What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-07-30 compared with 2020-05-07 · 457 added, 288 removed, 864 unchanged (46% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

2020 December 31,

(In millions, except par value)

3 unchanged sentences

Accounts receivable, net 446 435

Loans and interest receivable, net of allowances of $754 and $258 as of March 31, 2020 and December 31, 2019, respectively

Loans and interest receivable, net of allowances of $ 878 and $ 258 as of June 30, 2020 and December 31, 2019, respectively

Funds receivable and customer accounts 29,031 22,527

3 unchanged sentences

Property and equipment, net 1,717 1,693

Goodwill 9,118 6,212

Intangible assets, net 1,254 778

Other assets 1,402 1,292

Total assets $ 63,166 $ 51,333

LIABILITIES AND EQUITY

11 unchanged sentences

4,000 shares authorized;

1,173 shares outstanding as of both March 31, 2020 and December 31, 2019

1,173 shares outstanding as of both June 30, 2020 and December 31, 2019

Preferred stock, $ 0.0001 par value;

100 shares authorized, unissued

Treasury stock at cost, 113 and 105 shares as of March 31, 2020 and December 31, 2019, respectively

Treasury stock at cost, 114 and 105 shares as of June 30, 2020 and December 31, 2019, respectively

( 7,892 ) ( 6,872 )

Additional paid-in-capital 15,914 15,588

3 unchanged sentences

Noncontrolling interest 44 44

Total equity 17,684 16,929

Total liabilities and equity $ 63,166 $ 51,333

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(In millions, except per share data)

Net revenues $ 5,261 $ 4,305 $ 9,879 $ 8,433

Operating expenses:

11 unchanged sentences

Income tax expense 269 120 448 170

Net income $ 1,530 $ 823 $ 1,614 $ 1,490

Net income per share:

Basic $ 1.30 $ 0.70 $ 1.38 $ 1.27

Diluted $ 1.29 $ 0.69 $ 1.36 $ 1.25

Weighted average shares:

Basic 1,173 1,175 1,173 1,173

Diluted 1,184 1,187 1,185 1,188

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(In millions)

Net income $ 1,530 $ 823 $ 1,614 $ 1,490

Other comprehensive income (loss), net of reclassification adjustments:

Foreign currency translation adjustments (“CTA”) 52 9 ( 119 ) ( 58 )

Net investment hedge CTA gain

Unrealized gains (losses) on cash flow hedges, net

Tax (expense) benefit on unrealized gains (losses) on cash flow hedges, net

Net investment hedge CTA (loss) gain ( 16 ) — 55 —

Unrealized (losses) gains on cash flow hedges, net ( 92 ) ( 18 ) 52 ( 64 )

Tax benefit (expense) on unrealized (losses) gains on cash flow hedges, net 1 — ( 1 ) 1

Unrealized gains on investments, net 7 10 22 21

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Common Stock Shares

Treasury Stock

Additional Paid-In Capital

Accumulated Other

Comprehensive Income (Loss)

Retained Earnings

Noncontrolling Interest

Common Stock Shares Treasury Stock Additional Paid-In Capital Accumulated Other

Comprehensive Income (Loss) Retained Earnings Noncontrolling Interest Total

(In millions)

1 unchanged sentence

Adoption of current expected credit loss standard — — — — ( 168 ) — ( 168 )

Net income — — — — 84 — 84

Foreign CTA — — — ( 171 ) — — ( 171 )

Net investment hedge CTA gain — — — 71 — — 71

7 unchanged sentences

Balances at March 31, 2020 1,173 $ ( 7,672 ) $ 15,501 $ ( 120 ) $ 8,258 $ 44 $ 16,011

Common Stock Shares

Treasury Stock

Additional Paid-In Capital

Accumulated Other

Comprehensive Income (Loss)

Retained Earnings

Noncontrolling Interest

Net income — — — — 1,530 — 1,530

Foreign CTA — — — 52 — — 52

Net investment hedge CTA loss — — — ( 16 ) — — ( 16 )

Unrealized losses on cash flow hedges, net — — — ( 92 ) — — ( 92 )

Tax benefit on unrealized losses on cash flow hedges, net — — — 1 — — 1

Unrealized gains on investments, net — — — 7 — — 7

Tax expense on unrealized gains on investments, net — — — ( 2 ) — — ( 2 )

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 1 — 52 — — — 52

Common stock repurchased ( 1 ) ( 220 ) — — — — ( 220 )

Stock-based compensation — — 361 — — — 361

Balances at June 30, 2020 1,173 $ ( 7,892 ) $ 15,914 $ ( 170 ) $ 9,788 $ 44 $ 17,684

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

Common Stock Shares Treasury Stock Additional Paid-In Capital Accumulated Other

Comprehensive Income (Loss) Retained Earnings Noncontrolling Interest Total

(In millions)

1 unchanged sentence

Adoption of lease accounting standard — — — — 3 — 3

Net income — — — — 667 — 667

Foreign CTA — — — ( 67 ) — — ( 67 )

Unrealized losses on cash flow hedges, net — — — ( 46 ) — — ( 46 )

6 unchanged sentences

Balances at March 31, 2019 1,172 $ ( 6,216 ) $ 14,848 $ ( 25 ) $ 6,550 $ — $ 15,157

Net income — — — — 823 — 823

Foreign CTA — — — 9 — — 9

Unrealized losses on cash flow hedges, net — — — ( 18 ) — — ( 18 )

Tax benefit on unrealized losses on cash flow hedges, net — — — — — — —

Unrealized gains on investments, net — — — 10 — — 10

Tax expense on unrealized gains on investments, net — — — ( 4 ) — — ( 4 )

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 5 — ( 73 ) — — — ( 73 )

Common stock repurchased — — — — — — —

Stock-based compensation — — 235 — — — 235

Balances at June 30, 2019 1,177 $ ( 6,216 ) $ 15,010 $ ( 28 ) $ 7,373 $ — $ 16,139

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

(In millions)

Cash flows from operating activities:

Net income $ 1,614 $ 1,490

Transaction and credit losses 1,031 659

2 unchanged sentences

Deferred income taxes 31 35

Unrealized losses (gains) on strategic investments

Unrealized gains on strategic investments ( 739 ) ( 398 )

Other ( 27 ) ( 92 )

Changes in assets and liabilities:

19 unchanged sentences

Borrowings under financing arrangements 6,966 500

Repayments under financing arrangements ( 3,000 ) —

Funds payable and amounts due to customers 5,918 3,129

23 unchanged sentences

We also facilitate person-to-person payments through our PayPal, Venmo, and Xoom products and services and simplify and personalize shopping experiences for our consumers through our Honey Platform.

Our combined payment solutions, including our PayPal, PayPal Credit, Braintree, Venmo, Xoom, and iZettle products and services, comprise our proprietary Payments Platform.

Our combined payment solutions, including our core PayPal, PayPal Credit, Braintree, Venmo, Xoom, iZettle, and Hyperwallet products and services, comprise our proprietary Payments Platform.

We operate globally and in a rapidly evolving regulatory environment characterized by a heightened regulatory focus on all aspects of the payments industry.

13 unchanged sentences

Our investment balance is included in long-term investments on our condensed consolidated balance sheets.

We determine at the inception of each arrangement whether an entity in which we have made an investment is considered a variable interest entity (“VIE”).

If we determine it is, we then assess if we are the primary beneficiary, which would require consolidation.

As of June 30, 2020, we held an investment in a VIE which did not qualify for consolidation as we are not the primary beneficiary.

The investment balance is de minimis and included as a non-marketable equity security in long-term investments on our condensed consolidated balance sheets.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”) filed with the Securities and Exchange Commission on February 6, 2020.

In the opinion of management, these condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the condensed consolidated financial statements for interim periods.

Certain amounts for prior years have been reclassified to conform to the financial statement presentation as of and for the three months ended March 31, 2020 .

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Certain amounts for prior years have been reclassified to conform to the financial statement presentation as of and for the three and six months ended June 30, 2020.

Use of Estimates

3 unchanged sentences

We base our estimates on historical experience and various other assumptions which we believe to be reasonable under the circumstances.

These estimates may change as new events occur, and as additional information surrounding the impact of the novel coronavirus pandemic is obtained.

These estimates may change as new events occur, and as additional information surrounding the impact of the novel coronavirus (“COVID-19”) pandemic is obtained.

Actual results could differ from these estimates and any such differences may be material to our financial statements.

Short-term investments include time deposits, government and agency securities, and corporate debt securities with original maturities of greater than three months but less than one year when purchased or maturities of less than one year on the reporting date.

Long-term investments include government and agency securities and corporate debt securities with maturities exceeding one year, and our strategic investments.

Long-term investments include time deposits, government and agency securities and corporate debt securities with maturities exceeding one year, and our strategic investments.

Government and agency securities and corporate debt securities are classified as available-for-sale and are reported at fair value using the specific identification method.

Unrealized gains and losses are reported as a component of other comprehensive income (loss), net of related estimated tax provisions or benefits.

Accrued interest receivable on available-for-sale debt securities totaled $ 45 million and $ 54 million , respectively, at March 31, 2020 and December 31, 2019 and is included in other current assets on our condensed consolidated balance sheets.

Accrued interest receivable on available-for-sale debt securities totaled $ 39 million and $ 54 million, respectively, at June 30, 2020 and December 31, 2019 and is included in other current assets on our condensed consolidated balance sheets.

We elect to account for foreign currency denominated available-for-sale investments underlying funds receivable and customer accounts, short-term investments, and long-term investments under the fair value option as further discussed in “Note 9—Fair Value Measurement of Assets and Liabilities.” The changes in fair value related to initial measurement and subsequent changes in fair value are included in earnings as a component of other income (expense), net.

7 unchanged sentences

If any impairment is identified for non-marketable equity securities or impairment is considered other-than-temporary for our equity method investments, we write down the investment to its fair value and record the corresponding charge through other income (expense), net in our condensed consolidated statements of income.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Our available-for-sale debt securities in an unrealized loss position will be written down to fair value through a charge to other income (expense), net in our condensed consolidated statements of income if we intend to sell the security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis.

2 unchanged sentences

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Loans and interest receivable, net

12 unchanged sentences

We maintain the servicing rights for the entire pool of consumer and merchant receivables outstanding and receive a fee approximating the fair value for servicing the assets underlying the participation interest sold.

We offer both revolving and installment credit products to our international consumers.

The terms of our consumer relationships require us to submit monthly bills to the consumer detailing loan repayment requirements.

7 unchanged sentences

PayPal earns a revenue share on the portfolio of consumer receivables owned by Synchrony, which includes both the sold and newly generated receivables, and it is recorded in revenue from other value added services on our condensed consolidated statements of income.

See “Note 11—Loans and Interest Receivable” for additional information related to this arrangement.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Through the closing of the transaction with Synchrony, we continued to work with an independent chartered financial institution to extend credit to U.S.

consumers using our PayPal Credit product.

We purchased the related receivables extended by independent chartered financial institutions until July 2018.

We purchased the related receivables extended by the independent chartered financial institution until July 2018.

As part of the arrangements we had with the independent chartered financial institutions in the U.S., we sold back a participation interest in the pool of U.S.

6 unchanged sentences

The evaluation process to assess the adequacy of allowances is subject to numerous estimates and judgments.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The allowance for loans and interest receivable is primarily based on expectations of credit losses based on historical lifetime loss data as well as macroeconomic forecasts applied to the portfolio that is segmented by geographic region, delinquency, and vintage, among other factors.

2 unchanged sentences

Projected loss rates, inclusive of historical loss data and macroeconomic factors, are applied to the principal amount of our consumer and merchant receivables.

Our consumer receivables, which are primarily revolving in nature, do not have a contractual term;

Further, we may include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our expected lifetime losses.

Our consumer receivables are primarily revolving in nature and do not have a contractual term;

however, the reasonable and supportable forecast period we have included in our projected loss rates based on externally sourced data is approximately seven years .

6 unchanged sentences

consumer loans and interest receivables, held for sale were not established.

Adjustments to the cost basis of this portfolio until the sale was completed, which were primarily driven by charge-offs, were recorded in restructuring and other charges on our consolidated statements of income.

We determine whether an arrangement is a lease for accounting purposes at contract inception.

1 unchanged sentence

For sale-leaseback transactions, we evaluate the sale and the lease arrangement based on our conclusion as to whether control of the underlying asset has been transferred and recognize the sale-leaseback as either a sale transaction or under the financing method.

The financing method would require the asset to remain on the consolidated balance sheets throughout the term of the lease and the proceeds to be recognized as a financing obligation.

As of March 31, 2020 , we had no finance leases.

The financing method requires the asset to remain on the condensed consolidated balance sheets throughout the term of the lease and the proceeds to be recognized as a financing obligation.

As of June 30, 2020, we had no finance leases.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

9 unchanged sentences

We apply a single portfolio approach to account for the ROU assets and lease liabilities.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Allowance for transaction losses

1 unchanged sentence

We establish an allowance for estimated losses arising from completing customer transactions, such as chargebacks for unauthorized credit card use and merchant-related chargebacks due to non-delivery of goods or services, buyer protection program claims, and account takeovers.

This allowance represents an accumulation of the estimated amounts necessary to provide for transaction losses incurred as of the reporting date, including those which we have not yet identified.

This allowance represents an accumulation of the estimated amounts of transaction losses incurred as of the reporting date, including those which we have not yet identified.

The allowance is monitored regularly and is updated based on actual data received, including actual claims data reported by our claims processors.

1 unchanged sentence

Additions to the allowance are reflected as a component of transaction and credit losses on our condensed consolidated statements of income.

At March 31, 2020 and December 31, 2019 , the allowance for transaction losses totaled $ 120 million and $ 136 million , respectively, and was included in accrued expenses and other current liabilities on our condensed consolidated balance sheets.

At June 30, 2020 and December 31, 2019, the allowance for transaction losses totaled $ 152 million and $ 136 million, respectively, and was included in accrued expenses and other current liabilities on our condensed consolidated balance sheets.

Allowance for negative customer balances

11 unchanged sentences

Adjustments to the allowance for negative customer balances are recorded as a component of transaction and credit losses on our condensed consolidated statements of income.

The allowance for negative customer balances was $ 276 million and $ 263 million at March 31, 2020 and December 31, 2019 , respectively.

The allowance for negative customer balances was $ 221 million and $ 263 million at June 30, 2020 and December 31, 2019, respectively.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Guidance

2 unchanged sentences

The amended guidance is effective through December 31, 2022.

Our exposure to LIBOR is limited to an insignificant amount of fixed rate investment securities and, therefore, we do not expect the impact from reference rate reform to be material.

Our exposure to LIBOR is primarily limited to an insignificant amount of available-for-sale debt securities and, accordingly, we do not expect reference rate reform to have a material impact on our condensed consolidated financial statements.

Recently Adopted Accounting Guidance

5 unchanged sentences

Adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In 2016, the FASB issued new guidance on the measurement of credit losses on financial instruments.

5 unchanged sentences

For additional information, see “Note 11—Loans and Interest Receivable.”

There are other new accounting pronouncements issued by the FASB that we have adopted or will adopt, as applicable, and we do not believe any of these accounting pronouncements have had, or will have, a material impact on our condensed consolidated financial statements or disclosures.

There are other new accounting pronouncements issued by the FASB that we have adopted or will adopt, as applicable.

We do not believe any of these accounting pronouncements have had, or will have, a material impact on our condensed consolidated financial statements or disclosures.

Note 2— Revenue

7 unchanged sentences

We operate as one segment and have one reportable segment.

Based on the information provided to and reviewed by our CODM, we believe that the nature, amount, timing, and uncertainty of our revenue and cash flows and how they are affected by economic factors are most appropriately depicted through our primary geographical markets and type of revenue categories (transaction revenues and other value added services).

Revenues recorded within these categories are earned from similar services for which the nature of associated fees and the related revenue recognition models are substantially the same.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents our revenue disaggregated by primary geographical market and category:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(In millions)

3 unchanged sentences

Other countries (1)

2,024 1,554 3,695 3,062

Total revenues (2)

$ 5,261 $ 4,305 $ 9,879 $ 8,433

Revenue category

Transaction revenues $ 4,945 $ 3,878 $ 9,160 $ 7,609

Other value added services

Revenues from other value added services 316 427 719 824

Total revenues (2)

$ 5,261 $ 4,305 $ 9,879 $ 8,433

(1) No single country included in the other countries category generated more than 10% of total revenue.

(2) Total revenues include $ 247 million and $ 257 million for the three months ended March 31, 2020 and 2019 , respectively, which do not represent revenues recognized in the scope of Accounting Standards Codification Topic 606, Revenue from contracts with customers .

Such revenues relate to interest, fees, and gains earned on loans and interest receivable, as well as hedging gains or losses, and interest earned on certain PayPal customer balances.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(2) Total revenues include $ 154 million and $ 276 million for the three months ended June 30, 2020 and 2019, respectively, and $ 401 million and $ 533 million for the six months ended June 30, 2020 and 2019, respectively, which do not represent revenues recognized in the scope of Accounting Standards Codification Topic 606, Revenue from contracts with customers .

Such revenues relate to interest, fees, and gains earned on loans and interest receivable, as well as hedging gains or losses, and interest earned on certain assets underlying customer balances.

Net revenues are attributed to the country in which the merchant is located, or in the case of a cross-border transaction, may be earned from the country in which the consumer and the merchant respectively reside.

6 unchanged sentences

The following table sets forth the computation of basic and diluted net income per share for the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(In millions, except per share amounts)

Net income $ 1,530 $ 823 $ 1,614 $ 1,490

Weighted average shares of common stock - basic 1,173 1,175 1,173 1,173

2 unchanged sentences

Net income per share:

Basic $ 1.30 $ 0.70 $ 1.38 $ 1.27

Diluted $ 1.29 $ 0.69 $ 1.36 $ 1.25

Common stock equivalents excluded from income per diluted share because their effect would have been anti-dilutive — — 1 2

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 4— Business Combinations

2 unchanged sentences

We believe our acquisition of Honey will enhance our value proposition by allowing us to further simplify and personalize shopping experiences for consumers while driving conversion and increasing consumer engagement and sales for merchants.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the preliminary allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed:

(In millions)

Goodwill $ 2,957

Customer lists and user base 115

13 unchanged sentences

We have included the financial results of the acquired business in our condensed consolidated financial statements from the date of acquisition.

Revenues and expenses related to the acquisition for the three months ended March 31, 2020 were not material.

Pro forma results of operations have not been presented because the effects of this acquisition were not material to our financial results.

There were no acquisitions or divestitures completed during the three months ended March 31, 2019 .

Revenues and expenses related to the acquisition and pro forma results of operations have not been presented for the three and six months ended June 30, 2020 because the effects of this acquisition were not material to our overall operations.

There were no acquisitions or divestitures completed during the six months ended June 30, 2019.

Note 5— Goodwill and Intangible Assets

The following table presents goodwill balances and adjustments to those balances during the three months ended March 31, 2020 :

The following table presents goodwill balances and adjustments to those balances during the six months ended June 30, 2020:

2019 Goodwill

Acquired Adjustments June 30,

(In millions)

Total goodwill $ 6,212 $ 2,957 $ ( 51 ) $ 9,118

The goodwill acquired during the three months ended March 31, 2020 was associated with the acquisition of Honey.

The adjustments to goodwill during the three months ended March 31, 2020 pertain to foreign currency translation adjustments.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The goodwill acquired during the six months ended June 30, 2020 was associated with the acquisition of Honey.

The adjustments to goodwill during the six months ended June 30, 2020 pertain to foreign currency translation adjustments.

Intangible Assets

The components of identifiable intangible assets are as follows:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Gross Carrying Amount

1 unchanged sentence

Net Carrying Amount

Weighted Average Useful Life (Years)

Gross Carrying Amount

Weighted Average Useful Life (Years) Gross Carrying Amount

Accumulated Amortization

6 unchanged sentences

Developed technology 999 ( 452 ) 547 3 445 ( 343 ) 102 3

All other 434 ( 253 ) 181 7 436 ( 229 ) 207 7

Intangible assets, net $ 2,957 $ ( 1,703 ) $ 1,254 $ 2,289 $ ( 1,511 ) $ 778

Amortization expense for intangible assets was $ 114 million and $ 57 million for the three months ended March 31, 2020 and 2019 , respectively.

Expected future intangible asset amortization as of March 31, 2020 was as follows (in millions):

Amortization expense for intangible assets was $ 115 million and $ 51 million for the three months ended June 30, 2020 and 2019, respectively.

Amortization expense for intangible assets was $ 229 million and $ 108 million for the six months ended June 30, 2020 and 2019, respectively.

Expected future intangible asset amortization as of June 30, 2020 was as follows (in millions):

Fiscal years:

Remaining 2020 $ 221

Thereafter 106

Total $ 1,254

Note 6— Leases

5 unchanged sentences

While a majority of lease payments are based on the stated rate in the lease, some lease payments are subject to annual changes based on the Consumer Price Index or another referenced index.

In the event of changes to the relevant index, lease liabilities are not re-measured and instead are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred.

In the event of changes to the relevant index, lease liabilities are not remeasured and instead are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred.

All of PayPal’s variable lease payments are based on an index or rate.

5 unchanged sentences

The components of lease expense were as follows:

Three Months Ended

March 31, 2020

Three Months Ended

March 31, 2019

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(In millions)

3 unchanged sentences

Total lease expense cost $ 41 $ 30 $ 78 $ 62

Other information:

Supplemental cash and noncash information related to leases were as follows:

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(In millions)

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases $ 38 $ 31 $ 73 $ 62

Right-of-use assets obtained in exchange for new operating lease liabilities

Balance at March 31, 2020

Balance at December 31, 2019

Right-of-use assets obtained in exchange for operating lease liabilities $ 2 $ 63 $ 246 $ 68

Supplemental balance sheet information related to leases was as follows:

2020 December 31,

(In millions, except weighted-average figures)

4 unchanged sentences

Weighted-average remaining lease term — operating leases

7.2 years 5.8 years

Weighted-average discount rate — operating leases

Future minimum lease payments for our operating leases as of March 31, 2020 were as follows:

Future minimum lease payments for our operating leases as of June 30, 2020 were as follows:

Operating Leases

2 unchanged sentences

Remaining 2020 $ 79

Thereafter 315

present value discount ( 107 )

2 unchanged sentences

The amounts presented are consistent with contractual terms and are not expected to differ significantly from actual results under our existing leases.

In February 2020, we entered into a sale-leaseback arrangement as the seller-lessee for a data center as the buyer-lessor obtained control of the facility.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In the first quarter of 2020, we entered into a sale-leaseback arrangement as the seller-lessee for a data center as the buyer-lessor obtained control of the facility.

We sold the data center and simultaneously entered into an operating lease agreement with the purchaser for the right to use the facility for 8 years.

The Company received proceeds of approximately $ 119 million, net of selling costs, which resulted in a de minimis net gain on the sale transaction.

As of March 31, 2020 , we also have additional operating leases that have not yet commenced, primarily for real estate and data centers, with minimum lease payments aggregating to $ 151 million .

In the second quarter of 2020, we incurred asset impairment charges of $ 21 million within restructuring and other charges on our condensed consolidated statements of income.

The impairments included a reduction to our ROU asset in the amount of $ 17 million, which were attributed to certain leased space we will no longer be utilizing for our core business operations.

As of June 30, 2020, we also have additional operating leases that have not yet commenced, primarily for real estate and data centers, with minimum lease payments aggregating to $ 112 million.

These operating leases will commence between fiscal years 2020 and 2021 with lease terms of 3 years to 10 years.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 7— Other Financial Statement Details

Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended March 31, 2020 :

Unrealized Gains (Losses) on Cash Flow Hedges

Unrealized Gains (Losses) on Investments

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended June 30, 2020:

Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Investments

Translation Adjustment (“CTA”)

Net InvestmentHedge CTA Gain (Loss)

Estimated Tax Benefit (Expense)

Net Investment Hedge CTA Gain (Loss)

Estimated Tax Benefit (Expense) Total

(In millions)

4 unchanged sentences

Ending balance $ 58 $ 24 $ ( 269 ) $ 24 $ ( 7 ) $ ( 170 )

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended March 31, 2019 :

Unrealized Gains (Losses) on Cash Flow Hedges

Unrealized Gains (Losses) on Investments

Estimated Tax Benefit (Expense)

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended June 30, 2019:

Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Investments

Estimated Tax Benefit (Expense) Total

(In millions)

4 unchanged sentences

Ending balance $ 118 $ 8 $ ( 151 ) $ ( 3 ) $ ( 28 )

The following table provides details about reclassifications out of AOCI for the periods presented below:

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the six months ended June 30, 2020:

Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Investments

Net Investment Hedge CTA Gain (Loss)

Estimated Tax Benefit (Expense) Total

(In millions)

Beginning balance $ 6 $ 2 $ ( 150 ) $ ( 31 ) $ — $ ( 173 )

Other comprehensive income (loss) before reclassifications 127 22 ( 119 ) 55 ( 7 ) 78

Amount of gain reclassified from AOCI 75 — — — — 75

Net current period other comprehensive income (loss) 52 22 ( 119 ) 55 ( 7 ) 3

Ending balance $ 58 $ 24 $ ( 269 ) $ 24 $ ( 7 ) $ ( 170 )

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the six months ended June 30, 2019:

Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Investments

Estimated Tax Benefit (Expense) Total

(In millions)

Beginning balance $ 182 $ ( 13 ) $ ( 93 ) $ 2 $ 78

Other comprehensive income (loss) before reclassifications 46 21 ( 58 ) ( 5 ) 4

Amount of gain reclassified from AOCI 110 — — — 110

Net current period other comprehensive income (loss) ( 64 ) 21 ( 58 ) ( 5 ) ( 106 )

Ending balance $ 118 $ 8 $ ( 151 ) $ ( 3 ) $ ( 28 )

The following tables provide details about reclassifications out of AOCI for the periods presented below:

Details about AOCI Components

1 unchanged sentence

Affected Line Item in the Statement of Income

Three Months Ended March 31,

Three Months Ended June 30,

(In millions)

Gains on cash flow hedges — foreign exchange contracts

Unrealized (losses) gains on investments

Other income (expense), net

$ 33 $ 58 Net revenues

Unrealized (losses) gains on investments — — Other income (expense), net

$ 33 $ 58 Income before income taxes

— — Income tax expense

Total reclassifications for the period

Total reclassifications for the period $ 33 $ 58 Net income

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Details about AOCI Components

Amount of Gains (Losses) Reclassified from AOCI

Affected Line Item in the Statement of Income

Six Months Ended June 30,

(In millions)

Gains on cash flow hedges — foreign exchange contracts

$ 75 $ 110 Net revenues

Unrealized (losses) gains on investments — — Other income (expense), net

$ 75 $ 110 Income before income taxes

— — Income tax expense

Total reclassifications for the period $ 75 $ 110 Net income

Other Income (Expense), Net

The following table reconciles the components of other income (expense), net for the periods presented below:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(In millions)

2 unchanged sentences

Gains (losses) on strategic investments 888 218 764 398

Other ( 7 ) ( 1 ) ( 14 ) ( 9 )

Other income (expense), net $ 848 $ 238 $ 713 $ 437

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 8— Funds Receivable and Customer Accounts and Investments

The following table summarizes the assets underlying our funds receivable and customer accounts, short-term investments, and long-term investments as of March 31, 2020 and December 31, 2019 :

The following table summarizes the assets underlying our funds receivable and customer accounts, short-term investments, and long-term investments as of June 30, 2020 and December 31, 2019:

2020 December 31,

(In millions)

11 unchanged sentences

Long-term investments:

Time deposits $ 10 $ —

Available-for-sale debt securities 534 1,025

2 unchanged sentences

Total long-term investments $ 3,175 $ 2,863

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2020 and December 31, 2019 , the estimated fair value of our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments was as follows:

March 31, 2020

As of June 30, 2020 and December 31, 2019, the estimated fair value of our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments was as follows:

June 30, 2020 (1)

Losses Estimated

(In millions)

12 unchanged sentences

Total available-for-sale debt securities (2)

$ 16,314 $ 24 $ — $ 16,338

(1) “—” Denotes gross unrealized gain or unrealized loss of less than $1 million in a given position.

(2) Excludes foreign currency denominated available-for-sale debt securities accounted for under the fair value option.

Refer to “Note 9 — Fair Value Measurement of Assets and Liabilities.”

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 (1)

Losses Estimated

(In millions)

11 unchanged sentences

Total available-for-sale debt securities (2)

$ 12,011 $ 2 $ — $ 12,013

(1) “—” Denotes gross unrealized gain or unrealized loss of less than $1 million in a given position.

(2) Excludes foreign currency denominated available-for-sale debt securities accounted for under the fair value option.

Refer to “Note 9 — Fair Value Measurement of Assets and Liabilities.”

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2020 and December 31, 2019 , the gross unrealized losses and estimated fair value of our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments for which an allowance for credit losses has not been deemed necessary in the current period, aggregated by length of time those individual securities have been in a continuous loss position, was as follows:

March 31, 2020 (1)

Less than 12 months

12 months or longer

As of June 30, 2020 and December 31, 2019, the gross unrealized losses and estimated fair value of our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments for which an allowance for credit losses has not been deemed necessary in the current period, aggregated by length of time those individual securities have been in a continuous loss position, was as follows:

June 30, 2020 (1)

Less than 12 months 12 months or longer Total

Fair Value Gross

Losses Fair Value Gross

(In millions)

4 unchanged sentences

Short-term investments:

government and agency securities 1,615 — — — 1,615 —

Foreign government and agency securities 35 — — — 35 —

4 unchanged sentences

(1) “—” Denotes gross unrealized loss or fair value of less than $1 million in a given position.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 (1)

Less than 12 months

12 months or longer

Less than 12 months 12 months or longer Total

Fair Value Gross

Losses Fair Value Gross

(In millions)

15 unchanged sentences

We will continue to monitor the performance of the investment portfolio and assess whether impairment due to expected credit losses has occurred.

Amounts reclassified to earnings from unrealized gains and losses were not material for the three months ended March 31, 2020 and 2019 .

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Amounts reclassified to earnings from unrealized gains and losses were not material for the three and six months ended June 30, 2020 and 2019.

Our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments classified by date of contractual maturity were as follows:

March 31, 2020

Amortized Cost

June 30, 2020

Amortized Cost Fair Value

(In millions)

2 unchanged sentences

After five years through ten years 2 2

Total $ 16,314 $ 16,338

Strategic Investments

1 unchanged sentence

Our marketable equity securities have readily determinable fair values and are recorded as long-term investments on our condensed consolidated balance sheets at fair value with changes in fair value recorded in other income (expense), net on our condensed consolidated statements of income.

Marketable equity securities totaled $ 1.2 billion and $ 1.3 billion as of March 31, 2020 and December 31, 2019 , respectively.

Marketable equity securities totaled $ 2.0 billion and $ 1.3 billion as of June 30, 2020 and December 31, 2019, respectively.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Our non-marketable equity securities are recorded in long-term investments on our condensed consolidated balance sheets.

As of March 31, 2020 and December 31, 2019 , we had non-marketable equity securities of $ 28 million and $ 27 million , respectively, where we have the ability to exercise significant influence, but not control, over the investee and account for these equity securities using the equity method of accounting.

As of June 30, 2020 and December 31, 2019, we had non-marketable equity securities of $ 32 million and $ 27 million, respectively, where we have the ability to exercise significant influence, but not control, over the investee and account for these equity securities using the equity method of accounting.

The remaining non-marketable equity securities do not have a readily determinable fair value and we measure these equity investments at cost minus impairment, if any, and adjust for changes resulting from observable price changes in orderly transactions for an identical or similar investment in the same issuer (the “Measurement Alternative”).

All gains and losses on these investments, realized and unrealized, and our share of earnings or losses from investments accounted for using the equity method are recognized in other income (expense), net on our condensed consolidated statements of income.

The carrying value of our non-marketable equity securities totaled $ 548 million and $ 524 million as of March 31, 2020 and December 31, 2019 , respectively.

The carrying value of our non-marketable equity securities totaled $ 584 million and $ 524 million as of June 30, 2020 and December 31, 2019, respectively.

Measurement Alternative Adjustments

The adjustments to the carrying value of our non-marketable equity securities accounted for under the Measurement Alternative in the three months ended March 31, 2020 and 2019 were as follows:

Three Months Ended March 31,

The adjustments to the carrying value of our non-marketable equity securities accounted for under the Measurement Alternative in the six months ended June 30, 2020 and 2019 were as follows:

Six Months Ended June 30,

(In millions)

1 unchanged sentence

Adjustments related to non-marketable equity securities:

Net (sales) additions (1)

Net additions (1)

Gross unrealized gains 45 81

1 unchanged sentence

Carrying amount, end of period $ 552 $ 439

(1) Net (sales) additions includes additions from purchases and reductions due to sales of securities and reclassifications when Measurement Alternative no longer applies.

Cumulative gross unrealized gains and cumulative gross unrealized losses and impairment related to non-marketable equity securities accounted for under the Measurement Alternative held at March 31, 2020 were approximately $ 257 million and $ 18 million , respectively.

Cumulative gross unrealized gains and cumulative gross unrealized losses and impairment related to non-marketable equity securities accounted for under the Measurement Alternative held at December 31, 2019 were approximately $ 230 million and $ 5 million , respectively.

(1) Net additions includes additions from purchases, reductions due to sales of securities, and reclassifications when Measurement Alternative no longer applies.

The following table summarizes the cumulative gross unrealized gains and cumulative gross unrealized losses and impairment related to non-marketable equity securities accounted for under the Measurement Alternative for investments held at June 30, 2020 and December 31, 2019, respectively:

June 30, 2020 December 31, 2019

(In millions)

Cumulative gross unrealized gains $ 257 $ 230

Cumulative gross unrealized losses and impairment $ ( 20 ) $ ( 5 )

Unrealized gains (losses) on strategic investments, excluding those accounted for using the equity method

The following table summarizes the net unrealized gains (losses) on marketable and non-marketable equity securities, excluding those accounted for using the equity method, held at June 30, 2020 and June 30, 2019, respectively:

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(In millions)

Net unrealized gains (losses) $ 888 $ 218 $ 756 $ 398

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Gains (losses) on marketable and non-marketable equity securities, excluding those accounted for using the equity method

Net unrealized losses recognized in the three months ended March 31, 2020 related to marketable and non-marketable equity securities (excluding those accounted for using the equity method) held at March 31, 2020 were approximately $ 132 million .

Net unrealized gains recognized in the three months ended March 31, 2019 related to marketable and non-marketable equity securities (excluding those accounted for using the equity method) held at March 31, 2019 was approximately $ 180 million .

Note 9— Fair Value Measurement of Assets and Liabilities

Financial Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 :

March 31, 2020

Quoted Prices in

The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019:

June 30, 2020 Quoted Prices in

Active Markets for

4 unchanged sentences

Cash and cash equivalents (1)

$ 1,065 $ — $ 1,065

Short-term investments (2) :

9 unchanged sentences

Total funds receivable and customer accounts $ 13,773 $ — $ 13,773

Derivatives 135 — 135

Long-term investments (2),(4) :

5 unchanged sentences

Total financial assets $ 22,999 $ 2,041 $ 20,958

Derivatives $ 55 $ — $ 55

(1) Excludes cash of $ 5.3 billion not measured and recorded at fair value.

(2) Excludes restricted cash of $ 74 million and time deposits of $ 204 million not measured and recorded at fair value.

(2) Excludes restricted cash of $ 75 million and time deposits of $ 1.2 billion not measured and recorded at fair value.

(3) Excludes cash, time deposits, and funds receivable of $ 15.3 billion underlying funds receivable and customer accounts not measured and recorded at fair value.

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019

Quoted Prices in

December 31, 2019 Quoted Prices in

Active Markets for

4 unchanged sentences

Cash and cash equivalents (1)

$ 2,835 $ — $ 2,835

Short-term investments (2) :

8 unchanged sentences

Total funds receivable and customer accounts 10,873 — 10,873

Derivatives 135 — 135

Long-term investments (4) :

5 unchanged sentences

Total financial assets $ 18,916 $ 1,314 $ 17,602

Derivatives $ 122 $ — $ 122

(1) Excludes cash of $ 4.5 billion not measured and recorded at fair value.

7 unchanged sentences

Certain foreign currency contracts designated as cash flow hedges may have a duration of up to 18 months.

We did not have any transfers of financial instruments between valuation levels during the three months ended March 31, 2020 and 2019 .

As of March 31, 2020 and December 31, 2019 , we did not have any assets or liabilities requiring measurement at fair value without observable market values that would require a high level of judgment to determine fair value (Level 3).

As of June 30, 2020 and December 31, 2019, we did not have any assets or liabilities requiring measurement at fair value without observable market values that would require a high level of judgment to determine fair value (Level 3).

PayPal Holdings, Inc.

2 unchanged sentences

Election of the fair value option allows us to recognize any gains and losses from fair value changes on such investments in other income (expense), net on the condensed consolidated statements of income to significantly reduce the accounting asymmetry that would otherwise arise when recognizing the corresponding foreign exchange gains and losses relating to customer liabilities.

The following table summarizes the estimated fair value of our available-for-sale debt securities under the fair value option as of March 31, 2020 and December 31, 2019 :

March 31, 2020

December 31, 2019

The following table summarizes the estimated fair value of our available-for-sale debt securities under the fair value option as of June 30, 2020 and December 31, 2019:

June 30, 2020 December 31, 2019

(In millions)

1 unchanged sentence

Short-term investments $ — $ 246

The following table summarizes the gains (losses) from fair value changes recognized in other income (expense), net related to the available-for-sale debt securities under the fair value option for the three months ended March 31, 2020 and 2019 :

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(In millions)

2 unchanged sentences

Financial Assets and Liabilities Measured and Recorded at Fair Value on a Non-Recurring Basis

The following tables summarize our financial assets and liabilities held as of March 31, 2020 and December 31, 2019 for which a non-recurring fair value measurement was recorded during the three months ended March 31, 2020 and the year ended December 31, 2019 , respectively:

March 31, 2020

Significant Other

The following tables summarize our financial assets and liabilities held as of June 30, 2020 and December 31, 2019 for which a non-recurring fair value measurement was recorded during the six months ended June 30, 2020 and the year ended December 31, 2019, respectively:

June 30, 2020 Significant Other

Observable Inputs

1 unchanged sentence

Non-marketable equity investments measured using the Measurement Alternative (1)

(1) Excludes non-marketable equity investments of $ 392 million accounted for under the Measurement Alternative for which no observable price changes occurred during the three months ended March 31, 2020 .

December 31, 2019

Significant Other

Other assets (2)

Total $ 163 $ 163

(1) Excludes non-marketable equity investments of $ 424 million accounted for under the Measurement Alternative for which no observable price changes occurred during the six months ended June 30, 2020.

(2) Consists of ROU lease asset recorded at fair value pursuant to an impairment charge recorded in the second quarter of 2020.

See “Note 6—Leases” for additional information.

December 31, 2019 Significant Other

Observable Inputs

2 unchanged sentences

(1) Excludes non-marketable equity investments of $ 194 million accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2019.

We measured these non-marketable equity investments accounted for under the Measurement Alternative at cost minus impairment, if any, adjusted for observable price changes in orderly transactions for an identical or similar investment in the same issuer.

We measure these non-marketable equity investments accounted for under the Measurement Alternative at cost minus impairment, if any, adjusted for observable price changes in orderly transactions for an identical or similar investment in the same issuer.

Impairment losses on ROU lease assets related to office operating leases are calculated using rent per square foot derived from observable market data.

PayPal Holdings, Inc.

1 unchanged sentence

Financial Assets and Liabilities Not Measured and Recorded at Fair Value

Our financial instruments, including cash, restricted cash, time deposits, loans and interest receivable, net, certain customer accounts, notes receivable, and long-term debt related to borrowings on our credit facilities are carried at amortized cost, which approximates their fair value.

Our fixed rate debt (also classified as long-term debt) carried at amortized cost had a carrying value of approximately $ 5.0 billion and fair value of approximately $ 4.9 billion as of March 31, 2020 .

Our fixed rate debt carried at amortized cost had a carrying value and fair value of approximately $ 5.0 billion as of December 31, 2019 .

Our financial instruments, including cash, restricted cash, time deposits, loans and interest receivable, net, certain customer accounts, and notes receivable are carried at amortized cost, which approximates their fair value.

Our fixed rate debt had a carrying value of approximately $ 8.9 billion and fair value of approximately $ 9.5 billion as of June 30, 2020.

Our fixed rate debt had a carrying value and fair value of approximately $ 5.0 billion as of December 31, 2019.

If these financial instruments were measured at fair value in the financial statements, cash would be classified as Level 1;

10 unchanged sentences

We transact business in various foreign currencies and have significant international revenues and costs denominated in foreign currencies, which subjects us to foreign currency risk.

We have a foreign currency exposure management program whereby we designate certain foreign currency exchange contracts, generally with maturities of 18 months or less, to reduce the volatility of cash flows primarily related to forecasted revenues denominated in foreign currencies.

We have a foreign currency exposure management program in which we designate certain foreign currency exchange contracts, generally with maturities of 18 months or less, to reduce the volatility of cash flows primarily related to forecasted revenues denominated in foreign currencies.

The objective of the foreign currency exchange contracts is to help mitigate the risk that the U.S.

7 unchanged sentences

Accordingly, the cash flows associated with derivatives designated as cash flow hedges are classified in cash flows from operating activities on our condensed consolidated statements of cash flows.

As of March 31, 2020 , we estimate that $ 129 million of net derivative gains related to our cash flow hedges included in AOCI are expected to be reclassified into earnings within the next 12 months.

During the three months ended March 31, 2020 and 2019 , we did not discontinue any cash flow hedges because it was probable that the original forecasted transaction would not occur and as such, did not reclassify any gains or losses to earnings prior to the occurrence of the hedged transaction.

As of June 30, 2020, we estimated that $ 59 million of net derivative gains related to our cash flow hedges included in AOCI were expected to be reclassified into earnings within the next 12 months.

During the three and six months ended June 30, 2020 and 2019, we did not discontinue any cash flow hedges because it was probable that the original forecasted transaction would not occur and as such, did not reclassify any gains or losses to earnings prior to the occurrence of the hedged transaction.

If we elect to discontinue our cash flow hedges and it is probable that the original forecasted transaction will occur, we continue to report the derivative’s gain or loss in AOCI until the forecasted transaction affects earnings, at which point we also reclassify it into earnings.

Gains and losses on derivatives held after we discontinue our cash flow hedges and gains and losses on derivative instruments that are not designated as cash flow hedges are recorded in the same financial statement line item to which the derivative relates.

Net Investment Hedge

We use a forward foreign currency exchange contract to reduce the foreign currency exchange risk related to our investment in a foreign subsidiary.

This derivative is designated as a net investment hedge and accordingly, the derivative’s gain and loss is recorded in AOCI as part of foreign currency translation.

The accumulated gains and losses associated with this instrument will remain in AOCI until the foreign subsidiary is sold or substantially liquidated, at which point they will be reclassified into earnings.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

not exclude any component of the changes in fair value of the derivative instrument from the assessment of hedge effectiveness.

Net Investment Hedge

We used a forward foreign currency exchange contract to reduce the foreign currency exchange risk related to our investment in a foreign subsidiary.

This derivative was designated as a net investment hedge and accordingly, the derivative’s gain and loss is recorded in AOCI as part of foreign currency translation.

During the second quarter of 2020, this derivative matured.

We did not exclude any component of the changes in fair value of the derivative instrument from the assessment of hedge effectiveness.

The cash flow associated with the derivative designated as a net investment hedge is classified in cash flows from investing activities on our condensed consolidated statements of cash flows.

During the three months ended March 31, 2020 , we recognized $ 71 million in unrealized gains on our foreign currency exchange contract designated as a net investment hedge within the foreign currency translation section of other comprehensive income.

During the three months ended March 31, 2019 , we did no t have a net investment hedge.

During the three and six months ended June 30, 2020, we recognized $ 16 million in unrealized loss and $ 55 million in unrealized gain, respectively, on the foreign currency exchange contract designated as a net investment hedge within the foreign currency translation section of other comprehensive income.

During the three and six months ended June 30, 2019, we did no t have a net investment hedge.

We have no t reclassified any gains or losses from AOCI into earnings during any of the periods presented.

Foreign Currency Exchange Contracts Not Designated As Hedging Instruments

We have a foreign currency exposure management program whereby we use foreign currency exchange contracts to offset the foreign currency exchange risk on our assets and liabilities denominated in currencies other than the functional currency of our subsidiaries.

We have a foreign currency exposure management program in which we use foreign currency exchange contracts to offset the foreign currency exchange risk on our assets and liabilities denominated in currencies other than the functional currency of our subsidiaries.

These contracts are not designated as hedging instruments and reduce, but do not entirely eliminate, the impact of foreign currency exchange rate movements on our assets and liabilities.

The gains and losses due to remeasurement of certain foreign currency denominated monetary assets and liabilities are recorded in other income (expense), net, which is offset by the gains and losses on these foreign currency exchange contracts.

The gains and losses due to remeasurement of certain foreign currency denominated monetary assets and liabilities are recorded in other income (expense), net, which are offset by the gains and losses on these foreign currency exchange contracts.

The cash flows associated with our non-designated derivatives that hedge foreign currency denominated monetary assets and liabilities are classified in cash flows from operating activities on our condensed consolidated statements of cash flows.

Fair Value of Derivative Contracts

The fair value of our outstanding derivative instruments as of March 31, 2020 and December 31, 2019 was as follows:

The fair value of our outstanding derivative instruments as of June 30, 2020 and December 31, 2019 was as follows:

Balance Sheet Location

2020 December 31,

(In millions)

Derivative Assets:

Foreign currency exchange contracts designated as hedging instruments

Other current assets

Foreign currency exchange contracts designated as hedging instruments

Other assets (non-current)

Foreign currency exchange contracts not designated as hedging instruments

Other current assets

Foreign currency exchange contracts designated as hedging instruments Other current assets $ 70 $ 45

Foreign currency exchange contracts designated as hedging instruments Other assets (non-current) 7 1

Foreign currency exchange contracts not designated as hedging instruments Other current assets 58 89

Total derivative assets $ 135 $ 135

Derivative Liabilities:

Foreign currency exchange contracts designated as hedging instruments

Other current liabilities

Foreign currency exchange contracts designated as hedging instruments

Other long-term liabilities

Foreign currency exchange contracts not designated as hedging instruments

Other current liabilities

Foreign currency exchange contracts designated as hedging instruments Other current liabilities $ 11 $ 58

Foreign currency exchange contracts designated as hedging instruments Other long-term liabilities 8 13

Foreign currency exchange contracts not designated as hedging instruments Other current liabilities 36 51

Total derivative liabilities $ 55 $ 122

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Master Netting Agreements - Rights of Setoff

1 unchanged sentence

However, we have elected to present the derivative assets and derivative liabilities on a gross basis on our condensed consolidated balance sheets.

Rights of setoff associated with our foreign currency exchange contracts represented a potential offset to both assets and liabilities by $ 125 million as of March 31, 2020 and $ 92 million as of December 31, 2019 .

Rights of setoff associated with our foreign currency exchange contracts represented a potential offset to both assets and liabilities by $ 47 million as of June 30, 2020 and $ 92 million as of December 31, 2019.

We have entered into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds.

We posted $ 23 million and $ 12 million in cash collateral related to our derivative liabilities as of March 31, 2020 and December 31, 2019 , respectively, which is recognized in other current assets on our condensed consolidated balance sheets, and is related to the right to reclaim cash collateral.

We received $ 172 million and $ 39 million in counterparty cash collateral related to our derivative assets as of March 31, 2020 and December 31, 2019 , respectively, which is recognized in other current liabilities on our condensed consolidated balance sheets, and is related to the obligation to

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

return cash collateral.

As of March 31, 2020 and December 31, 2019 , we did no t receive or post any counterparty non-cash collateral.

We posted $ 2 million and $ 12 million in cash collateral related to our derivative liabilities as of June 30, 2020 and December 31, 2019, respectively, which is recognized in other current assets on our condensed consolidated balance sheets, and is related to the right to reclaim cash collateral.

We received $ 63 million and $ 39 million in counterparty cash collateral related to our derivative assets as of June 30, 2020 and December 31, 2019, respectively, which is recognized in other current liabilities on our condensed consolidated balance sheets, and is related to the obligation to return cash collateral.

Additionally, as of June 30, 2020, we received $ 8 million in counterparty non-cash collateral in the form of debt securities and no such collateral as of December 31, 2019.

Effect of Derivative Contracts on Condensed Consolidated Statements of Income

The following table provides the location in the condensed consolidated statements of income and amount of recognized gains or losses related to our derivative instruments designated as hedging instruments:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(In millions)

2 unchanged sentences

The following table provides the location in the condensed consolidated statements of income and amount of recognized gains or losses related to our derivative instruments not designated as hedging instruments:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(In millions)

5 unchanged sentences

The following table provides the notional amounts of our outstanding derivatives:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

(In millions)

1 unchanged sentence

Foreign exchange contracts not designated as hedging instruments 12,275 17,131

Total $ 16,034 $ 21,681

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 11— Loans and Interest Receivable

3 unchanged sentences

merchants by the independent chartered financial institution and are responsible for servicing functions related to that portfolio.

During the three months ended March 31, 2020 and 2019 , we purchased approximately $ 1.3 billion and $ 1.1 billion in merchant credit receivables, respectively.

During the six months ended June 30, 2020 and 2019, we purchased approximately $ 1.4 billion and $ 2.2 billion in merchant receivables, respectively.

Consumer Receivables

We offer credit products to consumers who choose PayPal Credit at checkout.

As of March 31, 2020 and December 31, 2019 , the outstanding balance of consumer receivables, which primarily consisted of revolving loans and interest receivable due from international consumer accounts, was $ 1.4 billion and $ 1.3 billion , respectively.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We closely monitor the credit quality of our consumer loan receivables to evaluate and manage our related exposure to credit risk.

We offer revolving and installment credit products to consumers who choose PayPal Credit at checkout.

The majority of installment loans allow consumers to pay for a product over periods of 12 months or less.

As of June 30, 2020 and December 31, 2019, the outstanding balance of consumer receivables, which primarily consisted of revolving loans and interest receivable due from international consumer accounts, was $ 1.5 billion and $ 1.3 billion, respectively.

We closely monitor the credit quality of our consumer receivables to evaluate and manage our related exposure to credit risk.

Credit risk management begins with initial underwriting and continues through to full repayment of a loan.

To assess a consumer who requests a loan, we use, among other indicators, internally developed risk models using detailed information from external sources, such as credit bureaus where available, and internal historical experience, including the consumer’s prior repayment history with PayPal Credit products.

We use delinquency status and trends to assist in making new and ongoing credit decisions, to adjust our models, to plan our collection practices and strategies, and in our determination of our allowance for consumer loans and interest receivable.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Consumer Receivables Delinquency and Allowance

The following table presents the delinquency status of consumer loans and interest receivable at March 31, 2020 and December 31 2019.

The following table presents the delinquency status of consumer loans and interest receivable at June 30, 2020 and December 31, 2019.

Since our consumer loans are primarily revolving in nature, they are disclosed in the aggregate and not by year of origination.

1 unchanged sentence

The “current” category represents balances that are within 29 days of the billing date:

March 31, 2020

December 31, 2019

Amortized Cost Basis Revolving

Amortized Cost Basis

June 30, 2020 December 31, 2019

Amortized Cost Basis Revolving Percent Amortized Cost Basis

Revolving Percent

(In millions, except percentages)

Current $ 1,448 97.7 % $ 1,279 96.7 %

30-59 days 7 0.5 % 15 1.1 %

60-89 days 6 0.4 % 9 0.7 %

90-179 days 21 1.4 % 19 1.5 %

Total consumer loans and interest receivable (1), (2), (3)

(1) Excludes receivables from other consumer credit products of $ 94 million and $ 92 million at March 31, 2020 and December 31, 2019 , respectively.

The following table summarizes the activity in the allowance for consumer loans and interest receivable for the three months ended March 31, 2020 and 2019 :

March 31, 2020

March 31, 2019

Consumer Loans Receivable

Interest Receivable

Total Allowance (1)

Consumer Loans Receivable

Interest Receivable

Total Allowance (1)

$ 1,482 100.0 % $ 1,322 100.0 %

(1) Excludes receivables from other consumer credit products of $ 60 million and $ 92 million at June 30, 2020 and December 31, 2019, respectively.

(2) Includes installment loans of $ 168 million and $ 80 million at June 30, 2020 and December 31, 2019, respectively, substantially all of which were current.

(3) Balances at June 30, 2020 include the impact of payment holidays provided by the Company as a part of our COVID-19 payment relief initiatives.

The following table summarizes the activity in the allowance for consumer loans and interest receivable for the six months ended June 30, 2020 and 2019:

June 30, 2020 June 30, 2019

Consumer Loans Receivable Interest Receivable Total Allowance (1)

(In millions)

1 unchanged sentence

Adjustment for adoption of credit losses accounting standard 24 4 28 — — —

Provisions 226 47 273 6 4 10

Charge-offs ( 42 ) ( 7 ) ( 49 ) ( 17 ) ( 3 ) ( 20 )

Recoveries (2)

15 — 15 18 — 18

Ending balance $ 272 $ 52 $ 324 $ 34 $ 4 $ 38

(1) Excludes allowances from other consumer credit products of $ 10 million and $ 9 million at March 31, 2020 and March 31, 2019 , respectively.

(1) Excludes allowances from other consumer credit products of $ 6 million and $ 8 million at June 30, 2020 and June 30, 2019, respectively.

(2) The recoveries were primarily related to fully charged off U.S.

consumer credit receivables not subject to the sale to Synchrony.

Changes to the provision for the three months ended March 31, 2020 were primarily attributable to changes in current and projected macroeconomic conditions resulting in an increase of $ 90 million and our portfolio growth resulting in an increase of $ 10 million , both of which are used in estimating our expected credit losses.

Changes to the charge-offs for the three months ended March 31, 2020 were primarily attributable to the growth in our portfolio.

Changes to the provision for the six months ended June 30, 2020 were attributable to changes in current and projected macroeconomic conditions, including qualitative adjustments primarily to account for the impact from payment holidays provided as part of our COVID-19 payment relief initiatives, which resulted in an increase of $ 184 million, and changes in credit quality and originations which resulted in an increase of $ 89 million.

Changes to the charge-offs for the six months ended June 30, 2020 were primarily attributable to the overall growth in our portfolio.

The provision for credit losses relating to our consumer loans receivable portfolio is recognized in transaction and credit losses on our condensed consolidated statements of income.

1 unchanged sentence

Loans receivable past the payment due date continue to accrue interest until they are charged off.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We charge off consumer loan receivable balances in the month in which a customer’s balance becomes 180 days past the payment due date.

We charge off consumer receivable balances in the month in which a customer’s balance becomes 180 days past the billing date.

Bankrupt accounts are charged off within 60 days after receipt of notification of bankruptcy.

Charge-offs that are recovered are recorded as a reduction to our allowance for loans and interest receivable.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Merchant Receivables

We offer business financing solutions to certain small and medium-sized merchants through our PayPal Working Capital (“PPWC”) and PayPal Business Loan (“PPBL”) products.

As of March 31, 2020 and December 31, 2019 , the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 3.0 billion and $ 2.8 billion , respectively, net of the participation interest sold to an independent chartered financial institution of $ 132 million and $ 124 million , respectively.

As of June 30, 2020 and December 31, 2019, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 2.5 billion and $ 2.8 billion, respectively, net of the participation interest sold to an independent chartered financial institution of $ 112 million and $ 124 million, respectively.

Through our PPWC product, merchants can borrow a certain percentage of their annual payment volume processed by PayPal and are charged a fixed fee for the loan or advance, which targets an annual percentage rate based on the overall credit assessment of the merchant.

Loans and advances are repaid through a fixed percentage of the merchant’s future payment volume that PayPal processes.

Through our PPBL product, we provide merchants with access to short-term business financing for a fixed fee based on an evaluation of both the applying business as well as the business owner.

Through our PPBL product, we provide merchants with access to short-term business financing for a fixed fee based on an evaluation of the applying business as well as the business owner.

PPBL repayments are collected through periodic payments until the balance has been satisfied.

17 unchanged sentences

The amounts are based on the number of days past the expected or contractual repayment date for amounts outstanding.

The “current” category represents balances that are within 29 days of the billing date for loans with fixed repayment dates, or within 29 days of the expected repayment date.

March 31, 2020

The “current” category represents balances that are within 29 days of the contractual repayment dates, or within 29 days of the expected repayment date.

June 30, 2020

(In millions, except percentages)

2019 2018 2017 2016 Total Percent

Current $ 1,159 $ 937 $ 19 $ — $ — $ 2,115 85.6 %

30 - 59 Days 42 81 9 — — 132 5.3 %

60 - 89 Days 29 61 7 — — 97 3.9 %

90 - 179 Days 11 89 13 — — 113 4.6 %

180+ Days — 8 5 1 — 14 0.6 %

$ 1,241 $ 1,176 $ 53 $ 1 $ — $ 2,471 100 %

(1) Balances include the impact of payment holidays provided by the Company as a part of our COVID-19 payment relief initiatives.

The following table presents our estimate of the principal amount of merchant loans, advances, and interest and fees receivable past their original expected or contractual repayment period as of December 31, 2019, prior to the adoption of the new credit losses accounting guidance as described in “Note 1—Overview and Summary of Significant Accounting Policies.”

December 31, 2019

(In millions)

Within Original Expected Repayment Period

30 - 59 Days Greater

60 - 89 Days Greater

90 - 180 Days Greater

Total Past Original Expected Repayment Period

The following table summarizes the activity in the allowance for merchant loans, advances, and interest and fees receivable, for the three months ended March 31, 2020 and 2019 :

March 31, 2020

March 31, 2019

Merchant Loans and Advances

Interest and Fees Receivable

Total Allowance

Merchant Loans and Advances

Interest and Fees Receivable

Total Allowance

(In millions, except percentages)

Within Original Expected Repayment Period 30 - 59 Days Greater 60 - 89 Days Greater 90 - 180 Days Greater 180+ Days Total Past Original Expected Repayment Period Total

$ 2,523 $ 115 $ 61 $ 100 $ 17 $ 293 $ 2,816

89.6 % 4.1 % 2.1 % 3.6 % 0.6 % 10.4 % 100 %

The following table summarizes the activity in the allowance for merchant loans, advances, and interest and fees receivable, for the six months ended June 30, 2020 and 2019:

June 30, 2020 June 30, 2019

Merchant Loans and Advances Interest and Fees Receivable Total Allowance Merchant Loans and Advances Interest and Fees Receivable Total Allowance

(In millions)

1 unchanged sentence

Adjustment for adoption of credit losses accounting standard 165 17 182 — — —

Provisions 284 27 311 115 16 131

Charge-offs ( 130 ) ( 13 ) ( 143 ) ( 83 ) ( 9 ) ( 92 )

Recoveries 7 — 7 7 — 7

Ending balance $ 497 $ 51 $ 548 $ 154 $ 22 $ 176

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Changes to the provision for the three months ended March 31, 2020 were primarily attributable to changes in current and projected macroeconomic conditions resulting in an increase of $ 159 million and our portfolio growth resulting in an increase of $ 85 million , both of which are used in estimating our expected credit losses.

Changes to the charge-offs for the three months ended March 31, 2020 were primarily attributable to a significant expansion of the portfolio in 2019 and a decline in transaction processing volume on our Payments Platform for certain merchants which adversely impacted the delinquency of our merchant loans, advances, and interest and fees receivable portfolio.

For merchant loans and advances, the determination of delinquency, from current to 180 days past due, is based on the current expected or contractual repayment period of the loan or advance and fixed interest or fee payment as compared to the original expected or contractual repayment period.

We charge off the receivables outstanding under our PPBL product when the repayments are 180 days past due.

Changes to the provision for the six months ended June 30, 2020 were primarily attributable to changes in current and projected macroeconomic conditions including qualitative adjustments to incorporate varying degrees of merchant performance in the current environment and expected performance in future periods, which resulted in an increase of $ 181 million.

Additionally, originations occurring primarily in the first quarter resulted in an increase of $ 97 million and changes in credit quality resulted in an increase of $ 33 million to the provision for the six months ended June 30, 2020.

Changes to the charge-offs for the six months ended June 30, 2020 were primarily attributable to a significant expansion of the portfolio in 2019 and a decline in transaction processing volume on our Payments Platform for certain merchants which adversely impacted the delinquency of our merchant loans, advances, and interest and fees receivable portfolio.

For merchant loans and advances, the determination of delinquency is based on the current expected or contractual repayment period of the loan or advance and fixed interest or fee payment as compared to the original expected or contractual repayment period.

We charge off the receivables outstanding under our PPBL product when the repayments are 180 days past the contractual repayment date.

We charge off the receivables outstanding under our PPWC product when the repayments are 180 days past our expectation of repayments and the merchant has not made a payment in the last 60 days or when the repayments are 360 days past due regardless of whether the merchant has made a payment within the last 60 days.

Bankrupt accounts are charged off within 60 days of receiving notification of bankruptcy.

The provision for credit losses is recognized in transaction and credit losses, and the provisions for interest and fees receivable is recognized as a reduction of deferred revenues included in accrued and other current liabilities on our condensed consolidated balance sheets.

The provision for credit losses is recognized in transaction and credit losses, and the provision for interest and fees receivable is recognized as a reduction of deferred revenues included in accrued and other current liabilities on our condensed consolidated balance sheets.

Charge-offs that are recovered are recorded as a reduction to our allowance for loans and interest receivable.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 12— Debt

1 unchanged sentence

Fixed Rate Notes

On September 26, 2019, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 5.0 billion (collectively referred to as the “Notes”).

The Notes are senior unsecured obligations.

As of March 31, 2020 , we had an outstanding aggregate principal amount of $ 5.0 billion related to the Notes.

On May 18, 2020, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 4.0 billion.

Interest on these notes is payable on June 1 and December 1 of each year, beginning on December 1, 2020.

We may redeem the notes in whole, at any time, or in part, from time to time, prior to maturity, at the redemption price.

Upon the occurrence of both a change of control of the Company and a downgrade of the notes below an investment grade rating, we will be required to offer to repurchase each series of notes at a price equal to 101 % of the then outstanding principal amount, plus accrued and unpaid interest.

The notes are subject to covenants including limitations on our ability to create liens on our assets, enter into sale and leaseback transactions, and merge or consolidate with another entity, in each case subject to certain exceptions, limitations, and qualifications.

Proceeds from the issuance of these notes may be used for general corporate purposes, which may include funding the repayment or redemption of outstanding debt, share repurchases, ongoing operations, capital expenditures, and possible acquisitions of businesses, assets, or strategic investments.

On September 26, 2019, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 5.0 billion.

The notes issued from the May 2020 and September 2019 debt issuances are senior unsecured obligations and are collectively referred to as the “Notes.”

As of June 30, 2020, we had an outstanding aggregate principal amount of $ 9.0 billion related to the Notes.

The following table summarizes the Notes:

Balance at March 31, 2020

Effective Interest Rate

Balance at June 30, 2020

Maturities Amount Effective Interest Rate

(in millions)

September 2019 debt issuance of $ 5.0 billion:

Fixed-rate 2.200 % notes

9/26/2022 $ 1,000 2.39 %

Fixed-rate 2.400 % notes

10/1/2024 1,250 2.52 %

Fixed-rate 2.650 % notes

10/1/2026 1,250 2.78 %

Fixed-rate 2.850 % notes

10/1/2029 1,500 2.96 %

May 2020 debt issuance of $ 4.0 billion:

Fixed-rate 1.350 % notes

6/1/2023 $ 1,000 1.55 %

Fixed-rate 1.650 % notes

6/1/2025 1,000 1.78 %

Fixed-rate 2.300 % notes

6/1/2030 1,000 2.39 %

Fixed-rate 3.250 % notes

6/1/2050 1,000 3.33 %

Total term debt $ 9,000

2 unchanged sentences

The effective interest rates for the Notes include interest on the Notes, amortization of debt issuance costs, and amortization of the debt discount.

The interest expense recorded for the Notes, including amortization of the debt discount and debt issuance costs, was $ 33 million for the three months ended March 31, 2020 .

The interest expense recorded for the Notes, including amortization of the debt discount and debt issuance costs, was $ 45 million and $ 78 million for the three and six months ended June 30, 2020, respectively.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Five -Year Revolving Credit Facility

1 unchanged sentence

In March 2020, we drew down $ 3.0 billion under the Credit Agreement.

As of March 31, 2020, $ 3.0 billion was outstanding under the Credit Agreement at a weighted average interest rate of 2.19 % , and accordingly, $ 2.0 billion of borrowing capacity was available for the purposes permitted by the Credit Agreement, subject to customary conditions

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

to borrowing.

The total interest expense and fees we recorded related to the Credit Agreement was approximately $ 3 million for the three months ended March 31, 2020.

Unused Credit Facilities

In May 2020, we repaid the $ 3.0 billion using proceeds from the May 2020 debt issuance.

As of June 30, 2020, no amounts were outstanding under the Credit Agreement, and accordingly, $ 5.0 billion of borrowing capacity was available for the purposes permitted by the Credit Agreement, subject to customary conditions to borrowing.

The total interest expense and fees we recorded related to the Credit Agreement was approximately $ 10 million and $ 13 million for the three and six months ended June 30, 2020, respectively.

Other Available Facilities

We also maintain uncommitted credit facilities in various regions throughout the world, with borrowing capacity of approximately $ 130 million in the aggregate.

1 unchanged sentence

Interest rate terms for these facilities vary by region and reflect prevailing market rates for companies with strong credit ratings.

As of March 31, 2020 , substantially all of the borrowing capacity under these credit facilities was available, subject to customary conditions to borrowing.

As of June 30, 2020, substantially all of the borrowing capacity under these credit facilities was available, subject to customary conditions to borrowing.

Future Principal Payments

As of June 30, 2020, the future principal payments associated with our long term debt were as follows (in millions):

Remaining 2020 $ —

Thereafter 5,750

Total $ 9,000

Other than as provided above, there are no significant changes to the information disclosed in our 2019 Form 10-K.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 13— Commitments and Contingencies

As of March 31, 2020 and December 31, 2019 , approximately $ 3.1 billion of unused credit was available to PayPal Credit account holders.

As of June 30, 2020 and December 31, 2019, approximately $ 2.4 billion and $ 3.1 billion, respectively, of unused credit was available to PayPal Credit account holders.

Substantially all of the PayPal Credit account holders with unused credit are in the U.K.

While this amount represents the total unused credit available, we have not experienced, and do not anticipate, that all our PayPal Credit account holders will access their entire available credit at any given point in time.

10 unchanged sentences

With respect to the matters disclosed in this Note 13, we are unable to estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies.

Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable were not material for the three months ended March 31, 2020 .

Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable were not material for the six months ended June 30, 2020.

Except as otherwise noted for the proceedings described in this Note 13, we have concluded, based on currently available information, that reasonably possible losses arising directly from the proceedings (i.e., monetary damages or amounts paid in judgment or settlement) in excess of our recorded accruals are also not material.

1 unchanged sentence

If one or more matters were resolved against us in a reporting period for amounts in excess of management’s expectations, the impact on our operating results or financial condition for that reporting period could be material.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Regulatory Proceedings

7 unchanged sentences

Such self-reported transactions could result in claims or actions against us, including litigation, injunctions, damage awards, fines or penalties, or require us to change our business practices in a manner that could result in a material loss, require significant management time, result in the diversion of significant operational resources, or otherwise harm our business.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On March 28, 2016, we received a Civil Investigative Demand (“CID”) from the Federal Trade Commission (“FTC”) as part of its investigation to determine whether we, through our Venmo service, have been or are engaged in deceptive or unfair practices in violation of the Federal Trade Commission Act.

9 unchanged sentences

The external auditor was appointed on November 1, 2019, and PPAU is continuing to cooperate with AUSTRAC and the appointed external auditor in this matter.

As required under the terms of AUSTRAC’s notice, as amended, PPAU issued interim reports to AUSTRAC on December 31, 2019 and March 13, 2020.

As required under the terms of AUSTRAC’s notice, as amended, PPAU issued interim reports to AUSTRAC on December 31, 2019, March 13, 2020, May 6, 2020 and July 7, 2020.

The external auditor is due to issue a final report on August 31, 2020.

1 unchanged sentence

An adverse outcome arising from the external auditor’s review and any associated proceeding or matter initiated by AUSTRAC, however, could result in injunctions, damage awards, fines or penalties, or require us to change our business practices in a manner that could result in a material loss, require significant management time, result in the diversion of significant operational resources, or otherwise harm our business.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Legal Proceedings

15 unchanged sentences

The second amended complaint alleges substantially the same theory of liability as the first amended complaint, but no longer names Hamed Shabazi as a defendant.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The remaining Defendants filed their motion to dismiss the second amended complaint on March 15, 2019, and a hearing was held on July 16, 2019.

8 unchanged sentences

Intellectual property claims, whether meritorious or not, are time consuming and costly to defend and resolve, could require expensive changes in our methods of doing business, or could require us to enter into costly royalty or licensing agreements on unfavorable terms or make substantial payments to settle claims or to satisfy damages awarded by courts.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

From time to time, we are involved in other disputes or regulatory inquiries that arise in the ordinary course of business, including suits by our customers (individually or as class actions) alleging, among other things, improper disclosure of our prices, rules, or policies, that our practices, prices, rules, policies, or customer/user agreements violate applicable law, or that we have acted unfairly and/or not acted in conformity with such prices, rules, policies, or agreements.

In addition to these types of disputes and regulatory inquiries, our operations are also subject to regulatory and/or legal review and/or challenges that tend to reflect the increasing global regulatory focus to which the payments industry is subject and, when taken as a whole with other regulatory and legislative action, such actions could result in the imposition of costly new compliance burdens on our business and customers and may lead to increased costs and decreased transaction volume and revenue.

Further, the number and significance of these disputes and inquiries are increasing as we have grown larger, our business has expanded in scope (both in terms of the range of products and services that we offer and our geographical operations), and our products and services have increased in complexity.

Further, the number and significance of these disputes and inquiries are increasing as our business has grown and expanded in scale and scope, including the number of active accounts and payments transactions on our platforms, the range and increasing complexity of the products and services that we offer, and our geographical operations.

Any claims or regulatory actions against us, whether meritorious or not, could be time consuming, result in costly litigation, settlement payments, damage awards (including statutory damages for certain causes of action in certain jurisdictions), fines, penalties, injunctive relief, or increased costs of doing business through adverse judgment or settlement, require us to change our business practices in expensive ways, require significant amounts of management time, result in the diversion of significant operational resources, or otherwise harm our business.

6 unchanged sentences

In addition, the indemnity rights we have against eBay under the agreements may not be sufficient to protect us, and our indemnity obligations to eBay may be significant.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In the ordinary course of business, we include limited indemnification provisions in certain of our agreements with parties with whom we have commercial relationships.

5 unchanged sentences

Off-Balance Sheet Arrangements

As of March 31, 2020 and December 31, 2019 , we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.

As of June 30, 2020 and December 31, 2019, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.

Protection Programs

We provide merchants and consumers with protection programs on most transactions completed on our Payments Platform, except for transactions using our gateway products or where our customer agreements specifically do not provide for protections.

These programs protect both merchants and consumers from loss primarily due to fraud and counterparty performance.

We provide merchants and consumers with protection programs for certain transactions completed on our Payments Platform.

These programs are intended to protect both merchants and consumers from loss primarily due to fraud and counterparty performance.

Our buyer protection program provides protection to consumers for qualifying purchases by reimbursing the consumer for the full amount of the purchase if a purchased item does not arrive or does not match the seller’s description.

1 unchanged sentence

These protection programs are considered assurance-type warranties for which we estimate and record associated costs in transaction and credit losses during the period the payment transaction is completed.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The maximum potential exposure under our protection programs is estimated to be the portion of total eligible transaction volume (total payment volume) for which buyer or seller protection claims may be raised under our existing user agreements.

Since eligible transactions are typically completed in a period significantly shorter than the period under which disputes may be opened, and based on our historical losses to date, we do not believe that the maximum potential exposure is representative of our actual potential exposure.

The actual amount of potential exposure cannot be quantified as we are unable to determine total eligible transactions where performance by a merchant or consumer is incomplete or completed transactions that may result in a claim under our protection programs.

We record a liability with respect to losses under these protection programs when they are probable and the amount can be reasonably estimated.

The following table shows changes in the allowance for transaction losses and negative customer balances related to our protection programs for the three months ended March 31, 2020 and 2019 :

Three Months Ended March 31,

The following table shows changes in the allowance for transaction losses and negative customer balances related to our protection programs for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(in millions)

Beginning balance $ 396 $ 385 $ 399 $ 344

Provision 271 247 518 533

Realized losses ( 313 ) ( 252 ) ( 583 ) ( 513 )

Recoveries 19 15 39 31

Ending balance $ 373 $ 395 $ 373 $ 395

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 14 — Stock Repurchase Programs

During the three months ended March 31, 2020 , we repurchased approximately 8 million shares of our common stock for approximately $ 800 million at an average cost of $ 106.15 .

During the six months ended June 30, 2020, we repurchased approximately 9 million shares of our common stock for approximately $ 1.0 billion at an average cost of $ 114.66 .

These shares were purchased in the open market under our stock repurchase programs authorized in April 2017 and July 2018.

The July 2018 stock repurchase program became effective during the first quarter of 2020 upon completion of the April 2017 stock repurchase program.

As of March 31, 2020 , a total of approximately $ 9.3 billion remained available for future repurchases of our common stock under our July 2018 stock repurchase program.

As of June 30, 2020, a total of approximately $ 9.0 billion remained available for future repurchases of our common stock under our July 2018 stock repurchase program.

Note 15 — Stock-Based Plans

1 unchanged sentence

We record stock-based compensation expense for our equity incentive plans in accordance with GAAP, which requires the measurement and recognition of compensation expense based on estimated fair values.

The impact on our results of operations of recording stock-based compensation expense under our equity incentive plans for the three months ended March 31, 2020 and 2019 was as follows:

Three Months Ended March 31,

The impact on our results of operations of recording stock-based compensation expense under our equity incentive plans for the three and six months ended June 30, 2020 and 2019 was as follows:

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(In millions)

5 unchanged sentences

Capitalized as part of internal use software and website development costs $ 11 $ 9 $ 21 $ 19

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 16 — Income Taxes

Our effective tax rate for the three months ended March 31, 2020 and 2019 was 68 % and 7 % , respectively.

Our effective tax rate for the three and six months ended June 30, 2020 was 15 % and 22 %, respectively.

Our effective tax rate for the three and six months ended June 30, 2019 was 13 % and 10 %, respectively.

The difference between our effective tax rate and the U.S.

federal statutory rate of 21% in both periods was primarily the result of foreign income taxed at different rates, discrete tax adjustments, and for the three months ended March 31, 2020 , tax expense related to the intra-group transfer of intellectual property.

Note 17 — Restructuring

During the first quarter of 2020 and 2019, management approved strategic reductions of the existing global workforce, which resulted in restructuring charges of $ 29 million and $ 78 million , respectively.

federal statutory rate of 21% in the above periods was primarily the result of foreign income taxed at different rates and discrete tax adjustments, and for the six months ended June 30, 2020, tax expense related to the intra-group transfer of intellectual property.

In June 2019, the U.S.

Court of Appeals for the Ninth Circuit reversed a lower court decision in Altera Corp.

Commissioner and held that a Treasury Regulation requiring stock-based compensation to be included in a qualified intercompany cost sharing arrangement was valid.

In June 2020, the U.S.

Supreme Court denied Altera's petition for certiorari.

We have reviewed this decision and determined no adjustment is required to PayPal’s condensed consolidated financial statements as a result of this development.

Note 17 — Restructuring and Other Charges

During the first quarter of 2020, management approved a strategic reduction of the existing global workforce, which resulted in restructuring charges of $ 26 million and $ 55 million during the three and six months ended June 30, 2020, respectively.

The approved strategic reduction in 2020 is part of a multiphase process to reorganize our workforce concurrently with the redesign of our operating structure, which we expect will span multiple quarters.

We primarily incurred employee severance and benefits costs under the 2020 strategic reduction, as well as other associated consultancy costs.

We primarily incurred employee severance and benefits costs, as well as other associated consulting costs under the 2020 strategic reduction.

This strategic reduction is expected to be substantially completed by the end of 2020.

The approved strategic reductions for 2019 were intended to better align our teams to support key business priorities and included the transfer of certain operational functions between geographies, as well as the impact of the transition servicing activities provided to Synchrony, which ended in the second quarter of 2019.

We primarily incurred employee severance and benefits expenses under the 2019 strategic reductions, which were substantially completed by the end of the first quarter of 2020.

The following table summarizes the restructuring reserve activity during the three months ended March 31, 2020 :

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the restructuring reserve activity during the six months ended June 30, 2020:

Employee Severance and Benefits and Other Associated Costs

1 unchanged sentence

Accrued liability as of January 1, 2020 $ 9

Accrued liability as of March 31, 2020

Payments ( 25 )

Accrued liability as of June 30, 2020 $ 39

Additionally, in the second quarter of 2020, we incurred asset impairment charges of $ 21 million due to the write-off of a certain ROU lease asset and related leasehold improvements in conjunction with the exiting of certain leased properties.

See “Note 6—Leases” for additional information.

During the first quarter of 2019, management approved strategic reductions of the existing global workforce, which resulted in restructuring charges of $ 78 million.

We primarily incurred employee severance and benefits expenses under the 2019 strategic reductions, which were substantially completed by the end of the first quarter of 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements