PayPal Holdings, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures. Based on the evaluation of our disclosure controls and procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), our principal executive officer and our principal financial officer have concluded that as of December 31, 2021, the end of the period covered by this report, our disclosure controls and procedures were effective. Management’s report on internal control over financial reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management, including our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 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. (“Paidy”). 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. Changes in internal controls over financial reporting. There were no changes in our internal controls over financial reporting as defined in Exchange Act Rule 13a-15(f) that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Incorporated by reference from our Proxy Statement for our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2021. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from our Proxy Statement for our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2021. 56 Table of Contents ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Incorporated by reference from our Proxy Statement for our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2021. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Incorporated by reference from our Proxy Statement for our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2021. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Incorporated by reference from our Proxy Statement for our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2021. 57 Table of Contents PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report: 1. Consolidated Financial Statements Page Number Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 59 Consolidated Balance Sheets 61 Consolidated Statements of Income 62 Consolidated Statements of Comprehensive Income 63 Consolidated Statements of Stockholders’ Equity 64 Consolidated Statements of Cash Flows 65 Notes to Consolidated Financial Statements 67 2. Financial Statement Schedule Schedule II—Valuation and Qualifying Accounts 117 All other schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. 3. Exhibits Required by Item 601 of Regulation S-K 118 The information required by this Item is set forth in the Index of Exhibits that precedes the signature page of this Annual Report. 58 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of PayPal Holdings, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of PayPal Holdings, Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2021 listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Changes in Accounting Principles As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses on financial instruments in 2020 and the manner in which it accounts for leases in 2019. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s report on internal control over financial reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. 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. Paidy, Inc. 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. 59 Table of Contents Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for Loans Receivable 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 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 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 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 San Jose, California February 3, 2022 We have served as the Company’s auditor since 2000. 60 Table of Contents PayPal Holdings, Inc. CONSOLIDATED BALANCE SHEETS As of December 31, 2021 2020 (In millions, except par value) ASSETS Current assets: Cash and cash equivalents $ 5,197 $ 4,794 Short-term investments 4,303 8,289 Accounts receivable, net 800 577 Loans and interest receivable, net of allowances of $ 491 and $ 838 as of December 31, 2021 and 2020, respectively 4,846 2,769 Funds receivable and customer accounts 36,141 33,418 Prepaid expenses and other current assets 1,287 1,148 Total current assets 52,574 50,995 Long-term investments 6,797 6,089 Property and equipment, net 1,909 1,807 Goodwill 11,454 9,135 Intangible assets, net 1,332 1,048 Other assets 1,737 1,305 Total assets $ 75,803 $ 70,379 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 197 $ 252 Funds payable and amounts due to customers 38,841 35,418 Accrued expenses and other current liabilities 3,755 2,648 Income taxes payable 236 129 Total current liabilities 43,029 38,447 Deferred tax liability and other long-term liabilities 2,998 2,930 Long-term debt 8,049 8,939 Total liabilities 54,076 50,316 Commitments and contingencies (Note 13) Equity: Common stock, $ 0.0001 par value; 4,000 shares authorized; 1,168 and 1,172 shares outstanding as of December 31, 2021 and 2020, respectively — — Preferred stock, $ 0.0001 par value; 100 shares authorized, unissued — — Treasury stock at cost, 132 and 117 shares as of December 31, 2021 and 2020, respectively ( 11,880 ) ( 8,507 ) Additional paid-in-capital 17,208 16,644 Retained earnings 16,535 12,366 Accumulated other comprehensive income (loss) ( 136 ) ( 484 ) Total PayPal stockholders’ equity 21,727 20,019 Noncontrolling interest — 44 Total equity 21,727 20,063 Total liabilities and equity $ 75,803 $ 70,379 The accompanying notes are an integral part of these consolidated financial statements. 61 Table of Contents PayPal Holdings, Inc. CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2021 2020 2019 (In millions, except for per share amounts) Net revenues $ 25,371 $ 21,454 $ 17,772 Operating expenses: Transaction expense 10,315 7,934 6,790 Transaction and credit losses 1,060 1,741 1,380 Customer support and operations 2,075 1,778 1,615 Sales and marketing 2,445 1,861 1,401 Technology and development 3,038 2,642 2,085 General and administrative 2,114 2,070 1,711 Restructuring and other charges 62 139 71 Total operating expenses 21,109 18,165 15,053 Operating income 4,262 3,289 2,719 Other income (expense), net ( 163 ) 1,776 279 Income before income taxes 4,099 5,065 2,998 Income tax (benefit) expense ( 70 ) 863 539 Net income $ 4,169 $ 4,202 $ 2,459 Net income per share: Basic $ 3.55 $ 3.58 $ 2.09 Diluted $ 3.52 $ 3.54 $ 2.07 Weighted average shares: Basic 1,174 1,173 1,174 Diluted 1,186 1,187 1,188 The accompanying notes are an integral part of these consolidated financial statements. 62 Table of Contents PayPal Holdings, Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2021 2020 2019 (In millions) Net income $ 4,169 $ 4,202 $ 2,459 Other comprehensive income (loss), net of reclassification adjustments: Foreign currency translation adjustments (“CTA”) ( 72 ) ( 48 ) ( 57 ) Net investment hedge CTA gain (loss) — 55 ( 31 ) 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 ) Comprehensive income $ 4,517 $ 3,891 $ 2,208 The accompanying notes are an integral part of these consolidated financial statements. 63 Table of Contents PayPal Holdings, Inc. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Common Stock Shares Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Noncontrolling Interest Total Equity (In millions) Balances at December 31, 2018 1,174 $ ( 5,511 ) $ 14,939 $ 78 $ 5,880 $ — $ 15,386 Adoption of lease accounting standard — — — — 3 — 3 Net income — — — — 2,459 — 2,459 Foreign CTA — — — ( 57 ) — — ( 57 ) Net investment hedge CTA loss — — — ( 31 ) — — ( 31 ) Unrealized losses on cash flow hedges, net — — — ( 176 ) — — ( 176 ) Tax benefit on unrealized losses on cash flow hedges, net — — — 3 — — 3 Unrealized gains on investments, net — — — 15 — — 15 Tax expense on unrealized gains on investments, net — — — ( 5 ) — — ( 5 ) Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 13 — ( 365 ) — — — ( 365 ) Common stock repurchased ( 14 ) ( 1,361 ) ( 45 ) — — — ( 1,406 ) Stock-based compensation — — 1,059 — — — 1,059 Purchase of noncontrolling interest — — — — — 44 44 Balances at December 31, 2019 1,173 $ ( 6,872 ) $ 15,588 $ ( 173 ) $ 8,342 $ 44 $ 16,929 Adoption of current expected credit loss standard — — — — ( 178 ) — ( 178 ) Net income — — — — 4,202 — 4,202 Foreign CTA — — — ( 48 ) — — ( 48 ) Net investment hedge CTA gain 55 55 Unrealized losses on cash flow hedges, net — — — ( 329 ) — — ( 329 ) Tax benefit on unrealized losses on cash flow hedges, net — — — 4 — — 4 Unrealized gains on investments, net — — — 9 — — 9 Tax expense on unrealized gains on investments, net — — — ( 2 ) — — ( 2 ) Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 11 — ( 365 ) — — — ( 365 ) Common stock repurchased ( 12 ) ( 1,635 ) — — — — ( 1,635 ) Stock-based compensation — — 1,421 — — — 1,421 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. 64 Table of Contents PayPal Holdings, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2021 2020 2019 (In millions) Cash flows from operating activities: Net income $ 4,169 $ 4,202 $ 2,459 Adjustments to reconcile net income to net cash provided by operating activities: Transaction and credit losses 1,060 1,741 1,380 Depreciation and amortization 1,265 1,189 912 Stock-based compensation 1,376 1,376 1,021 Deferred income taxes ( 482 ) 165 ( 269 ) Net gains on strategic investments ( 46 ) ( 1,914 ) ( 208 ) Other 100 47 ( 149 ) Changes in assets and liabilities: Accounts receivable ( 222 ) ( 100 ) ( 120 ) Changes in loans and interest receivable held for sale, net — — 4 Transaction loss allowance for cash losses, net ( 1,178 ) ( 1,120 ) ( 1,079 ) Other current assets and non-current assets ( 150 ) ( 498 ) ( 566 ) Accounts payable ( 31 ) ( 4 ) 4 Income taxes payable 73 ( 230 ) ( 40 ) Other current liabilities and non-current liabilities 406 1,000 722 Net cash provided by operating activities 6,340 5,854 4,071 Cash flows from investing activities: Purchases of property and equipment ( 908 ) ( 866 ) ( 704 ) Proceeds from sales of property and equipment 5 120 17 Changes in principal loans receivable, net ( 1,594 ) 294 ( 1,631 ) Purchases of investments ( 40,116 ) ( 41,513 ) ( 27,881 ) Maturities and sales of investments 39,698 30,908 24,878 Acquisitions, net of cash and restricted cash acquired ( 2,763 ) ( 3,609 ) ( 70 ) Funds receivable 193 ( 1,552 ) ( 351 ) Net cash used in investing activities ( 5,485 ) ( 16,218 ) ( 5,742 ) Cash flows from financing activities: Proceeds from issuance of common stock 162 137 138 Purchases of treasury stock ( 3,373 ) ( 1,635 ) ( 1,411 ) Tax withholdings related to net share settlements of equity awards ( 1,036 ) ( 521 ) ( 504 ) Borrowings under financing arrangements 272 6,966 5,471 Repayments under financing arrangements ( 361 ) ( 3,000 ) ( 2,516 ) Funds payable and amounts due to customers 3,572 10,597 3,009 Other financing activities — ( 52 ) — 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 ) Net change in cash, cash equivalents, and restricted cash ( 11 ) 2,297 2,510 Cash, cash equivalents, and restricted cash at beginning of period 18,040 15,743 13,233 Cash, cash equivalents, and restricted cash at end of period $ 18,029 $ 18,040 $ 15,743 65 Table of Contents PayPal Holdings, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued) Year Ended December 31, 2021 2020 2019 (In millions) Supplemental cash flow disclosures: Cash paid for interest $ 231 $ 190 $ 78 Cash paid for income taxes, net $ 474 $ 565 $ 665 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 Short-term and long-term investments 109 24 7 Funds receivable and customer accounts 12,723 13,222 8,387 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 18,029 $ 18,040 $ 15,743 The accompanying notes are an integral part of these consolidated financial statements. 66 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1— OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OVERVIEW AND ORGANIZATION PayPal Holdings, Inc. (“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 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. We monitor these areas closely and are focused on designing compliant solutions for our customers. SIGNIFICANT ACCOUNTING POLICIES Basis of presentation and principles of consolidation The accompanying consolidated financial statements include the financial statements of PayPal and our wholly- and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. 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. 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. Our investment balance is included in long-term investments on our consolidated balance sheets. 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 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. (“Paidy”). 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. 67 Table of Contents 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. 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. 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. Use of estimates 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. These estimates may change as new events occur, and as additional information surrounding the continued impact of the novel coronavirus (“COVID-19”) pandemic becomes available. Actual results could differ from these estimates and any such differences may be material to our financial statements. Cash and cash equivalents 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. Investments 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 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, 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. 68 Table of Contents 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 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. Any portion of impairment not related to credit losses is recognized in other comprehensive income. Loans and interest receivable, net 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. 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. subsidiary. 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. We account for the asset transfer as a sale and derecognize the portion of the participation interests for which control has been surrendered. 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 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 market-based service fee for servicing the assets underlying the participation interest sold. We offer both revolving and installment credit products to our consumers. The terms of our consumer relationships require us to submit monthly bills to the consumer detailing loan repayment requirements. The terms also allow us to charge the consumer interest and fees in certain circumstances. Due to the relatively small dollar amount of individual loans and interest receivable, we do not require collateral on these balances. 69 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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 The allowance for loans and interest receivable represents our estimate of current expected credit losses inherent in our portfolio of loans and interest receivables. Increases to the allowance for loans receivable are reflected as a component of transaction and credit losses on our consolidated statements of income. Increases to the allowance for interest and fees receivable are reflected as a reduction of net revenues on our consolidated statements of income, or as a reduction of deferred revenue when interest and fees are billed at the inception of a loan or advance. The evaluation process to assess the adequacy of allowances is subject to numerous estimates and judgments. The 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 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, 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. The determination of delinquency, from current to 179 days past due, for principal balances related to merchant receivables outstanding was based on the current expected or contractual repayment period of the loan or advance and interest or fixed fee as compared to the original expected or contractual repayment period. The allowance for loss against interest receivable was primarily determined by applying historical average customer account roll rates to the interest receivable balance in each stage of delinquency to project the value of accounts that had incurred losses and were probable to be charged off. The allowance for fees receivable was primarily based on fee balances, forecasted delinquency rates, and recoveries through the use of a vintage-based loss forecasting model. 70 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Customer accounts We hold all customer balances, both in the U.S. and internationally, as direct claims against us which are reflected on our consolidated balance sheets as a liability classified as amounts due to customers. Certain jurisdictions where PayPal operates require us to hold eligible liquid assets, as defined by applicable regulatory requirements and commercial law in these jurisdictions, equal to at least 100 % of the aggregate amount of all customer balances. Therefore, we restrict the use of the assets underlying the customer balances to meet these regulatory requirements and separately classify the assets as customer accounts in our consolidated balance sheets. We classify the assets underlying the customer balances as current based on their purpose and availability to fulfill our direct obligation under amounts due to customers. Customer funds for which PayPal is an agent and custodian on behalf of our customers are not reflected on our consolidated balance sheets. These funds include U.S. dollar funds which are deposited at one or more third-party financial institutions insured by the Federal Deposit Insurance Corporation (“FDIC”) and are eligible for FDIC pass-through insurance (subject to applicable limits). We act as an agent in facilitating cryptocurrency transactions on behalf of our customers. Cryptocurrencies held on behalf of our customers are not PayPal’s assets and therefore are not reflected on our consolidated balance sheets. In June 2018, the Luxembourg Commission de Surveillance du Secteur Financier (the “CSSF”) agreed that PayPal’s management may designate up to 35 % of European customer balances held in our Luxembourg banking subsidiary to be used for European and U.S. credit activities. 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 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. We present changes in funds receivable and customer accounts as cash flows from investing activities in our consolidated statements of cash flows based on the nature of the activity underlying our customer accounts. Funds receivable and funds payable Funds receivable and funds payable arise due to the time required to initiate collection from and clear transactions through external payment networks. When customers fund their PayPal account using their bank account, credit card, debit card, or withdraw funds from their PayPal account to their bank account or through a debit card transaction, there is a clearing period before the cash is received or settled, usually one to three business days for U.S. transactions and generally up to five business days for international transactions. In addition, a portion of our customers’ funds are settled directly to their bank account. These funds are also classified as funds receivable and funds payable and arise due to the time required to initiate collection from and clear transactions through external payment networks. Property and equipment 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. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets; generally, one to four years for computer equipment and software, including capitalized software and website development costs, three years for furniture and fixtures, up to 30 years for buildings and building improvements, and the shorter of five years or the non-cancelable term of the lease for leasehold improvements. 71 Table of Contents PayPal Holdings, Inc. 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 Leases We determine whether an arrangement is a lease for accounting purposes at contract inception. Operating leases are recorded as right-of-use (“ROU”) assets, which are included in other assets, and lease liabilities, which are included in accrued expenses and other current liabilities and deferred tax liability and other long-term liabilities on our consolidated balance sheets. For sale-leaseback transactions, we evaluate the sale and the lease arrangement based on our conclusion as to whether control of the underlying asset has been transferred, and recognize the sale-leaseback as either a sale transaction or under the financing method. The financing method requires the asset to remain on our consolidated balance sheets throughout the term of the lease and the proceeds to be recognized as a financing obligation. 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 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. The ROU asset and lease liability may include amounts attributed to options to extend or terminate the lease when it is reasonably certain we will exercise that option. When we reach a decision to exercise a lease renewal or termination option, we recognize the associated impact to the ROU asset and lease liability. Lease expense for operating leases is recognized on a straight-line basis over the lease term. We evaluate ROU assets related to leases for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of an ROU asset may not be recoverable. When a decision has been made to exit a lease prior to the contractual term or to sublease that space, we evaluate the asset for impairment and recognize the associated impact to the ROU asset and related expense, if applicable. The evaluation is performed at the asset group level initially and when appropriate, at the lowest level of identifiable cash flows, which is at the individual lease level. Undiscounted cash flows expected to be generated by the related ROU assets are estimated over the ROU assets’ useful lives. If the evaluation indicates that the carrying amount of the ROU assets may not be recoverable, any potential impairment is measured based upon the fair value of the related ROU asset or asset group as determined by appropriate valuation techniques. We have lease agreements with lease and non-lease components. We have elected to apply the practical expedient and account for the lease and non-lease components as a single lease component for all leases, where applicable. 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 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. 72 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Goodwill and intangible assets Goodwill is tested for impairment, at a minimum, on an annual basis at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The fair value of the reporting unit may be estimated using income and market approaches. The discounted cash flow method, a form of the income approach, uses expected future operating results and a market participant discount rate. The market approach uses comparable company prices and other relevant information generated by market transactions (either publicly traded entities or mergers and acquisitions) to develop pricing metrics to be applied to historical and expected future operating results of the reporting unit. Failure to achieve these expected results, changes in the discount rate, or market pricing metrics may cause a future impairment of goodwill at the reporting unit level. We conducted our annual impairment test of goodwill as of August 31, 2021 and 2020. We determined that no adjustment to the carrying value of goodwill of our reporting unit was required. As of December 31, 2021, we determined that no events occurred, or circumstances changed from August 31, 2021 through December 31, 2021 that would more likely than not reduce the fair value of the reporting unit below its carrying amount. 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 seven years . No significant residual value is estimated for intangible assets. 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 undiscounted cash flow the asset is expected to generate. Allowance for transaction losses We are exposed to transaction losses due to credit card and other payment misuse as well as nonperformance from sellers who accept payments through PayPal. We establish an allowance for estimated losses arising from completing customer transactions, such as chargebacks for unauthorized credit card use and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of purchased items, buyer protection program claims, and account takeovers. 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 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 is included in accrued expenses and other current liabilities on our consolidated balance sheets. 73 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Allowance for negative customer balances Negative customer balances occur primarily when there are insufficient funds in a customer’s PayPal account to cover charges applied for Automated Clearing House returns, debit card transactions, and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of purchased items, which are generally within the scope of our protection programs. Negative customer balances can be cured by the customer by adding funds to their account, receiving payments, or through back-up funding sources. 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. The allowance represents expected losses based on historical trends involving collection and write-off patterns, internal factors including our experience with similar cases, other known facts and circumstances, and reasonable and supportable macroeconomic forecasts, as applicable. Loss rates are derived using historical loss data for each delinquency bucket using a roll rate model that captures the losses and the likelihood that a negative customer balance will be written off as the delinquency age of such balance increases. The loss rates are then applied to the outstanding negative customer balances. Once the quantitative calculation is performed, we review the adequacy of the allowance and determine if qualitative adjustments need to be considered. We write-off negative customer balances in the month in which the balance becomes outstanding for 120 days. Write-offs that are recovered are recorded as a reduction to our allowance for negative customer balances. Negative customer balances are included in other current assets, net of the allowance on our consolidated balance sheets. Adjustments to the allowance for negative customer balances are recorded as a component of transaction and credit losses on our consolidated statements of income. Derivative instruments See “Note 10—Derivative Instruments” for information related to the derivative instruments. Fair value of financial instruments Our financial assets and liabilities are valued using market prices on both active markets (Level 1) and less active markets (Level 2). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. 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. Concentrations of 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. In addition, funds receivable are generated primarily with financial institutions which management believes are of high credit quality. We invest our cash, cash equivalents, and customer accounts primarily in highly liquid, highly rated instruments which are uninsured. 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. Our accounts receivable are derived from revenue earned from customers located in the U.S. and internationally. Our loans and interest receivable are derived from merchant and consumer financing activities for customers located in the U.S. and internationally. 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, 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. During the years ended December 31, 2021, 2020, and 2019, we earned approximately 6 %, 13 %, and 14 % of revenue, respectively, from customers on eBay’s Marketplaces platform. No other source of revenue represented more than 10% of our revenue. Revenue recognition See “Note 2—Revenue” for information related to our revenue recognition. 74 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Advertising expense We expense the cost of producing advertisements at the time production occurs and expense the cost of communicating advertisements in the period during which the advertising space or airtime is used as sales and marketing expense. Online advertising expenses are recognized based on the terms of the individual agreements, which are generally over the greater of the ratio of the number of impressions delivered over the total number of contracted impressions, on a pay-per-click basis, or on a straight-line basis over the term of the contract. Advertising expense totaled $ 740 million, $ 654 million, and $ 399 million for the years ended December 31, 2021, 2020, and 2019, respectively. 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 (“Code”). Our non-U.S. employees are covered by other savings plans. Expenses related to our defined contribution savings plans are recorded when services are rendered by our employees. Stock-based compensation We determine compensation expense associated with restricted stock units, performance based restricted stock units, and restricted stock awards based on the fair value of our common stock on the date of grant. We determine compensation expense associated with stock options based on the estimated grant date fair value method using the Black-Scholes valuation model. We generally recognize compensation expense using a straight-line amortization method over the respective vesting period for awards that are ultimately expected to vest. Accordingly, stock-based compensation expense for the years ended December 31, 2021, 2020, and 2019 has been reduced for estimated forfeitures. When estimating forfeitures, we consider voluntary termination behavior of our employees as well as trends of actual forfeitures. Foreign 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. dollar functional currency subsidiaries are translated into U.S. dollars at exchange rates prevailing at the balance sheet dates. Revenues and expenses of our non-U.S. dollar functional currency subsidiaries are translated into U.S. dollars using daily exchange rates. Gains and losses resulting from these translations are recorded as a component of accumulated other comprehensive income (loss) (“AOCI”). Gains and losses from the remeasurement of foreign currency transactions into the functional currency are recognized as other income (expense), net in our consolidated statements of income. Income taxes We account for income taxes using an asset and liability approach which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. If necessary, the measurement of deferred tax assets is reduced by the amount of any tax benefits that are not expected to be realized based on available evidence. We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. 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 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. 75 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Recent accounting guidance In 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . This amended guidance provides transition relief for the accounting impact of reference rate reform. For a limited period, this guidance provides optional expedients and exceptions for applying GAAP to certain contract modifications, hedging relationships, and other transactions affected by a reference rate expected to be discontinued due to reference rate reform. The amended guidance is effective through December 31, 2022. 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. There are other new accounting pronouncements issued by the FASB that we have adopted or will adopt, as applicable. We do not believe any of these accounting pronouncements have had, or will have, a material impact on our consolidated financial statements or disclosures. NOTE 2— REVENUE 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. Our revenues are classified into two categories: transaction revenues and revenues from other value added services. TRANSACTION REVENUES 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. The variable component is generally a percentage of the value of the payment amount and is known at the time the transaction is processed. 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 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, to facilitate the purchase and sale of cryptocurrencies, 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. Therefore, our contracts are defined at the transaction level and do not extend beyond the service already provided. Our contracts generally renew automatically without any significant material rights. 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 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. Using our risk assessment tools, we perform a transaction risk assessment on individual transactions to determine whether a transaction should be authorized for completion on our payments platform. When we authorize a transaction, we become obligated to our customer to complete the payment transaction. 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. As a principal to the transaction, we control the service of completing payments on our payments platform. We bear primary responsibility for the fulfillment of the payment service, contract directly with our customers, control the product specifications, and define the value proposal from our services. Further, we have full discretion in determining the fee charged to our customers, which is independent of the costs we incur in instances where we may utilize payment processors or other financial institutions to perform services on our behalf. We therefore bear full margin risk when completing a payment transaction. These fees paid to payment processors and other financial institutions are recognized as transaction expense. We are also responsible for providing customer support. 76 Table of Contents 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. These programs are intended to protect both merchants and consumers from loss primarily due to fraud and counterparty performance. Our buyer protection program provides protection to consumers for qualifying purchases by reimbursing the consumer for the full amount of the purchase if the purchased item is not received or does not match the seller’s description. Our seller protection programs provide protection to merchants against claims that a transaction was not authorized by the buyer or claims that a purchased item was not received by covering the seller for the full amount of the payment on eligible sales. These protection programs do not provide a separate service to our customers and we estimate and record associated costs in transaction and credit losses during the period the payment transaction is completed. REVENUES FROM OTHER VALUE ADDED SERVICES 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. The transaction price is generally fixed and known at the end of each reporting period; however, for some agreements, it may be necessary to estimate the transaction price using the expected value method. In our partnership agreement with Synchrony, in addition to the revenue share we earn, we also recognized revenue for transition servicing activities which we performed on their behalf through the second quarter of 2019 using a relative selling price determined through the adjusted market assessment approach. We record revenue earned in revenues from other value added services on a net basis when we are considered the agent with respect to processing transactions. We also earn revenues from interest and fees earned primarily on our portfolio of loans receivable, and interest earned on certain assets underlying customer balances. Interest and fees earned on the portfolio of loans receivable are computed and recognized based on the effective interest method and are presented net of any required reserves and amortization of deferred origination costs. DISAGGREGATION OF REVENUE We determine operating segments based on how our chief operating decision maker (“CODM”) manages the business, makes operating decisions around the allocation of resources, and evaluates operating performance. Our CODM is our Chief Executive Officer, who reviews our operating results on a consolidated basis. We operate as one segment and have one reportable segment. Based on the information provided to and reviewed by our CODM, we believe that the nature, amount, timing, and uncertainty of our revenue and cash flows and how they are affected by economic factors are most appropriately depicted through our primary geographical markets and type of revenue categories (transaction revenues and revenues from other value added services). 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. 77 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table presents our revenue disaggregated by primary geographical market and category: Year Ended December 31, 2021 2020 2019 (In millions) Primary geographical markets U.S. $ 13,712 $ 11,013 $ 9,417 United Kingdom (“U.K.”) 2,340 2,340 1,872 Other countries (1) 9,319 8,101 6,483 Total net revenues (2) $ 25,371 $ 21,454 $ 17,772 Revenue category Transaction revenues $ 23,402 $ 19,918 $ 16,099 Revenues from other value added services 1,969 1,536 1,673 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 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. NOTE 3— NET INCOME PER SHARE Basic net income per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. 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 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. The following table sets forth the computation of basic and diluted net income per share for the periods indicated: Year Ended December 31, 2021 2020 2019 (In millions, except per share amounts) Numerator: Net income $ 4,169 $ 4,202 $ 2,459 Denominator: Weighted average shares of common stock — basic 1,174 1,173 1,174 Dilutive effect of equity incentive awards 12 14 14 Weighted average shares of common stock — diluted 1,186 1,187 1,188 Net income per share: Basic $ 3.55 $ 3.58 $ 2.09 Diluted $ 3.52 $ 3.54 $ 2.07 Common stock equivalents excluded from income per diluted share because their effect would have been anti-dilutive 2 1 2 78 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 4— BUSINESS COMBINATIONS ACQUISITIONS COMPLETED IN 2021 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. Paidy 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) Goodwill $ 1,918 Customer lists and user base 512 Marketing related 83 Developed technology 47 Total intangibles $ 642 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 ) Total purchase price $ 2,571 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. 79 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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 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 stock 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: (In millions) Goodwill $ 2,962 Customer lists and user base 115 Marketing related 30 Developed technology 572 Total intangibles $ 717 Accounts receivable, net 50 Deferred tax liabilities, net ( 58 ) Other net liabilities ( 36 ) Total purchase price $ 3,635 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. 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. ACQUISITIONS COMPLETED IN 2019 There were no acquisitions accounted for as business combinations or divestitures completed in 2019. 80 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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 GOODWILL The following table presents goodwill balances and adjustments to those balances for the years ended December 31, 2021 and 2020: December 31, 2019 Goodwill Acquired Adjustments December 31, 2020 Goodwill Acquired Adjustments December 31, 2021 (In millions) Total goodwill $ 6,212 $ 2,962 $ ( 39 ) $ 9,135 $ 2,355 $ ( 36 ) $ 11,454 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 were as follows: December 31, 2021 December 31, 2020 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Useful Life (Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Useful Life (Years) (In millions, except years) Intangible assets: Customer lists and user base $ 1,726 $ ( 919 ) $ 807 7 $ 1,206 $ ( 797 ) $ 409 6 Marketing related 405 ( 315 ) 90 5 321 ( 278 ) 43 3 Developed technology 1,109 ( 822 ) 287 3 999 ( 577 ) 422 3 All other 454 ( 306 ) 148 7 449 ( 275 ) 174 7 Intangible assets, net $ 3,694 $ ( 2,362 ) $ 1,332 $ 2,975 $ ( 1,927 ) $ 1,048 Amortization expense for intangible assets was $ 443 million, $ 451 million, and $ 211 million for the years ended December 31, 2021, 2020, and 2019, respectively. 81 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Expected future intangible asset amortization as of December 31, 2021 was as follows: Fiscal years: (In millions) 2022 $ 469 2023 232 2024 211 2025 173 2026 116 Thereafter 131 $ 1,332 NOTE 6— LEASES 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, 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. The short-term lease exemption has been adopted for all leases with a duration of less than 12 months. PayPal’s lease portfolio contains a small number of subleases. 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) Lease expense Operating lease expense $ 170 $ 166 $ 136 Sublease income ( 8 ) ( 6 ) ( 6 ) 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) Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 167 $ 159 $ 131 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. 82 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Supplemental balance sheet information related to leases was as follows: As of December 31, 2021 2020 (In millions, except weighted-average figures) Operating ROU lease assets $ 659 $ 707 Other current operating lease liabilities 142 144 Operating lease liabilities 620 642 Total operating lease liabilities $ 762 $ 786 Weighted-average remaining lease term — operating leases 6.1 years 6.9 years Weighted-average discount rate — operating leases 3 % 3 % Future minimum lease payments for our operating leases as of December 31, 2021 were as follows: Operating Leases Fiscal years: (In millions) 2022 $ 160 2023 154 2024 136 2025 105 2026 89 Thereafter 190 Total $ 834 Less: present value discount ( 72 ) Lease liability $ 762 Operating lease amounts include minimum lease payments under our non-cancelable operating leases primarily for office and data center facilities. The amounts presented are consistent with contractual terms and are not expected to differ significantly from actual results under our existing leases. We recognize rent expense under such agreements on a straight-line basis. Rent expense for the years ended December 31, 2021, 2020, and 2019 totaled $ 192 million, $ 172 million, and $ 130 million, respectively. In the first quarter of 2020, we entered into a sale-leaseback arrangement as the seller-lessee for a data center as the buyer-lessor obtained control of the facility. We sold the data center and simultaneously entered into an operating lease agreement with the purchaser for the right to use the facility for eight years . The Company received proceeds of approximately $ 119 million, net of selling costs, which resulted in a de minimis net gain on the sale transaction. 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 . 83 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 7— OTHER FINANCIAL STATEMENT DETAILS PROPERTY AND EQUIPMENT, NET As of December 31, 2021 2020 (In millions) Property and equipment, net: Computer equipment and software $ 3,298 $ 3,239 Internal use software and website development costs 3,301 2,831 Land and buildings 380 340 Leasehold improvements 379 377 Furniture and fixtures 146 139 Development in progress and other 86 83 Total property and equipment, gross 7,590 7,009 Accumulated depreciation and amortization ( 5,681 ) ( 5,202 ) Total property and equipment, net $ 1,909 $ 1,807 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 ROU assets: As of December 31, 2021 2020 (In millions) Long-lived assets: U.S. $ 2,050 $ 2,096 Other countries 518 418 Total long-lived assets $ 2,568 $ 2,514 Long-lived assets attributed to the U.S. and other countries are based upon the country in which the asset is located or owned. 84 Table of Contents 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: Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Investments Foreign Currency Translation Adjustment ( “ CTA ”) Net Investment Hedge CTA Gain Estimated Tax (Expense) Benefit Total (In millions) Beginning balance $ ( 323 ) $ 11 $ ( 198 ) $ 24 $ 2 $ ( 484 ) Other comprehensive income (loss) before reclassifications 332 ( 98 ) ( 72 ) — ( 4 ) 158 Less: 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 ) 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 on Investments Foreign CTA Net Investment Hedge CTA Gain (Loss) Estimated Tax Benefit Total (In millions) Beginning balance $ 6 $ 2 $ ( 150 ) $ ( 31 ) $ — $ ( 173 ) Other comprehensive income (loss) before reclassifications ( 309 ) 9 ( 48 ) 55 2 ( 291 ) Less: Amount of gain reclassified from AOCI 20 — — — — 20 Net current period other comprehensive income (loss) ( 329 ) 9 ( 48 ) 55 2 ( 311 ) Ending balance $ ( 323 ) $ 11 $ ( 198 ) $ 24 $ 2 $ ( 484 ) 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 Gains (Losses) on Investments Foreign CTA Net Investment Hedge CTA Loss Estimated Tax (Expense) Benefit Total (In millions) Beginning balance $ 182 $ ( 13 ) $ ( 93 ) $ — $ 2 $ 78 Other comprehensive income (loss) before reclassifications 62 14 ( 57 ) ( 31 ) ( 2 ) ( 14 ) Less: Amount of gain (loss) reclassified from AOCI 238 ( 1 ) — — — 237 Net current period other comprehensive income (loss) ( 176 ) 15 ( 57 ) ( 31 ) ( 2 ) ( 251 ) Ending balance $ 6 $ 2 $ ( 150 ) $ ( 31 ) $ — $ ( 173 ) 85 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table provides details about reclassifications out of AOCI for the periods presented below: Details about AOCI Components Amount of (Losses) Gains Reclassified from AOCI Affected Line Item in the Statements of Income Year Ended December 31, 2021 2020 2019 (In millions) (Losses) gains on cash flow hedges — foreign exchange contracts $ ( 190 ) $ 20 $ 238 Net revenues Unrealized losses on investments — — ( 1 ) Other income (expense), net ( 190 ) 20 237 Income before income taxes — — — Income tax expense Total reclassifications for the period $ ( 190 ) $ 20 $ 237 Net income OTHER INCOME (EXPENSE), NET The following table reconciles the components of other income (expense), net for the periods presented below: Year Ended December 31, 2021 2020 2019 (In millions) Interest income $ 57 $ 88 $ 197 Interest expense ( 232 ) ( 209 ) ( 115 ) Net gains on strategic investments 46 1,914 208 Other ( 34 ) ( 17 ) ( 11 ) Other income (expense), net $ ( 163 ) $ 1,776 $ 279 Refer to “Note 1 — Overview and Summary of Significant Accounting Policies” for details on the composition of these balances. 86 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 8— FUNDS RECEIVABLE AND CUSTOMER ACCOUNTS AND INVESTMENTS The following table summarizes the assets underlying our funds receivable and customer accounts, short-term investments, and long-term investments as of December 31, 2021 and 2020: December 31, 2021 December 31, 2020 (In millions) Funds receivable and customer accounts: Cash and cash equivalents $ 12,723 $ 13,222 Time deposits 334 233 Available-for-sale debt securities 18,336 15,001 Funds receivable 4,748 4,962 Total funds receivable and customer accounts $ 36,141 $ 33,418 Short-term investments: Time deposits $ 590 $ 1,519 Available-for-sale debt securities 3,604 6,689 Restricted cash 109 81 Total short-term investments $ 4,303 $ 8,289 Long-term investments: Time deposits $ 45 $ 31 Available-for-sale debt securities 3,545 2,819 Restricted cash — 7 Strategic investments 3,207 3,232 Total long-term investments $ 6,797 $ 6,089 As of December 31, 2021 and 2020, the estimated fair value of our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments was as follows: December 31, 2021 (1) Gross Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (In millions) Funds receivable and customer accounts: U.S. government and agency securities $ 8,655 $ — $ ( 31 ) $ 8,624 Foreign government and agency securities 1,923 — ( 9 ) 1,914 Corporate debt securities 3,402 — ( 15 ) 3,387 Asset-backed securities 1,552 — ( 3 ) 1,549 Municipal securities 535 — — 535 Short-term investments: U.S. government and agency securities 537 — — 537 Foreign government and agency securities 505 — ( 1 ) 504 Corporate debt securities 2,273 — — 2,273 Asset-backed securities 278 — ( 1 ) 277 Long-term investments: U.S. government and agency securities 568 — ( 6 ) 562 Foreign government and agency securities 752 — ( 6 ) 746 Corporate debt securities 1,435 — ( 11 ) 1,424 Asset-backed securities 817 — ( 4 ) 813 Total available-for-sale debt securities (2) $ 23,232 $ — $ ( 87 ) $ 23,145 (1) “—” Denotes gross unrealized gain or unrealized loss of less than $1 million in a given position. (2) Excludes foreign currency denominated available-for-sale debt securities accounted for under the fair value option. Refer to “Note 9 — Fair Value Measurement of Assets and Liabilities.” 87 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) December 31, 2020 (1) Gross Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (In millions) Funds receivable and customer accounts: U.S. government and agency securities $ 7,929 $ 4 $ — $ 7,933 Foreign government and agency securities 1,504 2 — 1,506 Corporate debt securities 2,011 — — 2,011 Municipal securities 637 — — 637 Short-term investments: U.S. government and agency securities 1,510 — — 1,510 Foreign government and agency securities 277 — — 277 Corporate debt securities 4,900 2 — 4,902 Long-term investments: U.S. government and agency securities 28 — — 28 Foreign government and agency securities 1,305 — ( 1 ) 1,304 Corporate debt securities 1,255 4 — 1,259 Asset-backed securities 228 — — 228 Total available-for-sale debt securities (2) $ 21,584 $ 12 $ ( 1 ) $ 21,595 (1) “—” Denotes gross unrealized gain or unrealized loss of less than $1 million in a given position. (2) Excludes foreign currency denominated available-for-sale debt securities accounted for under the fair value option. Refer to “Note 9 — Fair Value Measurement of Assets and Liabilities.” 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. 88 Table of Contents 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: December 31, 2021 (1) Less than 12 months 12 months or longer Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses (In millions) Funds receivable and customer accounts: U.S. government and agency securities $ 8,124 $ ( 31 ) $ — $ — $ 8,124 $ ( 31 ) Foreign government and agency securities 1,778 ( 9 ) 20 — 1,798 ( 9 ) 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: U.S. government and agency securities 440 — — — 440 — Foreign government and agency securities 498 ( 1 ) — — 498 ( 1 ) Corporate debt securities 323 — — — 323 — Asset-backed securities 273 ( 1 ) — — 273 ( 1 ) Long-term investments: U.S. government and agency securities 562 ( 6 ) — — 562 ( 6 ) Foreign government and agency securities 746 ( 6 ) — — 746 ( 6 ) Corporate debt securities 1,345 ( 11 ) — — 1,345 ( 11 ) Asset-backed securities 707 ( 4 ) — — 707 ( 4 ) Total available-for-sale debt securities $ 17,989 $ ( 87 ) $ 20 $ — $ 18,009 $ ( 87 ) (1) “—” Denotes gross unrealized loss or fair value of less than $1 million in a given position. December 31, 2020 (1) Less than 12 months 12 months or longer Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses (In millions) Funds receivable and customer accounts: U.S. government and agency securities $ 262 $ — $ — $ — $ 262 $ — Foreign government and agency securities 353 — — — 353 — Corporate debt securities 641 — — — 641 — Municipal securities 50 — — — 50 — Short-term investments: U.S. government and agency securities 270 — — — 270 — Foreign government and agency securities 72 — — — 72 — Corporate debt securities 392 — — — 392 — Long-term investments: U.S. government and agency securities 28 — — — 28 — Foreign government and agency securities 405 ( 1 ) — — 405 ( 1 ) Corporate debt securities 97 — — — 97 — Asset-backed securities 15 — — — 15 — Total available-for-sale debt securities $ 2,585 $ ( 1 ) $ — $ — $ 2,585 $ ( 1 ) (1) “—” Denotes gross unrealized loss or fair value of less than $1 million in a given position. 89 Table of Contents 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 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: December 31, 2021 Amortized Cost Fair Value (In millions) One year or less $ 10,496 $ 10,491 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 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 $ 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, 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. 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. 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 The adjustments to the carrying value of our non-marketable equity securities accounted for under the Measurement Alternative in the years ended December 31, 2021 and 2020 were as follows: Year Ended December 31, 2021 2020 (In millions) Carrying amount, beginning of period $ 779 $ 497 Adjustments related to non-marketable equity securities: Net additions (1) 133 143 Gross unrealized gains 356 161 Gross unrealized losses and impairments — ( 22 ) Carrying amount, end of period $ 1,268 $ 779 (1) Net additions include purchases, reductions due to sales of securities, and reclassifications when Measurement Alternative is subsequently elected or no longer applies. 90 Table of Contents 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: December 31, 2021 December 31, 2020 (In millions) Cumulative gross unrealized gains $ 733 $ 378 Cumulative gross unrealized losses and impairment $ ( 27 ) $ ( 27 ) Unrealized gains (losses) on strategic investments, excluding those accounted for using the equity method The following table summarizes the net unrealized gains (losses) on marketable and non-marketable equity securities, excluding those accounted for using the equity method, held at December 31, 2021 and 2020: Year Ended December 31, 2021 2020 (In millions) Net unrealized gains (losses) $ ( 46 ) $ 1,610 91 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 9— FAIR VALUE MEASUREMENT OF ASSETS AND LIABILITIES FINANCIAL ASSETS AND LIABILITIES MEASURED AND RECORDED AT FAIR VALUE ON A RECURRING BASIS The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and 2020: December 31, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) (In millions) Assets: Cash and cash equivalents (1) $ 400 $ — $ 400 Short-term investments (2) : U.S. government and agency securities 537 — 537 Foreign government and agency securities 517 — 517 Corporate debt securities 2,273 — 2,273 Asset-backed securities 277 — 277 Total short-term investments 3,604 — 3,604 Funds receivable and customer accounts (3) : Cash and cash equivalents 622 — 622 U.S. government and agency securities 8,624 — 8,624 Foreign government and agency securities 4,083 — 4,083 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 Derivatives 304 — 304 Long-term investments (2), (4) : U.S. government and agency securities 562 — 562 Foreign government and agency securities 746 — 746 Corporate debt securities 1,424 — 1,424 Asset-backed securities 813 — 813 Marketable equity securities 1,860 1,860 — Total long-term investments 5,405 1,860 3,545 Total financial assets $ 28,671 $ 1,860 $ 26,811 Liabilities: Derivatives $ 130 $ — $ 130 (1) Excludes cash of $ 4.8 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 $ 1.3 billion measured using the Measurement Alternative or equity method accounting. 92 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) December 31, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) (In millions) Assets: Cash and cash equivalents (1) $ 867 $ — $ 867 Short-term investments (2) : U.S. government and agency securities 1,510 — 1,510 Foreign government and agency securities 277 — 277 Corporate debt securities 4,902 — 4,902 Total short-term investments 6,689 — 6,689 Funds receivable and customer accounts (3) : — Cash and cash equivalents 1,770 — 1,770 U.S. government and agency securities 7,933 — 7,933 Foreign government and agency securities 4,296 — 4,296 Corporate debt securities 2,135 — 2,135 Municipal securities 637 — 637 Total funds receivable and customer accounts 16,771 — 16,771 Derivatives 42 — 42 Long-term investments (2), (4) : U.S. government and agency securities 28 — 28 Foreign government and agency securities 1,304 — 1,304 Corporate debt securities 1,259 — 1,259 Asset-backed securities 228 — 228 Marketable equity securities 2,443 2,443 — Total long-term investments 5,262 2,443 2,819 Total financial assets $ 29,631 $ 2,443 $ 27,188 Liabilities: Derivatives $ 410 $ — $ 410 (1) Excludes cash of $ 3.9 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. (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. (4) Excludes non-marketable equity securities of $ 789 million measured using the Measurement Alternative or equity method accounting. Our marketable equity securities are valued using quoted prices for identical assets in active markets (Level 1). All other financial assets and liabilities are valued using quoted prices for identical instruments in less active markets, readily available pricing sources for comparable instruments, or models using market observable inputs (Level 2). A majority of our derivative instruments are valued using pricing models that take into account the contract terms as well as multiple inputs where applicable, such as currency rates, interest rate yield curves, option volatility, and equity prices. Our derivative instruments are primarily short-term in nature, generally one month to one year in duration. Certain foreign currency contracts designated as cash flow hedges may have a duration of up to 18 months. As of December 31, 2021 and 2020, we did not have any assets or liabilities requiring measurement at fair value without observable market values that would require a high level of judgment to determine fair value (Level 3). 93 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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. The following table summarizes the estimated fair value of our available-for-sale debt securities under the fair value option as of December 31, 2021 and 2020: December 31, 2021 December 31, 2020 (In millions) Funds receivable and customer accounts $ 2,327 $ 2,914 Short-term investments $ 13 $ — The following table summarizes the gains (losses) from fair value changes recognized in other income (expense), net related to the available-for-sale debt securities under the fair value option for the years ended December 31, 2021 and 2020 : Year Ended December 31, 2021 2020 (In millions) Funds receivable and customer accounts $ ( 101 ) $ 190 Short-term investments $ ( 30 ) $ ( 24 ) 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) (In millions) Non-marketable equity investments measured using the Measurement Alternative (1) $ 611 $ 611 Other assets (2) 86 86 Total $ 697 $ 697 (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 that occurred in 2021. See “Note 6—Leases” for additional information. December 31, 2020 Significant Other Observable Inputs (Level 2) (In millions) Non-marketable equity investments measured using the Measurement Alternative (1) $ 335 $ 335 Other assets (2) 44 44 $ 379 $ 379 (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. Impairment losses on ROU lease assets related to office operating leases are calculated initially using estimated rental income per square foot derived from observable market data. 94 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AND RECORDED AT FAIR VALUE Our financial instruments, including cash, restricted cash, time deposits, loans and interest receivable, net, certain customer accounts, notes receivable, and long-term debt related to borrowings on our credit facilities are carried at amortized cost, which approximates their fair value. Our 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 (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. NOTE 10— DERIVATIVE INSTRUMENTS SUMMARY OF DERIVATIVE INSTRUMENTS Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. Our derivatives expose us to credit risk to the extent that our counterparties may be unable to meet the terms of the arrangement. We seek to mitigate such risk by limiting our counterparties to, and by spreading the risk across, major financial institutions and by entering into collateral security arrangements. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis. We do not use any derivative instruments for trading or speculative purposes. Cash flow hedges We have significant international revenues and costs denominated in foreign currencies, which subjects us to foreign currency risk. We have a foreign currency exposure management program in which we designate certain foreign currency exchange contracts, generally with maturities of 18 months or less, to reduce the volatility of cash flows primarily related to forecasted revenues denominated in foreign currencies. The objective of the foreign currency exchange contracts is to help mitigate the risk that the U.S. dollar-equivalent cash flows are adversely affected by changes in the applicable U.S. dollar/foreign currency exchange rate. These derivative instruments are designated as cash flow hedges and accordingly, the derivative’s gain or loss is initially reported as a component of AOCI and subsequently reclassified into revenue in the same period the forecasted transaction affects earnings. We evaluate the effectiveness of our foreign currency exchange contracts on a quarterly basis by comparing the critical terms of the derivative instruments with the critical terms of the forecasted cash flows of the hedged item; if the critical terms are the same, we conclude the hedge will be perfectly effective. 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, 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 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, 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. The cash flow associated with the derivative designated as a net investment hedge is classified in cash flows from investing activities on our consolidated statements of cash flows. 95 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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 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 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 The fair value of our outstanding derivative instruments as of December 31, 2021 and 2020 was as follows: Balance Sheet Location As of December 31, 2021 2020 Derivative Assets: (In millions) Foreign currency exchange contracts designated as hedging instruments Other current assets $ 205 $ — Foreign currency exchange contracts designated as hedging instruments Other assets (non-current) 21 — Foreign currency exchange contracts not designated as hedging instruments Other current assets 78 42 Total derivative assets $ 304 $ 42 Derivative Liabilities: Foreign currency exchange contracts designated as hedging instruments Other current liabilities $ 27 $ 287 Foreign currency exchange contracts designated as hedging instruments Other long-term liabilities — 35 Foreign currency exchange contracts not designated as hedging instruments Other current liabilities 103 88 Total derivative liabilities $ 130 $ 410 96 Table of Contents 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 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. The following table provides the collateral exchanged: December 31, 2021 December 31, 2020 (In millions) Cash collateral posted (1) $ 5 $ 340 Cash collateral received (2) $ 209 $ 1 (1) Right to reclaim cash collateral related to our derivative liabilities recognized in other current assets on our consolidated balance sheets. (2) Obligation to return counterparty cash collateral related to our derivative assets recognized in other current liabilities on our consolidated balance sheets. EFFECT OF DERIVATIVE CONTRACTS ON CONSOLIDATED STATEMENTS OF INCOME The following table provides the location in the consolidated statements of income and amount of recognized gains or losses related to our derivative instruments designated as hedging instruments: Year Ended December 31, 2021 2020 2019 (In millions) Net revenues 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 (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: Year Ended December 31, 2021 2020 2019 (In millions) 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) — ( 64 ) — 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 were classified in cash flows from investing activities on our consolidated statements of cash flows. 97 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTIONAL AMOUNTS OF DERIVATIVE CONTRACTS Derivative transactions are measured in terms of the notional amount; however, this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the derivative instruments. The notional amount is generally not exchanged, but is used only as the underlying basis on which the value of foreign currency exchange payments under these contracts is determined. The following table provides the notional amounts of our outstanding derivatives: Year Ended December 31, 2021 2020 (In millions) Foreign exchange contracts designated as hedging instruments $ 5,349 $ 5,335 Foreign exchange contracts not designated as hedging instruments 20,414 16,098 Total $ 25,763 $ 21,433 NOTE 11— LOANS AND INTEREST RECEIVABLE CONSUMER RECEIVABLES 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. We closely monitor the credit quality of our consumer receivables to evaluate and manage our related exposure to credit risk. Credit risk management begins with initial underwriting and continues through to full repayment of a loan. To assess a consumer who requests a loan, we use, among other indicators, internally developed risk models using detailed information from external sources, such as credit bureaus where available, and internal historical experience, including the consumer’s prior repayment history with our credit products where available. We use delinquency status and trends to assist in making new and ongoing credit decisions, to adjust our models, to plan our collection practices and strategies, and in determining our allowance for consumer loans and interest receivable. 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 % 30 - 59 Days 18 16 — — — — 34 0.9 % 60 - 89 Days 12 13 — — — — 25 0.6 % 90 - 179 Days 27 28 1 — — — 56 1.5 % Total (1) $ 1,847 $ 1,996 $ 4 $ — $ — $ — $ 3,847 100 % (1) Excludes receivables from other consumer credit products of $ 44 million at December 31, 2021. 98 Table of Contents 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: December 31, 2021 December 31, 2020 Consumer Loans Receivable Interest Receivable Total Allowance (1) Consumer Loans Receivable Interest Receivable Total Allowance (1) (In millions) Beginning balance $ 299 $ 53 $ 352 $ 49 $ 8 $ 57 Adjustment for adoption of CECL — — — 24 4 28 Provisions 20 10 30 245 50 295 Charge-offs ( 116 ) ( 20 ) ( 136 ) ( 69 ) ( 12 ) ( 81 ) Recoveries (2) 28 — 28 27 — 27 Other (3) 12 — 12 23 3 26 Ending balance $ 243 $ 43 $ 286 $ 299 $ 53 $ 352 (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 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. 99 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) MERCHANT RECEIVABLES 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. Through our PPWC product, merchants can borrow a certain percentage of their annual payment volume processed by PayPal and are charged a fixed fee for the loan or advance based on the overall credit assessment of the merchant. Loans and advances are repaid through a fixed percentage of the merchant’s future payment volume that PayPal processes. 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. 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. For PPWC, there is a general requirement that at least 10 % of the original amount of the loan or advance plus the fixed fee must be repaid every 90 days. We calculate the repayment rate of the merchant’s future payment volume so that repayment of the loan or advance and fixed fee is expected to generally occur within 9 to 12 months from the date of the loan or advance. On a monthly basis, we recalculate the repayment period based on the repayment activity on the receivable. As such, actual repayment periods are dependent on actual merchant payment processing volumes. For PPBL, we receive fixed periodic payments over the contractual term of the loan, which generally ranges from 3 to 12 months. 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 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. 100 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Merchant receivables delinquency and allowance 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 expected repayment date or contractual repayment date, as applicable. December 31, 2021 (In millions, except percentages) 2021 2020 2019 2018 2017 Total Percent Current $ 1,100 $ 129 $ 95 $ 3 $ — $ 1,327 91.8 % 30 - 59 Days 24 12 12 1 — 49 3.4 % 60 - 89 Days 10 8 7 — — 25 1.7 % 90 - 179 Days 10 11 11 1 — 33 2.3 % 180+ Days — 4 7 1 — 12 0.8 % Total (1) $ 1,144 $ 164 $ 132 $ 6 $ — $ 1,446 100 % (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) 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 % Total (1) $ 931 $ 427 $ 24 $ — $ — $ 1,382 100 % (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 summarizes the activity in the allowance for merchant loans, advances, and interest and fees receivable, for the years ended December 31, 2021 and 2020: December 31, 2021 December 31, 2020 Merchant Loans and Advances Interest and Fees Receivable Total Allowance Merchant Loans and Advances Interest and Fees Receivable Total Allowance (In millions) Beginning balance $ 440 $ 43 $ 483 $ 171 $ 20 $ 191 Adjustment for adoption of CECL — — — 165 17 182 Provisions ( 116 ) ( 22 ) ( 138 ) 358 33 391 Charge-offs ( 173 ) ( 12 ) ( 185 ) ( 274 ) ( 27 ) ( 301 ) Recoveries 41 — 41 20 — 20 Ending balance $ 192 $ 9 $ 201 $ 440 $ 43 $ 483 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. 101 Table of Contents 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. We charge off the receivables outstanding under our PPBL product when the repayments are 180 days past the contractual repayment date. We charge off the receivables outstanding under our PPWC product when the repayments are 180 days past our expectation of repayments and the merchant has not made a payment in the last 60 days, or when the repayments are 360 days past due regardless of whether the merchant has made a payment within the last 60 days. Bankrupt accounts are charged off within 60 days of receiving notification of bankruptcy. The provision for credit losses 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 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 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 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 (in thousands) Outstanding Balances (1) (in millions) Weighted Average Payment Term Extensions (in months) 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 (in months) 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 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. 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. 102 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 12— DEBT FIXED RATE NOTES On May 18, 2020, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 4.0 billion. Interest on these notes is payable on June 1 and December 1 of each year, beginning on December 1, 2020. On September 26, 2019, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 5.0 billion. Interest on these notes is payable in arrears semiannually (payable March 26 and September 26 for the notes due in 2022 and payable April 1 and October 1 for the remaining notes). The notes issued from the May 2020 and September 2019 debt issuances are senior unsecured obligations and are collectively referred to as the “Notes.” We may redeem these Notes in whole, at any time, or in part, from time to time, prior to maturity, at their redemption prices. Upon the occurrence of both a change of control of the Company and a downgrade of the Notes below an investment grade rating, we will be required to offer to repurchase each series of Notes at a price equal to 101 % of the then outstanding principal amounts, plus accrued and unpaid interest. The Notes are subject to covenants, including limitations on our ability to create liens on our assets, enter into sale and leaseback transactions, and merge or consolidate with another entity, in each case subject to certain exceptions, limitations, and qualifications. Proceeds from the issuance of these Notes may be used for general corporate purposes, which may include funding the repayment or redemption of outstanding debt, share repurchases, ongoing operations, capital expenditures, and possible acquisitions of businesses, assets, or strategic investments. 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: As of December 31, Maturities Effective Interest Rate 2021 2020 (in millions) September 2019 debt issuance of $ 5.0 billion: Fixed-rate 2.200 % notes 9/26/2022 2.39 % $ 1,000 $ 1,000 Fixed-rate 2.400 % notes 10/1/2024 2.52 % 1,250 1,250 Fixed-rate 2.650 % notes 10/1/2026 2.78 % 1,250 1,250 Fixed-rate 2.850 % notes 10/1/2029 2.96 % 1,500 1,500 May 2020 debt issuance of $ 4.0 billion: Fixed-rate 1.350 % notes 6/1/2023 1.55 % 1,000 1,000 Fixed-rate 1.650 % notes 6/1/2025 1.78 % 1,000 1,000 Fixed-rate 2.300 % notes 6/1/2030 2.39 % 1,000 1,000 Fixed-rate 3.250 % notes 6/1/2050 3.33 % 1,000 1,000 Total term debt $ 9,000 $ 9,000 Unamortized premium (discount) and issuance costs, net ( 50 ) ( 61 ) Less: current portion of long-term debt (1) ( 999 ) — 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. 103 Table of Contents 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 $ 224 million, $ 190 million, and $ 35 million for the years ended December 31, 2021, 2020, and 2019, respectively. CREDIT FACILITIES Five-year revolving credit facility In September 2019, we entered into a credit agreement (the “Credit Agreement”) that provides for an unsecured $ 5.0 billion, five-year revolving credit facility that includes a $ 150 million letter of credit sub-facility and a $ 500 million swingline sub-facility, with available borrowings under the revolving credit facility reduced by the amount of any letters of credit and swingline borrowings outstanding from time to time. Loans borrowed under the Credit Agreement are available in U.S. dollar, Euro, British Pound, Canadian dollar, and Australian dollar, and in each case subject to the sub-limits and other limitations provided in the Credit Agreement. We may also, subject to the agreement of the applicable lenders and satisfaction of specified conditions, increase the commitments under the revolving credit facility by up to $ 2.0 billion. Subject to specific conditions, we may designate one or more of our subsidiaries as additional borrowers under the Credit Agreement, provided PayPal Holdings, Inc. guarantees the portion of borrowings made available and other obligations of any such subsidiaries under the Credit Agreement. As of December 31, 2021, certain subsidiaries were designated as additional borrowers. 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. 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, (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. The Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including a financial covenant, events of default, and indemnification provisions in favor of the lenders. The negative covenants include restrictions regarding the incurrence of liens and the incurrence of subsidiary indebtedness, in each case subject to certain exceptions. The financial covenant requires us to meet a quarterly financial test with respect to a maximum consolidated leverage ratio. In March 2020, we drew down $ 3.0 billion under the Credit Agreement. In May 2020, we repaid the $ 3.0 billion using proceeds from the May 2020 debt issuance. As of December 31, 2021, no borrowings or letters of credit were outstanding under the Credit Agreement. Accordingly, at December 31, 2021, $ 5.0 billion of borrowing capacity was available for the purposes permitted by the Credit Agreement, subject to customary conditions to borrowing. The total interest expense and fees we recorded related to the Credit Agreement was approximately $ 16 million for the year ended December 31, 2020. 364 -day revolving credit facility In September 2019, we entered into a 364 -Day credit agreement that provided for an unsecured $ 1.0 billion 364 -Day revolving credit facility, which terminated in September 2020. Amended credit agreement In the fourth quarter of 2018, we entered into an amended credit agreement (“Amended Credit Agreement”), which amended and restated in its entirety the previous agreement entered into in 2017. The Amended Credit Agreement provided for an unsecured $ 5.0 billion, 364 -day delayed-draw term loan credit facility, which was available in up to four separate borrowings until April 6, 2019. As of December 31, 2018, $ 2.0 billion was outstanding under the Amended Credit Agreement. On April 5, 2019, the Company drew down an additional $ 500 million under the Amended Credit Agreement. 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 was $ 69 million for the year ended December 31, 2019. 104 Table of Contents 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 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, 2021, the future principal payments associated with our term debt were as follows (in millions): 2022 $ 1,000 2023 1,000 2024 1,250 2025 1,000 2026 1,250 Thereafter 3,500 Total $ 9,000 NOTE 13— COMMITMENTS AND CONTINGENCIES COMMITMENTS 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 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. 105 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) LITIGATION AND REGULATORY MATTERS Overview 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 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. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range. For those proceedings in which an unfavorable outcome is reasonably possible but not probable, we have disclosed an estimate of the reasonably possible loss or range of losses or we have concluded that an estimate of the reasonably possible loss or range of losses arising directly from the proceeding (i.e., monetary damages or amounts paid in judgment or settlement) are not material. If we cannot estimate the probable or reasonably possible loss or range of losses arising from a legal proceeding, we have disclosed that fact. In assessing the materiality of a legal proceeding, we evaluate, among other factors, the amount of monetary damages claimed, as well as the potential impact of non-monetary remedies sought by plaintiffs (e.g., injunctive relief) that may require us to change our business practices in a manner that could have a material adverse impact on our business. With respect to the matters disclosed in this Note 13, we are unable to estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies. Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable and reasonably estimable were not material for the year ended December 31, 2021. Except as otherwise noted for the proceedings described in this Note 13, we have concluded, based on currently available information, that reasonably possible losses arising directly from the proceedings (i.e., monetary damages or amounts paid in judgment or settlement) in excess of our recorded accruals are also not material. Determining legal reserves or possible losses from such matters involves judgment and may not reflect the full range of uncertainties and unpredictable outcomes. We may be exposed to losses in excess of the amount recorded, and such amounts could be material. If any of our estimates and assumptions change or prove to have been incorrect, it could have a material adverse effect on our business, financial position, results of operations, or cash flows. Regulatory proceedings We are required to comply with U.S. economic and trade sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). In March 2015, we reached a settlement with OFAC regarding possible violations arising from our sanctions compliance practices between 2009 and 2013, prior to the implementation of our real-time transaction scanning program. Subsequently, we have self-reported additional transactions that were inadvertently processed but subsequently identified as possible violations, and we have received new subpoenas from OFAC seeking additional information about certain of these transactions. 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 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 (“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. The external auditor was appointed on November 1, 2019. As required under the terms of AUSTRAC’s notice, as amended, PPAU issued to AUSTRAC the external auditor’s interim reports on December 31, 2019, March 13, 2020, May 6, 2020 and July 7, 2020 and a final report on August 31, 2020. 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. 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. 106 Table of Contents 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, 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 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. 107 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) General matters Other third parties have from time to time claimed, and others may claim in the future, that we have infringed their intellectual property rights. We are subject to patent disputes and expect that we will increasingly be subject to additional patent infringement claims involving various aspects of our business as our products and services continue to expand in scope and complexity. Such claims may be brought directly or indirectly against our companies and/or against our customers (who may be entitled to contractual indemnification under their contracts with us), and we are subject to increased exposure to such claims as a result of our acquisitions, particularly in cases where we are introducing new products or services in connection with such acquisitions. We have in the past been forced to litigate such claims, and we believe that additional lawsuits alleging such claims will be filed against us. 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. 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 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. INDEMNIFICATION PROVISIONS Our agreements with eBay governing our separation from eBay provide for specific indemnity and liability obligations for both eBay and us. Disputes between eBay and us have arisen and others may arise in the future, and an adverse outcome in such matters could materially and adversely impact our business, results of operations, and financial condition. 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 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. We have provided an indemnity for other types of third-party claims, which are indemnities related primarily to intellectual property rights, confidentiality, willful misconduct, data privacy obligations, and certain breach of contract claims. We have also provided an indemnity to our payments processors in the event of card association fines against the processor arising out of conduct by us or our customers. It is not possible to determine the maximum potential loss under these indemnification provisions due to our limited history of prior indemnification claims and the unique facts and circumstances involved in each particular situation. PayPal has participated in the U.S. Government’s Paycheck Protection Program administered by the U.S. Small Business Administration. Loans made under this program are funded by an independent chartered financial institution that we partner with. 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. 108 Table of Contents 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 We provide merchants and consumers with protection programs for certain transactions completed on our payments platform. These programs are intended to protect both merchants and consumers from loss primarily due to fraud and counterparty performance. Our buyer protection program provides protection to consumers for qualifying purchases by reimbursing the consumer for the full amount of the purchase if a purchased item does not arrive or does not match the seller’s description. 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. 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 years ended December 31, 2021 and 2020: As of December 31, 2021 2020 (In millions) Beginning balance $ 414 $ 399 Provision 1,153 1,135 Realized losses ( 1,331 ) ( 1,208 ) Recoveries 119 88 Ending balance $ 355 $ 414 NOTE 14— STOCK REPURCHASE PROGRAMS In April 2017, our Board of Directors authorized a stock repurchase program that provided for the repurchase of up to $ 5 billion of our common stock, with no expiration from the date of authorization. In July 2018, our Board of Directors authorized an additional stock repurchase program that provides for the repurchase of up to $ 10 billion of our common stock, with no expiration from the date of authorization. This program became effective in the first quarter of 2020 upon completion of the April 2017 stock repurchase program. Our stock repurchase programs are intended to offset the impact of dilution from our equity compensation programs and, subject to market conditions and other factors, may also be used to make opportunistic repurchases of our common stock to reduce outstanding share count. Any share repurchases under our stock repurchase programs may be made through open market transactions, block trades, privately negotiated transactions, including accelerated share repurchase agreements, or other means at times and in such amounts as management deems appropriate and will be funded from our working capital or other financing alternatives. Moreover, any stock repurchases are subject to market conditions and other uncertainties, and we cannot predict if or when any stock repurchases will be made. We may terminate our stock repurchase programs at any time without prior notice. 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 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. 109 Table of Contents 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. No repurchased shares of common stock have been retired. NOTE 15— STOCK-BASED AND EMPLOYEE SAVINGS PLANS EQUITY INCENTIVE PLAN 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, 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. Shares issued as a result of stock option exercises and the release of stock awards were funded primarily with the issuance of new shares of common stock. All stock options granted under the Plan generally vest 12.5 % six months from the date of grant or 25 % one year from the date of grant with the remainder vesting at a rate of 2.08 % per month thereafter, and generally expire seven years from the date of grant. The cost of stock options is determined using the Black-Scholes option pricing model on the date of grant. We discontinued granting stock options in January 2016. RSUs are granted to eligible employees under the Plan. RSUs generally vest in equal annual installments over a period of three years , are subject to an employee’s continuing service to us, and do not have an expiration date. The cost of RSUs granted is determined using the fair market value of PayPal’s common stock on the date of grant. Certain of our executives and non-executives are eligible to receive PBRSUs, which are equity awards that may be earned based on an initial target number. The final number of PBRSUs may vest and settle depending on the Company’s performance against pre-established performance metrics over a predefined performance period. PBRSUs granted under the Plan generally have one to three-year performance periods with cliff vesting following the completion of the performance period, subject to the Compensation Committee’s approval of the level of achievement against the pre-established performance targets. Over the performance period, the number of PBRSUs that may be issued and related stock-based compensation expense that is recognized is adjusted upward or downward based upon the probability of achieving the approved performance targets against the performance metrics. Depending on the probability of achieving the pre-established performance targets, the number of PBRSUs issued could range from 0 % to 200 % of the target amount. EMPLOYEE STOCK PURCHASE PLAN Under the terms of the Employee Stock Purchase Plan (“ESPP”), shares of our common stock may be purchased over an offering period with a maximum duration of two years at 85 % of the lower of the fair market value on the first day of the applicable offering period or on the last business day of each six-month purchase period within the offering period. Employees may contribute between 2 % and 10 % of their gross compensation during an offering period to purchase shares, but not more than the statutory limitation of $25,000 per year. All company stock purchased through the ESPP is considered outstanding and is included in the weighted-average outstanding shares for purposes of computing basic and diluted earnings per share. For the years ended December 31, 2021, 2020, and 2019, our employees purchased 1.4 million, 1.7 million, and 1.8 million shares under the ESPP at an average per share price of $ 114.36 , $ 80.36 , and $ 66.36 , respectively. As of December 31, 2021, approximately 48 million shares were reserved for future issuance under the ESPP. 110 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) STOCK OPTION ACTIVITY The following table summarizes stock option activity of our employees under the Plan for the year ended December 31, 2021: Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (In thousands, except per share amounts and years) Outstanding at January 1, 2021 591 $ 14.37 Assumed 86 $ 18.70 Exercised ( 329 ) $ 12.46 Forfeited/expired/canceled ( 9 ) $ 5.65 Outstanding at December 31, 2021 339 $ 17.55 4.58 $ 58,496 Expected to vest 89 $ 12.76 7.34 $ 15,769 Options exercisable 242 $ 19.31 3.46 $ 41,372 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. The aggregate intrinsic value was calculated as the difference between the exercise price of the underlying options and the quoted price of our common stock at December 31, 2021. During the years ended December 31, 2021, 2020, and 2019, the aggregate intrinsic value of options exercised under the Plan was $ 81 million, $ 66 million, and $ 51 million, respectively, determined as of the date of option exercise. At December 31, 2021, all outstanding options were in-the-money. RSU, PBRSU, AND RESTRICTED STOCK ACTIVITY 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 Fair Value (per share) (In thousands, except per share amounts) Outstanding at January 1, 2021 23,164 $ 107.13 Awarded and assumed (1), (2) 9,266 $ 239.34 Vested (1) ( 12,858 ) $ 105.32 Forfeited ( 2,038 ) $ 155.60 Outstanding at December 31, 2021 17,534 $ 172.55 Expected to vest 15,918 (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 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. In the year ended December 31, 2021, the Company granted 0.7 million PBRSUs with a one-year performance period (fiscal 2021), which will become fully vested following the completion of the performance period in February 2022 ( one year from the annual incentive award cycle grant date), and 0.5 million PBRSUs with a three-year performance period. In the year ended December 31, 2020, the Company granted 1.4 million PBRSUs with a one-year performance period (fiscal 2020), which became fully vested following the completion of the performance period in February 2021 ( one year from the annual incentive award cycle grant date), and 0.7 million PBRSUs with a three-year performance period. 111 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) STOCK-BASED COMPENSATION EXPENSE 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: Year Ended December 31, 2021 2020 2019 (In millions) Customer support and operations $ 263 $ 250 $ 198 Sales and marketing 175 172 127 Technology and development 515 529 420 General and administrative 468 460 305 Total stock-based compensation expense $ 1,421 $ 1,411 $ 1,050 Capitalized as part of internal use software and website development costs $ 68 $ 48 $ 38 Income tax benefit recognized for stock-based compensation arrangements $ 221 $ 226 $ 182 As of December 31, 2021, there was approximately $ 1.7 billion of unearned stock-based compensation estimated to be expensed primarily from 2022 through 2024. If there are any modifications or cancellations of the underlying unvested awards, we may be required to accelerate, increase, or cancel all or a portion of the remaining unearned stock-based compensation expense. Future unearned stock-based compensation will increase to the extent we grant additional equity awards, change the mix of equity awards we grant, or assume unvested equity awards in connection with acquisitions. EMPLOYEE SAVINGS PLANS Under the terms of the PayPal Holdings, Inc. Deferred Compensation Plan, which also qualifies under Section 401(k) of the Code, participating U.S. 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 both 2021 and 2020 and $ 11,200 in 2019. Our non-U.S. employees are covered by other savings plans. For the years ended December 31, 2021, 2020, and 2019, the matching contribution expense for our U.S. and international savings plans was approximately $ 81 million, $ 72 million, and $ 59 million, respectively. NOTE 16— INCOME TAXES The components of income before income taxes are as follows: Year Ended December 31, 2021 2020 2019 (In millions) United States $ 290 $ 1,504 $ 8 International 3,809 3,561 2,990 Income before income taxes $ 4,099 $ 5,065 $ 2,998 112 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The income tax (benefit) expense is composed of the following: Year Ended December 31, 2021 2020 2019 (In millions) Current: Federal $ 6 $ 310 $ 132 State and local 80 143 47 Foreign 326 245 629 Total current portion of income tax expense $ 412 $ 698 $ 808 Deferred: Federal $ ( 401 ) $ 259 $ ( 107 ) State and local ( 45 ) ( 32 ) ( 39 ) Foreign ( 36 ) ( 62 ) ( 123 ) 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: Year Ended December 31, 2021 2020 2019 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 % Foreign income taxed at different rates ( 13.4 ) % ( 7.4 ) % ( 5.0 ) % Stock-based compensation expense ( 7.3 ) % ( 1.2 ) % ( 3.9 ) % Tax credits ( 2.4 ) % ( 2.0 ) % ( 2.4 ) % Change in valuation allowances 0.5 % 0.1 % 0.1 % Intra-group transfer of intellectual property 0.7 % 4.1 % 7.6 % Other — % 0.2 % 0.3 % Effective income tax rate ( 1.7 ) % 17.0 % 18.0 % 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 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. 113 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. Significant deferred tax assets and liabilities consist of the following: As of December 31, 2021 2020 (In millions) Deferred tax assets: Net operating loss and credit carryforwards $ 317 $ 201 Accruals, allowances, and prepaids 622 413 Lease liabilities 176 188 Partnership investment 5 6 Stock-based compensation 188 196 Net unrealized losses 23 4 Fixed assets and other intangibles 84 — Total deferred tax assets 1,415 1,008 Valuation allowance ( 274 ) ( 166 ) Net deferred tax assets $ 1,141 $ 842 Deferred tax liabilities: Unremitted foreign earnings $ ( 35 ) $ ( 21 ) Fixed assets and other intangibles — ( 70 ) Acquired intangibles ( 240 ) ( 72 ) ROU lease assets ( 154 ) ( 172 ) Net unrealized gains ( 351 ) ( 440 ) Total deferred tax liabilities ( 780 ) ( 775 ) Net deferred tax assets $ 361 $ 67 The following table shows the deferred tax assets and liabilities within our consolidated balance sheets: As of December 31, 2021 2020 Balance Sheet Location (In millions) Total deferred tax assets (non-current) Other assets $ 547 $ 142 Total deferred tax liabilities (non-current) Deferred tax liability and other long-term liabilities ( 186 ) ( 75 ) Total net deferred tax assets $ 361 $ 67 As of December 31, 2021, our federal, state, and foreign net operating loss carryforwards for income tax purposes were approximately $ 9 million, $ 301 million, and $ 525 million, respectively. The federal and state net operating loss carryforwards are subject to various limitations under Section 382 of the Code. If not utilized, the federal net operating loss carryforwards will begin to expire in 2022, and the state net operating loss carryforwards will begin to expire in 2023. Approximately $ 119 million of the foreign net operating loss carryforwards will begin to expire in 2022, $ 136 million will begin to expire in 2024, $ 57 million will begin to expire in 2034, and $ 213 million has no expiration date and may be carried forward indefinitely. As of December 31, 2021, our federal and state tax credit carryforwards for income tax purposes were approximately $ 15 million and $ 332 million, respectively. If not utilized, the federal tax credits will begin to expire in 2029. Approximately $ 19 million of the state tax credits will begin to expire in 2022, $ 26 million will begin to expire in 2028, $ 8 million will begin to expire in 2037, and $ 279 million may be carried forward indefinitely. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. We have elected the tax law ordering approach to assess the realizability of our net operating losses. 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. 114 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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 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. In December 2019, a new agreement was concluded in Singapore. The new agreement took effect January 1, 2021 and will be in effect from 2021 through 2030. In December 2019, the Luxembourg government passed legislation confirming that tax agreements granted before January 1, 2015 will no longer be binding after December 31, 2019. These agreements result in significantly lower rates of taxation on certain classes of income and require various thresholds of investment and employment in those jurisdictions. We review our compliance on an annual basis to ensure we continue to meet our obligations under these agreements. These agreements resulted in tax savings of approximately $ 327 million, $ 596 million, and $ 472 million in 2021, 2020, and 2019, respectively. The benefit of these agreements on our net income per share (diluted) was approximately $ 0.28 , $ 0.50 , and $ 0.40 in 2021, 2020, and 2019, respectively. The following table reflects changes in unrecognized tax benefits for the periods presented below: Year Ended December 31, 2021 2020 2019 (In millions) Gross amounts of unrecognized tax benefits as of the beginning of the period $ 1,479 $ 1,141 $ 800 Increases related to prior period tax positions 172 92 97 Decreases related to prior period tax positions ( 187 ) ( 78 ) ( 28 ) Increases related to current period tax positions 232 360 336 Settlements ( 15 ) ( 34 ) ( 63 ) Statute of limitation expirations ( 3 ) ( 2 ) ( 1 ) Gross amounts of unrecognized tax benefits as of the end of the period $ 1,678 $ 1,479 $ 1,141 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. 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. We are subject to taxation in the U.S. and various state and foreign jurisdictions. We are currently under examination by certain tax authorities for the 2010 to 2020 tax years. The material jurisdictions in which we are subject to examination by tax authorities for tax years after 2009 primarily include the U.S. (Federal and California), Germany, India, Israel, and Singapore. 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. Although the timing of the resolution of these audits is uncertain, we do not expect the total amount of unrecognized tax benefits as of December 31, 2021 will materially change in the next 12 months. 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 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. Under the tax matters agreement, eBay is generally responsible for all additional taxes (and will be entitled to all related refunds of taxes) imposed on eBay and its subsidiaries (including subsidiaries that were transferred to PayPal pursuant to the separation) arising after the separation date with respect to the taxable periods (or portions thereof) ended on or prior to July 17, 2015, except for those taxes for which PayPal has reflected an unrecognized tax benefit in its financial statements on the separation date. 115 Table of Contents PayPal Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 17— RESTRUCTURING AND OTHER CHARGES 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: Employee Severance and Benefits and Other Associated Costs (In millions) Accrued liability as of January 1, 2021 $ 55 Charges 27 Payments ( 77 ) Accrued liability as of December 31, 2021 $ 5 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. The approved strategic reductions for 2019 were intended to better align our teams to support key business priorities and included the transfer of certain operational functions between geographies, as well as the impact of the transition servicing activities provided to Synchrony, which ended in the second quarter of 2019. We primarily incurred employee severance and benefits expenses under the 2019 strategic reductions, which were substantially completed by the end of the first quarter of 2020. 116 FINANCIAL STATEMENT SCHEDULE The Financial Statement Schedule II—VALUATION AND QUALIFYING ACCOUNTS is filed as part of this Annual Report on Form 10-K. Balance at Beginning of Period Charged/ (Credited) to Net Income Charged to Other Accounts (2) Charges Utilized/ (Write-offs) Balance at End of Period (In millions) Allowance for Transaction Losses and Negative Customer Balances Year Ended December 31, 2019 $ 344 $ 1,092 $ — $ ( 1,037 ) $ 399 Year Ended December 31, 2020 $ 399 $ 1,135 $ — $ ( 1,120 ) $ 414 Year Ended December 31, 2021 $ 414 $ 1,153 $ — $ ( 1,212 ) $ 355 Allowance for Loans and Interest Receivable 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) 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. 117 Exhibit Index Incorporated by Reference Exhibit Number Exhibit Description Filed with this Form 10-K Form Date Filed 2.01 Separation and Distribution Agreement by and between eBay Inc. and PayPal Holdings, Inc. 10-12B/A 6/26/2015 2.02 Purchase and Sale Agreement, dated as of November 10, 2017, by and between Synchrony Bank and Bill Me Later, Inc. 8-K 11/16/2017 2.03 Purchase and Sale Agreement, dated as of November 10, 2017, by and between Synchrony Bank and PayPal (Europe) S.à r.l. et Cie. S.C.A. 8-K 11/16/2017 2.04 Amendment No. 1 to the Purchase and Sale Agreement, dated as of April 12, 2018, by and between Synchrony Bank and Bill Me Later, Inc. 10-Q 7/26/2018 2.05 Amendment No. 1 to the Purchase and Sale Agreement, dated as of April 12, 2018, by and between Synchrony Bank and PayPal (Europe) S.à r.l. et Cie. S.C.A. 10-Q 7/26/2018 3.01 PayPal Holdings, Inc. Restated Certificate of Incorporation 10-Q 7/27/2017 3.02 PayPal Holdings, Inc. Amended and Restated Bylaws effective January 17, 2019 8-K 1/18/2019 4.01 Description of Securities 10-K 2/6/2020 4.02 Indenture, dated as of September 26, 2019, by and between PayPal Holdings, Inc. and Wells Fargo Bank, National Association, as Trustee 8-K 9/26/2019 4.03 Officer’s Certificate, dated as of September 26, 2019, pursuant to the Indenture, dated as of September 26, 2019, by and between PayPal Holdings, Inc. and Wells Fargo Bank, National Association, as Trustee 8-K 9/26/2019 4.04 Form of 2022 Note (included in Exhibit 4.03) 8-K 9/26/2019 4.05 Form of 2024 Note (included in Exhibit 4.03) 8-K 9/26/2019 4.06 Form of 2026 Note (included in Exhibit 4.03) 8-K 9/26/2019 4.07 Form of 2029 Note (included in Exhibit 4.03) 8-K 9/26/2019 4.08 Officer’s Certificate, dated as of May 18, 2020, pursuant to the Indenture, dated as of September 26, 2019, by and between PayPal Holdings, Inc. and Wells Fargo Bank, National Association, as Trustee 8-K 5/18/2020 4.09 Form of 2023 Note (included in Exhibit 4.08) 8-K 5/18/2020 4.10 Form of 2025 Note (included in Exhibit 4.08) 8-K 5/18/2020 4.11 Form of 2030 Note (included in Exhibit 4.08) 8-K 5/18/2020 4.12 Form of 2050 Note (included in Exhibit 4.08) 8-K 5/18/2020 10.01 Tax Matters Agreement by and between eBay Inc. and PayPal Holdings, Inc. dated July 17, 2015 8-K 7/20/2015 10.02 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 Europe Limited, as the Administrative Agents 8-K 9/12/2019 10.03 364-Day Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent 8-K 9/12/2019 10.04+ PayPal Employee Incentive Plan, as amended and restated. DEF 14A 4/14/2016 10.05+ PayPal Holdings, Inc. Amended and Restated 2015 Equity Incentive Award Plan 8-K 5/25/2018 118 Incorporated by Reference Exhibit Number Exhibit Description Filed with this Form 10-K Form Date Filed 10.06+ PayPal Holdings, Inc. Amended and Restated Deferred Compensation Plan effective November 6, 2018 10-K 2/7/2019 10.07+ PayPal Holdings, Inc. Executive Change in Control and Severance Plan, as amended and restated, effective as of September 27, 2021 10-Q 11/9/2021 10.08+ Form of Indemnity Agreement between PayPal Holdings, Inc. and individual directors and officers 10-12B/A 5/14/2015 10.09+ Form of Global Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement under the PayPal Holdings, Inc. 2015 Equity Incentive Award Plan 10-12B/A 5/14/2015 10.10+ Form of Global Performance Based Restricted Stock Unit Award Grant Notice and Performance Based Restricted Stock Unit Award Agreement under the PayPal Holdings, Inc. 2015 Equity Incentive Award Plan, as amended and restated 10-Q 4/27/2017 10.11+ Form of Global Notice of Grant of Stock Option and Stock Option Agreement under the PayPal Holdings, Inc. 2015 Equity Incentive Award Plan 10-12B/A 5/14/2015 10.12+ Form of Director Annual Award Agreement under the PayPal Holdings, Inc. 2015 Equity Incentive Award Plan 10-12B/A 5/14/2015 10.13+ Form of Electing Director Quarterly Award Agreement under the PayPal Holdings, Inc. 2015 Equity Incentive Award Plan 10-12B/A 5/14/2015 10.14+ PayPal Holdings, Inc. Amended and Restated Employee Stock Purchase Plan 8-K 5/25/2018 10.15+ Amendment to PayPal Holdings, Inc. Amended and Restated Employee Stock Purchase Plan 10-Q 11/9/2021 10.16+ Offer Letter dated September 29, 2014 between eBay Inc. and Daniel Schulman 10-12B/A 5/14/2015 10.17+ Amendment dated December 31, 2014 to Offer Letter between eBay Inc. and Daniel Schulman 10-12B/A 5/14/2015 10.18+ Letter dated April 7, 2015 from eBay Inc. to Louise Pentland 10-K 2/11/2016 10.19+ Letter dated April 13, 2015 from eBay Inc. to Jonathan Auerbach 10-K 2/11/2016 10.20+ Letter Agreement dated July 29, 2015 between John Rainey and PayPal Holdings, Inc. 10-Q 10/29/2015 10.21+ Letter Agreement, dated April 17, 2016, between Aaron Karczmer and PayPal Holdings, Inc. 10-Q 4/27/2017 10.22+ Letter Agreement effective February 20, 2019 between Mark Britto and PayPal Holdings, Inc. 10-Q 4/25/2019 10.23+ Independent Director Compensation Policy 10-K 2/5/2021 10.24+ PayPal Holdings, Inc. Executive Change in Control and Severance Plan, as amended and restated 10-Q 7/29/2021 10.25 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. Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., Toronto Branch, and J.P. Morgan Europe Limited, as the Administrative Agents 10-Q 5/7/2020 10.26 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 119 Incorporated by Reference Exhibit Number Exhibit Description Filed with this Form 10-K Form Date Filed 10.27 Joinder Agreement, dated as of March 25, 2020, among PayPal International Treasury Centre S.à r.l., PayPal Holdings, Inc., and J.P. Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., J.P. 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 10.28 Joinder Agreement, dated as of March 25, 2020, among PayPal (Europe) S.à r.l. et Cie, S.C.A., PayPal Holdings, Inc., and J.P. Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., J.P. 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 10.29 Joinder Agreement, dated as of March 27, 2020, among PayPal Pte. Ltd., PayPal Holdings, Inc., and J.P. Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., J.P. 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 10.30 Joinder Agreement, dated as of March 31, 2020, among PayPal Australia Pty Limited, PayPal Holdings, Inc., and J.P. Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., J.P. 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 10.31 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 21.01 List of Subsidiaries X 22.01 PricewaterhouseCoopers LLP consent X 23.01 Power of Attorney (see signature page) X 31.01 Certification of PayPal Holdings, Inc.’s Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 X 31.02 Certification of PayPal Holdings, Inc.’s Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 X 32.01 Certification of PayPal Holdings, Inc.’s Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 X 32.02 Certification of PayPal Holdings, Inc.’s Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 X 120 Incorporated by Reference Exhibit Number Exhibit Description Filed with this Form 10-K Form Date Filed 101 The following financial information related to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows; and (vi) the related Notes to Consolidated Financial Statements X 104 Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101 X + Indicates a management contract or compensatory plan or arrangement 121 Table of Contents ITEM 16. FORM 10-K SUMMARY None. 122 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 3, 2022. PayPal Holdings, Inc. By: /s/ Daniel H. Schulman Name: Title: Daniel H. Schulman President, Chief Executive Officer and Director Table of Contents POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Daniel H. Schulman, John D. Rainey, Bimal Patel, Brian Y. Yamasaki and Jeffrey W. Karbowski, and each or any one of them, each with the power of substitution, his or her attorney-in-fact, to sign any amendments to this report, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 3, 2022. Principal Executive Officer: Principal Financial Officer: By: /s/ Daniel H. Schulman By: /s/ John D. Rainey Daniel H. Schulman John D. Rainey President, Chief Executive Officer and Director Chief Financial Officer and Executive Vice President, Global Customer Operations Principal Accounting Officer: By: /s/ Jeffrey W. Karbowski Jeffrey W. Karbowski Vice President, Chief Accounting Officer Additional Directors By: /s/ Rodney C. Adkins By: /s/ Jonathan Christodoro Rodney C. Adkins Jonathan Christodoro Director Director By: /s/ John J. Donahoe By: /s/ David W. Dorman John J. Donahoe David W. Dorman Director Director By: /s/ Belinda Johnson By: /s/ Enrique Lores Belinda Johnson Enrique Lores Director Director By: /s/ Gail J. McGovern By: /s/ Deborah M. Messemer Gail J. McGovern Deborah M. Messemer Director Director By: /s/ David M. Moffett By: /s/ Ann M. Sarnoff David M. Moffett Ann M. Sarnoff Director Director By: /s/ Frank D. Yeary Frank D. Yeary Director