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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2024
 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to                   
 
Commission File Number: 0-15175
 
ADOBE INC.
(Exact name of registrant as specified in its charter)
________________________________
Delaware77-0019522
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

345 Park Avenue, San Jose, California 95110-2704
(Address of principal executive offices and zip code)

(408536-6000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.0001 par value per shareADBENASDAQ
________________________________
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 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 ☒  No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No
As of June 21, 2024, 443.4 million shares of the registrant’s common stock, $0.0001 par value per share, were issued and outstanding.



ADOBE INC.
FORM 10-Q
 
TABLE OF CONTENTS
 
  Page No.

PART I—FINANCIAL INFORMATION
 
Item 1.

 

 



 

 

Item 2.

Item 3.

Item 4.


 PART II—OTHER INFORMATION
 
Item 1.

Item 1A.

Item 2.

Item 5.

Item 6.





 
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Table of Contents
PART I—FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ADOBE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except par value)
 May 31,
2024
December 1,
2023
(Unaudited)(*)
ASSETS
Current assets:  
Cash and cash equivalents$7,660 $7,141 
Short-term investments405 701 
Trade receivables, net of allowances for doubtful accounts of $19 and $16, respectively
1,612 2,224 
Prepaid expenses and other current assets1,346 1,018 
Total current assets11,023 11,084 
Property and equipment, net1,969 2,030 
Operating lease right-of-use assets, net381 358 
Goodwill12,803 12,805 
Other intangibles, net933 1,088 
Deferred income taxes1,436 1,191 
Other assets1,462 1,223 
Total assets$30,007 $29,779 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:  
Trade payables$357 $314 
Accrued expenses1,899 1,942 
Debt1,498  
Deferred revenue5,558 5,837 
Income taxes payable95 85 
Operating lease liabilities67 73 
Total current liabilities9,474 8,251 
Long-term liabilities: 
Debt4,127 3,634 
Deferred revenue128 113 
Income taxes payable591 514 
Operating lease liabilities398 373 
Other liabilities446 376 
Total liabilities15,164 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; 
449 and 455 shares outstanding, respectively
  
Additional paid-in capital12,504 11,586 
Retained earnings35,227 33,346 
Accumulated other comprehensive income (loss)(276)(285)
Treasury stock, at cost (152 and 146 shares, respectively)
(32,612)(28,129)
Total stockholders’ equity14,843 16,518 
Total liabilities and stockholders’ equity$30,007 $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.
See accompanying notes to condensed consolidated financial statements.
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ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
 Three Months EndedSix Months Ended
 May 31,
2024
June 2,
2023
May 31,
2024
June 2,
2023
Revenue: 
Subscription$5,060 $4,517 $9,976 $8,890 
Product104 130 223 250 
Services and other145 169 292 331 
Total revenue5,309 4,816 10,491 9,471 
 
Cost of revenue:
Subscription456 436 911 870 
Product8 8 13 16 
Services and other134 128 264 254 
Total cost of revenue598 572 1,188 1,140 
Gross profit4,711 4,244 9,303 8,331 
 
Operating expenses:
Research and development984 876 1,923 1,703 
Sales and marketing1,445 1,345 2,797 2,646 
General and administrative355 357 707 688 
Acquisition termination fee
  1,000  
Amortization of intangibles42 42 84 84 
Total operating expenses2,826 2,620 6,511 5,121 
 Operating income1,885 1,624 2,792 3,210 
 
Non-operating income (expense):
Interest expense(41)(26)(68)(58)
Investment gains (losses), net4 5 22 6 
Other income (expense), net82 47 152 90 
Total non-operating income (expense), net45 26 106 38 
Income before income taxes1,930 1,650 2,898 3,248 
Provision for income taxes357 355 705 706 
Net income$1,573 $1,295 $2,193 $2,542 
Basic net income per share$3.50 $2.83 $4.86 $5.55 
Shares used to compute basic net income per share449 458 451 458 
Diluted net income per share$3.49 $2.82 $4.83 $5.54 
Shares used to compute diluted net income per share451 459 454 459 


See accompanying notes to condensed consolidated financial statements.

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ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
Three Months EndedSix Months Ended
 May 31,
2024
June 2,
2023
May 31,
2024
June 2,
2023
Increase/(Decrease)Increase/(Decrease)
Net income$1,573 $1,295 $2,193 $2,542 
Other comprehensive income (loss), net of taxes:
Available-for-sale securities:
Unrealized gains / losses on available-for-sale securities3 6 7 14 
Reclassification adjustment for recognized gains / losses on available-for-sale securities 5  5 
Net increase (decrease) from available-for-sale securities3 11 7 19 
Derivatives designated as hedging instruments:
Unrealized gains / losses on derivative instruments
(2) 1 (9)
Reclassification adjustment for realized gains / losses on derivative instruments4 (7)8 (24)
Net increase (decrease) from derivatives designated as hedging instruments2 (7)9 (33)
Foreign currency translation adjustments(4)6 (7)10 
Other comprehensive income (loss), net of taxes1 10 9 (4)
Total comprehensive income, net of taxes$1,574 $1,305 $2,202 $2,538 


See accompanying notes to condensed consolidated financial statements.


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ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
(Unaudited)
Three Months Ended May 31, 2024
 Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury Stock 
 SharesAmountSharesAmountTotal
Balances at March 1, 2024
601 $ $12,037 $33,809 $(277)(148)$(30,109)$15,460 
Net income— — — 1,573 — — — 1,573 
Other comprehensive income (loss),
net of taxes
— — — — 1 — — 1 
Re-issuance of treasury stock under stock compensation plans
— — — (155)— 1 20 (135)
Repurchases of common stock— — — — — (5)(2,521)(2,521)
Stock-based compensation— — 467  — — — 467 
Value of shares in deferred compensation plan— — — — — — (2)(2)
Balances at May 31, 2024
601 $ $12,504 $35,227 $(276)(152)$(32,612)$14,843 



Three Months Ended June 2, 2023
 Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury Stock 
 SharesAmountSharesAmountTotal
Balances at March 3, 2023
601 $ $10,284 $29,435 $(307)(142)$(25,206)$14,206 
Net income
— — — 1,295 — — — 1,295 
Other comprehensive income (loss),
net of taxes
— — — — 10 — — 10 
Re-issuance of treasury stock under stock compensation plans
— — — (121)—  19 (102)
Repurchases of common stock— — — — — (3)(1,004)(1,004)
Stock-based compensation— — 433 — — — — 433 
Balances at June 2, 2023
601 $ $10,717 $30,609 $(297)(145)$(26,191)$14,838 
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ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
(Unaudited)
Six Months Ended May 31, 2024
 Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury Stock 
 SharesAmountSharesAmountTotal
Balances at December 1, 2023
601 $ $11,586 $33,346 $(285)(146)$(28,129)$16,518 
Net income— — — 2,193 — — — 2,193 
Other comprehensive income (loss),
net of taxes
— — — — 9 — — 9 
Re-issuance of treasury stock under stock compensation plans
— —  (312)— 2 52 (260)
Repurchases of common stock— — — — — (8)(4,534)(4,534)
Stock-based compensation— — 918 — — — — 918 
Value of shares in deferred compensation plan— — — — — — (1)(1)
Balances at May 31, 2024
601 $ $12,504 $35,227 $(276)(152)$(32,612)$14,843 



Six Months Ended June 2, 2023
 Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury Stock 
 SharesAmountSharesAmountTotal
Balances at December 2, 2022
601 $ $9,868 $28,319 $(293)(139)$(23,843)$14,051 
Net income
— — — 2,542 — — — 2,542 
Other comprehensive income (loss),
net of taxes
— — — — (4)— — (4)
Re-issuance of treasury stock under stock compensation plans
— —  (252)— 2 55 (197)
Repurchases of common stock— — — — — (8)(2,404)(2,404)
Stock-based compensation— — 849 — — — — 849 
Value of shares in deferred compensation plan— — — — — — 1 1 
Balances at June 2, 2023
601 $ $10,717 $30,609 $(297)(145)$(26,191)$14,838 


See accompanying notes to condensed consolidated financial statements.
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ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 Six Months Ended
 May 31,
2024
June 2,
2023
Cash flows from operating activities:  
Net income$2,193 $2,542 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation, amortization and accretion426 432 
Stock-based compensation918 849 
Reduction of operating lease right-of-use assets37 36 
Deferred income taxes(238)(168)
Unrealized losses (gains) on investments, net(14)(2)
Other non-cash items6 (3)
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Trade receivables, net604 385 
Prepaid expenses and other assets(641)(562)
Trade payables45 (29)
Accrued expenses and other liabilities(45)(36)
Income taxes payable87 421 
Deferred revenue(264)(33)
Net cash provided by operating activities3,114 3,832 
Cash flows from investing activities:  
Maturities of short-term investments295 538 
Proceeds from sales of short-term investments7 195 
Purchases of property and equipment(78)(222)
Purchases of long-term investments, intangibles and other assets(49)(34)
Proceeds from sale of long-term investments and other assets2 1 
Net cash provided by investing activities
177 478 
Cash flows from financing activities:  
Repurchases of common stock(4,500)(2,400)
Proceeds from re-issuance of treasury stock97 70 
Taxes paid related to net share settlement of equity awards(357)(267)
Proceeds from issuance of debt1,997  
Repayment of debt (500)
Other financing activities, net(7)3 
Net cash used for financing activities(2,770)(3,094)
Effect of foreign currency exchange rates on cash and cash equivalents(2)4 
Net change in cash and cash equivalents519 1,220 
Cash and cash equivalents at beginning of period7,141 4,236 
Cash and cash equivalents at end of period$7,660 $5,456 
Supplemental disclosures: 
Cash paid for income taxes, net of refunds$901 $435 
Cash paid for interest$48 $56 


See accompanying notes to condensed consolidated financial statements.
8

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ADOBE 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 in the United States (“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, 2023 on file with the SEC (our “Annual Report”).
Use of Estimates
In preparing the condensed consolidated financial statements and related disclosures in conformity with GAAP and pursuant to the rules and regulations of the SEC, we must make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ materially from these estimates.
Significant Accounting Policies
There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report.
Recent Accounting Pronouncements Not Yet Effective
In November 2023, the Financial Accounting Standards Board (“the FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The updated standard is effective for our annual periods beginning in fiscal 2025 and interim periods beginning in the first quarter of fiscal 2026. Early adoption is permitted. We are currently evaluating the impact that the updated standard will have on our financial statement disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes, which prescribes standardized categories and disaggregation of information in the reconciliation of provision for income taxes, requires disclosure of disaggregated income taxes paid, and modifies other income tax-related disclosure requirements. The updated standard is effective for us beginning with our fiscal year 2026 annual reporting period. Early adoption is permitted. We are currently evaluating the impact that the updated standard will have on our financial statement disclosures.
With the exception of the new standards discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the six months ended May 31, 2024, as compared to the recent accounting pronouncements described in our Annual Report, that are of significance or potential significance to us.
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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)
NOTE 2.  REVENUE
Segment Information
Our segment results for the three months ended May 31, 2024 and June 2, 2023 were as follows:
(dollars in millions)Digital
Media
Digital
Experience
Publishing and
Advertising
Total
Three months ended May 31, 2024
Revenue$3,908 $1,327 $74 $5,309 
Cost of revenue181 395 22 598 
Gross profit$3,727 $932 $52 $4,711 
Gross profit as a percentage of revenue95 %70 %70 %89 %
Three months ended June 2, 2023
Revenue$3,511 $1,222 $83 $4,816 
Cost of revenue152 399 21 572 
Gross profit$3,359 $823 $62 $4,244 
Gross profit as a percentage of revenue96 %67 %75 %88 %
Our segment results for the six months ended May 31, 2024 and June 2, 2023 were as follows:
(dollars in millions)Digital
Media
Digital
Experience
Publishing and
Advertising
Total
Six months ended May 31, 2024
Revenue$7,724 $2,616 $151 $10,491 
Cost of revenue352 792 44 1,188 
Gross profit$7,372 $1,824 $107 $9,303 
Gross profit as a percentage of revenue95 %70 %71 %89 %
Six months ended June 2, 2023
Revenue$6,906 $2,398 $167 $9,471 
Cost of revenue294 803 43 1,140 
Gross profit$6,612 $1,595 $124 $8,331 
Gross profit as a percentage of revenue96 %67 %74 %88 %
Revenue by geographic area for the three and six months ended May 31, 2024 and June 2, 2023 were as follows:
Three MonthsSix Months
(in millions)2024202320242023
Americas
$3,188 $2,879 $6,298 $5,658 
EMEA1,361 1,213 2,680 2,386 
APAC760 724 1,513 1,427 
Total$5,309 $4,816 $10,491 $9,471 
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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)
Revenue by major offerings in our Digital Media reportable segment for the three and six months ended May 31, 2024 and June 2, 2023 were as follows:
Three MonthsSix Months
(in millions)2024202320242023
Creative Cloud$3,126 $2,852 $6,192 $5,613 
Document Cloud782 659 1,532 1,293 
Total Digital Media revenue$3,908 $3,511 $7,724 $6,906 
Subscription revenue by segment for the three and six months ended May 31, 2024 and June 2, 2023 were as follows:
Three MonthsSix Months
(in millions)2024202320242023
Digital Media
$3,828 $3,418 $7,553 $6,719 
Digital Experience1,204 1,070 2,368 2,112 
Publishing and Advertising28 29 55 59 
Total subscription revenue$5,060 $4,517 $9,976 $8,890 
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 May 31, 2024, the balance of trade receivables, net of allowances for doubtful accounts, was $1.61 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.
We maintain an allowance for doubtful accounts which reflects our best estimate of potentially uncollectible trade receivables and is based on both specific and general reserves. We maintain general reserves on a collective basis by considering factors such as historical experience, credit-worthiness, the age of the trade receivable balances, current economic conditions and a reasonable and supportable forecast of future economic conditions. The allowance for doubtful accounts was $19 million and $16 million as of May 31, 2024 and December 1, 2023, respectively.
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 six months ended May 31, 2024. Contract assets were $193 million and $141 million as of May 31, 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 May 31, 2024, the balance of deferred revenue was $5.69 billion, which includes $55 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 and six months ended May 31, 2024, approximately $1.69 billion and $4.36 billion of revenue, respectively, was recognized that was included in the balance of deferred revenue as of December 1, 2023.
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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)
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 May 31, 2024, remaining performance obligations were approximately $17.86 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 $716 million and $656 million as of May 31, 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 $105 million and $111 million as of May 31, 2024 and December 1, 2023, respectively.
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 17, 2023, we entered into a mutual termination agreement with Figma to terminate the proposed merger. In accordance with the terms of the termination agreement, we paid Figma a termination fee of $1 billion. The termination fee was recorded in operating expenses in our condensed consolidated statements of income during the six months ended May 31, 2024, and was not tax-deductible for financial statement purposes.
NOTE 4.  CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents consist of highly liquid marketable securities with remaining maturities of three months or less at the date of purchase. We classify our investments in marketable debt securities as “available-for-sale.” We carry these investments at fair value, based on quoted market prices or other readily available market information. Unrealized gains and unrealized non-credit-related losses of marketable debt securities are included in accumulated other comprehensive income, net of taxes, in our condensed consolidated balance sheets. Unrealized credit-related losses are recorded to other income (expense), net in our condensed consolidated statements of income with a 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.
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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 May 31, 2024:
(in millions)Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
Current assets:    
Cash$564 $ $ $564 
Cash equivalents:
Money market funds7,012   7,012 
Time deposits84   84 
Total cash equivalents7,096   7,096 
Total cash and cash equivalents7,660   7,660 
Short-term fixed income securities:
Asset-backed securities8   8 
Corporate debt securities202  (1)201 
U.S. agency securities13   13 
U.S. Treasury securities187  (4)183 
Total short-term investments410  (5)405 
Total cash, cash equivalents and short-term investments$8,070 $ $(5)$8,065 
Cash, cash equivalents and short-term investments consisted of the following as of December 1, 2023:
(in millions)Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
Current assets:    
Cash$618 $ $ $618 
Cash equivalents:  
Money market funds6,498   6,498 
Time deposits25   25 
Total cash equivalents6,523   6,523 
Total cash and cash equivalents7,141   7,141 
Short-term fixed income securities: 
Asset-backed securities15   15 
Corporate debt securities438  (4)434 
U.S. agency securities13  (1)12 
U.S. Treasury securities247  (7)240 
Total short-term investments713  (12)701 
Total cash, cash equivalents and short-term investments$7,854 $ $(12)$7,842 

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)
The following table summarizes the estimated fair value of short-term fixed income debt securities classified as short-term investments based on stated effective maturities as of May 31, 2024:
(in millions)Estimated
Fair Value
Due within one year$342 
Due between one and two years60 
Due between two and three years3 
Total$405 

We review our debt securities classified as short-term investments on a regular basis for impairment. For debt securities in unrealized loss positions, we determine whether any portion of the decline in fair value below the amortized cost basis is due to credit-related factors if we neither intend to sell nor anticipate that it is more likely than not that we will be required to sell prior to recovery of the amortized cost basis. We consider factors such as the extent to which the market value has been less than the cost, any noted failure of the issuer to make scheduled payments, changes to the rating of the security and other relevant credit-related factors in determining whether or not a credit loss exists. During the six months ended May 31, 2024 and June 2, 2023, we did not recognize an allowance for credit-related losses on any of our investments.
NOTE 5.  FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
The fair value of our financial assets and liabilities at May 31, 2024 was determined using the following inputs:
(in millions)Fair Value Measurements at Reporting Date Using
  Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
 Total(Level 1)(Level 2)(Level 3)
Assets:    
Cash equivalents:    
Money market funds$7,012 $7,012 $ $ 
Time deposits84 84   
Short-term investments:
Asset-backed securities8  8  
Corporate debt securities201  201  
U.S. agency securities13  13  
U.S. Treasury securities183  183  
Prepaid expenses and other current assets:   
Foreign currency derivatives51  51  
Other assets: 
Deferred compensation plan assets251 251   
Total assets$7,803 $7,347 $456 $ 
Liabilities:    
Accrued expenses:    
Foreign currency derivatives$4 $ $4 $ 
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The fair value of our financial assets and liabilities at December 1, 2023 was determined using the following inputs:
(in millions)Fair Value Measurements at Reporting Date Using
  Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
 Total(Level 1)(Level 2)(Level 3)
Assets:    
Cash equivalents:    
Money market funds $6,498 $6,498 $ $ 
Time deposits25 25   
Short-term investments: 
Asset-backed securities15  15  
Corporate debt securities434  434  
U.S. agency securities12  12  
U.S. Treasury securities 240  240  
Prepaid expenses and other current assets:    
Foreign currency derivatives52  52  
Other assets:    
Deferred compensation plan assets206 206   
Total assets$7,482 $6,729 $753 $ 
Liabilities:    
Accrued expenses:    
Foreign currency derivatives$4 $ $4 $ 
See Note 4 for further information regarding the fair value of our financial instruments. 
Our fixed income available-for-sale debt securities consist of high quality, investment grade securities from diverse issuers with a weighted average credit rating of AA. We value these securities based on pricing from independent pricing vendors who use matrix pricing valuation techniques including market approach methodologies that model information generated by market transactions involving identical or comparable assets, as well as discounted cash flow methodologies. Inputs include quoted prices in active markets for identical assets or inputs other than quoted prices that are observable either directly or indirectly in determining fair value, including benchmark yields, issuer spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. We therefore 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, are based on quoted prices in active markets at the measurement date.
Our over-the-counter foreign currency derivatives are valued using pricing models and discounted cash flow methodologies based on observable foreign exchange and interest rate data at the measurement date.
Our other current financial assets and current financial liabilities have fair values that approximate their carrying values.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The fair value of our senior notes was $5.39 billion as of May 31, 2024, based on observable market prices in less active markets and categorized as Level 2. See Note 14 for further details regarding our debt.
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NOTE 6.  DERIVATIVE FINANCIAL INSTRUMENTS
We may use derivatives to partially offset our business exposure to foreign currency and interest rate risk on expected future cash flows and certain existing assets and liabilities. We do not use any of our derivative instruments for trading purposes.
We enter into master netting arrangements to mitigate credit risk in derivative transactions by permitting net settlement of transactions with the same counterparty. We do not offset fair value amounts recognized for derivative instruments under master netting arrangements. We also enter into collateral security agreements with certain of our counterparties to exchange cash collateral when the net fair value of certain derivative instruments fluctuates from contractually established thresholds.
Cash Flow Hedges
In countries outside the United States, we transact business in U.S. Dollars and in various other currencies. We may use foreign exchange option contracts and forward contracts to hedge a portion of our forecasted foreign currency denominated revenue and expenses. These foreign exchange contracts, carried at fair value, have maturities of up to 24 months.
As of May 31, 2024, we had net derivative losses on our foreign currency cash flow hedges expected to be recognized within the next 36 months, of which $4 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 monetary assets and liabilities denominated in non-functional currencies.
Fair value asset derivatives are included in prepaid expenses and other current assets and fair value liability derivatives are included in accrued expenses on our condensed consolidated balance sheets. The fair value of derivative instruments as of May 31, 2024 and December 1, 2023 were as follows:
(in millions)20242023
 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 contracts3  1  
Derivatives not designated as hedging instruments:
 Foreign exchange forward contracts4 4 9 4 
Total derivatives$51 $4 $52 $4 
For the three and six months ended May 31, 2024 and June 2, 2023, gains and losses on derivative instruments, net of tax, recognized in our condensed consolidated statements of comprehensive income and the effects of derivative instruments on our condensed consolidated statements of income were immaterial.
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NOTE 7.  GOODWILL AND OTHER INTANGIBLES
Goodwill as of May 31, 2024 and December 1, 2023 was $12.80 billion and $12.81 billion, respectively. During the second quarter of fiscal 2024, we completed our annual goodwill impairment test associated with our reporting units and determined there was no impairment of goodwill.
Other intangible assets subject to amortization as of May 31, 2024 and December 1, 2023 were as follows: 
(in millions)20242023
 Gross Carrying AmountAccumulated AmortizationNetGross Carrying AmountAccumulated AmortizationNet
Customer contracts and relationships$1,204 $(681)$523 $1,204 $(619)$585 
Purchased technology884 (630)254 984 (647)337 
Trademarks376 (239)137 376 (217)159 
Other28 (9)19 22 (15)7 
Other intangibles, net
$2,492 $(1,559)$933 $2,586 $(1,498)$1,088 
Amortization expense related to other intangibles was $84 million and $168 million for the three and six months ended May 31, 2024, respectively. Comparatively, amortization expense related to other intangibles was $96 million and $192 million for the three and six months ended June 2, 2023, respectively. Of these amounts, $42 million and $84 million were included in cost of revenue for the three and six months ended May 31, 2024, respectively, and $54 million and $108 million were included in cost of revenue for the three and six months ended June 2, 2023, respectively.
As of May 31, 2024, the estimated aggregate amortization expense in future periods was as follows:
(in millions)
Fiscal Year
Other Intangibles (1)
Remainder of 2024$166 
2025301 
2026149 
2027107 
202865 
Thereafter125 
Total expected amortization expense$913 
_________________________________________
(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.
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NOTE 8.  ACCRUED EXPENSES
Accrued expenses as of May 31, 2024 and December 1, 2023 consisted of the following:
(in millions)20242023
Accrued compensation and benefits$744 $535 
Accrued bonuses305 547 
Accrued corporate marketing125 132 
Sales and use taxes
105 122 
Refund liabilities105 111 
Other515 495 
Accrued expenses$1,899 $1,942 
Other primarily includes general business accruals, accrued hosting fees, royalties payable, and derivative collateral liabilities.
NOTE 9.  STOCK-BASED COMPENSATION
Restricted Stock Units
Restricted stock unit activity for the six months ended May 31, 2024 was as follows:
Number of
Shares
(in millions)
Weighted Average
Grant Date
Fair Value
Aggregate
Fair Value (1)
(in millions)
Beginning outstanding balance7.8 $418.63 
Awarded2.6 $590.97 
Released(1.8)$431.10 
Forfeited(0.2)$442.98 
Ending outstanding balance8.4 $468.88 $3,734 
Expected to vest7.7 $467.98 $3,435 
_________________________________________
(1)    The aggregate fair value is calculated using the closing stock price as of May 31, 2024 of $444.76. 
The total fair value of restricted stock units vested during the six months ended May 31, 2024 was $953 million.
Performance Shares 
In the first quarter of fiscal 2024, the Executive Compensation Committee of our Board of Directors (the “ECC”) approved the 2024 Performance Share Program, the terms of which are similar to the 2023 Performance Share Program that is still outstanding. For information regarding our outstanding Performance Share Programs, including the terms, see “Note 12. Stock-Based Compensation” of our Annual Report on Form 10-K for the fiscal year ended December 1, 2023.
As of May 31, 2024, the performance shares awarded under our 2024, 2023 and 2022 Performance Share Programs remained outstanding and unvested.
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(Unaudited)
Performance share activity for the six months ended May 31, 2024 was as follows:
Number of
Shares
(in millions)
Weighted Average
Grant Date
Fair Value
Aggregate
Fair Value (1)
(in millions)
Beginning outstanding balance0.5 $465.71 
Awarded0.2 $645.40 
Released(0.1)$455.65 
Forfeited(0.1)$474.70 
Ending outstanding balance0.5 $536.56 $238 
Expected to vest0.5 $534.33 $