What changed in this filing

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Item 1. Financial Statements

2020-11-03 compared with 2020-07-30 · 258 added, 196 removed, 1125 unchanged (29% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

2020 December 31,

4 unchanged sentences

Accounts receivable, net 482 435

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

Loans and interest receivable, net of allowances of $ 819 and $ 258 as of September 30, 2020 and December 31, 2019, respectively

Funds receivable and customer accounts 30,530 22,527

20 unchanged sentences

4,000 shares authorized;

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

1,172 and 1,173 shares outstanding as of September 30, 2020 and December 31, 2019, respectively

Preferred stock, $ 0.0001 par value;

100 shares authorized, unissued

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

Treasury stock at cost, 116 and 105 shares as of September 30, 2020 and December 31, 2019, respectively

( 8,242 ) ( 6,872 )

9 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

24 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

3 unchanged sentences

Foreign currency translation adjustments (“CTA”) 8 ( 90 ) ( 111 ) ( 148 )

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

Net investment hedge CTA gain — — 55 —

Unrealized (losses) gains on cash flow hedges, net ( 163 ) 71 ( 111 ) 7

Tax benefit (expense) on unrealized (losses) gains on cash flow hedges, net 2 ( 1 ) 1 —

Unrealized gains on investments, net 7 10 22 21

Tax expense on unrealized gains on investments, net ( 2 ) ( 4 ) ( 6 ) ( 6 )

Unrealized (losses) gains on investments, net ( 12 ) ( 5 ) 10 16

Tax benefit (expense) on unrealized (losses) gains on investments, net 3 1 ( 3 ) ( 5 )

Other comprehensive income (loss), net of tax ( 162 ) ( 24 ) ( 159 ) ( 130 )

30 unchanged sentences

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

Net income — — — — 1,021 — 1,021

Foreign CTA — — — 8 — — 8

Unrealized losses on cash flow hedges, net — — — ( 163 ) — — ( 163 )

Tax benefit on unrealized losses on cash flow hedges, net — — — 2 — — 2

Unrealized losses on investments, net — — — ( 12 ) — — ( 12 )

Tax benefit on unrealized gains on investments, net — — — 3 — — 3

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 1 — ( 41 ) — — — ( 41 )

Common stock repurchased ( 2 ) ( 350 ) — — — — ( 350 )

Stock-based compensation — — 375 — — — 375

Balances at September 30, 2020 1,172 $ ( 8,242 ) $ 16,248 $ ( 332 ) $ 10,809 $ 44 $ 18,527

PayPal Holdings, Inc.

22 unchanged sentences

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

Net income — — — — 462 462

Foreign CTA — — — ( 90 ) — — ( 90 )

Unrealized gains on cash flow hedges, net — — — 71 — — 71

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

Unrealized losses on investments, net — — — ( 5 ) — — ( 5 )

Tax benefit on unrealized losses on investments, net — — — 1 — — 1

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes — — ( 19 ) — — — ( 19 )

Common stock repurchased ( 3 ) ( 350 ) — — — — ( 350 )

Stock-based compensation — — 275 — — — 275

Balances at September 30, 2019 1,174 $ ( 6,566 ) $ 15,266 $ ( 52 ) $ 7,835 $ — $ 16,483

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

(In millions)

5 unchanged sentences

Deferred income taxes ( 6 ) ( 122 )

Unrealized gains on strategic investments ( 739 ) ( 398 )

Gains on strategic investments ( 973 ) ( 170 )

Other 10 ( 130 )

64 unchanged sentences

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.

As of September 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.

3 unchanged sentences

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 and six months ended June 30, 2020.

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

Use of Estimates

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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.

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

1 unchanged sentence

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 $ 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.

Accrued interest receivable on available-for-sale debt securities totaled $ 31 million and $ 54 million at September 30, 2020 and December 31, 2019, respectively, 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.

10 unchanged sentences

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.

For the remaining available-for-sale debt securities in an unrealized loss position, if we identify that the decline in fair value has resulted from credit losses, considering changes to the rating of the security by rating agencies, implied yields versus benchmark yields, and the extent to which fair value is less than amortized cost, among other factors, we will estimate the present value of cash flows expected to be collected.

For the remaining available-for-sale debt securities in an unrealized loss position, if we identify that the decline in fair value has resulted from credit losses, taking into consideration changes to the rating of the security by rating agencies, implied yields versus benchmark yields, and the extent to which fair value is less than amortized cost, among other factors, we will estimate the present value of cash flows expected to be collected.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis.

34 unchanged sentences

The allowance for loans and interest receivable represents our estimate of lifetime expected credit losses inherent in our portfolio of loans and interest receivables.

Increases to the allowance for loans receivable are reflected as a component of transaction and credit losses on our condensed consolidated financial statements.

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

Increases to the allowance for interest and fees receivable are reflected as a reduction of net revenues on our condensed consolidated statements of income, or as a reduction of deferred revenue when interest and fees are billed at the inception of a loan or advance.

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

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.

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, which is segmented by geographic region, delinquency, and vintage, among other factors.

Loss curves are generated using historical loss data for each loan portfolio and are applied to segments of each portfolio, categorized by geographic region, first borrowing versus reuse, delinquency, credit rating, and vintage, among other factors, which vary by portfolio.

1 unchanged sentence

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

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

We may also 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;

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

Operating leases are recorded as right-of-use (“ROU”) assets, which are included in other assets, and lease liabilities, which are included in accrued expenses and other liabilities and other long-term liabilities on our condensed consolidated balance sheets.

Operating leases are recorded as right-of-use (“ROU”) assets, which are included in other assets, and lease liabilities, which are included in accrued expenses and other current liabilities and deferred tax liability and other long-term liabilities on our condensed consolidated balance sheets.

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 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.

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

PayPal Holdings, Inc.

7 unchanged sentences

Lease expense for operating leases is recognized on a straight-line basis over the lease term.

We evaluate ROU assets related to leases for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of an ROU asset may not be recoverable.

When a decision has been made to exit a lease prior to the contractual term or to sublease that space, we evaluate the asset for impairment and recognize the associated impact to the ROU asset and related expense, if applicable.

The evaluation is performed at the asset group level initially and when appropriate, at the lowest level of identifiable cash flows, which is at the individual lease level.

Undiscounted cash flows expected to be generated by the related ROU assets are estimated over the ROU assets’ useful lives.

If the evaluation indicates that the carrying amount of the ROU assets may not be recoverable, any potential impairment is measured based upon the fair value of the related ROU asset or asset group as determined by appropriate valuation techniques.

We have lease agreements with lease and non-lease components.

We have elected to apply the practical expedient and account for the lease and non-lease components as a single lease component for all leases.

We have elected to apply the practical expedient and account for the lease and non-lease components as a single lease component for all leases, where applicable.

In addition, we have elected the practical expedients related to lease classification, hindsight, and land easement.

3 unchanged sentences

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 of 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 probable transaction losses 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.

The allowance is based on known facts and circumstances, internal factors including experience with similar cases, historical trends involving loss payment patterns, the mix of transaction and loss types, as well as macroeconomic factors, as applicable.

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

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.

At September 30, 2020 and December 31, 2019, the allowance for transaction losses totaled $ 178 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

Negative customer balances occur primarily when there are insufficient funds in a customer’s PayPal account to cover charges applied for ACH returns, debit card transactions, and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of goods or services, which are generally within the scope of our protection programs.

Negative customer balances occur primarily when there are insufficient funds in a customer’s PayPal account to cover charges applied for Automated Clearing House returns, debit card transactions, and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of goods or services, which are generally within the scope of our protection programs.

Negative customer balances can be cured by the customer by adding funds to their account, receiving payments, or through back-up funding sources.

1 unchanged sentence

For negative customer balances that are not expected to be cured or otherwise collected, we provide an allowance for lifetime expected losses.

The allowance represents expected losses based on historical trends involving collection and write-off patterns, internal factors including our experience with similar cases, other known facts and circumstances, and reasonable and supportable macroeconomic forecasts, as necessary.

Loss rates are derived using historical loss data for each delinquency bucket using a roll rate model that captures the losses and the likelihood that a negative customer balance will be written-off as the delinquency age of such balance increases.

3 unchanged sentences

Write-offs that are recovered are recorded as a reduction to our allowance for negative customer balances.

Negative customer balances are included in other current assets, net of the allowance on our condensed consolidated balance sheets.

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 $ 221 million and $ 263 million at June 30, 2020 and December 31, 2019, respectively.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Negative customer balances are included in other current assets, net of the allowance on our condensed consolidated balance sheets.

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 $ 266 million and $ 263 million at September 30, 2020 and December 31, 2019, respectively.

Recent Accounting Guidance

2 unchanged sentences

The amended guidance is effective through December 31, 2022.

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.

Our exposure to LIBOR is primarily limited to an insignificant portion of our 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

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

Under the new guidance, credit losses on loans, trade and other receivables, held-to-maturity debt securities, and other instruments reflect our current estimate of the expected credit losses and generally result in the earlier recognition of allowances for losses.

Under the new guidance, credit losses on loans, trade and other receivables, held-to-maturity debt securities, and other instruments reflect our current estimate of the expected lifetime credit losses and generally result in the earlier recognition of allowances for losses.

Credit losses on available-for-sale debt securities with unrealized losses are recognized as allowances for credit losses limited to the amount by which fair value is below amortized cost.

19 unchanged sentences

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

5 unchanged sentences

2,033 1,596 5,728 4,658

Total revenues (2)

Total net revenues (2)

$ 5,459 $ 4,378 $ 15,338 $ 12,811

2 unchanged sentences

Revenues from other value added services 383 423 1,102 1,247

Total revenues (2)

Total net revenues (2)

$ 5,459 $ 4,378 $ 15,338 $ 12,811

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

(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 .

(2) Total revenues include $ 128 million and $ 295 million for the three months ended September 30, 2020 and 2019, respectively, and $ 529 million and $ 828 million for the nine months ended September 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.

Net revenues earned from other value added services are typically attributed to the country in which either the customer or partner reside.

Revenues earned from other value added services are typically attributed to the country in which either the customer or partner reside.

Note 3— Net Income Per Share

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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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 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.

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

There were no acquisitions or divestitures completed during the nine months ended September 30, 2019.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 5— Goodwill and Intangible Assets

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

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

2019 Goodwill

Acquired Adjustments June 30,

Acquired Adjustments September 30,

(In millions)

Total goodwill $ 6,212 $ 2,962 $ ( 55 ) $ 9,119

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.

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

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

Intangible Assets

The components of identifiable intangible assets are as follows:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Gross Carrying Amount

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Intangible assets, net $ 2,963 $ ( 1,817 ) $ 1,146 $ 2,289 $ ( 1,511 ) $ 778

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):

Amortization expense for intangible assets was $ 114 million and $ 52 million for the three months ended September 30, 2020 and 2019, respectively.

Amortization expense for intangible assets was $ 343 million and $ 160 million for the nine months ended September 30, 2020 and 2019, respectively.

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

Fiscal years:

8 unchanged sentences

When we reach a decision to exercise a lease renewal or termination option, we recognize the associated impact to the ROU asset and lease liability.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

4 unchanged sentences

A sublease situation can arise when currently leased real estate space is available and is surplus to operational requirements.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The components of lease expense were as follows:

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

4 unchanged sentences

Supplemental balance sheet information related to leases was as follows:

September 30,

2020 December 31,

7 unchanged sentences

Weighted-average discount rate — operating leases

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Operating Leases

7 unchanged sentences

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

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.

2 unchanged sentences

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.

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

As of September 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 $ 96 million.

These operating leases will commence prior to the end of fiscal year 2021 with lease terms of 3 years to 10 years.

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 June 30, 2020:

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

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

5 unchanged sentences

Other comprehensive income (loss) before reclassifications ( 180 ) ( 12 ) 8 — 5 ( 179 )

Amount of gain reclassified from accumulated other comprehensive income (“AOCI”) 33 — — — — 33

Amount of loss reclassified from accumulated other comprehensive income (“AOCI”) ( 17 ) — — — — ( 17 )

Net current period other comprehensive income (loss) ( 163 ) ( 12 ) 8 — 5 ( 162 )

Ending balance $ ( 105 ) $ 12 $ ( 261 ) $ 24 $ ( 2 ) $ ( 332 )

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

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 three months ended September 30, 2019:

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

3 unchanged sentences

Other comprehensive income (loss) before reclassifications 141 ( 6 ) ( 90 ) — 45

Amount of gain reclassified from AOCI 58 — — — 58

Amount of gain (loss) reclassified from AOCI 70 ( 1 ) — — 69

Net current period other comprehensive income (loss) 71 ( 5 ) ( 90 ) — ( 24 )

Ending balance $ 189 $ 3 $ ( 241 ) $ ( 3 ) $ ( 52 )

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:

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

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

7 unchanged sentences

Ending balance $ ( 105 ) $ 12 $ ( 261 ) $ 24 $ ( 2 ) $ ( 332 )

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

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

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

3 unchanged sentences

Other comprehensive income (loss) before reclassifications 187 15 ( 148 ) ( 5 ) 49

Amount of gain reclassified from AOCI 110 — — — 110

Amount of gain (loss) reclassified from AOCI 180 ( 1 ) — — 179

Net current period other comprehensive income (loss) 7 16 ( 148 ) ( 5 ) ( 130 )

Ending balance $ 189 $ 3 $ ( 241 ) $ ( 3 ) $ ( 52 )

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

2 unchanged sentences

Affected Line Item in the Statement of Income

Three Months Ended June 30,

Three Months Ended September 30,

(In millions)

Gains on cash flow hedges — foreign exchange contracts

(Losses) gains on cash flow hedges — foreign exchange contracts

$ ( 17 ) $ 70 Net revenues

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

Unrealized losses on investments — ( 1 ) Other income (expense), net

$ ( 17 ) $ 69 Income before income taxes

1 unchanged sentence

Total reclassifications for the period $ ( 17 ) $ 69 Net income

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Details about AOCI Components

1 unchanged sentence

Affected Line Item in the Statement of Income

Six Months Ended June 30,

Nine Months Ended September 30,

(In millions)

1 unchanged sentence

$ 58 $ 180 Net revenues

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

Unrealized losses on investments — ( 1 ) Other income (expense), net

$ 58 $ 179 Income before income taxes

3 unchanged sentences

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

8 unchanged sentences

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 June 30, 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 September 30, 2020 and December 31, 2019:

September 30,

2020 December 31,

17 unchanged sentences

Total long-term investments $ 3,439 $ 2,863

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)

As of September 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:

September 30, 2020 (1)

Losses Estimated

9 unchanged sentences

Long-term investments:

government and agency securities 100 — — 100

Foreign government and agency securities 486 — ( 1 ) 485

26 unchanged sentences

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

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)

As of September 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:

September 30, 2020 (1)

Less than 12 months 12 months or longer Total

12 unchanged sentences

Long-term investments:

Foreign government and agency securities 463 ( 1 ) — — 463 ( 1 )

Corporate debt securities 291 — — — 291 —

25 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 and six months ended June 30, 2020 and 2019.

Amounts reclassified to earnings from unrealized gains and losses were not material for the three and nine months ended September 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:

June 30, 2020

September 30, 2020

Amortized Cost Fair Value

7 unchanged sentences

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

Marketable equity securities totaled $ 1.6 billion and $ 1.3 billion as of September 30, 2020 and December 31, 2019, respectively, including the impact of the sale of securities during the three months ended September 30, 2020.

PayPal Holdings, Inc.

1 unchanged sentence

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

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”).

As of September 30, 2020 and December 31, 2019, we had non-marketable equity securities of $ 7 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.

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 $ 584 million and $ 524 million as of June 30, 2020 and December 31, 2019, respectively.

The carrying value of our non-marketable equity securities totaled $ 601 million and $ 524 million as of September 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 six months ended June 30, 2020 and 2019 were as follows:

Six Months Ended June 30,

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

Nine Months Ended September 30,

(In millions)

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Carrying amount, end of period $ 594 $ 501

(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

(1) Net additions include additions from purchases, reductions due to sales of securities, and reclassifications when Measurement Alternative is subsequently elected or no longer applies.

September 30, 2020 December 31, 2019

(In millions)

2 unchanged sentences

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,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

5 unchanged sentences

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 June 30, 2020 and December 31, 2019:

June 30, 2020 Quoted Prices in

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

September 30, 2020 Quoted Prices in

Active Markets for

18 unchanged sentences

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

government and agency securities 100 — 100

Foreign government and agency securities 485 — 485

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

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).

As of September 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 June 30, 2020 and December 31, 2019:

June 30, 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 September 30, 2020 and December 31, 2019:

September 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 and six months ended June 30, 2020 and 2019:

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

3 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 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

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

September 30, 2020 Significant Other

Observable Inputs

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Total $ 226 $ 226

(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.

(1) Excludes non-marketable equity investments of $ 403 million accounted for under the Measurement Alternative for which no observable price changes occurred during the nine months ended September 30, 2020.

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

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(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 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.

We measure the 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.

3 unchanged sentences

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 of approximately $ 8.9 billion and fair value of approximately $ 9.6 billion as of September 30, 2020.

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

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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 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.

As of September 30, 2020, we estimate that $ 84 million of net derivative losses related to our cash flow hedges included in AOCI are expected to be reclassified into earnings within the next 12 months.

During the three and nine months ended September 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.

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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.

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

During the second quarter of 2020, this derivative matured.

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.

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 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.

During the nine months ended September 30, 2020, we recognized $ 55 million in unrealized gain on the foreign currency exchange contract designated as a net investment hedge within the foreign currency translation section of other comprehensive income.

As of September 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.

5 unchanged sentences

Fair Value of Derivative Contracts

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

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

Balance Sheet Location

September 30,

2020 December 31,

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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 $ 47 million as of June 30, 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 $ 85 million as of September 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 $ 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.

The following table provides the collateral exchanged:

September 30,

2020 December 31,

(In millions)

Cash collateral posted (1)

Cash collateral received (2)

(1) Right to reclaim cash collateral related to our derivative liabilities recognized in other current assets on our condensed consolidated balance sheets.

(2) Obligation to return counterparty cash collateral related to our derivative assets recognized in other current liabilities on our condensed consolidated balance sheets.

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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

1 unchanged sentence

Total amounts presented in the condensed consolidated statements of income in which the effects of cash flow hedges are recorded $ 5,459 $ 4,378 $ 15,338 $ 12,811

Gains on foreign exchange contracts designated as cash flow hedges reclassified from AOCI $ 33 $ 58 $ 75 $ 110

Gains (losses) on foreign exchange contracts designated as cash flow hedges reclassified from AOCI $ ( 17 ) $ 70 $ 58 $ 180

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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

1 unchanged sentence

Gains (losses) on foreign exchange contracts recognized in other income (expense), net $ ( 40 ) $ 31 $ ( 8 ) $ 30

Losses on equity derivative contracts recognized in other income (expense), net (1)

( 64 ) — ( 64 ) —

Total gains (losses) recognized from contracts not designated as hedging instruments $ ( 104 ) $ 31 $ ( 72 ) $ 30

(1) During the three months ended September 30, 2020, equity derivative contracts were entered into and matured which related to the sale of a portion of a strategic investment.

The cash flows associated with the equity derivative contracts are classified in cash flows from investing activities on our condensed consolidated statements of cash flows.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Notional Amounts of Derivative Contracts

3 unchanged sentences

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

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(In millions)

2 unchanged sentences

Total $ 16,947 $ 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 six months ended June 30, 2020 and 2019, we purchased approximately $ 1.4 billion and $ 2.2 billion in merchant receivables, respectively.

During the nine months ended September 30, 2020 and 2019, we purchased approximately $ 1.5 billion and $ 3.4 billion in merchant receivables, respectively.

Consumer Receivables

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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.

As of September 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 $ 1.6 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.

1 unchanged sentence

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 where available.

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.

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 determining our allowance for consumer loans and interest receivable.

PayPal Holdings, Inc.

1 unchanged sentence

Consumer Receivables Delinquency and Allowance

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

The following table presents the delinquency status of consumer loans and interest receivable at September 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.

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Amortized Cost Basis Revolving Percent Amortized Cost Basis

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$ 1,622 100.0 % $ 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

(1) Excludes receivables from other consumer credit products of $ 57 million and $ 92 million at September 30, 2020 and December 31, 2019, respectively.

(2) Includes installment loans of $ 216 million and $ 80 million at September 30, 2020 and December 31, 2019, respectively, substantially all of which were current and originated within the past 12 months.

(3) Balances at September 30, 2020 include the impact of payment holidays provided primarily in the second quarter of 2020 by the Company to some consumers 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 nine months ended September 30, 2020 and 2019:

September 30, 2020 September 30, 2019

Consumer Loans Receivable Interest Receivable Total Allowance (1)

7 unchanged sentences

21 — 21 25 — 25

7 1 8 ( 1 ) — ( 1 )

Ending balance $ 271 $ 50 $ 321 $ 39 $ 5 $ 44

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

(1) Excludes allowances from other consumer credit products of $ 4 million and $ 11 million at September 30, 2020 and September 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 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.

(3) Includes amounts related to foreign currency remeasurement.

Additionally, originations and changes in credit quality resulted in approximately $ 70 million of provisions for the nine months ended September 30, 2020.

Changes to the charge-offs for the nine months ended September 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.

The provision for interest receivable due to interest earned on our consumer loans receivable portfolio is recognized in net revenues from other value added services as a reduction to revenue.

The provision for interest receivable due to interest earned on our consumer loans receivable portfolio is recognized in revenues from other value added services as a reduction to revenue.

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

1 unchanged sentence

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 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.

As of September 30, 2020 and December 31, 2019, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 1.7 billion and $ 2.8 billion, respectively, net of the participation interest sold to an independent chartered financial institution of $ 77 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 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.

3 unchanged sentences

The fixed interest or fee is amortized to revenues from other value added services based on the amount repaid over the repayment period.

We estimate the repayment period based on the merchant’s payment processing history with PayPal, where available.

We estimate the repayment period for PPWC based on the merchant’s payment processing history with PayPal, where available.

For PPWC, there is a general requirement that at least 10 % of the original amount of the loan or advance plus the fixed fee must be repaid every 90 days.

6 unchanged sentences

To assess a merchant seeking a business financing loan or advance, we use, among other indicators, risk models developed internally which utilize information obtained from multiple internal and external data sources to predict the likelihood of timely and satisfactory repayment by the merchant of the loan or advance amount and the related interest or fee.

Primary drivers of the models include the merchant’s annual payment volume, payment processing history with PayPal, and prior repayment history with the PayPal credit products where available, information sourced from consumer credit bureau and business credit bureau reports, and other information obtained during the application process.

We use delinquency status and trends to assist in making ongoing credit decisions, to adjust our internal models, to plan our collection strategies, and in our determination of our allowance for these loans and advances.

Primary drivers of the models include the merchant’s annual payment volume, payment processing history with PayPal, and prior repayment history with PayPal’s credit products where available, information sourced from consumer credit bureau and business credit bureau reports, and other information obtained during the application process.

We use delinquency status and trends to assist in making (or, in the U.S., to assist the independent chartered financial institution in making) ongoing credit decisions, to adjust our internal models, to plan our collection strategies, and in determining our allowance for these loans and advances.

PayPal Holdings, Inc.

4 unchanged sentences

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

September 30, 2020

(In millions, except percentages)

6 unchanged sentences

$ 1,066 $ 637 $ 33 $ 1 $ — $ 1,737 100 %

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

(1) Balances include the impact of payment holidays provided primarily during the second quarter of 2020 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.”

4 unchanged sentences

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

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

September 30, 2020 September 30, 2019

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

8 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

Provisions for the nine months ended September 30, 2020 were primarily attributable to changes in current and projected macroeconomic conditions which resulted in approximately $ 150 million of provisions, and included the impact of qualitative adjustments to mainly account for the impact of limitations in our expected credit loss models that have arisen due to the extreme fluctuations in both the actual and projected macroeconomic conditions during the period as well as to incorporate varying degrees of merchant performance in the current environment and expected performance in future periods.

Additionally, originations occurring primarily in the first quarter of 2020 resulted in approximately $ 115 million of provisions and changes in credit quality resulted in approximately $ 55 million of provisions for the nine months ended September 30, 2020.

Changes to the charge-offs for the nine months ended September 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.

2 unchanged sentences

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 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.

The provision for credit losses on merchant loans and advances 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 expenses 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.

Troubled Debt Restructurings (“TDRs”)

In instances where a merchant is able to demonstrate that they are experiencing financial difficulty, we may modify loans or advances (or, in the U.S., the independent chartered financial institution may modify loans) and the related interest receivable for which it is probable that without modification we will be unable to collect all amounts due.

These modifications are intended to provide merchants with financial relief, and to help enable us to mitigate losses.

These modifications include an increase in term by 1 to 5.5 years while moving the delinquency status to current.

Further, certain loans and advances have been modified to replace the initial fixed fee structure at the time the loan or advance was extended to a fixed annual percentage rate applied over the amended remaining term, which will continue to accrue interest at the fixed rate until the earlier of maturity or charge-off.

These modifications had a de minimis impact on our condensed consolidated statements of income in the three and nine months ended September 30, 2020.

Allowances for TDRs are assessed separately from other loans within our portfolio and are determined by estimating expected lifetime credit losses utilizing the modified term and interest rate assumptions.

Historical loss estimates are utilized in addition to macroeconomic assumptions to determine expected loss rates.

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

The following table shows the merchant loans and interest receivables which have been modified as TDRs in the three and nine months ended September 30, 2020:

Number of Accounts

(in thousands) Outstanding Balances (1)

(in millions)

Weighted Average Payment Term Extensions

Loans and interest receivable 6 $ 238 38

(1) Balances are as of modification date.

A merchant is considered in payment default after a modification when the merchant's payment becomes 60 days past their expected or contractual repayment date.

For loans that have defaulted after being modified, the increased estimate of expected lifetime credit loss is factored into overall expected credit losses.

As of September 30, 2020, there were no merchant loans and interest receivables classified as TDRs that have subsequently defaulted on payments.

PayPal Holdings, Inc.

11 unchanged sentences

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.

As of September 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 June 30, 2020

Balance at September 30, 2020

Maturities Amount Effective Interest Rate

22 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 $ 45 million and $ 78 million for the three and six months ended June 30, 2020, respectively.

The interest expense recorded for the Notes, including amortization of the debt discount and debt issuance costs, was $ 56 million and $ 134 million for the three and nine months ended September 30, 2020, respectively.

The interest expense recorded for the Notes, including amortization of the debt discount and debt issuance costs, was $ 2 million for the three and nine months ended September 30, 2019.

PayPal Holdings, Inc.

2 unchanged sentences

In September 2019, we entered into a credit agreement (the “Credit Agreement”) that provides for an unsecured $ 5.0 billion, five-year revolving credit facility that includes a $ 150 million letter of credit sub-facility and a $ 500 million swingline sub-facility, with available borrowings under the revolving credit facility reduced by the amount of any letters of credit and swingline borrowings outstanding from time to time.

We have designated certain subsidiaries as additional borrowers under the Credit Agreement for which a portion of the borrowing capacity of the facility is available to them.

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

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.

As of September 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 $ 1 million and $ 14 million for the three and nine months ended September 30, 2020, respectively.

Other Available Facilities

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

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

As of September 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):

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

Remaining 2020 $ —

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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 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.

As of September 30, 2020 and December 31, 2019, approximately $ 2.7 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.

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In addition, the individual lines of credit that make up this unused credit are subject to periodic review and termination based on, among other things, account usage and customer creditworthiness.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Litigation and Regulatory Matters

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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 six months ended June 30, 2020.

Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable were not material for the nine months ended September 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.

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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.

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The FTC approved the final Consent Order on May 24, 2018.

As required by the Consent Order, we are working with the FTC making changes necessary to comply with the Consent Order.

Any failure to comply with the Consent Order may increase the possibility of additional adverse consequences, including litigation, additional regulatory actions, injunctions, or monetary penalties, or require further changes to our business practices, significant management time, or the diversion of significant operational resources, all of which could result in a material loss or otherwise harm our business.

As previously disclosed, PayPal Australia Pty Limited (“PPAU”) self-reported a potential violation to the Australian Transaction Reports and Analysis Centre (“AUSTRAC”) on May 22, 2019 with respect to the reporting of international funds transfer instructions under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (“AML/CTF Act”).

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PayPal Australia Pty Limited (“PPAU”) self-reported a potential violation to the Australian Transaction Reports and Analysis Centre (“AUSTRAC”) on May 22, 2019.

This self-reported matter relates to PPAU incorrectly filing required international funds transfer instructions over a period of time under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (“AML/CTF Act”).

On September 23, 2019, PPAU received a notice from AUSTRAC requiring that PPAU appoint an external auditor (a partner of a firm which is not our independent auditor) to review certain aspects of PPAU’s compliance with its obligations under the AML/CTF Act.

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, March 13, 2020, May 6, 2020 and July 7, 2020.

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

The external auditor was appointed on November 1, 2019.

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 and a final report on August 31, 2020.

PPAU is continuing to cooperate with AUSTRAC in this matter, including remediation activities and future reporting to AUSTRAC of international funds transfer instructions based on the operation of the AML/CTF Act.

We cannot estimate the potential impact, if any, on our business or financial statements at this time.

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.

An adverse outcome arising from any associated proceeding or further matter initiated by AUSTRAC could result in measures beyond AUSTRAC's supervisory process, including enforceable undertakings, 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.

Legal Proceedings

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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.

The court granted Defendant’s motion to dismiss with prejudice on September 18, 2019;

plaintiffs have filed a notice of appeal.

plaintiffs have appealed the dismissal and the appeal is pending.

We may be subject to additional litigation relating to TIO’s data security platform or the suspension of TIO’s operations in the future.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

General Matters

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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.

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 may 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 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.

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Off-Balance Sheet Arrangements

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.

As of September 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

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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.

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,

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Note 14 — Stock Repurchase Programs

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 .

During the nine months ended September 30, 2020, we repurchased approximately 11 million shares of our common stock for approximately $ 1.4 billion at an average cost of $ 128.31 .

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 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.

As of September 30, 2020, a total of approximately $ 8.7 billion remained available for future repurchases of our common stock under our July 2018 stock repurchase program.

Note 15 — Stock-Based Plans

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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 and six months ended June 30, 2020 and 2019 was as follows:

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Note 16 — Income Taxes

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.

Our effective tax rate for the three and nine months ended September 30, 2020 was 11 % and 18 %, respectively.

Our effective tax rate for the three and nine months ended September 30, 2019 was 5 % and 9 %, respectively.

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

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.

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 nine months ended September 30, 2020, tax expense related to the intra-group transfer of intellectual property.

During the three months ended September 30, 2020, we settled income tax audits in France and Germany.

Neither of these settlements had a significant impact on our condensed consolidated statements of income.

In June 2019, the U.S.

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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.

We have reviewed this decision and determined that no adjustment to PayPal’s condensed consolidated financial statements is required 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, 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.

During the first quarter of 2020, management approved a strategic reduction of the existing global workforce, which resulted in restructuring charges of $ 19 million and $ 74 million during the three and nine months ended September 30, 2020, respectively.

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:

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

We experienced delays, primarily as a result of COVID-19, in the execution of these restructuring actions, which are now expected to be completed by the end of the first quarter of 2021.

The following table summarizes the restructuring reserve activity during the nine months ended September 30, 2020:

Employee Severance and Benefits and Other Associated Costs

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Payments ( 46 )

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.

Accrued liability as of September 30, 2020

See “Note 6—Leases” for additional information.

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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