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1、UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549_ FORM 10-Q(Mark One)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 2,2023 orTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT O
2、F 1934For 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 ofincorporation or organization)(I.R.S.EmployerIdentification No.)345 Park Avenue,San Jose,California 95110-2704(Addr
3、ess of principal executive offices and zip code)(408)536-6000(Registrants 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 registeredCommon Stock,$0.0001 par value per shareADBENASDAQ_ Indic
4、ate 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 re
5、quirements 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 reg
6、istrant 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,”“sma
7、ller reporting company,”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the extende
8、d 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 Act).Yes No As of June 23,2023,455.8 million shares of the r
9、egistrants common stock,$0.0001 par value per share,were issued and outstanding.ADOBE INC.FORM 10-Q TABLE OF CONTENTS Page No.PART IFINANCIAL INFORMATION Item 1.Condensed Consolidated Financial Statements:3 Condensed Consolidated Balance SheetsJune 2,2023 and December 2,20223 Condensed Consolidated
10、Statements of IncomeThree and Six Months Ended June 2,2023 and June 3,20224Condensed Consolidated Statements of Comprehensive IncomeThree and Six Months Ended June 2,2023 and June 3,20225Condensed Consolidated Statements of Stockholders EquityThree and Six Months Ended June 2,2023 and June 3,20226 C
11、ondensed Consolidated Statements of Cash Flows Six Months Ended June 2,2023 and June 3,20228 Notes to Condensed Consolidated Financial Statements9Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations25Item 3.Quantitative and Qualitative Disclosures about Market
12、Risk38Item 4.Controls and Procedures38 PART IIOTHER INFORMATION Item 1.Legal Proceedings39Item 1A.Risk Factors39Item 2.Unregistered Sales of Equity Securities and Use of Proceeds53Item 4.Mine Safety Disclosures53Item 5.Other Information53Item 6.Exhibits54Signature55Summary of Trademarks56 2PART IFIN
13、ANCIAL INFORMATIONITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTSADOBE INC.CONDENSED CONSOLIDATED BALANCE SHEETS(In millions,except par value)June 2,2023December 2,2022(Unaudited)(*)ASSETSCurrent assets:Cash and cash equivalents$5,456$4,236 Short-term investments 1,145 1,860 Trade receivables,net
14、 of allowances for doubtful accounts of$17 and$23,respectively 1,685 2,065 Prepaid expenses and other current assets 988 835 Total current assets 9,274 8,996 Property and equipment,net 2,032 1,908 Operating lease right-of-use assets,net 389 407 Goodwill 12,796 12,787 Other intangibles,net 1,258 1,44
15、9 Deferred income taxes 964 777 Other assets 1,125 841 Total assets$27,838$27,165 LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Trade payables$346$379 Accrued expenses 1,786 1,790 Debt 500 Deferred revenue 5,265 5,297 Income taxes payable 548 75 Operating lease liabilities 74 87 Total curre
16、nt liabilities 8,019 8,128 Long-term liabilities:Debt 3,631 3,629 Deferred revenue 116 117 Income taxes payable 479 530 Operating lease liabilities 408 417 Other liabilities 347 293 Total liabilities 13,000 13,114 Stockholders equity:Preferred stock,$0.0001 par value;2 shares authorized;none issued
17、Common stock,$0.0001 par value;900 shares authorized;601 shares issued;456 and 462 shares outstanding,respectively Additional paid-in-capital 10,717 9,868 Retained earnings 30,609 28,319 Accumulated other comprehensive income(loss)(297)(293)Treasury stock,at cost(145 and 139 shares,respectively)(26,
18、191)(23,843)Total stockholders equity 14,838 14,051 Total liabilities and stockholders equity$27,838$27,165 _(*)The condensed consolidated balance sheet as of December 2,2022 has been derived from the audited consolidated financial statements at that date but does not include all of the information
19、and footnotes required by generally accepted accounting principles for complete financial statements.See accompanying notes to condensed consolidated financial statements.Table of Contents3ADOBE INC.CONDENSED CONSOLIDATED STATEMENTS OF INCOME(In millions,except per share data)(Unaudited)Three Months
20、 EndedSix Months Ended June 2,2023June 3,2022June 2,2023June 3,2022Revenue:Subscription$4,517$4,070$8,890$8,028 Product 130 146 250 291 Services and other 169 170 331 329 Total revenue 4,816 4,386 9,471 8,648 Cost of revenue:Subscription 436 410 870 803 Product 8 9 16 19 Services and other 128 120 2
21、54 229 Total cost of revenue 572 539 1,140 1,051 Gross profit 4,244 3,847 8,331 7,597 Operating expenses:Research and development 876 738 1,703 1,439 Sales and marketing 1,345 1,247 2,646 2,405 General and administrative 357 291 688 560 Amortization of intangibles 42 42 84 84 Total operating expense
22、s 2,620 2,318 5,121 4,488 Operating income 1,624 1,529 3,210 3,109 Non-operating income(expense):Interest expense(26)(28)(58)(56)Investment gains(losses),net 5 (8)6 (17)Other income(expense),net 47 (1)90 (1)Total non-operating income(expense),net 26 (37)38 (74)Income before income taxes 1,650 1,492
23、3,248 3,035 Provision for income taxes 355 314 706 591 Net income$1,295$1,178$2,542$2,444 Basic net income per share$2.83$2.50$5.55$5.17 Shares used to compute basic net income per share 458 472 458 472 Diluted net income per share$2.82$2.49$5.54$5.15 Shares used to compute diluted net income per sh
24、are 459 473 459 474 See accompanying notes to condensed consolidated financial statements.Table of Contents4ADOBE INC.CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In millions)(Unaudited)Three Months EndedSix Months Ended June 2,2023June 3,2022June 2,2023June 3,2022Increase/(Decrease)Inc
25、rease/(Decrease)Net income$1,295$1,178$2,542$2,444 Other comprehensive income(loss),net of taxes:Available-for-sale securities:Unrealized gains/losses on available-for-sale securities 6 (15)14 (29)Reclassification adjustment for recognized gains/losses on available-for-sale securities 5 5 Net increa
26、se(decrease)from available-for-sale securities 11 (15)19 (29)Derivatives designated as hedging instruments:Unrealized gains/losses on derivative instruments 63 (9)86 Reclassification adjustment for realized gains/losses on derivative instruments(7)(28)(24)(43)Net increase(decrease)from derivatives d
27、esignated as hedging instruments(7)35 (33)43 Foreign currency translation adjustments 6 (38)10 (72)Other comprehensive income(loss),net of taxes 10 (18)(4)(58)Total comprehensive income,net of taxes$1,305$1,160$2,538$2,386 See accompanying notes to condensed consolidated financial statements.Table o
28、f Contents5ADOBE INC.CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY(In millions)(Unaudited)Three Months Ended June 2,2023 Common StockAdditionalPaid-InCapitalRetainedEarningsAccumulatedOtherComprehensiveIncome(Loss)Treasury Stock SharesAmountSharesAmountTotalBalances at March 3,2023 601$10
29、,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、$30,609$(297)(145)$(26,191)$14,838 Three Months Ended June 3,2022 Common StockAdditionalPaid-InCapitalRetainedEarningsAccumulatedOtherComprehensiveIncome(Loss)Treasury Stock SharesAmountSharesAmountTotalBalances at March 4,2022 601$8,750$24,961$(177)(129)$(19,759)$13,775 Net income 1,178 1,178 Other
31、 comprehensive income(loss),net of taxes (18)(18)Re-issuance of treasury stock under stock compensation plans (117)1 16 (101)Repurchases of common stock (2)(1,200)(1,200)Stock-based compensation 352 352 Value of shares in deferred compensation plan (1)(1)Balances at June 3,2022 601$9,102$26,022$(195
32、)(130)$(20,944)$13,985 Table of Contents6ADOBE INC.CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY(In millions)(Unaudited)Six Months Ended June 2,2023 Common StockAdditionalPaid-InCapitalRetainedEarningsAccumulatedOtherComprehensiveIncome(Loss)Treasury Stock SharesAmountSharesAmountTotalBal
33、ances 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 Va
34、lue of shares in deferred compensation plan 1 1 Balances at June 2,2023 601$10,717$30,609$(297)(145)$(26,191)$14,838 Six Months Ended June 3,2022 Common StockAdditionalPaid-InCapitalRetainedEarningsAccumulatedOtherComprehensiveIncome(Loss)Treasury Stock SharesAmountSharesAmountTotalBalances at Decem
35、ber 3,2021 601$8,428$23,905$(137)(126)$(17,399)$14,797 Net income 2,444 2,444 Other comprehensive income(loss),net of taxes (58)(58)Re-issuance of treasury stock under stock compensation plans (327)2 51 (276)Repurchases of common stock (6)(3,600)(3,600)Stock-based compensation 674 674 Value of share
36、s in deferred compensation plan 4 4 Balances at June 3,2022 601$9,102$26,022$(195)(130)$(20,944)$13,985 See accompanying notes to condensed consolidated financial statements.Table of Contents7ADOBE INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In millions)(Unaudited)Six Months Ended June 2,202
37、3June 3,2022Cash flows from operating activities:Net income$2,542$2,444 Adjustments to reconcile net income to net cash provided by operating activities:Depreciation,amortization and accretion 432 425 Stock-based compensation 849 674 Reduction of operating lease right-of-use assets 36 42 Deferred in
38、come taxes(168)197 Unrealized losses(gains)on investments,net(2)27 Other non-cash items(3)2 Changes in operating assets and liabilities,net of acquired assets and assumed liabilities:Trade receivables,net 385 287 Prepaid expenses and other assets(562)(140)Trade payables(29)60 Accrued expenses and ot
39、her liabilities(36)(187)Income taxes payable 421 (20)Deferred revenue(33)(2)Net cash provided by operating activities 3,832 3,809 Cash flows from investing activities:Purchases of short-term investments (524)Maturities of short-term investments 538 349 Proceeds from sales of short-term investments 1
40、95 159 Acquisitions,net of cash acquired (126)Purchases of property and equipment(222)(226)Purchases of long-term investments,intangibles and other assets(34)(30)Proceeds from sale of long-term investments and other assets 1 Net cash provided by(used for)investing activities 478 (398)Cash flows from
41、 financing activities:Repurchases of common stock(2,400)(3,600)Proceeds from re-issuance of treasury stock 70 91 Taxes paid related to net share settlement of equity awards(267)(367)Repayment of debt(500)Other financing activities,net 3 22 Net cash used for financing activities(3,094)(3,854)Effect o
42、f foreign currency exchange rates on cash and cash equivalents 4 (36)Net change in cash and cash equivalents 1,220 (479)Cash and cash equivalents at beginning of period 4,236 3,844 Cash and cash equivalents at end of period$5,456$3,365 Supplemental disclosures:Cash paid for income taxes,net of refun
43、ds$435$260 Cash paid for interest$56$50 See accompanying notes to condensed consolidated financial statements.Table of Contents8NOTE 1.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESWe have prepared the accompanying unaudited condensed consolidated financial statements pursuant
44、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 accou
45、nting principles generally accepted in the United States of America(“GAAP”).In managements 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 in
46、terim 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 Ann
47、ual Report on Form 10-K for the fiscal year ended December 2,2022 on file with the SEC(our“Annual Report”).Use of EstimatesIn 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 es
48、timates 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 PoliciesThere have been no material changes to our significant accounting policies as comp
49、ared to the significant accounting policies described in our Annual Report.Adopted Accounting Guidance and Accounting Pronouncements Not Yet EffectiveThere have been no recent accounting pronouncements,changes in accounting pronouncements or recently adopted accounting guidance during the six months
50、 ended June 2,2023 that are of significance or potential significance to us.NOTE 2.REVENUESegment InformationOur segment results for the three months ended June 2,2023 and June 3,2022 were as follows:(dollars in millions)Digital MediaDigital ExperiencePublishing and AdvertisingTotalThree months ende
51、d June 2,2023Revenue$3,511$1,222$83$4,816 Cost of revenue 152 399 21 572 Gross profit$3,359$823$62$4,244 Gross profit as a percentage of revenue 96%67%75%88%Three months ended June 3,2022Revenue$3,200$1,095$91$4,386 Cost of revenue 141 374 24 539 Gross profit$3,059$721$67$3,847 Gross profit as a per
52、centage of revenue 96%66%74%88%Table of ContentsADOBE INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)9Our segment results for the six months ended June 2,2023 and June 3,2022 were as follows:(dollars in millions)Digital MediaDigital ExperiencePublishing and AdvertisingTotalSix mo
53、nths ended June 2,2023Revenue$6,906$2,398$167$9,471 Cost of revenue 294 803 43 1,140 Gross profit$6,612$1,595$124$8,331 Gross profit as a percentage of revenue 96%67%74%88%Six months ended June 3,2022Revenue$6,310$2,152$186$8,648 Cost of revenue 275 726 50 1,051 Gross profit$6,035$1,426$136$7,597 Gr
54、oss profit as a percentage of revenue 96%66%73%88%Revenue by geographic area for the three and six months ended June 2,2023 and June 3,2022 were as follows:Three MonthsSix Months(in millions)2023202220232022Americas$2,879$2,524$5,658$4,970 EMEA 1,213 1,157 2,386 2,293 APAC 724 705 1,427 1,385 Total$
55、4,816$4,386$9,471$8,648 Revenue by major offerings in our Digital Media reportable segment for the three and six months ended June 2,2023 and June 3,2022 were as follows:Three MonthsSix Months(in millions)2023202220232022Creative Cloud$2,852$2,605$5,613$5,153 Document Cloud 659 595 1,293 1,157 Total
56、 Digital Media revenue$3,511$3,200$6,906$6,310 Subscription revenue by segment for the three and six months ended June 2,2023 and June 3,2022 were as follows:Three MonthsSix Months(in millions)2023202220232022Digital Media$3,418$3,079$6,719$6,074 Digital Experience 1,070 961 2,112 1,893 Publishing a
57、nd Advertising 29 30 59 61 Total subscription revenue$4,517$4,070$8,890$8,028 Contract BalancesA 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 receivable
58、s 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 June 2,2023,the balance of trade receivables,net of allowances for doubtful accounts,
59、was$1.69 billion,inclusive of unbilled receivables of$101 million.As of December 2,2022,the balance of trade receivables,net of allowances for doubtful accounts,was$2.07 billion,inclusive of unbilled receivables of$93 million.Table of ContentsADOBE INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATE
60、MENTS(Continued)(Unaudited)10We 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
61、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$17 million and$23 million as of June 2,2023 and December 2,2022,respectively.A contract as
62、set 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 regular
63、ly 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
64、ended June 2,2023.Contract assets were$119 million and$97 million as of June 2,2023 and December 2,2022,respectively.Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from subscription services,including non-cancellable and non-refundable committe
65、d funds and refundable customer deposits.Deferred revenue is recognized as revenue when transfer of control to customers has occurred.As of June 2,2023,the balance of deferred revenue was$5.38 billion,which includes$52 million of refundable customer deposits.Arrangements with some of our enterprise
66、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 appr
67、oximately 5%of the total deferred revenue.As of December 2,2022,the balance of deferred revenue was$5.41 billion.During the three and six months ended June 2,2023,approximately$1.56 billion and$3.86 billion of revenue,respectively,was recognized that was included in the balance of deferred revenue a
68、s of December 2,2022.Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized,which includes deferred revenue and unbilled amounts that will be recognized as revenue in future periods.As of June 2,2023,remaining performance oblig
69、ations were approximately$15.22 billion.Non-cancellable and non-refundable funds related to some of our enterprise customer agreements referred to in the paragraph above comprised approximately 5%of the total remaining performance obligations.Approximately 72%of the remaining performance obligations
70、,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
71、 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 contra
72、ct acquisition costs were$668 million and$629 million as of June 2,2023 and December 2,2022,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 exp
73、enses on the condensed consolidated balance sheets.Refund liabilities were$85 million and$106 million as of June 2,2023 and December 2,2022,respectively.Table of ContentsADOBE INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)11NOTE 3.ACQUISITIONSFigmaOn September 15,2022
74、,we entered into a definitive agreement under which we intend to acquire Figma,Inc.(“Figma”)for approximately$20 billion,comprised of approximately half cash and half stock,subject to customary purchase price adjustments.Approximately 6 million additional restricted stock units will be granted to Fi
75、gmas Chief Executive Officer and employees that will vest over four years subsequent to closing.The transaction is subject to regulatory approvals and customary closing conditions,and should close in 2023.We will be required to pay Figma a reverse termination fee of$1 billion if the transaction fail
76、s to receive regulatory clearance,assuming all other closing conditions have been satisfied or waived,or if it fails to close within 18 months from September 15,2022.Figma is a privately held company that provides a web-first collaborative product design platform.Following the closing,we intend to i
77、ntegrate Figma into our Digital Media reportable segment for financial reporting purposes.NOTE 4.CASH,CASH EQUIVALENTS AND SHORT-TERM INVESTMENTSCash equivalents consist of highly liquid marketable securities with remaining maturities of three months or less at the date of purchase.We classify our i
78、nvestments 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 oth
79、er 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 balan
80、ce sheets.Gains and losses are determined using the specific identification method and recognized when realized in our condensed consolidated statements of income.Cash,cash equivalents and short-term investments consisted of the following as of June 2,2023:(in millions)AmortizedCostUnrealizedGainsUn
81、realizedLossesEstimatedFair ValueCurrent assets:Cash$638$638 Cash equivalents:Money market funds 4,794 4,794 Time deposits 24 24 Total cash equivalents 4,818 4,818 Total cash and cash equivalents 5,456 5,456 Short-term fixed income securities:Asset-backed securities 42 (1)41 Corporate debt securitie
82、s 714 (10)704 Municipal securities 11 11 U.S.agency securities 35 35 U.S.Treasury securities 365 (11)354 Total short-term investments 1,167 (22)1,145 Total cash,cash equivalents and short-term investments$6,623$(22)$6,601 Table of ContentsADOBE INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT
83、S(Continued)(Unaudited)12Cash,cash equivalents and short-term investments consisted of the following as of December 2,2022:(in millions)AmortizedCostUnrealizedGainsUnrealizedLossesEstimatedFair ValueCurrent assets:Cash$657$657 Cash equivalents:Corporate debt securities 39 39 Money market funds 3,479
84、 3,479 Time deposits 61 61 Total cash equivalents 3,579 3,579 Total cash and cash equivalents 4,236 4,236 Short-term fixed income securities:Asset-backed securities 98 (1)97 Corporate debt securities 1,290 (24)1,266 Foreign government securities 5 5 Municipal securities 24 24 U.S.agency securities 3
85、4 34 U.S.Treasury securities 450 (16)434 Total short-term investments 1,901 (41)1,860 Total cash,cash equivalents and short-term investments$6,137$(41)$6,096 See Note 5 for further information regarding the fair value of our financial instruments.The following table summarizes the estimated fair val
86、ue of short-term fixed income debt securities classified as short-term investments based on stated effective maturities as of June 2,2023:(in millions)EstimatedFair ValueDue within one year$708 Due between one and two years 371 Due between two and three years 63 Due after three years 3 Total$1,145 W
87、e 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 s
88、ell 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 rat
89、ing of the security and other relevant credit-related factors in determining whether or not a credit loss exists.During the six months ended June 2,2023 and June 3,2022,we did not recognize an allowance for credit-related losses on any of our investments.Table of ContentsADOBE INC.NOTES TO CONDENSED
90、 CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)13NOTE 5.FAIR VALUE MEASUREMENTSAssets and Liabilities Measured and Recorded at Fair Value on a Recurring BasisThe fair value of our financial assets and liabilities at June 2,2023 was determined using the following inputs:(in millions)Fair Val
91、ue Measurements at Reporting Date Using Quoted Pricesin ActiveMarkets forIdentical AssetsSignificantOtherObservableInputsSignificantUnobservableInputs Total(Level 1)(Level 2)(Level 3)Assets:Cash equivalents:Money market funds$4,794$4,794$Time deposits 24 24 Short-term investments:Asset-backed securi
92、ties 41 41 Corporate debt securities 704 704 Municipal securities 11 11 U.S.agency securities 35 35 U.S.Treasury securities 354 354 Prepaid expenses and other current assets:Foreign currency derivatives 67 67 Other assets:Deferred compensation plan assets 190 190 Total assets$6,220$5,008$1,212$Liabi
93、lities:Accrued expenses:Foreign currency derivatives$7$7$Table of ContentsADOBE INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)14The fair value of our financial assets and liabilities at December 2,2022 was determined using the following inputs:(in millions)Fair Value
94、Measurements at Reporting Date Using Quoted Pricesin ActiveMarkets forIdentical AssetsSignificantOtherObservableInputsSignificantUnobservableInputs Total(Level 1)(Level 2)(Level 3)Assets:Cash equivalents:Corporate debt securities$39$39$Money market funds 3,479 3,479 Time deposits 61 61 Short-term in
95、vestments:Asset-backed securities 97 97 Corporate debt securities 1,266 1,266 Foreign government securities 5 5 Municipal securities 24 24 U.S.agency securities 34 34 U.S.Treasury securities 434 434 Prepaid expenses and other current assets:Foreign currency derivatives 51 51 Other assets:Deferred co
96、mpensation plan assets 160 160 Total assets$5,650$3,700$1,950$Liabilities:Accrued expenses:Foreign currency derivatives$15$15$See Note 4 for further information regarding the fair value of our financial instruments.Our fixed income available-for-sale debt securities consist of high quality,investmen
97、t 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
98、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
99、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
100、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 pric
101、ing 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.Table of ContentsADOBE INC.NOTES TO CONDE
102、NSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)15Assets and Liabilities Measured at Fair Value on a Nonrecurring BasisThe fair value of our senior notes was$3.38 billion as of June 2,2023,based on observable market prices in less active markets and categorized as Level 2.See Note 14 for
103、 further details regarding our debt.NOTE 6.DERIVATIVE FINANCIAL INSTRUMENTSWe 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 instrum
104、ents 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.W
105、e 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 HedgesIn countries outside the United States,we transact business i
106、n U.S.Dollars and in various other currencies.We may use foreign exchange option contracts and forward contracts to hedge a portion of our forecasted foreign currency denominated revenue and expenses.These foreign exchange contracts,carried at fair value,have maturities of up to 12 months.In June 20
107、19,we entered into Treasury lock agreements with large financial institutions which fixed benchmark U.S.Treasury rates for an aggregate notional amount of$1 billion of our future debt issuance.These derivative instruments hedged the impact of changes in the benchmark interest rate to future interest
108、 payments and were settled upon debt issuance in the first quarter of fiscal 2020.We incurred a loss related to the settlement of the instruments which is amortized to interest expense over the term of our debt due February 1,2030.See Note 14 for further details regarding our debt.As of June 2,2023,
109、we had net derivative gains on our foreign exchange option contracts expected to be recognized within the next 18 months,of which$2 million of gains are expected to be recognized into revenue within the next 12 months.In addition,we had net derivative losses on our Treasury lock agreements,of which$
110、5 million is expected to be recognized into interest expense within the next 12 months.Non-Designated HedgesOur 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
111、 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 June 2,2023 and December 2,2022 were as
112、 follows:(in millions)20232022 Fair Value AssetDerivativesFair ValueLiabilityDerivativesFair Value AssetDerivativesFair ValueLiabilityDerivativesDerivatives designated as hedging instruments:Foreign exchange option contracts$64$36$Foreign exchange forward contracts 7 Derivatives not designated as he
113、dging instruments:Foreign exchange forward contracts 3 7 15 8 Total derivatives$67$7$51$15 Gains and losses on derivative instruments,net of tax,recognized in our condensed consolidated statements of comprehensive income for the three and six months ended June 2,2023 and June 3,2022 were primarily a
114、ssociated with our Table of ContentsADOBE INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)16foreign exchange option contracts.For the three months ended June 2,2023,net losses recognized in our condensed consolidated statements of comprehensive income from our foreign e
115、xchange option contracts were immaterial.For the six months ended June 2,2023,we recognized$13 million of net losses in our condensed consolidated statements of comprehensive income from our foreign exchange option contracts.For the three and six months ended June 3,2022,we recognized$63 million and
116、$86 million of net gains,respectively,in our condensed consolidated statements of comprehensive income from our foreign exchange option contracts.The effects of derivative instruments on our condensed consolidated statements of income for the three and six months ended June 2,2023 and June 3,2022 we
117、re primarily associated with foreign exchange option contracts.For the three and six months ended June 2,2023,we reclassified$10 million and$31 million of net gains,respectively,from accumulated other comprehensive income into revenue resulting from our foreign exchange option contracts.Comparativel
118、y,for the three and six months ended June 3,2022,we reclassified$33 million and$51 million of net gains,respectively,from accumulated other comprehensive income into revenue resulting from our foreign exchange option contracts.NOTE 7.GOODWILL AND OTHER INTANGIBLESGoodwill as of June 2,2023 and Decem
119、ber 2,2022 was$12.80 billion and$12.79 billion,respectively.During the second quarter of fiscal 2023,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 June 2,20
120、23 and December 2,2022 were as follows:(in millions)20232022 Gross Carrying AmountAccumulated AmortizationNetGross Carrying AmountAccumulated AmortizationNetCustomer contracts and relationships$1,203$(557)$646$1,204$(495)$709 Purchased technology 1,060 (636)424 1,060 (530)530 Trademarks 376 (194)182
121、 375 (172)203 Other 20 (14)6 61 (54)7 Other intangibles,net$2,659$(1,401)$1,258$2,700$(1,251)$1,449 Amortization expense related to other intangibles was$96 million and$192 million for the three and six months ended June 2,2023,respectively.Comparatively,amortization expense related to other intangi
122、bles was$101 million and$202 million for the three and six months ended June 3,2022,respectively.Of these amounts,$54 million and$108 million were included in cost of revenue for the three and six months ended June 2,2023,respectively,and$59 million and$118 million were included in cost of revenue f
123、or the three and six months ended June 3,2022,respectively.As of June 2,2023,the estimated aggregate amortization expense in future periods was as follows:(in millions)Fiscal YearOther Intangibles(1)Remainder of 2023$185 2024 331 2025 295 2026 142 2027 104 Thereafter 182 Total expected amortization
124、expense$1,239 _(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.Table of ContentsADOBE INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)
125、17NOTE 8.ACCRUED EXPENSESAccrued expenses as of June 2,2023 and December 2,2022 consisted of the following:(in millions)20232022Accrued compensation and benefits$667$485 Accrued bonuses 307 489 Accrued corporate marketing 120 154 Taxes payable 111 117 Refund liabilities 85 106 Other 496 439 Accrued
126、expenses$1,786$1,790 Other primarily includes general business accruals,derivative collateral liabilities,accrued hosting fees and royalties payable.NOTE 9.STOCK-BASED COMPENSATIONRestricted Stock UnitsRestricted stock unit activity for the six months ended June 2,2023 was as follows:Number ofShares
127、(in millions)Weighted AverageGrant Date Fair ValueAggregateFair Value(1)(in millions)Beginning outstanding balance 7.4$449.94 Awarded 4.3$360.17 Released(2.0)$434.79 Forfeited(0.3)$447.84 Ending outstanding balance 9.4$411.69$4,084 Expected to vest 8.3$412.63$3,617 _(1)The aggregate fair value is ca
128、lculated using the closing stock price as of June 2,2023 of$436.37.The total fair value of restricted stock units vested during the six months ended June 2,2023 was$737 million.Performance Shares In the first quarter of fiscal 2023,the Executive Compensation Committee of our Board of Directors(the“E
129、CC”)approved the 2023 Performance Share Program,the terms of which are similar to the 2022 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
130、-K for the fiscal year ended December 2,2022.As of June 2,2023,the shares awarded under our 2023,2022 and 2021 Performance Share Programs remained outstanding and were yet to be earned.Table of ContentsADOBE INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)18Performance
131、share activity for the six months ended June 2,2023 was as follows:Number ofShares(in millions)Weighted AverageGrant Date Fair ValueAggregateFair Value(1)(in millions)Beginning outstanding balance 0.4$495.23 Awarded 0.2$437.58 Released(0.1)$498.74 Forfeited$493.87 Ending outstanding balance 0.5$465.
132、80$206 Expected to vest 0.4$466.11$178 _(1)The aggregate fair value is calculated using the closing stock price as of June 2,2023 of$436.37.Under our Performance Share Programs,participants generally have the ability to receive up to 200%of the target number of shares originally granted.Shares relea
133、sed during the six months ended June 2,2023 resulted from 63%achievement of target for the 2020 Performance Share Program,as certified by the ECC in the first quarter of fiscal 2023.The total fair value of performance shares vested during the six months ended June 2,2023 was$39 million.Employee Stoc
134、k Purchase Plan SharesEmployees purchased 0.2 million shares at an average price of$286.05 and 0.2 million shares at an average price of$393.30 for the six months ended June 2,2023 and June 3,2022,respectively.The intrinsic value of shares purchased during the six months ended June 2,2023 and June 3
135、,2022 was$12 million and$40 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.Compensation CostsAs of June 2,2023,there was$3.46 billion of unrecognized compensation cost,adjusted for estimat
136、ed forfeitures,related to non-vested stock-based awards and purchase rights which will be recognized over a weighted average period of 2.47 years.Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.Total stock-based compensation costs included in our con
137、densed consolidated statements of income for the three and six months ended June 2,2023 and June 3,2022 were as follows:Three MonthsSix Months(in millions)2023202220232022Cost of revenue$29$24$58$45 Research and development 224 177 433 338 Sales and marketing 123 100 245 193 General and administrati
138、ve 57 51 113 98 Total$433$352$849$674 Table of ContentsADOBE INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)19NOTE 10.ACCUMULATED OTHER COMPREHENSIVE INCOME(LOSS)The components of accumulated other comprehensive income(loss)and activity,net of related taxes,were as fol
139、lows:(in millions)December 2,2022Increase/DecreaseReclassification AdjustmentsJune 2,2023Net unrealized gains/losses on available-for-sale securities$(41)$14$5(1)$(22)Net unrealized gains/losses on derivative instruments designated as hedging instruments 17 (9)(24)(2)(16)Cumulative foreign currency
140、translation adjustments(269)10 (259)Total accumulated other comprehensive income(loss),net of taxes$(293)$15$(19)$(297)_(1)Reclassification adjustments for gains/losses on available-for-sale securities are classified in other income(expense),net.(2)Reclassification adjustments for gains/losses on fo
141、reign currency hedges are classified in revenue or operating expenses,depending on the nature of the underlying transaction,and reclassification adjustments for gains/losses on Treasury lock hedges are classified in interest expense.Taxes related to each component of other comprehensive income(loss)
142、for the three and six months ended June 2,2023 and June 3,2022 were immaterial.NOTE 11.STOCK REPURCHASE PROGRAMTo 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 i
143、nto structured repurchase agreements with third parties.In December 2020,our Board of Directors granted authority to repurchase up to$15 billion in our common stock through the end of fiscal 2024.During the six months ended June 2,2023 and June 3,2022,we entered into accelerated share repurchase agr
144、eements(“ASRs”)with large financial institutions whereupon we provided them with prepayments of$1.4 billion and$2.4 billion,respectively.Under the terms of our ASRs,the financial institutions agree to deliver a portion of shares to us at contract inception and the remaining shares at settlement.The
145、total number of shares delivered and average purchase price paid per share are determined upon settlement based on the Volume Weighted Average Price(“VWAP”)over the term of the ASR,less an agreed upon discount.During the six months ended June 2,2023 and June 3,2022,we also entered into structured st
146、ock repurchase agreements with large financial institutions whereupon we provided them with prepayments totaling$1 billion and$1.2 billion,respectively.Under the terms of these structured stock repurchase agreements,the financial institutions agree to deliver shares to us at monthly intervals during
147、 the respective contract terms,and the number of shares delivered each month are determined based on the total notional amount of the contracts,the number of trading days in the intervals and the VWAP during the intervals,less an agreed upon discount.During the six months ended June 2,2023,we repurc
148、hased a total of 7.6 million shares,including approximately 3.6 million shares at an average price of$346.84 through structured repurchase agreements entered into during fiscal 2022 and the six months ended June 2,2023,as well as 4.0 million shares at an average price of$348.46 through the ASR enter
149、ed into during the six months ended June 2,2023.During the six months ended June 3,2022,we repurchased a total of 5.6 million shares,including approximately 2.4 million shares at an average price of$474.52 through structured repurchase agreements entered into during fiscal 2021 and the six months en
150、ded June 3,2022,as well as 3.2 million shares from the initial delivery of the ASR entered into during the six months ended June 3,2022.For the six months ended June 2,2023,the prepayments were classified as treasury stock,a component of stockholders equity on our condensed consolidated balance shee
151、ts,at the payment date,though only shares physically delivered to us by June 2,2023 were excluded from the computation of net income per share.As of June 2,2023,$333 million of prepayment remained under our outstanding structured stock repurchase agreement.Table of ContentsADOBE INC.NOTES TO CONDENS
152、ED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)20Subsequent to June 2,2023,as part of the December 2020 stock repurchase authority,we entered into a structured stock repurchase agreement with a large financial institution whereupon we provided them with a prepayment of$1 billion.Upon comp
153、letion of the$1 billion stock repurchase agreement,$3.15 billion remains under our December 2020 authority.NOTE 12.NET INCOME PER SHAREThe following table sets forth the computation of basic and diluted net income per share for the three and six months ended June 2,2023 and June 3,2022:Three MonthsS
154、ix Months(in millions,except per share data)2023202220232022Net income$1,295$1,178$2,542$2,444 Shares used to compute basic net income per share 457.8 472.1 458.4 472.3 Dilutive potential common shares from stock plans and programs 0.9 1.2 0.7 2.0 Shares used to compute diluted net income per share
155、458.7 473.3 459.1 474.3 Basic net income per share$2.83$2.50$5.55$5.17 Diluted net income per share$2.82$2.49$5.54$5.15 Anti-dilutive potential common shares 3.8 4.7 5.0 2.5 NOTE 13.COMMITMENTS AND CONTINGENCIESIndemnificationsIn the ordinary course of business,we provide indemnifications of varying
156、 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 indemnif
157、ication 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 ev
158、ents 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 officers or directors lifetime.The maximum potential amount of future payments we could be required to make under thes
159、e 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 coverag
160、e is minimal.Legal ProceedingsIn 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.Intellect
161、ual property disputes and litigation may be very costly and can be disruptive to our business operations by diverting the attention and energies of management and key technical personnel.Although we have successfully defended or resolved past litigation and disputes,we may not prevail in any ongoing
162、 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
163、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
164、.Table of ContentsADOBE INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)21In addition to intellectual property disputes,we are subject to legal proceedings,claims,including claims relating to commercial,employment and other matters,and investigations,including governmen
165、t investigations.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
166、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
167、 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 a
168、nd 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 recogniz
169、ed(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 de
170、fenses 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.In connection wit
171、h our anti-piracy efforts,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 possibl
172、e that our consolidated financial position,results of operations or cash flows could be negatively affected in any particular period by the resolution of one or more of these counter-claims.NOTE 14.DEBTThe carrying value of our borrowings as of June 2,2023 and December 2,2022 were as follows:(dollar
173、s in millions)Issuance DateDue DateEffective Interest Rate202320221.70%2023 NotesFebruary 2020February 20231.92%$500 1.90%2025 NotesFebruary 2020February 20252.07%500 500 3.25%2025 NotesJanuary 2015February 20253.67%1,000 1,000 2.15%2027 NotesFebruary 2020February 20272.26%850 850 2.30%2030 NotesFeb
174、ruary 2020February 20302.69%1,300 1,300 Total debt outstanding,at par$3,650$4,150 Current portion of debt,at par (500)Unamortized discount and debt issuance costs(19)(21)Carrying value of long-term debt$3,631$3,629 Carrying value of current debt,net of unamortized discount and debt issuance costs$50
175、0 Table of ContentsADOBE INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)22Senior Notes In January 2015,we issued$1 billion of senior notes due February 1,2025.The related discount and issuance costs are amortized to interest expense over the term of the notes using the
176、 effective interest method.Interest is payable semi-annually,in arrears,on February 1 and August 1.In February 2020,we issued$500 million of senior notes due February 1,2023,$500 million of senior notes due February 1,2025,$850 million of senior notes due February 1,2027 and$1.30 billion of senior n
177、otes due February 1,2030.Our total proceeds of approximately$3.14 billion,net of issuance discount,were used for general corporate purposes including repayment of debt instruments due in fiscal 2020.The related discount and issuance costs are amortized to interest expense over the respective terms o
178、f the notes using the effective interest method.Interest is payable semi-annually,in arrears,on February 1 and August 1.During the first quarter of fiscal 2023,the$500 million of senior notes due February 1,2023 became due and were repaid.Our senior notes rank equally with our other unsecured and un
179、subordinated indebtedness.We may redeem the notes at any time,subject to a make-whole premium.In addition,upon the occurrence of certain change of control triggering events,we may be required to repurchase the notes,at a price equal to 101%of their principal amount,plus accrued and unpaid interest t
180、o the date of repurchase.The notes do not contain financial covenants but include covenants that limit our ability to grant liens on assets and to enter into sale and leaseback transactions,subject to significant allowances.Term Loan Credit AgreementIn January 2023,we entered into a delayed draw ter
181、m loan credit agreement(the“Term Loan Credit Agreement”),providing for a senior unsecured term loan(the“Term Loan”)of up to$3.5 billion for the purpose of partially funding the purchase price for our acquisition of Figma and the related fees and expenses incurred in connection with the acquisition.T
182、he Term Loan is available for funding in a single drawing upon the closing of the Figma acquisition at any time prior to March 15,2024.The Term Loan will mature two years following the initial funding date and requires no scheduled principal amortization payments prior to maturity.The Term Loan may
183、be prepaid and terminated at our election at any time without premium or penalty.At our election,the Term Loan will bear interest at either(i)term Secured Overnight Financing Rate(“SOFR”),plus a margin,(ii)adjusted daily SOFR,plus a margin,or(iii)base rate,plus a margin.Base rate is defined as the h
184、ighest of(a)the federal funds rate plus 0.50%,(b)the agents prime rate,or(c)term SOFR plus 1.00%.The margin for term SOFR and adjusted daily SOFR loans is based on our debt ratings,and ranges from 0.750%to 1.250%.The margin for base rate loans is based on our debt ratings,and ranges from 0.000%to 0.
185、250%.In addition,commitment fees determined according to our debt ratings are payable quarterly in an amount ranging from 0.040%to 0.100%per annum until the funding of the Term Loan.The Term Loan Credit Agreement contains customary representations,warranties,affirmative and negative covenants,events
186、 of default and indemnification provisions in favor of the lenders similar to those contained in the Revolving Credit Agreement.As of June 2,2023,there were no outstanding borrowings under the Term Loan.Revolving Credit AgreementIn June 2022,we entered into a credit agreement(“Revolving Credit Agree
187、ment”),providing for a five-year$1.5 billion senior unsecured revolving credit facility,which replaced our previous five-year$1 billion senior unsecured revolving credit agreement entered into in October 2018(the“Prior Revolving Credit Agreement”).The Revolving Credit Agreement provides for loans to
188、 Adobe and certain of its subsidiaries that may be designated from time to time as additional borrowers.Pursuant to the terms of the Revolving Credit Agreement,we may,subject to the agreement of lenders to provide additional commitments,obtain up to an additional$500 million in commitments,for a max
189、imum aggregate commitment of$2 billion.At our election,loans under the Revolving Credit Agreement will bear interest at either(i)term SOFR,plus a margin,(ii)adjusted daily SOFR,plus a margin,(iii)alternative currency rate,plus a margin,or(iv)base rate,which is defined as the highest of(a)the federal
190、 funds rate plus 0.50%,(b)the agents prime rate,or(c)term SOFR plus 1.00%.The margin for term SOFR,adjusted daily SOFR and alternative currency rate loans is based on our debt ratings,and ranges from 0.460%to 0.900%.In addition,facility fees determined according to our debt ratings are payable on th
191、e aggregate commitments,regardless of usage,quarterly in an amount ranging from 0.040%to 0.100%per annum.We are permitted to permanently reduce the aggregate commitment under Table of ContentsADOBE INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)23the Revolving Credit A
192、greement at any time.Subject to certain conditions stated in the Revolving Credit Agreement,Adobe and any of its subsidiaries designated as additional borrowers may borrow,prepay and re-borrow amounts at any time during the term of the Revolving Credit Agreement.The Revolving Credit Agreement contai
193、ns customary representations,warranties,affirmative and negative covenants,including 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 transactions,dispositions and ot
194、her matters,all subject to certain exceptions.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 furthe
195、r extended upon our request,subject to the agreement of the lenders.As of June 2,2023,there were no outstanding borrowings under this Revolving Credit Agreement.Table of ContentsADOBE INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)24ITEM 2.MANAGEMENTS DISCUSSION AND AN
196、ALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe 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
197、statements regarding product plans,future growth,market opportunities,fluctuations in foreign currency exchange rates,strategic investments,industry positioning,customer acquisition and retention,the amount of annualized recurring revenue and revenue growth.In addition,when used in this report,the w
198、ords“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
199、 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
200、titled“Risk Factors”in Part II,Item 1A of this report.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 2022,should be carefully reviewed.Undue reliance should not
201、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
202、law.BUSINESS OVERVIEWFounded in 1982,Adobe is one of the largest and most diversified software companies in the world.We offer a line of products and services used by creative professionals,including photographers,video editors,graphic and experience designers and game developers;communicators,inclu
203、ding content creators,students,marketers and knowledge workers;businesses of all sizes;and consumers for creating,managing,delivering,measuring,optimizing,engaging and transacting with compelling content and experiences across personal computers,smartphones,other electronic devices and digital media
204、 formats.We market our products and services directly to enterprise customers through our sales force and local field offices.We license our products to end users through app stores and our own website at .We offer many of our products via a Software-as-a-Service(“SaaS”)model or a managed services m
205、odel(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,systems integrators,independent software vendors,retailers,software develop
206、ers and original equipment manufacturers(“OEMs”).In addition,we license our technology to hardware manufacturers,software developers and service providers for use in their products and solutions.Our products run on desktop and laptop computers,smartphones,tablets,other devices and the web,depending
207、on the product.We have operations in the 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 Avenu
208、e,San Jose,California 95110-2704.Our telephone number is 408-536-6000 and our website is .Investors can obtain copies of our SEC filings from our website 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
209、 on Form 10-Q.OPERATIONS OVERVIEWFor our second quarter of fiscal 2023,we experienced strong demand across our Digital Media and Digital Experience offerings,driven by the ongoing shift towards a digital-first world.As we execute on our long-term growth initiatives and deliver product innovation,we
210、have continued to experience growth in software-based subscription revenue across our portfolio of offerings.Digital MediaIn our Digital Media segment,we are a market leader with Creative Cloud,our subscription-based offering which provides desktop tools,mobile apps and cloud-based services for desi
211、gning,creating and publishing rich content and immersive 3D experiences.Creative Cloud includes Adobe Express,a web and mobile application designed to enable a broad spectrum of users,including novice content creators,communicators and creative professionals,to create,edit and customize content quic
212、kly and easily with content-first,task-based solutions.Creative Cloud delivers value with deep,cross-product integration,frequent product updates and feature enhancements,cloud-enabled services including storage and syncing of files across users devices,machine learning and artificial intelligence,a
213、ccess to marketplace,social and community-based features with our Table of Contents25Adobe 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 indivi
214、duals,students,teams and enterprises.We expect Creative Cloud will drive sustained long-term revenue growth through a continued expansion of our customer base by attracting new users with new features and products like Adobe Express that make creative tools accessible to first-time creators and comm
215、unicators,and delivering new features and technologies to existing customers with our latest releases such as share for review.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
216、 Creative Cloud is designed to enable us to increase our revenue with existing users,continue to attract new customers,and grow our recurring and predictable revenue stream that is recognized ratably.We continue to implement strategies that are designed to accelerate awareness,consideration and purc
217、hase of subscriptions to our Creative Cloud offerings.These strategies include increasing the value Creative Cloud users receive,such as offering new desktop,web and mobile applications,as well as targeted promotions and offers that attract past customers and potential users to experience and ultima
218、tely 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 Document Cloud offerings built
219、 around our Adobe Acrobat family of products,with a set of integrated mobile apps and cloud-based document services which enable users to create,collaborate,review,approve,sign and track documents regardless of platform or application source type.Document Cloud,which enhances the way people manage c
220、ritical documents at home,in the office and across devices,includes Adobe Acrobat,Adobe Acrobat Sign and Adobe Scan.Adobe Acrobat is offered both through subscription and perpetual licenses,and is also included in our Creative Cloud all apps subscription offering.As part of our Creative Cloud and Do
221、cument 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 bus
222、iness.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 remaining performance obligations as ARR is a performance m
223、etric and is not intended to be combined with any of these items.We adjust our reported ARR on an annual basis to reflect any exchange rate changes.Our reported ARR results in the current fiscal year are based on currency rates set at the beginning of the year and held constant throughout the year f
224、or measurement purposes.We calculate ARR as follows:Creative ARRAnnual Value of Creative Cloud Subscriptions and Services+Annual Creative ETLA Contract Value Document Cloud ARRAnnual Value of Document Cloud Subscriptions and Services+Annual Document Cloud ETLA Contract ValueDigital Media ARRCreative
225、 ARR+Document Cloud ARRCreative ARR exiting the second quarter of fiscal 2023 was$11.64 billion,up from$10.98 billion at the end of fiscal 2022.Document Cloud ARR exiting the second quarter of fiscal 2023 was$2.50 billion,up from$2.28 billion at the end of fiscal 2022.Total Digital Media ARR grew to
226、$14.14 billion at the end of the second quarter of fiscal 2023,up from$13.26 billion at the end of fiscal 2022.Our success in driving growth in ARR has positively affected our revenue growth.Creative revenue in the second quarter of fiscal 2023 was$2.85 billion,up from$2.61 billion in the second qua
227、rter of fiscal 2022,representing 9%year-over-year growth.Document Cloud revenue in the second quarter of fiscal 2023 was$659 million,up from$595 million in the second quarter of fiscal 2022,representing 11%year-over-year growth.Total Digital Media segment revenue grew to$3.51 billion in the second q
228、uarter of fiscal 2023,up from$3.20 billion in the second quarter of fiscal 2022,representing 10%year-over-year growth driven by strong net new user growth.Table of Contents26Digital ExperienceWe are a market leader in the fast-growing category addressed by our Digital Experience segment.The Adobe Ex
229、perience Cloud applications,services and platform 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 Exper
230、ience Platform to integrate our comprehensive set of solutions.Adobe Experience Cloud delivers solutions for our customers across the following strategic growth pillars:Data insights and activation.Our solutions,including Adobe Analytics,Adobe Experience Platform,Customer Journey Analytics,Adobe Aud
231、ience Manager and our Real-time Customer Data Platform,deliver robust customer profiles and AI-powered analytics across the customer journey to provide timely,relevant experiences across platforms.Content and commerce.Our solutions help customers manage,deliver and optimize content delivery through
232、Adobe Experience Manager,and enable shopping experiences that scale from mid-market to enterprise businesses with Adobe Commerce.Customer journeys.Our solutions help businesses manage,test,target,personalize and orchestrate campaigns and customer journeys across B2B and B2C use cases,including throu
233、gh Marketo Engage,Adobe Campaign,Adobe Target and Journey Optimizer.Marketing planning and workflow.We offer Adobe Workfront,a work management platform directed toward marketers to orchestrate campaign workflows.In addition to chief marketing officers,chief revenue officers and digital marketers,use
234、rs of our Digital Experience solutions include advertisers,campaign managers,publishers,data analysts,content managers,social marketers,marketing executives and information management and technology executives.These customers often are involved in workflows that utilize other Adobe products,such as
235、our Digital Media offerings.By combining the creativity of our Digital Media business with the science of our Digital Experience business,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 feed
236、back loop.We utilize a direct sales force to market and license our Digital Experience 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
237、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 and our experience-led growth strategy.Digital Experience revenue was$1.22 billion in the second quarter of fiscal 2023,up from$1.10 billio
238、n in the second quarter of fiscal 2022,representing 12%year-over-year growth.Driving this increase was the increase in subscription revenue,which grew to$1.07 billion in the second quarter of fiscal 2023 from$961 million in the second quarter of fiscal 2022,representing 11%year-over-year growth.Macr
239、oeconomic ConditionsAs 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 econ
240、omic slowdowns or recessions and geopolitical pressures,including the unknown impacts of current and future trade regulations and the Russia-Ukraine war.We continuously monitor the direct and indirect impacts of these circumstances on our business and financial results.For example,foreign currency e
241、xchange rate fluctuations have negatively impacted our revenue and earnings during the six months ended June 2,2023 as compared to the six months ended June 3,2022,and may continue to negatively impact our financial results for the remainder of fiscal 2023.While our revenue and earnings are relative
242、ly predictable as a result of our subscription-based business model,the broader implications of these macroeconomic events on our business,results of operations and overall financial position,particularly in the long term,remain uncertain.See Risk Factors for further discussion of the possible impac
243、t of these macroeconomic issues on our business.Table of Contents27CRITICAL ACCOUNTING POLICIES AND ESTIMATESIn preparing our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America(“GAAP”)and pursuant to the rules and r
244、egulations 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 factor
245、s that we believe to be reasonable under the circumstances.Actual results could differ materially from these estimates under different assumptions or conditions.We evaluate our assumptions,judgments and estimates on a regular basis.We also discuss our critical accounting policies and estimates with
246、the Audit Committee of the Board of Directors.We believe that the assumptions,judgments and estimates involved in the accounting for revenue recognition,business combinations and income taxes have the greatest potential impact on our condensed consolidated financial statements.These areas are key co
247、mponents of our results of operations and are based on complex rules requiring us to make judgments and estimates,and consequently,we consider these to be our critical accounting policies.Historically,our assumptions,judgments and estimates relative to our critical accounting policies have not diffe
248、red materially from actual results.There have been no significant changes in our critical accounting policies and estimates during the six months ended June 2,2023,as compared to the critical accounting policies and estimates disclosed in Managements Discussion and Analysis of Financial Condition an
249、d Results of Operations included in our Annual Report on Form 10-K for the year ended December 2,2022.Recent Accounting PronouncementsSee Note 1 of our notes to condensed consolidated financial statements for information regarding recent accounting pronouncements that are of significance or potentia
250、l significance to us.RESULTS OF OPERATIONSFinancial Performance SummaryTotal Digital Media ARR of approximately$14.14 billion as of June 2,2023 increased by$880 million,or 7%,from$13.26 billion as of December 2,2022.The change in our Digital Media ARR is primarily due to new user adoption of our Cre
251、ative Cloud and Document Cloud offerings.Creative revenue during the three months ended June 2,2023 of$2.85 billion increased by$247 million,or 9%,compared to the year-ago period.Document Cloud revenue during the three months ended June 2,2023 of$659 million increased by$64 million,or 11%,compared t
252、o the year-ago period.The increases were primarily due to subscription revenue growth associated with our Creative Cloud and Document Cloud offerings.Digital Experience revenue of$1.22 billion during the three months ended June 2,2023 increased by$127 million,or 12%,compared to the year-ago period.T
253、he increase was primarily due to subscription revenue growth across our offerings.Remaining performance obligations of$15.22 billion as of June 2,2023 remained relatively flat compared to December 2,2022.Cost of revenue of$572 million during the three months ended June 2,2023 increased by$33 million
254、,or 6%,compared to the year-ago period primarily due to increases in base and incentive compensation and related benefits costs,as well as increases in hosting services and data center costs.Operating expenses of$2.62 billion during the three months ended June 2,2023 increased by$302 million,or 13%,
255、compared to the year-ago period primarily due to increases in base and incentive compensation and related benefits costs,as well as professional fees including costs associated with our planned acquisition of Figma.Cash flows from operations of$3.83 billion during the six months ended June 2,2023 re
256、mained relatively flat compared to the year-ago period.Table of Contents28Revenue for the Three and Six Months Ended June 2,2023 and June 3,2022(dollars in millions)Three MonthsSix Months 20232022%Change20232022%ChangeSubscription$4,517$4,070 11%$8,890$8,028 11%Percentage of total revenue 94%93%94%9
257、3%Product 130 146 (11)%250 291 (14)%Percentage of total revenue 3%3%3%3%Services and other 169 170 (1)%331 329 1%Percentage of total revenue 3%4%3%4%Total revenue$4,816$4,386 10%$9,471$8,648 10%SubscriptionOur subscription revenue is comprised primarily of fees we charge for our subscription and hos
258、ted 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 with commencement of service.Subscription revenue rela
259、ted to certain offerings,where fees are based on a number of transactions and invoicing is aligned to the pattern of performance,customer benefit and consumption,are recognized on a usage basis.We have the following reportable segments:Digital Media,Digital Experience,and Publishing and Advertising.
260、Subscription revenue by reportable segment for the three and six months ended June 2,2023 and June 3,2022 is as follows:(dollars in millions)Three MonthsSix Months20232022%Change20232022%ChangeDigital Media$3,418$3,079 11%$6,719$6,074 11%Digital Experience 1,070 961 11%2,112 1,893 12%Publishing and
261、Advertising 29 30 (3)%59 61 (3)%Total subscription revenue$4,517$4,070 11%$8,890$8,028 11%ProductOur 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 OEM and royal
262、ty agreements.We primarily recognize product revenue at the point in time the software is available to the customer,provided all other revenue recognition criteria are met.Services and OtherOur services and other revenue is comprised primarily of fees related to consulting,training,maintenance and s
263、upport for certain on-premise licenses that are recognized at a point in time and our advertising offerings.We typically sell our consulting contracts on a time-and-materials or fixed-fee basis.These revenues are recognized as the services are performed for time-and-materials contracts and on a rela
264、tive performance basis for fixed-fee contracts.Training revenues are recognized as the services are performed.Our maintenance and support offerings,which entitle customers,partners and developers to receive desktop product upgrades and enhancements or technical support,depending on the offering,are
265、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.Table of Contents29Segment Information(dollars in millions)Three MonthsSix Months 20232022%Change20232022%Chan
266、geDigital Media$3,511$3,200 10%$6,906$6,310 9%Percentage of total revenue 73%73%73%73%Digital Experience 1,222 1,095 12%2,398 2,152 11%Percentage of total revenue 25%25%25%25%Publishing and Advertising 83 91 (9)%167 186 (10)%Percentage of total revenue 2%2%2%2%Total revenue$4,816$4,386 10%$9,471$8,6
267、48 10%Digital MediaRevenue by major offerings in our Digital Media reportable segment for the three and six months ended June 2,2023 and June 3,2022 were as follows:(dollars in millions)Three MonthsSix Months20232022%Change20232022%ChangeCreative Cloud$2,852$2,605 9%$5,613$5,153 9%Document Cloud 659
268、 595 11%1,293 1,157 12%Total Digital Media revenue$3,511$3,200 10%$6,906$6,310 9%Revenue from Digital Media increased$311 million and$596 million during the three and six months ended June 2,2023 as compared to the three and six months ended June 3,2022 driven by increases in revenue associated with
269、 our Creative and Document Cloud subscription offerings due to continued demand amid an increasingly digital environment and strong customer acquisition and engagement,partially offset by the impact of foreign currency exchange rate fluctuations.Digital ExperienceRevenue from Digital Experience incr
270、eased$127 million and$246 million during the three and six months ended June 2,2023 as compared to the three and six months ended June 3,2022 primarily due to net new additions across our subscription offerings and strong demand for services,partially offset by the impact of foreign currency exchang
271、e rate fluctuations.Geographical Information(dollars in millions)Three MonthsSix Months 20232022%Change20232022%ChangeAmericas$2,879$2,524 14%$5,658$4,970 14%Percentage of total revenue 60%58%60%57%EMEA 1,213 1,157 5%2,386 2,293 4%Percentage of total revenue 25%26%25%27%APAC 724 705 3%1,427 1,385 3%
272、Percentage of total revenue 15%16%15%16%Total revenue$4,816$4,386 10%$9,471$8,648 10%Overall revenue during the three and six months ended June 2,2023 increased in all geographic regions as compared to the three and six months ended June 3,2022 primarily due to increases in Digital Media and Digital
273、 Experience revenue.Within each geographic region,the fluctuations in revenue by reportable segment were attributable to the factors noted in the segment information above.Table of Contents30Included in the overall change in revenue for the three and six months ended June 2,2023 as compared to the t
274、hree and six months ended June 3,2022 were impacts associated with foreign currency which were mitigated in part by our foreign currency hedging program.During the three and six months ended June 2,2023 as compared to the year-ago period,the U.S.Dollar strengthened against foreign currencies,includi
275、ng the Euro,Japanese Yen and British Pound,which decreased revenue in U.S.Dollar equivalents by$136 million and$305 million,respectively.For the three and six months ended June 2,2023,the foreign currency impacts to revenue were offset in part by net hedging gains from our cash flow hedging program
276、of$10 million and$31 million,respectively.Cost of Revenue for the Three and Six Months Ended June 2,2023 and June 3,2022(dollars in millions)Three MonthsSix Months 20232022%Change20232022%ChangeSubscription$436$410 6%$870$803 8%Percentage of total revenue 9%9%9%9%Product 8 9 (11)%16 19 (16)%Percenta
277、ge of total revenue*Services and other 128 120 7%254 229 11%Percentage of total revenue 3%3%3%3%Total cost of revenue$572$539 6%$1,140$1,051 8%_(*)Percentage is less than 1%.SubscriptionCost of subscription revenue consists of third-party hosting services and data center costs,including expenses rel
278、ated to operating our network infrastructure.Cost of subscription revenue also includes compensation costs associated with network operations,implementation,account management and technical support personnel,royalty fees,software costs and amortization of certain intangible assets.Cost of subscripti
279、on revenue increased during the three and six months ended June 2,2023 as compared to the three and six months ended June 3,2022 due to the following:Components of%Change2023-2022QTDComponents of%Change2023-2022YTDHosting services and data center costs 5%6%Royalty costs 2 2 Various individually insi
280、gnificant items (1)Total change 6%8%ProductCost of product revenue is primarily comprised of third-party royalties,localization costs and the costs associated with the manufacturing of our products.Services and OtherCost of services and other revenue is primarily comprised of compensation and contra
281、cted costs incurred to provide consulting services,training and product support,and hosting services and data center costs.Cost of services and other revenue increased during the three and six months ended June 2,2023 as compared to the three and six months ended June 3,2022 primarily due to increas
282、es in compensation costs partially offset by decreases in professional and consulting fees.Table of Contents31Operating Expenses for the Three and Six Months Ended June 2,2023 and June 3,2022(dollars in millions)Three MonthsSix Months 20232022%Change20232022%ChangeResearch and development$876$738 19
283、%$1,703$1,439 18%Percentage of total revenue 18%17%18%17%Sales and marketing 1,345 1,247 8%2,646 2,405 10%Percentage of total revenue 28%28%28%28%General and administrative 357 291 23%688 560 23%Percentage of total revenue 7%7%7%6%Amortization of intangibles 42 42%84 84%Percentage of total revenue 1
284、%1%1%1%Total operating expenses$2,620$2,318 13%$5,121$4,488 14%Research and Development Research and development expenses consist primarily of compensation and contracted costs associated with software development,third-party hosting services and data center costs,related facilities costs and expens
285、es associated with computer equipment and software used in development activities.Research and development expenses increased during the three and six months ended June 2,2023 as compared to the three and six months ended June 3,2022 due to the following:Components of%Change2023-2022QTDComponents of
286、%Change2023-2022YTDIncentive compensation,cash and stock-based 9%9%Base compensation and related benefits 7 7 Various individually insignificant items 3 2 Total change 19%18%Investments in research and development,including the recruiting and hiring of software developers,are critical to remain comp
287、etitive 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 offeri
288、ngs,applications and tools.Sales and MarketingSales and marketing expenses consist primarily of 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 mana
289、gement 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 expenses increased during the three and six months ended June 2,2023 as c
290、ompared to the three and six months ended June 3,2022 due to the following:Components of%Change2023-2022QTDComponents of%Change2023-2022YTDIncentive compensation,cash and stock-based 3%4%Base compensation and related benefits 3 3 Professional and consulting fees 1 2 Various individually insignifican
291、t items 1 1 Total change 8%10%Table of Contents32General and AdministrativeGeneral and administrative expenses consist primarily of compensation and contracted costs,travel expenses and related facilities costs for our finance,facilities,human resources,legal,information services and executive perso
292、nnel.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.General and administrative expen
293、ses increased during the three and six months ended June 2,2023 as compared to the three and six months ended June 3,2022 due to the following:Components of%Change2023-2022QTDComponents of%Change2023-2022YTDProfessional and consulting fees 8%11%Base compensation and related benefits 6 6 Incentive co
294、mpensation,cash and stock-based 5 4 Charitable contributions 3 Various individually insignificant items 1 2 Total change 23%23%Professional and consulting fees increased during the three and six months ended June 2,2023 as compared to the three and six months ended June 3,2022 primarily due to trans
295、action costs associated with our planned acquisition of Figma.Non-Operating Income(Expense),Net for the Three and Six Months Ended June 2,2023 and June 3,2022(dollars in millions)Three MonthsSix Months 20232022%Change20232022%ChangeInterest expense$(26)$(28)(7)%$(58)$(56)4%Percentage of total revenu
296、e(1)%(1)%(1)%(1)%Investment gains(losses),net 5 (8)*6 (17)*Percentage of total revenue*Other income(expense),net 47 (1)*90 (1)*Percentage of total revenue 1%*1%*Total non-operating income(expense),net$26$(37)*$38$(74)*_(*)Percentage is less than 1%.(*)Percentage is not meaningful.Interest ExpenseInt
297、erest expense represents interest associated with our debt instruments.Interest on our senior notes is payable semi-annually,in arrears,on February 1 and August 1.Investment Gains(Losses),NetInvestment gains(losses),net consists principally of unrealized holding gains and losses associated with our
298、deferred compensation plan 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 on fixed income investments and foreign excha
299、nge gains and losses.Other income(expense),net increased during the three and six months ended June 2,2023 as compared to the three and six months ended June 3,2022 primarily due to increases in interest income driven by higher average interest rates.Table of Contents33Provision for Income Taxes for
300、 the Three and Six Months Ended June 2,2023 and June 3,2022(dollars in millions)Three MonthsSix Months 20232022%Change20232022%ChangeProvision for income taxes$355$314 13%$706$591 19%Percentage of total revenue 7%7%7%7%Effective tax rate 22%21%22%19%Our effective tax rates increased by approximately
301、 one percentage point and three percentage points for the three and six months ended June 2,2023,respectively,as compared to the three and six months ended June 3,2022,primarily due to a net tax expense related to stock-based compensation recorded during the three and six months ended June 2,2023,as
302、 compared to a net tax benefit related to stock-based compensation recorded during the three and six months ended June 3,2022.Our effective tax rates for the three and six months ended June 2,2023 were higher than the U.S.federal statutory tax rate of 21%primarily due to state taxes and a net tax ex
303、pense related to stock-based compensation,partially offset by the U.S.federal research tax credit.We 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 basis of th
304、is evaluation,we continue to maintain a valuation allowance to reduce our deferred tax assets to the amount realizable.The total valuation allowance was$425 million as of June 2,2023,primarily related to certain state credits.We are a United States-based multinational company subject to tax in multi
305、ple domestic and foreign tax jurisdictions.The current U.S.tax law subjects the earnings of certain foreign subsidiaries to U.S.tax and generally allows an exemption from taxation for distributions from foreign subsidiaries.In the current global tax policy environment,the domestic and foreign govern
306、ing bodies continue to consider,and in some cases introduce,changes in regulations applicable to corporate multinationals such as Adobe.As regulations are issued,we account for finalized regulations in the period of enactment.Beginning in 2023,under the provisions introduced by the U.S.Tax Act,we ar
307、e required to capitalize and amortize research and development costs.If the rule is not modified,there will continue to be an adverse impact on our effective rates for income taxes paid,which is partially offset by a benefit to our effective tax rates from the increase in the foreign-derived intangi
308、ble income deduction,in fiscal 2023 and beyond.Accounting for Uncertainty in Income TaxesThe gross liabilities for unrecognized tax benefits excluding interest and penalties were$352 million and$299 million as of June 2,2023 and June 3,2022,respectively.If the total unrecognized tax benefits as of J
309、une 2,2023 and June 3,2022 were recognized,$230 million and$201 million would decrease the respective effective tax rates.As of June 2,2023 and June 3,2022,the combined amounts of accrued interest and penalties related to tax positions taken on our tax returns were approximately$23 million and$20 mi
310、llion,respectively.These amounts were included in long-term income taxes payable in their respective years.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
311、large fluctuations in the balance sheet classification of 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.Although the
312、timing of resolution,settlement and closing of audits is not certain,it is reasonably possible that the underlying unrecognized tax benefits may decrease by up to$30 million over the next 12 months.Our future effective tax rates may be materially affected by changes in the tax rates in jurisdictions
313、 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 cha
314、nges in business and market conditions that could reduce certain tax benefits.In addition,the United States and other countries and jurisdictions in which we conduct business,including those covered by governing bodies that enact tax laws applicable to us,such as the European Commission of the Europ
315、ean Union,could make changes to relevant tax,accounting or other laws and interpretations thereof that have a material impact to us.These countries,governmental bodies and intergovernmental economic organizations such as the Organization for Economic Table of Contents34Cooperation and Development,ha
316、ve 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.In the current global tax policy environment,any changes in laws,r
317、egulations and interpretations could adversely affect our effective tax rates,cause us to respond by making changes to our business structure,or result in other costs to us which could adversely affect our operations and financial results.Moreover,we are subject to the examination of our income tax
318、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.Our policy is to record int
319、erest and penalties related to unrecognized tax benefits in income tax expense.We believe our tax estimates to be reasonable;however,we cannot provide assurance that the final determination of any of these examinations will not have an adverse effect on our financial position and results of operatio
320、ns.LIQUIDITY AND CAPITAL RESOURCESCash FlowsOur primary source of cash is receipts from revenue.Our primary uses of cash are general business expenses including payroll,income taxes,marketing and third-party hosting services,as well as our stock repurchase program as described below.Other customary
321、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 sho
322、uld be read in conjunction with our condensed consolidated statements of cash flows.As of(in millions)June 2,2023December 2,2022Cash and cash equivalents$5,456$4,236 Short-term investments$1,145$1,860 Working capital$1,255$868 Stockholders equity$14,838$14,051 A summary of our cash flows is as follo
323、ws:Six Months Ended(in millions)June 2,2023June 3,2022Net cash provided by operating activities$3,832$3,809 Net cash provided by(used for)investing activities 478 (398)Net cash used for financing activities(3,094)(3,854)Effect of foreign currency exchange rates on cash and cash equivalents 4 (36)Net
324、 change in cash and cash equivalents$1,220$(479)Cash Flows from Operating ActivitiesNet cash provided by operating activities of$3.83 billion for the six months ended June 2,2023 was primarily comprised of net income adjusted for the net effect of non-cash items and changes in operating assets and l
325、iabilities.The primary working capital sources of cash were decreases in trade receivables driven by strong collections,partially offset by increases in short term prepaid expenses.Cash Flows from Investing ActivitiesNet cash provided by investing activities of$478 million for the six months ended J
326、une 2,2023 was primarily due to maturities and sales of short-term investments partially offset by ongoing capital expenditures.Cash Flows from Financing ActivitiesNet cash used for financing activities of$3.09 billion for the six months ended June 2,2023 was primarily due to payments for our common
327、 stock repurchases,the repayment of our 2023 Notes and taxes paid related to the net share settlement of equity awards.The above uses of cash were offset in part by proceeds from re-issuance of treasury stock mainly for our employee stock purchase plan.See the section titled“Stock Repurchase Program
328、”below.Table of Contents35Liquidity and Capital Resources ConsiderationsOur existing cash,cash equivalents and investment balances may fluctuate during fiscal 2023 due to changes in our planned cash outlay.Cash from operations could also be affected by various risks and uncertainties,including,but n
329、ot 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 re
330、volving credit facility will be sufficient to meet our working capital,operating resource expenditure and capital expenditure requirements for the next twelve months.Our cash equivalent and short-term investment portfolio as of June 2,2023 consisted of asset-backed securities,corporate debt securiti
331、es,money market funds,municipal securities,time deposits,U.S.agency securities and U.S.Treasury securities.We use professional investment management firms to manage a large portion of our invested cash.We expect to continue our investing activities,including short-term and long-term investments,purc
332、hases of computer and server hardware to operate our network infrastructure,sales and marketing,product support and administrative staff,and facilities expansion.Furthermore,cash reserves may be used to repurchase stock under our stock repurchase program and to strategically acquire companies,produc
333、ts or technologies that are complementary to our business.On September 15,2022,we entered into a definitive agreement under which we intend to acquire Figma,Inc.(“Figma”)for approximately$20 billion,comprised of approximately half cash and half stock,subject to customary purchase price adjustments.Approximately 6 million additional restricted stock units will be granted to Figmas Chief Executive O