What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-07-29 · 140 added, 125 removed, 264 unchanged (50% of the section changed)

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The coronavirus (“COVID-19”) pandemic resulted in government authorities and businesses throughout the world implementing numerous measures intended to contain and limit the spread of COVID-19, including travel restrictions, border closures, quarantines, shelter-in-place and lock-down orders, mask and social distancing requirements, and business limitations and shutdowns.

The spread of COVID-19 has caused us to make significant modifications to our business practices, including enabling most of our workforce to work from home, establishing strict health and safety protocols for our offices, restricting physical participation in meetings, events, and conferences and imposing restrictions on employee travel.

The spread of COVID-19 and increased variants has caused, and may continue to cause us to make significant modifications to our business practices, including enabling most of our workforce to work from home, establishing strict health and safety protocols for our offices, restricting physical participation in meetings, events, and conferences, and imposing restrictions on employee travel.

We will continue to actively monitor the situation and may take further actions that may alter our business practices as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, or business partners.

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and EU (excluding the U.K.) for the periods presented:

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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Net revenues generated from the EU (excluding the U.K.) 18 % 18 % 20 % 18 %

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Gross loans and interest receivable due from customers in the U.K.

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OVERVIEW OF RESULTS OF OPERATIONS

The following table provides a summary of our condensed consolidated financial results for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30, Percent Increase/(Decrease) Six Months Ended June 30, Percent Increase/(Decrease)

The following table provides a summary of our condensed consolidated financial results for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30, Percent Increase/(Decrease) Nine Months Ended September 30, Percent Increase/(Decrease)

2021 2020 2021 2020

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Other income (expense), net $ 122 $ 167 (27) % $ 181 $ 880 (79) %

Income tax expense (benefit) $ 172 $ 269 (36) % $ (53) $ 448 (112) %

Income tax expense 78 123 (37) % 25 571 (96) %

Effective tax rate 7 % 11 % ** 1 % 18 % **

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** Not meaningful

THREE MONTHS ENDED JUNE 30, 2021 AND 2020

Net revenues increased $977 million, or 19%, in the three months ended June 30, 2021 compared to the same period of the prior year driven primarily by growth in total payment volume (“TPV”, as defined below under “Net Revenues”) of 40%.

Total operating expenses increased $801 million, or 19%, in the three months ended June 30, 2021 compared to the same period of the prior year due primarily to an increase in transaction expense, and to a lesser extent, increases in sales and marketing expenses, technology and development expenses, and customer support and operations expenses.

These increases were partially offset by a decline in transaction and credit losses and restructuring and other charges.

Operating income increased by $176 million, or 19%, in the three months ended June 30, 2021 compared to the same period of the prior year due to growth in net revenues, partially offset by an increase in operating expenses.

Our operating margin was 18% in both the three months ended June 30, 2021 and 2020.

Operating margin for the three months ended June 30, 2021 was positively impacted by the decrease in transaction and credit losses.

Net income decreased by $346 million, or 23%, in the three months ended June 30, 2021 compared to the same period of the prior year due to a decrease of $619 million in other income (expense), net, driven primarily by lower net gains on strategic investments than in the prior period, partially offset by the previously discussed increase in operating income of $176 million and a decrease in income tax expense of $97 million driven primarily by a decrease in tax expense associated with the lower net gains on strategic investments.

SIX MONTHS ENDED JUNE 30, 2021 AND 2020

Net revenues increased $2.4 billion, or 24%, in the six months ended June 30, 2021, compared to the same period of the prior year driven primarily by growth in TPV of 45%.

Total operating expenses increased $1.6 billion, or 18%, in the six months ended June 30, 2021, compared to the same period of the prior year due primarily to an increase in transaction expense, and to a lesser extent, increases in sales and marketing expenses, technology and development expenses, and customer support and operations expense, partially offset by a decrease in transaction and credit losses.

Operating income increased by $820 million, or 61%, in the six months ended June 30, 2021, compared to the same period of the prior year due to growth in net revenues, partially offset by an increase in operating expenses.

Our operating margin was 18% and 14% in the six months ended June 30, 2021 and 2020, respectively.

Operating margin for the six months ended June 30, 2021 was positively impacted by revenue growth outpacing growth in operating expenses, which benefited from a decrease in transaction and credit losses.

Net income increased by $667 million, or 41%, in the six months ended June 30, 2021, compared to the same period of the prior year due to the previously discussed increase in operating income of $820 million and a decrease in income tax expense of $501 million, driven primarily by tax expense related to the intra-group transfer of intellectual property in the six months ended June 30, 2020 with no comparable activity in the current period and an increase in tax benefits associated with discrete tax adjustments.

THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Net revenues increased $723 million, or 13%, in the three months ended September 30, 2021 compared to the same period of the prior year driven primarily by growth in total payment volume (“TPV”, as defined below under “Net Revenues”) of 26%.

Total operating expenses increased $657 million, or 15%, in the three months ended September 30, 2021 compared to the same period of the prior year due primarily to an increase in transaction expense, and to a lesser extent, increases in technology and development expenses and sales and marketing expenses.

These increases were partially offset by a decline in transaction and credit losses.

Operating income increased by $66 million, or 7%, in the three months ended September 30, 2021 compared to the same period of the prior year due to growth in net revenues, partially offset by an increase in operating expenses.

Our operating margin was 17% and 18% in the three months ended September 30, 2021 and 2020, respectively.

Operating margin for the three months ended September 30, 2021 was positively impacted by the decline in transaction and credit losses.

Net income increased by $66 million, or 6%, in the three months ended September 30, 2021 compared to the same period of the prior year due to the previously discussed increase in operating income of $66 million and a decrease in income tax expense of $45 million driven by higher benefits associated with discrete tax adjustments and lower net gains on strategic investments, partially offset by a decrease of $45 million in other income (expense), net driven primarily by lower net gains on strategic investments.

NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Net revenues increased $3.1 billion, or 20%, in the nine months ended September 30, 2021 compared to the same period of the prior year driven primarily by growth in TPV of 38%.

Total operating expenses increased $2.2 billion, or 17%, in the nine months ended September 30, 2021 compared to the same period of the prior year due primarily to an increase in transaction expense, and to a lesser extent, increases in sales and marketing expenses, technology and development expenses, and customer support and operations expense, partially offset by a decline in transaction and credit losses.

Operating income increased by $886 million, or 38%, in the nine months ended September 30, 2021 compared to the same period of the prior year due to growth in net revenues, partially offset by an increase in operating expenses.

Our operating margin was 17% and 15% in the nine months ended September 30, 2021 and 2020, respectively.

Operating margin for the nine months ended September 30, 2021 was positively impacted by revenue growth outpacing growth in operating expenses, which benefited from a decline in transaction and credit losses.

Net income increased by $733 million, or 28%, in the nine months ended September 30, 2021 compared to the same period of the prior year due to the previously discussed increase in operating income of $886 million and a decrease in income tax expense of $546 million, driven primarily by lower expense related to intra-group transfers of intellectual property, higher benefits associated with discrete tax adjustments, and lower net gains on strategic investments.

This was partially offset by a decrease of $699 million in other income (expense), net driven primarily by lower net gains on strategic investments compared to the prior period.

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dollar versus the British Pound, Euro, Australian dollar, and Canadian dollar, as well as other currencies in which we conduct our international operations, impacts the translation of our net revenues and expenses generated in these foreign currencies into the U.S.

We generated approximately 48% of our net revenues from customers domiciled outside of the U.S.

in both the three and six months ended June 30, 2021.

We generated approximately 44% and 47% of our net revenues from customers domiciled outside of the U.S.

in the three and six months ended June 30, 2020, respectively.

in the three and nine months ended September 30, 2021, respectively.

We generated approximately 48% of our net revenues from customers domiciled outside of the U.S.

in both the three and nine months ended September 30, 2020.

Because we generate substantial net revenues internationally, we are subject to the risks of doing business outside of the U.S.

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Gains and losses from these foreign currency exchange contracts are recognized as a component of transaction revenues in the same period the forecasted transactions impact earnings.

In the three and six months ended June 30, 2021, year-over-year foreign currency movements relative to the U.S.

In the three and nine months ended September 30, 2021, year-over-year foreign currency movements relative to the U.S.

dollar had the following impact on our reported results:

Three Months Ended June 30, 2021 Six Months Ended June 30, 2021

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021

(In millions)

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Unfavorable impact to operating expense (29) (203)

Net favorable impact to operating income $ 47 $ 105

Net (unfavorable) favorable impact to operating income $ (12) $ 93

While we enter into foreign currency exchange contracts to help reduce the impact on earnings from foreign currency exchange rate movements, it is impossible to predict or eliminate the total effects of this exposure.

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• Number of payment transactions per active account reflects the total number of payment transactions within the previous 12-month period, divided by active accounts at the end of the period.

The number of payment transactions per active account provides management with insight into the number of times a customer is engaged in payments activity on our Payments Platform in a given period.

The number of payment transactions per active account provides management with insight into the average number of times customer accounts engage in payments activity on our Payments Platform in a given period.

• TPV is the value of payments, net of payment reversals, successfully completed on our Payments Platform, or enabled by PayPal via a partner payment solution, not including gateway-exclusive transactions.

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Net revenue analysis

The components of our net revenues for the three and six months ended June 30, 2021 and 2020 were as follows (in millions):

The components of our net revenues for the three and nine months ended September 30, 2021 and 2020 were as follows (in millions):

Transaction revenues

Transaction revenues grew by $852 million, or 17%, and $2.3 billion, or 25%, for the three and six months ended June 30, 2021, respectively, compared to the same periods of the prior year.

The growth in transaction revenues was mainly attributable to our core PayPal and Braintree products and services driven by strong growth in TPV and the number of payment transactions, both of which resulted primarily from an increase in our active accounts.

In the current period, we benefited from the recovery of travel and events verticals, which were adversely impacted in the prior year as a result of the COVID-19 pandemic.

These factors favorably impacting growth in transaction revenues in the current period were offset by a decline in TPV and revenue we generate from merchants on eBay’s marketplace platform, which we expect to continue to decline for the remainder of the year.

Transaction revenues grew by $531 million, or 10%, in the three months ended September 30, 2021 compared to the same period of the prior year driven primarily by growth in Braintree products and services and, to a lesser extent, Venmo products and services.

Transaction revenues grew by $2.8 billion, or 20%, for the nine months ended September 30, 2021 compared to the same period of the prior year mainly attributable to our core PayPal and Braintree products and services.

The transaction revenue growth in the three and nine months ended September 30, 2021 was driven by strong growth in TPV and the number of payment transactions on our Payments Platform.

In the three and nine months ended September 30, 2021, we benefited from the recovery of travel and events verticals, which were adversely impacted in the prior year as a result of the COVID-19 pandemic.

These factors favorably impacting growth in transaction revenues in the current period were offset by a decline in TPV and revenue we generate from eBay’s marketplace platform, which we expect to continue to negatively impact revenue growth trends through the remainder of 2021, and to a lesser extent in 2022.

In the first quarter of 2020, we experienced an adverse impact on our TPV and transaction revenues due to the initial impact of the COVID-19 pandemic.

The shift beginning in the second quarter of 2020 from in-store payment methods to digital payments (as described above) has continued to benefit our business.

The graphs below present the respective key metrics (in millions) for the three and six months ended June 30, 2021 and 2020:

The graphs below present the respective key metrics (in millions) for the three and nine months ended September 30, 2021 and 2020:

* Reflects active accounts at the end of the applicable period.

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The following table provides a summary of related metrics:

Three Months Ended June 30, Percent Increase/(Decrease) Six Months Ended June 30, Percent Increase/(Decrease)

Three Months Ended September 30, Percent Increase/(Decrease) Nine Months Ended September 30, Percent Increase/(Decrease)

2021 2020 2021 2020

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** Not meaningful

We had 403 million active accounts as of June 30, 2021 compared to 346 million as of June 30, 2020, an increase of 16%.

Number of payment transactions were 4.7 billion for the three months ended June 30, 2021 compared to 3.7 billion in the three months ended June 30, 2020, an increase of 27%.

Number of payment transactions were 9.1 billion for the six months ended June 30, 2021 compared to 7.0 billion in the six months ended June 30, 2020, an increase of 30%.

TPV was $311 billion for the three months ended June 30, 2021 compared to $222 billion in the three months ended June 30, 2020, an increase of 40%.

TPV was $596 billion for the six months ended June 30, 2021 compared to $412 billion in the six months ended June 30, 2020, an increase of 45%.

Transaction revenues grew more slowly than TPV and number of payment transactions for the three and six months ended June 30, 2021 compared to the same periods in the prior year due primarily to a decline in eBay’s marketplace platform TPV with higher rates, a higher portion of TPV generated by platform partners, large merchants, and other marketplaces who generally pay lower rates with higher transaction volumes, and an unfavorable impact from hedging.

Changes in prices charged to our customers did not significantly impact transaction revenue growth for the three and six months ended June 30, 2021.

We had 416 million active accounts as of September 30, 2021 compared to 361 million as of September 30, 2020, an increase of 15%.

Number of payment transactions were 4.9 billion for the three months ended September 30, 2021 compared to 4.0 billion in the three months ended September 30, 2020, an increase of 22%.

Number of payment transactions were 14.0 billion for the nine months ended September 30, 2021 compared to 11.0 billion in the nine months ended September 30, 2020, an increase of 27%.

TPV was $310 billion for the three months ended September 30, 2021 compared to $247 billion in the three months ended September 30, 2020, an increase of 26%.

TPV was $906 billion for the nine months ended September 30, 2021 compared to $659 billion in the nine months ended September 30, 2020, an increase of 38%.

Transaction revenues grew more slowly than TPV and number of payment transactions for the three and nine months ended September 30, 2021 compared to the same periods in the prior year due primarily to a decline in eBay’s marketplace platform TPV with higher rates, a higher portion of TPV generated by platform partners, large merchants, and other marketplaces who generally pay lower rates with higher transaction volumes, and an unfavorable impact from hedging.

Changes in prices charged to our customers did not significantly impact transaction revenue growth for the three and nine months ended September 30, 2021.

Revenues from other value added services

Revenues from other value added services increased $125 million, or 40%, and $134 million, or 19%, in the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year primarily attributable to increases in our revenue share with Synchrony Bank (“Synchrony”), interest and fee revenue on our consumer loans receivable portfolio driven primarily by growth in international markets, and fee revenue from the servicing of loans under the U.S.

Revenues from other value added services increased $192 million, or 50%, and $326 million, or 30%, in the three and nine months ended September 30, 2021, respectively, compared to the same periods in the prior year primarily attributable to increases in our revenue share with Synchrony Bank (“Synchrony”) and fee revenue from the servicing of loans under the U.S.

Government’s Paycheck Protection Program (“PPP”) administered by the U.S.

Small Business Administration (“SBA”) and enacted in March 2020 under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in response to the COVID-19 pandemic.

Small Business Administration and enacted in March 2020 under the Coronavirus Aid, Relief, and Economic Security Act in response to the COVID-19 pandemic.

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

Revenues from other value added services for the three and six months ended June 30, 2021 were negatively impacted by a decline in interest and fee revenue on our merchant loans receivable portfolio due to a decrease in outstanding loans and in interest earned on certain assets underlying customer account balances resulting from lower interest rates.

The total gross consumer and merchant loans receivable balance was $3.9 billion as of June 30, 2021 and $4.0 billion as of June 30, 2020, reflecting a year-over-year decrease of 4% driven by a decline in our merchant receivable portfolio due to reduced originations as a result of modifications to our acceptable risk parameters in 2020, partially offset by growth in our consumer receivable portfolio due to increased originations including from the expansion of our installment credit products.

The fee revenue associated with servicing the PPP loans in the three and nine months ended September 30, 2021 was $93 million and $145 million, respectively, which included the acceleration of revenue recognized upon loan forgiveness and the extinguishment of our servicing obligations for a portion of the outstanding loans.

At September 30, 2021, the remaining unearned fee revenue associated with the PPP loans was not material.

The growth in revenues from other value added services in the three and nine months ended September 30, 2021 was also attributable to an increase in interest and fee revenue on our consumer loans receivable portfolio driven primarily by growth in international markets, partially offset by a decline in interest and fee revenue on our merchant loans receivable portfolio due to a decrease in outstanding loans and a decline in interest earned on certain assets underlying customer account balances resulting from lower interest rates.

The total gross consumer and merchant loans receivable balance was $4.2 billion as of September 30, 2021 and $3.4 billion as of September 30, 2020, reflecting a year-over-year increase of 23%.

The year-over-year increase in total gross consumer and merchant loans receivable was driven by growth in our consumer receivable portfolio due to increased originations primarily from the expansion of our installment credit products, partially offset by a decline in our merchant receivable portfolio due to reduced originations as a result of modifications to our acceptable risk parameters in 2020.

In response to the COVID-19 pandemic, we took both proactive and reactive measures during 2020 to support our merchants and consumers that had loans and interest receivables due to us under our credit product offerings.

These measures were intended to help reduce financial difficulties experienced by our customers and included providing payment holidays to grant payment deferrals to certain borrowers for varying periods of time, and amended payment terms through loan modifications in certain cases.

These measures have adversely impacted and may continue to adversely impact the recognition of interest and fee income in future periods.

Given the uncertainty surrounding the COVID-19 pandemic, including its duration and severity, related global economic conditions and the ultimate impact it may have on the financial condition of our merchants and consumers, the extent of these types of actions and their prospective impact on our interest and fee income is not determinable.

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Further, in the event the overall return on the PayPal branded credit programs managed by Synchrony does not meet the minimum return threshold as measured over four consecutive quarters and in the following quarter, we would be required to make a payment to Synchrony, subject to certain limitations.

Through June 30, 2021, the overall return on the PayPal branded credit programs funded by Synchrony exceeded the minimum return threshold.

Through September 30, 2021, the overall return on the PayPal branded credit programs funded by Synchrony exceeded the minimum return threshold.

OPERATING EXPENSES

The following table summarizes our operating expenses and related metrics we use to assess the trends in each:

Three Months Ended June 30, Percent Increase/(Decrease) Six Months Ended June 30, Percent Increase/(Decrease)

Three Months Ended September 30, Percent Increase/(Decrease) Nine Months Ended September 30, Percent Increase/(Decrease)

2021 2020 2021 2020

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Transaction expense

Transaction expense for the three and six months ended June 30, 2021 and 2020 was as follows (in millions):

Transaction expense increased by $681 million, or 37%, and $1.2 billion, or 34%, in the three and six months ended June 30, 2021, respectively, compared to the same periods of the prior year due primarily to the increase in TPV of 40% and 45% for the three and six months ended June 30, 2021, respectively.

The decrease in transaction expense rate for the three and six months ended June 30, 2021 compared to the same periods of the prior year was due primarily to favorable changes in product mix.

The decrease in transaction expense rate for the six months ended June 30, 2021 was also attributable to favorable changes in merchant mix and funding mix.

Transaction expense for the three and nine months ended September 30, 2021 and 2020 was as follows (in millions):

Transaction expense increased by $542 million, or 27%, and $1.8 billion, or 31%, in the three and nine months ended September 30, 2021, respectively, compared to the same periods of the prior year due primarily to the increase in TPV of 26% and 38% for the three and nine months ended September 30, 2021, respectively.

The increase in transaction expense rate for the three months ended September 30, 2021 compared to the same period of the prior year was due primarily to unfavorable changes in product and funding mix.

The decrease in transaction expense rate for the nine months ended September 30, 2021 was attributable to changes in product mix, merchant mix, and funding mix.

Our transaction expense rate is impacted by changes in product mix, merchant mix, regional mix, funding mix, and assessments charged by payment processors and other financial institutions when we draw funds from a customer’s credit or debit card, bank account, or other funding sources.

The cost of funding a transaction with a credit or debit card is generally higher than the cost of funding a transaction from a bank or through internal sources such as a PayPal or Venmo account balance or PayPal Credit.

For each of the three and six months ended June 30, 2021, approximately 1% of TPV was funded with PayPal Credit, compared to approximately 2% of TPV for the same periods of 2020.

For the three and six months ended June 30, 2021, approximately 39% and 40% of TPV, respectively, was generated outside of the U.S.

For the three and six months ended June 30, 2020, approximately 40% and 39% of TPV, respectively, was generated outside of the U.S.

For each of the three and nine months ended September 30, 2021, approximately 1% of TPV was funded with PayPal Credit, compared to approximately 1% and 2% of TPV, respectively, for the same periods of 2020.

For the three and nine months ended September 30, 2021, approximately 38% and 39% of TPV, respectively, was generated outside of the U.S.

For each of the three and nine months ended September 30, 2020, approximately 39% of TPV was generated outside of the U.S.

As we expand the availability and presentation of alternative funding sources to our customers, our funding mix may change, which could increase or decrease our transaction expense rate.

Transaction and credit losses

The components of our transaction and credit losses for the three and six months ended June 30, 2021 and 2020 were as follows (in millions):

Transaction and credit losses decreased by $271 million, or 62%, and $589 million, or 57%, in the three and six months ended June 30, 2021, respectively, compared to the same periods of the prior year.

Transaction losses were $273 million in the three months ended June 30, 2021 compared to $271 million in the three months ended June 30, 2020, an increase of $2 million, or 1%.

Transaction losses were $554 million in the six months ended June 30, 2021 compared to $518 million in the six months ended June 30, 2020, an increase of $36 million, or 7%.

Transaction loss rate (transaction losses divided by TPV) was 0.09% and 0.12% for the three months ended June 30, 2021 and 2020, respectively, and 0.09% and 0.13% for the six months ended June 30, 2021 and 2020, respectively.

The increase in transaction losses in the three and six months ended June 30, 2021 was primarily due to growth in TPV, which was substantially offset by benefits realized from continued risk mitigation strategies, which contributed to a decrease in our transaction loss rate in the three and six months ended June 30, 2021 compared to the same periods of the prior year.

The components of our transaction and credit losses for the three and nine months ended September 30, 2021 and 2020 were as follows (in millions):

Transaction and credit losses decreased by $76 million, or 22%, and $665 million, or 48%, in the three and nine months ended September 30, 2021, respectively, compared to the same periods of the prior year.

Transaction losses were $293 million in the three months ended September 30, 2021 compared to $329 million in the three months ended September 30, 2020, a decrease of $36 million, or 11%.

Transaction losses were $847 million in both the nine months ended September 30, 2021 and 2020, respectively.

Transaction loss rate (transaction losses divided by TPV) was 0.09% for both the three and nine months ended September 30, 2021 and 0.13% for both the three and nine months ended September 30, 2020.

The decrease in transaction losses in the three months ended September 30, 2021 was primarily due to benefits realized from continued risk mitigation strategies, partially offset by growth in TPV.

These factors contributed to a decrease in our transaction loss rate in the three and nine months ended September 30, 2021 compared to the same periods of the prior year.

The duration and severity of the impacts of the COVID-19 pandemic and related global economic conditions remain unknown.

The negative impacts on macroeconomic conditions could increase the risk of merchant bankruptcy, insolvency, business failure, or other business interruption, which may adversely impact our transaction losses, particularly for merchants that sell goods or services in advance of the date of their delivery or use.

Credit losses declined by $273 million, or 162%, and $625 million, or 122% in the three and six months ended June 30, 2021, respectively, compared to the same periods of the prior year.

The components of credit losses for the three and six months ended June 30, 2021 and 2020 were as follows (in millions):

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

Credit losses declined by $40 million, or 267%, and $665 million, or 126% in the three and nine months ended September 30, 2021, respectively, compared to the same periods of the prior year.

The components of credit losses for the three and nine months ended September 30, 2021 and 2020 were as follows (in millions):

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

2021 2020 2021 2020

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(2) Reserve build (release) represents change in allowance for principal receivables excluding foreign currency remeasurement and, for the prior periods, impact of adoption of credit losses accounting standard.

The benefit in the three and six months ended June 30, 2021 was attributable to the net release of reserves for loans and interest receivable due to improvements in both current and projected macroeconomic conditions, including lower projected unemployment, lower projected consumer credit card charge off rates, and improving growth in projected household income, as well as the credit quality of loans outstanding, partially offset by provisions for originations during the period.

The benefit in the three and nine months ended September 30, 2021 was attributable to the net release of reserves for loans and interest receivable due to improvements in both current and projected macroeconomic conditions, including lower projected unemployment, lower projected consumer credit card charge-off rates, and improving growth in projected household income, as well as the credit quality of loans outstanding, partially offset by provisions for originations during the period.

The net release of reserves also reflects the impact of qualitative adjustments to allowances for our merchant and consumer portfolios.

These qualitative adjustments resulted in increases in reserves to account for a high degree of uncertainty around the financial health of our consumer and merchant borrowers, including uncertainty around the effectiveness of loan modification programs made available to merchants, as well as continued volatility with respect to both projected and actual macroeconomic conditions.

The credit losses in the three and six months ended June 30, 2020 were associated with an increase in provisions for our loans and interest receivable portfolio resulting from a reserve build driven by a deterioration in macroeconomic projections reflecting the anticipated impact of the COVID-19 pandemic and factored into the determination of our current expected credit losses.

The consumer loans and interest receivable balance as of June 30, 2021 and 2020 was $2.5 billion and $1.5 billion, respectively, representing a year-over-year increase of 70% driven by growth of our installment credit products in international markets and the U.S.

as well as growth of PayPal Credit in international markets.

Approximately 68% and 89% of our consumer loans receivable outstanding as of June 30, 2021 and 2020, respectively, were due from consumers in the U.K.

The credit losses in the three months ended September 30, 2020 were due to provisions for originations partially offset by reserve releases associated with modest improvement in credit quality and macroeconomic conditions during the period.

The credit losses in the nine months ended September 30, 2020 were primarily associated with an increase in provisions for our loans and interest receivable portfolio resulting from a reserve build driven by a sharp deterioration in macroeconomic projections reflecting the anticipated impact of the COVID-19 pandemic, significantly increasing our current expected credit losses, and to a lesser extent, provisions associated with originations and changes in credit quality during the period.

The consumer loans and interest receivable balance as of September 30, 2021 and 2020 was $2.8 billion and $1.6 billion, respectively, representing a year-over-year increase of 72% driven by growth of our installment credit products in international markets and the U.S.

and, to a lesser extent, growth of PayPal Credit in international markets.

Approximately 63% and 87% of our consumer loans receivable outstanding as of September 30, 2021 and 2020, respectively, were due from consumers in the U.K.

The decline in the percentage of consumer loans receivable outstanding in the U.K.

at June 30, 2021 compared to June 30, 2020 was due to overall growth in the consumer loan portfolio, particularly from installment credit products in other markets.

at September 30, 2021 compared to September 30, 2020 was due to overall growth in the consumer loan portfolio, particularly from installment credit products in other markets.

The following table provides information regarding the credit quality of our consumer loans and interest receivable balance:

September 30,

Percent of consumer loans and interest receivable current 96.8 % 98.2 %

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(2) Net charge-off rate is the annual ratio of net credit losses, excluding fraud losses, on consumer loans receivables as a percentage of the average daily amount of consumer loans and interest receivables balance during the period.

The net charge-off rate at September 30, 2021 benefited from a sale of previously charged off receivables.

We offer access to credit products for certain small and medium-sized merchants, which we refer to as our merchant lending offerings.

Total merchant loans, advances, and interest and fees receivable outstanding, net of participation interest sold, as of June 30, 2021 were $1.3 billion, compared to $2.5 billion as of June 30, 2020, representing a year-over-year decrease of 48%.

Total merchant loans, advances, and interest and fees receivable outstanding, net of participation interest sold, as of September 30, 2021 were $1.4 billion, compared to $1.7 billion as of September 30, 2020, representing a year-over-year decrease of 21%.

The decrease in merchant loans, advances, and interest and fees receivable outstanding was due primarily to a reduction in originations due to modifications in our acceptable risk parameters as well as a shift towards merchants borrowing through the PPP.

We do not own the receivables associated with loans originated through the PPP.

Approximately 80% and 10% of our merchant receivables outstanding as of June 30, 2021 were due from merchants in the U.S.

and U.K., respectively, as compared to 86% and 8%, respectively, as of June 30, 2020.

Approximately 81% and 9% of our merchant receivables outstanding as of September 30, 2021 were due from merchants in the U.S.

and U.K., respectively, as compared to 84% and 8%, respectively, as of September 30, 2020.

The following table provides information regarding the credit quality of our merchant loans, advances, and interest and fees receivable balance:

September 30,

Percent of merchant receivables within original expected or contractual repayment period 90.5 % 77.6 %

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(2) Net charge-off rate is the annual ratio of net credit losses, excluding fraud losses, on merchant loans and advances as a percentage of the average daily amount of merchant loans, advances, and interest and fees balance during the period.

The increase in the percent of merchant receivables within the original expected or contractual repayment period, decrease in percent of merchant receivables greater than 90 days outstanding, and decrease in the net charge-off rate for merchant receivables at September 30, 2021 as compared to September 30, 2020 was due to the charge off of delinquent accounts that had been granted payment holidays or experienced financial difficulties as a result of the COVID-19 pandemic in the prior year as well as improved portfolio performance.

Beginning in the third quarter of 2020, we have granted certain merchants loan modifications intended to provide them with financial relief and help enable us to mitigate losses.

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Modifications to the acceptable risk parameters of our credit products in 2020 in response to the impacts of the COVID-19 pandemic resulted in the implementation of a number of risk mitigation strategies, including reduction of maximum loan size, tightening eligibility terms, and a shift from automated to manual underwriting of loans and advances.

These changes in acceptable risk parameters have resulted in a decrease in merchant receivables as of June 30, 2021.

These changes in acceptable risk parameters have resulted in a decrease in originations as compared to pre-pandemic levels, which has resulted in a decrease in merchant receivables as of September 30, 2021 as compared to September 30, 2020.

We continue to evaluate and modify our acceptable risk parameters in response to the changing macroeconomic environment and such changes in 2021 have resulted in a gradual increase in originations over the past six months.

While the impact of the COVID-19 pandemic on the economic environment remains uncertain, the longer and more severe the pandemic, the more likely it is to have a material adverse impact on our borrowing base, which is primarily comprised of small and medium-sized merchants.

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Customer support and operations

Customer support and operations expenses for the three and six months ended June 30, 2021 and 2020 were as follows (in millions):

Customer support and operations expenses increased by $98 million, or 23%, and $217 million, or 26%, in the three and six months ended June 30, 2021, respectively, compared to the same periods of the prior year due primarily to increases in employee-related expenses, customer onboarding and compliance costs, and contractors and consulting costs that support the growth of our active accounts and payment transactions.

Customer support and operations expenses for the three and nine months ended September 30, 2021 and 2020 were as follows (in millions):

Customer support and operations expenses increased by $55 million, or 12%, and $272 million, or 21%, in the three and nine months ended September 30, 2021, respectively, compared to the same periods of the prior year due primarily to increases in employee-related expenses, customer onboarding and compliance costs, and contractors and consulting costs that support the growth of our active accounts and payment transactions.

Sales and marketing

Sales and marketing expenses for the three and six months ended June 30, 2021 and 2020 were as follows (in millions):

Sales and marketing expenses increased by $214 million, or 52%, and $445 million, or 57%, in the three and six months ended June 30, 2021, respectively, compared to the same periods of the prior year due primarily to higher spending on marketing programs, including the acquisition of new customer accounts and the promotion of new product experiences, and to a lesser extent, employee-related expenses.

Sales and marketing expenses for the three and nine months ended September 30, 2021 and 2020 were as follows (in millions):

Sales and marketing expenses increased by $78 million, or 17%, and $523 million, or 42%, in the three and nine months ended September 30, 2021, respectively, compared to the same periods of the prior year due primarily to higher spending on marketing programs including user incentives to promote increased user engagement and new user acquisition.

The growth in sales and marketing expenses in the nine months ended September 30, 2021 was also attributable to increase in employee-related expenses.

Technology and development

Technology and development expenses for the three and six months ended June 30, 2021 and 2020 were as follows (in millions):

Technology and development expenses increased by $115 million, or 18%, and $251 million, or 20%, in the three and six months ended June 30, 2021, respectively, compared to the same periods of the prior year due primarily to increases in costs related to contractors and consultants, employee-related expenses, cloud computing services utilized in delivering our products, and depreciation expense.

Technology and development expenses for the three and nine months ended September 30, 2021 and 2020 were as follows (in millions):

Technology and development expenses increased by $81 million, or 12%, and $332 million, or 17%, in the three and nine months ended September 30, 2021, respectively, compared to the same periods of the prior year due primarily to increases in costs related to contractors and consultants, cloud computing services utilized in delivering our products, and depreciation expense.

In the three months ended September 30, 2021, the increase was partially offset by a decline in employee-related costs whereas in the nine months ended September 30, 2021 employee-related costs contributed to the growth in technology and development expenses.

General and administrative

General and administrative expenses for the three and six months ended June 30, 2021 and 2020 were as follows (in millions):

General and administrative expenses increased by $10 million, or 2%, and $48 million, or 5%, in the three and six months ended June 30, 2021, respectively, compared to the same periods of the prior year due primarily to an increase in employee-related expenses partially offset by a decrease in professional services expenses.

The increase in the six months ended June 30, 2021 was also attributable to expenses associated with software services.

General and administrative expenses for the three and nine months ended September 30, 2021 and 2020 were as follows (in millions):

General and administrative expenses decreased by $5 million, or 1%, and increased by $43 million, or 3%, in the three and nine months ended September 30, 2021, respectively, compared to the same periods of the prior year.

The decrease in general and administrative expenses in the three months ended September 30, 2021 was primarily attributable to a decrease in employee-related costs, partially offset by an increase in expenses associated with software services.

The increase in general and administrative expenses in the nine months ended September 30, 2021 was primarily due to an increase in employee-related expenses and expenses associated with software services, partially offset by a decrease in professional services expenses.

Restructuring and other charges

Restructuring and other charges for the three and six months ended June 30, 2021 and 2020 were as follows (in millions):

Restructuring and other charges decreased by $46 million and $17 million in the three and six months ended June 30, 2021, respectively, compared to the same periods of the prior year.

Restructuring and other charges for the three and nine months ended September 30, 2021 and 2020 were as follows (in millions):

Restructuring and other charges decreased by $18 million and $35 million in the three and nine months ended September 30, 2021, respectively, compared to the same periods of the prior year.

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.

For information on the associated restructuring liability, see “Note 17—Restructuring and Other Charges” in the notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

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 right of use lease assets and related leasehold improvements.

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 right of use lease assets and related leasehold improvements.

Other income (expense), net

Other income (expense), net decreased $619 million, or 73%, and $654 million, or 92%, in the three and six months ended June 30, 2021, respectively, compared to the same periods of the prior year due primarily to lower net gains on strategic investments as compared to the prior periods.

Income tax expense (benefit)

Our effective income tax rate was 13% and 15% for the three months ended June 30, 2021 and 2020, respectively.

The decrease in our effective income tax rate for the three months ended June 30, 2021 compared to the same period of the prior year was due primarily to a decrease in tax expense associated with lower net gains on strategic investments.

Our effective income tax rate was (2)% and 22% for the six months ended June 30, 2021 and 2020, respectively.

The decrease in our effective income tax rate for the six months ended June 30, 2021 compared to the same period of the prior year was primarily attributable to tax expense related to an intra-group transfer of intellectual property in the six months ended June 30, 2020 with no comparable activity in the current period, and an increase in tax benefits associated with discrete tax adjustments including stock-based compensation deductions.

Other income (expense), net decreased $45 million, or 27%, and $699 million, or 79%, in the three and nine months ended September 30, 2021, respectively, compared to the same periods of the prior year due primarily to lower net gains on strategic investments.

Income tax expense

Our effective income tax rate was 7% and 11% for the three months ended September 30, 2021 and 2020, respectively.

The decrease in our effective income tax rate for the three months ended September 30, 2021 compared to the same period of the prior year was due primarily to an increase in tax benefits associated with discrete tax adjustments and a decrease in tax expense associated with lower net gains on strategic investments, partially offset by tax expense related to intra-group transfers of intellectual property in the current period.

Our effective income tax rate was 1% and 18% for the nine months ended September 30, 2021 and 2020, respectively.

The decrease in our effective income tax rate for the nine months ended September 30, 2021 compared to the same period of the prior year was primarily attributable to a decrease in tax expense related to the intra-group transfers of intellectual property and an increase in tax benefits associated with discrete tax adjustments including stock-based compensation deductions.

LIQUIDITY AND CAPITAL RESOURCES

We require liquidity and access to capital to fund our global operations, including customer protection programs, our credit products, capital expenditures, investments in our business, potential acquisitions and strategic investments, working capital, and other cash needs.

The following table summarizes our cash, cash equivalents, and investments as of June 30, 2021 and December 31, 2020:

June 30, 2021 December 31, 2020

The following table summarizes our cash, cash equivalents, and investments as of September 30, 2021 and December 31, 2020:

September 30, 2021 December 31, 2020

(In millions)

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$ 16,539 $ 15,852

(1) Excludes assets related to funds receivable and customer accounts of $35.7 billion and $33.4 billion at June 30, 2021 and December 31, 2020, respectively.

(2) Excludes total restricted cash of $18 million and $88 million at June 30, 2021 and December 31, 2020, respectively, and strategic investments of $3.2 billion as of both June 30, 2021 and December 31, 2020.

(1) Excludes assets related to funds receivable and customer accounts of $35.1 billion and $33.4 billion at September 30, 2021 and December 31, 2020, respectively.

(2) Excludes total restricted cash of $23 million and $88 million at September 30, 2021 and December 31, 2020, respectively, and strategic investments of $3.5 billion and $3.2 billion as of September 30, 2021 and December 31, 2020, respectively.

Foreign cash, cash equivalents, and investments

Cash, cash equivalents, and investments held by our foreign subsidiaries were $7.7 billion as of June 30, 2021 and $7.0 billion at December 31, 2020, or 48% and 44% of our total cash, cash equivalents, and investments as of those respective dates.

Cash, cash equivalents, and investments held by our foreign subsidiaries were $11.0 billion as of September 30, 2021 and $7.0 billion at December 31, 2020, or 67% and 44% of our total cash, cash equivalents, and investments as of those respective dates.

At December 31, 2020, all of our cash, cash equivalents, and investments held by foreign subsidiaries were subject to U.S.

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We maintain uncommitted credit facilities in various regions throughout the world with a borrowing capacity of approximately $80 million in the aggregate, where we can withdraw and utilize the funds at our discretion for general corporate purposes.

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.

Other than as described above, there are no significant changes to the available credit and debt disclosed in our 2020 Form 10‑K.

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The net balance of the withdrawals and the Aggregate Cash Deposits are used by the financial institution as a basis for calculating our net interest expense or income under the arrangement.

As of June 30, 2021, we had a total of $3.4 billion in cash withdrawals offsetting our $3.4 billion in Aggregate Cash Deposits held within the financial institution under the cash pooling arrangement.

As of September 30, 2021, we had a total of $6.7 billion in cash withdrawals offsetting our $6.7 billion in Aggregate Cash Deposits held within the financial institution under the cash pooling arrangement.

Liquidity for loans receivable

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During the first quarter of 2021, an additional $700 million was approved to fund such credit activities.

As of June 30, 2021, the cumulative amount approved by management to be designated for credit activities aggregated to $2.7 billion and represented approximately 27% of European customer balances that have been made available for our corporate use at that date as determined by applying financial regulations maintained by the CSSF.

As of September 30, 2021, the cumulative amount approved by management to be designated for credit activities aggregated to $2.7 billion and represented approximately 27% of European customer balances that have been made available for our corporate use at that date as determined by applying financial regulations maintained by the CSSF.

We may periodically seek to designate additional amounts of customer balances, if necessary, based on utilization of the approved funds and anticipated credit funding requirements.

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Credit ratings

As of June 30, 2021, we continue to be rated investment grade by Standard and Poor’s Financial Services, LLC, Fitch Ratings, Inc., and Moody’s Investors Services, Inc.

As of September 30, 2021, we continue to be rated investment grade by Standard and Poor’s Financial Services, LLC, Fitch Ratings, Inc., and Moody’s Investors Services, Inc.

We expect that these credit rating agencies will continue to monitor our performance, including our capital structure and results of operations.

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Stock repurchases and acquisitions

During the six months ended June 30, 2021, we repurchased approximately $1.5 billion of our common stock 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.

During the nine months ended September 30, 2021, we repurchased approximately $1.9 billion of our common stock in the open market under our stock repurchase program authorized in July 2018.

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.

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.

In the second quarter of 2021, we completed three acquisitions for $524 million in aggregate, consisting primarily of cash consideration.

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In 2020, we announced our commitment to invest $535 million to support racial equality.

As of June 30, 2021, we have deployed substantially all of the commitment through charitable contributions, grants to small businesses, internal investments to support and strengthen diversity and inclusion initiatives, and an economic opportunity fund focused on bolstering our relationships with community banks and credit unions serving underrepresented minority communities, as well as investing directly into black- and minority-led startups and minority-focused investment funds, among other initiatives.

As of September 30, 2021, we have deployed substantially all of the commitment through charitable contributions, grants to small businesses, internal investments to support and strengthen diversity and inclusion initiatives, and an economic opportunity fund focused on bolstering our relationships with community banks and credit unions serving underrepresented minority communities, as well as investing directly into black- and minority-led startups and minority-focused investment funds, among other initiatives.

Our liquidity, access to capital, and borrowing costs could be adversely impacted by declines in our credit rating, our financial performance, and global credit market conditions, as well as a broad range of other factors including those related to the COVID-19 pandemic discussed in this Form 10-Q.

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The following table summarizes our condensed consolidated statements of cash flows:

Six Months Ended June 30,

Nine Months Ended September 30,

(In millions)

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Operating activities

We generated cash from operating activities of $3.1 billion in the six months ended June 30, 2021 due primarily to operating income of $2.2 billion, as well as adjustments for non-cash expenses including stock-based compensation of $758 million, depreciation and amortization of $616 million, and provision for transaction and credit losses of $442 million.

Net income was also adjusted for net gains on our strategic investments of $163 million, changes in accounts receivable of $112 million, changes in deferred income taxes of $103 million, and changes in other assets and liabilities of $793 million, primarily related to actual cash transaction losses incurred during the period.

We generated cash from operating activities of $3.2 billion in the six months ended June 30, 2020 due primarily to operating income of $1.3 billion, as well as adjustments for non-cash expenses including provision for transaction and credit losses of $1.0 billion, stock-based compensation of $635 million, and depreciation and amortization of $590 million.

Net income was also adjusted for net gains on our strategic investments of $764 million and changes in income taxes payable of $114 million.

In the six months ended June 30, 2021 and 2020, cash paid for income taxes, net was $380 million and $70 million, respectively.

We generated cash from operating activities of $4.6 billion in the nine months ended September 30, 2021 due primarily to operating income of $3.2 billion, as well as adjustments for non-cash expenses including stock-based compensation of $1.1 billion, depreciation and amortization of $939 million, and provision for transaction and credit losses of $710 million.

Net income was also adjusted for net gains on our strategic investments of $336 million, changes in deferred income taxes of $175 million, changes in accounts receivable of $155 million, and changes in other assets and liabilities of $892 million, primarily related to actual cash transaction losses incurred during the period.

We generated cash from operating activities of $4.5 billion in the nine months ended September 30, 2020 due primarily to operating income of $2.3 billion, as well as adjustments for non-cash expenses including provision for transaction and credit losses of $1.4 billion, stock-based compensation of $999 million, and depreciation and amortization of $888 million.

Net income was also adjusted for net gains on our strategic investments of $973 million, changes in income taxes payable of $115 million, and changes in other assets and liabilities of $220 million, primarily related to actual cash transaction losses of $816 million incurred during the period and an increase in other assets of $218 million, partially offset by an increase in accrued expenses and other liabilities of $814 million.

In the nine months ended September 30, 2021 and 2020, cash paid for income taxes, net was $436 million and $444 million, respectively.

Investing activities

The net cash used in investing activities of $2.7 billion in the six months ended June 30, 2021 was due primarily to purchases of investments of $20.2 billion, acquisitions (net of cash acquired) of $469 million, purchases of property and equipment of $468 million, and changes in principal loans receivable, net of $316 million.

These cash outflows were partially offset by maturities and sales of investments of $18.7 billion and changes in funds receivable from customers of $127 million.

The net cash used in investing activities of $10.1 billion in the six months ended June 30, 2020 was due primarily to purchases of investments of $14.8 billion, acquisitions (net of cash acquired) of $3.6 billion, changes in funds receivable from customers of $1.1 billion, and purchases of property and equipment of $399 million.

These cash outflows were partially offset by maturities and sales of investments of $9.8 billion and proceeds from the sale of property and equipment of $120 million.

The net cash used in investing activities of $2.4 billion in the nine months ended September 30, 2021 was due primarily to purchases of investments of $30.9 billion, purchases of property and equipment of $695 million, changes in principal loans receivable, net of $643 million, and acquisitions (net of cash acquired) of $469 million.

These cash outflows were partially offset by maturities and sales of investments of $30.4 billion.

The net cash used in investing activities of $13.3 billion in the nine months ended September 30, 2020 was due primarily to purchases of investments of $28.3 billion, acquisitions (net of cash acquired) of $3.6 billion, changes in funds receivable from customers of $1.1 billion, and purchases of property and equipment of $640 million.

These cash outflows were partially offset by maturities and sales of investments of $19.7 billion, changes in principal loans receivable, net of $523 million, and proceeds from the sale of property and equipment of $120 million.

Financing activities

We generated cash from financing activities of $630 million in the six months ended June 30, 2021 due primarily to changes in funds payable and amounts due to customers of $3.0 billion, partially offset by the repurchase of $1.5 billion of our common stock under our stock repurchase program, and tax withholdings related to net share settlement of equity awards of $940 million.

We generated cash from financing activities of $9.2 billion in the six months ended June 30, 2020 due primarily to cash proceeds from the issuance of long-term debt in the form of fixed rate notes as well as proceeds from borrowings under our credit agreement of $7.0 billion and changes in funds payable and amounts due to customers of $6.6 billion.

The net cash used in financing activities of $186 million in the nine months ended September 30, 2021 due primarily to the repurchase of $1.9 billion of our common stock under our stock repurchase program and tax withholdings related to net share settlement of equity awards of $1.0 billion, partially offset by changes in funds payable and amounts due to customers of $2.6 billion.

We generated cash from financing activities of $10.1 billion in the nine months ended September 30, 2020 due primarily to changes in funds payable and amounts due to customers of $7.9 billion and cash proceeds from the issuance of long-term debt in the form of fixed rate notes as well as proceeds from borrowings under our credit agreement of $7.0 billion.

These cash inflows were partially offset by the repayment of outstanding borrowings under our credit agreement of $3.0 billion, the repurchase of $1.4 billion of our common stock under our stock repurchase programs, and tax withholdings related to net share settlement of equity awards of $463 million.

Effect of exchange rates on cash, cash equivalents, and restricted cash

Foreign currency exchange rates had a negative impact of $34 million on cash, cash equivalents, and restricted cash for the six months ended June 30, 2021 due primarily to fluctuations in the exchange rate of the U.S.

dollar to the Australian dollar, and to a lesser extent, the Euro and Swedish krona.

Foreign currency exchange rates had a negative impact of $72 million on cash, cash equivalents, and restricted cash for the six months ended June 30, 2020, due to the strengthening of the U.S.

dollar against certain foreign currencies, primarily the Brazilian real.

Foreign currency exchange rates for the nine months ended September 30, 2021 and 2020 had a negative impact of $106 million and positive impact of $26 million, respectively, on cash, cash equivalents, and restricted cash due primarily to fluctuations in the exchange rate of the U.S.

dollar to the Australian dollar.

OFF-BALANCE SHEET ARRANGEMENTS

As of June 30, 2021, 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, 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.

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 2. Management’s Discussion and Analysis