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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 28, 2020

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

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

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

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.0001 par value per shareADBENASDAQ
________________________________
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes   No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes   No
The number of shares outstanding of the registrant’s common stock as of September 18, 2020 was 479,718,983.



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

PART I—FINANCIAL INFORMATION
 
Item 1.

 

 



 

 

Item 2.

Item 3.

Item 4.
 

 PART II—OTHER INFORMATION
 
Item 1.

Item 1A.

Item 2.

Item 4.

Item 5.

Item 6.





 
2

PART I—FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ADOBE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except par value)
 August 28,
2020
November 29,
2019
(Unaudited)(*)
ASSETS
Current assets:  
Cash and cash equivalents$3,767 $2,650 
Short-term investments1,497 1,527 
Trade receivables, net of allowances for doubtful accounts of $34 and $10, respectively
1,318 1,535 
Prepaid expenses and other current assets805 783 
Total current assets7,387 6,495 
Property and equipment, net1,467 1,293 
Operating lease right-of-use assets, net507  
Goodwill10,739 10,691 
Other intangibles, net1,445 1,721 
Deferred income taxes219  
Other assets650 562 
Total assets$22,414 $20,762 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:  
Trade payables$229 $209 
Accrued expenses1,317 1,399 
Debt 3,149 
Deferred revenue3,317 3,378 
Income taxes payable177 56 
Operating lease liabilities90  
Total current liabilities5,130 8,191 
Long-term liabilities: 
Debt4,116 989 
Deferred revenue131 123 
Income taxes payable507 616 
Deferred income taxes76 140 
Operating lease liabilities520  
Other liabilities221 173 
Total liabilities10,701 10,232 
Stockholders’ equity: 
Preferred stock, $0.0001 par value; 2 shares authorized, none issued
  
Common stock, $0.0001 par value; 900 shares authorized; 601 shares issued; 
480 and 483 shares outstanding, respectively
  
Additional paid-in-capital7,195 6,504 
Retained earnings17,383 14,829 
Accumulated other comprehensive income (loss)(153)(188)
Treasury stock, at cost (121 and 118 shares, respectively)
(12,712)(10,615)
Total stockholders’ equity11,713 10,530 
Total liabilities and stockholders’ equity$22,414 $20,762 
_________________________________________
(*)    The condensed consolidated balance sheet as of November 29, 2019 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
3

ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
 Three Months EndedNine Months Ended
 August 28,
2020
August 30,
2019
August 28,
2020
August 30,
2019
Revenue: 
Subscription$3,000 $2,547 $8,699 $7,308 
Product109 157 380 480 
Services and support116 130 365 391 
Total revenue3,225 2,834 9,444 8,179 
 
Cost of revenue:
Subscription328 304 1,000 888 
Product10 9 26 31 
Services and support89 103 268 302 
Total cost of revenue427 416 1,294 1,221 
Gross profit2,798 2,418 8,150 6,958 
 
Operating expenses:
Research and development566 490 1,630 1,430 
Sales and marketing892 812 2,650 2,443 
General and administrative230 219 725 654 
Amortization of intangibles41 43 123 133 
Total operating expenses1,729 1,564 5,128 4,660 
 Operating income1,069 854 3,022 2,298 
 
Non-operating income (expense):
Interest expense(28)(40)(89)(121)
Investment gains (losses), net10 4 7 47 
Other income (expense), net9 17 39 24 
Total non-operating income (expense), net(9)(19)(43)(50)
Income before income taxes1,060 835 2,979 2,248 
Provision for (benefit from) income taxes105 42 (31)148 
Net income$955 $793 $3,010 $2,100 
Basic net income per share$1.99 $1.63 $6.25 $4.31 
Shares used to compute basic net income per share480 486 481 487 
Diluted net income per share$1.97 $1.61 $6.20 $4.26 
Shares used to compute diluted net income per share485 491 486 492 



4

ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
Three Months EndedNine Months Ended
 August 28,
2020
August 30,
2019
August 28,
2020
August 30,
2019
Increase/(Decrease)Increase/(Decrease)
Net income$955 $793 $3,010 $2,100 
Other comprehensive income (loss), net of taxes:
Available-for-sale securities:
Unrealized gains / losses on available-for-sale securities1 7 8 29 
Reclassification adjustment for recognized gains / losses on available-for-sale securities  (1) 
Net increase (decrease) from available-for-sale securities1 7 7 29 
Derivatives designated as hedging instruments:
Unrealized gains / losses on derivative instruments
(33)(27)(31)(8)
Reclassification adjustment for realized gains / losses on derivative instruments2 (11)(3)(38)
Net increase (decrease) from derivatives designated as hedging instruments(31)(38)(34)(46)
Foreign currency translation adjustments72 (19)62 (29)
Other comprehensive income (loss), net of taxes42 (50)35 (46)
Total comprehensive income, net of taxes$997 $743 $3,045 $2,054 




5

ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
(Unaudited)
Three Months Ended August 28, 2020
 
  Common Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
 Treasury Stock 
 SharesAmountSharesAmountTotal
Balances at May 29, 2020
601 $ $6,892 $16,428 $(195)(121)$(12,244)$10,881 
Net income   955    955 
Other comprehensive income (loss),
net of taxes
    42   42 
Re-issuance of treasury stock under stock compensation plans
  71   1 32 103 
Purchase of treasury stock     (1)(500)(500)
Stock-based compensation  232     232 
Balances at August 28, 2020
601 $ $7,195 $17,383 $(153)(121)$(12,712)$11,713 



Three Months Ended August 30, 2019
 
  Common Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
 Treasury Stock 
 SharesAmountSharesAmountTotal
Balances at May 31, 2019601 $ $6,051 $13,184 $(144)(115)$(9,159)$9,932 
Net income
   793    793 
Other comprehensive income (loss),
net of taxes
    (50)  (50)
Re-issuance of treasury stock under stock compensation plans
  90   1 33 123 
Purchase of treasury stock
     (2)(750)(750)
Stock-based compensation  194     194 
Value of shares in deferred compensation plan
      1 1 
Balances at August 30, 2019
601 $ $6,335 $13,977 $(194)(116)$(9,875)$10,243 







6

ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(In millions)
(Unaudited)
Nine Months Ended August 28, 2020
   Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
 Treasury Stock 
 SharesAmountSharesAmountTotal
Balances at November 29, 2019
601 $ $6,504 $14,829 $(188)(118)$(10,615)$10,530 
Net income   3,010    3,010 
Other comprehensive income (loss),
net of taxes
    35   35 
Re-issuance of treasury stock under stock compensation plans
  15 (456) 4 113 (328)
Purchase of treasury stock     (7)(2,200)(2,200)
Stock-based compensation  676     676 
Value of shares in deferred compensation plan
      (10)(10)
Balances at August 28, 2020
601 $ $7,195 $17,383 $(153)(121)$(12,712)$11,713 



Nine Months Ended August 30, 2019
 
  Common Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
 Treasury Stock 
 SharesAmountSharesAmountTotal
Balances at November 30, 2018
601 $ $5,685 $11,816 $(148)(113)$(7,991)$9,362 
Impacts of adoption of the new revenue standard
   442    442 
Net income
   2,100    2,100 
Other comprehensive income (loss),
net of taxes
    (46)  (46)
Re-issuance of treasury stock under stock compensation plans
  82 (381) 4 119 (180)
Purchase of treasury stock
     (7)(2,000)(2,000)
Stock-based compensation  568     568 
Value of shares in deferred compensation plan
      (3)(3)
Balances at August 30, 2019
601 $ $6,335 $13,977 $(194)(116)$(9,875)$10,243 


7

ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 Nine Months Ended
 August 28,
2020
August 30,
2019
Cash flows from operating activities:  
Net income$3,010 $2,100 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation, amortization and accretion567 566 
Stock-based compensation676 585 
Reduction of operating lease right-of-use assets65  
Deferred income taxes(284)(2)
Unrealized losses (gains) on investments, net(4)(43)
Other non-cash items37 3 
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Trade receivables, net187 (14)
Prepaid expenses and other assets(281)(417)
Trade payables19 1 
Accrued expenses and other liabilities(15)53 
Income taxes payable20 (39)
Deferred revenue(52)252 
Net cash provided by operating activities3,945 3,045 
Cash flows from investing activities:  
Purchases of short-term investments(764)(373)
Maturities of short-term investments674 478 
Proceeds from sales of short-term investments123 66 
Acquisitions, net of cash acquired (100)
Purchases of property and equipment(316)(300)
Purchases of long-term investments, intangibles and other assets(8)(60)
Proceeds from sale of long-term investments and other assets8 2 
Net cash used for investing activities(283)(287)
Cash flows from financing activities:  
Purchases of treasury stock(2,200)(2,000)
Proceeds from re-issuance of treasury stock270 232 
Taxes paid related to net share settlement of equity awards(599)(412)
Proceeds from issuance of debt3,144  
Repayment of debt(3,150) 
Other financing activities, net(13) 
Net cash used for financing activities(2,548)(2,180)
Effect of foreign currency exchange rates on cash and cash equivalents3 (12)
Net increase in cash and cash equivalents1,117 566 
Cash and cash equivalents at beginning of period2,650 1,643 
Cash and cash equivalents at end of period$3,767 $