What changed in this filing

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Item 1. Financial Statements

2021-11-09 compared with 2021-07-29 · 233 added, 199 removed, 1031 unchanged (30% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

2021 December 31,

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Accounts receivable, net 736 577

Loans and interest receivable, net of allowances of $ 574 and $ 838 as of June 30, 2021 and December 31, 2020, respectively

Loans and interest receivable, net of allowances of $ 489 and $ 838 as of September 30, 2021 and December 31, 2020, respectively

Funds receivable and customer accounts 35,104 33,418

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4,000 shares authorized;

1,175 and 1,172 shares outstanding as of June 30, 2021 and December 31, 2020, respectively

1,174 and 1,172 shares outstanding as of September 30, 2021 and December 31, 2020, respectively

Preferred stock, $ 0.0001 par value;

100 shares authorized, unissued

Treasury stock at cost, 123 and 117 shares as of June 30, 2021 and December 31, 2020, respectively

Treasury stock at cost, 124 and 117 shares as of September 30, 2021 and December 31, 2020, respectively

( 10,380 ) ( 8,507 )

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,

2021 2020 2021 2020

13 unchanged sentences

Income before income taxes 1,165 1,144 3,393 3,206

Income tax expense (benefit) 172 269 ( 53 ) 448

Income tax expense 78 123 25 571

Net income $ 1,087 $ 1,021 $ 3,368 $ 2,635

8 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,

2021 2020 2021 2020

3 unchanged sentences

Foreign currency translation adjustments (“CTA”) ( 29 ) 8 ( 51 ) ( 111 )

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

Net investment hedge CTA gain — — — 55

Unrealized gains (losses) on cash flow hedges, net 204 ( 163 ) 434 ( 111 )

30 unchanged sentences

Balances at June 30, 2021 1,175 $ ( 10,030 ) $ 16,580 $ ( 292 ) $ 14,647 $ — $ 20,905

Net income — — — — 1,087 — 1,087

Foreign CTA — — — ( 29 ) — — ( 29 )

Unrealized gains on cash flow hedges, net — — — 204 — — 204

Tax expense on unrealized gains on cash flow hedges, net — — — ( 7 ) — — ( 7 )

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes — — ( 37 ) — — — ( 37 )

Common stock repurchased ( 1 ) ( 350 ) — — — — ( 350 )

Stock-based compensation — — 317 — — — 317

Balances at September 30, 2021 1,174 $ ( 10,380 ) $ 16,860 $ ( 124 ) $ 15,734 $ — $ 22,090

PayPal Holdings, Inc.

27 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 losses 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

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)

7 unchanged sentences

Net gains on strategic investments ( 336 ) ( 973 )

Other 77 ( 2 )

Changes in assets and liabilities:

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Other financing activities — ( 15 )

Net cash provided by financing activities 630 9,224

Net cash (used in) provided by financing activities ( 186 ) 10,130

Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 106 ) 26

29 unchanged sentences

All intercompany balances and transactions have been eliminated in consolidation.

The noncontrolling interest reported was a component of equity on our condensed consolidated balance sheets and represented the equity interests not owned by PayPal and was recorded for consolidated entities we controlled and of which we owned less than 100%.

The noncontrolling interest reported in the prior period was a component of equity on our condensed consolidated balance sheets and represented the equity interests not owned by PayPal and was recorded for consolidated entities we controlled and of which we owned less than 100%.

Noncontrolling interest was not presented separately on our condensed consolidated statements of income as the amount was de minimis.

Investments in entities where we have the ability to exercise significant influence, but not control, over the investee are accounted for using the equity method of accounting.

For such investments, our share of the investee’s results of operations is included in other income (expense), net on our condensed consolidated statements of income and our investment balance is included in long-term investments on our condensed consolidated balance sheets.

For such investments, our share of the investee’s results of operations is included in other income (expense), net on our condensed consolidated statements of income.

Investments in entities where we do not have the ability to exercise significant influence over the investee are accounted for at fair value or cost minus impairment, if any, adjusted for changes resulting from observable price changes, which are included in other income (expense), net on our condensed consolidated statements of income.

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If we determine an investment is a VIE, we then assess if we are the primary beneficiary, which would require consolidation.

As of June 30, 2021, no VIEs qualified for consolidation as the structures of these entities do not provide us with the ability to direct activities that would significantly impact their economic performance.

As of September 30, 2021, no VIEs qualified for consolidation as the structures of these entities do not provide us with the ability to direct activities that would significantly impact their economic performance.

The carrying value of our investments that are VIEs is included as non-marketable equity securities applying the equity method of accounting in long-term investments on our condensed consolidated balance sheets.

Our maximum exposure to loss, which represents funded commitments and any future funding commitments, was $ 144 million and $ 105 million as of June 30, 2021 and December 31, 2020, respectively.

Our maximum exposure to loss, which represents funded commitments and any future funding commitments, was $ 195 million and $ 105 million as of September 30, 2021 and December 31, 2020, respectively.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”) filed with the Securities and Exchange Commission on February 5, 2021.

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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 all interim periods presented.

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, 2021.

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, 2021.

Reclassifications

5 unchanged sentences

The following table presents the effects of the changes on the presentation of these cash flows to the previously reported condensed consolidated statements of cash flows:

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

(In millions)

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Net increase in cash, cash equivalents, and restricted cash $ 1,379 $ — $ 1,379

(1) As reported in our Form 10-Q for the quarterly period ended June 30, 2020 filed with the SEC on July 30, 2020.

(1) As reported in our Form 10-Q for the quarterly period ended September 30, 2020 filed with the SEC on November 3, 2020.

(2) Financial statement line impacted in operating activities was “Other assets and liabilities.”

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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,

2021 2020 2021 2020

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

(2) Total net revenues include $ 62 million and $ 154 million for the three months ended June 30, 2021 and 2020, respectively, and $ 121 million and $ 401 million for the six months ended June 30, 2021 and 2020, respectively, which do not represent revenues recognized in the scope of Accounting Standards Codification Topic 606, Revenue from contracts with customers .

(2) Total net revenues include $ 168 million and $ 128 million for the three months ended September 30, 2021 and 2020, respectively, and $ 289 million and $ 529 million for the nine months ended September 30, 2021 and 2020, 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.

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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,

2021 2020 2021 2020

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ACQUISITIONS COMPLETED IN 2021

In the three and six months ended June 30, 2021, we completed three acquisitions accounted for as business combinations.

In the nine months ended September 30, 2021, we completed three acquisitions accounted for as business combinations.

The total purchase price for these acquisitions was $ 524 million, consisting primarily of cash consideration.

The allocation of purchase consideration resulted in approximately $ 85 million of technology, customer, and marketing related intangible assets with estimated useful lives ranging from one to seven years , net assets of $ 16 million, and initial goodwill of approximately $ 423 million, which is attributable to the workforce of the acquired companies and the synergies expected to arise from these acquisitions, including the integration of the acquired technology with our existing product offerings.

The allocation of purchase consideration resulted in approximately $ 85 million of technology, customer, and marketing related intangible assets with estimated useful lives ranging from approximately one to seven years , net assets of $ 15 million, and initial goodwill of approximately $ 424 million attributable to the workforce of the acquired companies and the synergies expected to arise from these acquisitions, including the integration of the acquired technology with our existing product offerings.

We do not expect goodwill to be deductible for income tax purposes.

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

Revenues and expenses related to these acquisitions and pro forma results of operations have not been presented for the three and six months ended June 30, 2021 and 2020 because the effects of these acquisitions were not material to our overall operations.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Revenues and expenses related to these acquisitions and pro forma results of operations have not been presented for the three and nine months ended September 30, 2021 and 2020 because the effects of these acquisitions were not material to our overall operations.

ACQUISITION COMPLETED IN 2020

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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NOTE 5— GOODWILL AND INTANGIBLE ASSETS

The following table presents goodwill balances and adjustments to those balances during the six months ended June 30, 2021:

2020 Goodwill

Acquired Adjustments June 30,

The following table presents goodwill balances and adjustments to those balances during the nine months ended September 30, 2021:

December 31, 2020 Goodwill Acquired Adjustments September 30, 2021

(In millions)

Total goodwill $ 9,135 $ 424 $ ( 9 ) $ 9,550

The goodwill acquired during the six months ended June 30, 2021 was attributable to the three acquisitions completed within the period, as described further in “Note 4—Business Combinations.” The adjustments to goodwill during the six months ended June 30, 2021 pertain to foreign currency translation adjustments.

The goodwill acquired during the nine months ended September 30, 2021 was attributable to the three acquisitions completed within the period, as described further in “Note 4—Business Combinations.” The adjustments to goodwill during the nine months ended September 30, 2021 pertain to foreign currency translation adjustments.

PayPal Holdings, Inc.

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INTANGIBLE ASSETS

The components of identifiable intangible assets are as follows:

June 30, 2021 December 31, 2020

The components of identifiable intangible assets were as follows:

September 30, 2021 December 31, 2020

Gross Carrying Amount

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Intangible assets, net $ 3,060 $ ( 2,252 ) $ 808 $ 2,975 $ ( 1,927 ) $ 1,048

Amortization expense for intangible assets was $ 110 million and $ 115 million for the three months ended June 30, 2021 and 2020, respectively.

Amortization expense for intangible assets was $ 216 million and $ 229 million for the six months ended June 30, 2021 and 2020, respectively.

Expected future intangible asset amortization as of June 30, 2021 was as follows (in millions):

Amortization expense for intangible assets was $ 110 million and $ 114 million for the three months ended September 30, 2021 and 2020, respectively.

Amortization expense for intangible assets was $ 326 million and $ 343 million for the nine months ended September 30, 2021 and 2020, respectively.

Expected future intangible asset amortization as of September 30, 2021 was as follows (in millions):

Fiscal years:

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

As of June 30, 2021, we had no finance leases.

As of September 30, 2021, we had no finance leases.

PayPal Holdings, Inc.

1 unchanged sentence

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,

2021 2020 2021 2020

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Supplemental cash flow information related to leases was as follows:

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

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

2021 2020 2021 2020

4 unchanged sentences

Supplemental balance sheet information related to leases was as follows:

2021 December 31,

September 30, 2021 December 31, 2020

(In millions, except weighted-average figures)

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Weighted-average discount rate — operating leases

Future minimum lease payments for our operating leases as of June 30, 2021 were as follows:

Future minimum lease payments for our operating leases as of September 30, 2021 were as follows:

Operating Leases

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

In the six months ended June 30, 2021 and 2020, we incurred asset impairment charges of $ 26 million and $ 21 million, respectively, within restructuring and other charges on our condensed consolidated statements of income.

In the nine months ended September 30, 2021 and 2020, we incurred asset impairment charges of $ 26 million and $ 21 million, respectively, within restructuring and other charges on our condensed consolidated statements of income.

The impairments included a reduction to our ROU lease assets in the amount of $ 21 million and $ 17 million, respectively, which were attributed to certain leased space we are no longer utilizing for our core business operations.

A portion of the leased space associated with the impairment charges recorded in the six months ended June 30, 2021 is being subleased.

As of June 30, 2021, we have additional operating leases, primarily for real estate and data centers, with minimum lease payments aggregating to $ 31 million and lease terms ranging from three to nine years , which will commence in the third quarter of 2021 and later.

A portion of the leased space associated with the impairment charges recorded in the nine months ended September 30, 2021 is being subleased.

As of September 30, 2021, we have additional operating leases, primarily for real estate and data centers, with minimum lease payments aggregating to $ 20 million and lease terms ranging from three to nine years , which will commence in the fourth quarter of 2021 and later.

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, 2021:

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended September 30, 2021:

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

Foreign Currency

Translation Adjustment (“CTA”)

Net Investment Hedge CTA Gain

Estimated Tax Benefit Total

Estimated Tax (Expense) Benefit Total

(In millions)

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Ending balance $ 111 $ ( 6 ) $ ( 249 ) $ 24 $ ( 4 ) $ ( 124 )

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

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

Net Investment Hedge CTA Gain (Loss)

Estimated Tax Expense Total

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

Net Investment Hedge CTA Gain

Estimated Tax (Expense) Benefit Total

(In millions)

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

Amount of gain reclassified from AOCI 33 — — — — 33

Amount of loss reclassified from AOCI ( 17 ) — — — — ( 17 )

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the six months ended June 30, 2021:

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the nine months ended September 30, 2021:

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

Net Investment Hedge CTA Gain

Estimated Tax Benefit Total

Estimated Tax (Expense) Benefit Total

(In millions)

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Ending balance $ 111 $ ( 6 ) $ ( 249 ) $ 24 $ ( 4 ) $ ( 124 )

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

Unrealized Gains on Cash Flow Hedges Unrealized Gains on Investments

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 on Investments

Net Investment Hedge CTA Gain (Loss)

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Affected Line Item in the Statement of Income

Three Months Ended June 30,

(In millions)

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

2021 2020 2021 2020

(In millions) (In millions)

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

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$ ( 44 ) $ ( 17 ) $ ( 192 ) $ 58 Income before income taxes

— — Income tax expense (benefit)

— — — — Income tax expense

Total reclassifications for the period $ ( 44 ) $ ( 17 ) $ ( 192 ) $ 58 Net income

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Details about AOCI Components Amount of Gains (Losses) Reclassified from AOCI

Affected Line Item in the Statement of Income

Six Months Ended June 30,

(In millions)

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

$ ( 148 ) $ 75 Net revenues

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

$ ( 148 ) $ 75 Income before income taxes

— — Income tax expense (benefit)

Total reclassifications for the period $ ( 148 ) $ 75 Net income

OTHER INCOME (EXPENSE), NET

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

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

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

2021 2020 2021 2020

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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, 2021 and December 31, 2020:

2021 December 31,

The following table summarizes the assets underlying our funds receivable and customer accounts, short-term investments, and long-term investments as of September 30, 2021 and December 31, 2020:

September 30, 2021 December 31, 2020

(In millions)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of June 30, 2021 and December 31, 2020, 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, 2021 (1)

As of September 30, 2021 and December 31, 2020, 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, 2021 (1)

Losses Estimated

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

Gross amortized cost and estimated fair value balances exclude accrued interest receivable on available-for-sale debt securities, which totaled $ 47 million and $ 42 million at June 30, 2021 and December 31, 2020, respectively, and were included in other current assets on our condensed consolidated balance sheets.

As of June 30, 2021 and December 31, 2020, the gross unrealized

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 was not deemed necessary, aggregated by the length of time those individual securities have been in a continuous loss position, was as follows:

June 30, 2021 (1)

Gross amortized cost and estimated fair value balances exclude accrued interest receivable on available-for-sale debt securities, which totaled $ 30 million and $ 42 million at September 30, 2021 and December 31, 2020, respectively, and were included in other current assets on our condensed consolidated balance sheets.

As of September 30, 2021 and December 31, 2020, 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 was not deemed necessary, aggregated by the length of time those individual securities have been in a continuous loss position, was as follows:

September 30, 2021 (1)

Less than 12 months 12 months or longer Total

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2020 (1)

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Unrealized losses have not been recognized into income as we neither intend to sell, nor anticipate that it is more likely than not that we will be required to sell, the securities before recovery of their amortized cost basis.

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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, 2021 and 2020.

Amounts reclassified to earnings from unrealized gains and losses were not material for the three and nine months ended September 30, 2021 and 2020.

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, 2021

September 30, 2021

Amortized Cost Fair Value

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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 $ 2.1 billion and $ 2.4 billion as of June 30, 2021 and December 31, 2020, respectively, including the impact of the sale of securities.

Marketable equity securities totaled $ 2.2 billion and $ 2.4 billion as of September 30, 2021 and December 31, 2020, respectively.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

As of June 30, 2021 and December 31, 2020, we had non-marketable equity securities of $ 48 million and $ 10 million, respectively, where we have the ability to exercise significant influence, but not control, over the investee.

As of September 30, 2021 and December 31, 2020, we had non-marketable equity securities of $ 68 million and $ 10 million, respectively, where we have the ability to exercise significant influence, but not control, over the investee.

We account for these equity securities using the equity method of accounting.

1 unchanged sentence

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 $ 1.1 billion and $ 789 million as of June 30, 2021 and December 31, 2020, respectively.

The carrying value of our non-marketable equity securities totaled $ 1.3 billion and $ 789 million as of September 30, 2021 and December 31, 2020, respectively.

Measurement Alternative adjustments

The adjustments to the carrying value of our non-marketable equity securities accounted for under the Measurement Alternative in the three and six months ended June 30, 2021 and 2020 were as follows:

Three Months Ended June 30, 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 three and nine months ended September 30, 2021 and 2020 were as follows:

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

2021 2020 2021 2020

2 unchanged sentences

Adjustments related to non-marketable equity securities:

Net additions (sales) (1)

Net additions (1)

Gross unrealized gains 90 — 307 45

1 unchanged sentence

Carrying amount, end of period $ 1,196 $ 594 $ 1,196 $ 594

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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, 2021 and December 31, 2020, respectively:

June 30, 2021 December 31, 2020

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

September 30, 2021 December 31, 2020

(In millions)

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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, 2021 and 2020, respectively:

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

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

2021 2020 2021 2020

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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, 2021 and December 31, 2020:

June 30, 2021 Quoted Prices in

The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020:

September 30, 2021 Quoted Prices in

Active Markets for

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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, 2021 and December 31, 2020, 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, 2021 and December 31, 2020, 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.

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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, 2021 and December 31, 2020:

June 30, 2021 December 31, 2020

The following table summarizes the estimated fair value of our available-for-sale debt securities under the fair value option as of September 30, 2021 and December 31, 2020:

September 30, 2021 December 31, 2020

(In millions)

1 unchanged sentence

Short-term investments $ 656 $ —

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, 2021 and 2020:

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

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

2021 2020 2021 2020

3 unchanged sentences

FINANCIAL ASSETS 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, 2021 and December 31, 2020 for which a non-recurring fair value measurement was recorded during the six months ended June 30, 2021 and the year ended December 31, 2020, respectively:

June 30, 2021 Significant Other

The following tables summarize our financial assets and liabilities held as of September 30, 2021 and December 31, 2020 for which a non-recurring fair value measurement was recorded during the nine months ended September 30, 2021 and the year ended December 31, 2020, respectively:

September 30, 2021 Significant Other

Observable Inputs

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Total $ 641 $ 641

(1) Excludes non-marketable equity investments of $ 566 million accounted for under the Measurement Alternative for which no observable price changes occurred during the six months ended June 30, 2021.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges as of June 30, 2021.

(1) Excludes non-marketable equity investments of $ 641 million accounted for under the Measurement Alternative for which no observable price changes occurred during the nine months ended September 30, 2021.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred during the nine months ended September 30, 2021.

December 31, 2020 Significant Other

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(1) Excludes non-marketable equity investments of $ 444 million accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2020.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges as of December 31, 2020.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred during the year ended December 31, 2020.

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.

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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 long-term debt in the form of fixed rate notes had a carrying value of approximately $ 8.9 billion and fair value of approximately $ 9.5 billion as of June 30, 2021.

Our long-term debt (including current portion) in the form of fixed rate notes had a carrying value of approximately $ 8.9 billion and fair value of approximately $ 9.4 billion as of September 30, 2021.

Our fixed rate notes had a carrying value of approximately $ 8.9 billion and fair value of approximately $ 9.7 billion as of December 31, 2020.

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

restricted cash, time deposits, certain customer accounts, and long-term debt would be classified as Level 2;

restricted cash, time deposits, certain customer accounts, and long-term debt (including current portion) would be classified as Level 2;

and the remaining financial instruments would be classified as Level 3 in the fair value hierarchy.

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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, 2021, we estimated that $ 107 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 six months ended June 30, 2021 and 2020, 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, 2021, we estimated that $ 83 million of net derivative gains related to our cash flow hedges included in AOCI are expected to be reclassified into earnings within the next 12 months.

During the three and nine months ended September 30, 2021 and 2020, we did not discontinue any cash flow hedges because it was probable that the original forecasted transaction would not occur and as such, did not reclassify any gains or losses to earnings prior to the occurrence of the hedged transaction.

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

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

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Net investment hedge

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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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

As of June 30, 2021, 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.

As of September 30, 2021, we did no t have a net investment hedge.

We have no t reclassified any gains or losses related to the net investment hedge from AOCI into earnings during any of the periods presented.

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FAIR VALUE OF DERIVATIVE CONTRACTS

The fair value of our outstanding derivative instruments as of June 30, 2021 and December 31, 2020 was as follows:

Balance Sheet Location June 30,

2021 December 31,

The fair value of our outstanding derivative instruments as of September 30, 2021 and December 31, 2020 was as follows:

Balance Sheet Location September 30, 2021 December 31, 2020

(In millions)

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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 set-off associated with our foreign currency exchange contracts represented a potential offset to both assets and liabilities of $ 63 million as of June 30, 2021 and $ 34 million as of December 31, 2020.

Rights of set-off associated with our foreign currency exchange contracts represented a potential offset to both assets and liabilities of $ 135 million as of September 30, 2021 and $ 34 million as of December 31, 2020.

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.

The following table provides the collateral exchanged:

2021 December 31,

September 30, 2021 December 31, 2020

(In millions)

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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,

2021 2020 2021 2020

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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,

2021 2020 2021 2020

(In millions)

(Losses) gains on foreign exchange contracts recognized in other income (expense), net $ ( 43 ) $ ( 5 ) $ ( 2 ) $ 32

Gains (losses) on foreign exchange contracts recognized in other income (expense), net $ 111 $ ( 40 ) $ 109 $ ( 8 )

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 $ 111 $ ( 104 ) $ 109 $ ( 72 )

(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 were classified in cash flows from investing activities on our consolidated statements of cash flows.

PayPal Holdings, Inc.

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(In millions)

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CONSUMER RECEIVABLES

We offer revolving and installment credit products to consumers at checkout.

We offer revolving and installment credit products as a funding option for consumers in certain checkout transactions on our Payments Platform.

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

As of June 30, 2021 and December 31, 2020, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $ 2.5 billion and $ 2.2 billion, respectively.

As of September 30, 2021 and December 31, 2020, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $ 2.8 billion and $ 2.2 billion, respectively.

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

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Consumer receivables delinquency and allowance

The following table presents the delinquency status of consumer loans and interest receivable at June 30, 2021 and December 31, 2020.

The following table presents the delinquency status of consumer loans and interest receivable at September 30, 2021 and December 31, 2020.

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

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Amortized Cost Basis Revolving Percent Amortized Cost Basis Revolving Percent

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$ 2,795 100.0 % $ 2,169 100.0 %

(1) Excludes receivables from other consumer credit products of $ 50 million and $ 56 million at June 30, 2021 and December 31, 2020, respectively.

(2) Includes installment loans of $ 875 million and $ 556 million at June 30, 2021 and December 31, 2020, respectively, substantially all of which were current and originated within the 12 months prior to the reporting date.

(1) Excludes receivables from other consumer credit products of $ 43 million and $ 56 million at September 30, 2021 and December 31, 2020, respectively.

(2) Includes installment loans of $ 1.1 billion and $ 556 million at September 30, 2021 and December 31, 2020, respectively, substantially all of which were current and originated within the 12 months prior to the reporting date.

(3) Balances at December 31, 2020 include the impact of payment holidays provided primarily in the second quarter of 2020 by the Company to certain consumers as a part of our COVID-19 payment relief initiatives.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes the activity in the allowance for consumer loans and interest receivable for the six months ended June 30, 2021 and 2020:

June 30, 2021 June 30, 2020

The following table summarizes the activity in the allowance for consumer loans and interest receivable for the nine months ended September 30, 2021 and 2020:

September 30, 2021 September 30, 2020

Consumer Loans Receivable Interest Receivable Total Allowance (1)

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25 — 25 21 — 21

5 1 6 ( 6 ) — ( 6 )

Ending balance $ 194 $ 40 $ 234 $ 271 $ 50 $ 321

(1) Excludes allowances from other consumer credit products of $ 4 million and $ 6 million at June 30, 2021 and 2020, respectively.

(2) The recoveries for the six months ended June 30, 2020 were primarily related to fully charged-off U.S.

(1) Excludes allowances from other consumer credit products of $ 3 million and $ 4 million at September 30, 2021 and 2020, respectively.

(2) The recoveries for the nine months ended September 30, 2020 were primarily related to fully charged-off U.S.

consumer credit receivables not subject to the sale to Synchrony Bank.

(3) Includes amounts related to foreign currency remeasurement.

The benefit for the six months ended June 30, 2021 was primarily attributable to improvements in the credit quality of the consumer portfolio and current and projected macroeconomic conditions.

This was partially offset by provisions for originations in the portfolio and the impact of qualitative adjustments to account for limitations in our current expected credit loss models, due to a high degree of uncertainty around the financial health of our consumer borrowers and continued volatility with respect to both the projected and actual macroeconomic conditions.

The benefit for the nine months ended September 30, 2021 was primarily attributable to improvements in the credit quality of the consumer portfolio and current and projected macroeconomic conditions.

This was partially offset by provisions for originations in the portfolio and the impact of qualitative adjustments to account for limitations in our current expected credit loss models due to a high degree of uncertainty around the financial health of our consumer borrowers and continued volatility with respect to macroeconomic conditions.

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

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

During the six months ended June 30, 2021 and 2020, we purchased approximately $ 780 million and $ 1.4 billion in credit receivables, respectively.

As of June 30, 2021 and December 31, 2020, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 1.3 billion and $ 1.4 billion, respectively, net of the participation interest sold to an independent chartered financial institution of $ 54 million and $ 59 million, respectively.

During the nine months ended September 30, 2021 and 2020, we purchased approximately $ 1.3 billion and $ 1.5 billion in credit receivables, respectively.

As of both September 30, 2021 and December 31, 2020, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 1.4 billion, net of the participation interest sold to an independent chartered financial institution of $ 59 million.

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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The interest or fee is fixed at the time the loan or advance is extended and is recognized as deferred revenue included in accrued expenses and other current liabilities on our condensed consolidated balance sheets.

The interest or fee is fixed at the time the loan or advance is extended and is recognized as deferred revenue in accrued expenses and other current liabilities on our condensed consolidated balance sheets.

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

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

June 30, 2021

September 30, 2021

(In millions, except percentages)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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, 2021 and 2020:

June 30, 2021 June 30, 2020

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, 2021 and 2020:

September 30, 2021 September 30, 2020

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

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Ending balance $ 239 $ 13 $ 252 $ 450 $ 44 $ 494

The benefit for the six months ended June 30, 2021 was primarily attributable to improvements in current and projected macroeconomic conditions.

This was partially offset by provisions for originations during the period and the impact of qualitative adjustments to account for varying degrees of expected merchant performance in the current environment and in future periods, including uncertainty around the effectiveness of loan modification programs made available to merchants, as described further below, and continued volatility with respect to macroeconomic conditions.

The benefit for the nine months ended September 30, 2021 was primarily attributable to improvements in current and projected macroeconomic conditions.

This was partially offset by provisions for originations during the period and the impact of qualitative adjustments to account for varying degrees of expected merchant performance in the current environment and in future periods, including continued volatility with respect to macroeconomic conditions and uncertainty around the effectiveness of loan modification programs made available to merchants, as described further below.

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.

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Alternatively, certain loans and advances have been modified to replace the initial fixed fee structure at the time the loan or advance was extended with 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 six months ended June 30, 2021.

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

These modifications had a de minimis impact on our condensed consolidated statements of income in the nine months ended September 30, 2021.

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

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table shows the merchant loans and interest receivables which have been modified as TDRs in the three and six months ended June 30, 2021:

Three Months Ended June 30, 2021

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, 2021:

Three Months Ended September 30, 2021

Number of Accounts

(in thousands) Outstanding Balances (1)

(in thousands) (1)

Outstanding Balances (2)

(in millions)

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Loans and interest receivable — $ 4 34

Six Months Ended June 30, 2021

(1) “—” Denotes less than five hundred accounts.

(2) Balances are as of modification date.

Nine Months Ended September 30, 2021

Number of Accounts

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

In the three and six months ended June 30, 2021, the amount of merchant loans and interest receivables classified as TDRs that have subsequently defaulted on payments was de minimis.

In the three and nine months ended September 30, 2021, the amount of merchant loans and interest receivables classified as TDRs that have subsequently defaulted on payments was de minimis.

NOTE 12— DEBT

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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 both June 30, 2021 and December 31, 2020, we had an outstanding aggregate principal amount of $ 9.0 billion related to the Notes.

As of both September 30, 2021 and December 31, 2020, we had an outstanding aggregate principal amount of $ 9.0 billion related to the Notes.

The following table summarizes the Notes:

Maturities Effective Interest Rate June 30,

2021 December 31,

Maturities Effective Interest Rate September 30, 2021 December 31, 2020

(in millions)

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Unamortized premium (discount) and issuance costs, net ( 53 ) ( 61 )

Total carrying amount of term debt $ 8,945 $ 8,939

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 $ 56 million and $ 112 million for the three and six months ended June 30, 2021, respectively.

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.

current portion of long-term debt (1)

Total carrying amount of long-term debt $ 7,949 $ 8,939

(1) The current portion of long-term debt is included within accrued expenses and other current liabilities on our condensed consolidated balance sheets.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 $ 56 million and $ 168 million for the three and nine months ended September 30, 2021, 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.

Other available facilities

We maintain uncommitted credit facilities in various regions throughout the world, which had a borrowing capacity of approximately $ 80 million and $ 30 million in the aggregate, as of June 30, 2021 and December 31, 2020, respectively.

This available credit includes facilities where we can withdraw and utilize the funds at our discretion for general corporate purposes.

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

As of June 30, 2021, the majority of the borrowing capacity under these credit facilities was available, subject to customary conditions to borrowing.

As of September 30, 2021, the majority of the borrowing capacity under these credit facilities was available, subject to customary conditions to borrowing.

FUTURE PRINCIPAL PAYMENTS

As of June 30, 2021, the future principal payments associated with our long term debt were as follows (in millions):

As of September 30, 2021, the future principal payments associated with our long-term debt were as follows (in millions):

Remaining 2021 $ —

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NOTE 13— COMMITMENTS AND CONTINGENCIES

As of June 30, 2021 and December 31, 2020, approximately $ 3.6 billion and $ 3.0 billion, respectively, of unused credit was available to PayPal Credit account holders.

As of September 30, 2021 and December 31, 2020, approximately $ 3.8 billion and $ 3.0 billion, respectively, of unused credit was available to PayPal Credit account holders.

Substantially all of our 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 (continued)

LITIGATION AND REGULATORY MATTERS

We are involved in legal and regulatory proceedings on an ongoing basis.

Many of these proceedings are in early stages and may seek an indeterminate amount of damages.

Many of these proceedings are in early stages and may seek an indeterminate amount of damages or penalties or may require us to change or adopt certain business practices.

If we believe that a loss arising from such matters is probable and can be reasonably estimated, we accrue the estimated liability in our financial statements at that time.

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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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable and reasonably estimable were not material as of June 30, 2021.

Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable and reasonably estimable were not material as of September 30, 2021.

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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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”).

This self-reported matter relates to PPAU incorrectly filing required international funds transfer instructions (“IFTIs”) 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.

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AUSTRAC has notified PPAU that its enforcement team is investigating the matters reported upon by the external auditor in its August 31, 2020 final report.

PPAU is continuing to cooperate with AUSTRAC in all respects, including remediation activities, ongoing regular engagement with AUSTRAC, responding to requests for information and documents, and reporting to AUSTRAC of international funds transfer instructions based on the operation of the AML/CTF Act.

AUSTRAC continues to engage with PPAU regarding the transaction categories it considers reportable under the AML/CTF Act as IFTIs.

PPAU is continuing to cooperate with AUSTRAC in all respects, including remediation activities, ongoing regular engagement with AUSTRAC, and responding to notices and requests for information and documents.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

In the event an adverse outcome arises from any associated enforcement, proceeding, or other further matter initiated by AUSTRAC, this could result in 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.

In the event an adverse outcome arises from any associated enforcement proceeding or other further matter initiated by AUSTRAC, including in relation to AUSTRAC’s determination of reportable IFTIs, then this could result in 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.

We have received Civil Investigative Demands (“CIDs”) from the Consumer Financial Protection Bureau (“CFPB”) related to Venmo’s unauthorized funds transfers and collections processes, and related matters.

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We are cooperating with the CFPB in connection with these CIDs.

We have received a CID from the CFPB related to the marketing and use of PayPal Credit in connection with certain merchants that provide educational services.

We have received a CID from the CFPB related to the marketing and use of PayPal Credit in connection with certain merchants that provide educational services (the “CFPB PayPal Credit Matter”).

The CID requests the production of documents, written reports, and answers to written questions.

We are cooperating with the CFPB in connection with this CID.

We have responded to subpoenas and requests for information received from the U.S.

Securities and Exchange Commission Enforcement Division (“SEC”) relating to whether the interchange rates paid to the bank that issues debit cards bearing our licensed brands were consistent with Regulation II of the Board of Governors of the Federal Reserve System, and to the reporting of marketing fees earned from the Company’s branded card program.

We are cooperating with the SEC in connection with this investigation.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

We are responding to subpoenas and requests for information received from the U.S.

Securities and Exchange Commission (“SEC”) Enforcement Division relating to whether the interchange rates paid to the bank that issues debit cards bearing our licensed brands were consistent with Regulation II of the Board of Governors of the Federal Reserve System, and to the reporting of marketing fees earned from the Company’s branded card program (the “SEC Debit Card Program Matter”).

We are cooperating with the SEC Enforcement Division in connection with this investigation.

Legal proceedings

On August 20, 2021, a putative securities class action captioned Kang v.

PayPal Holdings, Inc., et al.

21-cv-06468, was filed in the U.S.

District Court for the Northern District of California (the “Securities Action”).

The Securities Action asserts claims relating to our disclosure of the CFPB PayPal Credit Matter and the SEC Debit Card Program Matter in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 (for further information, see “Litigation and Regulatory Matters – Regulatory Proceedings” above).

The Securities Action purports to be brought on behalf of purchasers of the Company’s stock between February 9, 2017 and July 28, 2021 (the “Class Period”), and asserts claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against the Company, its Chief Executive Officer, and Chief Financial Officer.

The complaint alleges that certain public statements made by the Company during the Class period were rendered materially false and misleading (which, allegedly, caused the Company’s stock to trade at artificially inflated prices) by the defendants’ failure to disclose that, among other things, PayPal’s business practices with respect to PayPal Credit and regarding interchange rates paid to its bank partner related to its bank-issued co-branded debit cards were non-compliant with applicable laws and/or regulations.

The Securities Action seeks unspecified compensatory damages on behalf of the putative class members.

General matters

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

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

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

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

Under these contracts, we generally indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with claims by any third party with respect to our domain names, trademarks, logos, and other branding elements to the extent that such marks are related to the subject agreement.

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It is not possible to determine the maximum potential loss under these indemnification provisions due to our limited history of prior indemnification claims and the unique facts and circumstances involved in each particular situation.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

PayPal has participated in the U.S.

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We receive a fee for providing origination services and loan servicing for these loans and retain operational risk related to those activities.

We have agreed, under certain circumstances, to indemnify the chartered financial institution in connection with the services provided for loans made under this program.

We have agreed, under certain circumstances, to provide indemnities in connection with the services provided for loans made under this program.

To date, no significant costs have been incurred, either individually or collectively, in connection with our indemnification provisions.

OFF-BALANCE SHEET ARRANGEMENTS

As of June 30, 2021 and December 31, 2020, 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, 2021 and December 31, 2020, 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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

PROTECTION PROGRAMS

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Our seller protection programs provide protection to merchants against claims that a transaction was not authorized by the buyer or claims that an item was not received by covering the seller for the full amount of the payment on eligible sales.

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

At June 30, 2021 and December 31, 2020, the allowance for transaction losses was $ 105 million and $ 144 million, respectively.

The allowance for negative customer balances was $ 261 million and $ 270 million at June 30, 2021 and December 31, 2020, respectively.

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, 2021 and 2020:

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

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

At September 30, 2021 and December 31, 2020, the allowance for transaction losses was $ 104 million and $ 144 million, respectively.

The allowance for negative customer balances was $ 283 million and $ 270 million at September 30, 2021 and December 31, 2020, respectively.

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, 2021 and 2020:

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

2021 2020 2021 2020

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NOTE 14— STOCK REPURCHASE PROGRAMS

During the six months ended June 30, 2021, we repurchased approximately 6 million shares of our common stock for approximately $ 1.5 billion at an average cost of $ 250.84 .

During the nine months ended September 30, 2021, we repurchased approximately 7 million shares of our common stock for approximately $ 1.9 billion at an average cost of $ 255.05 .

These shares were purchased in the open market under our stock repurchase program authorized in July 2018.

As of June 30, 2021, a total of approximately $ 6.9 billion remained available for future repurchases of our common stock under our July 2018 stock repurchase program.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of September 30, 2021, a total of approximately $ 6.6 billion remained available for future repurchases of our common stock under our July 2018 stock repurchase program.

NOTE 15— STOCK-BASED PLANS

STOCK-BASED COMPENSATION EXPENSE

Stock-based compensation expense for our equity incentive plans are measured and recognized based on estimated fair values at time of grant.

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, 2021 and 2020 was as follows:

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

Stock-based compensation expense for our equity incentive plans are measured based on their estimated fair value at the time of grant, and recognized over the award’s vesting period.

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, 2021 and 2020 was as follows:

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

2021 2020 2021 2020

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Capitalized as part of internal use software and website development costs $ 17 $ 13 $ 51 $ 34

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 16— INCOME TAXES

Our effective tax rate for the three and six months ended June 30, 2021 was 13 % and ( 2 )%, respectively.

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

Our effective tax rate for the three and nine months ended September 30, 2021 was 7 % and 1 %, respectively.

Our effective tax rate for the three and nine months ended September 30, 2020 was 11 % and 18 %, 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, discrete tax adjustments including benefits related to stock-based compensation, 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, discrete tax adjustments including tax benefits related to stock-based compensation, and for the nine months ended September 30, 2020, tax expense related to the intra-group transfer of intellectual property.

NOTE 17— RESTRUCTURING AND OTHER CHARGES

During the first quarter of 2020, management approved a strategic reduction of the existing global workforce as part of a multiphase process to reorganize our workforce concurrently with the redesign of our operating structure, which spanned multiple quarters.

The associated restructuring charges for the three months ended June 30, 2021 were de minimis and for the six months ended June 30, 2021 were $ 27 million.

During the three and six months ended June 30, 2020, the associated restructuring charges were $ 26 million and $ 55 million, respectively.

During the three and nine months ended September 30, 2021, the associated restructuring charges were nil and $ 27 million, respectively.

During the three and nine months ended September 30, 2020, the associated restructuring charges were $ 19 million and $ 74 million, respectively.

We primarily incurred employee severance and benefits costs, as well as other associated consulting costs under the 2020 strategic reduction, substantially all of which have been accrued as of June 30, 2021.

The following table summarizes the restructuring reserve activity during the six months ended June 30, 2021:

The following table summarizes the restructuring reserve activity during the nine months ended September 30, 2021:

Employee Severance and Benefits and Other Associated Costs

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Payments ( 72 )

Accrued liability as of June 30, 2021

Additionally, in the six months ended June 30, 2021 and 2020 we incurred asset impairment charges of $ 26 million and $ 21 million, respectively, due to the exiting of certain leased properties which resulted in a reduction of certain ROU lease assets and related leasehold improvements.

Accrued liability as of September 30, 2021

Additionally, in the nine months ended September 30, 2021 and 2020 we incurred asset impairment charges of $ 26 million and $ 21 million, respectively, due to the exiting of certain leased properties which resulted in a reduction of certain ROU lease assets and related leasehold improvements.

See “Note 6—Leases” for additional information.

NOTE 18— SUBSEQUENT EVENTS

In October 2021, we completed the acquisition of Paidy, Inc.

(“Paidy”) for approximately $ 2.7 billion, consisting of approximately $ 2.5 billion in cash, and approximately $ 175 million in assumed restricted stock and restricted stock units, subject to vesting conditions.

Paidy is a two-sided payments platform that primarily provides buy now, pay later solutions (installment credit offerings) in Japan.

With the acquisition of Paidy, we intend to expand our capabilities and relevance in Japan.

The acquisition will be accounted for as a business combination.

The purchase price allocation has not yet been completed, and as such, further disclosure has been omitted.

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