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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 September 1, 2023
 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)

(408) 536-6000
(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 filer☒Accelerated filer☐Non-accelerated filer☐Smaller reporting company☐Emerging 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 ☒
As of September 22, 2023, 455.3 million shares of the registrant’s common stock, $0.0001 par value per share, were issued and outstanding.


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

PART I—FINANCIAL INFORMATION		 
Item 1.

 

 



 

 

Item 2.

Item 3.

Item 4.


 PART II—OTHER INFORMATION		 
Item 1.

Item 1A.

Item 2.

Item 4.

Item 5.

Item 6.





 
2
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PART I—FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ADOBE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except par value)
 September 1,
2023		December 2,
2022
(Unaudited)(*)
ASSETS
Current assets:  
Cash and cash equivalents$6,601 $4,236 
Short-term investments915 1,860 
Trade receivables, net of allowances for doubtful accounts of $18 and $23, respectively
1,851 2,065 
Prepaid expenses and other current assets1,043 835 
Total current assets10,410 8,996 
Property and equipment, net2,036 1,908 
Operating lease right-of-use assets, net373 407 
Goodwill12,800 12,787 
Other intangibles, net1,167 1,449 
Deferred income taxes1,065 777 
Other assets1,239 841 
Total assets$29,090 $27,165 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:  
Trade payables$314 $379 
Accrued expenses1,714 1,790 
Debt— 500 
Deferred revenue5,375 5,297 
Income taxes payable857 75 
Operating lease liabilities74 87 
Total current liabilities8,334 8,128 
Long-term liabilities: 
Debt3,633 3,629 
Deferred revenue108 117 
Income taxes payable498 530 
Operating lease liabilities389 417 
Other liabilities352 293 
Total liabilities13,314 13,114 
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; 
456 and 462 shares outstanding, respectively
— — 
Additional paid-in-capital11,195 9,868 
Retained earnings32,012 28,319 
Accumulated other comprehensive income (loss)(285)(293)
Treasury stock, at cost (145 and 139 shares, respectively)
(27,146)(23,843)
Total stockholders’ equity15,776 14,051 
Total liabilities and stockholders’ equity$29,090 $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 and footnotes required by generally accepted accounting principles for complete financial statements.
See accompanying notes to condensed consolidated financial statements.
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ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
 Three Months EndedNine Months Ended
 September 1,
2023		September 2,
2022		September 1,
2023		September 2,
2022
Revenue: 
Subscription$4,631 $4,128 $13,521 $12,156 
Product96 126 346 417 
Services and other163 179 494 508 
Total revenue4,890 4,433 14,361 13,081 
 
Cost of revenue:
Subscription447 413 1,317 1,216 
Product7 8 23 27 
Services and other126 125 380 354 
Total cost of revenue580 546 1,720 1,597 
Gross profit4,310 3,887 12,641 11,484 
 
Operating expenses:
Research and development881 775 2,584 2,214 
Sales and marketing1,337 1,266 3,983 3,671 
General and administrative353 319 1,041 879 
Amortization of intangibles42 43 126 127 
Total operating expenses2,613 2,403 7,734 6,891 
 Operating income1,697 1,484 4,907 4,593 
 
Non-operating income (expense):
Interest expense(27)(28)(85)(84)
Investment gains (losses), net6 (6)12 (23)
Other income (expense), net67 6 157 5 
Total non-operating income (expense), net46 (28)84 (102)
Income before income taxes1,743 1,456 4,991 4,491 
Provision for income taxes340 320 1,046 911 
Net income$1,403 $1,136 $3,945 $3,580 
Basic net income per share$3.07 $2.42 $8.62 $7.60 
Shares used to compute basic net income per share456 469 458 471 
Diluted net income per share$3.05 $2.42 $8.59 $7.57 
Shares used to compute diluted net income per share459 469 459 473 


See accompanying notes to condensed consolidated financial statements.

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ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
Three Months EndedNine Months Ended
 September 1,
2023		September 2,
2022		September 1,
2023		September 2,
2022
Increase/(Decrease)Increase/(Decrease)
Net income$1,403 $1,136 $3,945 $3,580 
Other comprehensive income (loss), net of taxes:
Available-for-sale securities:
Unrealized gains / losses on available-for-sale securities5 (6)19 (35)
Reclassification adjustment for recognized gains / losses on available-for-sale securities— — 5 — 
Net increase (decrease) from available-for-sale securities5 (6)24 (35)
Derivatives designated as hedging instruments:
Unrealized gains / losses on derivative instruments
8 107 — 193 
Reclassification adjustment for realized gains / losses on derivative instruments(4)(47)(28)(89)
Net increase (decrease) from derivatives designated as hedging instruments4 60 (28)104 
Foreign currency translation adjustments3 (83)12 (156)
Other comprehensive income (loss), net of taxes12 (29)8 (87)
Total comprehensive income, net of taxes$1,415 $1,107 $3,953 $3,493 


See accompanying notes to condensed consolidated financial statements.


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ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
(Unaudited)
Three Months Ended September 1, 2023
 Common StockAdditional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Treasury Stock 
 SharesAmountSharesAmountTotal
Balances at June 2, 2023
601 $— $10,717 $30,609 $(297)(145)$(26,191)$14,838 
Net income— — — 1,403 — — — 1,403 
Other comprehensive income (loss),
net of taxes
— — — — 12 — — 12 
Re-issuance of treasury stock under stock compensation plans
— — 36 — — 2 48 84 
Repurchases of common stock— — — — — (2)(1,003)(1,003)
Stock-based compensation— — 442 — — — — 442 
Balances at September 1, 2023
601 $— $11,195 $32,012 $(285)(145)$(27,146)$15,776 



Three Months Ended September 2, 2022
 Common StockAdditional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Treasury Stock 
 SharesAmountSharesAmountTotal
Balances at June 3, 2022
601 $— $9,102 $26,022 $(195)(130)$(20,944)$13,985 
Net income
— — — 1,136 — — — 1,136 
Other comprehensive income (loss),
net of taxes
— — — — (29)— — (29)
Re-issuance of treasury stock under stock compensation plans
— — 68 — — 1 35 103 
Repurchases of common stock— — — — — (5)(1,200)(1,200)
Stock-based compensation— — 378 — — — — 378 
Balances at September 2, 2022
601 $— $9,548 $27,158 $(224)(134)$(22,109)$14,373 
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ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
(Unaudited)
Nine Months Ended September 1, 2023
 Common StockAdditional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Treasury Stock 
 SharesAmountSharesAmountTotal
Balances at December 2, 2022
601 $— $9,868 $28,319 $(293)(139)$(23,843)$14,051 
Net income— — — 3,945 — — — 3,945 
Other comprehensive income (loss),
net of taxes
— — — — 8 — — 8 
Re-issuance of treasury stock under stock compensation plans
— — 36 (252)— 4 103 (113)
Repurchases of common stock— — — — — (10)(3,407)(3,407)
Stock-based compensation— — 1,291 — — — — 1,291 
Value of shares in deferred compensation plan— — — — — — 1 1 
Balances at September 1, 2023
601 $— $11,195 $32,012 $(285)(145)$(27,146)$15,776 



Nine Months Ended September 2, 2022
 Common StockAdditional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Treasury Stock 
 SharesAmountSharesAmountTotal
Balances at December 3, 2021
601 $— $8,428 $23,905 $(137)(126)$(17,399)$14,797 
Net income
— — — 3,580 — — — 3,580 
Other comprehensive income (loss),
net of taxes
— — — — (87)— — (87)
Re-issuance of treasury stock under stock compensation plans
— — 68 (327)— 3 86 (173)
Repurchases of common stock— — — — — (11)(4,800)(4,800)
Stock-based compensation— — 1,052 — — — — 1,052 
Value of shares in deferred compensation plan— — — — — — 4 4 
Balances at September 2, 2022
601 $— $9,548 $27,158 $(224)(134)$(22,109)$14,373 


See accompanying notes to condensed consolidated financial statements.
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ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 Nine Months Ended
 September 1,
2023		September 2,
2022
Cash flows from operating activities:  
Net income$3,945 $3,580 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation, amortization and accretion650 641 
Stock-based compensation1,291 1,052 
Reduction of operating lease right-of-use assets54 63 
Deferred income taxes(276)282 
Unrealized losses (gains) on investments, net(7)33 
Other non-cash items— 8 
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Trade receivables, net217 146 
Prepaid expenses and other assets(787)(133)
Trade payables(47)11 
Accrued expenses and other liabilities(153)(237)
Income taxes payable749 2 
Deferred revenue69 65 
Net cash provided by operating activities5,705 5,513 
Cash flows from investing activities:  
Purchases of short-term investments— (703)
Maturities of short-term investments754 497 
Proceeds from sales of short-term investments215 221 
Acquisitions, net of cash acquired— (126)
Purchases of property and equipment(313)(351)
Purchases of long-term investments, intangibles and other assets(34)(39)
Proceeds from sale of long-term investments and other assets1 — 
Net cash provided by (used for) investing activities623 (501)
Cash flows from financing activities:  
Repurchases of common stock(3,400)(4,800)
Proceeds from re-issuance of treasury stock314 278 
Taxes paid related to net share settlement of equity awards(387)(451)
Repayment of debt(500)— 
Other financing activities, net8 59 
Net cash used for financing activities(3,965)(4,914)
Effect of foreign currency exchange rates on cash and cash equivalents2 (72)
Net change in cash and cash equivalents2,365 26 
Cash and cash equivalents at beginning of period4,236 3,844 
Cash and cash equivalents at end of period$6,601 $3,870 
Supplemental disclosures: 
Cash paid for income taxes, net of refunds$590 $486 
Cash paid for interest$103 $101 


See accompanying notes to condensed consolidated financial statements.
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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Pursuant to these rules and regulations, we have condensed or omitted certain information and footnote disclosures we normally include in our annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In management’s opinion, we have made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present our financial position, results of operations and cash flows. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 2, 2022 on file with the SEC (our “Annual Report”).
Use of Estimates
In preparing the condensed consolidated financial statements and related disclosures in conformity with GAAP and pursuant to the rules and regulations of the SEC, we must make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ materially from these estimates.
Significant Accounting Policies
There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report.
Adopted Accounting Guidance and Accounting Pronouncements Not Yet Effective
There have been no recent accounting pronouncements, changes in accounting pronouncements or recently adopted accounting guidance during the nine months ended September 1, 2023 that are of significance or potential significance to us.
NOTE 2.  REVENUE
Segment Information
Our segment results for the three months ended September 1, 2023 and September 2, 2022 were as follows:
(dollars in millions)Digital
Media		Digital
Experience		Publishing and
Advertising		Total
Three months ended September 1, 2023
Revenue$3,594 $1,229 $67 $4,890 
Cost of revenue161 397 22 580 
Gross profit$3,433 $832 $45 $4,310 
Gross profit as a percentage of revenue96 %68 %67 %88 %
Three months ended September 2, 2022
Revenue$3,232 $1,120 $81 $4,433 
Cost of revenue136 385 25 546 
Gross profit$3,096 $735 $56 $3,887 
Gross profit as a percentage of revenue96 %66 %69 %88 %
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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)
Our segment results for the nine months ended September 1, 2023 and September 2, 2022 were as follows:
(dollars in millions)Digital
Media		Digital
Experience		Publishing and
Advertising		Total
Nine months ended September 1, 2023
Revenue$10,500 $3,627 $234 $14,361 
Cost of revenue455 1,200 65 1,720 
Gross profit$10,045 $2,427 $169 $12,641 
Gross profit as a percentage of revenue96 %67 %72 %88 %
Nine months ended September 2, 2022
Revenue$9,542 $3,272 $267 $13,081 
Cost of revenue411 1,111 75 1,597 
Gross profit$9,131 $2,161 $192 $11,484 
Gross profit as a percentage of revenue96 %66 %72 %88 %
Revenue by geographic area for the three and nine months ended September 1, 2023 and September 2, 2022 were as follows:
Three MonthsNine Months
(in millions)2023202220232022
Americas
$2,943 $2,600 $8,601 $7,570 
EMEA1,229 1,143 3,615 3,436 
APAC718 690 2,145 2,075 
Total$4,890 $4,433 $14,361 $13,081 
Revenue by major offerings in our Digital Media reportable segment for the three and nine months ended September 1, 2023 and September 2, 2022 were as follows:
Three MonthsNine Months
(in millions)2023202220232022
Creative Cloud$2,909 $2,625 $8,522 $7,778 
Document Cloud685 607 1,978 1,764 
Total Digital Media revenue$3,594 $3,232 $10,500 $9,542 
Subscription revenue by segment for the three and nine months ended September 1, 2023 and September 2, 2022 were as follows:
Three MonthsNine Months
(in millions)2023202220232022
Digital Media
$3,506 $3,116 $10,225 $9,190 
Digital Experience1,096 981 3,208 2,874 
Publishing and Advertising29 31 88 92 
Total subscription revenue$4,631 $4,128 $13,521 $12,156 
Contract Balances
A receivable is recorded when an unconditional right to invoice and receive payment exists, such that only the passage of time is required before payment of consideration is due. Included in trade receivables on the condensed consolidated balance sheets are unbilled receivable balances which have not yet been invoiced, and are typically related to license revenue or services which are delivered prior to invoicing. As of September 1, 2023, the balance of trade receivables, net of allowances for doubtful
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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)
accounts, was $1.85 billion, inclusive of unbilled receivables of $103 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.
We maintain an allowance for doubtful accounts which reflects our best estimate of potentially uncollectible trade receivables and is based on both specific and general reserves. We maintain general reserves on a collective basis by considering factors such as historical experience, credit-worthiness, the age of the trade receivable balances, current economic conditions and a reasonable and supportable forecast of future economic conditions. The allowance for doubtful accounts was $18 million and $23 million as of September 1, 2023 and December 2, 2022, respectively.
A contract asset is recognized when a conditional right to consideration exists and transfer of control has occurred. Contract assets are included in prepaid expenses and other current assets for the current portion and other assets for the long-term portion on the condensed consolidated balance sheets. We regularly review contract asset balances for impairment, considering factors such as historical experience, credit-worthiness, age of the balance, current economic conditions and a reasonable and supportable forecast of future economic conditions. Contract asset impairments were not material for the nine months ended September 1, 2023. Contract assets were $131 million and $97 million as of September 1, 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 committed funds and refundable customer deposits. Deferred revenue is recognized as revenue when transfer of control to customers has occurred. As of September 1, 2023, the balance of deferred revenue was $5.48 billion, which includes $47 million of refundable customer deposits. Arrangements with some of our enterprise customers with non-cancellable and non-refundable committed funds provide options to either renew monthly on-premise term-based licenses or use some or all funds to purchase other Adobe products or services. Non-cancellable and non-refundable committed funds related to these agreements comprised approximately 5% of the total deferred revenue.
As of December 2, 2022, the balance of deferred revenue was $5.41 billion. During the three and nine months ended September 1, 2023, approximately $983 million and $4.85 billion of revenue, respectively, was recognized that was included in the balance of deferred revenue as of December 2, 2022.
Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and unbilled amounts that will be recognized as revenue in future periods. As of September 1, 2023, remaining performance obligations were approximately $15.72 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 71% of the remaining performance obligations, excluding the aforementioned enterprise customer agreements, are expected to be recognized over the next 12 months with the remainder recognized thereafter.
Incremental costs of obtaining a contract with a customer are capitalized if we expect the benefit of those costs to be longer than one year and primarily relate to sales commissions paid to our sales force personnel. Capitalized contract acquisition costs are included in prepaid expenses and other current assets for the current portion and other assets for the long-term portion on the condensed consolidated balance sheets. Capitalized contract acquisition costs were $673 million and $629 million as of September 1, 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 expenses on the condensed consolidated balance sheets. Refund liabilities were $99 million and $106 million as of September 1, 2023 and December 2, 2022, respectively.
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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)
NOTE 3.  ACQUISITIONS
Figma
On September 15, 2022, we entered into a definitive 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 Figma’s Chief Executive Officer and employees that will vest over four years subsequent to closing. We continue to work toward closing the transaction, subject to obtaining regulatory approvals and satisfying customary closing conditions. We will be required to pay Figma a reverse termination fee of $1 billion if the transaction fails 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 integrate Figma into our Digital Media reportable segment for financial reporting purposes.
NOTE 4.  CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents consist of highly liquid marketable securities with remaining maturities of three months or less at the date of purchase. We classify our investments in marketable debt securities as “available-for-sale.” We carry these investments at fair value, based on quoted market prices or other readily available market information. Unrealized gains and unrealized non-credit-related losses of marketable debt securities are included in accumulated other comprehensive income, net of taxes, in our condensed consolidated balance sheets. Unrealized credit-related losses are recorded to other income (expense), net in our condensed consolidated statements of income with a corresponding allowance for credit-related losses in our condensed consolidated balance sheets. Gains and losses are determined using the specific identification method and recognized when realized in our condensed consolidated statements of income.
Cash, cash equivalents and short-term investments consisted of the following as of September 1, 2023:
(in millions)Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Estimated
Fair Value
Current assets:    
Cash$629 $— $— $629 
Cash equivalents:
Money market funds5,972 — — 5,972 
Total cash and cash equivalents6,601 — — 6,601 
Short-term fixed income securities:
Asset-backed securities23 — — 23 
Corporate debt securities559 — (7)552 
U.S. agency securities33 — — 33 
U.S. Treasury securities317 — (10)307 
Total short-term investments932 — (17)915 
Total cash, cash equivalents and short-term investments$7,533 $— $(17)$7,516 
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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)
Cash, cash equivalents and short-term investments consisted of the following as of December 2, 2022:
(in millions)Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Estimated
Fair Value
Current assets:    
Cash$657 $— $— $657 
Cash equivalents:  
Corporate debt securities39 — — 39 
Money market funds3,479 — — 3,479 
Time deposits61 — — 61 
Total cash equivalents3,579 — — 3,579 
Total cash and cash equivalents4,236 — — 4,236 
Short-term fixed income securities: 
Asset-backed securities98 — (1)97 
Corporate debt securities1,290 — (24)1,266 
Foreign government securities5 — — 5 
Municipal securities24 — — 24 
U.S. agency securities34 — — 34 
U.S. Treasury securities450 — (16)434 
Total short-term investments1,901 — (41)1,860 
Total cash, cash equivalents and short-term investments$6,137 $— $(41)$6,096 

See Note 5 for further information regarding the fair value of our financial instruments.
The following table summarizes the estimated fair value of short-term fixed income debt securities classified as short-term investments based on stated effective maturities as of September 1, 2023:
(in millions)Estimated
Fair Value
Due within one year$584 
Due between one and two years315 
Due between two and three years16 
Total$915 

We review our debt securities classified as short-term investments on a regular basis for impairment. For debt securities in unrealized loss positions, we determine whether any portion of the decline in fair value below the amortized cost basis is due to credit-related factors if we neither intend to sell nor anticipate that it is more likely than not that we will be required to sell prior to recovery of the amortized cost basis. We consider factors such as the extent to which the market value has been less than the cost, any noted failure of the issuer to make scheduled payments, changes to the rating of the security and other relevant credit-related factors in determining whether or not a credit loss exists. During the nine months ended September 1, 2023 and September 2, 2022, we did not recognize an allowance for credit-related losses on any of our investments.
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NOTE 5.  FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
The fair value of our financial assets and liabilities at September 1, 2023 was determined using the following inputs:
(in millions)Fair Value Measurements at Reporting Date Using
  Quoted Prices
in Active
Markets for
Identical Assets		Significant
Other
Observable
Inputs		Significant
Unobservable
Inputs
 Total(Level 1)(Level 2)(Level 3)
Assets:    
Cash equivalents:    
Money market funds$5,972 $5,972 $— $— 
Short-term investments:
Asset-backed securities23 — 23 — 
Corporate debt securities552 — 552 — 
U.S. agency securities33 — 33 — 
U.S. Treasury securities307 — 307 — 
Prepaid expenses and other current assets:   
Foreign currency derivatives82 — 82 — 
Other assets: 
Deferred compensation plan assets199 199 — — 
Total assets$7,168 $6,171 $997 $— 
Liabilities:    
Accrued expenses:    
Foreign currency derivatives$8 $— $8 $— 
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The fair value of our financial assets and liabilities at December 2, 2022 was determined using the following inputs:
(in millions)Fair Value Measurements at Reporting Date Using
  Quoted Prices
in Active
Markets for
Identical Assets		Significant
Other
Observable
Inputs		Significant
Unobservable
Inputs
 Total(Level 1)(Level 2)(Level 3)
Assets:    
Cash equivalents:    
Corporate debt securities$39 $— $39 $— 
Money market funds 3,479 3,479 — — 
Time deposits61 61 — — 
Short-term investments: 
Asset-backed securities97 — 97 — 
Corporate debt securities1,266 — 1,266 — 
Foreign government securities5 — 5 — 
Municipal securities24 — 24 — 
U.S. agency securities34 — 34 — 
U.S. Treasury securities 434 — 434 — 
Prepaid expenses and other current assets:    
Foreign currency derivatives51 — 51 — 
Other assets:    
Deferred compensation plan assets160 160 — — 
Total assets$5,650 $3,700 $1,950 $— 
Liabilities:    
Accrued expenses:    
Foreign currency derivatives$15 $— $15 $— 
See Note 4 for further information regarding the fair value of our financial instruments. 
Our fixed income available-for-sale debt securities consist of high quality, investment grade securities from diverse issuers with a weighted average credit rating of AA-. We value these securities based on pricing from independent pricing vendors who use matrix pricing valuation techniques including market approach methodologies that model information generated by market transactions involving identical or comparable assets, as well as discounted cash flow methodologies. Inputs include quoted prices in active markets for identical assets or inputs other than quoted prices that are observable either directly or indirectly in determining fair value, including benchmark yields, issuer spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. We therefore classify all of our fixed income available-for-sale securities as Level 2. We perform routine procedures such as comparing prices obtained from multiple independent sources to ensure that appropriate fair values are recorded.
The fair values of our money market funds, time deposits and deferred compensation plan assets, which consist of money market and other mutual funds, are based on quoted prices in active markets at the measurement date.
Our over-the-counter foreign currency derivatives are valued using pricing models and discounted cash flow methodologies based on observable foreign exchange and interest rate data at the measurement date.
Our other current financial assets and current financial liabilities have fair values that approximate their carrying values.
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Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The fair value of our senior notes was $3.35 billion as of September 1, 2023, based on observable market prices in less active markets and categorized as Level 2. See Note 14 for further details regarding our debt.
NOTE 6.  DERIVATIVE FINANCIAL INSTRUMENTS
We may use derivatives to partially offset our business exposure to foreign currency and interest rate risk on expected future cash flows and certain existing assets and liabilities. We do not use any of our derivative instruments for trading purposes.
We enter into master netting arrangements to mitigate credit risk in derivative transactions by permitting net settlement of transactions with the same counterparty. We do not offset fair value amounts recognized for derivative instruments under master netting arrangements. We also enter into collateral security agreements with certain of our counterparties to exchange cash collateral when the net fair value of certain derivative instruments fluctuates from contractually established thresholds.
Cash Flow Hedges
In countries outside the United States, we transact business in U.S. Dollars and in various other currencies. We may use foreign exchange option contracts and forward contracts to hedge a portion of our forecasted foreign currency denominated revenue and expenses. These foreign exchange contracts, carried at fair value, have maturities of up to 12 months.
In June 2019, we entered into Treasury lock agreements with large financial institutions which fixed benchmark U.S. Treasury rates for an aggregate notional amount of $1 billion of our future debt issuance. These derivative instruments hedged the impact of changes in the benchmark interest rate to future interest payments and were settled upon debt issuance in the first quarter of fiscal 2020. We incurred a loss related to the settlement of the instruments which is amortized to interest expense over the term of our debt due February 1, 2030. See Note 14 for further details regarding our debt.
As of September 1, 2023, we had net derivative gains on our foreign exchange option contracts expected to be recognized within the next 18 months, of which $5 million of net 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 $5 million is expected to be recognized into interest expense within the next 12 months.
Non-Designated Hedges
Our derivatives not designated as hedging instruments consist of foreign currency forward contracts that we primarily use to hedge monetary assets and liabilities denominated in non-functional currencies.
Fair value asset derivatives are included in prepaid expenses and other current assets and fair value liability derivatives are included in accrued expenses on our condensed consolidated balance sheets. The fair value of derivative instruments as of September 1, 2023 and December 2, 2022 were as follows:
(in millions)20232022
 Fair Value
Asset
Derivatives		Fair Value
Liability
Derivatives		Fair Value
Asset
Derivatives		Fair Value
Liability
Derivatives
Derivatives designated as hedging instruments:    
Foreign exchange option contracts$79 $— $36 $— 
Foreign exchange forward contracts— — — 7 
Derivatives not designated as hedging instruments:
 Foreign exchange forward contracts3 8 15 8 
Total derivatives$82 $8 $51 $15 
Gains and losses on derivative instruments, net of tax, recognized in our condensed consolidated statements of comprehensive income for the three and nine months ended September 1, 2023 and September 2, 2022 were primarily
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(Unaudited)
associated with our foreign exchange option contracts. For the three and nine months ended September 1, 2023, we recognized $7 million of net gains and $5 million of net losses, respectively, in our condensed consolidated statements of comprehensive income from our foreign exchange option contracts. For the three and nine months ended September 2, 2022, we recognized $107 million and $193 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 nine months ended September 1, 2023 and September 2, 2022 were primarily associated with foreign exchange option contracts. For the three and nine months ended September 1, 2023, we reclassified $5 million and $36 million of net gains, respectively, from accumulated other comprehensive income into revenue resulting from our foreign exchange option contracts. Comparatively, for the three and nine months ended September 2, 2022, we reclassified $54 million and $105 million of net gains, respectively, from accumulated other comprehensive income into revenue resulting from our foreign exchange option contracts.
NOTE 7.  GOODWILL AND OTHER INTANGIBLES
Goodwill as of September 1, 2023 and December 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 September 1, 2023 and December 2, 2022 were as follows: 
(in millions)20232022
 Gross Carrying AmountAccumulated AmortizationNetGross Carrying AmountAccumulated AmortizationNet
Customer contracts and relationships$1,204 $(588)$616 $1,204 $(495)$709 
Purchased technology973 (598)375 1,060 (530)530 
Trademarks376 (205)171 375 (172)203 
Other20 (15)5 61 (54)7 
Other intangibles, net
$2,573 $(1,406)$1,167 $2,700 $(1,251)$1,449 
Amortization expense related to other intangibles was $92 million and $284 million for the three and nine months ended September 1, 2023, respectively. Comparatively, amortization expense related to other intangibles was $101 million and $303 million for the three and nine months ended September 2, 2022, respectively. Of these amounts, $50 million and $158 million were included in cost of revenue for the three and nine months ended September 1, 2023, respectively, and $58 million and $176 million were included in cost of revenue for the three and nine months ended September 2, 2022, respectively.
As of September 1, 2023, the estimated aggregate amortization expense in future periods was as follows:
(in millions)
Fiscal Year
Other Intangibles (1)
Remainder of 2023$93 
2024331 
2025295 
2026142 
2027104 
Thereafter182 
Total expected amortization expense$1,147 
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(1)Excludes capitalized in-process research and development which is considered indefinite lived until the completion or abandonment of the associated research and development efforts.
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NOTE 8.  ACCRUED EXPENSES
Accrued expenses as of September 1, 2023 and December 2, 2022 consisted of the following:
(in millions)20232022
Accrued compensation and benefits$486 $485 
Accrued bonuses415 489 
Accrued corporate marketing126 154 
Taxes payable115 117 
Refund liabilities99 106 
Other473 439 
Accrued expenses$1,714 $1,790 
Other primarily includes general business accruals, derivative collateral liabilities, accrued hosting fees and royalties payable.
NOTE 9.  STOCK-BASED COMPENSATION
Restricted Stock Units
Restricted stock unit activity for the nine months ended September 1, 2023 was as follows:
Number of
Shares
(in millions)
Weighted Average
Grant Date
Fair Value
Aggregate
Fair Value (1)
(in millions)
Beginning outstanding balance7.4 $449.94 
Awarded4.6 $368.45 
Released(3.0)$430.69 
Forfeited(0.4)$441.31 
Ending outstanding balance8.6 $413.42 $4,846 
Expected to vest7.7 $414.19 $4,320 
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