compensation Committee of our Board of Directors ~~approves~~(the “ECC”) approved the 2024 Performance Share Program, the terms of ~~each of~~which are similar to the 2023 Performance Share Program that is still outstanding. For information regarding our outstanding Performance Share Programs, including the ~~award calculation methodology, under the~~ terms, see “Note 12. Stock-Based Compensation” of our ~~2003 Equity Incentive Plan. Shares may be earned based~~Annual Report on Form 10-K for the ~~achievement~~fiscal year ended December 1, 2023.

As of ~~an objective relative total stockholder return measured over a three-year~~March 1, 2024, the performance ~~period.~~ shares awarded under our 2024, 2023 and 2022 Performance Share Programs remained outstanding and unvested.

Performance share ~~awards will be awarded and fully vest upon~~activity for the ~~Executive Compensation Committee's certification~~three months ended March 1, 2024 was as follows:


	Number of Shares (in millions)	Weighted Average Grant Date Fair Value		Aggregate Fair Value (1) (in millions)
Beginning outstanding balance	0.5	$	465.71
Awarded	0.2	$	645.40
Released	(0.1)	$	463.22
Forfeited	(0.1)	$	471.87
Ending outstanding balance	0.5	$	534.65	$	307

Expected to vest	0.5	$	532.23	$	274

(1) The aggregate fair value is calculated using the closing stock price as of ~~the level~~March 1, 2024 of ~~achievement following the three-year anniversary of each grant date. Program~~$570.93.

Under our Performance Share Programs, participants generally have the ability to receive up to 200% of the target number of shares originally granted.

In Shares released during the three months ended March 1, 2024 resulted from 83% achievement of target for the 2021 Performance Share Program, as certified by the ECC in the first quarter of fiscal ~~2018,~~2024.

The total fair value of performance shares vested during the ~~Executive Compensation Committee approved the 2018 Performance Share Program.~~three months ended March 1, 2024 was $63 million.

~~In the first quarter~~

Table of fiscal 2018, the Executive Compensation Committee also certified the actual performance achievement of participants in the 2015 Performance Share Program. Actual performance resulted in participants achieving 200% of target or approximately 1.0 million shares. The shares granted and achieved under the 2015 Performance Share Program fully vested on the three-year anniversary of the grant on January 24, 2018, if not forfeited.Contents

In the first quarter of fiscal 2017, the Executive Compensation Committee certified the actual performance achievement of participants in the 2014 Performance Share Program. Actual performance resulted in participants achieving 198% of target or approximately 1.1 million shares. The shares granted and achieved under the 2014 Performance Share Program fully vested on the three-year anniversary of the grant on January 24, 2017, if not forfeited.

~~As of March 2, 2018, the shares awarded under our 2018, 2017 and 2016 Performance Share Programs are yet to be achieved.~~

ADOBE ~~SYSTEMS INCORPORATED~~INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table sets forth the summary of performance share activity under our Performance Share Programs for the three months ended March 2, 2018 and the fiscal year ended December 1, 2017 (in thousands):

2018 2017

Shares
Granted

Maximum
Shares Eligible
to Receive

Shares
Granted

Maximum
Shares Eligible
to Receive
Beginning outstanding balance 1,534
3,068
1,630
3,261
Awarded 837
⁽¹⁾
628
1,082
⁽²⁾
1,040
Achieved (1,050 ) (1,054 ) (1,135 ) (1,147 )
Forfeited (35 ) (70 ) (43 ) (86 )
Ending outstanding balance 1,286
2,572
1,534
3,068

^{_________________________________________}


⁽¹⁾	Included in the 0.8 million shares awarded during the three months ended March 2, 2018 were 0.5 million shares awarded for the final achievement of the 2015 Performance Share program. The remaining awarded shares were for the 2018 Performance Share Program.


⁽²⁾	Included in the 1.1 million shares awarded during the fiscal year ended December 1, 2017 were 0.6 million shares awarded for the final achievement of the 2014 Performance Share program. The remaining awarded shares were for the 2017 Performance Share Program.

~~Summary of~~ Employee Stock Purchase Plan Shares

The expected life of the ESPP shares is the average of the remaining purchase periods under each offering period. The assumptions used to value employee stock purchase rights during the three months ended March 2, 2018 and March 3, 2017 were as follows:

Three Months
2018 2017
Expected life (in years) 0.5 - 2.0 0.5 - 2.0
Volatility 26% - 27% 22% - 25%
Risk free interest rate 1.54% - 1.89% 0.62% - 1.2%

Employees purchased ~~0.7~~0.3 million shares at an average price of ~~$91.74~~$299.89 and ~~0.7~~0.2 million shares at an average price of ~~$71.72~~$286.05 for the three months ended March ~~2, 2018~~1, 2024 and March 3, ~~2017,~~2023, respectively. The intrinsic value of shares purchased during the three months ended March ~~2, 2018~~1, 2024 and March 3, ~~2017~~2023 was ~~$54.3~~$96 million and ~~$20.4~~$12 million, respectively. The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.

~~Summary of Stock Options~~

The Executive Compensation Committee of Adobe’s Board of Directors eliminated the use of stock option grants for all employees and the Board of Directors effective fiscal 2012 and fiscal 2014, respectively. As of March 2, 2018 and December 1, 2017, we had 0.1 million and 0.3 million stock options outstanding, respectively.

Compensation Costs

As of March ~~2, 2018,~~1, 2024, there was ~~$1.19~~$3.90 billion of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based awards and purchase rights which will be recognized over a weighted average period of ~~2.2~~2.50 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

~~ADOBE SYSTEMS INCORPORATED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

Total stock-based compensation costs included in our condensed consolidated statements of income for the three months ended March ~~2, 2018~~1, 2024 and March 3, ~~2017~~2023 were as ~~follows (in thousands):~~follows:



(in millions)	2024		2023
Cost of revenue	$	29	$	29
Research and development	229		209
Sales and marketing	129		122
General and administrative	64		56
Total	$	451	$	416

2018 2017
Income Statement Classifications
Option
Grants
and Stock
Purchase
Rights

Restricted
Stock Units and
Performance
Share
Awards

Option
Grants
and Stock
Purchase
Rights

Restricted
Stock Units and
Performance
Share
Awards
Cost of revenue—subscription $ 768
$ 3,944
$ 393
$ 2,161
Cost of revenue—services and support 2,016
2,986
1,723
3,065
Research and development 5,349
54,072
4,032
33,094
Sales and marketing 5,320
38,848
4,388
32,465
General and administrative 1,480
20,742
1,230
18,316
Total $ 14,933
$ 120,592
$ 11,766
$ 89,101

NOTE 10. ~~STOCKHOLDERS’ EQUITY~~

~~Retained Earnings~~

~~The changes in retained earnings for the three months ended March 2, 2018 were as follows (in thousands):~~

Balance as of December 1, 2017 $ 9,573,870
Net income 583,076
Reissuance of treasury stock (326,229 )
Adjustments to equity as a result of the Tax Act (318 )
Balance as of March 2, 2018 $ 9,830,399

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 condensed 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 treasury stock 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 condensed consolidated balance sheets.

~~See Note 8 for more detailed information regarding impacts of the Tax Act.~~ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The components of accumulated other comprehensive income (loss) and activity, net of related taxes, ~~as of March 2, 2018~~ were as ~~follows (in thousands):~~follows:


(in millions)	December 1, 2023		Increase / Decrease		Reclassification Adjustments			March 1, 2024



Net unrealized gains / losses on available-for-sale securities	$	(12)	$	4	$	—	(1)	$	(8)
Net unrealized gains / losses on derivative instruments designated as hedging instruments	(26)		3		4		(2)	(19)
Cumulative foreign currency translation adjustments	(247)		(3)		—			(250)
Total accumulated other comprehensive income (loss), net of taxes	$	(285)	$	4	$	4		$	(277)

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

December 1,
2017 Increase / Decrease Reclassification Adjustments March 2,
2018
Net unrealized gains / losses on available-for-sale securities:
Unrealized gains on available-for-sale securities $ 2,704
$ (1,717 ) $ (184 ) $ 803
Unrealized losses on available-for-sale securities (14,220 ) (21,433 ) 305
(35,348 )
Total net unrealized gains / losses on available-for-sale securities (11,516 ) (23,150 ) 121
⁽¹⁾
(34,545 )
Net unrealized gains / losses on derivative instruments designated as hedging instruments (3,367 ) (1,336 ) (2,139 )
⁽²⁾
(6,842 )
Cumulative foreign currency translation adjustments (96,938 ) 28,386
—
(68,552 )
Total accumulated other comprehensive income (loss), net of taxes $ (111,821 ) $ 3,900
$ (2,018 ) $ (109,939 )
(2)Reclassification adjustments for gains / losses on foreign currency hedges are classified in revenue or operating expenses, depending on the nature of the underlying transaction, and reclassification adjustments for gains / losses on Treasury lock hedges are classified in interest expense.

~~ADOBE SYSTEMS INCORPORATED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

^{_________________________________________}


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


⁽²⁾	~~Reclassification adjustments for gains / losses on derivative instruments are classified in revenue.~~

~~The following table sets forth the taxes~~Taxes related to each component of other comprehensive income (loss) for the three months ended March ~~2, 2018~~1, 2024 and March 3, ~~2017 (in thousands):~~2023 were immaterial.

Three Months
2018 2017
Available-for-sale securities:
Unrealized gains / losses $ —
$ 248
Reclassification adjustments —
(109 )
Subtotal available-for-sale securities —
139
Derivatives designated as hedging instruments:
Unrealized gains / losses on derivative instruments⁽¹⁾
—
—
Reclassification adjustments⁽¹⁾
(1,526 ) (284 )
Subtotal derivatives designated as hedging instruments (1,526 ) (284 )
Foreign currency translation adjustments (1,742 ) 386
Total taxes, other comprehensive income $ (3,268 ) $ 241

^{_________________________________________}


⁽¹⁾	~~Taxes related to derivative instruments other than the interest rate lock agreement were zero based on the tax jurisdiction where these derivative instruments were executed.~~

~~Stock Repurchase Program~~NOTE 11. 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 ~~January 2017,~~December 2020, our Board of Directors ~~approved a new stock repurchase program granting us~~granted authority to repurchase up to ~~$2.5~~$15 billion in our common stock through the end of fiscal ~~2019. The new stock repurchase program approved by our Board of Directors is similar to our previous stock repurchase programs.~~2024.

During the three months ended March ~~2, 2018~~1, 2024 and March 3, ~~2017,~~2023, we entered into ~~several structured stock~~accelerated share repurchase agreements (“ASRs”) with large financial institutions whereupon we provided them with prepayments ~~totaling $300 million~~of $2 billion and ~~$200 million,~~$1.4 billion, respectively. ~~We enter into these agreements in order~~Under the terms of our ASRs, the financial institutions agree to ~~take advantage~~deliver a portion of ~~repurchasing~~shares to us at contract

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

inception and the remaining shares at ~~a guaranteed discount to~~settlement. The total number of shares delivered and average purchase price paid per share are determined upon settlement based on the Volume Weighted Average Price (“VWAP”) over the term of ~~our common stock over a specified period of time.~~ the ASR, less an agreed upon discount.

We ~~only~~also enter into ~~such transactions when the discount that we receive is higher than the foregone return on our cash prepayments to the financial institutions. There were no explicit commissions or fees on these~~ structured ~~repurchases. Under the terms of the~~stock repurchase agreements ~~there is no requirement for the financial institutions to return any portion of the prepayment to us.~~

~~The~~in which financial institutions agree to deliver shares to us at monthly intervals during the respective contract ~~term. The parameters used to calculate~~terms, and the number of shares ~~deliverable are:~~delivered each month are determined based on the total notional amount of the ~~contract,~~contracts, the number of trading days in the ~~contract, the number of trading days in the interval~~intervals and the ~~average~~ VWAP ~~of our stock~~ during the ~~interval~~intervals, less ~~the~~an agreed upon discount.

During the three months ended March ~~2, 2018,~~1, 2024, we repurchased a total of 3.1 million shares, including approximately ~~1.6~~0.6 million shares at an average price of ~~$185.13~~$626.68 through a structured repurchase ~~agreements~~agreement entered into during fiscal ~~2017 and~~2023, as well as 2.5 million shares from the initial delivery of the ASR entered into during the three months ended March ~~2, 2018.~~1, 2024. During the three months ended March 3, ~~2017~~2023, we repurchased a total of 5.0 million shares, including approximately ~~2.2~~1.8 million shares at an average price of ~~$107.54~~$330.52 through a structured repurchase ~~agreements~~agreement entered into during fiscal ~~2016 and~~2022, as well as 3.2 million shares from the initial delivery of the ASR entered into during the three months ended March 3, ~~2017.~~

~~ADOBE SYSTEMS INCORPORATED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

2023.

For the three months ended March ~~2, 2018,~~1, 2024, the prepayments were classified as treasury stock, a component of stockholders’ equity on our condensed consolidated balance sheets, at the payment date, though only shares physically delivered to us by March ~~2, 2018~~1, 2024 were excluded from the computation of ~~earnings~~net income per share. As of March ~~2, 2018, $100.3~~1, 2024, a portion of the $2 billion prepayment under our outstanding ASR was evaluated as an unsettled forward contract indexed to our own stock, classified within stockholders’ equity. Subsequent to March 1, 2024, the outstanding ASR was settled which resulted in total repurchases of 3.5 million shares at an average price of ~~prepayment remained under this agreement.~~$578.11.

Subsequent to March ~~2, 2018,~~1, 2024, our Board of Directors granted us additional authority to repurchase up to $25 billion in our common stock through March 14, 2028. Thereafter, as part of both the ~~$2.5 billion~~December 2020 and March 2024 stock repurchase ~~authority approved in January 2017,~~authorities, we entered into ~~a structured stock repurchase agreement~~an ASR with a large financial institution whereupon we provided them with a prepayment of ~~$700 million. This amount will be classified as treasury stock on~~$2.5 billion and received an initial delivery of 3.6 million shares, which represents approximately 75% of our ~~condensed consolidated balance sheets.~~prepayment. Upon completion of the ~~$700 million stock repurchase agreement, $900 million~~$2.5 billion ASR, $22.65 billion remains under our ~~current~~March 2024 authority and there is no remaining balance under our December 2020 authority.

NOTE ~~11.~~12. NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share for the three months ended March ~~2, 2018~~1, 2024 and March 3, ~~2017 (in thousands, except per share data):~~2023:



(in millions, except per share data)	2024		2023
Net income	$	620	$	1,247

Shares used to compute basic net income per share	452.8		459.0
Dilutive potential common shares from stock plans and programs	3.5		0.5


Shares used to compute diluted net income per share	456.3		459.5

Basic net income per share	$	1.37	$	2.72
Diluted net income per share	$	1.36	$	2.71

Anti-dilutive potential common shares	0.9		6.2

Three Months
2018 2017
Net income $ 583,076
$ 398,446
Shares used to compute basic net income per share 492,061
494,612
Dilutive potential common shares:
Unvested restricted stock units and performance share awards 7,191
5,867
Stock options 181
382
Shares used to compute diluted net income per share 499,433
500,861
Basic net income per share $ 1.18
$ 0.81
Diluted net income per share $ 1.17
$ 0.80

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE ~~12.~~13. COMMITMENTS AND CONTINGENCIES

~~Royalties~~

~~We have royalty commitments associated with the licensing of certain offerings. Royalty expense is generally based on a dollar amount per unit sold or a percentage of the underlying revenue.~~

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.

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. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

Legal Proceedings

We are subject to legal proceedings, claims, including claims relating to intellectual property, commercial, employment and other matters, and investigations, including government investigations, that arise in the ordinary course of our business. Some of these disputes, legal proceedings and investigations may include speculative claims for substantial or indeterminate amounts of damages. We consider all claims on a quarterly basis in accordance with GAAP and based on known facts assess whether potential losses are considered reasonably possible or probable and estimable. Based upon this assessment, we then evaluate disclosure requirements and whether to accrue for such claims in our financial statements. This determination is then reviewed and discussed with the Audit Committee of the Board of Directors.

We make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. As of March 1, 2024, we accrued provisions for legal liabilities that were probable and estimable, which were not material to our financial statements. Unless otherwise specifically disclosed in this note, we have determined that no disclosure is required related to any claim against us because: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial.

All legal costs associated with litigation are expensed as incurred. Litigation is inherently unpredictable. However, we believe that we have valid defenses with respect to the legal matters pending against us. It is possible, nevertheless, that our consolidated financial position, results of operations or cash flows could be negatively affected by an unfavorable resolution of one or more of such proceedings, claims or investigations.

Since June 2022, we have been cooperating with the Federal Trade Commission (the “FTC”) staff in response to a Civil Investigative Demand seeking information regarding our disclosure and subscription cancellation practices relative to the Restore Online Shoppers’ Confidence Act. In November 2023, the FTC staff asserted that they had the authority to enter into consent negotiations to determine if a settlement regarding their investigation of these issues could be reached. Since then, we have attempted to engage constructively with the FTC to resolve this matter. On March 20, 2024, we were informed that the FTC had voted to authorize a filing of the case. It is not clear whether a settlement may be in reach, and we intend to continue seeking to engage constructively with the FTC. The defense or resolution of this matter could involve significant monetary costs or penalties and have a significant impact on our financial results and operations. There can be no assurance that we will be successful in negotiating a favorable settlement or in litigation. Any remedies or compliance requirements could adversely affect our ability to operate our business or have a materially adverse impact on our financial results. At this stage, we are unable to estimate a reasonably possible financial loss or range of any potential financial loss, if any, as a result of this investigation.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

On October 20, 2023, a securities class action captioned Pembroke Pines Firefighters & Police Officers Pension Fund et al v. Adobe, Inc. et al, Case No. 1:23-cv-09260, was filed in the U.S. District Court for the Southern District of New York (the “Securities Action”) naming Adobe and certain of our current and former officers as defendants. The Securities Action purports to be brought on behalf of purchasers of the Company’s stock between July 23, 2021 and September 22, 2022 (the “Class Period”). The complaint, which was amended on February 23, 2024, alleges that certain public statements made by Adobe during the Class Period related to competition from Figma and the adequacy of Adobe’s existing offerings to counter harms Adobe may have faced due to Figma’s growing market position were materially false and misleading. The Securities Action seeks unspecified compensatory damages, attorneys’ fees and costs, and extraordinary equitable and/or injunctive relief.

On November 16, 2023, a shareholder derivative action captioned Shah v. Narayen et al, Case No. 1:23-cv-01315, was filed in the U.S. District Court for the District of Delaware (the “Shah Action”), purportedly on behalf of Adobe. On January 3, 2024, a second shareholder derivative action captioned Gervat v. Narayen et al, Case No. 1:24-cv-00006, was filed in the U.S. District Court for the District of Delaware (the “Gervat Action”), purportedly on behalf of Adobe. On January 24, 2024, the Court consolidated the Shah and Gervat Actions (together, the “Consolidated Derivative Action”). On January 18, 2024, a shareholder derivative action captioned Sbriglio v. Narayen et al., Case No. 24-cv-429458, was filed in California Superior Court (the “Sbriglio Action”), purportedly on behalf of Adobe. On January 29, 2024, a shareholder derivative action captioned Roy v. Narayen et al., No. 1:24-cv-00633, was filed in the U.S. District Court for the Southern District of New York, (the “Roy Action,” and together with the Consolidated Derivative Action and the Sbriglio Action, the “Derivative Actions”), purportedly on behalf of Adobe. The Derivative Actions are based largely on the same alleged facts and circumstances as the Securities Action, and name certain of our current and former officers and members of our Board of Directors as defendants and Adobe as a nominal defendant. The Derivative Actions together allege claims for breach of fiduciary duty and/or aiding and abetting breach of fiduciary duties, unjust enrichment, waste of corporate assets, abuse of control, and violations of Section 10(b) (and Rule 10b-5 promulgated thereunder), Section 20(a), and/or Section 21D of the Securities Exchange Act of 1934, as amended, and seek recovery of unspecified damages, restitution, and attorney’s fees and costs, as well as disgorgement of profits and certain payments and benefits, in the case of the Gervat Action, and improvements to Adobe’s corporate governance and internal procedures, in the case of the Shah Action, on behalf of Adobe.

We dispute the allegations of wrongdoing in the Securities Action and the Derivative Actions and intend to vigorously defend ourselves in these matters. In view of the complexity and ongoing and uncertain nature of the outstanding proceedings and inquiries, at this time we are unable to estimate a reasonably possible financial loss or range of financial loss, if any, that we may incur to resolve or settle the Securities Action and the Derivative Actions.

In connection with disputes relating to the validity or alleged infringement of third-party intellectual property rights, including patent rights, we have been, are currently and may in the future be subject to claims, negotiations or complex, protracted litigation. Intellectual property disputes and litigation may be very costly and can be disruptive to our business operations by diverting the attention and energies of management and key technical personnel. Although we have successfully defended or resolved past

~~ADOBE SYSTEMS INCORPORATED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

litigation and disputes, we may not prevail in any ongoing or future litigation and disputes. Third-party intellectual property disputes could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from licensing certain of our products or offering certain of our services, subject us to injunctions restricting our sale of products or services, cause severe disruptions to our operations or the markets in which we compete, or require us to satisfy indemnification commitments with our customers including contractual provisions under various license arrangements and service agreements.

~~In addition to intellectual property disputes, we are subject to legal proceedings, claims and investigations in the ordinary course~~

Table of business, including claims relating to commercial, employment and other matters. Some of these disputes and legal proceedings may include speculative claims for substantial or indeterminate amounts of damages. We consider all claims on a quarterly basis in accordance with GAAP and based on known facts assess whether potential losses are considered reasonably possible, probable and estimable. Based upon this assessment, we then evaluate disclosure requirements and whether to accrue for such claims in our financial statements. This determination is then reviewed and discussed with our Audit Committee and our independent registered public accounting firm.Contents

We make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Unless otherwise specifically disclosed in this note, we have determined that no provision for liability nor disclosure is required related to any claim against us because: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial.

All legal costs associated with litigation are expensed as incurred. Litigation is inherently unpredictable. However, we believe that we have valid defenses with respect to the legal matters pending against us. It is possible, nevertheless, that our consolidated financial position, cash flows or results of operations could be negatively affected by an unfavorable resolution of one or more of such proceedings, claims or investigations.ADOBE INC.

In connection with our anti-piracy efforts, conducted both internally and through organizations such as the Business Software Alliance, from time to time we undertake litigation against alleged copyright infringers. Such lawsuits may lead to counter-claims alleging improper use of litigation or violation of other laws. We believe we have valid defenses with respect to such counter-claims; however, it is possible that our consolidated financial position, cash flows or results of operations could be negatively affected in any particular period by the resolution of one or more of these counter-claims.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE ~~13.~~14. DEBT

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


(dollars in millions)	Issuance Date	Due Date	Effective Interest Rate	2024		2023
1.90% 2025 Notes	February 2020	February 2025	2.07%	$	500	$	500
3.25% 2025 Notes	January 2015	February 2025	3.67%	1,000		1,000
2.15% 2027 Notes	February 2020	February 2027	2.26%	850		850
2.30% 2030 Notes	February 2020	February 2030	2.69%	1,300		1,300
Total debt outstanding, at par				$	3,650	$	3,650
Less: Current portion of debt, at par				(1,500)		—
Unamortized discount and debt issuance costs				(12)		(16)
Carrying value of long-term debt				$	2,138	$	3,634

Current portion of debt, at par				$	1,500	$	—
Unamortized discount and debt issuance costs				(3)		—
Carrying value of current debt				$	1,497	$	—

Senior Notes

In ~~February 2010,~~January 2015, we issued ~~$900 million~~$1 billion of ~~4.75%~~ senior notes due February 1, ~~2020 (the “2020 Notes”). Our proceeds were $900 million and were net of an issuance discount of $5.5 million. In addition, we incurred issuance costs of $6.4 million. Both the~~2025. The related discount and issuance costs are ~~being~~ amortized to interest expense over the term of the ~~2020 Notes~~notes using the effective interest method. ~~The effective interest rate including the discount and issuance costs is 4.92%.~~ Interest is payable semi-annually, in arrears, on February 1 and August ~~1, and commenced on August 1, 2010.~~

In June 2014, we entered into interest rate swaps with a total notional amount of $900 million designated as a fair value hedge related to our 2020 Notes. The interest rate swaps effectively convert the fixed interest rate on our 2020 Notes to a floating interest rate based on LIBOR. Under the terms of the swap, we will pay monthly interest at the one-month LIBOR interest rate plus a fixed number of basis points on the $900 million notional amount. In exchange, we will receive 4.75% fixed rate interest from the swap counterparties. ~~See Note 5 for further details regarding our interest rate swap derivatives.~~1.

In ~~January 2015,~~February 2020, we issued ~~$1 billion~~$500 million of ~~3.25%~~ senior notes due February 1, 2025, ~~(the “2025 Notes”).~~$850 million of senior notes due February 1, 2027 and $1.30 billion of senior notes due February 1, 2030. Our total proceeds were ~~approximately $989.3 million which is net~~used for general corporate purposes including repayment of ~~an issuance discount of $10.7 million. In addition, we incurred issuance costs of $7.9 million. Both the~~debt instruments due in fiscal 2020. The related discount and issuance costs are ~~being~~ amortized to interest expense over the ~~term~~respective terms of the ~~2025 Notes~~notes using the effective interest method. ~~The effective interest rate including the discount, issuance costs and interest rate agreement is 3.67%.~~ Interest is payable semi-annually, in arrears, on February 1 and August 1.

During the first quarter of fiscal 2024, we reclassified the senior notes due February 1, ~~and commenced on August 1, 2015.~~

~~ADOBE SYSTEMS INCORPORATED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

2025 as current debt in our condensed consolidated balance sheets. As of March ~~2, 2018, our outstanding notes payable consist of~~1, 2024, the ~~2020 Notes and 2025 Notes (the “Notes”) with a total~~ carrying value of ~~$1.87~~our current debt was $1.50 billion, ~~which includes the fair value~~net of the ~~interest rate swap~~related discount and ~~is net of debt~~ issuance costs. ~~Based~~We intend to refinance the current portion of our debt on ~~quoted prices in inactive markets,~~or before the ~~total fair value of the Notes was $1.93 billion as of March 2, 2018 and excludes the effect of the fair value hedge of the 2020 Notes for which we entered into interest rate swaps as described above.~~due date.

~~The Notes~~Our senior notes rank equally with our other unsecured and unsubordinated indebtedness. We may redeem the ~~Notes~~notes at any time, subject to a make-whole premium. In addition, upon the occurrence of certain change of control triggering events, we may be required to repurchase the ~~Notes,~~notes, at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase. The ~~Notes also~~notes do not contain financial covenants but include covenants that limit our ability to grant liens on assets and to enter into sale and leaseback transactions, subject to significant allowances. ~~As of March 2, 2018, we were in compliance with all of the covenants.~~

~~In February 2018, we made semi-annual interest payments on our 2020 and 2025 Notes totaling $37.6 million.~~

Revolving Credit Agreement

~~On March 2, 2012,~~In June 2022, we entered into a credit agreement (“Revolving Credit Agreement”), providing for a five-year $1.5 billion senior unsecured revolving credit facility, which replaced our previous five-year $1 billion senior unsecured revolving credit agreement ~~(the “Credit Agreement”), providing~~entered into in October 2018. The Revolving Credit Agreement provides for loans to usAdobe and certain of ~~our subsidiaries.~~its subsidiaries that may be designated from time to time as additional borrowers. Pursuant to the terms of the Revolving Credit Agreement, we may, subject to the agreement of ~~the applicable~~ lenders ~~request~~to provide additional commitments, obtain up to an additional $500 million in commitments, for a maximum aggregate commitment of ~~$1.5~~$2 billion. ~~Loans~~At our election, loans under the Revolving Credit Agreement will bear interest at either (i) ~~LIBOR~~term Secured Overnight Financing Rate (“SOFR”), plus a margin, ~~based on our public debt ratings, ranging from 0.795% and 1.30%~~(ii) adjusted daily SOFR, plus a margin, (iii) alternative currency rate, plus a margin, or ~~(ii) the~~(iv) base rate, which is defined as the highest of (a) the federal funds rate plus 0.50%, (b) the agent’s prime rate, ~~(b) the federal funds effective rate plus 0.50%~~ or (c) ~~LIBOR~~term SOFR plus 1.00% ~~plus a~~. The margin for term SOFR, adjusted

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(Unaudited)

daily SOFR and alternative currency rate loans is based on our debt ratings, and ranges from 0.460% to 0.900%. In addition, facility fees determined according to our debt ratings are payable on the aggregate commitments, regardless of usage, quarterly in an amount ranging from ~~0.00%~~0.040% to ~~0.30%. Commitment fees~~0.100% per annum. We are ~~payable quarterly~~permitted to permanently reduce the aggregate commitment under the Revolving Credit Agreement at ~~rates between 0.08% and 0.20% per year, also based on our debt ratings.~~any time. Subject to certain conditions stated in the Revolving Credit Agreement, weAdobe and any of ~~our~~its subsidiaries designated as additional borrowers may borrow, prepay and re-borrow amounts ~~under the revolving credit facility~~ at any time during the term of the Credit Agreement. On July 27, 2015, we entered into an amendment to further extend the maturity date to July 27, 2020 and reallocated the facility among the syndicate of lenders that are parties to theRevolving Credit Agreement.

The Revolving Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including ~~a financial covenant,~~ events of default and indemnification provisions in favor of the lenders. The negative covenants include restrictions regarding the incurrence of liens and indebtedness, certain merger ~~and acquisition~~ transactions, dispositions and other matters, all subject to certain exceptions. ~~The financial covenant, based on a quarterly financial test, requires us not to exceed a maximum leverage ratio.~~

On July 27, 2015, we entered into an amendment to further extend the maturity date to July 27, 2020 and reallocated the facility among the syndicate of lenders that are parties to the Credit Agreement.

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

As of March ~~2, 2018,~~1, 2024, there were no outstanding borrowings under this Revolving Credit Agreement.

Commercial Paper Program

In September 2023, we established a commercial paper program under which we may issue unsecured commercial paper up to a total of $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 March 1, 2024, there were no outstanding borrowings under the commercial paper program.

Term Loan Credit Agreement

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

~~ADOBE SYSTEMS INCORPORATED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~NOTE 14. NON-OPERATING INCOME (EXPENSE)~~

~~Non-operating income (expense) for~~the related fees and expenses. During the three months ended March ~~2, 2018 and March 3, 2017 included~~1, 2024, we entered into a mutual termination agreement with Figma to terminate the ~~following (in thousands):~~

Three Months
2018 2017
Interest and other income (expense), net:
Interest income $ 22,630
$ 14,157
Foreign exchange gains (losses) (5,889 ) (7,131 )
Realized gains on fixed income investment 184
294
Realized losses on fixed income investment (305 ) (134 )
Other 52
20
Interest and other income (expense), net $ 16,672
$ 7,206
Interest expense $ (19,899 ) $ (18,130 )
Investment gains (losses), net:

Realized investment gains $ 3,994
$ 1,959
Unrealized investment gains —
598
Unrealized investment losses (998 ) —
Investment gains (losses), net $ 2,996
$ 2,557
Non-operating income (expense), net $ (231 ) $ (8,367 )

~~NOTE 15. SEGMENTS~~

~~We report segment information based on~~previously announced merger agreement. Consequently, the ~~“management” approach. The management approach designates~~Term Loan Credit Agreement was terminated. There were no outstanding borrowings under the ~~internal reporting used by management for making decisions and assessing performance as the source of our reportable segments.~~

Our CEO, 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 and intangible assets, we do not identify or allocate our assets by the reportable segments.

Effective in fiscal 2018, our business organized into three reportable segments: Digital Media, Digital Experience (formerly Digital Marketing), and Publishing (formerly Print and Publishing). These segments provide our senior management with a comprehensive financial view of our key businesses. Our segments are aligned around our two strategic growth opportunities described above, placing our Publishing business in a third segment that contains some of our mature products and solutions.

~~Additionally, in the first quarter of fiscal 2018, we moved our legacy enterprise offerings~~—~~Adobe Connect web conferencing platform and Adobe LiveCycle, an enterprise document and forms platform~~—~~from our Digital Experience segment into Publishing, in order to more closely align our Digital Experience business with the strategic growth opportunity. Our reportable segments~~Term Loan Credit Agreement at the ~~beginning~~time of ~~fiscal 2018 reflect these changes below.~~

~~We have the following reportable segments:~~termination.

~~Digital Media—~~Our Digital Media segment provides tools and solutions that enable individuals, small and medium businesses and enterprises to create, publish, promote and monetize their digital content anywhere. Our customers include traditional content creators, web application developers and digital media professionals, as well as their management in marketing departments and agencies, companies and publishers. Our customers also include knowledge workers who create, collaborate and distribute documents.

~~ADOBE SYSTEMS INCORPORATED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~Table of Contents

~~Digital Experience—~~Our Digital Experience segment provides solutions and services for how digital advertising and marketing are created, managed, executed, measured and optimized. Our customers include digital marketers, advertisers, publishers, merchandisers, web analysts, chief marketing officers, chief information officers and chief revenue officers.

~~Publishing—~~Our Publishing segment addresses market opportunities ranging from the diverse authoring and publishing needs of technical and business publishing to our legacy type and OEM printing businesses. It also includes our web conferencing and document and forms platforms effective the first quarter of fiscal 2018.

~~Our segment results for the three months ended March 2, 2018 and March 3, 2017 were as follows (dollars in thousands):~~

Digital
Media

Digital
Experience
Publishing Total
Three months ended March 2, 2018
Revenue $ 1,460,561
$ 554,107
$ 64,279
$ 2,078,947
Cost of revenue 55,469
198,792
4,641
258,902
Gross profit $ 1,405,092
$ 355,315
$ 59,638
$ 1,820,045
Gross profit as a percentage of revenue 96 % 64 % 93 % 88 %
Three months ended March 3, 2017
Revenue $ 1,138,079
$ 477,272
$ 66,295
$ 1,681,646
Cost of revenue 55,052
176,763
5,522
237,337
Gross profit $ 1,083,027
$ 300,509
$ 60,773
$ 1,444,309
Gross profit as a percentage of revenue 95 % 63 % 92 % 86 %

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto.

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements, including statements regarding product plans, future growth, market opportunities, fluctuations in foreign currency exchange rates, strategic ~~initiatives,~~investments, industry positioning, customer acquisition and retention, the amount of annualized recurring revenue and revenue growth. In addition, when used in this report, the words “will,” “expects,” “could,” “would,” “may,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “targets,” “estimates,” “looks for,” “looks to,” “continues” and similar expressions, as well as statements regarding our focus for the future, are generally intended to identify forward-looking statements. Each of the forward-looking statements we make in this report involves risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section ~~entitled~~titled “Risk Factors” in Part II, Item 1A of this report. ~~You should carefully review the~~The risks described herein and in other documents we file from time to time with the U.S. Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for fiscal ~~2017. You~~2023, should be carefully reviewed. Undue reliance should not ~~place undue reliance~~be placed on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document, except as required by law.

BUSINESS OVERVIEW

~~Founded~~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 ~~1982, Adobe Systems Incorporated is one of the largest~~their hands, and ~~most diversified software companies~~doing so in ~~the world. We offer a line of~~ways we believe are responsible. Our products and services ~~used by creative professionals, marketers, knowledge workers, application developers, enterprises~~help unleash creativity, accelerate document productivity and consumers for creating, managing, delivering, measuring, optimizing and engaging with compelling content and experiences across personal computers, devices and media. We market our products and services directly to enterprise customers through our sales force and certain local field offices. We license our products to end users through app stores and our own website at www.adobe.com. We offer many of our products viapower businesses in a Software-as-a-Service (“SaaS”) model or a managed services model (both of which are referred to as hosted or cloud-based) as well as through term subscription and pay-per-use models. We also distribute certain products and services through a network of distributors, value-added resellers (“VARs”), systems integrators (“SIs”), independent software vendors (“ISVs”), retailers, software developers and original equipment manufacturers (“OEMs”). In addition, we license our technology to hardware manufacturers, software developers and service providers for use in their products and solutions. Our products run on personal and server-based computers, as well as on smartphones, tablets and other devices, depending on the product.digital world. We have operations in the ~~Americas,~~Americas; Europe, Middle East and Africa (“EMEA”); and Asia-Pacific (“APAC”).

Adobe was originally incorporated in California in October 1983 and was reincorporated in Delaware in May 1997. Our executive offices and principal facilities are located at 345 Park Avenue, San Jose, California 95110-2704. Our telephone number is 408-536-6000 and our website is www.adobe.com. Investors can obtain copies of our SEC filings from this site free of charge, as well as from the SEC website at www.sec.gov. The information posted to our website is not incorporated into this Quarterly Report on Form 10-Q.

OPERATIONS OVERVIEW

For our first quarter of fiscal ~~2018,~~2024, we ~~reported~~experienced strong ~~financial results consistent with the continued execution of~~demand across our ~~long-term plans for our two strategic growth areas,~~ Digital Media and Digital Experience ~~(formerly Digital Marketing), while continuing~~offerings, driven by our innovative product roadmap. As we execute on our long-term growth initiatives, with focus on delivering product innovation and driving adoption and usage of our AI-powered solutions, we have continued to ~~market and license a broad~~experience growth in software-based subscription revenue across our portfolio of ~~products and solutions.~~offerings.

Digital Media

In our Digital Media segment, we are a market leader with Creative Cloud, our subscription-based offering which provides desktop tools, mobile applications (“apps”) and cloud-based services for designing, creating and publishing rich content and ~~applications.~~immersive 3D experiences. Creative Cloud includes Adobe Express, a web and mobile app designed to enable a broad spectrum of users, including novice content creators, communicators and creative professionals, to create, edit and customize content quickly and easily with content-first, task-based solutions. In September 2023, we released Adobe Firefly, a group of creative generative AI models designed to generate high quality images and text effects. Adobe Firefly-powered generative AI features are also available across Creative Cloud apps including Adobe Photoshop and Adobe Express. Creative Cloud delivers value ~~through~~with deep, cross-product integration, frequent product updates and feature enhancements, cloud-enabled services including storage and ~~access to user files stored in the cloud with~~ syncing of files across users’ ~~machines,~~devices, machine learning and artificial intelligence, access to marketplace, social and community-based features with our Adobe Stock and Behance services, app creation capabilities, tools which assist with enterprise deployments and team collaboration, and affordable pricing for cost-sensitive customers.

We offer Creative Cloud for individuals, students, teams and enterprises. We expect Creative Cloud will drive sustained long-term revenue growth through a continued expansion of our customer base by ~~acquiring~~attracting new users ~~on account of low cost of entry and delivery of additional~~with new features and ~~value~~products like Adobe Express and Adobe Firefly that make creative tools accessible to ~~Creative Cloud, as well as keeping~~first-time creators and communicators, and delivering new features and technologies to existing customers ~~current on~~with our latest ~~release.~~releases such as share for review and generative AI capabilities. We have also built out a marketplace for Creative Cloud subscribers to enable the delivery and purchase of stock content in our Adobe Stock service. Overall, our strategy with Creative Cloud is designed to enable us to

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increase our revenue with existing users, continue to attract ~~more~~ new customers, and grow aour recurring and predictable revenue stream that is recognized ratably.

We continue to implement strategies that ~~will~~are designed to accelerate awareness, consideration and purchase of subscriptions to our Creative Cloud offerings. These strategies include increasing the value Creative Cloud users receive, such as offering new and enhanced desktop, web and mobile ~~applications,~~apps, as well as targeted promotions and offers that attract past customers and potential users to ~~try out~~experience and ultimately subscribe to Creative Cloud. Because of the shift towards Creative Cloud subscriptions and Enterprise Term License Agreements (“ETLAs”), revenue from perpetual licensing of our Creative products has been immaterial to our business.

We are also a market leader with our ~~Adobe~~ Document Cloud offerings built around our Adobe Acrobat family of products, ~~including Adobe Acrobat Reader DC, and~~with a set of integrated mobile apps and cloud-based document services ~~including Adobe Sign. Acrobat provides reliable creation~~which enable users to create, collaborate, review, approve, sign and ~~exchange of electronic~~track documents regardless of platform or application source type. Document Cloud, which ~~we believe~~ enhances the way people manage critical documents at home, in the office and across devices, includes Adobe Acrobat, DCAdobe Acrobat Sign and Adobe ~~Sign, and a set of integrated services enabling users to create, review, approve, sign and track documents whether on a desktop or mobile device.~~Scan. Adobe Acrobat ~~DC, with a touch-enabled user interface,~~ is offered both through subscription and perpetual ~~licenses.~~licenses, and is also included in our Creative Cloud All Apps subscription offering.

As part of our Creative Cloud and Document Cloud strategies, we utilize a data-driven operating model (“DDOM”) and our Adobe Experience Cloud solutions to raise awareness of our products, drive new customer acquisition, engagement and retention, and optimize customer journeys, which continue to contribute strong product-led growth in the business.

Annualized Recurring Revenue (“ARR”) is currently the key performance metric our management uses to assess the health and trajectory of our overall Digital Media segment. ARR should be viewed independently of revenue, deferred revenue and ~~unbilled deferred revenue~~remaining performance obligations as ARR is a performance metric and is not intended to be combined with any of these items. We adjust our reported ARR on an annual basis to reflect any ~~material~~ exchange ~~rates~~rate changes. Our reported ARR results in the current fiscal ~~2018~~year are based on currency rates set at the ~~start~~beginning of ~~fiscal 2018~~the year and held constant throughout the ~~year.~~year for measurement purposes. We calculate ARR as follows:



Creative ARR	Annual Value of Creative Cloud Subscriptions and Services + ~~Annual Digital Publishing Suite Contract Value~~ + Annual Creative ETLA Contract Value
Document Cloud ARR		Annual Value of Document Cloud Subscriptions and Services + Annual Document Cloud ETLA Contract Value
Digital Media ARR		Creative ARR + Document Cloud ARR

Creative ARR exiting the first quarter of fiscal ~~2018~~2024 was ~~$5.07~~$12.78 billion, up from ~~$4.77~~$12.49 billion at the end of fiscal ~~2017.~~2023. Document Cloud ARR exiting the first quarter of fiscal ~~2018~~2024 was ~~$647 million,~~$2.98 billion, up from ~~$614 million~~$2.84 billion at the end of fiscal ~~2017.~~2023. Total Digital Media ARR grew to ~~$5.72~~$15.76 billion at the end of the first quarter of fiscal ~~2018,~~2024, up from ~~$5.39~~$15.33 billion at the end of fiscal ~~2017.~~2023.

Our success in driving growth in ARR has positively affected our revenue growth. Creative revenue in the first quarter of fiscal ~~2018~~2024 was ~~$1.23~~$3.07 billion, up from ~~$942.2 million~~$2.76 billion in the first quarter of fiscal ~~2017 and~~2023, representing ~~30%~~11% year-over-year growth. Document Cloud revenue in the first quarter of fiscal ~~2018~~2024 was ~~$231.0~~$750 million, up from ~~$195.9~~$634 million in the first quarter of fiscal ~~2017 as we continue to transition Document Cloud to a subscription-based model.~~2023, representing 18% year-over-year growth. Total Digital Media segment revenue grew to ~~$1.46~~$3.82 billion in the first quarter of fiscal ~~2018,~~2024, up from ~~$1.14~~$3.40 billion in the first quarter of fiscal ~~2017 and~~2023, representing ~~28%~~12% year-over-year growth driven by strong net new user growth.

Digital Experience

We are a market leader in the fast-growing category addressed by our Digital Experience segment. Our Digital Experience business provides comprehensive solutions that include analytics, social marketing, targeting, media optimization, digital experience management, cross-channel campaign management, audience management, premium video delivery and monetization. These comprehensive solutions enable marketers to measure, personalize and optimize marketing campaigns and digital experiences across channels for optimal marketing performance.

~~Our hierarchy of solutions in the Digital Experience segment, available in our~~The Adobe Experience Cloud ~~consists~~apps and services are designed to manage customer journeys, enable personalized experiences at scale and deliver intelligence for businesses of any size in any industry. Our differentiation and competitive advantage are strengthened by our ability to use the Adobe Experience Platform to integrate our comprehensive set of solutions.

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Adobe Experience Cloud delivers solutions for our customers across the following ~~cloud offerings:~~strategic growth pillars:

•Data insights and audiences. Our products, including Adobe Analytics, Customer Journey Analytics, Adobe Product Analytics, and our Real-time Customer Data Platform, deliver actionable data in real time to provide highly tailored and adaptive experiences across platforms.

~~Adobe Marketing Cloud—provides an integrated set of solutions to~~•Content and commerce. Our products help ~~marketers differentiate their brands~~customers manage, deliver, monetize, and ~~engage their customers, helping businesses manage, personalize, and orchestrate campaigns and customer journeys; includes~~optimize content delivery through Adobe Experience Manager ~~(“AEM”),~~and build multi-channel commerce experiences for B2B and B2C customers on a single platform with Adobe Commerce.

•Customer journeys. Our products help businesses manage, test, target and personalize customer journeys delivered as campaigns across B2B and B2C use cases, including through Adobe Marketo Engage, Adobe Campaign, Adobe Target ~~Adobe Social~~ and Adobe ~~Primetime.~~Journey Optimizer.

•Marketing planning and workflow. Our products help businesses intelligently measure, optimize, and plan marketing investments through the Adobe ~~Analytics Cloud—enables~~Mix Modeler, and allow businesses to ~~move from insights to actions in real time by uniquely integrating audiences as the core system of intelligence~~strategically plan, manage, collaborate, and execute on workflows for ~~the enterprise; makes data available across all~~marketing campaigns and other projects at speed and scale with our enterprise work management app, Adobe clouds through the capture, aggregation, rationalization and understanding of vast amounts of disparate data and then translating that data into singular customer profiles; includes Adobe Analytics and Adobe Audience Manager.

Adobe Advertising Cloud—delivers an end-to-end platform for managing advertising across traditional TV and digital formats, and simplifies the delivery of video, display and search advertising across channels and screens; combines capabilities from Adobe Media Optimizer (“AMO”) and Adobe’s acquisition of TubeMogul during the first quarter of fiscal 2017.Workfront.

In addition to chief marketing officers, chief revenue officers and digital marketers, users of our ~~Adobe~~Digital Experience ~~Cloud~~ solutions include advertisers, campaign managers, ~~digital marketers,~~ publishers, data analysts, content managers, social marketers, marketing executives and ~~marketing~~information management and technology executives. These customers often are involved in workflows that ~~utilize~~integrate other Adobe products, such as our Digital Media offerings. By combining the creativity of our Digital Media business with the science of our Digital Experience business, such as with our new Adobe GenStudio solution, we help our customers to more efficiently and effectively make, manage, measure and monetize their content across every channel with an end-to-end workflow and feedback loop.

We utilize a direct sales force to market and license our ~~Adobe~~Digital Experience ~~Cloud~~ solutions, as well as an extensive ecosystem of partners, including marketing agencies, systems integrators and independent software vendors that help license and deploy our solutions to their customers. We have made significant investments to broaden the scale and size of all of these routes to market, and our recent financial results reflect the success of these ~~investments. We achieved record Adobe~~investments and our experience-led growth strategy.

Digital Experience ~~Cloud~~ revenue ~~of $554.1 million~~was $1.29 billion in the first quarter of fiscal ~~2018, which represents 16% year-over-year growth.~~

In2024, up from $1.18 billion in the first quarter of fiscal ~~2018,~~2023, representing 10% year-over-year growth. Driving this growth was the increase in ~~order~~subscription revenue, which grew to ~~more closely align~~$1.16 billion in the first quarter of fiscal 2024 from $1.04 billion in the first quarter of fiscal 2023, representing 12% year-over-year growth.

Macroeconomic Conditions

As a corporation with an extensive global footprint, we are subject to risks and exposures from the evolving macroeconomic environment, including the effects of increased global inflationary pressures and interest rates, fluctuations in foreign currency exchange rates, potential economic slowdowns or recessions and geopolitical pressures, including the unknown impacts of current and future trade regulations. We continuously monitor the direct and indirect impacts of these circumstances on our ~~Digital Experience segment with~~business and financial results.

While our revenue and earnings are relatively predictable as a result of our subscription-based business model, the ~~strategic growth opportunity, we moved two legacy enterprise offerings, LiveCycle~~broader implications of these macroeconomic events on our business, results of operations and ~~Connect, from~~overall financial position, particularly in the long term, remain uncertain. See Risk Factors for further discussion of the possible impact of these macroeconomic issues on our ~~Digital Experience segment to our Publishing segment.~~business.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing our condensed consolidated financial statements in accordance with ~~GAAP~~generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. ~~On a regular basis, we~~We evaluate our assumptions, judgments and ~~estimates.~~estimates on a regular basis. We also discuss our critical accounting policies and estimates with the Audit Committee of the Board of Directors.

We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition and income taxes have the greatest potential impact on our condensed consolidated financial statements. These areas are key components of our results of operations and are based on complex rules requiring us to make judgments and estimates, soand consequently, we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.

There have been no significant changes in our critical accounting policies and estimates during the three months ended March ~~2, 2018,~~1, 2024, as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 1, ~~2017.~~2023.

Recent Accounting Pronouncements

See Note 1 of our notes to condensed consolidated financial statements for information regarding recent accounting pronouncements that are of significance or potential significance to us.

RESULTS OF OPERATIONS

Financial Performance Summary ~~for the First Quarter of Fiscal 2018~~

•Total Digital Media ARR of approximately ~~$5.72~~$15.76 billion as of March ~~2, 2018~~1, 2024 increased by ~~$336~~$432 million, or 6%3%, from ~~$5.39~~$15.33 billion as of December 1, ~~2017. The change in our Digital Media ARR is primarily due to strong adoption of our Creative Cloud and Adobe Document Cloud subscription offerings.~~2023.

•Creative revenue during the three months ended March ~~2, 2018~~1, 2024 of ~~$1.23~~$3.07 billion increased by ~~$287.3~~$305 million, or ~~30%~~11%, compared ~~with~~to the year-ago period. ~~The increase was primarily due~~Document Cloud revenue during the three months ended March 1, 2024 of $750 million increased by $116 million, or 18%, compared to the ~~increase in subscription revenue associated with our Creative Cloud offerings.~~year-ago period.

~~Adobe~~•Digital Experience ~~Cloud~~ revenue of ~~$554.1~~$1.29 billion during the three months ended March 1, 2024 increased by $113 million, or 10%, compared to the year-ago period.

•Remaining performance obligations of $17.58 billion as of March 1, 2024 increased by $369 million, or 2%, from $17.22 billion as of December 1, 2023.

•Cost of revenue of $590 million during the three months ended March ~~2, 2018~~1, 2024 increased by ~~$76.8~~$22 million, or ~~16%~~4%, compared ~~with~~to the year-ago period. ~~The increase was~~

•Operating expenses of $3.69 billion during the three months ended March 1, 2024 increased by $1.18 billion, or 47%, compared to the year-ago period primarily due to the ~~increase in subscription revenue across our offerings~~$1 billion termination fee which resulted from termination of the Figma transaction.

~~Our total deferred revenue~~•Net income of $2.57 billion as of March 2, 2018 increased by $77.7 million, or 3%, from $2.49 billion as of December 1, 2017 primarily due to increases in new contracts and the timing of renewals for our Digital Experience hosted service offerings.

~~Cost of revenue of $258.9~~$620 million during the three months ended March ~~2, 2018 increased~~1, 2024 decreased by ~~$21.6~~$627 million, or 9%50%, compared ~~with~~to the year-ago ~~period primarily due to increases in royalty costs, hosting services and data center costs.~~period.

~~Operating expenses~~•Cash flows from operations of ~~$1.12~~$1.17 billion during the three months ended March ~~2, 2018 increased~~1, 2024 decreased by ~~$142.0~~$519 million, or ~~15%, compared with the year-ago period primarily due to increases in costs associated with increased headcount, our incentive compensation program and stock-based compensation expense.~~

~~Net income of $583.1 million during the three months ended March 2, 2018 increased by $184.6 million, or 46%, compared with the year-ago period primarily due to subscription revenue increases.~~

~~Net cash flow from operations of $989.6 million during the three months ended March 2, 2018 increased by $259.2 million, or 35%~~31%, compared to the ~~three months ended March 3, 2017 primarily due to higher net income.~~year-ago period.

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Revenue for the Three Months Ended March ~~2, 2018~~1, 2024 and March 3, ~~2017 (dollars in millions)~~2023


(dollars in millions)	Three Months
	2024			2023			% Change
Subscription	$	4,916		$	4,373		12	%
Percentage of total revenue	95		%	94		%
Product	119			120			(1)	%
Percentage of total revenue	2		%	3		%
Services and other	147			162			(9)	%
Percentage of total revenue	3		%	3		%
Total revenue	$	5,182		$	4,655		11	%

Three Months
2018 2017 % Change
Subscription $ 1,793.3
$ 1,383.8
30 %
Percentage of total revenue 86 % 82 %
Product 171.6
183.4
(6 )%
Percentage of total revenue 8 % 11 %
Services and support 114.0
114.4
*
Percentage of total revenue 6 % 7 %
Total revenue $ 2,078.9
$ 1,681.6
24 %

^{_________________________________________}


^(*)	~~Percentage is less than 1%.~~

Subscription

Our subscription revenue is comprised primarily of fees we charge for our subscription and hosted service offerings, and related support, including Creative Cloud and certain of our Adobe Experience Cloud and Document Cloud services. We primarily recognize subscription revenue ratably over the term of agreements with our customers, beginning ~~on the~~with commencement of service. Subscription revenue related to certain offerings, where fees are based on a number of transactions and invoicing is aligned to the ~~service.~~pattern of performance, customer benefit and consumption, are recognized on a usage basis.

~~As described in~~ ~~Note 15 of our notes to condensed consolidated financial statements, we~~We have the following reportable segments: Digital Media, Digital Experience, and ~~Publishing.~~Publishing and Advertising. Subscription revenue by reportable segment for the three months ended March ~~2, 2018~~1, 2024 and March 3, ~~2017~~2023 is as ~~follows (dollars~~follows:


(dollars in millions)	Three Months
	2024		2023		% Change
Digital Media	$	3,725	$	3,301	13	%
Digital Experience	1,164		1,042		12	%
Publishing and Advertising	27		30		(10)	%
Total subscription revenue	$	4,916	$	4,373	12	%

Product

Our product revenue is comprised primarily of fees related to licenses for on-premise software purchased on a perpetual basis, for a fixed period of time or based on usage for certain of our original equipment manufacturer and royalty agreements. We primarily recognize product revenue at the point in ~~millions):~~time the software is available to the customer, provided all other revenue recognition criteria are met.

Three Months
2018 2017 % Change
Digital Media $ 1,334.6
$ 1,006.9
33 %
Digital Experience 430.9
352.9
22 %
Publishing 27.8
24.0
16 %
Total subscription revenue $ 1,793.3
$ 1,383.8
30 %

Services and Other

Our services and ~~support~~other revenue is comprised primarily of fees related to consulting, training, ~~and~~ maintenance and support ~~primarily related to~~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 ~~licensing of our enterprise products~~services are performed for time-and-materials contracts and on a relative performance basis for fixed-fee contracts. Training revenues are recognized as the ~~sale of our hosted Adobe Experience Cloud services. Our support revenue also includes technical support and developer support to partners and developer organizations related to our desktop products.~~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. Transaction-based advertising revenue is recognized on a usage basis as we satisfy the performance obligations to our customers.

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Segment Information ~~(dollars in millions)~~


(dollars in millions)
(dollars in millions)
(dollars in millions)

	Three Months
	2018			2017			% Change
Digital Media	$	1,460.5		$	1,138.1		28	%
Digital Media
Digital Media
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	70		%	68		%
Digital Experience	554.1			477.3			16	%
Digital Experience
Digital Experience
Percentage of total revenue	27		%	28		%
Publishing	64.3			66.2			(3	)%
Percentage of total revenue
Percentage of total revenue
Publishing and Advertising
Publishing and Advertising
Publishing and Advertising
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	3		%	4		%
Total revenue	$	2,078.9		$	1,681.6		24	%
Total revenue
Total revenue

Digital Media

Revenue by major offerings in our Digital Media reportable segment for the three months ended March 1, 2024 and March 3, 2023 were as follows:


(dollars in millions)	Three Months
	2024		2023		% Change
Creative Cloud	$	3,066	$	2,761	11	%
Document Cloud	750		634		18	%
Total Digital Media revenue	$	3,816	$	3,395	12	%

Revenue from Digital Media increased ~~$322.4~~$421 million during the three months ended March ~~2, 2018,~~1, 2024 as compared to the three months ended March 3, ~~2017 primarily~~2023 driven by increases in revenue associated with our Creative ~~offerings.~~and Document Cloud subscription offerings due to continued demand amid an increasingly digital environment, strong engagement across customer segments and migrating our customers to higher valued subscription offerings with increased revenue per subscription.

Digital Experience

Revenue ~~associated with our Creative offerings, which includes our Creative Cloud, perpetually licensed Creative and stock photography offerings,~~from Digital Experience increased $113 million during the three months ended March ~~2, 2018~~1, 2024 as compared to the three months ended March 3, ~~2017. The increase was~~2023 primarily due to ~~an increase in~~net new additions across our subscription ~~revenue associated with our Creative Cloud offerings driven by increases in individual, team and enterprise subscriptions.~~

Adobe Document Cloud revenue, which includes our Acrobat product family and Adobe Sign service, increased during the three months ended March 2, 2018 as compared to the year ago period primarily due to increases in Document Cloud subscriptions revenue and Acrobat perpetual revenue.

~~Digital Experience~~

Revenue from Digital Experience increased $76.8 million during the three months ended March 2, 2018, as compared to the three months ended March 3, 2017 primarily due to an increase in subscription revenue associated with our Marketing Cloud offerings largely due to continued adoption of our AEM offerings and an increase in revenue associated with Adobe Campaign. To a lesser extent, increases in revenue associated with our Analytics Cloud and Advertising Cloud offerings also contributed to the increase in Digital Experience revenue.

offerings.

Geographical Information ~~(dollars in millions)~~


(dollars in millions)
(dollars in millions)
(dollars in millions)

	Three Months
	2018			2017			% Change
Americas	$	1,170.7		$	975.8		20	%
Americas
Americas
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	56		%	58		%
EMEA	587.2			459.1			28	%
EMEA
EMEA
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	28		%	27		%
APAC	321.0			246.7			30	%
APAC
APAC
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	16		%	15		%
Total revenue	$	2,078.9		$	1,681.6		24	%
Total revenue
Total revenue

Overall revenue during the three months ended March ~~2, 2018~~1, 2024 increased in all geographic regions as compared to the three months ended March 3, ~~2017 primarily due to increases in Digital Media and Digital Experience revenue.~~2023. Within each geographic region, the fluctuations in revenue by reportable segment were attributable to the factors noted in the segment information above.

~~Foreign currency impacts to~~Included in the overall change in revenue for the three months ended March ~~2, 2018 are shown below.~~

(in millions) Three Months
Revenue impact: Increase/ (Decrease)
Euro $ 26.5
British Pound 4.3
Japanese Yen (0.6 )
Other currencies 5.4
Total revenue impact 35.6
Hedging impact:
Japanese Yen 1.0
Total impact $ 36.6

1, 2024 as compared to the three months ended March 3, 2023 were impacts associated with foreign currency and our foreign currency hedging program. During the three months ended March ~~2, 2018, the relative weakness of the U.S. Dollar caused revenue in EMEA and other currencies measured in U.S. Dollar equivalents to increase~~1, 2024 as compared to the year-ago ~~period.~~period, the U.S. Dollar primarily weakened against EMEA foreign currencies and strengthened against APAC foreign currencies, which resulted in a net decrease in revenue of approximately $1 million in U.S. Dollar equivalents. For the three months ended March 1, 2024, we had net hedging losses from our cash flow hedging program of $4 million.

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Cost of Revenue for the Three Months Ended March ~~2, 2018~~1, 2024 and March 3, ~~2017 (dollars in millions)~~

2023


(dollars in millions)
(dollars in millions)
(dollars in millions)

	Three Months
	2018			2017			% Change
Subscription	$	164.7		$	141.2		17	%
Subscription
Subscription
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	8		%	8		%
Product	12.9			14.3			(10	)%
Product
Product
Percentage of total revenue	1		%	1		%
Services and support	81.3			81.8			(1	)%
Percentage of total revenue
Percentage of total revenue
Services and other
Services and other
Services and other
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	4		%	5		%
Total cost of revenue	$	258.9		$	237.3		9	%
Total cost of revenue
Total cost of revenue

(*) Percentage is less than 1%.

Subscription

Cost of subscription revenue consists of third-party ~~royalties~~hosting services and data center costs, including expenses related to operating our network ~~infrastructure, including depreciation expenses and operating lease payments~~infrastructure. Cost of subscription revenue also includes compensation costs associated with ~~computer equipment, data center costs, salaries and related expenses of~~ network operations, implementation, account management and technical support personnel, royalty fees, software costs and amortization of certain intangible assets and allocated overhead. We enter into contracts with third parties for hosting services and use of data center facilities. Our data center costs largely consist of the amounts we pay to these third parties for rack space, power and similar items. Cost of subscription revenue also includes media costs related to impressions purchased from third-party ad inventory sources for our Advertising Cloud offerings.

assets.

Cost of subscription revenue increased during the three months ended March ~~2, 2018~~1, 2024 as compared to the three months ended March 3, ~~2017~~2023 due to the following:



	Components of % Change ~~2018-2017~~ ~~QTD~~
Hosting services and data center costs		56	%
Royalty costs		52
~~Media costs~~Amortization of intangibles		4(3)
~~Incentive compensation, cash and stock based~~		4
~~Base compensation and related benefits associated with headcount~~		1
~~Various individually insignificant items~~		(2		)



Total change		175	%

Product

Cost of product revenue ~~includes product packaging,~~is primarily comprised of third-party royalties, ~~excess and obsolete inventory, amortization related to~~ localization costs ~~purchased intangibles~~ and ~~acquired rights to use technology and the~~ costs associated with the manufacturing of our products.

Services and Other

Cost of services and other revenue is primarily comprised of compensation and contracted costs incurred to provide consulting services, training and product support, and hosting services and data center costs.

Cost of services and other revenue ~~decreased~~increased during the three months ended March ~~2, 2018~~1, 2024 as compared to the three months ended March 3, ~~2017~~2023 primarily due to ~~decreases~~increases in ~~royalty costs.~~

~~Services and Support~~

~~Cost of services and support revenue is primarily comprised of employee-related~~compensation costs, ~~and associated costs incurred to provide consulting services, training and product support.~~

~~Cost of services and support revenue decreased slightly during the three months ended March 2, 2018 as compared to the three months ended March 3, 2017 due to~~partially offset by decreases in professional and consulting fees.

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Operating Expenses for the Three Months Ended March ~~2, 2018~~1, 2024 and March 3, ~~2017 (dollars in millions)~~2023


(dollars in millions)	Three Months
	2024			2023			% Change
Research and development	$	939		$	827		14	%
Percentage of total revenue	18		%	18		%
Sales and marketing	1,352			1,301			4	%
Percentage of total revenue	26		%	28		%
General and administrative	352			331			6	%
Percentage of total revenue	7		%	7		%


Acquisition termination fee	1,000			—			**
Percentage of total revenue	19		%	*
Amortization of intangibles	42			42			—	%
Percentage of total revenue	1		%	1		%
Total operating expenses	$	3,685		$	2,501		47	%

Three Months
2018 2017 % Change
Research and development $ 348.8
$ 285.1
22 %
Percentage of total revenue 17 % 17 %
Sales and marketing 581.0
520.3
12 %
Percentage of total revenue 28 % 31 %
General and administrative 170.4
150.8
13 %
Percentage of total revenue 8 % 9 %
Amortization of purchased intangibles 17.1
19.1
(10 )%
Percentage of total revenue 1 % 1 %
Total operating expenses $ 1,117.3
$ 975.3
15 %
_________________________________________

(*) Percentage is less than 1%.

~~Research and Development, Sales and Marketing, and General and Administrative Expenses~~

The increases in research and development, sales and marketing and general and administrative expenses during the three months ended March 2, 2018 as compared to the three months ended March 3, 2017 were primarily due to increases in base compensation costs and related benefits driven by headcount, accruals for our incentive compensation program and stock-based compensation expense.(**) Percentage is not meaningful.

Research and Development

Research and development expenses consist primarily of ~~salary~~compensation and ~~benefit expenses for~~contracted costs associated with software ~~developers, contracted~~ development, ~~efforts, third party fees for~~third-party hosting services and data center costs, related facilities costs and expenses associated with computer equipment and software used in ~~software development.~~

development activities.

Research and development expenses increased during the three months ended March ~~2, 2018~~1, 2024 as compared to the three months ended March 3, ~~2017~~2023 due to the following:


			Components of % Change
			~~% Change~~ ~~2018-2017~~ ~~QTD~~
~~Incentive compensation, cash and stock based~~	15	%
Base compensation and related benefits ~~associated with headcount~~	84		%
~~Seminars~~Incentive compensation, cash and ~~events~~stock-based			(43	)
~~Professional~~Hosting services and ~~consulting fees~~data center costs			24



Various individually insignificant items			13
Total change			2214	%

The decrease in seminars and events during the three months ended March 2, 2018 as compared to the three months ended March 3, 2017 was primarily due to a technical event for our engineers which was held during the first quarter of fiscal 2017 that did not occur during the first quarter of fiscal 2018.

~~We believe that investments~~Investments in research and development, including the recruiting and hiring of software developers, are critical to remain competitive in the marketplace and are directly related to continued timely development of new and enhanced offerings and solutions. We will continue to focus on long-term opportunities available in our end markets and make significant investments in the development of our subscription and service offerings, ~~applications~~apps and tools.

Sales and Marketing

Sales and marketing expenses consist primarily of ~~salary and benefit expenses,~~compensation costs, amortization of contract acquisition costs, including sales commissions, travel expenses and related facilities costs for our sales, marketing, order management and global supply chain management personnel. Sales and marketing expenses also include the costs of programs aimed at increasing revenue, such as advertising, trade shows and events, public relations and other market development programs.

Sales and marketing expense as a percentage of revenue during the three months ended March 2, 2018 decreased year over year primarily due to our revenue growing at a faster pace compared with the increase in sales and marketing expenses.

Sales and marketing expenses increased during the three months ended March ~~2, 2018~~1, 2024 as compared to the three months ended March 3, ~~2017~~2023 primarily due to ~~the following:~~



	~~% Change~~ ~~2018-2017~~ ~~QTD~~
~~Incentive compensation, cash and stock based~~	5	%
~~Base compensation and related benefits associated with headcount~~	4
~~Various individually insignificant items~~	3
~~Total change~~	12	%

increases in compensation costs.

General and Administrative

General and administrative expenses consist primarily of compensation and ~~benefit expenses,~~contracted costs, travel expenses and related facilities costs for our finance, facilities, human resources, legal, information services and executive personnel. General and administrative expenses also include outside legal and accounting fees, provision for bad debts, expenses associated with computer equipment and software used in the administration of the business, charitable contributions and various forms of insurance.

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General and administrative expenses increased during the three months ended March ~~2, 2018~~1, 2024 as compared to the three months ended March 3, ~~2017~~2023 primarily due to ~~the following:~~increases in compensation costs, partially offset by decreases in professional and consulting fees.

Acquisition Termination Fee



	~~% Change~~ ~~2018-2017~~ ~~QTD~~
~~Incentive compensation, cash and stock based~~	4	%
~~Professional and consulting fees~~	3
~~Charitable contributions~~	2
~~Events~~	2
~~Depreciation~~	2
~~Total change~~	13	%

~~The increase in charitable contributions during three months ended March 2, 2018 as compared to~~During the three months ended March ~~3, 2017 was primarily due to~~1, 2024, we incurred a $1 billion termination fee which resulted from termination of the ~~timing of planned contributions to the Adobe Foundation.~~Figma transaction.

Non-Operating Income (Expense), Net for the Three Months Ended March ~~2, 2018~~1, 2024 and March 3, ~~2017 (dollars in millions)~~2023


(dollars in millions)
(dollars in millions)
(dollars in millions)

	Three Months
	2018			2017			% Change
Interest and other income (expense), net	$	16.7		$	7.2		**
Percentage of total revenue	1		%	*
Interest expense
Interest expense
Interest expense	(19.9		)	(18.1		)	10	%
Percentage of total revenue	(1		)%	(1		)%
Percentage of total revenue
Percentage of total revenue
Investment gains (losses), net
Investment gains (losses), net
Investment gains (losses), net	3.0			2.5			20	%
Percentage of total revenue	*			*
Percentage of total revenue
Percentage of total revenue
Other income (expense), net
Other income (expense), net
Other income (expense), net
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue
Total non-operating income (expense), net	$	(0.2	)	$	(8.4	)	**
Total non-operating income (expense), net
Total non-operating income (expense), net

^{_________________________________________}


^(*)	~~Percentage is less than 1%.~~


^(**)	~~Percentage is not meaningful.~~

~~Interest and Other Income (Expense), Net~~

Interest and other income (expense), net consists primarily of interest earned on cash, cash equivalents and short-term fixed income investments. Interest and other income (expense), net also includes gains and losses on fixed income investments and foreign exchange gains and losses other(*) Percentage is less than ~~any gains recorded to revenue from our hedging programs.~~1%.

(**) Percentage is not meaningful.

Interest Expense

Interest expense ~~primarily~~ represents interest associated with our ~~senior notes and interest rate swaps.~~debt instruments. Interest on our senior notes is payable semi-annually, in arrears, on February 1 and August 1. ~~Floating interest payments on the interest rate swaps are paid monthly. The fixed-rate interest receivable on the swaps is received semi-annually concurrent with the senior notes interest payments.~~ ~~See Notes 5~~ ~~and~~ ~~13 of our notes to condensed consolidated financial statements for further details regarding our senior notes and interest rate swaps.~~

Investment Gains (Losses), Net

Investment gains (losses), net consists principally of unrealized holding gains and losses associated with our deferred compensation plan ~~assets which are classified as trading securities,~~assets.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest earned on cash, cash equivalents and short-term fixed income investments. Other income (expense), net also includes realized gains and losses ~~associated with our direct~~on fixed income investments and ~~indirect investments~~foreign exchange gains and losses.

Other income (expense), net increased during the three months ended March 1, 2024 as compared to the three months ended March 3, 2023 primarily due to increases in ~~privately held companies.~~interest income driven by higher average interest rates.

Provision for Income Taxes for the Three Months Ended March ~~2, 2018~~1, 2024 and March 3, ~~2017 (dollars in millions)~~2023


(dollars in millions)
(dollars in millions)
(dollars in millions)

	Three Months
	2018			2017			% Change
Provision	$	119.4		$	62.2		92	%
Provision for income taxes
Provision for income taxes
Provision for income taxes
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	6		%	4		%
Effective tax rate	17		%	14		%
Effective tax rate
Effective tax rate

Our effective tax rate increased by ~~three~~approximately 14 percentage points for the three months ended March ~~2, 2018~~1, 2024, as compared to the three months ended March 3, ~~2017.~~2023, primarily due to the Figma acquisition termination fee incurred during the three months ended March 1, 2024 which was not deductible for financial statement purposes. The increase was partially offset by a net tax benefit related to stock-based compensation recorded during the three months ended March 1, 2024, as compared to a net tax expense related to stock-based compensation recorded during the year-ago period.

Our effective tax rate for the three months ended March 1, 2024 was higher than the U.S. federal statutory tax rate of 21% primarily due to ~~accounting~~the Figma acquisition termination fee which was not deductible for financial statement purposes and, to a

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lesser extent, from state taxes partially offset by the ~~effects of the Tax Act enacted on December 22, 2017.~~

~~The Tax Act transitions~~net tax benefits from non-U.S. operations and the U.S. federal research tax system to a new territorial system and lowers the statutory corporate tax rate from 35% to 21%. The reduction of the statutory federal corporate tax rate to 21% became effective on January 1, 2018. In fiscal 2018, our statutory federal corporate tax rate is a blended rate of 22.2%, which will be reduced to 21% in fiscal 2019 and thereafter.credit.

We ~~have made provisional estimates~~recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized based on evaluation of all available positive and negative evidence. On the ~~accounting impacts~~basis of ~~certain provisions of the Tax Act. We~~this evaluation, we continue to obtain, analyze and interpret additional guidance issued and will revise our estimates as additional information becomes available. The provisional accounting impacts may change in future reporting periods until the accounting is finalized, which will occur no later than one year from the enactment date.

~~As part of the adoption of~~maintain a ~~new territorial tax system applicable~~valuation allowance to foreign earnings, the Tax Act requires the Company to pay a one-time tax (“transition tax”) on previously untaxed earnings and profits of our foreign subsidiaries at a rate of 15.5% on such earnings represented by foreign cash and certain other net current assets, and 8% on the remaining earnings, in each case reduced by certain foreign tax credits. We recorded a provisional transition tax expense of $118 million on these earnings, which is comprised of $86 million for fiscal year 2018 plus other ancillary effects recorded in the first fiscal quarter, long term income taxes payable of $533 million, and a reduction inreduce our deferred tax ~~liability~~assets to the amount realizable. The total valuation allowance was $677 million as of ~~$415 million. We intend~~March 1, 2024, primarily related to ~~elect to pay the federal transition tax over a period of eight years as permitted by the Tax Act.~~certain state credits and capital loss carryforwards.

We are a ~~United States-based~~U.S.-based multinational company subject to tax in multiple ~~U.S.~~domestic and foreign tax jurisdictions. ~~A significant portion~~The current U.S. tax law subjects the earnings of ~~our~~certain foreign ~~earnings for the current fiscal year were earned by our Irish subsidiaries. As part of the adoption of a territorial~~subsidiaries to U.S. tax ~~system, the Tax Act also provides~~and generally allows an exemption from ~~federal income taxes~~taxation for distributions from foreign ~~subsidiaries made after December 31, 2017 that were not subject~~subsidiaries.

In the current global tax policy environment, the domestic and foreign governing bodies continue to ~~the one-time transition tax. When~~consider, and in some cases introduce, changes in regulations applicable to corporate multinationals such as Adobe. As regulations are issued, we ~~decide to repatriate the undistributed earnings of our foreign subsidiaries~~account for ~~use~~finalized regulations in the ~~U.S.,~~period of enactment.

The provision from the ~~earnings from~~U.S. Tax Act which requires us to capitalize and amortize research and development costs became effective in fiscal 2023. If the rule is not modified, there will continue to be an adverse impact on our ~~foreign subsidiaries will generally not be subject to U.S. federal tax.~~

~~See Note 8 for further information regarding the provision~~effective rates for income taxes ~~and impacts related~~paid, which is partially offset by a benefit to our effective tax rates from the ~~Tax Act on our financial statements.~~

increase in the foreign-derived intangible income deduction.

Accounting for Uncertainty in Income Taxes

The gross liabilities for unrecognized tax benefits excluding interest and penalties were ~~$156.7~~$666 million and ~~$152.2~~$330 million ~~for the three months ended~~as of March ~~2, 2018~~1, 2024 and March 3, ~~2017,~~2023, respectively. If ~~$110.6 million and $126.4 million were recognized, these would affect our effective~~the total unrecognized tax ~~rates for the three months ended~~benefits as of March ~~2, 2018~~1, 2024 and March 3, ~~2017, respectively, which~~2023 were ~~net of the estimated $46.1~~recognized, $502 million and ~~$25.8~~$214 million ~~federal benefit related to taking deductions on certain payments for~~would decrease the respective ~~periods.~~effective tax rates.

~~The~~As of March 1, 2024 and March 3, 2023, the combined ~~amount~~amounts of accrued interest and penalties included in long-term income taxes payable related to tax positions taken on our tax returns were approximately $20.0 million and $17.2 million for the three months ended March 2, 2018 and March 3, 2017, respectively. These amounts were included in non-current income taxes payable in their respective years.

not material.

The timing of the resolution of income tax examinations is highly uncertain as are the amounts and timing of tax payments that are part of any audit settlement process. These events could cause large fluctuations in the balance sheet classification of ~~current and non-current~~our tax assets and liabilities. We believe that within the next 12 months, it is reasonably possible that either certain audits will conclude or statutes of limitations on certain income tax examination periods will expire, or both. ~~Given~~Although the ~~uncertainties described above, we can only determine a range~~timing of ~~estimated potential decreases in~~resolution, settlement and closing of audits is not certain, it is reasonably possible that the underlying unrecognized tax benefits ~~ranging~~may decrease by up to $70 million over the next 12 months.

Our future effective tax rates may be materially affected by changes in the tax rates in jurisdictions where our income is earned, changes in jurisdictions in which our profits are determined to be earned and taxed, changes in the valuation of our deferred tax assets and liabilities, changes in or interpretation of tax rules and regulations in the jurisdictions in which we do business, or unexpected changes in business and market conditions that could reduce certain tax benefits.

In addition, tax laws in the United States as well as other countries and jurisdictions in which we conduct business are subject to change as new laws are passed and/or new interpretations are made available. These countries, governmental bodies, such as the European Commission of the European Union, and intergovernmental economic organizations, such as the Organization for Economic Cooperation and Development, have made or could make unprecedented assertions about how taxation is determined and, in some cases, have proposed or enacted new laws that are contrary to the way in which rules and regulations have historically been interpreted and applied. Changes in our operating landscape, such as changes in laws and/or interpretations of tax rules, could adversely affect our effective tax rates and/or cause us to respond by making changes to our business structure which could adversely affect our operations and financial results.

Moreover, we are subject to the examination of our income tax returns by domestic and foreign tax authorities. We regularly assess the likelihood of outcomes resulting from $0these examinations to ~~approximately $35.0 million.~~ determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from these examinations. Our policy is to record interest and penalties related to unrecognized tax benefits in income tax expense. While we believe our tax estimates are reasonable, we cannot provide assurance that the final determination of any of these examinations will not have an adverse effect on our financial position and results of operations.

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LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Our primary source of cash is receipts from revenue. Our primary uses of cash are general business expenses including payroll and related benefits costs, income taxes, marketing and third-party hosting services, as well as our stock repurchase program as described below. Other customary sources of cash include proceeds from 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.

This data should be read in conjunction with our condensed consolidated statements of cash flows.


	As of
	As of							As of
(in millions)	March 2, 2018		December 1, 2017		(in millions)	March 1, 2024	December 1, 2023
Cash and cash equivalents	$	2,667.0	$	2,306.1
Short-term investments	$	3,481.0	$	3,513.7
Working capital	$	3,944.3	$	3,720.4
Stockholders’ equity	$	8,634.0	$	8,459.9

A summary of our cash flows is as follows:

Three Months Ended
(in millions) March 2, 2018 March 3, 2017
Net cash provided by operating activities $ 989.6
$ 730.4
Net cash used for investing activities (93.7 ) (338.9 )
Net cash used for financing activities (541.3 ) (331.5 )
Effect of foreign currency exchange rates on cash and cash equivalents 6.3
(2.4 )
Net increase in cash and cash equivalents $ 360.9
$ 57.6

Our primary source of cash is receipts from revenue. Other sources of cash are proceeds from participation in the employee stock purchase plan. The primary uses of cash are our stock repurchase program as described below, payroll-related expenses, general operating expenses including marketing, travel and office rent, and cost of revenue. Other uses of cash include business acquisitions and purchases of property and equipment.


	Three Months Ended
(in millions)	March 1, 2024		March 3, 2023
Net cash provided by operating activities	$	1,174	$	1,693
Net cash provided by investing activities	66		156
Net cash used for financing activities	(2,128)		(2,014)
Effect of foreign currency exchange rates on cash and cash equivalents	1		1
Net change in cash and cash equivalents	$	(887)	$	(164)

Cash Flows from Operating Activities

Net cash provided by operating activities of ~~$989.6 million~~$1.17 billion for the three months ended March ~~2, 2018~~1, 2024 was primarily comprised of net income ~~plus~~adjusted for the net effect of non-cash ~~items, including~~items. During the three months ended March 1, 2024, the Figma termination fee of $1 billion was paid using cash on hand. This had an ~~adjustment to the deferred taxes related to the Tax Act. The primary working capital sources of cash were~~adverse impact on net income ~~coupled with an increase in taxes payable, decrease in accounts receivable,~~ and, an increase in deferred revenue. The increase in income taxes payable was primarily driven by the provisional transition tax liability recorded pursuant to the Tax Act. The decrease in accounts receivable was primarily driven by improved revenue linearity. The increase in deferred revenue was primarily due to increases in Digital Experience hosted services. The primary working capital uses ofconsequently, on our cash were due to increases in prepaid expenses and decreases in accrued expenses. The increase in prepaid expense was primarily due to an increase in prepaid payroll and employee benefits. The decrease in accrued expenses was primarily driven by payments made pursuant to our incentive compensation program.

flows from operations.

Cash Flows from Investing Activities

Net cash ~~used for~~provided by investing activities of ~~$93.7~~$66 million for the three months ended March ~~2, 2018~~1, 2024 was primarily due to ~~purchases~~maturities and sales of short-term investments partially offset by ongoing capital expenditures and ~~property~~investments of certain deferred compensation.

Cash Flows from Financing Activities

Net cash used for financing activities of $2.13 billion for the three months ended March 1, 2024 was primarily due to payments for our common stock repurchases and ~~equipment. These~~taxes paid related to the net share settlement of equity awards. The above uses of cash ~~outflows~~ were offset in part by proceeds from ~~sales and maturities~~re-issuance of ~~short-term investments.~~

~~Cash Flows from Financing Activities~~

~~Net cash used for financing activities of $541.3 million for the three months ended March 2, 2018 was primarily due to payments for taxes~~treasury stock related to ~~net share settlement of equity awards and~~ our ~~treasury~~employee stock ~~repurchases, offset by proceeds from reissuance of treasury stock.~~ purchase plan. See the section titled “Stock Repurchase Program” ~~discussed~~ below.

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 titled Part II, 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 revolving credit facility will be sufficient to meet our working capital, operating resource expenditure and capital expenditure requirements for the next twelve months.

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Our cash equivalent and short-term investment portfolio as of March 1, 2024 consisted of asset-backed securities, corporate debt securities, money market funds, 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, ~~venture capital, facilities expansion and~~ purchases of computer ~~systems for research~~ and ~~development,~~server hardware to operate our network infrastructure, sales and marketing, product support and administrative ~~staff.~~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.

Revolving Credit Agreement

~~Other Liquidity and Capital Resources Considerations~~

Our existing cash, cash equivalents and investment balances may fluctuate during fiscal 2018 due to changes in our planned cash outlay, including changes in incremental costs such as direct and integration costs related to our acquisitions. AsWe have a result of the Tax Act enacted on December 22, 2017, all historical undistributed foreign subsidiary earnings were subject to a mandatory one-time transition tax which resulted in a provisional tax liability of $533 million reflected as long term income taxes payable and state taxes of $3 million. Under the Tax Act, the transition tax is payable over eight years beginning in fiscal 2019, with 8% due in each of the first five years, 15% in year six, 20% in year seven, and 25% in year eight. When we decide to repatriate the undistributed earnings of our foreign subsidiaries for use in the U.S., the earnings from our foreign subsidiaries will generally not be subject to U.S. federal tax. We continue to evaluate the impact of the Tax Act and the future cash needs of our global operations to determine the amount of foreign earnings that is not necessary to be permanently reinvested in our foreign subsidiaries.

Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, the risks detailed in Part II, Item 1A titled “Risk Factors”. However, 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 and operating resource expenditure requirements for the next twelve months.

~~On March 2, 2012, we entered into a five-year $1~~$1.5 billion senior unsecured revolving credit agreement (the ~~“Credit~~“Revolving Credit Agreement”), with a syndicate of lenders, providing for loans to us and certain of our ~~subsidiaries. On March 1, 2013, we exercised our option under~~subsidiaries through June 30, 2027. Subject to the Credit Agreement to extend the maturity date of the Credit Agreement by one year to March 2, 2018. On July 27, 2015, we entered into an amendment to further extend the maturity date of the Credit Agreement to July 27, 2020 and reallocated the facility among the syndicateagreement of lenders, ~~that are parties~~we may obtain up to ~~the Credit Agreement.~~an additional $500 million in commitments, for a maximum aggregate commitment of $2 billion. As of March ~~2, 2018,~~1, 2024, there were no outstanding borrowings under ~~this~~the Revolving Credit Agreement and the entire $1$1.5 billion credit line remains available for borrowing. Under the terms of our Revolving Credit Agreement, we are not prohibited from paying cash dividends unless payment would trigger an event of default or if one currently exists. We do not anticipate paying any cash dividends in the foreseeable future.

Commercial Paper Program

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 March ~~2, 2018,~~1, 2024, there were no outstanding borrowings under the ~~amount~~commercial paper program.

Senior Notes

We have $3.65 billion senior notes outstanding, ~~under~~which rank equally with our other unsecured and unsubordinated indebtedness. As of March 1, 2024, the carrying value of our senior notes was ~~$1.9~~$3.64 billion ~~consisting~~and our maximum commitment for interest payments was $276 million for the remaining duration of ~~$900 million~~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 14 of ~~4.75%~~our notes to condensed consolidated financial statements for further details regarding our debt.

During the first quarter of fiscal 2024, we reclassified the senior notes due February 1, ~~2020~~2025 as current debt in our condensed consolidated balance sheets. As of March 1, 2024, the carrying value of our current debt was $1.50 billion, net of the related discount and ~~$1 billion of 3.25% senior notes due February 1, 2025.~~

~~Our short-term investment portfolio is primarily invested in corporate debt securities, U.S. Treasury securities, foreign government securities, municipal securities and asset-backed securities.~~issuance costs. We ~~use professional investment management firms~~intend to ~~manage a large~~refinance the current portion of our ~~invested cash.~~debt on or before the due date.

Contractual Obligations

Our principal commitments as of March 1, 2024 consisted of purchase obligations resulting from agreements to purchase goods and services in the ordinary course of business and obligations under operating lease arrangements. During the first quarter of fiscal 2024, 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. There have been no other material changes in those obligations during the three months ended March 1, 2024.

Stock Repurchase Program

During the three months ended March ~~2, 2018 and March 3, 2017,~~1, 2024, we entered into ~~several structured stock~~an accelerated share repurchase agreements with large financial institutions, whereupon we provided them with prepayments totaling $300 million and $200 million, respectively.We enter into these agreements in order to take advantage of repurchasing shares at a guaranteed discount to the Volume Weighted Average Priceagreement (“~~VWAP”~~ASR”) of our common stock over a specified period of time. We only enter into such transactions when the discount that we receive is higher than the foregone return on our cash prepayments to the financial institutions. There were no explicit commissions or fees on these structured repurchases. Under the terms of the agreements, there is no requirement for the financial institutions to return any portion of the prepayment to us.

The financial institutions agree to deliver shares to us at monthly intervals during the contract term. The parameters used to calculate the number of shares deliverable are: the total notional amount of the contract, the number of trading days in the contract, the number of trading days in the interval and the average VWAP of our stock during the interval less the agreed upon discount. During the three months ended March 2, 2018, we repurchased approximately 1.6 million shares at an average price of $185.13 through structured repurchase agreements entered into during fiscal 2017 and the three months ended March 2, 2018. During the three months ended March 3, 2017 we repurchased approximately 2.2 million shares at an average price of $107.54 through structured repurchase agreements entered into during fiscal 2016 and the three months ended March 3, 2017.

For the three months ended March 2, 2018, the prepayments were classified as treasury stock on our condensed consolidated balance sheets at the payment date, though only shares physically delivered to us by March 2, 2018 were excluded from the computation of earnings per share. As of March 2, 2018, $100.3 million of prepayment remained under this agreement.

~~Subsequent to March 2, 2018, as part of the $2.5 billion stock repurchase authority approved in January 2017, we entered into a structured stock repurchase agreement~~ with a large financial institution whereupon we provided them with a prepayment of ~~$700 million. This amount will be classified as treasury stock on~~$2 billion and received an initial delivery of 2.5 million shares of our ~~condensed consolidated balance sheets. Upon completion~~common stock. Subsequent to March 1, 2024, the ASR was settled which resulted in total repurchases of ~~the $700~~3.5 million ~~stock repurchase agreement, $900 million remains under our current authority.~~shares at an average price of $578.11.

~~Off-Balance Sheet Arrangements and Aggregate Contractual Obligations~~

Our principal commitments as of March 2, 2018 consist of obligations under operating leases, royalty agreements and various service agreements. There have been no material changes in those obligations duringDuring the three months ended March ~~2, 2018.~~ 1, 2024, we repurchased a total of 3.1 million shares, including approximately 0.6 million shares at an average price of $626.68 through a structured repurchase agreement entered into during fiscal 2023, as well as 2.5 million shares from the initial delivery of the ASR.

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Subsequent to March 1, 2024, our Board of Directors granted us additional authority to repurchase up to $25 billion in our common stock through March 14, 2028. Thereafter, as part of both the December 2020 and March 2024 stock repurchase authorities, we entered into an ASR with a large financial institution whereupon we provided them with a prepayment of $2.5 billion and received an initial delivery of 3.6 million shares, which represents approximately 75% of our prepayment. Upon completion of the $2.5 billion ASR, $22.65 billion remains under our March 2024 authority and there is no remaining balance under our December 2020 authority.

See ~~Notes 12~~ ~~and~~ 13Note 11 of our notes to condensed consolidated financial statements for ~~more detailed information~~further details regarding our ~~contractual commitments.~~stock repurchase program.

~~Senior Notes~~

Interest on our senior notes is payable semi-annually, in arrears on February 1 and August 1. At March 2, 2018, our maximum commitment for interest payments was $313.0 million for the remaining duration of our senior notes.

~~Covenants~~

Our credit facility contains a financial covenant requiring us not to exceed a maximum leverage ratio. As of March 2, 2018, we were in compliance with this covenant. We believe this covenant will not impact our credit or cash in the coming fiscal year or restrict our ability to execute our business plan. Our senior notes do not contain any financial covenants.

Under the terms of our credit agreement we are not prohibited from paying cash dividends unless payment would trigger an event of default or one currently exists. We do not anticipate paying any cash dividends in the foreseeable future.

~~Royalties~~

~~We have certain royalty commitments associated with the licensing of certain offerings. Royalty expense is generally based on a dollar amount per unit sold or a percentage of the underlying revenue.~~

Indemnifications

In the ~~normal~~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.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~We believe that there~~There have been no material changes in our market risk exposures for the three months ended March ~~2, 2018,~~1, 2024, as compared ~~with~~to those discussed in our Annual Report on Form 10-K for the fiscal year ended December 1, ~~2017.~~2023.

ITEM 4. CONTROLS AND PROCEDURES

Based on their evaluation as of March ~~2, 2018,~~1, 2024, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective at the reasonable assurance level to ensure that the information required to be disclosed by us in this Quarterly Report on Form 10-Q was (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting during the quarter ended March ~~2, 2018~~1, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Adobe have been detected.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 1213 of our notes to condensed consolidated financial statements for information regarding our legal proceedings.

ITEM 1A. RISK FACTORS

As previously discussed, our actual results could differ materially from our forward-looking statements. Below we discuss some of the factors that could cause these differences. ~~These~~The occurrence of these and many other factors described in this report, and factors that we do not presently know or that we currently believe to be immaterial, could materially and adversely affect our operations, performance and financial condition. Many factors affect more than one category and the factors are not in order of significance or probability of occurrence because they have been grouped by categories.

Risks Related to Our Ability to Grow Our Business

We may be unsuccessful at innovating in response to rapid technological changes to meet customer needs, which could cause our operating results to suffer.

We operate in rapidly evolving markets and expect the pace of innovation to continue to accelerate. We must continually introduce new, and enhance existing, products, services and solutions to retain customers and attract new customers. Developing new products is complex and may not be profitable, and our investments in new technologies are speculative and may not yield the expected business or financial benefits. The commercial success of new or enhanced products, services and solutions depends on a number of factors, including timely and successful development; effective distribution and marketing; market acceptance; compatibility with existing and emerging standards, platforms, software delivery methods and technologies; accurately predicting and anticipating customer needs and expectations and the direction of technological change; identifying and innovating in the right technologies; and differentiation from other products, services and solutions. If we ~~cannot~~fail to anticipate or identify technological trends or fail to devote appropriate resources to adapt to such trends, our business could be harmed. For example, generative artificial intelligence technologies provide new ways of marketing, creating content and interacting with documents that could disrupt industries in which we operate, and our business may be harmed if we fail to invest or adapt. While we have released new generative artificial intelligence products, such as Adobe Firefly, and are focused on enhancing the artificial intelligence (“AI”) capabilities of such products and incorporating AI into existing products, services and solutions, there can be no assurance that our products will be successful or that we will innovate effectively to keep pace with the rapid evolution of AI across our Creative Cloud, Document Cloud and Experience Cloud. If we do not successfully innovate, adapt to rapid technological changes and meet customer needs, our business and our financial results may be harmed.

Issues relating to the development and use of AI, including generative AI, in our offerings may result in reputational harm, liability and adverse financial results.

Social and ethical issues relating to the use of AI, including generative AI, in our offerings may result in reputational harm, liability and additional costs. We are increasingly incorporating AI technologies into many of our offerings. If our AI development, deployment, content labeling or governance is ineffective or inadequate, it may result in incidents that impair the public acceptance of AI solutions or cause harm to individuals, customers or society, or result in our offerings not working as intended or producing unexpected outcomes.

Around the world, AI regulation is in the nascent stages of development. The evolving AI regulatory environment may increase our research and development costs, increase our liability related to the use of AI by our customers or users that are beyond our control and result in inconsistencies in evolving legal frameworks across jurisdictions. While we have taken a responsible approach to the development and use of AI in our offerings, there can be no guarantee that future AI regulations will not adversely impact us or conflict with our approach to AI, including affecting our ability to make our AI offerings available without costly changes, requiring us to change our AI development practices, monetization strategies and/or indemnity protections and subjecting us to additional compliance requirements, regulatory action, competitive harm or legal liability. In addition, new competition regulation on AI development and deployment could impose new requirements on our markets that could impact our business and financial results.

Uncertainty around new and evolving AI use, including generative AI, may require additional investment to develop responsible use frameworks, develop or license proprietary datasets and machine learning models and develop new approaches and processes to attribute or compensate content creators, which could be costly. Developing, testing and deploying AI systems may also increase the cost of our offerings, including due to the nature of the computing costs involved in such systems. These costs could adversely impact our margins as we continue to ~~develop, acquire,~~add AI capabilities to our offerings and scale our AI offerings

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without assurance that our customers and users will adopt them. Further, as with any new offerings based on new technologies, consumer reception and monetization pathways are uncertain, our strategies may not be successful and our business and financial results could be adversely impacted. New AI offerings and technologies could disrupt workforce needs, result in negative publicity about AI and have the potential to affect demand for our existing products, services and solutions, all of which could adversely impact our business.

We may not realize the anticipated benefits of investments or acquisitions, and they may disrupt our business and divert management’s attention.

Investments and acquisitions involve numerous risks and uncertainties, the occurrence of which may have an adverse effect on our business. These risks and uncertainties include:

•inability to achieve the financial and strategic goals of the investment or acquisition;

•difficulty in effectively integrating the operations, technologies, products, services, solutions, culture or personnel of the acquired business;

•disruption of our ongoing business and distraction of our management and other personnel;

•challenges to completing or failure to complete an announced investment or acquisition related to the failure to obtain regulatory approval, or the need to satisfy certain conditions precedent to closing such transaction (such as divestitures, ownership or operational restrictions or other structural or behavioral remedies) that could limit the anticipated benefits of the transaction;

•entry into markets in which we have minimal prior experience and where competitors in such markets have stronger market positions;

•inability to retain personnel, key customers, distributors, vendors and ~~offer new~~other business partners of the acquired business;

•delay in customer and distributor purchasing decisions due to uncertainty about the direction of our product and service offerings;

•incurring higher than anticipated costs to effectively integrate an acquired business, to bring an acquired company into compliance with applicable laws and regulations, additional compensation issued or assumed in connection with an acquisition, to divest products, ~~and~~ services or ~~enhancements~~solutions acquired in unsuccessful investments or acquisitions, to ~~existing~~amortize costs for acquired intangible assets or because of our inability to take advantage of anticipated tax benefits;

•increased collection times, elevated delinquency or bad debt write-offs related to receivables of an acquired business we assume;

•difficulty in maintaining controls, procedures and policies during the transition and integration and inability to conclude that our internal controls over financial reporting are effective;

•potential identified or unknown security vulnerabilities in acquired products that expose us to additional security risks or delay our ability to integrate the product into our offerings;

•exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, an acquisition;

•incurrence of additional debt to finance an acquisition, which will increase our interest expense and ~~services that meet customer requirements,~~leverage, and/or issuance of equity securities to finance acquisitions, which will dilute current shareholders’ percentage ownership and earnings per share; and

•failure to identify significant problems, liabilities or other challenges during due diligence.

Our ability to acquire other businesses or technologies, make strategic investments or integrate acquired businesses effectively may also be impaired by adverse economic and political events, including trade tensions, and increased global scrutiny of acquisitions and strategic investments. A number of countries, including the United States and countries in Europe and the Asia-Pacific region, are considering or have adopted more stringent restrictions or guidelines for such transactions. Governments may continue to adopt or tighten restrictions of this nature, and such restrictions or government actions could negatively impact our business and financial results. Further, if we are not able to complete an announced acquisition or investment, or we do not achieve the financial and strategic goals of an acquisition or investment, we may not realize the

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anticipated benefits of such acquisition or investment or we may incur additional costs, which may negatively impact our business and financial results.

We participate in rapidly evolving and intensely competitive markets, and, if we do not compete effectively, our operating results could suffer.

The process of developing and acquiring new technology products and services and enhancing existing offerings is complex, costly and uncertain. If we fail to anticipate customers’ rapidly changing needs and expectations or adapt to emerging technological trends, our market share and results of operations could suffer. We must make long-term investments, develop, acquire or obtain appropriate intellectual property and commit significant resources before knowing whether our predictions will accurately reflect customer demand for our products and services. If we misjudge customer needs in the future, our new products and services may not succeed and our revenues and earnings may be harmed. Additionally, any delay in the development, acquisition, marketing or launch of a new offering or enhancement to an existing offering could result in customer attrition or impede our ability to attract new customers, causing a decline in our revenue, earnings or stock price and weakening our competitive position.

We offer our products on a variety of hardware platforms. Consumers continue to migrate from personal computers to tablet and mobile devices. If we cannot continue adapting our products to tablet and mobile devices, or if our competitors can adapt their products more quickly than us, our business could be harmed. Releases of new devices or operating systems may make it more difficult for our products to perform or may require significant costs in order for us to adapt our solutions to such devices or operating systems. These potential costs and delays could harm our business.

~~Our competitive position and results of operations could be harmed if we do not compete effectively.~~

The markets for our products, services and solutions are rapidly evolving and intensely competitive. We expect competition to continue to intensify. Our competitors range in size from diversified global companies with significant sales and research and development resources, broad brand awareness, long operating histories or access to large customer bases to small, specialized companies whose narrow focuses may allow them to be more effective in deploying technical, marketing and financial resources. Our competitors may develop products, services or solutions that are ~~characterized by intense competition, new~~similar to ours or that achieve greater acceptance, may undertake more far-reaching and successful product development efforts or marketing campaigns, or may adopt more aggressive pricing policies. As a result, current and potential customers may select the products, services or solutions of our competitors. Further, our future success depends on our continued ability to effectively appeal to businesses and consumers. New industry standards, evolving distribution models, limited barriers to entry, ~~disruptive technology developments,~~ short product life cycles, customer price sensitivity, global market conditions and the frequent ~~product introductions (including alternatives with limited functionality available at lower costs~~entry of new products or ~~free of charge). Any of these factors could~~competitors may create downward pressure on pricing and gross margins and ~~could~~ adversely affect our renewal, ~~and~~ upsell and cross-sell rates as well as our ability to attract new customers. In addition, we expect to face more competition as AI continues to be integrated into the markets in which we compete. Our ~~future success will depend on~~competitors or other third parties may incorporate AI into their offerings more successfully than we do and achieve greater and faster adoption, which could impair our ~~continued~~ ability to ~~enhance~~compete effectively and ~~integrate~~adversely affect our ~~existing~~business and financial results. Further, we expect the markets for standalone AI offerings to be highly competitive and rapidly evolving. For example, we face increasing competition from companies offering text-to-image generative AI technology that may compete directly with our own creative offerings. If we are not able to provide products, services and ~~services, introduce new products~~solutions that compete effectively, we could experience reduced sales and ~~services in a timely and cost-effective manner, meet changing customer expectations and needs, extend~~ our ~~core technology into new applications, and anticipate emerging standards,~~ business models, software delivery methods and other technological developments. Furthermore, some of our competitors and potential competitors enjoy competitive advantages such as greater financial, technical, sales, marketing and other resources, broader brand awareness, and access to larger customer bases. As a result of these advantages, potential and current

customers might select the products and services of our competitors, causing a loss of our market share. In addition, consolidation has occurred among some of our competitors. Further consolidations in these markets may subject us to increased competitive pressures and may harm our results of operations.

could be adversely affected. For additional information regarding our competition and the risks arising out of the competitive environment in which we operate, see the section ~~entitled~~titled “Competition” contained in Part I.I, Item 1 of our Annual Report on Form ~~10-K for the fiscal year ended December 1, 2017.~~10-K.

~~Introduction of new technology could harm~~If our reputation or our brands are damaged, our business and financial results ~~of operations.~~may be adversely affected.

~~The expectations~~We believe our reputation and ~~needs~~brands have been, and we expect them to continue to be, important to our business and financial results. Maintaining and enhancing our brands may require us to make substantial investments and these investments may not be successful. There are numerous ways that our reputation or brands could be damaged, including, among other things, introduction of ~~technology consumers are constantly evolving. Our future success depends on a variety of factors, including our continued ability to innovate, introduce~~ new products, features or services that do not meet customer expectations, our position on or approach to new and ~~services efficiently, enhance~~evolving technologies, backlash from customers, government entities or other stakeholders that disagree with our product offering decisions or public policy positions, significant litigation or regulatory actions that negatively reflect on our business practices, our action or inaction or actual or perceived failure to meet our commitments on environmental, social and ~~integrate~~governance, ethical or political issues, public scrutiny regarding our handling of user privacy, data practices or content, data security breaches or compliance failures, or our approach to AI. Further, our brands may be negatively affected by uses of our products, services or solutions, particularly our AI offerings, in ways that are out of our control, such as to create or disseminate content that is deemed to be misleading, deceptive or intended to manipulate public opinion, or for illicit, objectionable or illegal ends, or by our failure to respond appropriately and ~~services~~ in a timely manner to such uses. Such uses may result in controversy or claims related to defamation, rights of publicity, illegal content, intellectual property infringement, harmful content, misinformation and ~~cost-effective manner, extend~~disinformation, harmful bias, misappropriation, data privacy, derivative uses of third-party AI and personal injury torts. If we fail to appropriately respond to objectionable content created using our ~~core~~products, services or solutions or shared on our platforms, our users may lose confidence in our brands. Entry into markets with weaker protection of brands or changes in the legal systems in countries in which we operate may also impact our ability to protect our brands. If we fail to maintain, enhance or protect our brands, or if we incur excessive expenses in our efforts to do so, our business and financial results may be adversely affected.

Risks Related to the Operation of Our Business

Service interruptions or failures of our or third-party information technology ~~into new applications, and anticipate emerging standards, business models, software delivery methods and other technological developments. Integration~~systems may impair the availability of our products, and services with one another and other companies’ offerings creates an increasingly complex ecosystem that is partly reliant on third parties. If any disruptive technology, or competing products, services or operating systems that are not compatible with our solutions, achieve widespread acceptance, our operating results could suffer and our business could be harmed.

The introduction of certain technologies may reduce the effectiveness of our products. For example, some of our products rely on third-party cookies, which are placed on individual browsers when consumers visit websites that contain advertisements. We use these cookies to help our customers more effectively advertise, gauge the performance of their advertisements, and detect and prevent fraudulent activity. Consumers can block or delete cookies through their browsers or “ad-blocking” software or applications. The most common Internet browsers allow consumers to modify their browser settings to prevent cookies from being accepted by their browsers, or are set to block third-party cookies by default. Increased use of methods, software or applications that block cookies could harm our business.

~~Some of our enterprise offerings have extended and complex sales cycles, which can make our sales cycles unpredictable.~~

Sales cycles for some of our enterprise offerings, including our Adobe Experience Cloud solutions and ETLAs in our Digital Media business, are multi-phased and complex. The complexity in these sales cycles is due to several factors, including:

the need for our sales representatives to educate customers about the use and benefit of large-scale deployments of our products and services, including technical capabilities, security features, potential cost savings and return on investment;

~~the desire of organizations to undertake significant evaluation processes to determine their technology requirements prior to making information technology expenditures;~~

~~the need for our representatives to spend a significant amount of time assisting potential customers in their testing and evaluation of our products and services;~~

~~intensifying competition within the industry;~~

~~the negotiation of large, complex, enterprise-wide contracts;~~

the need for our customers to obtain requisition approvals from various decision makers within their organizations due to the complexity of our solutions touching multiple departments within customers’ organizations; and

~~customer budget constraints, economic conditions and unplanned administrative delays.~~

We spend substantial time and expense on our sales efforts without assurance that potential customers will ultimately purchase our solutions. As we target our sales efforts at larger enterprise customers, these trends are expected to continue and could have a greater impact on our results of operations. Additionally, our enterprise sales pattern has historically been uneven, where a higher percentage of a quarter’s total sales occur during the final weeks of each quarter, which is common in our industry. Our extended sales cycle for these products and services makes it difficult to predict when a given sales cycle will close.

~~Subscription offerings could create risks related to the timing of revenue recognition.~~

We generally recognize revenue from subscription offerings ratably over the terms of their subscription agreements, which range from 1 to 36 months. As a result, most of the subscription revenue we report in each quarter is the result of subscription agreements entered into during previous quarters. Any reduction in new or renewed subscriptions in a quarter may not be reflected in our revenue results until a later quarter. Declines in new or renewed subscriptions may decrease our revenue

~~in future quarters. Lower sales, reduced demand for our products and~~ services and ~~increases in our attrition rate~~solutions, which may not be fully reflected in our results of operations until future periods. Our subscription model could also make it difficult for us to rapidly increase our revenue from subscription-based or hosted services through additional sales in any period, as revenue from new customers will be recognized over the applicable subscription term.

Additionally, in connection with our sales efforts to enterprise customers and our use of ETLAs, a number of factors could affect our revenue, including longer-than-expected sales and implementation cycles, potential deferral of revenue due to multiple-element revenue arrangements and alternative licensing arrangements. If any of our assumptions about revenue from our subscription-based offerings prove incorrect, our actual results may vary materially from those anticipated.

~~If our customers fail to renew subscriptions in accordance with our expectations, our future revenue and operating results could suffer.~~

Our Adobe Experience Cloud, Creative Cloud, and Document Cloud offerings typically involve subscription based offerings pursuant to product and service agreements. Revenue from our subscription customers is generally recognized ratably over the term of their agreements, which typically range from 1 to 36 months. Our customers have no obligation to renew their subscriptions for our services after the expiration of their initial subscription period, and customers may not renew their subscriptions at the same or higher level of service, for the same number of seats or for the same duration of time, if at all. Moreover, under certain circumstances, some of our customers have the right to cancel their agreements prior to the expiration of the terms. Our varied customer base combined with the flexibility we offer in the length of our subscription-based agreements complicates our ability to precisely forecast renewal rates. Therefore, we cannot provide assurance that we will be able to accurately predict future customer renewal rates.

Our customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their level of satisfaction with our services, our ability to continue enhancing features and functionality, the reliability (including uptime) of our subscription offerings, the prices of offerings and those offered by our competitors, the actual or perceived information security of our systems and services, decreases in the size of our customer base, reductions in our customers’ spending levels or declines in customer activity as a result of economic downturns or uncertainty in financial markets. If our customers do not renew their subscriptions or if they renew on terms less favorable to us, our revenue may decline.

~~Security breaches in data centers we manage, or third parties manage on our behalf, may compromise the confidentiality, integrity, or availability of employee and customer data, which could~~ expose us to liability, ~~and adversely affect~~damage our reputation and ~~business.~~

We process and store significant amounts of employee and customer data, most of which is hosted by third-party service providers. A security incident impacting our own data centers or those controlled by our service providers may compromise the confidentiality, integrity or availability of this data. Unauthorized access to or disclosure of data stored by Adobe or our service providers may occur through break-ins, breaches of a secure network by an unauthorized party, employee theft or misuse or other misconduct. It is also possible that unauthorized access to or disclosure of customer data may be obtained through inadequate use of security controls by customers or employees. Accounts created with weak or recycled passwords could allow cyber-attackers to gain access to customer data. Additionally, failure by customers to remove accounts of their own employees, or the granting of accounts by the customer in an uncontrolled manner, may allow for access by former or unauthorized customer representatives. If there were an inadvertent disclosure of customer information, or if a third party were to gain unauthorized access to the information we possess on behalf of our customers, our operations could be disrupted, our reputation could be damaged and we could be subject to claims or other liabilities, regulatory investigations, or fines. In addition, such perceived or actual unauthorized disclosure of the information we collect or breach of our security could damage our reputation, result in the loss of customers and harm our ~~business.~~

We rely on data centers managed both by Adobe and third parties to host and deliver our services, as well as access, collect, use, transmit, and store data, and any interruptions or delays in these hosted services, or failures in data collection or transmission could expose us to liability and harm our business and reputation.future financial results.

Much of our business, including our online store at adobe.com and our Creative Cloud, Document Cloud and Experience Cloud solutions, relies on hardware and services that are hosted, managed and controlled directly by ~~Adobe~~us or third-party service providers ~~including our online store at adobe.com, Creative Cloud, Document Cloud,~~to be available to customers and ~~Experience Cloud solutions.~~users without disruption. We do not have redundancy for all of our systems, many of our critical applications (“apps”) reside in only one of our data centers, and our disaster recovery planning may not account for all eventualities. If ~~our business relationship with a~~any critical third-party service provider of hosting or content delivery services is negatively affected or ~~if one~~

Table of ~~our content delivery suppliers were~~Contents

becomes unavailable to ~~terminate its agreement with~~ us for any reason, we ~~might~~may not be able to deliver the corresponding ~~hosted offerings~~products, services or solutions to our customers ~~which~~and users. Failure of our systems or those of our third-party service providers could disrupt our business operations and those of our customers, subject us to reputational harm, require costly and ~~time intensive notification requirements,~~time-intensive notifications, and cause us to lose customers, users and future business. Occasionally, we migrate data among data centers and to third-party hosted environments. If a transition among data centers or to third-party service

providers encounters unexpected interruptions, unforeseen complexity or unplanned disruptions despite precautions undertaken during the process, this may impair our delivery of products, services and ~~services~~solutions to customers and result in increased costs and liabilities, which may harm our operating results, reputation and our business.

It is also possible that hardware or software failures or errors in our systems (or those of our third-party service providers) could result in data loss or corruption, cause the information that we collect or maintain to be incomplete or contain inaccuracies that our customers regard as significant, or cause us to fail to meet committed service levels or comply with ~~regulatory~~applicable notification ~~requirements.~~requirements or other relevant contractual obligations to our customers. Furthermore, our ability to collect and report data may be delayed or interrupted by a number of factors, including access to the ~~Internet,~~internet, the failure of our network or software systems, security breaches or significant variability in visitor traffic on customer websites. In addition, computer viruses, worms, or other malware may harm our systems, causing us to lose data, and the transmission of computer viruses or other malware could expose us to litigation or regulatory investigation, and costly and time intensive notification requirements.

We may also find, on occasion, that we cannot deliver data and reports to our customers in near ~~real time because of a number of~~real-time due to factors ~~including~~such as significant spikes in customer activity on their websites or failures of our network or ~~software.~~software (or that of a third-party service provider). If we fail to plan infrastructure capacity appropriately and expand it proportionally with the needs of our customer and user base, and we experience a rapid and significant demand on the capacity of our data centers or those of third parties, service outages or performance issues could occur, ~~and~~which may impact our ~~customers could suffer impaired performance of our services.~~customers. Such a strain on our infrastructure capacity ~~could~~may subject us to regulatory and customer notification requirements, violations of service level agreement commitments or financial liabilities and result in customer dissatisfaction or harm our business. If we supply materially inaccurate information or experience significant interruptions in our ~~ability to capture, store and supply information in near real time or at all,~~systems, our reputation could be harmed, ~~and~~ we could lose customers orand we could be found liable for damages or incur other losses.

~~Increasing regulatory focus on privacy issues~~Security incidents, improper access to or disclosure of our customers’ data or other cyber incidents may harm our reputation and ~~expanding laws could impact~~materially and adversely affect our ~~business models~~business.

Our products, services and ~~expose us~~solutions collect, store, manage and otherwise process third-party data, including our customers’ data and our own data. Such products, services and solutions as well as our technologies, systems and networks have been subject to, ~~increased liability.~~

~~U.S. privacy~~ and ~~data security laws apply~~may in the future be subject to, ~~our various businesses. We also do business globally in countries~~cyberattacks, computer viruses, ransomware or other malware, fraud, worms, social engineering, denial-of-service attacks, malicious software programs, insider threats and other cybersecurity incidents that have ~~more stringent data protection laws than those~~ in the ~~United States that~~past, and may be inconsistent across jurisdictions and are subject to evolving and differing interpretations. Governments, privacy advocates and class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. Globally, new laws, such asin the General Data Protection Regulation (“GDPR”) in Europe, and industry self-regulatory codes have been enacted and more are being considered that may affect our ability (and our enterprise customers’ ability) to reach current and prospective customers, to respond to both enterprise and individual customer requests under the laws (such as individual rights of access, correction, and deletion of their personal information), and to implement our business models effectively. These new laws may also impact our innovation and business drivers in developing new and emerging technologies (e.g., artificial intelligence and machine learning). These requirements, among others, may impact demand for our offerings and force us to bear the burden of more onerous obligations in our contracts. Any perception of our practices, products or services as a violation of individual privacy rights may subject us to public criticism, class action lawsuits, reputational harm, or investigations or claims by regulators, industry groups or other third parties, all of which could disrupt our business and expose us to increased liability. Additionally, we store information on behalf of our customers and if our customers fail to comply with contractual obligations or applicable laws, it couldfuture, result in ~~litigation~~the unauthorized access, disclosure, acquisition, use, loss or ~~reputational harm~~destruction of sensitive personal or business data belonging to ~~us.~~

Transferring personal information across international borders is becoming increasingly complex. For example, European data transfers outside the European Economic Area are highly regulated. The mechanisms that we and many other companies rely upon for European data transfers (e.g. Privacy Shield and Model Clauses) are being contested in the European court system. We are closely monitoring developments related to requirements for transferring personal data outside the EU. These requirements may result in an increase in the obligations required to provide our services in the EU or in sanctions and fines for non-compliance. Several other countries, including Australia and Japan, have also established specific legal requirements for cross-border transfers of personal information. These developments in Europe and elsewhere could harm our business, financial condition and results of operations.

~~Security vulnerabilities in our products and systems could lead to reduced revenue or to liability claims.~~

~~Maintaining the security of our products, computers and networks is a critical issue for~~ us and our customers. ~~Security researchers, criminal hackers and other~~

Cybersecurity incidents can be caused by human error from our workforce or that of our third-party service providers, by malicious third parties, ~~regularly develop new techniques to penetrate computer~~acting alone or in groups, or by more sophisticated organizations, including nation-states and ~~network security measures and, as we have previously disclosed, certain~~state-sponsored organizations. Such risks may be elevated in connection with geopolitical tensions, including the Russia-Ukraine war. Certain unauthorized parties have in the past managed, and may in the future manage, to ~~breach~~overcome our ~~data~~ security ~~systems~~measures and ~~misused some~~those of our third-party service providers to access and misuse systems and software in order to access our end users’ authentication and payment information. In addition, cyber-attackers also develop and deploy viruses, worms, credential stuffing attack tools, and other malicious software programs, some of which may be specifically designed to attack our products, systems, computers or networks. Sophisticated hardware and operating system applications that we develop or procure from third parties may containby exploiting defects in design or manufacture, including

bugs, vulnerabilities and other problems that ~~could~~ unexpectedly compromise the security or operation of ~~the system~~a product or ~~impair a customer’s ability to operate or use our products. The costs to prevent, eliminate, notify affected parties of, or alleviate cyber- or other security problems, bugs, viruses, worms,~~system. Further, malicious software programs and security vulnerabilities are significant, and our efforts to address these problems may not be successful or may be delayed and could result in interruptions, delays, cessation of service and loss of existing or potential customers. It is impossible to predict the extent, frequency or impact these problems may have on us.

~~Outside~~third parties have in the past attempted, and may in the future attempt, to fraudulently induce our employees or users of our products, services or ~~services~~solutions to disclose sensitive, personal or confidential information via illegal electronic spamming, phishing or other ~~tactics. Unauthorized~~tactics, and this risk is heightened in our current hybrid model working environment. Malicious actors may engage in fraudulent or abusive activities through our products, services and solutions, including unauthorized use of accounts through stolen credentials, use of stolen credit cards or other payment vehicles, failure to pay for services accessed, or other activities that violate our terms of service. While we actively combat such fraudulent activities, we have experienced, and may in the future experience, impacts to our revenue from such activities. Further, unauthorized parties may also ~~attempt to~~ gain physical access to our facilities ~~in order to~~and infiltrate our information systems or attempt to gain logical access to our products, services or information systems ~~for the purpose of exfiltrating~~to access content and data. ~~These actual~~The loss of or unauthorized access to data, such as resulting from computer viruses, worms, ransomware or other malware may harm our systems, expose us to litigation or regulatory investigation and subject us to costly and time-intensive notification requirements.

We devote significant resources to address security vulnerabilities through engineering more secure products, enhancing security and reliability features in our products and systems, code hardening, conducting rigorous penetration tests, deploying updates to address security vulnerabilities, regularly reviewing our service providers’ security controls, reviewing and auditing our products, services and solutions against information security control frameworks, providing resources, such as security training, to our workforce, and continually assessing and improving, as appropriate, our incident response process. Despite our preventative efforts, there is no assurance that our security measures will provide full effective protection from such events. The costs to prevent, eliminate, mitigate or remediate cybersecurity or other security problems and vulnerabilities are significant and

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may reduce our operating margins. Further, our efforts to address these problems, including notifying affected third parties when appropriate, have in the past been, and may in the future be, unsuccessful or delayed, which could result in business interruptions, cessation of service and loss of existing or potential ~~breaches~~customers.

Maintaining the security of our products, services and solutions is a critical issue for us and our customers. It is impossible to predict the extent, frequency or impact cybersecurity issues may have on us. Breaches of our security measures and the accidental loss, inadvertent disclosure or unauthorized dissemination of proprietary information or sensitive, personal or confidential data about us, our employees, our customers or their end users, including the potential loss or disclosure of such information or data ~~as a result of hacking, fraud, trickery or other forms of deception,~~ could expose us, our employees, our customers or ~~the~~other individuals affected to a risk of loss or misuse of this information. ~~This~~Actual or perceived security vulnerabilities or incidents may result in claims or litigation and liability or fines ~~our compliance with~~(and have in the past led to such claims), costly and ~~time intensive~~time-intensive notice requirements, governmental inquiry or oversight or a loss of customer confidence, any of which could harm our business orand damage our brand and ~~reputation, possibly impeding~~reputation. Our customers may also adopt security measures to protect their computer systems and their instances of our ~~present~~software from attack and may suffer a cybersecurity attack on their own systems, unrelated to our systems. Even if such breach is unrelated to our security systems, solutions or programs, such breach could cause us reputational harm and require us to incur significant economic and operational consequences to adequately assess and respond to their breach, and to implement additional safeguards designed to protect against future ~~success in retaining~~breaches.

While we maintain insurance to cover operational risks, such as cyber risk and ~~attracting new customers and thereby requiring time and resources~~technology outages, our insurance may not be sufficient to ~~repair our brand and reputation.~~cover all liability described herein. These risks will likely increase as we expand our hosted offerings, integrate our products, services and ~~services,~~solutions and store and process more ~~data, including personal information.~~

These problems affect our products and services in particular because cyber-attackers tend to focus their efforts on popular offerings with a large user base, and we expect them to continue to do so. Critical vulnerabilities may be identified in some of our applications. These vulnerabilities could cause such applications to crash and could allow an attacker to take control of the affected system, which could result in liability to us or limit our ability to conduct our business and deliver our products and services to customers. We devote significant resources to address security vulnerabilities through engineering more secure products, enhancing security and reliability features in our products and systems, code hardening, conducting rigorous penetration tests, deploying updates to address security vulnerabilities and improving our incident response time, but these security vulnerabilities cannot be totally eliminated. The cost of these steps could reduce our operating margins, and we may be unable to implement these measures quickly enough to prevent cyber-attackers from gaining unauthorized access into our systems and products. Despite our preventative efforts, actual or perceived security vulnerabilities in our products and systems may harm our reputation or lead to claims against us (and have in the past led to such claims), and could lead some customers to stop using certain products or services, to reduce or delay future purchases of products or services, or to use competing products or services. If we do not make the appropriate level of investment in our technology systems or if our systems become out-of-date or obsolete and we are not able to deliver the quality of data security customers require, our business could be adversely affected. Customers may also adopt security measures designed to protect their existing computer systems from attack, which could delay adoption of new technologies. Further, if we or our customers are subject to a future attack, or our technology is used in a third-party attack, we could be subject to costly and time intensive notice requirements, and it may be necessary for us to take additional extraordinary measures and make additional expenditures to take appropriate responsive and preventative steps. Any of these events could adversely affect our revenue or margins.data. Moreover, delayed sales, lower margins or lost customers resulting from disruptions caused by ~~cyber-attacks~~cyberattacks, overly burdensome preventative security measures or ~~preventative measures~~failure to fully meet information security control certification requirements could materially and adversely affect our financial results, stock price and reputation.

WeIf we are unable to develop, manage and maintain critical third-party relationships, such as our sales, partner and distribution channels, suppliers and service providers, our revenue and business may ~~not realize the anticipated benefits of past or future investments or acquisitions, and integration of acquisitions may disrupt our business and management.~~be adversely affected.

We ~~may not realize the anticipated benefits~~contract with a number of ~~an investment or acquisition of a company, division, product or technology, each~~software distributors and other third parties to distribute our products, services and solutions, none of which ~~involves numerous risks. These risks include:~~

~~inability~~are individually responsible for a material amount of our total net revenue in any recent period. Successfully managing our distribution channels and sales partners to ~~achieve the financial and strategic goals~~reach various customers for ~~the acquired and combined businesses;~~

~~difficulty in, and the cost of, effectively integrating the operations, technologies,~~our products, or services and ~~personnel of the acquired business;~~

~~entry into markets in which we have minimal prior experience~~solutions is a complex and ~~where competitors in such markets have stronger market positions;~~

~~disruption~~global process. If an agreement with one of our ~~ongoing business and distraction of our management and other employees from other opportunities and challenges;~~

~~inability to retain personnel of the acquired business;~~

~~inability to retain key customers, distributors, vendors and other business partners of the acquired business;~~

~~inability to take advantage of anticipated tax benefits;~~

~~incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results;~~

~~elevated delinquency or bad debt write-offs related to receivables of the acquired business we assume;~~

~~increased accounts receivables collection times and working capital requirements associated with acquired business models;~~

~~additional costs of bringing acquired companies into compliance with laws and regulations applicable to a multinational corporation;~~

~~difficulty in maintaining controls, procedures and policies during the transition and integration;~~

~~impairment of our relationships with employees, customers, partners,~~ distributors or ~~third-party providers of our technologies, products or services;~~

~~failure of our due diligence processes to identify significant problems, liabilities or other challenges of an acquired company or technology;~~

~~exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, an acquisition, such as claims from~~partners was terminated, ~~employees, customers, former stockholders or other third parties;~~

~~incurring significant exit charges if products or services acquired in business combinations are unsuccessful;~~

~~inability to conclude that our internal controls over financial reporting are effective;~~

~~inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could delay or prevent such acquisitions;~~

~~the failure of strategic investments to perform as expected or to meet financial projections;~~

any prolonged delay in ~~customer and~~securing a replacement distributor ~~purchasing decisions due to uncertainty about the direction of our product and service offerings; and~~

~~incompatibility of business cultures.~~

~~Mergers and acquisitions of technology companies are inherently risky. If we do not complete an announced acquisition transaction~~ or integrate an acquired business successfully and in a timely manner, we may not realize the benefits of the acquisition to the extent anticipated, and in certain circumstances an acquisition could harm our financial position.

~~Changes in accounting principles, or interpretations thereof,~~partner could have a ~~significant~~negative impact on our ~~financial position and~~ results of operations. We also face legal risk and potential reputational harm from the activities of these independent third parties including, but not limited to, export control violations, workplace conditions, corruption and anti-competitive behavior.

If our partner and distribution channels are not effective or if we stop or change our partner or distribution channels, we may lose sales opportunities, customers and revenue. We ~~prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These principles~~rely on third-party distribution platforms and are subject to ~~interpretation by~~changes in pricing structure, terms of service, privacy practices and other policies at the ~~SEC and various bodies formed to interpret and create appropriate accounting principles. A change in these principles, how~~discretion of the principles are interpreted, or the adoption of new accounting principles can have a significant effect on our reported results, and could even retroactively affect previously reported transactions, and may require that we make significantplatform provider. Any adverse changes to the terms with such third-party distribution platforms which we rely on to distribute our ~~systems, processes~~products, services and ~~controls.~~

Changes resulting from these new standards may result in materially different financial results and may require that we change how we process, analyze and report financial information and that we change financial reporting controls. For additional information regarding these updated standards, see the section titled “Recent Accounting Pronouncements Not Yet Effective” within Part II. Item 8, Note 1. Basis of Presentation and Summary of Significant Accounting Policies.

Such changes in accounting principles may have an adverse effect on our business, financial position, and income, or cause an adverse deviation from our revenue and profitability targets, which may negatively impact our financial results.

~~Changes in tax rules and regulations, or interpretations thereof,~~solutions may adversely affect our ~~effective tax rates.~~financial results. Additionally, our distribution channels may not continue to market or sell our products, services and solutions effectively and may favor products, services and solutions of other companies.

We sell many products, services and solutions through our direct sales force. Risks associated with this sales channel include challenges related to hiring, retaining and motivating our direct sales force, and substantial amounts of ongoing training for sales representatives. Our business could be harmed if our direct sales expansion efforts do not generate the corresponding efficiencies and revenue we anticipated from such investment. In addition, the loss of key sales employees could impact our customer relationships and future ability to sell to certain accounts covered by such employees.

We rely on third-party service providers and technologies to deliver our products, services and business operations and to operate critical business systems, such as cloud-based infrastructure, data center facilities, encryption and authentication technology and company email, communications with customers. If such third parties are ~~a United States-based multinational company subject~~negatively affected, if we fail to ~~tax~~effectively develop, manage and maintain our relationships with such third parties, or if we are unable to renew our agreements with them on favorable terms or at all, our expenses could significantly increase, and we and our customers may experience service interruptions. Any disruption or damage to, or failure of our systems generally, including the systems of our third-party platform providers, could result in ~~multiple U.S.~~interruptions in our services and ~~foreign tax jurisdictions. The Tax Act, enacted into law on December 22, 2017, changes existing U.S. tax law applicable to~~harm our business. Further, interruptions in our services caused by us ~~and includes adoption of a territorial tax system requiring~~or our third-party service providers may cause us to ~~incur a transition tax on previously untaxed earnings~~issue credits or pay penalties, cause customers to make warranty or other claims against us or to terminate their subscriptions or contracts, and profits of our foreign subsidiaries. A significant portion of our foreign earnings for the current fiscal year were earned by our Irish subsidiaries. As part of the adoption of a territorial tax system, the Tax Act also provides an exemption from federal income taxes for distributions from foreign subsidiaries made after December 31, 2017 that were not subject to the one-time transition tax.

Our income tax expense has differed from the tax computed at the U.S. federal statutory income tax rate due primarily to discrete items and to tax on earnings from foreign operations. Unanticipated changes in our tax rates could affect our future results of operations. Our future effective tax rates could be unfavorably affected by changes in the tax rates in jurisdictions where our income is earned, by changes in or our interpretation of tax rules and regulations in the jurisdictions in which we do business, by unanticipated decreases in the amount of earnings in countries with low statutory tax rates, by unexpected negative changes in business and market conditions that could reduce certain tax benefits, or by changes in the valuation of our deferred tax assets and liabilities.

In addition, in the United States, the European Commission, countries in the European Union and other countries where we do business, we are subject to potential changes in relevant tax, accounting and other laws, regulations and interpretations, including changes to tax laws applicable to corporate multinationals such as Adobe. These countries and other governmental bodies have or could make unprecedented assertions about how taxation is determined in their jurisdictions that are contrary to the way in which we have interpreted and historically applied the rules and regulations described above in our income tax returns filed in such jurisdictions. In the current global tax policy environment, any changes in laws, regulations and interpretations related to these assertions could adversely affect our ~~effective tax~~attrition rates ~~or result in other costs to us which could adversely affect~~and our ~~operations and financial results.~~

Moreover, we are subject to the continual examination of our income tax returns by the U.S. Internal Revenue Service (“IRS”) and other domestic and foreign tax authorities. These tax examinations are expected to focus on our intercompany transfer pricing practices as well as other matters. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for adjustments that may result from these examinations. We cannot provide assurance that the final determination of any of these examinations will not have an adverse effect on our operating results and financial position.

~~The success of some of our product and service offerings depends on our~~ ability ~~to continue to attract and retain customers of and contributors to our online marketplaces for creative content.~~

~~The success of some of our product and service offerings, such as Adobe Stock, depends on our ability to continue~~ to attract new customers, and contributors to these online marketplaces for creative content, as well as our ability to continue to retain existing customers and contributors. An increase in paying customers has generally resulted in more content from contributors, which increases the size of our collection and in turn attracts new paying customers. We rely on the functionality and features of our online marketplaces, the size and content of our collection and the effectiveness of our marketing efforts to attract new customers and contributors and retain existing ones. New technologies may render the features of our online marketplaces obsolete, our collection may fail to grow as anticipated or our marketing efforts may be unsuccessful, anyall of which may adversely affect our ~~results~~financial results. Our business and reputation would also be harmed if our customers and potential customers believe our services are unreliable.

Table of ~~operations.~~Contents

We face various risks associated with our operating as a multinational ~~corporation.~~corporation, and global adverse economic conditions may harm our business and financial condition.

AsWe derive a ~~global business that generates approximately 44%~~large portion of our total revenue from, ~~sales to customers~~and have significant operations, outside of the ~~Americas,~~United States. As a multinational corporation, we are subject to a number of risks, ~~including:~~including from global adverse economic conditions, that are uncertain and beyond our control and that make forecasting operating results and decisions about future investments difficult, such as:

~~foreign currency fluctuations~~•inflation and ~~controls;~~actions taken by central banks to counter inflation, including increasing interest rates;

•international and regional economic, political and labor conditions, including any instability or security concerns ~~abroad;~~abroad, such as uncertainty caused by economic sanctions, downturns and recessions, trade disputes, armed conflicts and wars;

•tax laws (including U.S. taxes on foreign subsidiaries);

•increased financial accounting and reporting burdens and complexities;

•changes in, or impositions of, legislative or regulatory ~~requirements;~~requirements, including antitrust and competition regulations;

•changes in laws governing the free flow of data across international borders;

~~failure of laws to protect our intellectual property rights adequately;~~

•inadequate local infrastructure and difficulties in managing and staffing international operations;

•costs, potential liability, delays or loss of sales resulting from ~~difficulty in obtaining export licenses for certain technology, tariffs, quotas~~trade restrictions imposed by the United States and other countries, as well as trade ~~barriers;~~

~~the imposition of governmental~~laws, including but not limited to economic sanctions ~~on countries in which we do business or where we plan to expand our business;~~and export controls;

•costs and delays associated with developing products in multiple languages; and

•operating in locations with a higher ~~incidence~~rate of corruption and fraudulent business ~~practices;~~practices.

Additionally, third parties we do business with and

~~other factors beyond~~ our ~~control, such as terrorism, war, natural disasters and pandemics.~~

~~Some of our third-party business partners~~customers have international operations and are also subject to ~~these risks~~the above risks. Adverse changes in global economic conditions have in the past resulted and ifmay in the future result in our ~~third-party~~customers’ and business ~~partners are~~partners’ insolvency, inability to obtain credit to finance or purchase our products, services and solutions, or a delay in paying or an inability to pay their obligations to us. Other third parties, such as our service providers, suppliers and distributors, may be unable to ~~appropriately manage these risks,~~deliver or be delayed in delivering critical services, products or technologies that we rely on, and our business and reputation may be harmed. Our customers’ spending rate and demand for our products, services and solutions may also be adversely affected by the above risks. If ~~sales to any of~~ our ~~customers outside of the Americas~~global sales are reduced, delayed or canceled because of any of the above ~~factors,~~risks, our revenue may decline.

Further, a disruption in global financial markets could impair our banking partners, on which we rely for operating cash management, capital market transactions and derivative programs. Such disruption could also negatively impact our customers’ ability to pay us due to delays or inability to access their existing cash.

As of March 1, 2024, our investment portfolio consisted of asset-backed securities, corporate debt securities, money market funds, U.S. agency securities and U.S. Treasury securities. These investments are subject to credit, liquidity, market, and interest rate risks as well as economic downturns or events that affect global or regional financial markets that may cause the value of our investments to decline, requiring impairment charges, which could adversely affect our financial condition.

If we are unable to recruit and retain key personnel, our business may be harmed, and our hybrid work model may present challenges, which could adversely impact our business.

Much of our future success depends on the continued service, availability and performance of our senior management and highly skilled personnel across all levels of our organization. Our senior management has acquired specialized knowledge and skills with respect to our business, and the loss of any of these individuals could harm our business, especially if we are not successful in developing adequate succession plans. Our efforts to attract, develop, integrate and retain highly skilled employees may be compounded by intensified restrictions on travel, immigration or the availability of work visas. The technology industry is often subject to substantial and continuous competition for talent, particularly with cybersecurity and AI backgrounds, and demand for cutting-edge or unique skill sets can be highly competitive, both of which are heightened with the increased availability of hybrid or remote working arrangements. We face an increasingly difficult challenge to attract and retain highly qualified security personnel to assist us in combating security threats. We may experience higher compensation costs to retain and recruit senior management and highly skilled personnel that may not be offset by improved productivity or increased sales.

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Our hybrid work environment may also present operational and workplace culture challenges, which could negatively affect our ability to execute against our business objectives and retain and recruit personnel.

Some of our enterprise offerings have extended and complex sales cycles, which may increase our costs and make our sales cycles unpredictable.

As we continue to target large enterprise customers for certain of our offerings, including Adobe Experience Cloud in our Digital Experience business and our Enterprise Term License Agreements in our Digital Media business, we may face increased costs, longer sales cycles, greater competition and less predictability in completing our sales. For our enterprise customers, the evaluation process may be longer and more involved, and require us to invest more in educating our customers about our products, services and solutions, particularly because the decision to use our products, services and solutions is often an enterprise-wide decision. We may be required to submit more robust proposals, participate in extended proof-of-concept evaluation cycles and engage in more extensive contract negotiations. In addition, our enterprise customers often demand more complex configurations and additional integration services and product features. Adverse macroeconomic conditions have caused, and may cause in the future, delays in our enterprise customers’ purchasing decisions. Due to these factors, we often must devote greater sales support to certain enterprise customers, which increases our costs and time required to complete a sale, without assurance that potential customers will ultimately purchase our solutions. We also may be required to devote more services resources to implementation, which increases our costs, without assurance that customers receiving these services will renew or renew at the same level. Since the sales cycles for our enterprise offerings are multi-phased and complex, it is often unpredictable when a given sales cycle will close. Our revenue from enterprise customers may be affected by longer-than-expected sales and implementation cycles, extended collection cycles, potential deferral of revenue and alternative licensing arrangements. Additionally, our enterprise sales pattern has historically been uneven, where a higher percentage of a quarter’s total sales occur during the final weeks of each quarter, which is common in our industry.

Risks Related to Laws and Regulations

We are subject to risks associated with compliance with laws and regulations globally, which may harm our business.

We are a global company subject to varied and complex laws, regulations and customs, both domestically and internationally. These laws and regulations relate to a number of aspects of our business, including trade ~~protection,~~compliance, import and export control, anti-boycott, economic sanctions and embargoes, data and transaction processing security, payment card industry data security standards, consumer protection, records management, user-generated content hosted on websites we operate, privacy practices, data residency, corporate governance, ~~anti-trust~~antitrust and competition, employee and third-party complaints, anti-corruption, gift policies, conflicts of interest, securities regulations and other regulatory requirements affecting trade and investment. The application of these laws and regulations to our business is often unclear and may at times conflict. For example, we are subject to the U.S. Foreign Corrupt Practices Act and other anti-corruption and anti-bribery laws, but in ~~many~~other foreign countries, particularly in those with developing economies, it is common to engage in ~~business~~ practices that ~~are~~would be prohibited ~~by U.S. regulations applicable to us, including the Foreign Corrupt Practices Act.~~under such acts. We cannot provide assurance that our employees, contractors, agents, ~~and~~ business partners and vendors will not take actions in violation of our internal policies, U.S. laws or ~~U.S.~~other applicable international laws. Compliance with these laws and regulations may involve significant costs or require changes in our business practices that result in reduced revenue and profitability. Non-compliance could also result in fines, damages, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of our business and damage to our reputation.

In addition, approximately ~~52%~~50% of our employees are located outside the United States. Accordingly, we are exposed to changes in laws governing our employee relationships in various U.S. and foreign jurisdictions, including laws and regulations regarding wage and hour requirements, fair labor standards, employee data privacy, unemployment tax rates, workers’ compensation rates, citizenship requirements and payroll and other taxes, which likely would have a direct impact on our operating costs.

~~Uncertainty about~~Increasing regulatory focus on privacy and security issues and expanding laws and regulatory requirements could impact our business models and expose us to increased liability.

We are subject to global data protection, privacy and security laws, regulations and codes of conduct that relate to our various business units and data processing activities, which may include sensitive, confidential, and personal information. These laws, regulations and codes are inconsistent across jurisdictions and are subject to evolving and differing (sometimes conflicting) interpretations. Government officials and regulators, privacy advocates and class action attorneys are increasingly

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scrutinizing how companies collect, process, use, store, share and transmit personal data. This scrutiny can result in new and shifting interpretations of existing laws, thereby further impacting our business. For example, the General Data Protection Regulation (“GDPR”) in the European Economic Area, and the United Kingdom continues to be interpreted by European and UK courts in novel ways leading to shifting requirements, country specific differences in application and uncertain enforcement priorities. More recently enacted laws, such as the Personal Information Protection Law in China, and new and emerging state laws in the United States on privacy, data and related technologies, such as the California Consumer Privacy Act, the California Privacy Rights Act, the Colorado Privacy Act and the Virginia Consumer Data Protection Act, as well as industry self-regulatory codes and regulatory requirements, create new privacy and security compliance obligations and expand the scope of potential liability, either jointly or severally with our customers and suppliers. As a security example, pursuant to the U.S. Securities and Exchange Commission’s Rules on Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure we are required to make certain disclosures related to material cybersecurity incidents and the reasonably likely impact of such an incident on Form 8-K and will be required to make certain other cybersecurity disclosures on Form 10-K. Determining whether a cybersecurity incident is notifiable or reportable may not be straightforward and any such mandatory disclosures could be costly and lead to negative publicity, loss of customer confidence in the effectiveness of our security measures, diversion of management’s attention and governmental investigations.

While we have invested in readiness to comply with applicable requirements, the dynamic and evolving nature of these laws, regulations and codes, as well as their interpretation by regulators and courts, may affect our ability (and our enterprise customers’ ability) to reach current and ~~future economic conditions~~prospective customers, to respond to both enterprise and individual customer requests under the laws (such as individual rights of access, correction and deletion of their personal information), to implement our business models effectively and to adequately address disclosure requirements. These laws, regulations and codes may also impact our innovation and business drivers in developing new and emerging technologies (for example, AI and machine learning) and may impact demand for our offerings and force us to bear the burden of more onerous obligations in our contracts. Perception of our practices, products, services or solutions, even if unfounded, as a violation of individual privacy, data protection rights or cybersecurity requirements, subjects us to public criticism, lawsuits, investigations, claims and other ~~adverse changes in general political conditions in any~~proceedings by regulators, industry groups or other third parties, all of ~~the major countries in~~ which ~~we do business~~ could disrupt or adversely ~~affect our operating results.~~

Asimpact our business ~~has grown, we have become increasingly subject to the risks arising from adverse changes in economic~~ and ~~political conditions, both domestically~~reputation and ~~globally. Uncertainty about the effects of current and future economic and political conditions on us, our customers, suppliers and partners makes it difficult for~~expose us to ~~forecast operating results~~increased liability, fines and to make decisions about future investments. If economic growth in countries where we do business slows, customers may delay or reduce technology purchases, advertising spending or marketing spending. This could result in reductions inother punitive measures including prohibition on sales of our products, services or solutions, restrictive judicial orders and ~~services, more extended sales cycles, slower adoption~~disgorgement of ~~new technologies~~data. Additionally, we collect and ~~increased price competition. Among~~store information on behalf of our business customers and if our customers ~~are government entities, including~~fail to comply with contractual obligations or applicable laws, it could result in litigation or reputational harm to us.

Transferring personal information across international borders is complex and subject to legal and regulatory requirements as well as active litigation and enforcement in a number of jurisdictions around the ~~U.S. federal government, and~~world, each of which could have an adverse impact on our ~~revenue could decline if spending cuts impact the government’s~~ ability to ~~purchase~~process and transfer personal data as part of our ~~products~~business operations. For example, European data transfers outside the European Economic Area are highly regulated and ~~services. Deterioration in economic conditions in any~~litigated. The mechanisms that we and many other companies rely upon for European data transfers (for example, Standard Contractual Clauses and the EU - US Data Privacy Framework) are the subject of legal challenge, regulatory interpretation and judicial decisions by the Court of Justice of the European Union. The suitability of Standard Contractual Clauses for data transfer in some scenarios has recently been the subject of legal challenge, and while the United States and the European Union reached agreement on the EU - US Data Privacy Framework, there are legal challenges to that data transfer mechanism as well. We continue to closely monitor for developments related to valid transfer mechanisms available for transferring personal data outside the European Economic Area (including the EU - US Data Privacy Framework) and other countries that have similar trans-border data flow requirements and adjust our practices accordingly. The open judicial questions and regulatory interpretations related to the validity of transfers using Standard Contractual Clauses have resulted in ~~which we~~some changes in the obligations required to provide our services in the European Union and could expose us to potential sanctions and fines for non-compliance. Several other countries, including China, Australia, New Zealand, Brazil, Hong Kong and Japan, have also established specific legal requirements for cross-border transfers of personal information and certain countries have also established specific legal requirements for data localization (such as where personal data must remain stored in the country). If other countries implement more restrictive regulations for cross-border data transfers or do ~~business~~not permit data to leave the country of origin, such developments could ~~also cause slower or impaired collections on accounts receivable, which may~~ adversely impact our ~~liquidity~~business and ~~financial condition.~~

~~A disruption in financial markets could impair~~ our ~~banking partners, on which we rely for operating cash management and affect~~enterprise customers’ business, our ~~derivative counterparties. Any of these events would likely harm our business,~~ financial condition and ~~results of operations.~~

~~Political instability or adverse political developments in or around any of the major countries in which we do business would also likely harm~~ our ~~business,~~ results of operations ~~and financial condition.~~in those jurisdictions.

Our intellectual property portfolio is a valuable asset and we may not be able to protect our intellectual property rights, including our source code, from infringement or unauthorized copying, use or disclosure.

Our ~~intellectual property portfolio is a valuable asset. Infringement or misappropriation of our~~ patents, trademarks, trade secrets, copyrights and other intellectual property ~~rights~~are valuable assets to us. Infringement or misappropriation of such intellectual property could result in lost revenues and ultimately reduce their value. ~~Preventing~~We protect our intellectual property by relying on federal, state and common law rights in the United States and internationally, as well as a variety of administrative procedures and contractual restrictions. Despite our efforts, protecting our intellectual property rights and preventing unauthorized use ~~or infringement~~ of our intellectual property ~~rights is~~are inherently difficult. WeFor instance, we actively combat software

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piracy, ~~as we enforce our intellectual property rights,~~ but we ~~nonetheless~~continue to lose ~~significant~~ revenue due to illegal use of our software. ~~If piracy activities continue at historical levels or increase, they~~Third parties may ~~further harm~~illegally copy and sell counterfeit versions of our ~~business.~~products. To the extent counterfeit installations and sales replace otherwise legitimate ones, our operating results could be adversely affected. We apply for patents in the ~~U.S.~~United States and ~~internationally~~in foreign countries, but we are not always successful in obtaining patent protection or in obtaining such protection timely to meet our business needs. Our patents may be invalidated or circumvented. Moreover, due to challenges in detecting patent infringement pertaining to generative AI technologies, it may be more difficult to protect our ~~newly created technology~~generative AI and related innovations with patents. Additionally, if we ~~are unable~~use generative AI in the creation of our source code, we may not be able to ~~obtain patent protection for~~rely on copyright to protect such intellectual property. Further, the technology described in our pending patent, or if the patent is not obtained timely, this could result in revenue loss, adverse effects on operations, and harm to our business. We offer our products and services inlaws of some foreign countries ~~and we may seek intellectual property protection from those foreign legal systems. Some of those foreign countries may~~do not ~~have as robust or comprehensive~~provide the same level of intellectual property protection as U.S. laws and ~~schemes as those offered in the U.S. In some foreign countries, the mechanisms~~courts and could fail to ~~enforce~~adequately protect our intellectual property ~~rights may be inadequate to protect our technology, which could harm our business.~~

rights. If unauthorized disclosure of our source code occurs through security breach, cyber-attack or otherwise, we could lose future trade secret protection for that source code. ~~The~~Such loss ~~of future trade secret protection~~ could make it easier for third parties to compete with our products by copying functionality, which could cause us to lose customers and could adversely affect our revenue and operating margins. ~~We also seek to~~If we cannot protect our ~~confidential information~~intellectual property against unauthorized copying, use, or other misappropriation, our business could be harmed.

We are, and ~~trade secrets through~~may in the ~~use~~future become, subject to litigation, regulatory inquiries and intellectual property infringement claims, which could result in an unfavorable outcome and have an adverse effect on our business, financial condition, results of ~~non-disclosure agreements with our customers, contractors, vendors~~operation and ~~partners. However, there is a risk~~cash flows.

We are subject to various legal proceedings (including class action lawsuits), claims and regulatory inquiries that ~~our confidential information~~are not yet resolved and ~~trade secrets~~additional claims, enforcement actions and inquiries may arise in the future. Any proceedings, actions, claims or inquiries initiated by or against us, whether successful or not, may be ~~disclosed~~time consuming; result in costly litigation, damage awards, consent decrees, injunctive relief or ~~published without~~increased costs of business; require us to change our ~~authorization,~~business practices or products; result in negative publicity; require significant amounts of management time; result in the diversion of significant operational resources, or otherwise harm our business and ~~in these situations, enforcing our rights may be difficult or costly.~~financial results.

~~We may incur substantial costs defending against third parties alleging that~~Additionally, we ~~infringe their proprietary rights.~~

~~We have been,~~ are currently, and may in the future be subject to claims, negotiations and complex, protracted litigation relating to disputes regarding the validity or alleged infringement of third-party intellectual property rights, including patent rights. Intellectual property disputes and litigation are typically costly and can be disruptive to our business operations by diverting the attention of management and key personnel. ~~We may not prevail in every lawsuit or dispute.~~ Third-party intellectual property disputes, including those initiated by patent assertion entities, could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from ~~licensing certain of our products or~~ offering certain ~~of our~~products, services or solutions, subject us to injunctions restricting our ~~sale of products or services,~~sales, cause severe disruptions to our operations or the markets in which we compete, or require us to satisfy indemnification commitments with our customers, including contractual provisions under various license arrangements and service agreements. In addition, we have incurred, and may in the future incur, significant costs in acquiring the necessary third-party intellectual property rights for use in our products, in some cases to fulfill contractual obligations with our customers. Any of these occurrences could significantly harm our business.

We have not prevailed, and may not in the future prevail, in every lawsuit or dispute. For further information about specific litigation and proceedings, see the section titled “Legal Proceedings” contained in Part I, Item 1, Note 13 of our Notes to Consolidated Financial Statements of this report.

Changes in tax rules and regulations or interpretations thereof may adversely affect our effective tax rates.

We are a U.S.-based multinational company subject to tax in multiple domestic and foreign tax jurisdictions. Significant judgment is required in determining our current provision for income taxes and deferred tax assets or liabilities. Tax laws in the United States as well as other countries and jurisdictions in which we conduct business are subject to change as new laws are passed and/or new interpretations are made available, which may have a material impact on our business. These countries, governmental bodies, such as the European Commission of the European Union, and intergovernmental economic organizations, such as the Organization for Economic Cooperation and Development, have made or could make unprecedented assertions about how taxation is determined and, in some cases, have proposed or enacted new laws that are contrary to the way in which rules and regulations have historically been interpreted and applied.

Changes in our operating landscape, such as changes in laws or interpretations of tax rules, could adversely affect our effective tax rates and/or cause us to respond by making changes to our business structure, which could adversely affect our operations and financial results. Our future effective tax rates are likely to be unfavorably affected by changes in the tax rates in jurisdictions where our income is earned, changes in jurisdictions in which our profits are determined to be earned and taxed, changes in the valuation of our deferred tax assets and liabilities, changes in or interpretation of tax rules and regulations in the jurisdictions in which we do business, or unexpected negative changes in business and market conditions that could reduce certain tax benefits. An increase in our effective tax rate would reduce our profitability.

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Moreover, we are subject to the examination of our income tax returns by domestic and foreign tax authorities. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from these examinations. While we believe our tax estimates are reasonable, we cannot provide assurance that the final determination of any of these examinations will not have an adverse effect on our financial position and results of operations.

Contracting with government entities exposes us to additional risks inherent in the government procurement process.

We provide products, services and solutions, directly and indirectly, to a variety of domestic and foreign government entities, which introduces certain risks and challenges not present in private commercial agreements, including varying governmental budgeting processes, fluctuations due to government spending cuts and shutdowns, highly competitive and lengthy bidding process that may be subject to political influence and adherence to complex procurement regulations and other government-specific contractual requirements. We incur ~~losses associated with~~significant up-front time and costs without any assurance that we will win a contract. Operating within a highly regulated industry, we have been and may in the future be subject to audits and investigations relating to our government contracts and any violations could result in termination of contracts and various civil and criminal penalties and administrative sanctions, including payment of fines and suspension or debarment from future government business, as well as harm to our reputation and financial results. We have made, and may continue to make, significant investments to support future sales opportunities in various government sectors, including to obtain various security authorizations and certifications. Such processes are complex, lengthy and can often be delayed. Furthermore, requirements may change, or we may be unable to achieve or sustain one or more government authorizations or certifications, which could affect our ability to sell to government entities until we meet any revised requirements.

Risks Related to Financial Performance

If there is a change in subscriptions or renewals in a reporting period, this could cause our financial results to suffer and may not be immediately reflected in our revenue and financial results for that period because we recognize revenue over the subscription term.

Our offerings are typically subscription-based, pursuant to product and service agreements. We generally recognize revenue from our subscription offerings ratably over the terms of their subscription agreements, which typically range from 1 to 36 months. As a result, most of the subscription revenue we report each quarter is the result of subscription agreements entered into during previous quarters. Lower sales and subscriptions, reduced demand for our products, services and solutions, and increases in our attrition rate in any given period may not be fully reflected in our results of operations until future periods. Our subscription model could also make it difficult for us to rapidly increase our revenue from subscription-based or hosted services through additional sales in any period, as revenue from new customers will be recognized over the applicable subscription term. Our renewal rates may decline or fluctuate as a result of a number of factors, including our customers’ level of satisfaction, our ability to continue enhancing features and functionality, reliability of our offerings, prices of ours and competitors’ offerings, the actual or perceived information security of our systems and services, decreases in the size of our customer base, changes as a result of regulatory or legal requirements, changes in the composition of our customer base and reductions in our customers’ spending levels or declines in customer activity. If our customers do not renew their subscriptions or if they renew on terms less favorable to us, our revenue may decline. Further, such impact on our revenue may not be immediately reflected in our financial results in the period in which our renewal rates changed and may adversely affect our financial results in future periods. If any of our assumptions about revenue from our subscription-based offerings prove incorrect, our actual results may suffer and vary from those anticipated.

We are subject to fluctuations in foreign currency ~~fluctuations~~exchange rates and may not be able to effectively hedge our exposure.

Our operating results and performance metrics are subject to fluctuations in foreign currency exchange rates due to the global scope of our business. Geopolitical and economic events, including war, trade disputes, economic sanctions and emerging market volatility, and associated uncertainty have caused, and may in the future cause, currencies to fluctuate. Accordingly, amounts reported as annualized recurring revenue, a performance metric which we measure at currency rates that are set at the beginning of each fiscal year and held constant throughout the year, may vary from actual revenue recognized in accordance with generally accepted accounting principles in the United States.

We attempt to mitigate a portion of these foreign currency exchange risks to our operating results through foreign currency hedging based on our judgment of the appropriate trade-offs among risk, opportunity and expense. We regularly review our hedging program ~~to partially hedge our exposure to foreign currency fluctuations~~ and make adjustments ~~as necessary.~~that we believe are appropriate. Our hedging activities have not, and may not in the future, offset more than a portion of the adverse financial impact, including on our actual revenue recognized, resulting from unfavorable movement in foreign currency exchange rates, which could adversely affect our financial condition, business performance or results of operations.

~~Failure~~

Table of ~~our third-party customer service and technical support providers to adequately address customers’ requests could harm our business and adversely affect our financial results.~~Contents

Our customers rely on our customer service support organization to resolve issues with our products and services. We outsource a substantial portion of our customer service and technical support activities to third-party service providers. We depend heavily on these third-party customer service and technical support representatives working on our behalf, and we expect to continue to rely heavily on third parties in the future. This strategy presents risks to our business due to the fact that we may not be able to influence the quality of support as directly as we would be able to do if our own employees performed these activities. Our customers may react negatively to providing information to, and receiving support from, third-party organizations, especially if these third-party organizations are based overseas. If we encounter problems with our third-party customer service and technical

~~support providers, our reputation may be harmed, our ability to sell our offerings could be adversely affected, and we could lose customers and associated revenue.~~

~~Failure to manage our sales and distribution channels effectively could result in a loss of revenue and harm to our business.~~

We contract with a number of software distributors and other strategic partners, none of which is individually responsible for a material amount of our total net revenue for any recent period. Nonetheless, if any single agreement with one of our distributors were terminated, any prolonged delay in securing a replacement distributor could have a negative impact on our results of operations.

Successfully managing our indirect distribution channel efforts to reach various customer segments for our products and services is a complex process across the broad range of geographies where we do business or plan to do business. Our distributors and other channel partners are independent businesses that we do not control. Notwithstanding the independence of our channel partners, we face legal risk and potential reputational harm from the activities of these third parties including, but not limited to, export control violations, workplace conditions, corruption and anti-competitive behavior.

We cannot be certain that our distribution channel will continue to market or sell our products and services effectively. If our distribution channel is not successful, we may lose sales opportunities, customers and revenue. Our distributors also sell our competitors’ products and services, and if they favor our competitors’ products or services for any reason, they may fail to market our products or services effectively or to devote resources necessary to provide effective sales, which would cause our results to suffer. We also distribute some products and services through our OEM channel, and if our OEMs decide not to bundle our applications on their devices, our results could suffer. In addition, the financial health of our distributors and our continuing relationships with them are important to our success. Some of these distributors may be unable to withstand adverse changes in economic conditions, which could result in insolvency, the inability of such distributors to obtain credit to finance purchases of our products and services, or a delay in paying their obligations to us.

We also sell some of our products and services through our direct sales force. Risks associated with this sales channel include more extended sales and collection cycles associated with direct sales efforts, challenges related to hiring, retaining and motivating our direct sales force, and substantial amounts of ongoing training for sales representatives. Moreover, recent hires may not become as productive as we would like, as in most cases it takes a significant period of time before they achieve full productivity. Our business could be seriously harmed if our expansion efforts do not generate a corresponding significant increase in revenue and we are unable to achieve the efficiencies we anticipate. In addition, the loss of key sales employees could impact our customer relationships and future ability to sell to certain accounts covered by such employees.

~~Contracting with government entities exposes us to additional risks inherent in the government procurement process.~~

We provide products and services, directly and indirectly, to a variety of government entities, both domestically and internationally. Risks associated with licensing and selling products and services to government entities include more extended sales and collection cycles, varying governmental budgeting processes and adherence to complex procurement regulations and other government-specific contractual requirements. We may be subject to audits and investigations relating to our government contracts and any violations could result in various civil and criminal penalties and administrative sanctions, including termination of contracts, payment of fines, and suspension or debarment from future government business, as well as harm to our reputation and financial results.

~~Revenue, margin or earnings shortfalls or the volatility of the market generally may cause the market price of our stock to decline.~~

~~In the past, the market price for our common stock experienced significant fluctuations and it may do so in the future. A number of factors may affect the market price for our common stock, such as:~~

shortfalls in, or changes in expectations about our revenue, margins, earnings, Annualized Recurring Revenue (“ARR”), sales of our Adobe Experience Cloud offerings, or other key performance metrics;

~~changes in estimates or recommendations by securities analysts;~~

~~whether our results meet analysts’ expectations;~~

~~compression or expansion of multiples used by investors and analysts to value high technology SaaS companies;~~

~~the announcement of new products or services, product enhancements, service introductions, strategic alliances or significant agreements by us or our competitors;~~

~~the loss of large customers or our inability to increase sales to existing customers, retain customers or attract new customers;~~

~~recruitment or departure of key personnel;~~

~~variations in our or our competitors’ results of operations, changes in the competitive landscape generally and developments in our industry;~~

~~general socio-economic, political or market conditions; and~~

~~unusual events such as significant acquisitions by us or our competitors, divestitures, litigation, regulatory actions and other factors, including factors unrelated to our operating performance.~~

In addition, the market for technology stocks or the stock market in general may experience uneven investor confidence, which may cause the market price for our common stock to decline for reasons unrelated to our operating performance. Volatility in the market price of a company’s securities for a period of time may increase the company’s susceptibility to securities class action litigation. Oftentimes, this type of litigation is expensive and diverts management’s attention and resources which may adversely affect our business.

~~If we are unable to recruit and retain key personnel, our business may be harmed.~~

Much of our future success depends on the continued service, availability and performance of our senior management. These individuals have acquired specialized knowledge and skills with respect to Adobe. The loss of any of these individuals could harm our business, especially if we have not been successful in developing adequate succession plans. Our business is also dependent on our ability to retain, hire and motivate talented, highly skilled personnel across all levels of our organization. Experienced personnel in the information technology industry are in high demand and competition for their talents is intense in many areas where our employees are located. We may experience higher compensation costs to retain senior management and experienced personnel that may not be offset by improved productivity or increased sales. If we are unable to continue to successfully attract and retain key personnel, our business may be harmed.

We continue to hire personnel in countries where exceptional technical knowledge and other expertise are offered at lower costs, which increases the efficiency of our global workforce structure and reduces our personnel related expenditures. Nonetheless, as globalization continues, competition for these employees in these countries has increased, which may impact our ability to retain these employees and increase our expenses resulting from competitive compensation. We may continue to expand our international operations and international sales and marketing activities, which would require significant management attention and resources. We may be unable to scale our infrastructure effectively or as quickly as our competitors in these markets, and our revenue may not increase to offset these expected increases in costs and operating expenses, causing our results to suffer.

We believe that a critical contributor to our success to date has been our corporate culture, which we have built to foster innovation, teamwork and employee satisfaction. As we grow, including from the integration of employees and businesses acquired in connection with previous or future acquisitions, we may find it difficult to maintain important aspects of our corporate culture, which could negatively affect our ability to retain and recruit personnel who are essential to our future success.

If our goodwill or ~~amortizable~~ intangible assets become impaired, then we could be required to record a significant charge to earnings.

~~GAAP requires us to~~We test goodwill for ~~goodwill~~ impairment at least annually. ~~In addition, we~~We review our goodwill and ~~amortizable~~ intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be ~~recoverable. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or amortizable intangible assets may not be~~ recoverable, ~~include~~including declines in stock price, market capitalization or reduced future cash ~~flows,~~flow estimates and slower growth rates in our industry. Depending on the results of our review, we ~~could~~may be required to record a significant charge to earnings in our consolidated financial statements during the period in which any impairment of our goodwill or ~~amortizable~~ intangible assets ~~were~~was determined, negatively impacting our results of operations.

~~We have issued $1.9 billion of notes in~~Our existing and future debt ~~offerings and may incur other debt in the future, which~~obligations may adversely affect our financial condition and future financial results.

~~We have $1.9~~As of March 1, 2024, we had $3.65 billion in senior unsecured notes outstanding and a $3 billion commercial paper program with no amounts outstanding. We also ~~have~~had a $1$1.5 billion senior unsecured revolving credit agreement, which ~~is currently~~was undrawn. This debt or future additional indebtedness may adversely affect our financial condition and future financial results by, among other things:

~~increasing our vulnerability to adverse changes in general economic and industry conditions;~~

•requiring the dedication of a portion of our expected cash ~~flow~~flows from operations to service our ~~indebtedness,~~debt, thereby reducing the amount of expected cash ~~flow~~flows available for other purposes, including capital expenditures and acquisitions; ~~and~~

~~limiting~~•increasing our ~~flexibility in planning for, or reacting~~vulnerability to adverse changes in our business and general economic and industry conditions; and

•limiting our ~~industry.~~ability to obtain future financing for working capital, capital expenditures, future acquisitions, general corporate or other purposes, which may also impact our ability to service and repay outstanding indebtedness as it becomes due.

Our senior unsecured notes, commercial paper program and ~~senior unsecured~~ revolving credit agreement impose restrictions on us and require us to maintain compliance with specified covenants. Our ability to comply with these covenants may be affected by events beyond our control. If we breach any of the covenants and do not obtain a waiver from the ~~lenders~~noteholders or ~~noteholders,~~lenders, then, subject to applicable cure periods, any outstanding ~~indebtedness~~debt may be declared immediately due and payable.

In addition, changes by any rating agency to our credit rating may negatively impact the value and liquidity of both our debt and equity securities, as well as the potential costs associated with a refinancing of our debt. Under certain circumstances, if our credit ratings are downgraded or other negative action is taken, the interest rate payable by us under our revolving credit ~~facility~~agreement could increase. Downgrades in our credit ratings could also ~~affect the terms of any such financing and~~ restrict our ability to obtain additional financing in the ~~future.~~future and affect the terms of any such financing.

General Risk Factors

Catastrophic events, including events associated with climate change, may disrupt our ~~business.~~

~~We are a highly automated~~ business and ~~rely~~adversely affect our financial condition and results of operations.

Our business relies on our network infrastructure and enterprise ~~applications,~~apps, internal technology systems and website for our development, marketing, operations, support, hosted services and sales activities. In addition, some of our businesses rely on third-party hosted services, and we do not control the operation of third-party data center facilities serving our customers from around the world, which increases our vulnerability.websites. A disruption, infiltration or failure of ~~these~~our systems, data centers or operations, or those of our third-party ~~hosted services in the event of~~service providers due to a major earthquake, ~~fire, flood, tsunami~~other natural disasters, including climate-related events (such as drought, water security, heat waves, cold waves, wildfires and poor air quality), power shutoff or ~~other weather event, power~~ loss, telecommunications failure, ~~software or hardware malfunctions, pandemics, cyber-attack,~~epidemic, pandemic, war, terrorist attack or other catastrophic event, ~~that our disaster recovery plans do not adequately address,~~ could cause ~~system~~ interruptions ~~reputational harm,~~to our systems and business operations, damage to critical infrastructure, loss of intellectual property, ~~delays in our product development, lengthy interruptions in our services, breaches of~~ data security breaches and loss of critical data. Any of these events could prevent us from fulfilling our customers’ orders or could negatively impact a country or region in which we sell our products, which could in turn decrease that country’s or region’s demand for our products.data loss. Our corporate headquarters, a significant ~~portion of our~~ research and development ~~activities,~~activity, certain of our data centers and ~~certain~~ other critical business operations are ~~located~~ in the San Francisco Bay Area and ~~additional facilities where we conduct significant operations are located in~~ the Salt Lake Valley Area, both of which are near major earthquake faults. A catastrophic event, particularly one that ~~results in the destruction or disruption of any of~~may disrupt our data centers or our critical ~~business or information technology systems~~activities, could ~~severely affect our ability to conduct~~prevent us from conducting normal business operations and providing our products, services and solutions, which could adversely affect our business. A catastrophic event could negatively impact a country or region in which we sell and, in turn, decrease demand for our products, services and solutions, which could negatively impact our business. Climate-related catastrophic events that may harm our business are also increasing in frequency and severity. We may be subject to additional climate-related regulations and reporting requirements and changing market dynamics and stakeholder expectations regarding climate change and our environmental impacts, all of which may impact our business, financial condition and results of operations.

The occurrence of an epidemic or a pandemic, such as the COVID-19 pandemic, has had and may continue to have an adverse effect on our operating results. The extent to which epidemics and pandemics impact our financial condition or results of operations will depend on many factors outside of our control and whether there is a ~~result, our future operating results could be adversely affected.~~

~~Climate change may have a long-term~~material impact on the businesses or productivity of our ~~business.~~customers, employees, suppliers and other partners. A global pandemic may also intensify the other risks described in this Part I, Item 1A of this report.

~~While~~

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Our stock price may be volatile and your investment could lose value.

Our stock price has been and may continue to be volatile and subject to fluctuations. All factors described in this Part I, Item 1A of this report, some of which are beyond our control, may affect our stock price, including:

•shortfalls in or changes to estimates, recommendations or expectations about our revenue, margins, earnings, annualized recurring revenue or other key performance metrics set forth in guidance we ~~seek~~provide or provided by financial analysts;

•changes in investor and analyst valuation models for our stock;

•changes in unearned revenue, remaining performance obligations and revenue recognized at a point in time, all of which may impact implied growth rates;

•developments related to partner with organizations that mitigate their business risks associated with climate change, we recognize that there are inherent risks wherever business is conducted. Access to clean water and reliable energyproducts or services, technological advancements, strategic alliances, acquisitions or significant transactions by us or our competitors;

•changes in the ~~communities where we conduct~~amounts or frequency of stock repurchases;

•the loss of large customers or our ~~business, whether for our offices~~inability to retain or ~~for our vendors, is a priority. Our major sites in California, Utah and India are vulnerable~~increase sales to ~~prolonged droughts due to climate change. In the event of a natural disaster that disrupts business due to limited access to these resources, we have the potential to experience losses~~existing customers or attract new customers;

•changes to our ~~business,~~management team, including recruitment or departure of key personnel;

•variations in our or our competitors’ results of operations, changes in the competitive landscape generally and ~~added costs to resume operations.~~developments in our industry;

~~Our investment portfolio~~•general economic, political or market conditions; and

•other events, such as significant litigation and regulatory actions.

In addition, the market for technology stocks or the stock market in general has experienced, and may ~~become impaired by deterioration of the financial markets.~~

Our cash equivalent and short-term investment portfolio as of March 2, 2018 consisted of corporate debt securities, foreign government securities and U.S. Treasury securities, money market mutual funds, municipal securities, time deposits and asset-backed securities. We follow an established investment policy and set of guidelines to monitor and help mitigate our exposure to interest rate and credit risk. The policy sets forth credit quality standards and limits our exposure to any one issuer, as well as our maximum exposure to various asset classes.

~~Should financial market conditions worsen~~ in the future ~~investments~~experience, extreme fluctuations, which has caused, and may in ~~some financial instruments may pose risks arising from market liquidity and credit concerns. In addition, any deterioration of~~ the ~~capital markets could~~future cause, our ~~other income~~stock price to decline for reasons unrelated to our financial performance. Volatility in our stock price has increased, and ~~expense~~in the future may increase, our susceptibility to ~~vary from expectations. As~~securities class action litigation, which could result in substantial costs and divert management’s attention and resources, which may adversely affect our business.

Table of March 2, 2018, we had no material impairment charges associated with our short-term investment portfolio, and although we believe our current investment portfolio has little risk of material impairment, we cannot predict future market conditions, market liquidity or credit availability, and can provide no assurance that our investment portfolio will remain materially unimpaired.Contents

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Below is a summary of stock repurchases for the three months ended March ~~2, 2018.~~ 1, 2024. See Note 1011 of our notes to condensed consolidated financial statements for information regarding our stock repurchase program.


Period	Total Number of Shares Repurchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Approximate Dollar Value that May Yet be Purchased Under the Plans (1)
	(in millions, except average price per share)
Beginning repurchase authority					$	2,504


December 2, 2023—December 29, 2023
Accelerated share repurchase	2.5	$	—	2.5	$	(2,000)	(2)
Other shares repurchased	0.6	$	626.68	0.6	$	(354)
December 30, 2023—January 26, 2024
Shares repurchased	—	$	—	—	$	—
January 27, 2024—March 1, 2024
Shares repurchased	—	$	—	—	$	—

Total	3.1			3.1	$	150

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

(2)In December 2023, 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 of our common stock. Subsequent to March 1, 2024, the accelerated share repurchase agreement was settled which resulted in total repurchases of 3.5 million shares at an average price of $578.11.

Period

Shares
Repurchased

Average
Price
Per
Share

Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans

Approximate
Dollar Value
that May
Yet be
Purchased
Under the
Plans⁽¹⁾

(in thousands, except average price per share)

Beginning repurchase authority $ 2,001,500

December 2, 2017—December 29, 2017
Shares repurchased 569,435
$ 178.25
569,435
$ (101,500 )
December 30, 2017—January 26, 2018
Shares repurchased 548,249
$ 182.40
548,249
$ (100,000 )
⁽²⁾
January 27, 2018—March 2, 2018
Shares repurchased 509,484
$ 195.77
509,484
$ (99,741 )
⁽²⁾
Total 1,627,168
1,627,168
$ 1,700,259

^{_________________________________________}


⁽¹⁾	~~In January 2017, the Board of Directors granted authority to repurchase up to $2.5 billion in common stock through the end of fiscal 2019.~~


⁽²⁾	In December 2017, we entered into a structured stock repurchase agreement with a large financial institution whereupon we provided them with a prepayment of $300 million. As of March 2, 2018, approximately $100.3 million of the prepayment remained under this agreement.

~~ITEM 4. MINE SAFETY DISCLOSURES~~

~~Not applicable.~~

ITEM 5. OTHER INFORMATION

~~None.~~Rule 10b5-1 Trading Plans

The following table shows the trading arrangements intended to satisfy the affirmative defense of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, adopted by our Section 16 officers during the three months ended March 1, 2024.

Name and Position

Adoption Date

Total Number of Shares to be Sold

Expiration Date

Anil Chakravarthy

1/22/2024

Up to 13,386

4/14/2025

President, Digital Experience

Scott Belsky

2/1/2024

Up to 18,380 (1)

1/31/2025

Chief Strategy Officer and Executive Vice President, Design & Emerging Products

Mark Garfield

2/2/2024

Up to 5,023 (1)

1/8/2025

Senior Vice President and Chief Accounting Officer

(1)The aggregate number of shares to be sold pursuant to this trading arrangement includes shares from outstanding restricted stock units that are subject to applicable service-based vesting conditions. The actual number of shares that will be released pursuant to the restricted stock units and sold under the trading arrangement will be net of the number of shares withheld by the Company to satisfy tax withholding obligations and is not yet determinable.

Table of Contents

ITEM 6. EXHIBITS

INDEX TOEXHIBITS

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

Filing Date

Exhibit Number

SEC File No.

Filed
Herewith

3.1

Restated Certificate of Incorporation of Adobe

8-K

4/26/11

3.3

000-15175

3.2

Certificate of Amendment to Restated Certificate of Adobe

8-K

10/9/18

3.1

000-15175

3.3

Amended and Restated Bylaws

8-K

1/18/22

3.1

000-15175

10.1

A dobe Inc. 2023 Executive Severance Plan in the Event of a Change of Control*

8-K

12/13/23

10.1

000-15175

10.2

Termination Agreement, dated as of December 17, 2023, by and among Adobe Inc., Saratoga Merger Sub I, Inc., Saratoga Merger Sub II, LLC and Figma, Inc.

8-K

12/18/23

10.1

000-15175

10.3

2 024 Performance Share Program*

8-K

1/26/24

10.2

000-15175

10.4

Form of 2024 Performance Share Award Grant Notice and Award Agreement pursuant to 2024 Performance Share Program*

8-K

1/26/24

10.3

000-15175

10.5

2 024 Executive Annual Incentive Plan*

8-K

1/26/24

10.4

000-15175

10.6

Form of Restricted Stock Unit Grant Notice and Award Agreement pursuant to 2019 Equity Incentive Plan (for awards granted on or after January 24, 202 4 )*

10.7

2 019 Executive Incentive Plan, as amended*

31.1

Certification of Chief Executive Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934

31.2

Certification of Chief Financial Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934

32.1

Certification of Chief Executive Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†

32.2

Certification of Chief Financial Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†

101.INS

Inline XBRL Instance - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema

101.CAL

Inline XBRL Taxonomy Extension Calculation

101.LAB

Inline XBRL Taxonomy Extension Labels

101.PRE

Inline XBRL Taxonomy Extension Presentation

101.DEF

Inline XBRL Taxonomy Extension Definition

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Incorporated by Reference**
Exhibit
Number
Exhibit Description Form Filing Date Exhibit Number SEC File No.
Filed
Herewith

3.1

Restated Certificate of Incorporation of Adobe Systems Incorporated
8-K 4/26/11 3.3
000-15175

3.2

Amended and Restated Bylaws
8-K 9/2/16 3.2
000-15175

4.1

Specimen Common Stock Certificate
10-Q 6/25/14 4.1
000-15175

4.2

Form of Indenture dated as of January 25, 2010 by and between Adobe Systems Incorporated and Wells Fargo Bank, National Association, as trustee
S-3 2/26/16 4.1
333-209764

4.3

Forms of Global Note for Adobe Systems Incorporated’s 4.750% Notes due 2020, together with Form of Officer’s Certificate setting forth the terms of the Note
8-K 1/26/10 4.1
000-15175

4.4

Form of Global Note for Adobe Systems Incorporated’s 3.250% Notes due 2025, together with Form of Officer’s Certificate setting forth the terms of the Note
8-K 1/26/15 4.1
000-15175

10.1A

Amended 1994 Performance and Restricted Stock Plan*
10-Q 4/9/10 10.1
000-15175

10.1B

Form of Restricted Stock Agreement used in connection with the Amended 1994 Performance and Restricted Stock Plan*
10-K 1/23/09 10.3
000-15175

10.1C

Form of Restricted Stock Unit Agreement used in connection with the Amended 1994 Performance and Restricted Stock Plan*
10-K 1/26/12 10.13
000-15175

10.2

1997 Employee Stock Purchase Plan, as amended*
10-Q 6/29/16 10.3
000-15175

10.3A

2003 Equity Incentive Plan, as amended*
8-K 4/13/17 10.1
000-15175

10.3B

Form of Stock Option Agreement used in connection with the 2003 Equity Incentive Plan*
8-K 12/20/10 99.4
000-15175

10.3C

Form of RSU Grant Notice and Award Agreement pursuant to 2003 Equity Incentive Plan*
8-K 1/27/17 10.6
000-15175

10.3D

Form of RSU Grant Notice and Award Agreement pursuant to 2003 Equity Incentive Plan*
8-K 1/26/18 10.6
000-15175

10.3E

Form of Restricted Stock Agreement used in connection with the 2003 Equity Incentive Plan*
10-Q 10/7/04 10.11
000-15175

10.3F

2014 Performance Share Program pursuant to the 2003 Equity Incentive Plan*
8-K 1/29/14 10.2
000-15175

___________________________

Incorporated by Reference**

~~Exhibit~~

~~Number~~

~~Exhibit Description~~

~~Form~~

~~Filing Date~~

~~Exhibit Number~~

~~SEC File No.~~

~~Filed~~

~~Herewith~~

~~10.3G~~

Form of Performance Share Award Grant Notice and Performance Share Award Agreement pursuant to the 2003 Equity Incentive Plan (applicable to the 2014 Performance Share Program)*

~~8-K~~

~~1/29/14~~

~~10.3~~

~~000-15175~~

~~10.3H~~

2015 Performance Share Program pursuant to the 2003 Equity Incentive Plan*

~~8-K~~

~~1/28/15~~

~~10.2~~

~~000-15175~~

~~10.3I~~

Form of 2015 Performance Share Award Grant Notice and Award Agreement pursuant to the 2003 Equity Incentive Plan (applicable to the 2015 Performance Share Program)*

~~8-K~~

~~1/28/15~~

~~10.3~~

~~000-15175~~

~~10.3J~~

2016 Performance Share Program pursuant to the 2003 Equity Incentive Plan*

~~8-K~~

~~1/29/16~~

~~10.2~~

~~000-15175~~

~~10.3K~~

Form of 2016 Performance Share Award Grant Notice and Award Agreement pursuant to the 2003 Equity Incentive Plan (applicable to the 2016 Performance Share Program)*

~~8-K~~

~~1/29/16~~

~~10.3~~

~~000-15175~~

~~10.3L~~

Form of Director Initial Grant Restricted Stock Unit Award Agreement used in connection with the 2003 Equity Incentive Plan*

~~8-K~~

~~12/20/10~~

~~99.6~~

~~000-15175~~

~~10.3M~~

Form of Director Annual Grant Restricted Stock Unit Award Agreement used in connection with the 2003 Equity Incentive Plan*

~~8-K~~

~~12/20/10~~

~~99.7~~

~~000-15175~~

~~10.3N~~

Form of Director Annual Grant Stock Option Agreement used in connection with the 2003 Equity Incentive Plan*

~~8-K~~

~~12/20/10~~

~~99.8~~

~~000-15175~~

~~10.3O~~

2017 Performance Share Program pursuant to the 2003 Equity Incentive Plan*

~~8-K~~

~~1/27/17~~

~~10.2~~

~~000-15175~~

~~10.3P~~

Form of 2017 Performance Share Award Grant Notice and Award Agreement pursuant to 2017 Performance Share Program and 2003 Equity Incentive Plan*

~~8-K~~

~~1/27/17~~

~~10.3~~

~~000-15175~~

~~10.3Q~~

2018 Performance Share Program pursuant to the 2003 Equity Incentive Plan*

~~8-K~~

~~1/26/18~~

~~10.2~~

~~000-15175~~

~~10.3R~~

Form of 2018 Performance Share Award Grant Notice and Award Agreement pursuant to 2017 Performance Share Program and 2003 Equity Incentive Plan*

~~8-K~~

~~1/26/18~~

~~10.3~~

~~000-15175~~

~~10.4A~~

2005 Equity Incentive Assumption Plan, as amended and restated*

~~10-Q~~

~~6/28/13~~

~~10.17~~

~~000-15175~~

~~10.4B~~

Form of Stock Option Agreement used in connection with the 2005 Equity Incentive Assumption Plan*

~~8-K~~

~~12/20/10~~

~~99.10~~

~~000-15175~~

~~10.4C~~

Form of RSU Grant Notice and Award Agreement pursuant to the 2005 Equity Incentive Assumption Plan*

~~8-K~~

~~1/28/13~~

~~10.7~~

~~000-15175~~

Incorporated by Reference**
Exhibit
Number
Exhibit Description Form Filing Date Exhibit Number SEC File No.
Filed
Herewith

10.5

Retention Agreement between Adobe Systems Incorporated and Shantanu Narayen, effective December 5, 2014
8-K 12/11/14 10.2
000-15175

10.6

Form of Indemnity Agreement*
10-Q 6/26/09 10.12
000-15175

10.7

Adobe Systems Incorporated Deferred Compensation Plan, as Amended and Restated*
10-K 1/20/15 10.19
000-15175

10.8A

Credit Agreement, dated as of March 2, 2012, among Adobe Systems Incorporated and certain subsidiaries as Borrowers, The Royal Bank of Scotland PLC and U.S. Bank National Association as Co-Documentation Agents, JPMorgan Chase Bank, N.A., as Syndication Agent, Bank of America, N.A. as Administrative Agent and Swing Line Lender, and the Other Lenders Party Thereto
8-K 3/7/12 10.1
000-15175

10.8B

Amendment to Credit Agreement, dated as of July 27, 2015, among Adobe Systems Incorporated and Bank of America, N.A. as Administrative Agent and Swing Line Lender and the Other Lenders Party Thereto
8-K 7/30/15 10.1
000-15175

10.9

Omniture, Inc. 2006 Equity Incentive Plan and related forms***
10-Q 8/6/09 10.3
000-52076

10.10

Omniture, Inc. 2008 Equity Incentive Plan and related forms***
10-K 2/27/09 10.10
000-52076

10.11

Demdex, Inc. 2008 Stock Plan, as amended*
S-8 1/27/11 99.1
333-171902

10.12

2014 Executive Annual Incentive Plan*
8-K 1/29/14 10.5
000-15175

10.13

2015 Executive Annual Incentive Plan*
8-K 1/28/15 10.5
000-15175

10.14

2016 Executive Annual Incentive Plan*
8-K 1/29/16 10.5
000-15175

10.15

2016 Executive Cash Performance Bonus Plan*
8-K 1/29/16 10.4
000-15175

10.16

2017 Executive Annual Incentive Plan*
8-K 1/27/17 10.5
000-15175

10.17

2018 Executive Annual Incentive Plan*
8-K 1/26/18 10.5
000-15175

10.18

EchoSign, Inc. 2005 Stock Plan, as amended*
S-8 7/29/11 99.1
333-175910

10.19

Auditude, Inc. 2009 Equity Incentive Plan, as amended*

S-8

11/18/11

99.1
333-178065

10.20

Auditude, Inc. Employee Stock Option Plan, as amended*

S-8

11/18/11

99.2
333-178065

10.21

Efficient Frontier, Inc. 2003 Stock Option/Stock Issuance Plan, as Amended and Restated*

S-8

1/27/12 99.1
333-179221

Incorporated by Reference**
Exhibit
Number
Exhibit Description Form Filing Date Exhibit Number SEC File No.
Filed
Herewith

10.22A

Behance, Inc. 2012 Equity Incentive Plan*
S-8 1/23/13 99.1
333-186143

10.22B

Amendment No. 1 to the Behance, Inc. 2012 Equity Incentive Plan*
S-8 1/23/13 99.2
333-186143

10.23

Neolane 2008 Stock Option Plan*
S-8 8/27/13 99.1
333-190846

10.24

2012 Neolane Stock Option Plan for The United States*
S-8 8/27/13 99.2
333-190846

10.25

Description of 2016 Director Compensation*
10-K 1/19/16 10.32
000-15175

10.26

Description of 2017 Director Compensation*
10-K 1/20/17 10.32
000-15175

10.27

Description of 2018 Director Compensation*
10-K 1/22/18 10.29
000-15175

10.28A

Aviary, Inc. 2008 Stock Plan, as amended*
S-8 9/26/14 99.1
333-198973

10.28B

Form of Stock Option Grant Notice and Award Agreement pursuant to the Aviary, Inc. 2008 Stock Plan (Installment Vesting)*
S-8 9/26/14 99.2
333-198973

10.28C

Form of Stock Option Grant Notice and Award Agreement pursuant to the Aviary, Inc. 2008 Stock Plan (Installment Vesting, Non- U.S.)*
S-8 9/26/14 99.3
333-198973

10.31

Adobe Systems Incorporated 2017 Executive Severance Plan in the Event of a Change of Control*
8-K 12/14/17 10.1
000-15175

10.32

Picasso Acquisition Holding 1, Inc. 2012 Stock Option and Grant Plan*
S-8 3/13/15 99.1

333-202732

10.33

TubeMogul, Inc. 2007 Equity Compensation Plan, as amended, and forms of agreement thereunder††*
S-1 3/26/14 10.2
333-194817

10.34

TubeMogul, Inc. 2014 Equity Incentive Plan, and forms of agreement thereunder††*
S-1A 7/7/14 10.3
333-194817

31.1

Certification of Chief Executive Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934

X

31.2

Certification of Chief Financial Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934

X

32.1

Certification of Chief Executive Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†
X

32.2

Certification of Chief Financial Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†
X

101.INS
XBRL Instance X

Incorporated by Reference**

~~Exhibit~~

~~Number~~

~~Exhibit Description~~

~~Form~~

~~Filing Date~~

~~Exhibit Number~~

~~SEC File No.~~

~~Filed~~

~~Herewith~~

~~101.SCH~~

~~XBRL Taxonomy Extension Schema~~

~~101.CAL~~

~~XBRL Taxonomy Extension Calculation~~

~~101.LAB~~

~~XBRL Taxonomy Extension Labels~~

~~101.PRE~~

~~XBRL Taxonomy Extension Presentation~~

~~101.DEF~~

~~XBRL Taxonomy Extension Definition~~

~~___________________________~~

~~Compensatory~~Management contract or compensatory plan or ~~arrangement.~~ arrangement

†

~~References to Exhibits 10.9 through 10.11 are to filings made by Omniture, Inc.~~

†

The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Adobe ~~Systems Incorporated~~Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

††

~~References to Exhibits 10.33 through 10.34 are to filings made by TubeMogul, Inc.~~

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ADOBE INC.

	~~ADOBE SYSTEMS INCORPORATED~~By:	/s/ DANIEL DURN
		Daniel Durn
	~~By:~~	~~/s/ MARK GARRETT~~Chief Financial Officer and
		~~Mark Garrett~~
Executive Vice President, ~~and~~Finance,
		~~Chief Financial Officer~~Technology Services and Operations
		(Principal Financial Officer)

Date: March ~~28, 2018~~27, 2024

Table of Contents

SUMMARY OF TRADEMARKS

The following trademarks of Adobe ~~Systems Incorporated~~Inc. or its subsidiaries, which may be registered in the United States and/or other countries, are referenced in this Form 10-Q:

Acrobat

Acrobat Sign

Adobe

~~Acrobat~~Adobe Analytics

Adobe Campaign

Adobe Commerce

Adobe Experience Cloud

Adobe Express

Adobe Firefly

Adobe GenStudio

Adobe Mix Modeler

Adobe Scan

Adobe Stock

Adobe Target

Behance

Creative Cloud

~~LiveCycle~~Document Cloud

~~Reader~~Journey Optimizer

~~TubeMogul~~Marketo

Marketo Engage

Photoshop

Workfront

All other trademarks are the property of their respective owners.

5952



	March 2, 2018			December 1, 2017
	(Unaudited)			(*)
ASSETS
Current assets:
Cash and cash equivalents	$	2,666,981		$	2,306,072
Short-term investments	3,480,989			3,513,702
Trade receivables, net of allowances for doubtful accounts of $9,284 and $9,151, respectively	1,062,690			1,217,968
Prepaid expenses and other current assets	270,154			210,071
Total current assets	7,480,814			7,247,813
Property and equipment, net	991,674			936,976
Goodwill	5,843,899			5,821,561
Purchased and other intangibles, net	353,740			385,658
Deferred income taxes	149,710			—
Other assets	153,648			143,548
Total assets	$	14,973,485		$	14,535,556

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables	$	131,090		$	113,538
Accrued expenses	911,044			993,773
Income taxes payable	10,591			14,196
Deferred revenue	2,483,744			2,405,950
Total current liabilities	3,536,469			3,527,457
Long-term liabilities:
Debt	1,874,794			1,881,421
Deferred revenue	88,460			88,592
Income taxes payable	690,468			173,088
Deferred income taxes	—			279,941
Other liabilities	149,266			125,188
Total liabilities	6,339,457			6,075,687
Stockholders’ equity:
Preferred stock, $0.0001 par value; 2,000 shares authorized, none issued	—			—
Common stock, $0.0001 par value; 900,000 shares authorized; 600,834 shares issued; 492,880 and 491,262 shares outstanding, respectively	61			61
Additional paid-in-capital	5,208,588			5,082,195
Retained earnings	9,830,399			9,573,870
Accumulated other comprehensive income (loss)	(109,939		)	(111,821		)
Treasury stock, at cost (107,954 and 109,572 shares, respectively), net of reissuances	(6,295,081		)	(6,084,436		)
Total stockholders’ equity	8,634,028			8,459,869
Total liabilities and stockholders’ equity	$	14,973,485		$	14,535,556



	Three Months Ended
	March 2, 2018			March 3, 2017
Revenue:
Subscription	$	1,793,358		$	1,383,856
Product	171,608			183,385
Services and support	113,981			114,405
Total revenue	2,078,947			1,681,646
Cost of revenue:
Subscription	164,685			141,181
Product	12,877			14,333
Services and support	81,340			81,823
Total cost of revenue	258,902			237,337
Gross profit	1,820,045			1,444,309
Operating expenses:
Research and development	348,769			285,077
Sales and marketing	580,957			520,297
General and administrative	170,440			150,808
Amortization of purchased intangibles	17,146			19,128
Total operating expenses	1,117,312			975,310
Operating income	702,733			468,999
Non-operating income (expense):
Interest and other income (expense), net	16,672			7,206
Interest expense	(19,899		)	(18,130		)
Investment gains (losses), net	2,996			2,557
Total non-operating income (expense), net	(231		)	(8,367		)
Income before income taxes	702,502			460,632
Provision for income taxes	119,426			62,186
Net income	$	583,076		$	398,446
Basic net income per share	$	1.18		$	0.81
Shares used to compute basic net income per share	492,061			494,612
Diluted net income per share	$	1.17		$	0.80
Shares used to compute diluted net income per share	499,433			500,861



	2018					2017
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Corporate debt securities	$	1,811,370	$	(22,326	)	$	1,338,232	$	(5,459	)
Asset-backed securities	57,439		(495		)	64,618		(193		)
Municipal securities	18,389		(246		)	11,805		(115		)
Foreign government securities	3,796		(55		)	2,388		(8		)
U.S. Treasury securities	592,296		(3,050		)	593,296		(2,087		)
Total	$	2,483,290	$	(26,172	)	$	2,010,339	$	(7,862	)



	2018						2017
	Foreign Exchange Option Contracts			Foreign Exchange Forward Contracts			Foreign Exchange Option Contracts			Foreign Exchange Forward Contracts
Derivatives in cash flow hedging relationships:
Net gain (loss) recognized in OCI, net of tax⁽¹⁾	$	(1,336	)	$	—		$	6,709		$	—
Net gain (loss) reclassified from accumulated OCI into income, net of tax⁽²⁾	$	1,022		$	—		$	18,309		$	—
Net gain (loss) recognized in income⁽³⁾	$	(10,326	)	$	—		$	(6,037	)	$	—
Derivatives not designated as hedging relationships:
Net gain (loss) recognized in income⁽⁴⁾	$	—		$	(3,661	)	$	—		$	1,088



	2018							2017
	Cost		Accumulated Amortization			Net		Cost		Accumulated Amortization			Net
Purchased technology	$	194,099	$	(90,103	)	$	103,996	$	223,252	$	(110,433	)	$	112,819
Customer contracts and relationships	$	549,227	$	(345,797	)	$	203,430	$	577,484	$	(356,613	)	$	220,871
Trademarks	35,255		(16,247		)	19,008		76,255		(56,094		)	20,161
Acquired rights to use technology	65,285		(50,488		)	14,797		71,130		(54,223		)	16,907
Localization	620		(329		)	291		603		(170		)	433
Other intangibles	38,019		(25,801		)	12,218		38,693		(24,226		)	14,467
Total other intangible assets	$	688,406	$	(438,662	)	$	249,744	$	764,165	$	(491,326	)	$	272,839
Purchased and other intangible assets, net	$	882,505	$	(528,765	)	$	353,740	$	987,417	$	(601,759	)	$	385,658



Fiscal Year	Purchased Technology		Other Intangible Assets
Remainder of 2018	$	27,988	$	73,208
2019	34,029		70,156
2020	31,737		39,880
2021	9,125		17,474
2022	1,117		14,467
Thereafter	—		34,559
Total expected amortization expense	$	103,996	$	249,744



	Number of Shares (thousands)	Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value^(*) (millions)
2018
Restricted stock units outstanding	9,195	1.52	$	1,928.9
Restricted stock units vested and expected to vest	8,259	1.47	$	1,732.6
2017
Restricted stock units outstanding	9,822	1.59	$	1,002.3
Restricted stock units vested and expected to vest	8,646	1.53	$	882.2



	2018					2017
	Shares Granted			Maximum Shares Eligible to Receive		Shares Granted			Maximum Shares Eligible to Receive
Beginning outstanding balance	1,534			3,068		1,630			3,261
Awarded	837		⁽¹⁾	628		1,082		⁽²⁾	1,040
Achieved	(1,050	)		(1,054	)	(1,135	)		(1,147	)
Forfeited	(35	)		(70	)	(43	)		(86	)
Ending outstanding balance	1,286			2,572		1,534			3,068



	2018				2017
Income Statement Classifications	Option Grants and Stock Purchase Rights		Restricted Stock Units and Performance Share Awards		Option Grants and Stock Purchase Rights		Restricted Stock Units and Performance Share Awards
Cost of revenue—subscription	$	768	$	3,944	$	393	$	2,161
Cost of revenue—services and support	2,016		2,986		1,723		3,065
Research and development	5,349		54,072		4,032		33,094
Sales and marketing	5,320		38,848		4,388		32,465
General and administrative	1,480		20,742		1,230		18,316
Total	$	14,933	$	120,592	$	11,766	$	89,101



Balance as of December 1, 2017	$	9,573,870
Net income	583,076
Reissuance of treasury stock	(326,229		)
Adjustments to equity as a result of the Tax Act	(318		)
Balance as of March 2, 2018	$	9,830,399



(in millions)	Three Months
Revenue impact:	Increase/ (Decrease)
Euro	$	26.5
British Pound	4.3
Japanese Yen	(0.6		)
Other currencies	5.4
Total revenue impact	35.6
Hedging impact:
Japanese Yen	1.0
Total impact	$	36.6



Period	Shares Repurchased	Average Price Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Approximate Dollar Value that May Yet be Purchased Under the Plans⁽¹⁾
	(in thousands, except average price per share)
Beginning repurchase authority					$	2,001,500
December 2, 2017—December 29, 2017
Shares repurchased	569,435	$	178.25	569,435	$	(101,500	)
December 30, 2017—January 26, 2018
Shares repurchased	548,249	$	182.40	548,249	$	(100,000	)	⁽²⁾
January 27, 2018—March 2, 2018
Shares repurchased	509,484	$	195.77	509,484	$	(99,741	)	⁽²⁾
Total	1,627,168			1,627,168	$	1,700,259