The following discussion should be read in conjunction with our Consolidated
Financial Statements and Notes thereto. Discussion regarding our financial
condition and results of operations for fiscal 2019 as compared to fiscal 2018
is included in Item 7 of our Annual Report on Form 10-K for the fiscal year
ended November 29, 2019, filed with the SEC on January 21, 2020.
                                  ACQUISITIONS
Subsequent to November 27, 2020, we completed our acquisition of Workfront, a
privately held company that provides a work management platform for marketers,
for approximately $1.5 billion in cash consideration. Workfront will be
integrated into our Digital Experience reportable segment for financial
reporting purposes in the first quarter of fiscal 2021.
During fiscal 2019, we acquired the remaining interest in Allegorithmic SAS
("Allegorithmic"), a privately held 3D editing and authoring software company
for gaming and entertainment, for approximately $106 million in cash
consideration, and integrated it into our Digital Media reportable segment.
During fiscal 2018, we completed our acquisitions of Marketo, a privately held
marketing cloud platform company, for approximately $4.73 billion and Magento, a
privately held commerce platform company, for approximately $1.64 billion, and
integrated them into our Digital Experience reportable segment.
We also completed other immaterial business acquisitions during the fiscal years
presented.
  See Note 3 of our Notes to Consolidated Financial Statements for further
information regarding these acquisitions, including pro forma financial
information related to the Marketo acquisition.   Pro forma information has not
been presented for our other acquisitions during the fiscal years presented as
the impact to our Consolidated Financial Statements was not material.
                   CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In preparing our Consolidated Financial Statements in accordance with GAAP and
pursuant to the rules and regulations of the SEC, we make assumptions, judgments
and estimates that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosures of contingent assets and liabilities. We
base our assumptions, judgments and estimates on historical experience and
various other factors that we believe to be reasonable under the circumstances.
Actual results could differ materially from these estimates under different
assumptions or conditions. We evaluate our assumptions, judgments and estimates
on a regular basis. We also discuss our critical accounting policies and
estimates with the Audit Committee of the Board of Directors.
We believe that the assumptions, judgments and estimates involved in the
accounting for revenue recognition, business combinations and income taxes have
the greatest potential impact on our Consolidated Financial Statements. These
areas are key components of our results of operations and are based on complex
rules requiring us to make judgments and estimates, 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 differed materially from actual results.
Revenue Recognition
Our contracts with customers may include multiple goods and services. For
example, some of our offerings include both on-premise and/or on-device software
licenses and cloud services. Determining whether the software licenses and the
cloud services are distinct from each other, and therefore performance
obligations to be accounted for separately, or not distinct from each other, and
therefore part of a single performance obligation, may require significant
judgment. We have concluded that the on-premise/on-device software licenses and
cloud services provided in our Creative Cloud and Document Cloud subscription
offerings are not distinct from each other such that revenue from each offering
should be recognized ratably over the subscription period for which the cloud
services are provided. In reaching this conclusion, we considered the nature of
our promise to Creative Cloud and Document Cloud customers, which is to provide
a complete end-to-end creative design or document workflow solution that
operates seamlessly across multiple devices and teams. We fulfill this promise
by providing access to a solution that integrates cloud-based and
on-premise/on-device features that, together through their integration, provide
functionalities, utility and workflow efficiencies that could not be obtained
from either the on-premise/on-device software or cloud services on their own.
Cloud-based features that are integral to our Creative Cloud and Document Cloud
offerings and that work together with the on-premise/on-device software include,
but are not limited to: Creative Cloud Libraries, which enable customers to
access their work, settings, preferences and other assets seamlessly across
desktop and mobile devices and collaborate across teams in
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real time; shared reviews which enable simultaneous editing and commenting of
PDFs across desktop, mobile and web; automatic cloud rendering of a design which
enables it to be worked on in multiple mediums; and Sensei, Adobe's cloud-hosted
artificial intelligence and machine learning framework, which enables features
such as automated photo-editing, photograph content-awareness, natural language
processing, optical character recognition and automated document tagging.
Business Combinations
We allocate the purchase price of acquired companies to tangible and intangible
assets acquired and liabilities assumed based upon their estimated fair values
at the acquisition date. The purchase price allocation process requires
management to make significant estimates and assumptions with respect to
intangible assets and deferred revenue obligations. Although we believe the
assumptions and estimates we have made are reasonable, they are based in part on
historical experience, market conditions and information obtained from
management of the acquired companies and are inherently uncertain. Examples of
critical estimates in valuing certain of the intangible assets we have acquired
or may acquire in the future include but are not limited to:
•future expected cash flows from software license sales, subscriptions, support
agreements, consulting contracts and acquired developed technologies and
patents;
•historical and expected customer attrition rates and anticipated growth in
revenue from acquired customers;
•the acquired company's trade name and trademarks as well as assumptions about
the period of time the acquired trade name and trademarks will continue to be
used in the combined company's product portfolio;
•the expected use of the acquired assets; and
•discount rates.
In connection with the purchase price allocations for our acquisitions, we
estimate the fair value of the deferred revenue obligations assumed. The
estimated fair value of these obligations is determined utilizing a cost
build-up approach. The cost build-up approach determines fair value by
estimating the costs related to fulfilling the obligations plus a normal profit
margin.
Unanticipated events and circumstances may occur which may affect the accuracy
or validity of such assumptions, estimates or actual results.
Accounting for Income Taxes
We use the asset and liability method of accounting for income taxes. Under this
method, income tax expense is recognized for the amount of taxes payable or
refundable for the current year. In addition, deferred tax assets and
liabilities are recognized for the expected future tax consequences of temporary
differences between the financial reporting and tax bases of assets and
liabilities, and for operating losses and tax credit carryforwards. Management
must make assumptions, judgments and estimates to determine our current
provision for income taxes and also our deferred tax assets and liabilities.
Our assumptions, judgments and estimates relative to the current provision for
income taxes take into account current tax laws, our interpretation of current
tax laws and possible outcomes of current and future audits conducted by foreign
and domestic tax authorities. We have established reserves for income taxes to
address potential exposures involving tax positions that could be challenged by
tax authorities. In addition, we are subject to the continual examination of our
income tax returns by the U.S. Internal Revenue Service and other domestic and
foreign tax authorities. These tax examinations are expected to focus on our
intercompany transfer pricing practices, application of tax rules, and other
matters. We regularly assess the likelihood of outcomes resulting from these
examinations to determine the adequacy of our provision for income taxes and
have reserved for potential adjustments that may result from such examinations.
We believe such estimates to be reasonable; however, we cannot provide assurance
that the final determination of any of these examinations will not have a
significant impact on the amounts provided for income taxes in our Consolidated
Financial Statements.
During fiscal 2020, we completed intra-entity transfers of certain intellectual
property rights ("IP rights") which resulted in the establishment of deferred
tax assets, net of valuation allowance, and related tax benefits of $224 million
and $1.13 billion, based on the fair value of the IP rights transferred in April
and November 2020, respectively. The determination of the fair value involves
significant judgment on future revenue growth, operating margins and discount
rates. Unanticipated events and circumstances may occur that could affect either
the accuracy or validity of such assumptions, estimates or actual results. The
sustainability of our future tax benefits is dependent upon the acceptance of
the valuation estimates and assumptions by the taxing authorities.
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Recent Accounting Pronouncements

See Note 1 of our Notes to Consolidated Financial Statements for information regarding recent accounting pronouncements that are of significance, or potential significance to us.


                             RESULTS OF OPERATIONS
Overview of 2020
For our fiscal 2020, we experienced strong demand across our Digital Media
offerings consistent with the continued execution of our long-term plans with
respect to this segment. In our Digital Experience segment, we continued to
experience growth in software-based subscription revenue across our portfolio of
offerings.
During the second quarter of fiscal 2020, we began to discontinue our
transaction-driven Advertising Cloud offerings, allowing us to focus our
investment on strategic growth initiatives. In the fourth quarter of fiscal
2020, we moved our Advertising Cloud offerings from our Digital Experience
segment into our new Publishing and Advertising segment, which combined
Advertising Cloud with our previous Publishing segment. This realignment is
consistent with how we manage our Digital Experience segment to better reflect
the strategic shift related to Advertising Cloud and to align with our overall
core value proposition of delivering on customer experience management.
Digital Media
In 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 designing, creating and publishing rich and immersive
content. 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' machines, machine learning
and artificial intelligence, access to marketplace, social and community-based
features with our Adobe Stock and Behance services, app creation capabilities,
tools which assist with enterprise deployments and team collaboration, and
affordable pricing for cost-sensitive customers.
We offer Creative Cloud for individuals, students, teams and enterprises. We
expect Creative Cloud will drive sustained long-term revenue growth through a
continued expansion of our customer base by acquiring new users as a result of
low cost of entry and delivery of additional features and value to Creative
Cloud, as well as keeping existing customers current on our latest release. We
have also built out a marketplace for Creative Cloud subscribers to enable the
delivery and purchase of stock content in our Adobe Stock service. Overall, our
strategy with Creative Cloud is designed to enable us to increase our revenue
with users, attract more new customers, and grow our recurring and predictable
revenue stream that is recognized ratably.
We continue to implement strategies that will accelerate awareness,
consideration and purchase of subscriptions to our Creative Cloud offerings.
These strategies include increasing the value Creative Cloud users receive, such
as offering new desktop and mobile applications, as well as targeted promotions
and offers that attract past customers and potential users to try out and
ultimately subscribe to Creative Cloud. Because of the shift towards Creative
Cloud subscriptions and Enterprise Term License Agreements ("ETLAs"), revenue
from perpetual licensing of our Creative products has been immaterial to our
business.
We are also a market leader with our Document Cloud offerings built around our
Adobe Acrobat family of products, including Adobe Acrobat Reader DC, and a set
of integrated mobile apps and cloud-based document services, including Adobe
Scan and Adobe Sign. Acrobat provides reliable creation and exchange of
electronic documents, regardless of platform or application source type.
Document Cloud, which we believe enhances the way people manage critical
documents at home, in the office and across devices, includes Adobe Acrobat DC
and Adobe Sign, and a set of integrated services enabling users to create,
review, approve, sign and track documents whether on a desktop or mobile device.
Adobe Acrobat DC is offered both through subscription and perpetual licenses.
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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,
unbilled backlog and remaining performance obligation as ARR is a performance
metric and is not intended to be combined with any of these items. We adjust our
reported ARR on an annual basis to reflect any material exchange rates 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. We
calculate ARR as follows:
                          Annual Value of Creative Cloud Subscriptions and Services
     Creative ARR                                     +
                                     Annual Creative ETLA Contract Value
                          Annual Value of Document Cloud Subscriptions and Services
  Document Cloud ARR                                  +
                                  Annual Document Cloud ETLA Contract Value
                                                Creative ARR
  Digital Media ARR                                   +
                                             Document Cloud ARR


Creative ARR exiting fiscal 2020 was $8.72 billion, up from $7.25 billion at the
end of fiscal 2019. Document Cloud ARR exiting fiscal 2020 was $1.46 billion, up
from $1.08 billion at the end of fiscal 2019. Total Digital Media ARR grew to
$10.18 billion at the end of fiscal 2020, up from $8.33 billion at the end of
fiscal 2019. Revaluing our ending ARR for fiscal 2020 using currency rates at
the beginning of fiscal 2021, our Digital Media ARR at the end of fiscal 2020
would be $10.26 billion or approximately $77 million higher than the ARR
reported above.
Our success in driving growth in ARR has positively affected our revenue growth.
Creative revenue in fiscal 2020 was $7.74 billion, up from $6.48 billion in
fiscal 2019 and representing 19% year-over-year growth. Document Cloud revenue
in fiscal 2020 was $1.50 billion, up from $1.22 billion in fiscal 2019 and
representing 22% year-over-year revenue growth and reflecting an increase in
demand driven by the shift to remote work as well as our continued efforts to
transition Document Cloud to a subscription-based model. Total Digital Media
segment revenue grew to $9.23 billion in fiscal 2020, up from $7.71 billion in
fiscal 2019 and representing 20% year-over-year growth. These increases were
driven by strong net new user growth, including those resulting from the current
work-from-home environment reflecting expanded digital engagement.
Digital Experience
We are a market leader in the fast-growing category addressed by our Digital
Experience segment. The Adobe Experience Cloud applications, services and
platform are designed to manage customer journeys, enable shoppable experiences
and deliver intelligence for businesses of any size in any industry. Our
differentiation and competitive advantage is strengthened by our ability to use
the Adobe Experience Platform to connect our comprehensive set of solutions.
Adobe Experience Cloud is focused on delivering solutions for our enterprise
customers across the following strategic growth pillars:

•Customer data and insights. Our solutions deliver real-time customer profiles
and intelligence across the customer journey. Our offerings include Adobe
Experience Platform, Adobe Analytics, Adobe Audience Manager, Customer Journey
Analytics, Real-time Customer Data Platform and Intelligent Services.

•Content and commerce. Our solutions to help customers manage, deliver, test,
target and optimize content delivery and enable shopping experiences that scale
from mid-market to enterprise businesses. Our offerings include Adobe Experience
Manager, Adobe Target and Adobe Commerce.

•Customer journey management. Our solutions help businesses manage, personalize and orchestrate campaigns and customer journeys across B2E use cases. Our offerings include Adobe Campaign, Marketo Engage and Journey Orchestration.



In addition to chief marketing officers, chief revenue officers and digital
marketers, users 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 our Digital Media offerings. By combining the creativity
of our Digital Media business
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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 feedback 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 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.
Digital Experience revenue for all fiscal years presented has been updated to
reflect the Advertising Cloud segment move. Digital Experience revenue was $3.13
billion in fiscal 2020, up from $2.80 billion in fiscal 2019 which represents
12% year-over-year growth. Driving this increase was the increase in
subscription revenue across our offerings which grew to $2.66 billion in
fiscal 2020 from $2.28 billion in fiscal 2019, representing 17% year-over-year
growth.
                                COVID-19 UPDATE
In March 2020, the World Health Organization declared the outbreak of a disease
caused by a novel strain of the coronavirus (COVID-19) to be a pandemic. This
pandemic has had widespread, rapidly-evolving and unpredictable impacts on
global societies, economies, financial markets and business practices. Federal
and state governments have implemented measures in an effort to contain the
virus, including physical distancing, travel restrictions, border closures,
limitations on public gatherings, work from home, supply chain logistical
changes and closure of non-essential businesses. Our focus remains on promoting
employee health and safety, serving our customers and ensuring business
continuity. As a result, we have taken action to direct our teams to work from
home, suspend travel and replace in-person events such as Adobe Summit and MAX,
with digital events through July 2021.
During the pandemic, digital has become the primary way for people to connect,
work, learn and be entertained, and for businesses to engage with customers.
This macro trend towards all things digital has increased the importance and
relevance of our solutions and accelerated the tailwinds that benefit our
business, which contributed to our continued growth year over year. However,
while our revenue and earnings are relatively predictable as a result of our
subscription-based business model, the broader implications of the pandemic on
our results of operations and overall financial performance remain uncertain.
  See Risk Factors for further discussion of the possible impact of the pandemic
on our business.
Financial Performance Summary for Fiscal 2020
•Total Digital Media ARR of approximately $10.18 billion as of November 27, 2020
increased by $1.85 billion, or 22%, from $8.33 billion as of November 29, 2019.
The increase in our Digital Media ARR was primarily due to new user adoption of
our Creative Cloud and Document Cloud offerings.
•Creative revenue of $7.74 billion increased by $1.25 billion, or 19%, during
fiscal 2020, from $6.48 billion in fiscal 2019. Document Cloud revenue of $1.50
billion increased by $272 million, or 22%, during fiscal 2020, from $1.22
billion in fiscal 2019. The increases were primarily due to subscription revenue
growth associated with our Creative Cloud and Document Cloud offerings.
•Digital Experience revenue of $3.13 billion increased by $330 million, or 12%,
during fiscal 2020, from $2.80 billion in fiscal 2019. The increase was
primarily due to subscription revenue growth across our offerings.
•Remaining performance obligation of $11.34 billion as of November 27, 2020
increased by $1.52 billion, or 15%, from $9.82 billion as of November 29, 2019,
primarily due to new contracts and renewals for our Digital Media and Digital
Experience offerings.
•Cost of revenue of $1.72 billion increased by $49 million, or 3%, during fiscal
2020, from $1.67 billion in fiscal 2019 primarily due to increases in hosting
services and data center costs, offset in large part by decreases in Advertising
Cloud media costs.
•Operating expenses of $6.91 billion increased by $679 million, or 11%, during
fiscal 2020, from $6.23 billion in fiscal 2019 primarily due to increases in
base and incentive compensation and related benefits costs, as well as increased
marketing spend. These increases were offset in part by decreases in
travel-related expenses.
•Net income of $5.26 billion increased by $2.31 billion, or 78%, during fiscal
2020 from $2.95 billion in fiscal 2019 primarily due to increases in revenue and
the non-recurring benefit from income taxes resulting from intra-entity
transfers of certain intellectual property rights.
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•Net cash flows from operations of $5.73 billion during fiscal 2020 increased by
$1.31 billion, or 30%, from $4.42 billion during fiscal 2019 primarily due to
higher net income adjusted for the net effect of non-cash items.
Presentation Changes
In the fourth quarter of fiscal 2020, we moved our Advertising Cloud offerings
from our Digital Experience segment into our new Publishing and Advertising
segment, which combined our Advertising Cloud offerings with our previous
Publishing segment. This realignment is consistent with how we manage our
Digital Experience segment to better reflect the strategic shift related to
Advertising Cloud and to align with our overall core value proposition of
delivering on customer experience management.
Further, we reclassified revenue and related cost of revenue of our Advertising
Cloud offerings from subscription to services and other on our Consolidated
Statements of Income.
Financial information for all fiscal years presented has been updated to reflect
these reclassifications. There were no other updates to disclosures included in
our prior year report in relation to the reclassifications.
Revenue
Our financial results for fiscal 2020 and 2019 are presented in accordance with
Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers
(Topic 606), which was adopted under the modified retrospective method at the
beginning of fiscal 2019. Fiscal 2018 results have not been restated which
limits its comparability with other fiscal years presented.
                                                                              % Change       % Change
(dollars in millions)               2020           2019           2018        2020-2019      2019-2018
Subscription                     $ 11,626       $  9,634       $ 7,604             21  %          27  %
Percentage of total revenue            90  %          86  %         84  %
Product                               507            648           622            (22) %           4  %
Percentage of total revenue             4  %           6  %          7  %
Services and other                    735            889           804            (17) %          11  %
Percentage of total revenue             6  %           8  %          9  %
Total revenue                    $ 12,868       $ 11,171       $ 9,030             15  %          24  %


Subscription
Our subscription revenue is comprised primarily of fees we charge for our
subscription and hosted service offerings, and related support, including
Creative Cloud and certain of our Adobe Experience Cloud and Document Cloud
services. We primarily recognize subscription revenue ratably over the term of
agreements with our customers, beginning with commencement of service.
Subscription revenue related to certain offerings, where fees are based on a
number of transactions and invoicing is aligned to the 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. Subscription revenue by reportable segment for
fiscal 2020, 2019 and 2018 is as follows:
                                                                                % Change       % Change
      (dollars in millions)               2020         2019         2018        2020-2019      2019-2018
      Digital Media                    $  8,813      $ 7,208      $ 5,858            22  %          23  %
      Digital Experience                  2,660        2,280        1,600            17  %          43  %
      Publishing and Advertising            153          146          146             5  %              *
      Total subscription revenue       $ 11,626      $ 9,634      $ 7,604            21  %          27  %

_________________________________________


(*)  Percentage is less than 1%.
Product
Our product revenue is comprised primarily of fees related to licenses for
on-premise software purchased on a perpetual basis, for a fixed period of time
or based on usage for certain of our OEM and royalty agreements. We primarily
recognize
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product revenue at the point in time the software is available to the customer,
provided all other revenue recognition criteria are met.
Services and Other
Our services and other revenue is comprised primarily of fees related to
consulting, training, maintenance and support and our advertising offerings. We
typically sell our consulting contracts on a time-and-materials and fixed-fee
basis. These revenues are recognized as the services are performed for time and
materials contracts and on a relative 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 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.
Segments
In fiscal 2020, we categorized our products into the following reportable
segments:
•Digital Media-Our Digital Media segment provides tools and solutions that
enable individuals, teams and enterprises to create, publish, promote and
monetize their digital content anywhere. Our customers include content creators,
experience designers, app developers, enthusiasts, students, social media users
and creative professionals, as well as marketing departments and agencies,
companies and publishers. Our customers also include knowledge workers who
create, collaborate on and distribute documents and creative content.
•Digital Experience-Our Digital Experience segment provides products, services
and solutions for creating, managing, executing, measuring, monetizing and
optimizing customer experiences from analytics to commerce. Our customers
include marketers, advertisers, agencies, publishers, merchandisers, merchants,
web analysts, data scientists, developers, marketing executives, information
management and technology executives, product development executives, and sales
and support executives.
•Publishing and Advertising-Our Publishing and Advertising segment addresses
market opportunities ranging from the diverse authoring and publishing needs of
technical and business publishing to our legacy type and OEM printing
businesses. It also includes our platforms for Advertising Cloud, web
conferencing, document and forms, and Primetime.
Segment Information
                                                                              % Change       % Change
(dollars in millions)               2020           2019           2018        2020-2019      2019-2018
Digital Media                    $  9,233       $  7,707       $ 6,325             20  %          22  %
Percentage of total revenue            72  %          69  %         70  %
Digital Experience                  3,125          2,795         2,073             12  %          35  %
Percentage of total revenue            24  %          25  %         23  %
Publishing and Advertising            510            669           632            (24) %           6  %
Percentage of total revenue             4  %           6  %          7  %
Total revenue                    $ 12,868       $ 11,171       $ 9,030             15  %          24  %


Digital Media
Revenue from Digital Media increased $1.53 billion during fiscal 2020 as
compared to fiscal 2019, driven by increases in revenue associated with our
Creative and Document Cloud offerings due to increased demand and digital
engagement amid the work-from-home environment.
Revenue associated with our Creative offerings, which includes our Creative
Cloud, perpetually licensed Creative and stock photography offerings, increased
during fiscal 2020 primarily due to increases in net new subscriptions across
our Creative Cloud offerings.
Document Cloud revenue, which includes our Acrobat product family and Adobe Sign
service, increased during fiscal 2020 primarily due to increases in subscription
revenue driven by strong adoption of our Document Cloud offerings including
Adobe Sign.
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Digital Experience
Revenue from Digital Experience increased $330 million during fiscal 2020, as
compared to fiscal 2019 primarily due to subscription revenue growth across our
offerings of which the largest contributors were our AEM and Marketo Engage
offerings.
Geographical Information
                                                                              % Change       % Change
(dollars in millions)               2020           2019           2018        2020-2019      2019-2018
Americas                         $  7,454       $  6,506       $ 5,117             15  %          27  %
Percentage of total revenue            58  %          58  %         57  %
EMEA                                3,400          2,975         2,550             14  %          17  %
Percentage of total revenue            26  %          27  %         28  %
APAC                                2,014          1,690         1,363             19  %          24  %
Percentage of total revenue            16  %          15  %         15  %
Total revenue                    $ 12,868       $ 11,171       $ 9,030             15  %          24  %


Overall revenue during fiscal 2020 increased in all geographic regions as
compared to fiscal 2019 primarily due to increases in Digital Media revenue and,
to a lesser extent, increases in Digital Experience revenue. Within each
geographic region, the fluctuations in revenue by reportable segment were
attributable to the factors noted in the segment information above.
Included in the overall change in revenue for fiscal 2020 and fiscal 2019 were
impacts associated with foreign currency as shown below. Our cash flow hedging
program is used to mitigate a portion of the foreign currency impact to revenue.
                 (in millions)                    2020              2019
                 Revenue impact:                Increase/(Decrease)
                 Euro                    $      (24)               $ (73)
                 Australian Dollar              (16)                 (27)
                 British Pound                   (5)                 (27)
                 Japanese Yen                    14                    2
                 Brazilian Real                 (14)                  (2)
                 Other currencies                (8)                 (11)
                 Total revenue impact           (53)                (138)
                 Hedging impact:
                 Euro                             8                   30
                 British Pound                   (2)                   8
                 Japanese Yen                    (2)                   2
                 Australian Dollar               (1)                   -
                 Total hedging impact             3                   40
                 Total impact            $      (50)               $ (98)


During fiscal 2020, the U.S. Dollar strengthened largely against EMEA currencies
and the Australian Dollar, which decreased revenue in U.S. Dollar equivalents.
The foreign currency impact to revenue was partially offset by gains primarily
from our Euro cash flow hedging program.

See Note 2 of our Notes to Consolidated Financial Statements for additional details of revenue by geography.


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Cost of Revenue
                                                                            % Change       % Change
(dollars in millions)               2020          2019          2018        2020-2019      2019-2018
Subscription                     $ 1,108       $   926       $   574             20  %          61  %
Percentage of total revenue            9  %          8  %          6  %
Product                               36            40            46            (10) %         (13) %
Percentage of total revenue               *             *          1  %
Services and other                   578           707           575            (18) %          23  %
Percentage of total revenue            4  %          6  %          6  %
Total cost of revenue            $ 1,722       $ 1,673       $ 1,195              3  %          40  %

_________________________________________


(*)  Percentage is less than 1%
Subscription
Cost of subscription revenue consists of third-party hosting services and data
center costs, royalty fees and other expenses related to operating our network
infrastructure, including depreciation expense and operating lease payments
associated with computer equipment, salaries and related expenses of network
operations, implementation, account management and technical support personnel,
amortization of certain intangible assets and allocated overhead.
Cost of subscription revenue increased due to the following:
                                                                            Components of                  Components of
                                                                               % Change                       % Change
                                                                              2020-2019                      2019-2018
Hosting services and data center costs                                                    10  %                          16  %
Incentive compensation, cash and stock-based                                               5                              5
Royalty costs                                                                              3                              5
Base compensation and related benefits associated with headcount                           3                              5

Software licenses                                                                          2                              2
Amortization of intangibles                                                               (2)                            24
Various individually insignificant items                                                  (1)                             4
Total change                                                                              20  %                          61  %


Product
Cost of product revenue is primarily comprised of third-party royalties,
amortization related to purchased intangibles and acquired rights to use
technology, excess and obsolete inventory, localization costs and the costs
associated with the manufacturing of our products.
Services and Other
Cost of services and other revenue is primarily comprised of employee-related
and other associated costs incurred to provide consulting services, training and
product support. Cost of services and other also includes media costs related to
impressions purchased from third-party ad inventory sources for our
transaction-based Adobe Advertising Cloud offerings, which we began to
discontinue in the second quarter of fiscal 2020.
Cost of services and other fluctuations were due to the following:
                                                                       Components of                  Components of
                                                                          % Change                       % Change
                                                                         2020-2019                      2019-2018
Media costs                                                                          (9) %                          10  %
Base compensation and related benefits associated with headcount                     (7)                             4
Incentive compensation, cash and stock-based                                         (1)                             6
Professional and consulting fees                                                      3                              -
Various individually insignificant items                                             (4)                             3
Total change                                                                        (18) %                          23  %


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Operating Expenses
                                                                            % Change
(dollars in millions)               2020          2019          2018        2020-2019
Research and development         $ 2,188       $ 1,930       $ 1,538             13  %
Percentage of total revenue           17  %         17  %         17  %
Sales and marketing                3,591         3,244         2,621             11  %
Percentage of total revenue           28  %         29  %         29  %
General and administrative           968           881           745             10  %
Percentage of total revenue            8  %          8  %          8  %

Amortization of intangibles          162           175            91             (7) %
Percentage of total revenue            1  %          2  %          1  %
Total operating expenses         $ 6,909       $ 6,230       $ 4,995             11  %


Research and Development
Research and development expenses consist primarily of salary and benefit
expenses for software developers, contracted development efforts, third party
fees for hosting services, related facilities costs and expenses associated with
computer equipment used in software development.
Research and development expenses increased due to the following:
                                                                    Components of
                                                                      % Change
                                                                      2020-2019
Incentive compensation, cash and stock-based                                 11  %
Base compensation and related benefits associated with headcount              3

Travel                                                                       (1)
Total change                                                                 13  %


We believe that investments in research and development, including the
recruiting and hiring of software developers, are critical to remain competitive
in the marketplace and are directly related to continued timely development of
new and enhanced offerings and solutions. We will continue to focus on long-term
opportunities available in our end markets and make significant investments in
the development of our subscription and service offerings, applications and
tools.
Sales and Marketing
Sales and marketing expenses consist primarily of salary and benefit expenses,
amortization of contract acquisition costs, including sales commissions, travel
expenses and related facilities costs for our sales, marketing, order management
and global supply chain management personnel. Sales and marketing expenses also
include the costs of programs aimed at increasing revenue, such as advertising,
trade shows and events, public relations and other market development programs.
Sales and marketing expenses increased due to the following:
                                                                                         Components of
                                                                                            % Change
                                                                                           2020-2019

Marketing spend related to campaigns, events and overall marketing efforts

                             8  %
Incentive compensation, cash and stock-based                                                            4
Transaction fees                                                                                        2
Base compensation and related benefits associated with headcount                                        1
Professional and consulting fees                                                                       (1)
Travel                                                                                                 (3)

Total change                                                                                           11  %


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General and Administrative
General and administrative expenses consist primarily of compensation and
benefit expenses, travel expenses and related facilities costs for our finance,
facilities, human resources, legal, information services and executive
personnel. General and administrative expenses also include outside legal and
accounting fees, provision for bad debts, expenses associated with computer
equipment and software used in the administration of the business, charitable
contributions and various forms of insurance.
General and administrative expenses increased due to the following:
                                                                                         Components of
                                                                                            % Change
                                                                                           2020-2019
Incentive compensation, cash and stock-based                                                            5  %

Charges related to cancellation of corporate events, net of recoveries


                            3
Bad debt expense                                                                                        2
Charitable contributions                                                                                2
Base compensation and related benefits associated with headcount                                        1
Travel                                                                                                 (2)
Various individually insignificant items                                                               (1)
Total change                                                                                           10  %


During fiscal 2020, we recorded net charges related to the cancellation of our
corporate events due to concerns over the pandemic. Certain of these charges
were reversed as we successfully negotiated the right to apply certain
commitments to other events.
Bad debt expense increased during fiscal 2020 primarily due to specific reserves
for certain categories of customers that were more impacted by the changes in
the macroeconomic environment as a result of the pandemic.
Amortization of Intangibles
Amortization expense decreased during fiscal 2020 as compared to fiscal 2019
primarily due to certain intangible assets from previous acquisitions, including
from Marketo and Omniture, becoming fully amortized during the year.
Non-Operating Income (Expense), Net
                                                                                       % Change
(dollars in millions)                             2020         2019         2018       2020-2019
Interest expense                                $ (116)      $ (157)      $ (89)           (26) %
Percentage of total revenue                         (1) %        (1) %       (1) %
Investment gains (losses), net                      13           52           3            (75) %
Percentage of total revenue                             *            *           *
Other income (expense), net                         42           42          40                **
Percentage of total revenue                             *            *           *

Total non-operating income (expense), net $ (61) $ (63) $ (46)

            (3) %


_________________________________________


(*)  Percentage is less than 1%.
(**)  Percentage is not meaningful.

Interest Expense
Interest expense represents interest associated with our debt instruments.
Interest on our Notes is payable semi-annually, in arrears, on February 1 and
August 1. Interest on our Term Loan, which was terminated in the first quarter
of fiscal 2020, was payable periodically at the end of each interest period.
Floating interest payments on the interest rate swaps, which matured in the
first quarter of fiscal 2020, were paid monthly and the fixed-rate interest
receivable on the swaps was received semi-annually concurrent with the Notes
interest payments.
Interest expense decreased during fiscal 2020 as compared to fiscal 2019
primarily due to lower average interest rates on our debt instruments that were
refinanced in the first quarter of fiscal 2020.
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Investment Gains (Losses), Net
Investment gains (losses), net consists principally of unrealized holding gains
and losses associated with our deferred compensation plan assets which are
classified as trading securities, and gains and losses associated with our
direct and indirect investments in privately held companies.
Investment gains (losses), net decreased during fiscal 2020 as compared to
fiscal 2019 primarily due to the gain recognized upon our acquisition of the
remaining interest in Allegorithmic in January 2019.
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
exchange gains and losses.
Other income (expense), remained stable during fiscal 2020 primarily due to
decreases in interest income driven by lower average interest rates offset by
our change in methodology of accounting for foreign currency cash flow hedges.
Effective in the third quarter of fiscal 2019, option premiums, which were
previously recorded in other income (expense), net, are recorded in accumulated
other comprehensive income (loss).
Provision for (Benefit from) Income Taxes
                                                                                        % Change
 (dollars in millions)                             2020          2019        2018       2020-2019
Provision for (benefit from) income taxes       $ (1,084)      $ 254       $ 203       **
Percentage of total revenue                           (8) %        2  %        2  %
Effective tax rate                                   (26) %        8  %        7  %

_________________________________________


(**)  Percentage is not meaningful.
Our effective tax rate decreased by approximately 34 percentage points during
fiscal 2020 as compared to fiscal 2019. The change is primarily due to
non-recurring tax benefits resulting from the intra-entity transfers of certain
intellectual property rights ("IP rights") completed during fiscal 2020.
Our effective tax rate for fiscal 2020 was lower than the U.S. federal statutory
tax rate of 21% primarily due to tax benefits resulting from the intra-entity
transfers of certain IP rights, a favorable geographic mix of earnings and tax
benefits related to stock-based compensation.
During fiscal 2020, we completed intra-entity transfers of certain IP rights to
our Irish subsidiary in order to better align the ownership of these rights with
how our business operates. The transfers did not result in taxable gains;
however, our Irish subsidiary recognized deferred tax assets for the book and
tax basis difference of the transferred IP rights. As a result of these
transactions, we recorded deferred tax assets, net of valuation allowance, and
related tax benefits of $224 million and $1.13 billion, based on the fair value
of the IP rights transferred in April and November 2020, respectively. The
tax-deductible amortization related to the transferred IP rights will be
recognized over the period of economic benefit. In years beyond fiscal 2020, the
change in the geographic mix of international income resulting from these
transfers is anticipated to adversely affect our effective income tax rates and
cash flows. However, the adverse impact to effective rates for cash paid for
income taxes will be partially offset by future deductions on the transferred IP
rights.
On December 22, 2017, the U.S. Tax Act was enacted into law, which significantly
changed existing U.S. tax law and includes many provisions applicable to us.
Certain international provisions of the U.S. Tax Act, such as a tax on global
intangible low-tax income, a base erosion and anti-abuse tax and a special tax
deduction for foreign-derived intangible income, took effect in fiscal 2019. As
the U.S. Treasury releases regulations that impact these provisions, we account
for finalized regulations in the period of enactment.
We recognize deferred tax assets to the extent that we believe these assets are
more likely than not to be realized. In making such a determination, we
considered all available positive and negative evidence, including our past
operating results, forecasted earnings, future taxable income and prudent and
feasible tax planning strategies. On the basis of this evaluation, we continue
to maintain a valuation allowance to reduce our deferred tax assets to the
amount realizable. The total valuation allowance was $276 million as of
November 27, 2020 and is primarily attributable to certain state and foreign
credits and foreign intangible assets.
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We are a United States-based multinational company subject to tax in multiple
U.S. and foreign tax jurisdictions. A significant portion of our foreign
earnings for the current fiscal year were earned by our Irish subsidiaries. The
current U.S. tax law provides an exemption from federal income taxes for
distributions from foreign subsidiaries made after December 31, 2017, including
certain earnings that were not subject to the one-time transition or global
intangible low-tax income tax. As we repatriate the undistributed foreign
earnings for use in the U.S., the distributions will generally not be subject to
further U.S. federal tax.
In June 2020, California enacted legislation which includes a limitation on the
utilization of research and development tax credits for a three-year period
beginning in fiscal 2021. The net impact of the legislation is uncertain but is
anticipated to increase our California tax and, consequently, adversely impact
our effective tax rates for the three-year period beginning in fiscal 2021.
  See Note 10 of our Notes to Consolidated Financial Statements for further
information on our provision for (benefit from) income taxes.
Accounting for Uncertainty in Income Taxes
The gross liabilities for unrecognized tax benefits excluding interest and
penalties were $201 million, $173 million and $196 million for fiscal 2020, 2019
and 2018, respectively. If the total unrecognized tax benefits at November 27,
2020, November 29, 2019 and November 30, 2018 were recognized, $136 million,
$116 million and $136 million would decrease the respective effective tax rates.
The combined amount of accrued interest and penalties related to tax positions
taken on our tax returns were approximately $26 million and $25 million for
fiscal 2020 and 2019, 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 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. Given the uncertainties described above, we can only
determine a range of estimated potential decreases in underlying unrecognized
tax benefits ranging from $0 to approximately $20 million over the next 12
months.
In addition, in countries where we conduct business and in jurisdictions in
which we are subject to tax, including those covered by governing bodies that
enact tax laws applicable to us, such as the European Commission of the European
Union, we are subject to potential changes in relevant tax, accounting and other
laws, regulations and interpretations, including changes to tax laws applicable
to corporate multinationals such as Adobe. These countries, other governmental
bodies and intergovernmental economic organizations such as the Organization for
Economic Cooperation and Development, have or could make unprecedented
assertions about how taxation is determined in their jurisdictions that are
contrary to the way in which we have interpreted and historically applied the
rules and regulations described above in such jurisdictions. In the current
global tax policy environment, any changes in laws, regulations and
interpretations related to these assertions could adversely affect our effective
tax 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 continual examination of our income tax returns
by the U.S. Internal Revenue Service and other domestic and foreign tax
authorities. These tax examinations are expected to focus on our intercompany
transfer pricing practices, application of tax rules and other matters. We
regularly assess the likelihood of outcomes resulting from these examinations to
determine the adequacy of our provision for income taxes and have reserved for
potential adjustments that may result from these examinations. We cannot provide
assurance that the final determination of any of these examinations will not
have an adverse effect on our operating results and financial position.
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                        LIQUIDITY AND CAPITAL RESOURCES
This data should be read in conjunction with our Consolidated Statements of Cash
Flows.
                                                 As of
(in millions)                  November 27, 2020       November 29, 2019
Cash and cash equivalents     $            4,478      $            2,650
Short-term investments        $            1,514      $            1,527
Working capital               $            2,634      $           (1,696)
Stockholders' equity          $           13,264      $           10,530


Working Capital
Working capital as of November 27, 2020 and November 29, 2019 was $2.63 billion
of a surplus and $1.70 billion of a deficit, respectively. During the first
quarter of fiscal 2020, we refinanced our 2.25 billion term loan due April 30,
2020 ("Term Loan") and $900 million 4.75% senior notes due February 1, 2020
("2020 Notes"). See the section titled "Cash Flows from Financing Activities"
below.
A summary of our cash flows for fiscal 2020, 2019 and 2018 is as follows:
(in millions)                                              2020              2019              2018
Net cash provided by operating activities               $  5,727          $  4,422          $  4,029
Net cash used for investing activities                      (414)             (456)           (4,685)
Net cash used for financing activities                    (3,488)           (2,946)               (5)

Effect of foreign currency exchange rates on cash and cash equivalents

                                               3               (13)               (2)

Net increase (decrease) in cash and cash equivalents $ 1,828 $

1,007 $ (663)




Our primary source of cash is receipts from revenue and, to a lesser extent,
proceeds from participation in the employee stock purchase plan. The primary
uses of cash are our stock repurchase program as described below,
payroll-related expenses, general operating expenses including marketing, travel
and office rent, and cost of revenue. Other uses of cash include business
acquisitions, purchases of property and equipment and payments for taxes related
to net share settlement of equity awards.
Cash Flows from Operating Activities
For fiscal 2020, net cash provided by operating activities of $5.73 billion was
primarily comprised of net income adjusted for the net effect of non-cash items.
The primary working capital sources of cash were net income together with
increases in deferred revenue and decreases in trade receivables, which were
offset in part by increases in prepaid expenses and other assets. The increase
in deferred revenue was primarily driven by Digital Media offerings with
cloud-enabled services, and the decrease in trade receivables was largely
attributable to strong collections. The primary working capital use of cash was
due to increases in prepaid expenses and other assets driven by sales
commissions paid and capitalized and, to a lesser extent, increases due to the
timing of billings and payments associated with certain vendors.
Cash Flows from Investing Activities
For fiscal 2020, net cash used for investing activities of $414 million was
primarily due to ongoing capital expenditures. These cash outflows were offset
in part by proceeds from sales and maturities of short-term investments, net of
purchases.
Cash Flows from Financing Activities
For fiscal 2020, net cash used for financing activities of $3.49 billion was
primarily due to payments for our treasury stock repurchases and taxes paid
related to the net share settlement of equity awards, which were offset by
proceeds from re-issuance of treasury stock for our employee stock purchase
plan. See the section titled "Stock Repurchase Program" discussed below.
In February 2020, we issued $500 million of 1.70% senior notes due February 1,
2023 ("2023 Notes"), $500 million of 1.90% senior notes due February 1, 2025
("1.90% 2025 Notes"), $850 million of 2.15% senior notes due February 1, 2027
("2027 Notes") and $1.30 billion of 2.30% senior notes due February 1, 2030
("2030 Notes"). We used the proceeds to repay the Term Loan and 2020 Notes
concurrently.   See Note 17 of our Notes to Consolidated Financial Statements
for information regarding our debt refinancing.
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Other Liquidity and Capital Resources Considerations
Our existing cash, cash equivalents and investment balances may fluctuate during
fiscal 2021 due to changes in our planned cash outlay.
Cash from operations could also be affected by various risks and uncertainties,
including, but not limited to, the effects of the pandemic and other risks
detailed in Part I, Item 1A titled "Risk Factors." While the pandemic has not
negatively impacted our liquidity and capital resources to date, it has led to
increased disruption and volatility in capital markets and credit markets which
could adversely affect our liquidity and capital resources in the future.
However, based on our current business plan and revenue prospects, we believe
that our existing cash, cash equivalents and investment balances, our
anticipated cash flows from operations and our available credit facility will be
sufficient to meet our working capital, operating resource expenditure and
capital expenditure requirements for the next twelve months.
Our cash equivalent and short-term investment portfolio as of November 27, 2020
consisted of asset-backed securities, corporate debt securities, foreign
government securities, money market mutual funds, municipal securities and time
deposits. We use professional investment management firms to manage a large
portion of our invested cash.
We have a $1 billion senior unsecured revolving credit agreement ("Revolving
Credit Agreement") with a syndicate of lenders, providing for loans to us and
certain of our subsidiaries through October 17, 2023. As of November 27, 2020,
there were no outstanding borrowings under this credit agreement and the entire
$1 billion credit line remains available for borrowing.
As of November 27, 2020, we have $4.15 billion senior notes outstanding,
consisting of the 2023 Notes, 1.90% 2025 Notes, 2027 Notes, 2030 Notes and the
$1 billion of 3.25% senior notes due February 1, 2025 (the "3.25% 2025 Notes,"
and together with the aforementioned notes, the "Notes"). The Notes rank equally
with our other unsecured and unsubordinated indebtedness.
We expect to continue our investing activities, including short-term and
long-term investments, purchases of computer systems for research and
development, sales and marketing, product support and administrative staff, and
facilities expansion. As of November 27, 2020, we expect our capital investment
to be approximately $550 million to $650 million, primarily to fund our San Jose
and Bangalore construction projects through fiscal 2022. Furthermore, cash
reserves may be used to repurchase stock under our stock repurchase program and
to strategically acquire companies, products or technologies that are
complementary to our business.
Subsequent to November 27, 2020, we completed our acquisition of Workfront, a
privately held company that provides a work management platform for marketers,
for approximately $1.5 billion in cash consideration. See Note 3 of our Notes to
Consolidated Financial Statements for further information regarding this
acquisition.
Stock Repurchase Program
To facilitate our stock repurchase program, designed to return value to our
stockholders and minimize dilution from stock issuances, we may repurchase
shares in the open market or enter into structured repurchase agreements with
third parties. In May 2018, our Board of Directors granted us an authority to
repurchase up to $8 billion in common stock through the end of fiscal 2021.
During fiscal 2020, 2019 and 2018, we entered into several structured stock
repurchase agreements with large financial institutions, whereupon we provided
them with prepayments totaling $3.05 billion, $2.75 billion, and $2.05 billion,
respectively. We enter into these agreements in order to take advantage of
repurchasing shares at a guaranteed discount to the Volume Weighted Average
Price ("VWAP") of our common stock over a specified period of time. We only
enter into such transactions when the discount that we receive is expected to be
higher than the foregone return on our cash prepayments to the financial
institutions. There were no explicit commissions or fees on these structured
repurchases. Under the terms of the agreements, there is no requirement for the
financial institutions to return any portion of the prepayment to us.
The financial institutions agree to deliver shares to us at monthly intervals
during the contract term. The parameters used to calculate the number of shares
deliverable are: the total notional amount of the contract, the number of
trading days in the contract, the number of trading days in the interval and the
average VWAP of our stock during the interval less the agreed upon discount.
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The following is a summary of our structured stock repurchases executed with
large financial institutions during fiscal 2020, 2019 and 2018:
(in millions, except average price
per share)                                             2020                                  2019                                  2018
                                                             Average per                           Average per                           Average per
Board approval dates                        Shares              share             Shares              share             Shares              share

January 2017                                    -           $        -                -           $        -              8.7           $   230.43
May 2018                                      8.0           $   376.38              9.9           $   270.23                -           $        -

Total cost                                            $3,024                                $2,671                                $2,002


For fiscal 2020, 2019 and 2018, the prepayments were classified as treasury
stock on our Consolidated Balance Sheets at the payment date, though only shares
physically delivered to us by November 27, 2020, November 29, 2019 and
November 30, 2018 were excluded from the computation of earnings per share. As
of November 27, 2020, $255 million of prepayments remained under the agreement.
Subsequent to November 27, 2020, we entered into a structured stock repurchase
agreement with a large financial institution whereupon we provided them with a
prepayment of $950 million. This amount will be classified as treasury stock on
our Consolidated Balance Sheets. Upon completion of the $950 million stock
repurchase agreement, $1.1 billion remains under our May 2018 authority.
Further, in December 2020, our Board of Directors granted us additional
authority to repurchase up to $15 billion in common stock through the end of
fiscal 2024. We have not drawn from our new $15 billion authority as of the
issuance of these financial statements.
  See Item 5, Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities for share repurchases during the
quarter ended   November 27, 2020  .
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Our principal commitments as of November 27, 2020 consist of our Notes and
obligations under operating leases, royalty agreements and various service
agreements.   See Notes 16,     17   and   18 of our Notes to Consolidated
Financial Statements for additional information regarding our contractual
commitments.
Contractual Obligations
The following table summarizes our contractual obligations as of November 27,
2020:
(in millions)                                              Payment Due by Period
                                               Less than                                       More than
                                   Total         1 year        1-3 years       3-5 years        5 years
Notes, including interest        $ 4,763      $       99      $      693      $    1,659      $    2,312
Operating lease obligations          657             104             162             119             272
Purchase obligations               1,885             872           1,012               1               -
Total                            $ 7,305      $    1,075      $    1,867      $    1,779      $    2,584


Senior Notes
As of November 27, 2020, the carrying value of our Notes was $4.12 billion.
Interest is payable semi-annually, in arrears on February 1 and August 1. At
November 27, 2020, our maximum commitment for interest payments was $613 million
for the remaining duration of our outstanding Notes.
Covenants
Our Revolving Credit Agreement contains a financial covenant requiring us not to
exceed a maximum leverage ratio. As of November 27, 2020, we were in compliance
with this covenant. We believe this covenant will not impact our credit or cash
in the coming fiscal year or restrict our ability to execute our business plan.
Our Notes do not contain any financial covenants.
Under the terms of our Revolving Credit Agreement, we are not prohibited from
paying cash dividends unless payment would trigger an event of default or if one
currently exists. We do not anticipate paying any cash dividends in the
foreseeable future.
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Transition Taxes Liability
Our transition tax liability which was accrued as a result of the U.S. Tax Act
was approximately $390 million as of November 27, 2020 and is payable in
installments through fiscal 2026. The U.S. Tax Act provides an exemption from
federal income taxes for distributions from foreign subsidiaries made after
December 31, 2017, including certain earnings that were not subject to the
one-time transition or global intangible low-tax income tax. As we repatriate
the undistributed foreign earnings for use in the U.S., the distributions will
generally not be subject to further U.S. federal tax.
Accounting for Uncertainty in Income Taxes
See   Results of Operations - Provision for (Benefit from) Income Taxes   above
and   Note 10 of our Notes to Consolidated Financial Statements   for our
discussion on accounting for uncertainty in income taxes.
Royalties
We have certain royalty commitments associated with the licensing of certain
offerings. Royalty expense is generally based on a dollar amount per unit sold
or a percentage of the underlying revenue.
Indemnifications
In the normal course of business, we provide indemnifications of varying scope
to customers and channel partners against claims of intellectual property
infringement made by third parties arising from the use of our products and from
time to time, we are subject to claims by our customers under these
indemnification provisions. Historically, costs related to these indemnification
provisions have not been significant and we are unable to estimate the maximum
potential impact of these indemnification provisions on our future results of
operations.
To the extent permitted under Delaware law, we have agreements whereby we
indemnify our directors and officers for certain events or occurrences while the
director or officer is or was serving at our request in such capacity. The
indemnification period covers all pertinent events and occurrences during the
director's or officer's lifetime. The maximum potential amount of future
payments we could be required to make under these indemnification agreements is
unlimited; however, we have director and officer insurance coverage that limits
our exposure and enables us to recover a portion of any future amounts paid.

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