What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-02-03 compared with 2021-02-05 · 532 added, 536 removed, 1585 unchanged (40% of the section changed)

6 unchanged sentences

Based on its evaluation under the framework in Internal Control - Integrated Framework , our management concluded that our internal control over financial reporting was effective as of December 31, 2021.

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

Based upon Securities and Exchange Commission staff guidance, companies are permitted to exclude acquisitions from their assessment of internal control over financial reporting for the first year of acquisition.

We have excluded Paidy from our assessment of internal control over financial reporting as of December 31, 2021.

Paidy is a wholly-owned subsidiary whose total revenue and assets, excluding goodwill and intangibles, represented less than 1% of our total consolidated revenue and consolidated assets for the year ended and as of December 31, 2021.

The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in Item 15(a) of this Form 10-K.

2 unchanged sentences

OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

11 unchanged sentences

Consolidated Financial Statements Page

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 238 )

Consolidated Balance Sheets

32 unchanged sentences

We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s report on internal control over financial reporting, management has excluded Paidy, Inc.

from its assessment of internal control over financial reporting as of December 31, 2021 because it was acquired by the Company in a purchase business combination during 2021.

We have also excluded Paidy, Inc.

from our audit of internal control over financial reporting.

is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent less than 1% of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.

Definition and Limitations of Internal Control over Financial Reporting

9 unchanged sentences

Allowance for Loans Receivable

As described in Notes 1 and 11 to the consolidated financial statements, as of December 31, 2020, the Company recorded total loans and interest receivable of $2,769 million, net of an allowance for current expected credit losses of $838 million.

As described in Notes 1 and 11 to the consolidated financial statements, as of December 31, 2021, the Company recorded total loans and interest receivable of $4,846 million, net of an allowance of $491 million.

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

Management applies macroeconomic factors such as forecasted trends in unemployment and benchmark credit card charge-off rates, which are sourced externally, using a single scenario to reflect the economic conditions applicable to a particular period.

Management also includes qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of current expected credit losses.

The principal considerations for our determination that performing procedures relating to the allowance for loans receivable is a critical audit matter are (i) the significant judgment by management in estimating the allowance for loans receivable, which in turn led to a high level of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to management’s application of macroeconomic forecasts and certain qualitative adjustments to the allowance for loans receivable;

Management applies macroeconomic factors such as forecasted trends in unemployment rates, which are sourced externally, using a single scenario to reflect the economic conditions applicable to a particular period.

Management also includes qualitative adjustments that incorporate incremental information not captured in the expected credit loss models.

The principal considerations for our determination that performing procedures relating to the allowance for loans receivable is a critical audit matter are (i) the high degree of auditor subjectivity and effort in performing procedures and evaluating audit evidence relating to certain models which apply macroeconomic forecasts to estimate expected credit losses;

and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the allowance for loans receivable, including controls over the application of macroeconomic forecasts and qualitative adjustments to the allowance.

These procedures included testing the effectiveness of controls relating to the allowance for loans receivable, including controls over certain models which apply macroeconomic forecasts to estimate expected credit losses.

These procedures also included, among others, the involvement of professionals with specialized skill and knowledge to assist in testing management’s process for estimating the allowance for loans receivable.

Testing management’s process included (i) evaluating the appropriateness of the methodology and models (ii) testing the completeness and accuracy of certain data used in the estimate, and (iii) evaluating the reasonableness of management’s application of macroeconomic forecasts and certain qualitative adjustments to the allowance.

Testing management’s process included (i) evaluating the appropriateness of the methodology and certain models;

(ii) testing the completeness and accuracy of certain data used in the estimate;

and (iii) evaluating the reasonableness of management’s application of macroeconomic forecasts to estimate expected credit losses.

/s/ PricewaterhouseCoopers LLP

64 unchanged sentences

Income before income taxes 4,099 5,065 2,998

Income tax expense 863 539 319

Income tax (benefit) expense ( 70 ) 863 539

Net income $ 4,169 $ 4,202 $ 2,459

15 unchanged sentences

Net investment hedge CTA gain (loss) — 55 ( 31 )

Unrealized (losses) gains on cash flow hedges, net ( 329 ) ( 176 ) 293

Tax benefit (expense) on unrealized (losses) gains on cash flow hedges, net 4 3 ( 5 )

Unrealized gains (losses) on investments, net 9 15 ( 1 )

Tax (expense) benefit on unrealized gains (losses) on investments, net ( 2 ) ( 5 ) 1

Unrealized gains (losses) on cash flow hedges, net 522 ( 329 ) ( 176 )

Tax (expense) benefit on unrealized gains (losses) on cash flow hedges, net ( 26 ) 4 3

Unrealized (losses) gains on investments, net ( 98 ) 9 15

Tax benefit (expense) on unrealized (losses) gains on investments, net 22 ( 2 ) ( 5 )

Other comprehensive income (loss), net of tax 348 ( 311 ) ( 251 )

8 unchanged sentences

Balances at December 31, 2018 1,174 $ ( 5,511 ) $ 14,939 $ 78 $ 5,880 $ — $ 15,386

Net income — — — — 2,057 — 2,057

Foreign CTA — — — ( 68 ) — — ( 68 )

Unrealized gain on cash flow hedges, net — — — 293 — — 293

Tax expense on unrealized gains on cash flow hedges, net — — — ( 5 ) — — ( 5 )

Unrealized losses on investments, net — — — ( 1 ) — — ( 1 )

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

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 18 — ( 251 ) — — — ( 251 )

Common stock repurchased ( 44 ) ( 3,510 ) ( 15 ) — — — ( 3,525 )

Stock-based compensation — — 891 — — — 891

Balances at December 31, 2018 1,174 $ ( 5,511 ) $ 14,939 $ 78 $ 5,880 $ — $ 15,386

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

23 unchanged sentences

Balances at December 31, 2020 1,172 $ ( 8,507 ) $ 16,644 $ ( 484 ) $ 12,366 $ 44 $ 20,063

Net income — — — — 4,169 — 4,169

Foreign CTA — — — ( 72 ) — — ( 72 )

Unrealized gains on cash flow hedges, net — — — 522 — — 522

Tax expense on unrealized gains on cash flow hedges, net — — — ( 26 ) — — ( 26 )

Unrealized losses on investments, net — — — ( 98 ) — — ( 98 )

Tax benefit on unrealized losses on investments, net — — — 22 — — 22

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 11 — ( 881 ) — — — ( 881 )

Common stock repurchased ( 15 ) ( 3,373 ) — — — — ( 3,373 )

Stock-based compensation — — 1,445 — — — 1,445

Change in noncontrolling interest — — — — — ( 44 ) ( 44 )

Balances at December 31, 2021 1,168 $ ( 11,880 ) $ 17,208 $ ( 136 ) $ 16,535 $ — $ 21,727

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

11 unchanged sentences

Deferred income taxes ( 482 ) 165 ( 269 )

Cost basis adjustments to loans and interest receivable held for sale — — 244

Net gains on strategic investments ( 46 ) ( 1,914 ) ( 208 )

17 unchanged sentences

Funds receivable 193 ( 1,552 ) ( 351 )

Net cash (used in) provided by investing activities ( 16,218 ) ( 5,742 ) 821

Net cash used in investing activities ( 5,485 ) ( 16,218 ) ( 5,742 )

Cash flows from financing activities:

1 unchanged sentence

Purchases of treasury stock ( 3,373 ) ( 1,635 ) ( 1,411 )

Tax withholdings related to net share settlements of restricted stock units and restricted stock awards ( 521 ) ( 504 ) ( 419 )

Tax withholdings related to net share settlements of equity awards ( 1,036 ) ( 521 ) ( 504 )

Borrowings under financing arrangements 272 6,966 5,471

2 unchanged sentences

Other financing activities — ( 52 ) —

Net cash provided by (used in) financing activities 12,492 4,187 ( 1,240 )

Net cash (used in) provided by financing activities ( 764 ) 12,492 4,187

Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 102 ) 169 ( 6 )

10 unchanged sentences

Cash paid for income taxes, net $ 474 $ 565 $ 665

The below table reconciles cash, cash equivalents, and restricted cash as reported in the consolidated balance sheets to the total of the same amounts shown in the consolidated statements of cash flows:

The table below reconciles cash, cash equivalents, and restricted cash as reported in the consolidated balance sheets to the total of the same amounts shown in the consolidated statements of cash flows:

Cash and cash equivalents $ 5,197 $ 4,794 $ 7,349

3 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2 unchanged sentences

PayPal Holdings, Inc.

(“PayPal,” the “Company,” “we,” “us,” or “our”) was incorporated in Delaware in January 2015 and is a leading technology platform and digital payments company that enables digital and mobile payments on behalf of merchants and consumers worldwide.

PayPal is committed to democratizing financial services to improve the financial health of individuals and to increase economic opportunity for entrepreneurs and business of all sizes around the world.

Our goal is to enable our merchants and consumers to manage and move their money anywhere in the world, anytime, on any platform, and using any device when sending payments or getting paid.

We also facilitate person-to-person (“P2P”) payments through our PayPal, Venmo, and Xoom products and services and simplify and personalize shopping experiences for our consumers through our Honey Platform.

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

The terms “we,” “our,” “us,” “the Company,” and “PayPal” mean PayPal Holdings, Inc.

and, unless otherwise expressly stated or the context requires, its subsidiaries.

(“PayPal,” the “Company,” “we,” “us,” or “our”) was incorporated in Delaware in January 2015 and is a leading technology platform that enables digital payments and simplifies commerce experiences on behalf of merchants and consumers worldwide.

PayPal is committed to democratizing financial services to help improve the financial health of individuals and to increase economic opportunity for entrepreneurs and businesses of all sizes around the world.

Our goal is to enable our merchants and consumers to manage and move their money anywhere in the world in the markets we serve, anytime, on any platform, and using any device when sending payments or getting paid, including person-to-person (“P2P”) payments.

We operate globally and in a rapidly evolving regulatory environment characterized by a heightened focus by regulators globally on all aspects of the payments industry, including countering terrorist financing, anti-money laundering, privacy, cybersecurity, and consumer protection.

The laws and regulations applicable to us, including those enacted prior to the advent of digital and mobile payments, are continuing to evolve through legislative and regulatory action and judicial interpretation.

The laws and regulations applicable to us, including those enacted prior to the advent of digital payments, are continuing to evolve through legislative and regulatory action and judicial interpretation.

New or changing laws and regulations, including the changes to their interpretation and implementation, as well as increased penalties and enforcement actions related to non-compliance, could have a material adverse impact on our business, results of operations, and financial condition.

4 unchanged sentences

All intercompany balances and transactions have been eliminated in consolidation.

Noncontrolling interest reported as a component of equity on our consolidated balance sheets represents the equity interests not owned by PayPal and is recorded for consolidated entities we control and of which we own less than 100%.

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

The noncontrolling interest reported in the prior period was a component of equity on our 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 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 consolidated statements of income and our investment balance is included in long-term investments on our consolidated balance sheets.

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

1 unchanged sentence

We determine at the inception of each investment, and re-evaluate if certain events occur, whether an entity in which we have made an investment is considered a variable interest entity (“VIE”).

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

As of December 31, 2020, none of these VIEs qualified for consolidation as the structures of these entities do not provide us with the ability to direct the activities that would significantly impact their economic performance.

The carrying value of our investments that are VIEs was de minimis and included as non-marketable equity securities accounted for using the equity method of accounting in long-term investments on our consolidated balance sheets.

Our maximum exposure to loss, including the carrying value of the investments and any future funding commitments, was $ 105 million as of December 31, 2020.

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

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

We have consolidated two VIEs that provide financing for and hold loans receivable of Paidy, Inc.

We are the primary beneficiary of the VIEs as we perform the servicing and collection for the loans receivable which are the activities that most significantly impact the VIE's economic performance and we have the obligation to absorb the losses and/or the right to receive the benefits of the VIE that could potentially be significant to these entities.

The financial results of our consolidated VIEs are included in the consolidated financial statements.

The carrying value of the assets and liabilities of our consolidated VIEs is included as short-term investments of $ 87 million, loans and interest receivable, net of $ 21 million, and long-term debt of $ 98 million as of December 31, 2021.

Cash of $ 87 million, included in short-term investments, is restricted to settle the debt obligations.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Our maximum exposure to loss related to our nonconsolidated VIEs, which represents funded commitments and any future funding commitments, was $ 205 million and $ 105 million as of December 31, 2021 and 2020, respectively.

Certain amounts for prior years have been reclassified to conform to the financial statement presentation as of and for the year ended December 31, 2021.

Reclassifications

Beginning with the fourth quarter of 2020, we reclassified certain cash flows related to customer balances from cash flows from operating activities to cash flows from investing activities and cash flows from financing activities within the consolidated statements of cash flows.

Prior period amounts have been reclassified to conform to the current period presentation.

These changes have no impact on our previously reported consolidated net income, financial position, net change in cash, cash equivalents, and restricted cash, or total cash, cash equivalents, and restricted cash as reported on our consolidated statements of cash flows.

The current period presentation classifies all changes in funds receivable and customer accounts and funds payable and amounts due to customers consistently on our consolidated statement of cash flows as cash flows from investing activities and cash flows from financing activities, respectively, regardless of which product the cash flows relate to on our Payments Platform.

The current period presentation provides a more meaningful representation of the cash flows related to the movement of customer funds due to the restrictions on and use of those funds.

The following tables present the effects of the changes on the presentation of these cash flows to the previously reported consolidated statements of cash flows:

Year Ended December 31, 2019

(In millions)

As Previously Reported (1)

Adjustments Reclassified

Net cash provided by (used in):

Operating activities (2)

$ 4,561 $ ( 490 ) $ 4,071

Investing activities (3)

( 5,733 ) ( 9 ) ( 5,742 )

Financing activities (4)

3,688 499 4,187

Effect of exchange rates on cash, cash equivalents, and restricted cash ( 6 ) — ( 6 )

Net increase in cash, cash equivalents, and restricted cash $ 2,510 $ — $ 2,510

(1) As reported in our 2019 Form 10-K filed with the SEC on February 6, 2020.

(2) Financial statement lines impacted in operating activities were “Funds receivable” and “Funds payable and amounts due to customers,” which increased by $ 9 million and decreased by $ 499 million, respectively, to arrive at the reclassified amounts.

(3) Financial statement line impacted in investing activities was “Funds receivable.”

(4) Financial statement line impacted in financing activities was “Funds payable and amounts due to customers.”

Year Ended December 31, 2018

(In millions)

As Previously Reported (1)

Adjustments Reclassified

Net cash provided by (used in):

Operating activities (2)

$ 5,483 $ ( 3 ) $ 5,480

Investing activities (3)

840 ( 19 ) 821

Financing activities (4)

( 1,262 ) 22 ( 1,240 )

Effect of exchange rates on cash, cash equivalents, and restricted cash ( 113 ) — ( 113 )

Net increase in cash, cash equivalents, and restricted cash $ 4,948 $ — $ 4,948

(1) As reported in our 2019 Form 10-K filed with the SEC on February 6, 2020.

(2) Financial statement lines impacted in operating activities were “Funds receivable” and “Funds payable and amounts due to customers,” which increased by $ 19 million and decreased by $ 22 million, respectively, to arrive at the reclassified amounts.

(3) Financial statement line impacted in investing activities was “Funds receivable.”

(4) Financial statement line impacted in financing activities was “Funds payable and amounts due to customers.”

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Use of estimates

The preparation of consolidated financial statements in conformity with U.S.

generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, we evaluate our estimates, including those related to provisions for transaction and credit losses, loss contingencies, income taxes, revenue recognition, and the valuation of goodwill and intangible assets.

The preparation of consolidated financial statements in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, we evaluate our estimates, including those related to provisions for transaction and credit losses, income taxes, loss contingencies, revenue recognition, and the valuation of goodwill and intangible assets.

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

3 unchanged sentences

Cash and cash equivalents are short-term, highly liquid investments with original maturities of three months or less when purchased and are composed of primarily bank deposits, government and agency securities, and commercial paper.

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

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

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

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

Long-term investments include time deposits and available-for-sale debt securities with maturities exceeding one year on the reporting date, as well as our strategic investments.

Our available-for-sale debt securities are reported at fair value using the specific identification method.

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

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

Our strategic investments consist of marketable equity securities, which are publicly traded, and non-marketable equity securities, which are investments in privately held companies.

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

Our strategic investments consist of marketable equity securities, which are publicly traded, and non-marketable equity securities, which are primarily investments in privately held companies.

Marketable equity securities have readily determinable fair values with changes in fair value recorded in other income (expense), net.

Non-marketable equity securities include investments that do not have a readily determinable fair value, as well as equity method investments.

The investments that do not have readily determinable fair value are measured at cost minus impairment, if any, adjusted for changes resulting from observable price changes in orderly transactions for an identical or similar investment in the same issuer (the “Measurement Alternative”).

All gains and losses on these investments, realized and unrealized, are recorded in other income (expense), net on our consolidated statements of income.

Our investments where we have the ability to exercise significant influence, but not control, over the investee are accounted for as equity method investments and our share of the investee’s results of operations is included in other income (expense), net.

The investments that do not have readily determinable fair value are measured at cost minus impairment, if any, and are adjusted for changes resulting from observable price changes in orderly transactions for an identical or similar investment in the same issuer (the “Measurement Alternative”).

Non-marketable equity securities also include our investments where we have the ability to exercise significant influence, but not control, over the investee and account for these securities using the equity method of accounting.

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We assess whether an impairment loss on our non-marketable equity securities and an other-than-temporary impairment loss on our equity method investments (and available-for-sale debt securities, prior to 2020) has occurred due to declines in fair value or other market conditions.

If any impairment is identified for non-marketable equity securities or impairment is considered other-than-temporary for our equity method investments (and available-for-sale debt securities, prior to 2020), we write down the investment to its fair value and record the corresponding charge through other income (expense), net in our consolidated statements of income.

With respect to our available-for-sale debt securities, prior to 2020, this assessment took into account the severity and duration of the decline in value, our intent to sell the security, whether it was more likely than not we would be required to sell the security before recovery of its amortized cost basis, and whether we expected to recover the entire amortized cost basis of the security (that is, whether a credit loss existed).

Beginning in 2020, our available-for-sale debt securities in an unrealized loss position will be written down to fair value through a charge to other income (expense), net in our consolidated statements of income if we intend to sell the security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis.

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

We assess whether an impairment loss on our non-marketable equity securities and an other-than-temporary impairment loss on our equity method investments (and prior to January 1, 2020, available-for-sale debt securities) has occurred due to declines in fair value or other market conditions.

If any impairment is identified for non-marketable equity securities or impairment is considered other-than-temporary for our equity method investments (and prior to January 1, 2020, available-for-sale debt securities), we write down the investment to its fair value and record the corresponding charge through other income (expense), net in our consolidated statements of income.

Prior to January 1, 2020, this assessment with respect to our available-for-sale debt securities took into account the severity and duration of the decline in value, our intent to sell the security, whether it was more likely than not we would be required to sell the security before recovery of its amortized cost basis, and whether we expected to recover the entire amortized cost basis of the security (that is, whether a credit loss existed).

Beginning January 1, 2020, our available-for-sale debt securities in an unrealized loss position are written down to fair value through a charge to other income (expense), net in our consolidated statements of income if we intend to sell the security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis.

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

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

2 unchanged sentences

Loans and interest receivable, net represents merchant receivables originated under our PayPal Working Capital (“PPWC”) product and PayPal Business Loan (“PPBL”) product and consumer loans originated under our PayPal Credit and installment credit products.

In the U.S., we partner with an independent chartered financial institution that extends credit to merchants using our PPWC product or PPBL product and purchase the related receivables extended by the independent chartered financial institution.

For our merchant credit products outside the U.S., we extend working capital advances in the U.K.

and loans in Germany through our Luxembourg banking subsidiary, and working capital loans in Australia through an Australian subsidiary.

PayPal Credit consists of revolving credit products.

In the U.S., PPWC and PPBL products are provided under a program agreement we have with WebBank, an independent chartered financial institution.

WebBank extends credit to merchants for the PPWC and PPBL products and we are able to purchase the related receivables originated by WebBank.

For our merchant finance products outside the U.S., we extend working capital advances and loans in Europe through our Luxembourg banking subsidiary, and working capital loans in Australia through an Australian subsidiary.

In the U.S., we extend installment loans to consumers through a U.S.

For our international consumer credit products, we extend credit through our Luxembourg banking subsidiary.

As part of our arrangement with the independent chartered financial institution in the U.S., we sell back a participation interest in the pool of merchant receivables.

The independent chartered financial institution has no recourse against us related to their participation interests for failure of debtors to pay when due.

The participation interests held by the chartered financial institution have the same priority to the interests held by us and are subject to the same credit, prepayment, and interest rate risk associated with this pool of merchant receivables.

For our international consumer credit products, we extend credit in Europe through our Luxembourg banking subsidiary, and in Australia and Japan, through local subsidiaries.

As part of our arrangement with WebBank in the U.S., we sell back a participation interest in the pool of merchant receivables for the PPWC and PPBL products.

WebBank has no recourse against us related to their participation interests for failure of debtors to pay when due.

The participation interests held by WebBank have the same priority to the interests held by us and are subject to the same credit, prepayment, and interest rate risk associated with this pool of merchant receivables.

All risks of loss are shared pro rata based on participation interests held among all participating stakeholders.

1 unchanged sentence

For this arrangement, gains or losses on the sale of the participation interests are not material as the carrying amount of the participation interest sold approximates the fair value at time of transfer.

In instances where a merchant is able to demonstrate that they are experiencing financial difficulty, there may be a modification of the loans or advances and the related interest receivable for which it is probable that, without modification, we will be unable to collect all amounts due, therefore resulting in a troubled debt restructuring (“TDR”).

In instances where a merchant is able to demonstrate that it is experiencing financial difficulty, there may be a modification of the loans or advances and the related interest receivable for which it is probable that, without modification, we will be unable to collect all amounts due, therefore resulting in a troubled debt restructuring (“TDR”).

Refer to “Note 11—Loans and Interest Receivable” for further information related to TDRs.

Loans, advances, and interest and fees receivable are reported at their outstanding balances, net of any participation interests sold and pro rata current expected credit losses, including unamortized deferred origination costs.

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

We maintain the servicing rights for the entire pool of consumer and merchant receivables outstanding and receive a market-based service fee for servicing the assets underlying the participation interest sold.

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

4 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consumer Credit Portfolio

In November 2017, we reached an agreement to sell our U.S.

consumer credit receivables portfolio to Synchrony Bank (“Synchrony”).

Following the closing of this transaction in July 2018, Synchrony became the exclusive issuer of the PayPal Credit online consumer financing program in the U.S.

We no longer hold an ownership interest in the receivables generated through the program and thus, no longer record these receivables on our consolidated financial statements.

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

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

consumers using our PayPal Credit product.

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

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

consumer receivables outstanding under PayPal Credit consumer accounts.

For these arrangements, gains or losses on the sale of the participation interest were not material as the carrying amount of the participation interest sold approximated the fair value at time of transfer.

Synchrony Bank is the exclusive issuer of the PayPal Credit consumer financing program in the U.S.

We do not hold an ownership interest in the receivables generated through the program and therefore, do not record these receivables on our consolidated financial statements.

PayPal earns a revenue share on the portfolio of consumer receivables owned by Synchrony, which is recorded in revenues from other value added services on our consolidated statements of income.

Allowance for loans and interest receivable

3 unchanged sentences

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

Beginning in 2020, the allowance for loans and interest receivable is primarily based on expectations of credit losses based on historical lifetime loss data as well as macroeconomic forecasts applied to the portfolio, which is segmented by factors such as geographic region, delinquency, and vintage.

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

The Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“CECL”) effective January 1, 2020.

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

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

We then apply macroeconomic factors such as forecasted trends in unemployment and benchmark credit card charge-off rates, which are sourced externally, using a single scenario that we believe is most appropriate to the economic conditions applicable to a particular period.

We utilize externally sourced macroeconomic scenario data to supplement our historical information due to the limited period in which our credit product offerings have been in existence.

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

We also include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our current expected credit losses.

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

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

Our merchant receivables vary in contractual term;

however, the reasonable and supportable forecast period considered for projected loss rates is approximately 2.5 to 3.5 years, depending upon the product.

The allowance for credit losses on interest and fees receivable is determined primarily by applying loss curves to each portfolio by geography, delinquency, and period of origination, among other factors.

Prior to 2020, the allowance for our consumer loans receivable was primarily based on forecasted principal balance delinquency rates (“roll rates”).

Our consumer receivables consist of revolving products, which do not have a contractual term, and installment products.

The reasonable and supportable forecast period for revolving products, installment products, and merchant products that we have included in our projected loss rates, which approximates the estimated life of the loans, is approximately 2 years, approximately 7 months to 2.5 years, and approximately 2.5 to 3.5 years, respectively.

In 2020, the reasonable and supportable forecast period for revolving consumer products was based only on externally sourced data due to the lack of availability of historical data, and in 2021, it was updated to reflect historical loss experience with the portfolio.

This change did not result in a material impact to the reserve.

The allowance for current expected credit losses on interest and fees receivable is determined primarily by applying loss curves to each portfolio by geography, delinquency, and period of origination, among other factors.

Prior to January 1, 2020, the allowance for our consumer loans receivable was primarily based on forecasted principal balance delinquency rates (“roll rates”).

Roll rates are the percentage of balances which we estimate would migrate from one stage of delinquency to the next based on our historical experience, as well as external factors such as estimated bankruptcies and levels of unemployment.

Roll rates were applied to the principal amount of our consumer receivables for each stage of delinquency, from current to 179 days past the payment due date, in order to estimate the principal loans which had incurred losses and were probable to be charged off.

Roll rates were applied to the principal amount of our consumer receivables for each stage of delinquency, from current to 179 days past the payment due date, to estimate the principal loans which had incurred losses and were probable to be charged off.

For merchant loans and advances receivable, the allowance was primarily based on principal balances, forecasted delinquency rates, and recoveries through the use of a vintage-based loss forecasting model.

4 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In connection with our agreement to sell our U.S.

consumer credit receivables to Synchrony and the designation of that portfolio as held for sale, in November 2017, we reversed the corresponding allowances against those loans and interest receivable balances.

Such allowances on any newly originated U.S.

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

Adjustments to the cost basis of this portfolio until the sale was completed in July 2018, which were primarily driven by charge-offs, were recorded in restructuring and other charges on our consolidated statements of income.

Customer accounts

11 unchanged sentences

credit activities.

As of December 31, 2020, the cumulative amount approved by management to be designated for credit activities aggregated to $ 2.0 billion and represented approximately 21 % of European customer balances potentially available for our corporate use at that date, as determined by applying financial regulations maintained by the CSSF.

During the year ended December 31, 2021, an additional $ 700 million was approved to fund such credit activities.

As of December 31, 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.

At the time PayPal’s management designates the European customer balances held in our Luxembourg banking subsidiary to be used to extend credit, the balances are classified as cash and cash equivalents and no longer classified as customer accounts on our consolidated balance sheets.

The remaining assets underlying the customer balances remain separately classified as customer accounts on our consolidated balance sheets.

We do not commingle these customer accounts with corporate funds and maintain these assets separately in interest and non-interest bearing bank deposits, time deposits, corporate debt securities, government and agency securities, and asset-backed securities.

We identify these customer accounts separately from corporate funds and maintain them in interest and non-interest bearing bank deposits, time deposits, and available-for-sale debt securities.

Customer balances deposited with our partners on a short-term basis in advance of customer transactions and used to fulfill our direct obligation under amounts due to customers are classified as cash and cash equivalents within our customer accounts classification on our consolidated balance sheets.

See “Note 8—Funds Receivable and Customer Accounts and Investments” for additional information related to customer accounts.

7 unchanged sentences

Property and equipment

Property and equipment consists primarily of computer equipment, software and website development costs, land and buildings, and leasehold improvements.

Property and equipment consists primarily of computer equipment, software and website development costs, land and buildings, leasehold improvements, and furniture and fixtures.

Property and equipment are stated at historical cost less accumulated depreciation and amortization.

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Direct costs incurred to develop software for internal use and website development costs, including those costs incurred in expanding and enhancing our payments platform, are capitalized and amortized generally over an estimated useful life of three years and are recorded as amortization within the financial statement captions aligned with the internal organizations that are the primary beneficiaries of such assets.

We capitalized $ 462 million and $ 347 million of internally developed software and website development costs for the years ended December 31, 2021 and 2020, respectively.

Amortization expense for these capitalized costs was $ 366 million, $ 322 million, and $ 298 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Costs related to the maintenance of internal use software and website development costs are expensed as incurred

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

2 unchanged sentences

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

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

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

ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

Our leases do not provide an implicit rate and therefore we use an incremental borrowing rate for specific terms on a collateralized basis based on the information available on the commencement date in determining the present value of lease payments.

Our leases do not provide an implicit rate and therefore we use an incremental borrowing rate for specific terms on a collateralized basis using information available on the commencement date in determining the present value of lease payments.

The ROU asset calculation includes lease payments to be made and excludes lease incentives.

9 unchanged sentences

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

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

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

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

The Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) effective January 1, 2019, using a modified retrospective basis and applied the optional practical expedients related to the transition.

The Company adopted ASU 2016-02, Leases (Topic 842) effective January 1, 2019, using a modified retrospective basis and applied the optional practical expedients related to the transition.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Goodwill and intangible assets

10 unchanged sentences

Intangible assets consist of acquired customer list and user base intangible assets, marketing related intangibles, developed technology, and other intangible assets.

Intangible assets are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from one to eight years .

Intangible assets are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from one to seven years .

No significant residual value is estimated for intangible assets.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Impairment of long-lived assets

We evaluate long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable.

An asset is considered impaired if its carrying amount exceeds the future net discounted cash flow the asset is expected to generate.

An asset is considered impaired if its carrying amount exceeds the future undiscounted cash flow the asset is expected to generate.

Allowance for transaction losses

2 unchanged sentences

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

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

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

The allowance is monitored regularly and is updated based on actual loss data.

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

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

The allowance for transaction losses was included in accrued expenses and other current liabilities on our consolidated balance sheets.

The allowance for transaction losses is included in accrued expenses and other current liabilities on our consolidated balance sheets.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Allowance for negative customer balances

1 unchanged sentence

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

We also utilize third-party collection agents.

We also utilize third-party collection agencies.

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

13 unchanged sentences

Level 2 instrument valuations are obtained from quoted prices for identical instruments in less active markets, readily available pricing sources for comparable instruments, or models using market observable inputs.

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Concentrations of risk

Our cash, cash equivalents, accounts receivable, loans and interest receivable, funds receivable and customer accounts, and long-term notes receivable are potentially subject to concentration of credit risk.

Our cash, cash equivalents, short-term investments, accounts receivable, loans and interest receivable, net, funds receivable and customer accounts, long-term investments, and long-term notes receivable, are potentially subject to concentration of credit risk.

Cash, cash equivalents, and customer accounts are placed with financial institutions that management believes are of high credit quality.

1 unchanged sentence

We invest our cash, cash equivalents, and customer accounts primarily in highly liquid, highly rated instruments which are uninsured.

From time to time, we may also have corporate deposit balances with financial services institutions which exceed the FDIC insurance limit of $250,000.

We have corporate deposit balances with financial services institutions which exceed the FDIC insurance limit of $250,000.

As part of our cash management process, we perform periodic evaluations of the relative credit standing of these financial institutions.

3 unchanged sentences

and internationally.

Our long-term notes receivable is derived from the non-cash portion of the proceeds associated with the sale of our U.S.

Consumer Credit Portfolio to Synchrony in 2018.

Our long-term notes receivable is derived from deferred proceeds associated with the sale of our U.S.

consumer credit receivables portfolio to Synchrony Bank in 2018.

As of December 31, 2021 and 2020, one customer accounted for 25 % and 26 % of net accounts receivables, respectively.

No customer accounted for more than 10% of net loans receivable as of December 31, 2021 and 2020.

At December 31, 2020 and 2019, one partner accounted for our long-term notes receivable balance, which represented 28 % of other assets.

At December 31, 2021 and 2020, one partner accounted for our long-term notes receivable balance, which represented 22 % and 28 % of other assets, respectively.

During the years ended December 31, 2021, 2020, and 2019, no customer accounted for more than 10% of net revenues.

3 unchanged sentences

See “Note 2—Revenue” for information related to our revenue recognition.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Advertising expense

2 unchanged sentences

Advertising expense totaled $ 740 million, $ 654 million, and $ 399 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Internal use software and website development costs

Direct costs incurred to develop software for internal use and website development costs, including those costs incurred in expanding and enhancing our Payments Platform, are capitalized and amortized generally over an estimated useful life of three years and are recorded as depreciation and amortization within the financial statement captions aligned with the internal organizations that are the primary beneficiaries of such assets.

PayPal capitalized $ 347 million and $ 314 million of internally developed software and website development costs for the years ended December 31, 2020 and 2019, respectively.

Amortization expense for these capitalized costs was $ 322 million, $ 298 million, and $ 262 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Costs related to the maintenance of internal use software and website development costs are expensed as incurred.

Defined contribution savings plans

We have a defined contribution savings plan in the U.S.

which qualifies under Section 401(k) of the Internal Revenue Code.

which qualifies under Section 401(k) of the Internal Revenue Code (“Code”).

employees are covered by other savings plans.

Expenses related to our defined contribution savings plans are recorded when services are rendered by our employees.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock-based compensation

5 unchanged sentences

Foreign currency

Many of our foreign subsidiaries use the local currency of their respective countries as their functional currency.

Many of our foreign subsidiaries have designated the local currency of their respective countries as their functional currency.

Assets and liabilities of our non-U.S.

1 unchanged sentence

dollars at exchange rates prevailing at the balance sheet dates.

Revenues, costs, and expenses of our non-U.S.

Revenues and expenses of our non-U.S.

dollar functional currency subsidiaries are translated into U.S.

8 unchanged sentences

We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

We account for Global Intangible Low-Taxed Income (“GILTI”) as a current-period expense when incurred.

We account for Global Intangible Low-Taxed Income as a current-period expense when incurred.

Other income (expense), net

Other income (expense), net includes:

(i) interest income, which consists of interest earned on corporate cash and cash equivalents and short-term and long-term investments, (ii) interest expense, which consists of interest expenses, fees, and amortization of debt discount on our long-term debt and credit facilities, (iii) realized and unrealized gains (losses) on strategic investments, which includes changes in fair value related to our marketable equity securities and observable price changes on our non-marketable equity securities, and (iv) other, which primarily includes foreign currency exchange gains and losses due to remeasurement of certain foreign currency denominated monetary assets and liabilities, and fair value changes on the derivative contracts not designated as hedging instruments.

(i) interest income, which consists of interest earned on corporate cash and cash equivalents and short-term and long-term investments, (ii) interest expense, which consists of interest expense, fees, and amortization of debt discount on our long-term debt (including current portion) and credit facilities, (iii) realized and unrealized gains (losses) on strategic investments, which includes changes in fair value related to our marketable equity securities and observable price changes on our non-marketable equity securities, and (iv) other, which primarily includes foreign currency exchange gains and losses due to remeasurement of certain foreign currency denominated monetary assets and liabilities, and fair value changes on the derivative contracts not designated as hedging instruments.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Recent accounting guidance

5 unchanged sentences

Our exposure to London Interbank Offered Rate (“LIBOR”) is primarily limited to an insignificant portion of our available-for-sale debt securities and, accordingly, we do not expect reference rate reform to have a material impact on our consolidated financial statements.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Recently Adopted Accounting Guidance

In 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

This amended guidance simplifies certain aspects of accounting for income taxes.

It is intended to remove certain exceptions to the general principles in GAAP, reduce the cost and complexity in accounting for income taxes, and improve financial statement preparers’ application of income tax-related guidance.

It is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted.

We early adopted this guidance in the first quarter of 2020.

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

In 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

This update provided new guidance on the measurement of credit losses on financial instruments.

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

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

Additional disclosures are required, including information used to track credit quality by year of origination for most financing receivables.

We were required to apply the provisions of this guidance as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted with impairment of available-for-sale debt securities applied prospectively after adoption.

We adopted the new guidance effective January 1, 2020.

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

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

1 unchanged sentence

NOTE 2— REVENUE

PayPal enables its customers to send and receive payments.

We enable our customers to send and receive payments.

We earn revenue primarily by completing payment transactions for our customers on our payments platform and from other value added services.

2 unchanged sentences

TRANSACTION REVENUES

We earn transaction revenues primarily from fees charged to merchants and consumers on a transaction basis.

We earn transaction revenues primarily from fees paid by our customers to receive payments on our platform.

These fees may have a fixed and variable component.

1 unchanged sentence

For a portion of our transactions, the variable component of the fee is eligible for reimbursement when the underlying transaction is approved for a refund.

We estimate the amount of fee refunds that will be processed each quarter and record a provision against our net revenues.

We estimate the amount of fee refunds that will be processed each quarter and record a provision against our transaction revenues.

The volume of activity processed on our payments platform, which results in transaction revenue, is referred to as Total Payment Volume (“TPV”).

We earn additional fees on transactions where we perform currency conversion, when we enable cross-border transactions (i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for our customers from their PayPal or Venmo account to their debit card or bank account, and other miscellaneous fees.

Our transaction revenues are also reduced by certain incentives provided to our customers.

Our contracts with our customers are usually open-ended and can be terminated by either party without a termination penalty after the notice period has lapsed.

1 unchanged sentence

Our contracts generally renew automatically without any significant material rights.

Some of our contracts include tiered pricing, based primarily on volume.

Some of our contracts include tiered pricing, which are based primarily on volume.

The fee charged per transaction is adjusted up or down if the volume processed for a specified period is different from prior period defined volumes.

We have concluded that this volume-based pricing approach does not constitute a future material right since the discount is within a range typically offered to a class of customers with similar volume.

We do not have any capitalized contract costs, and do not carry any material contract balances.

We do not have any capitalized contract costs and we do not carry any material contract balances.

Our primary service comprises a single performance obligation to complete payments on our payments platform for our customers.

1 unchanged sentence

When we authorize a transaction, we become obligated to our customer to complete the payment transaction.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We recognize fees charged to our customers primarily on a gross basis as transaction revenue when we are the principal in respect of completing a payment transaction.

5 unchanged sentences

We are also responsible for providing customer support.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

To promote engagement and acquire new users on our platform, we may provide incentives to merchants and consumers in various forms including discounts on fees, rebates, rewards, and coupons.

Evaluating whether an incentive is a payment to a customer requires judgment.

Incentives that are determined to be consideration payable to a customer or paid on behalf of a customer are recognized as a reduction of revenue.

Certain incentives paid to users that are not customers are classified as sales and marketing expense.

We provide merchants and consumers with protection programs for certain transactions completed on our payments platform.

4 unchanged sentences

REVENUES FROM OTHER VALUE ADDED SERVICES

We earn revenues from other value added services, which is comprised primarily of revenue earned through partnerships, referral fees, subscription fees, gateway fees, and other services that we provide to our merchants and consumers.

We earn revenues from other value added services, which are comprised primarily of revenue earned through partnerships, referral fees, subscription fees, gateway fees, and other services that we provide to our merchants and consumers.

These contracts typically have one performance obligation which is provided and recognized over the term of the contract.

10 unchanged sentences

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

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

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

PayPal Holdings, Inc.

5 unchanged sentences

Primary geographical markets

United States (“U.S.”) $ 11,013 $ 9,417 $ 8,324

$ 13,712 $ 11,013 $ 9,417

United Kingdom (“U.K.”) 2,340 2,340 1,872

1 unchanged sentence

9,319 8,101 6,483

Total revenues (2)

Total net revenues (2)

$ 25,371 $ 21,454 $ 17,772

2 unchanged sentences

Revenues from other value added services 1,969 1,536 1,673

Total revenues (2)

Total net revenues (2)

$ 25,371 $ 21,454 $ 17,772

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

(2) Total revenues include $ 597 million, $ 1.1 billion and $ 1.2 billion for the years ended December 31, 2020, 2019, and 2018, 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 receivables, as well as hedging gains or losses and interest earned on certain assets underlying customer balances.

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

(2) Total net revenues include $ 425 million, $ 597 million, and $ 1.1 billion for the years ended December 31, 2021, 2020, and 2019, respectively, which do not represent revenues recognized in the scope of Accounting Standards Codification Topic 606, Revenue from contracts with customers.

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

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

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

2 unchanged sentences

Diluted net income per share is computed by dividing net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding for the period.

The dilutive effect of outstanding options and equity incentive awards is reflected in diluted net income per share by application of the treasury stock method.

The dilutive effect of outstanding equity incentive awards is reflected in diluted net income per share by application of the treasury stock method.

The calculation of diluted net income per share excludes all anti-dilutive common shares.

17 unchanged sentences

ACQUISITIONS COMPLETED IN 2021

During the year ended December 31, 2020, we completed one acquisition reflecting 100 % of the equity interests of the acquired company, for a purchase price of $ 3.6 billion.

Honey Science Corporation

We completed our acquisition of Honey Science Corporation (“Honey”) in January 2020 by acquiring all outstanding shares for total consideration of approximately $ 4.0 billion, consisting of approximately $ 3.6 billion in cash and approximately $ 400 million in assumed restricted stock, restricted stock units, and options, subject to vesting conditions.

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.

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

During the year ended December 31, 2021, we completed five acquisitions reflecting 100 % of the equity interests of the acquired companies, for an aggregate purchase price of $ 3.1 billion.

We completed the acquisition of Paidy in October 2021 by acquiring all outstanding shares for total consideration of approximately $ 2.7 billion, consisting of approximately $ 2.6 billion in cash, and approximately $ 161 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 following table summarizes the preliminary allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed:

(In millions)

4 unchanged sentences

Total intangibles $ 642

Accounts receivable, net 50

Loans and interest receivable, net 197

Cash and cash equivalents 101

Other net assets 87

Short-term and long-term debt ( 188 )

Deferred tax liabilities, net ( 186 )

Other net liabilities ( 36 )

Total purchase price $ 2,571

The intangible assets acquired consist primarily of customer contracts, trade name/trademarks, and developed technology with estimated useful lives of three years .

The excess of the purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill, and is attributable to the workforce of Honey and the synergies expected to arise from the acquisition through continued customer acquisition, cross selling initiatives, and product enhancements.

Goodwill was not considered deductible for income tax purposes.

In association with the acquisition, we assumed restricted stock, restricted stock units, and options with an approximate grant date fair value of $ 400 million, which represents post business combination expense.

The equity granted is a combination of shares issued to certain former Honey employees subject to a holdback arrangement and assumed Honey employee grants, which vest over a period of up to four years and are subject to continued employment.

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

Revenues and expenses related to the acquisition and pro forma results of operations have not been presented for the year ended December 31, 2020 because the effects of this acquisition were not material to our overall operations.

ACQUISITIONS COMPLETED IN 2019

There were no acquisitions accounted for as business combinations or divestitures completed in 2019.

ACQUISITIONS COMPLETED IN 2018

During the year ended December 31, 2018, we completed four acquisitions reflecting 100 % of the equity interests of the acquired companies, for an aggregate purchase price of $ 2.7 billion.

The intangible assets acquired consist primarily of merchant contracts, trade name/trademarks, and developed technology with estimated useful lives of three to seven years .

Contractual gross loans and interest receivables acquired were $ 216 million.

We expect to collect substantially all of these receivables.

The excess of the purchase consideration, including the fair value of our initial equity investment, over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill and is attributable to the workforce of Paidy and the synergies expected to arise from the acquisition, including continued customer acquisition.

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

The allocation of the purchase price for this acquisition has been prepared on a preliminary basis and changes to the allocation to certain assets, liabilities, and tax estimates may occur as additional information becomes available.

In connection with the acquisition, we issued restricted stock and restricted stock units with an approximate grant date fair value of $ 161 million, which represents post-business combination expense.

The equity granted is a combination of shares issued to certain former Paidy employees subject to a holdback arrangement and assumed Paidy employee grants, which vest over a period of up to approximately four years and are subject to continued employment.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We completed the acquisition of HWLT Holdings Inc.

(“Hyperwallet”) in November 2018 by acquiring all outstanding shares for a total purchase price of approximately $ 400 million, consisting of cash consideration.

We acquired Hyperwallet to enhance our payout capabilities and improve our ability to provide an integrated suite of payment solutions to e-commerce platforms and marketplaces around the world.

The allocation of purchase consideration resulted in approximately $ 100 million of customer-related intangible assets, approximately $ 30 million of developed technology intangible assets, and approximately $ 2 million of marketing related intangible assets with estimated useful lives ranging from three to seven years , funds receivable and customer accounts of $ 412 million, funds payable and amounts due to customers of $ 412 million, net liabilities of approximately $ 32 million, and goodwill of approximately $ 300 million, which is attributable to the workforce of Hyperwallet and the synergies expected to arise from the acquisition.

Goodwill was not considered deductible for income tax purposes.

We completed the acquisition of iZettle AB (publ) (“iZettle”) in September 2018 by acquiring all outstanding shares for a total purchase price of $ 2.2 billion, consisting of cash consideration paid of approximately $ 2.1 billion (net of cash acquired of $ 103 million) and restricted shares of PayPal with a fair value of approximately $ 22 million.

We acquired iZettle to expand our in-store presence and strengthen our Payments Platform to help small businesses around the world grow and thrive in an omnichannel retail environment.

Other Acquisitions

In 2021, we completed four other acquisitions accounted for as business combinations.

The total purchase price for these acquisitions was $ 542 million, consisting primarily of cash consideration.

The allocation of purchase consideration resulted in approximately $ 90 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 $ 437 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.

The allocation of the purchase price for these acquisitions has been prepared on a preliminary basis and changes to the allocation to certain assets, liabilities, and tax estimates may occur as additional information becomes available.

ACQUISITIONS COMPLETED IN 2020

During the year ended December 31, 2020, we completed one acquisition reflecting 100 % of the equity interests of the acquired company, for a purchase price of $ 3.6 billion.

Honey Science Corporation

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

5 unchanged sentences

Total intangibles $ 717

Funds receivable and customer accounts 47

Funds payable and amounts due to customers ( 47 )

Accounts receivable, net 50

Deferred tax liabilities, net ( 58 )

1 unchanged sentence

Total purchase price $ 3,635

The intangible assets acquired consist primarily of merchant relationships, trade name/trademarks, developed technology, and existing acquirer relationships with estimated useful lives ranging from three to seven years .

The excess of the purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill, which is attributable to the workforce of iZettle and the synergies expected to arise from the acquisition.

Goodwill was not considered deductible for income tax purposes.

We completed the acquisition of Simility, Inc.

(“Simility”) in July 2018 by acquiring all outstanding shares for a total purchase price of $ 107 million, consisting of cash consideration.

We acquired Simility to enhance our ability to deliver fraud prevention and risk management solutions to merchants globally.

The allocation of purchase consideration resulted in approximately $ 18 million of developed technology intangible assets with an estimated useful life of three years , net assets of approximately $ 10 million, and goodwill of approximately $ 79 million, which is attributable to the workforce of Simility and the synergies expected to arise from the acquisition.

Goodwill was not considered deductible for income tax purposes.

The intangible assets acquired consist primarily of customer contracts, trade name/trademarks, and developed technology with estimated useful lives of three years .

The excess of the purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill and is attributable to the workforce of Honey and the synergies expected to arise from the acquisition through continued customer acquisition, cross selling initiatives, and product enhancements.

Goodwill was not deductible for income tax purposes.

In connection with the acquisition, we assumed restricted stock, restricted stock units, and options with an approximate grant date fair value of $ 400 million, which represents post-business combination expense.

ACQUISITIONS COMPLETED IN 2019

There were no acquisitions accounted for as business combinations or divestitures completed in 2019.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other Acquisitions

In May 2018, we completed an acquisition which was accounted for as a business combination.

The total purchase price for this acquisition was $ 16 million, consisting of cash consideration.

The allocation of purchase consideration resulted in approximately $ 13 million of developed technology intangible assets with an estimated useful life of two years , net liabilities of $ 1 million, and goodwill of approximately $ 4 million, which is attributable to the workforce of the acquired company and the synergies expected to arise from the acquisition.

Goodwill was not considered deductible for income tax purposes.

OTHER INFORMATION

Prior to acquisition, we held minority interests in certain of the companies we acquired in 2021.

We remeasured these investments immediately before the completion of the respective acquisitions at an acquisition-date fair value of $ 64 million, which resulted in a gain of $ 36 million recognized as other income (expense), net in our consolidated statements of income.

The acquisition-date fair value was derived using the value paid less a control premium based on market analysis performed by a third party.

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

Revenues and expenses related to the acquisition and pro forma results of operations were not presented for the years ended December 31, 2021, 2020, and 2019 because the effects of these acquisitions were not material to our overall operations.

NOTE 5— GOODWILL AND INTANGIBLE ASSETS

5 unchanged sentences

Total goodwill $ 6,212 $ 2,962 $ ( 39 ) $ 9,135 $ 2,355 $ ( 36 ) $ 11,454

The goodwill acquired during 2020 was associated with the acquisition of Honey.

The adjustments to goodwill during 2020 and 2019 pertained to foreign currency translation adjustments.

The goodwill acquired during 2021 and 2020 was attributable to the five acquisitions completed within 2021 and our acquisition of Honey in 2020, respectively, as described further in “Note 4—Business Combinations.” The adjustments to goodwill during 2021 and 2020 pertained to foreign currency translation adjustments.

INTANGIBLE ASSETS

The components of identifiable intangible assets are as follows:

The components of identifiable intangible assets were as follows:

December 31, 2021 December 31, 2020

16 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In the fourth quarter of 2019, we completed the acquisition of a 70 percent equity interest in Guofubao Information Technology Co.

(GoPay), Ltd.

(“GoPay”), a holder of payment business licenses in China.

This transaction was accounted for as an asset acquisition because substantially all the fair value of the gross assets acquired is concentrated in the form of licenses.

We recorded $ 190 million of other intangible assets with a weighted average useful life of seven years .

Expected future intangible asset amortization as of December 31, 2020 is as follows:

Expected future intangible asset amortization as of December 31, 2021 was as follows:

Fiscal years:

3 unchanged sentences

PayPal enters into various leases, which are primarily real estate operating leases.

We use these properties for executive and administrative offices, data centers, product development offices, and customer service and operations centers.

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

We use these properties for executive and administrative offices, data centers, product development offices, customer services and operations centers, and warehouses.

While a majority of our lease agreements do not contain an explicit interest rate, we have certain lease agreements that are subject to changes based on the Consumer Price Index or another referenced index.

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

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

The short-term lease exemption has been adopted for all leases with a duration of less than 12 months.

1 unchanged sentence

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

As of December 31, 2021, we had no finance leases.

The components of lease expense were as follows:

Year Ended December 31,

2021 2020 2019

(In millions)

2 unchanged sentences

Sublease income ( 8 ) ( 6 ) ( 6 )

Total lease expense $ 160 $ 130

Supplemental cash flow information related to leases were as follows:

Lease expense, net $ 162 $ 160 $ 130

Supplemental cash flow information related to leases was as follows:

Year Ended December 31,

2021 2020 2019

(In millions)

1 unchanged sentence

Operating cash flows from operating leases $ 167 $ 159 $ 131

Right-of-use assets obtained in exchange for operating lease liabilities (1)

ROU lease assets obtained in exchange for operating lease liabilities (1)

$ 103 $ 345 $ 598

(1) Includes opening balance additions of $ 498 million for operating leases as a result of the adoption of the new lease accounting guidance effective January 1, 2019.

4 unchanged sentences

(In millions, except weighted-average figures)

Operating lease right-of-use assets $ 707 $ 479

Other current lease liabilities 144 104

Operating ROU lease assets $ 659 $ 707

Other current operating lease liabilities 142 144

Operating lease liabilities 620 642

17 unchanged sentences

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

During the year ended December 31, 2020, we incurred asset impairment charges of $ 30 million within restructuring and other charges on our consolidated statements of income.

The impairments included a reduction to our ROU asset in the amount of $ 23 million, which were attributed to certain leased spaces we are no longer utilizing for our core business operations, a portion of which is being sub-leased.

As of December 31, 2020, we also have additional operating leases that have not yet commenced, primarily for real estate and data centers, with minimum lease payments aggregating to $ 51 million.

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

In the years ended December 31, 2021 and 2020, we incurred asset impairment charges of $ 26 million and $ 30 million, respectively, within restructuring and other charges on our consolidated statements of income.

The impairments included a reduction to our ROU lease assets in the amount of $ 21 million and $ 23 million, respectively, which were attributed to certain leased space we are no longer utilizing for our core business operations, a portion of which is being subleased.

As of December 31, 2021, we have additional operating leases, primarily for real estate and data centers, which will commence in 2022 with minimum lease payments aggregating to $ 15 million and lease terms ranging from three to nine years .

PayPal Holdings, Inc.

14 unchanged sentences

Total property and equipment, net $ 1,909 $ 1,807

Depreciation and amortization expense was $ 738 million in 2020, $ 701 million in 2019, and $ 627 million in 2018.

Non-cash investing activities involving property and equipment included in net changes to accounts payable as reflected in the consolidated statements of cash flows was an increase of $ 17 million in 2020, a decrease of $ 42 million in 2019, and a decrease of $ 10 million in 2018.

Depreciation and amortization expense was $ 822 million, $ 738 million, and $ 701 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Non-cash investing activities involving property and equipment included in net changes to accounts payable as reflected in the consolidated statements of cash flows was a decrease of $ 27 million in 2021, an increase of $ 17 million in 2020, and a decrease of $ 42 million in 2019.

Geographical information

The following table summarizes long-lived assets based on geography, which consist of property and equipment, net and operating lease right-of-use assets:

The following table summarizes long-lived assets based on geography, which consist of property and equipment, net and operating lease ROU assets:

As of December 31,

6 unchanged sentences

and other countries are based upon the country in which the asset is located or owned.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the year ended December 31, 2021:

Hedges Unrealized Gains on Investments Foreign Currency Translation Adjustment ( “ CTA ”)

Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Investments Foreign Currency Translation Adjustment ( “ CTA ”)

Net Investment

Hedge CTA Gain (Loss) Estimated

Benefit Total

Hedge CTA Gain Estimated Tax

(Expense) Benefit Total

(In millions)

1 unchanged sentence

Other comprehensive income (loss) before reclassifications 332 ( 98 ) ( 72 ) — ( 4 ) 158

Amount of gain reclassified from AOCI 20 — — — — 20

Amount of loss reclassified from AOCI ( 190 ) — — — — ( 190 )

Net current period other comprehensive income (loss) 522 ( 98 ) ( 72 ) — ( 4 ) 348

Ending balance $ 199 $ ( 87 ) $ ( 270 ) $ 24 $ ( 2 ) $ ( 136 )

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

Net Investment

Hedge CTA Loss Estimated

Hedge CTA Gain (Loss) Estimated Tax

Benefit Total

2 unchanged sentences

Other comprehensive income (loss) before reclassifications ( 309 ) 9 ( 48 ) 55 2 ( 291 )

Amount of gain (loss) reclassified from AOCI 238 ( 1 ) — — — 237

Amount of gain reclassified from AOCI 20 — — — — 20

Net current period other comprehensive income (loss) ( 329 ) 9 ( 48 ) 55 2 ( 311 )

1 unchanged sentence

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

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

Estimated Tax

Benefit Total

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

Net Investment

Hedge CTA Loss Estimated Tax

(Expense) Benefit Total

(In millions)

1 unchanged sentence

Other comprehensive income (loss) before reclassifications 62 14 ( 57 ) ( 31 ) ( 2 ) ( 14 )

Amount of loss reclassified from AOCI ( 30 ) — — — ( 30 )

Amount of gain (loss) reclassified from AOCI 238 ( 1 ) — — — 237

Net current period other comprehensive income (loss) ( 176 ) 15 ( 57 ) ( 31 ) ( 2 ) ( 251 )

3 unchanged sentences

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

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

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

Affected Line Item in the Statements of Income

2 unchanged sentences

(In millions)

Gains (losses) on cash flow hedges — foreign exchange contracts

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

$ ( 190 ) $ 20 $ 238 Net revenues

44 unchanged sentences

Corporate debt securities 3,402 — ( 15 ) 3,387

Asset-backed securities 1,552 — ( 3 ) 1,549

Municipal securities 535 — — 535

Short-term investments:

2 unchanged sentences

Corporate debt securities 2,273 — — 2,273

Asset-backed securities 278 — ( 1 ) 277

Long-term investments:

16 unchanged sentences

Corporate debt securities 2,011 — — 2,011

Municipal securities 637 — — 637

Short-term investments:

government and agency securities 1,510 — — 1,510

Foreign government and agency securities 277 — — 277

10 unchanged sentences

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 $ 42 million and $ 54 million at December 31, 2020 and December 31, 2019, respectively, and were included in other current assets on our consolidated balance sheets.

Gross amortized cost and estimated fair value balances exclude accrued interest receivable on available-for-sale debt securities, which totaled $ 36 million and $ 42 million at December 31, 2021 and 2020, respectively, and were included in other current assets on our consolidated balance sheets.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

9 unchanged sentences

Corporate debt securities 1,841 ( 15 ) — — 1,841 ( 15 )

Asset-backed securities 1,302 ( 3 ) — — 1,302 ( 3 )

Municipal securities 50 — — — 50 —

Short-term investments:

2 unchanged sentences

Corporate debt securities 323 — — — 323 —

Asset-backed securities 273 ( 1 ) — — 273 ( 1 )

Long-term investments:

5 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2020 (1)

8 unchanged sentences

Corporate debt securities 641 — — — 641 —

Municipal securities 50 — — — 50 —

Short-term investments:

government and agency securities 270 — — — 270 —

Foreign government and agency securities 72 — — — 72 —

7 unchanged sentences

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

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.

PayPal Holdings, Inc.

NOTES TO 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.

The decline in fair value is due primarily to changes in market conditions, rather than credit losses.

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 year ended December 31, 2020 and 2019.

Amounts reclassified to earnings from unrealized gains and losses were not material for the years ended December 31, 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:

4 unchanged sentences

After one year through five years 11,139 11,060

After five years through ten years 1,500 1,498

After ten years 97 96

Total $ 23,232 $ 23,145

STRATEGIC INVESTMENTS

Our strategic investments include marketable equity securities, which are publicly traded, and non-marketable equity securities, which are investments in privately held companies.

Our strategic investments include marketable equity securities, which are publicly traded, and non-marketable equity securities, which are primarily investments in privately held companies.

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

Marketable equity securities totaled $ 2.4 billion and $ 1.3 billion as of December 31, 2020 and 2019, respectively, including the impact of the sale of securities during the year ended December 31, 2020.

Marketable equity securities totaled $ 1.9 billion and $ 2.4 billion as of December 31, 2021 and 2020, respectively.

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

As of December 31, 2020 and 2019, we had non-marketable equity securities of $ 10 million and $ 27 million, respectively, where we have the ability to exercise significant influence, but not control, over the investee and account for these equity securities using the equity method of accounting.

As of December 31, 2021 and 2020, we had non-marketable equity securities of $ 79 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.

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

The carrying value of our non-marketable equity securities totaled $ 789 million and $ 524 million as of December 31, 2020 and 2019, respectively.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Measurement Alternative adjustments

8 unchanged sentences

Carrying amount, end of period $ 1,268 $ 779

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

(1) Net additions 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 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 December 31, 2021 and 2020:

4 unchanged sentences

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

The following table summarizes the net unrealized gain (losses) on marketable and non-marketable equity securities, excluding those accounted for using the equity method, held at December 31, 2020 and 2019:

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 December 31, 2021 and 2020:

Year Ended December 31,

(In millions)

Net unrealized gains $ 1,610 $ 203

Net unrealized gains (losses) $ ( 46 ) $ 1,610

PayPal Holdings, Inc.

14 unchanged sentences

Corporate debt securities 2,273 — 2,273

Asset-backed securities 277 — 277

Total short-term investments 3,604 — 3,604

4 unchanged sentences

Corporate debt securities 3,545 — 3,545

Asset-backed securities 1,549 — 1,549

Municipal securities 535 — 535

Total funds receivable and customer accounts 18,958 — 18,958

10 unchanged sentences

(1) Excludes cash of $ 4.8 billion not measured and recorded at fair value.

(2) Excludes restricted cash of $ 88 million and time deposits of $ 1.6 billion not measured and recorded at fair value.

(2) Excludes restricted cash of $ 109 million and time deposits of $ 635 million not measured and recorded at fair value.

(3) Excludes cash, time deposits, and funds receivable of $ 17.2 billion underlying funds receivable and customer accounts not measured and recorded at fair value.

(4) Excludes non-marketable equity securities of $ 789 million measured using the Measurement Alternative or equity method accounting.

(4) Excludes non-marketable equity securities of $ 1.3 billion measured using the Measurement Alternative or equity method accounting.

PayPal Holdings, Inc.

8 unchanged sentences

Short-term investments (2) :

government and agency securities 1,510 — 1,510

Foreign government and agency securities 277 — 277

6 unchanged sentences

Corporate debt securities 2,135 — 2,135

Municipal securities 637 — 637

Total funds receivable and customer accounts 16,771 — 16,771

10 unchanged sentences

(1) Excludes cash of $ 3.9 billion not measured and recorded at fair value.

(2) Excludes restricted cash of $ 64 million and time deposits of $ 614 million not measured and recorded at fair value.

(2) Excludes restricted cash of $ 88 million and time deposits of $ 1.6 billion not measured and recorded at fair value.

(3) Excludes cash, time deposits, and funds receivable of $ 16.6 billion underlying funds receivable and customer accounts not measured and recorded at fair value.

8 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We elect to account for foreign currency denominated available-for-sale debt securities under the fair value option.

We elect to account for available-for-sale debt securities denominated in currencies other than the functional currency of our subsidiaries under the fair value option.

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 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.

9 unchanged sentences

Short-term investments $ ( 30 ) $ ( 24 )

FINANCIAL ASSETS AND LIABILITIES MEASURED AND RECORDED AT FAIR VALUE ON A NON-RECURRING BASIS

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

FINANCIAL ASSETS MEASURED AND RECORDED AT FAIR VALUE ON A NON-RECURRING BASIS

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

December 31, 2021 Significant Other Observable Inputs (Level 2)

4 unchanged sentences

(1) Excludes non-marketable equity investments of $ 657 million accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2021.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges recorded in 2020.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred in 2021.

See “Note 6—Leases” for additional information.

2 unchanged sentences

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

Other assets (2)

(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 that occurred in 2020.

See “Note 6—Leases” for additional information.

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.

3 unchanged sentences

FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AND RECORDED AT FAIR VALUE

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

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

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

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

Our long-term debt (including current portion) in the form of fixed rate notes had a carrying value of approximately $ 9.0 billion and fair value of approximately $ 9.3 billion as of December 31, 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.

15 unchanged sentences

if the critical terms are the same, we conclude the hedge will be perfectly effective.

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

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

We report cash flows arising from derivative instruments consistent with the classification of cash flows from the underlying hedged items that these derivatives are hedging.

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

As of December 31, 2020, we estimate that $ 287 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.

As of December 31, 2021, we estimated that $ 177 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 years ended December 31, 2021, 2020, and 2019, we did not discontinue any cash flow hedges because it was probable that the original forecasted transaction would not occur and as such, did not reclassify any gains or losses to earnings prior to the occurrence of the hedged transaction.

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

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

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.

Net investment hedge

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

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

During the second quarter of 2020, this derivative matured.

We used a forward foreign currency exchange contract, which matured in 2020, to reduce the foreign currency exchange risk related to our investment in a foreign subsidiary.

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

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

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During the year ended December 31, 2020 and 2019, we recognized $ 55 million in unrealized gain and $ 31 million in unrealized loss, respectively, on the foreign currency exchange contract designated as a net investment hedge within the foreign currency translation section of other comprehensive income.

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

During the years ended December 31, 2020 and 2019, we recognized $ 55 million in unrealized gains and $ 31 million in unrealized losses, respectively, on the foreign currency exchange contract designated as a net investment hedge.

As of December 31, 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.

Foreign currency exchange contracts not designated as hedging instruments

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

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

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

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

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

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

FAIR VALUE OF DERIVATIVE CONTRACTS

12 unchanged sentences

Total derivative liabilities $ 130 $ 410

MASTER NETTING AGREEMENTS - RIGHTS OF SETOFF

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MASTER NETTING AGREEMENTS - RIGHTS OF SET-OFF

Under master netting agreements with respective counterparties to our foreign currency exchange contracts, subject to applicable requirements, we are allowed to net settle transactions of the same type with a single net amount payable by one party to the other.

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

Rights of setoff associated with our foreign currency exchange contracts represented a potential offset to both assets and liabilities by $ 34 million as of December 31, 2020 and $ 92 million as of December 31, 2019.

Rights of set-off associated with our foreign currency exchange contracts represented a potential offset to both assets and liabilities of $ 102 million as of December 31, 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.

6 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

EFFECT OF DERIVATIVE CONTRACTS ON CONSOLIDATED STATEMENTS OF INCOME

4 unchanged sentences

Total amounts presented in the consolidated statements of income in which the effects of cash flow hedges are recorded $ 25,371 $ 21,454 $ 17,772

Gains (losses) on foreign exchange contracts designated as cash flow hedges reclassified from AOCI $ 20 $ 238 $ ( 30 )

(Losses) gains on foreign exchange contracts designated as cash flow hedges reclassified from AOCI $ ( 190 ) $ 20 $ 238

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

2 unchanged sentences

(In millions)

(Losses) gains on foreign exchange contracts recognized in other income (expense), net $ ( 110 ) $ 24 $ 38

Gains on foreign exchange contracts recognized in net revenues — — 7

Gains (losses) on foreign exchange contracts recognized in other income (expense), net $ 144 $ ( 110 ) $ 24

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

Total (losses) gains recognized from contracts not designated as hedging instruments $ ( 174 ) $ 24 $ 45

Total gains (losses) recognized from contracts not designated as hedging instruments $ 144 $ ( 174 ) $ 24

(1) During the year ended December 31, 2020, equity derivative contracts were entered into and matured which related to the sale of a portion of a strategic investment.

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

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTIONAL AMOUNTS OF DERIVATIVE CONTRACTS

8 unchanged sentences

Total $ 25,763 $ 21,433

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 11— LOANS AND INTEREST RECEIVABLE

We offer credit products to consumers and certain small and medium-sized merchants.

We purchase receivables related to credit extended to U.S.

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

During the year ended December 31, 2020 and 2019, we purchased approximately $ 1.8 billion and $ 4.7 billion in credit receivables, respectively.

CONSUMER RECEIVABLES

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

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

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

Our revolving credit product consists of PayPal Credit in the U.K.

Once a consumer is approved for credit, it is made available to them as a funding source.

Additionally, we offer installment credit products (known as buy now, pay later) at the time of checkout in various locations including the U.S., Europe, Australia, and Japan.

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

As of December 31, 2021 and 2020, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $ 3.8 billion and $ 2.2 billion, respectively.

3 unchanged sentences

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

Consumer Receivables Delinquency and Allowance

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

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

The amounts are based on the number of days past the billing date.

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

December 31, 2020 December 31, 2019

Amortized Cost Basis Revolving Percent Amortized Cost Basis

Revolving Percent

The following tables present the delinquency status of consumer loans and interest receivable by year of origination.

The amounts are based on the number of days past the billing date for revolving loans or contractual repayment date for installment loans.

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

December 31, 2021

(In millions, except percentages)

Installment Loans Amortized Cost Basis

Revolving Loans

Amortized Cost Basis 2021 2020 2019 2018 2017 Total Percent

Current $ 1,790 $ 1,939 $ 3 $ — $ — $ — $ 3,732 97.0 %

2 unchanged sentences

90 - 179 Days 27 28 1 — — — 56 1.5 %

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

$ 1,847 $ 1,996 $ 4 $ — $ — $ — $ 3,847 100 %

(1) Excludes receivables from other consumer credit products of $ 56 million and $ 92 million at December 31, 2020 and December 31, 2019, respectively.

(2) Includes installment loans of $ 556 million and $ 80 million at December 31, 2020 and December 31, 2019, respectively, substantially all of which were current and originated within the past 12 months.

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

(1) Excludes receivables from other consumer credit products of $ 44 million at December 31, 2021.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2020

(In millions, except percentages)

Installment Loans Amortized Cost Basis

Revolving Loans

Amortized Cost Basis 2020 2019 2018 2017 2016 Total Percent

Current $ 1,573 $ 542 $ 9 $ — $ — $ — $ 2,124 97.9 %

30 - 59 Days 12 3 — — — — 15 0.7 %

60 - 89 Days 10 1 — — — — 11 0.5 %

90 - 179 Days 18 1 — — — — 19 0.9 %

Total (1), (2)

$ 1,613 $ 547 $ 9 $ — $ — $ — $ 2,169 100 %

(1) Excludes receivables from other consumer credit products of $ 56 million at December 31, 2020.

(2) 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.

The following table summarizes the activity in the allowance for consumer loans and interest receivable for the years ended December 31, 2021 and 2020:

4 unchanged sentences

Beginning balance $ 299 $ 53 $ 352 $ 49 $ 8 $ 57

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

Adjustment for adoption of CECL — — — 24 4 28

Provisions 20 10 30 245 50 295

4 unchanged sentences

Ending balance $ 243 $ 43 $ 286 $ 299 $ 53 $ 352

(1) Excludes allowances from other consumer credit products of $ 3 million and $ 10 million at December 31, 2020 and December 31, 2019, respectively.

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

consumer credit receivables not subject to the sale to Synchrony.

(3) Includes amounts related to foreign currency remeasurement.

Provisions for the year ended December 31, 2020 were primarily attributable to changes in current and projected macroeconomic conditions, including the impact of qualitative adjustments primarily related to the impact of payment holidays provided as part of our COVID-19 payment relief initiatives, and the overall growth in our portfolio.

The increase in charge-offs for the year ended December 31, 2020 was primarily attributable to the overall growth in our portfolio.

(1) Excludes allowances from other consumer credit products of $ 4 million and $ 3 million at December 31, 2021 and 2020, respectively.

(2) The recoveries for the year ended December 31, 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 and, for the year ended December 31, 2021, initial allowance for purchased credit deteriorated (“PCD”) loans acquired during the period.

A portion of the Paidy loan portfolio acquired was determined to be purchase credit deteriorated as the loans were 30 days or more past due.

As such, we recorded current expected credit losses on the PCD loans.

The provision for the year ended December 31, 2021 was primarily attributable to originations in the consumer portfolio, partially offset by improvements in the credit quality of the consumer portfolio and current and projected macroeconomic conditions.

Qualitative adjustments were made to account for limitations in our current expected credit loss models due to continued volatility with respect to macroeconomic conditions and uncertainty around the impact the continuation of COVID-19 may have on consumers ability to make payments on amounts outstanding.

The increase in charge-offs for the year ended December 31, 2021 compared to 2020 was due to growth in the consumer portfolio driven by the expansion of our installment products.

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

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

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

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

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

Loans receivable continue to accrue interest until they are charged off.

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

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MERCHANT RECEIVABLES

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

As of December 31, 2020 and 2019, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 1.4 billion and $ 2.8 billion, respectively, net of the participation interest sold to an independent chartered financial institution of $ 59 million and $ 124 million, respectively.

We offer access to merchant finance products for certain small and medium-sized businesses through the PPWC and PPBL products, which we collectively refer to as the merchant finance offerings.

We purchase receivables related to credit extended to U.S.

merchants by WebBank and are responsible for servicing functions related to that portfolio.

We purchased approximately $ 1.8 billion in credit receivables in both the years ended December 31, 2021 and 2020.

The total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 1.4 billion for both December 31, 2021 and 2020, net of the participation interest sold to WebBank of $ 63 million and $ 59 million, respectively.

See “Note 1—Overview and Summary of Significant Accounting Policies” for additional information on this participation arrangement.

1 unchanged sentence

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

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

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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 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.

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

5 unchanged sentences

We actively monitor receivables with repayment periods greater than the original expected or contractual repayment period, as well as the credit quality of our merchant loans and advances that we extend or purchase so that we can evaluate, quantify, and manage our credit risk exposure.

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

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

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

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

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Merchant receivables delinquency and allowance

The following table presents the delinquency status of the principal amount of merchant loans, advances, and interest and fees receivable by year of origination.

The following tables present the delinquency status of the merchant loans, advances, and interest and fees receivable by year of origination.

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

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

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

December 31, 2021

7 unchanged sentences

$ 1,144 $ 164 $ 132 $ 6 $ — $ 1,446 100 %

(1) Balances include the impact of payment holidays provided primarily during the second quarter of 2020 and modification programs offered by the Company as a part of our COVID-19 payment relief initiatives (as discussed further below).

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

(1) Balances include the impact of modification programs offered by the Company as a part of our COVID-19 payment relief initiatives (as discussed further below).

December 31, 2020

(In millions, except percentages)

Within Original Expected or Contractual Repayment Period 30 - 59 Days Greater 60 - 89 Days Greater 90 - 179 Days Greater 180+ Days Total Past Original Expected or Contractual Repayment Period Total

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

2020 2019 2018 2017 2016 Total Percent

Current $ 786 $ 250 $ 6 $ — $ — $ 1,042 75.4 %

30 - 59 Days 55 47 3 — — 105 7.6 %

60 - 89 Days 27 32 3 — — 62 4.5 %

90 - 179 Days 57 78 7 — — 142 10.3 %

180+ Days 6 20 5 — — 31 2.2 %

$ 931 $ 427 $ 24 $ — $ — $ 1,382 100 %

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the activity in the allowance for merchant loans, advances, and interest and fees receivable, for the years ended December 31, 2021 and 2020:

3 unchanged sentences

Beginning balance $ 440 $ 43 $ 483 $ 171 $ 20 $ 191

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

Adjustment for adoption of CECL — — — 165 17 182

Provisions ( 116 ) ( 22 ) ( 138 ) 358 33 391

2 unchanged sentences

Ending balance $ 192 $ 9 $ 201 $ 440 $ 43 $ 483

Provisions for the year ended December 31, 2020 were primarily attributable to changes in current and projected macroeconomic conditions as well as originations occurring primarily in the first quarter of 2020.

The provisions associated with changes in current and projected macroeconomic conditions included the impact of qualitative adjustments to account for limitations in our current expected credit loss models that have arisen due to the extreme fluctuations in both the actual and projected macroeconomic conditions during the period and to incorporate varying degrees of merchant performance in the current environment and expected performance in future periods.

The increase in charge-offs for the year ended December 31, 2020 was primarily attributable to a significant expansion of the portfolio in 2019.

The benefit for the year ended December 31, 2021 was primarily attributable to improvements in current and projected macroeconomic conditions, and to a lesser extent, improvements in the credit quality of our merchant portfolio.

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 due to macroeconomic conditions and uncertainty around the impact the continuation of COVID-19 may have on merchants ability to make payments on amounts outstanding and uncertainty around the effectiveness of loan modification programs made available to merchants, as described further below.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The decrease in the charge-offs for the year ended December 31, 2021 compared to 2020 was due to improved portfolio performance.

Additionally, charge offs increased in the year ended December 31, 2020 due to accounts that experienced financial difficulties as a result of the COVID-19 pandemic.

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

2 unchanged sentences

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

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

The provision for credit losses on merchant loans and advances is recognized in transaction and credit losses, and the provision for interest and fees receivable is recognized as a reduction of deferred revenue in accrued expenses and other current liabilities on our consolidated balance sheets.

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

Troubled debt restructurings

In instances where a merchant is able to demonstrate that they are experiencing financial difficulty, there may be a modification of the loans or advances and the related interest receivable for which it is probable that without modification we will be unable to collect all amounts due.

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

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

The fee on some of these loans or advances remains unchanged over the extended term.

In instances where a merchant is able to demonstrate that it is experiencing financial difficulty, there may be a modification of the loan or advance and the related interest or fee receivable for which it is probable that, without modification, we will be unable to collect all amounts due.

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

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

The fee on certain of these loans or advances remains unchanged over the extended term.

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 consolidated statements of income in the year ended December 31, 2020.

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 consolidated statements of income in the years ended December 31, 2021 and 2020.

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.

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table shows the merchant loans and interest receivables which have been modified as TDRs in the year ended December 31, 2020:

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

The following tables show the merchant loans and interest receivables which have been modified as TDRs in the years ended December 31, 2021 and 2020:

Year Ended December 31, 2021

Number of Accounts

3 unchanged sentences

Loans and interest receivable 3 $ 45 36

Year Ended December 31, 2020

Number of Accounts

(in thousands) Outstanding Balances (1)

(in millions)

Weighted Average Payment Term Extensions

Loans and interest receivable 13 $ 354 37

(1) Balances are as of modification date.

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

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

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

As of December 31, 2020, the amount of merchant loans and interest receivables classified as TDRs that have subsequently defaulted on payments were de minimis.

In the years ended December 31, 2021 and 2020, the amount of merchant loans and interest receivables classified as TDRs that have subsequently defaulted on payments was de minimis.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 12— DEBT

8 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of December 31, 2020 and 2019, we had an outstanding aggregate principal amount of $ 9.0 billion and $ 5.0 billion, respectively, related to the Notes.

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

The following table summarizes the Notes:

22 unchanged sentences

Unamortized premium (discount) and issuance costs, net ( 50 ) ( 61 )

Total carrying amount of term debt $ 8,939 $ 4,965

current portion of long-term debt (1)

Total carrying amount of long-term debt $ 7,951 $ 8,939

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

PayPal Holdings, Inc.

NOTES TO 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 $ 190 million and $ 35 million for the year ended December 31, 2020 and 2019, respectively.

The interest expense recorded for the Notes, including amortization of the debt discount and debt issuance costs, was $ 224 million, $ 190 million, and $ 35 million for the years ended December 31, 2021, 2020, and 2019, respectively.

CREDIT FACILITIES

8 unchanged sentences

Funds borrowed under the Credit Agreement may be used for working capital, capital expenditures, acquisitions, and other purposes not in contravention with the Credit Agreement.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We are obligated to pay interest on loans under the Credit Agreement and other customary fees for a credit facility of this size and type, including an upfront fee and an unused commitment fee based on our debt rating.

Loans under the Credit Agreement bear interest at either (i) the applicable eurocurrency rate plus a margin (based on our public debt ratings) ranging from 0.875 percent to 1.375 percent, (ii) the applicable overnight rate plus a margin (based on our public debt ratings) ranging from 0.875 percent to 1.375 percent, or (iii) a formula based on the prime rate, the federal funds effective rate, or LIBOR plus a margin (based on our public debt ratings) ranging from zero to 0.375 percent.

Loans under the Credit Agreement bear interest at either (i) the applicable eurocurrency rate plus a margin (based on our public debt ratings) ranging from 0.875 percent to 1.375 percent, (ii) the applicable overnight rate plus a margin (based on our public debt ratings) ranging from 0.875 percent to 1.375 percent, (iii) a formula based on the prime rate, the federal funds effective rate, or LIBOR plus a margin (based on our public debt ratings) ranging from zero to 0.375 percent, or (iv) a formula based on the Euro Short-Term Rate (“ESTR”) or the Sterling Overnight Index Average (“SONIA”) rate plus a margin (based on our public debt ratings) ranging from 0.875 to 1.375 percent.

In January 2022, an amendment to the agreement was signed which provides for the additional borrowing rate option of utilizing SONIA or ESTR rates.

The Credit Agreement will terminate and all amounts owed thereunder will be due and payable in September 2024, unless the commitments are terminated earlier.

15 unchanged sentences

On September 26, 2019, the Amended Credit Agreement was terminated and we repaid $ 2.5 billion of borrowings outstanding under that agreement.

The total interest expense and fees we recorded related to the Amended Credit Agreement were $ 69 million and $ 72 million for the year ended December 31, 2019 and 2018, respectively.

The total interest expense and fees we recorded related to the Amended Credit Agreement was $ 69 million for the year ended December 31, 2019.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Paidy revolving credit facility

In October 2021, we assumed a credit agreement through our acquisition of Paidy (the “Paidy Credit Agreement”).

The Paidy Credit Agreement provides for a secured revolving credit facility of approximately $ 198 million.

Borrowings under the Paidy Credit Agreement must be used to fund the origination of loan receivables.

We are obligated to pay interest on loans under the Paidy Credit Agreement.

Loans under the Paidy Credit Agreement bear interest at JPY LIBOR plus a margin of either 2.00 percent or 4.25 percent (based on the loan receivable).

The Paidy Credit Agreement will terminate and all amounts owed thereunder will be due and payable in October 2024, unless the commitments are terminated earlier.

The Paidy Credit Agreement contains representations, warranties, affirmative and negative covenants, which require us to meet a quarterly financial test with respect to certain liquidity measures and a maximum leverage ratio.

As of December 31, 2021, approximately $ 98 million was outstanding under the Paidy Credit Agreement, which was recorded in long-term debt on our consolidated balance sheet.

Accordingly, at December 31, 2021, approximately $ 100 million of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing.

The total interest expense and fees we recorded related to the Paidy Credit Agreement were de minimis for the year ended December 31, 2021.

Other available facilities

We also maintain an uncommitted credit facility with a borrowing capacity of approximately $ 30 million, where we can withdraw and utilize the funds at our discretion for general corporate purposes.

The interest rate term for this facility reflects prevailing market rates for companies with strong credit ratings.

As of December 31, 2020, the majority of the borrowing capacity under this credit facility was available, subject to customary conditions to borrowing.

We also maintain uncommitted credit facilities in various regions throughout the world, which had a borrowing capacity of approximately $ 90 million and $ 30 million in the aggregate, as of December 31, 2021 and 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 December 31, 2021, the majority of the borrowing capacity under these credit facilities was available, subject to customary conditions to borrowing.

FUTURE PRINCIPAL PAYMENTS

As of December 31, 2020, the future principal payments associated with our long term debt were as follows (in millions):

As of December 31, 2021, the future principal payments associated with our term debt were as follows (in millions):

Thereafter 3,500

Total $ 9,000

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 13— COMMITMENTS AND CONTINGENCIES

As of December 31, 2021 and 2020, approximately $ 4.1 billion and $ 3.0 billion, respectively, of unused credit was available to PayPal Credit account holders.

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

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

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

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

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 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.

17 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

2 unchanged sentences

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 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.

On January 21, 2021, we received a Civil Investigative Demand (“CID”) from the Consumer Financial Protection Bureau (“CFPB”) related to Venmo’s unauthorized funds transfers and collections processes, and related matters.

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

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.

The CIDs request the production of documents and answers to written questions.

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 (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 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 PayPal-branded card programs (the “SEC Debit Card Program Matter”).

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

Legal proceedings

In November 2017, we announced that we had suspended the operations of TIO Networks (“TIO”) as part of an ongoing investigation of security vulnerabilities of the TIO platform.

On December 1, 2017, we announced that we had identified evidence of unauthorized access to TIO’s network and the potential compromise of personally identifiable information for approximately 1.6 million TIO customers.

We have received a number of governmental inquiries, and we may be subject to additional inquiries in the future.

In addition, on December 6, 2017, a putative class action lawsuit was filed in the U.S.

District Court for the Northern District of California (the “Court”) against the Company, its Chief Executive Officer, its Chief Financial Officer and Hamed Shahbazi, the former chief executive officer of TIO alleging violations of federal securities laws.

The plaintiffs filed their operative, second amended complaint (the “SAC”) on July 13, 2018.

The SAC names TIO Networks ULC, TIO Networks USA, Inc., and John Kunze (at that time, the Company’s Vice President, Global Consumer Products and Xoom) as additional defendants, but no longer names Hamed Shabazi as a defendant.

The SAC is purportedly brought on behalf of all persons other than the defendants who acquired the Company’s securities between November 10, 2017 and December 1, 2017, and alleges that the Company’s November 2017 announcement was false and misleading because it only disclosed security vulnerabilities on TIO’s platform, rather than an actual security breach affecting millions of TIO users that defendants were allegedly aware of at the time of the announcement.

Defendants filed their motion to dismiss the SAC on March 15, 2019, and the Court granted the defendants’ motion with prejudice on September 18, 2019.

Plaintiffs appealed the dismissal to the U.S.

Court of Appeals for the Ninth Circuit, and on December 17, 2020, the Ninth Circuit issued a memorandum decision affirming the dismissal.

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

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

PayPal Holdings, Inc., et al., Case No.

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.

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.

On November 2, 2021, the court appointed a Lead Plaintiff, and on January 25, 2022, the Lead Plaintiff filed an amended complaint.

The amended complaint alleges a class period between April 27, 2016 and July 28, 2021 (the “Amended Class Period”), and in addition to the Company, its Chief Executive Officer, and Chief Financial Officer, also names other Company executives as defendants.

The amended complaint alleges that various statements made by the defendants during the Amended Class Period were rendered materially false and misleading, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by PayPal’s alleged violations of the 2015 Consent Order with the CFPB, federal consumer financial laws, and Regulation II.

Defendants’ motion to dismiss the amended complaint is due on March 28, 2022.

On December 16, 2021 and January 19, 2022, two related putative shareholder derivative actions captioned Pang v.

Daniel Schulman, et al., Case No.

21-cv-09720, and Lalor v.

Daniel Schulman, et al., Case No.

22-cv-00370, respectively, were filed in the U.S.

District Court for the Northern District of California (the “Derivative Actions”), purportedly on behalf of the Company.

The Derivative Actions are based on the same alleged facts and circumstances as the Securities Action, and name certain of our officers, including our Chief Executive Officer and Chief Financial Officer, and members of our Board of Directors, as defendants.

The Derivative Actions allege claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and violations of the Securities Exchange Act of 1934, and seek to recover damages on behalf of the Company.

On February 1, 2022, the court entered an order consolidating the Derivative Actions and staying them until all motions to dismiss in the Securities Action are resolved.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

General matters

4 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO 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.

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

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

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

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

3 unchanged sentences

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

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.

6 unchanged sentences

Loans made under this program are funded by an independent chartered financial institution that we partner with.

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 receive a fee for providing services in connection with these loans and retain operational risk related to those activities.

We have agreed, under certain circumstances, to indemnify the chartered financial institution and its assignee of a portion of these loans 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 December 31, 2020 and 2019, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2021 and 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.

PROTECTION PROGRAMS

3 unchanged sentences

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 December 31, 2020 and 2019, the allowance for transaction losses totaled $ 144 million and $ 136 million, respectively.

Additionally, in some instances we provide protection for cryptocurrencies held in PayPal accounts in case of loss directly resulting from service provider insolvency or in the event the service provider’s private keys are compromised.

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 December 31, 2021 and 2020, the allowance for transaction losses was $ 121 million and $ 144 million, respectively.

The allowance for negative customer balances was $ 234 million and $ 270 million at December 31, 2021 and 2020, respectively.

The following table shows changes in the allowance for transaction losses and negative customer balances related to our protection programs for the year end December 31, 2020 and 2019:

The following table shows changes in the allowance for transaction losses and negative customer balances related to our protection programs for the years ended December 31, 2021 and 2020:

As of December 31,

14 unchanged sentences

During the year ended December 31, 2021, we repurchased approximately 15 million shares of our common stock for approximately $ 3.4 billion at an average cost of $ 219.75 .

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

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

As of December 31, 2021, a total of approximately $ 5.1 billion remained available for future repurchases of our common stock under our July 2018 stock repurchase program.

During the year ended December 31, 2019, we repurchased approximately 14 million shares of our common stock for approximately $ 1.4 billion, including approximately $ 656 million in the open market and approximately $ 750 million pursuant to an Accelerated Share Repurchase (“ASR”) agreement under our April 2017 stock repurchase program.

During the year ended December 31, 2018, we repurchased approximately 44 million shares of our common stock for approximately $ 3.5 billion, including approximately $ 2.5 billion in the open market and approximately $ 1.0 billion pursuant to an ASR agreement under our April 2017 stock repurchase program.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During the year ended December 31, 2020, we repurchased approximately 12 million shares of our common stock for approximately $ 1.6 billion at an average cost of $ 136.19 .

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

As of December 31, 2020, a total of approximately $ 8.4 billion remained available for future repurchases of our common stock under our July 2018 stock repurchase program.

During the year ended December 31, 2019, we repurchased approximately 14 million shares of our common stock for approximately $ 1.4 billion at an average cost of $ 101.11 , including approximately $ 656 million in the open market and approximately $ 750 million pursuant to an accelerated share repurchase agreement under our April 2017 stock repurchase program.

Shares of common stock repurchased for the periods presented were recorded as treasury stock for the purposes of calculating earnings per share and were accounted for under the cost method.

3 unchanged sentences

Under the terms of the Amended and Restated PayPal Holdings, Inc.

2015 Equity Incentive Award Plan (the “Plan”), equity awards, including stock options, restricted stock units (“RSUs”), restricted stock awards (“RSAs”), performance based restricted stock units (“PBRSUs”), deferred stock units (“DSUs”), and stock payments, may be granted to our directors, officers, and employees.

2015 Equity Incentive Award Plan (the “Plan”), equity awards, including stock options, restricted stock units (“RSUs”), restricted stock awards, performance based restricted stock units (“PBRSUs”), deferred stock units, and stock payments, may be granted to our directors, officers, and employees.

At December 31, 2021, 57 million shares were authorized under the Plan and 41 million shares were available for future grant.

33 unchanged sentences

Options exercisable 242 $ 19.31 3.46 $ 41,372

The weighted average grant date fair value of options assumed from acquisitions during the year ended December 31, 2020 and 2018 was $ 108.61 and $ 72.02 , respectively.

The weighted average grant date fair value of options assumed from acquisitions during the years ended December 31, 2021 and 2020 was $ 237.26 and $ 108.61 , respectively.

No options were granted or assumed in 2019.

3 unchanged sentences

RSU, PBRSU, AND RESTRICTED STOCK ACTIVITY

The following table summarizes the RSUs, PBRSUs, and restricted stock activity under the Plan as of December 31, 2020 and changes during the year ended December 31, 2020:

The following table summarizes RSU, PBRSU, and restricted stock activity under the Plan as of December 31, 2021 and changes during the year ended December 31, 2021:

Units Weighted Average Grant-Date

8 unchanged sentences

(1) Includes approximately 1.8 million of additional PBRSUs issued during 2021 due to the achievement of company performance metrics on awards granted in previous years.

(2) Includes approximately 0.6 million in RSUs assumed from our Honey acquisition in 2020.

(2) Includes approximately 0.6 million in RSUs assumed from acquisitions in 2021.

During the years ended December 31, 2021, 2020, and 2019, the aggregate intrinsic value of RSUs and PBRSUs vested under the Plan was $ 3.4 billion, $ 1.7 billion, and $ 1.6 billion, respectively.

4 unchanged sentences

STOCK-BASED COMPENSATION EXPENSE

We record stock-based compensation expense for the Plan in accordance with U.S.

GAAP, which requires the measurement and recognition of compensation expense based on estimated fair values.

Stock-based compensation expense for the Plan is measured based on estimated fair value at the time of grant, and recognized over the award’s vesting period.

T he impact on our results of operations of recording stock-based compensation expense under the Plan for the years ended December 31, 2021, 2020, and 2019 was as follows:

16 unchanged sentences

employees may contribute up to 50 % of their eligible compensation, but not more than statutory limits.

Under the PayPal plan, eligible employees received one dollar for each dollar contributed, up to 4 % of each employee’s eligible salary, subject to a maximum employer contribution per employee of $ 11,600 in 2020 and $ 11,200 in both 2019 and 2018.

employees are covered by other savings plans.

2 unchanged sentences

NOTE 16— INCOME TAXES

The components of income (loss) before income taxes are as follows:

The components of income before income taxes are as follows:

Year Ended December 31,

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The income tax expense is composed of the following:

The income tax (benefit) expense is composed of the following:

Year Ended December 31,

8 unchanged sentences

Foreign ( 36 ) ( 62 ) ( 123 )

Total deferred portion of income tax expense 165 ( 269 ) ( 171 )

Income tax expense $ 863 $ 539 $ 319

Total deferred portion of income tax (benefit) expense ( 482 ) 165 ( 269 )

Income tax (benefit) expense $ ( 70 ) $ 863 $ 539

The following is a reconciliation of the difference between the effective income tax rate and the federal statutory rate:

2 unchanged sentences

Federal statutory rate 21.0 % 21.0 % 21.0 %

Domestic income taxed at different rates ( 1.7 ) % — % — %

State taxes, net of federal benefit 0.9 % 2.2 % 0.3 %

7 unchanged sentences

For the year ended December 31, 2021, the difference between the effective income tax rate and the U.S.

federal statutory rate of 21% to income before income taxes is primarily the result of foreign income taxed at different rates, partially offset by tax expense related to the intra-group transfer of intellectual property.

For the year ended December 31, 2019, the difference between the effective income tax rate and the federal statutory rate of 21% to income before income taxes is primarily the result of foreign income taxed at different rates and stock-based compensation deductions, partially offset by tax expense related to the intra-group transfer of intellectual property.

For the year ended December 31, 2018, the difference between the effective income tax rate and the federal statutory rate of 21% to income before income taxes is primarily the result of foreign income taxed at different rates and stock-based compensation deductions.

federal statutory rate of 21% to income before income taxes was primarily the result of foreign income taxed at different rates and stock-based compensation deductions.

For the year ended December 31, 2020, the difference between the effective income tax rate and the U.S.

federal statutory rate of 21% to income before income taxes was primarily the result of foreign income taxed at different rates, partially offset by tax expense related to the intra-group transfer of intellectual property.

For the year ended December 31, 2019, the difference between the effective income tax rate and the federal statutory rate of 21% to income before income taxes was primarily the result of foreign income taxed at different rates and stock-based compensation deductions, partially offset by tax expense related to the intra-group transfer of intellectual property.

PayPal Holdings, Inc.

6 unchanged sentences

Net operating loss and credit carryforwards $ 317 $ 201

Accruals and allowances 413 235

Lease liability 188 120

Accruals, allowances, and prepaids 622 413

Lease liabilities 176 188

Partnership investment 5 6

7 unchanged sentences

Unremitted foreign earnings $ ( 35 ) $ ( 21 )

Fixed assets and other intangibles — ( 70 )

Acquired intangibles ( 240 ) ( 72 )

Lease asset ( 172 ) ( 116 )

ROU lease assets ( 154 ) ( 172 )

Net unrealized gains ( 351 ) ( 440 )

16 unchanged sentences

We have elected the tax law ordering approach to assess the realizability of our net operating losses.

During the year ended December 31, 2020, we decreased our valuation allowance by $ 18 million and during the years ended December 31, 2019 and 2018, we increased our valuation allowance by $ 52 million and $ 39 million, respectively.

At December 31, 2020, 2019, and 2018, we maintained a valuation allowance with respect to certain of our deferred tax assets relating to operating losses in certain states and foreign jurisdictions and tax credits in certain states that we believe are not likely to be realized.

During the years ended December 31, 2021 and 2019, we increased our valuation allowance by $ 108 million and $ 52 million, respectively, and during the year ended December 31, 2020, we decreased our valuation allowance by $ 18 million.

At December 31, 2021, 2020, and 2019, we maintained a valuation allowance with respect to our net deferred tax assets in certain states, operating losses in certain state and foreign jurisdictions, and certain federal and state tax credits that we believe are not likely to be realized.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At December 31, 2020, none of our unremitted foreign earnings of approximately $ 7.2 billion are considered to be indefinitely reinvested.

At December 31, 2021, none of our approximately $ 8.4 billion of unremitted foreign earnings are considered to be indefinitely reinvested.

We have accrued $ 35 million of deferred U.S.

state and foreign withholding taxes on the $ 7.2 billion of undistributed foreign earnings.

state income and foreign withholding taxes on the $ 8.4 billion of undistributed foreign earnings.

We benefit from agreements concluded in certain jurisdictions, most significantly Singapore and, through 2019, Luxembourg.

18 unchanged sentences

If the remaining balance of unrecognized tax benefits were realized in a future period, it would result in a tax benefit of $ 1.2 billion.

In December 31, 2020, 2019, and 2018, we recognized net interest and penalties of $ 40 million, $ 63 million, and $ 57 million, respectively, related to uncertain tax positions in income tax expense.

For the years ended December 31, 2021, 2020, and 2019, we recognized net interest and penalties of $ 6 million, $ 40 million, and $ 63 million, respectively, related to uncertain tax positions in income tax expense.

The amount of interest and penalties accrued as of December 31, 2021 and 2020 was approximately $ 212 million and $ 211 million, respectively.

4 unchanged sentences

(Federal and California), Germany, India, Israel, and Singapore.

During 2020, we settled income tax audits in various jurisdictions including France, Germany, and California.

During 2021, we settled income tax audits in various jurisdictions including Germany and India.

We believe that adequate amounts have been reserved for any adjustments that may ultimately result from our open examinations.

1 unchanged sentence

However, given the number of years remaining subject to examination and the number of matters being examined, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.

In June 2019, the U.S.

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

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

In June 2020, the U.S.

Supreme Court denied Altera’s petition for certiorari.

We have reviewed this decision and determined that no adjustment to our consolidated financial statements is required as a result of this development.

In connection with our separation from eBay in 2015, we entered into various agreements that govern the relationship between the parties going forward, including a tax matters agreement.

3 unchanged sentences

NOTE 17— RESTRUCTURING AND OTHER CHARGES

In the first quarter of the years ended December 31, 2020, 2019, and 2018, management approved strategic reductions of the existing global workforce, which resulted in restructuring charges of $ 109 million, $ 78 million, and $ 25 million, respectively.

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

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

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

In the first quarter of the year ended December 31, 2020, management approved a strategic reduction of the existing global workforce, which resulted in restructuring charges of $ 27 million and $ 109 million in 2021 and 2020, respectively.

In the first quarter of the year ended December 31, 2019, management approved strategic reductions of the existing global workforce, which resulted in a restructuring charge of $ 78 million.

The approved strategic reduction in 2020 was part of a multiphase process to reorganize our workforce concurrently with the redesign of our operating structure, which spanned multiple quarters.

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 the second quarter of 2021.

The following table summarizes the restructuring reserve activity during the year ended December 31, 2021:

4 unchanged sentences

Accrued liability as of December 31, 2021 $ 5

Additionally, in 2020, we incurred asset impairment charges of $ 30 million due to the write-off of certain ROU lease assets and related leasehold improvements in conjunction with exiting certain leased properties.

Additionally, in 2021 and 2020, we incurred asset impairment charges of $ 26 million and $ 30 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.

1 unchanged sentence

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

The strategic reduction approved in the first quarter of 2018 included restructuring charges related to the decision to wind down TIO’s operations.

We incurred employee and severance benefits expenses under the 2018 strategic reductions, which were substantially completed by the end of 2018.

PayPal Holdings, Inc.

SUPPLEMENTARY DATA — QUARTERLY UNAUDITED FINANCIAL DATA

The following tables present certain unaudited consolidated quarterly financial information for the years ended December 31, 2020 and 2019.

2020 Quarter Ended

March 31 June 30 September 30 December 31

(Unaudited, in millions, except per share amounts)

Net revenues $ 4,618 $ 5,261 $ 5,459 $ 6,116

Net income $ 84 $ 1,530 $ 1,021 $ 1,567

Net income per share - basic $ 0.07 $ 1.30 $ 0.87 $ 1.34

Net income per share - diluted $ 0.07 $ 1.29 $ 0.86 $ 1.32

Weighted average shares:

Basic 1,173 1,173 1,172 1,172

Diluted 1,185 1,184 1,190 1,191

2019 Quarter Ended

March 31 June 30 September 30 December 31

(Unaudited, in millions, except per share amounts)

Net revenues $ 4,128 $ 4,305 $ 4,378 $ 4,961

Net income $ 667 $ 823 $ 462 $ 507

Net income per share - basic $ 0.57 $ 0.70 $ 0.39 $ 0.43

Net income per share - diluted $ 0.56 $ 0.69 $ 0.39 $ 0.43

Weighted average shares:

Basic 1,171 1,175 1,175 1,174

Diluted 1,188 1,187 1,188 1,187

PayPal Holdings, Inc.

FINANCIAL STATEMENT SCHEDULE

2 unchanged sentences

(Credited) to

Net Income Charged to Other Accounts (1)

Net Income Charged to

(Write-offs) Balance at

7 unchanged sentences

Year Ended December 31, 2019 (1)

$ 172 $ 325 $ — $ ( 239 ) $ 258

Year Ended December 31, 2020 $ 258 $ 689 $ 210 $ ( 319 ) $ 838

Year Ended December 31, 2021 $ 838 $ ( 104 ) $ — $ ( 243 ) $ 491

(1) The amount is related to the impact of the adjustment recorded for adoption of the credit losses accounting standard.

PayPal Holdings, Inc.

(1) Allowance for loans and interest receivable for the year end December 31, 2019 was based on accounting guidance which was superseded by the adoption of the Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“CECL”), effective January 1, 2020.

(2) The amount is related to the impact of the adjustment recorded for adoption of CECL.

Exhibit Index

33 unchanged sentences

Form of 2050 Note (included in Exhibit 4.08) 8-K 5/18/2020

Operating Agreement by and among eBay Inc., eBay International AG, PayPal Holdings, Inc., PayPal, Inc., PayPal Pte.

and PayPal Payments Pte.

Holdings S.C.S., dated July 17, 2015 8-K 7/20/2015

Amendment, dated June 30, 2016, to the Operating Agreement by and among eBay Inc., eBay International AG, PayPal Holdings, Inc., PayPal, Inc., PayPal Pte.

and PayPal Payments Pte.

Holdings S.C.S, dated July 17, 2015 10-Q 7/26/2016

Tax Matters Agreement by and between eBay Inc.

and PayPal Holdings, Inc., dated July 17, 2015 8-K 7/20/2015

Employee Matters Agreement by and between eBay Inc.

and PayPal Holdings, Inc., dated July 17, 2015 8-K 7/20/2015

PayPal Holdings, Inc.

Incorporated by Reference

Number Exhibit Description Filed with this Form 10-K Form Date Filed

Intellectual Property Matters Agreement by and among eBay Inc., eBay International AG, PayPal Holdings, Inc., PayPal, Inc., PayPal Pte.

and PayPal Payments Pte.

Holdings S.C.S., dated July 17, 2015 8-K 7/20/2015

and PayPal Holdings, Inc.

dated July 17, 2015 8-K 7/20/2015

Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Designated Borrowers party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., J.P.

6 unchanged sentences

Amended and Restated 2015 Equity Incentive Award Plan 8-K 5/25/2018

Incorporated by Reference

Number Exhibit Description Filed with this Form 10-K Form Date Filed

PayPal Holdings, Inc.

1 unchanged sentence

PayPal Holdings, Inc.

Executive Change in Control and Severance Plan 8-K 12/30/2019

Executive Change in Control and Severance Plan, as amended and restated, effective as of September 27, 2021

10-Q 11/9/2021

Form of Indemnity Agreement between PayPal Holdings, Inc.

12 unchanged sentences

Amended and Restated Employee Stock Purchase Plan 8-K 5/25/2018

Amendment to PayPal Holdings, Inc.

Amended and Restated Employee Stock Purchase Plan

10-Q 11/9/2021

Offer Letter dated September 29, 2014 between eBay Inc.

12 unchanged sentences

10-Q 4/25/2019

Letter Agreement dated December 22, 2018 between Allison Johnson and PayPal Holdings, Inc.

10-Q 4/25/2019

Independent Director Compensation Policy X

Independent Director Compensation Policy 10-K 2/5/2021

PayPal Holdings, Inc.

Incorporated by Reference

Number Exhibit Description Filed with this Form 10-K Form Date Filed

Executive Change in Control and Severance Plan, as amended and restated 10-Q 7/29/2021

First Amendment, dated as of March 23, 2020, to the Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Designated Borrowers party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., J.P.

2 unchanged sentences

First Amendment, dated as of March 23, 2020, to the 364-Day Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as the Administrative Agent 10-Q 5/7/2020

Incorporated by Reference

Number Exhibit Description Filed with this Form 10-K Form Date Filed

Joinder Agreement, dated as of March 25, 2020, among PayPal International Treasury Centre S.à r.l., PayPal Holdings, Inc., and J.P.

12 unchanged sentences

Morgan Europe Limited, and JPMorgan Chase Bank, N.A., Toronto Branch, as the Administrative Agents, to the Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Designated Borrowers party thereto, the Lenders party thereto and the Administrative Agents 10-Q 5/7/2020

Second Amendment, dated as of January 7, 2022, to the Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Designated Borrowers party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., J.P.

Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., Toronto Branch, and J.P.

Morgan AG, as the Administrative Agents X

List of Subsidiaries X

5 unchanged sentences

Certification of PayPal Holdings, Inc.’s Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 X

PayPal Holdings, Inc.

Incorporated by Reference

13 unchanged sentences

Schulman, John D.

Louise Pentland, Brian Y.

Rainey, Bimal Patel, Brian Y.

Yamasaki and Jeffrey W.

17 unchanged sentences

/s/ Belinda Johnson By:

Belinda Johnson Gail J.

/s/ Enrique Lores

Belinda Johnson Enrique Lores

Director Director

/s/ Deborah M.

Messemer David M.

McGovern Deborah M.

Director Director

Sarnoff Frank D.

Moffett Ann M.

Director Director

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-K

Item 9A. Controls and Procedures