What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-03 compared with 2022-04-28 · 387 added, 231 removed, 992 unchanged (38% of the section changed)

8 unchanged sentences

Accounts receivable, net 867 800

Loans and interest receivable, net of allowances of $ 476 and $ 491 as of March 31, 2022 and December 31, 2021, respectively

Loans and interest receivable, net of allowances of $ 455 and $ 491 as of June 30, 2022 and December 31, 2021, respectively

Funds receivable and customer accounts 37,221 36,141

20 unchanged sentences

4,000 shares authorized;

1,161 and 1,168 shares outstanding as of March 31, 2022 and December 31, 2021, respectively

1,156 and 1,168 shares outstanding as of June 30, 2022 and December 31, 2021, respectively

Preferred stock, $ 0.0001 par value;

100 shares authorized, unissued

Treasury stock at cost, 143 and 132 shares as of March 31, 2022 and December 31, 2021, respectively

Treasury stock at cost, 151 and 132 shares as of June 30, 2022 and December 31, 2021, respectively

( 14,130 ) ( 11,880 )

6 unchanged sentences

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31,

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

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

2022 2021 2022 2021

(In millions, except per share data)

13 unchanged sentences

Income tax expense (benefit) 390 172 510 ( 53 )

Net income $ 509 $ 1,097

Net income per share:

Net income (loss) $ ( 341 ) $ 1,184 $ 168 $ 2,281

Net income (loss) per share:

Basic $ ( 0.29 ) $ 1.01 $ 0.14 $ 1.94

5 unchanged sentences

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended March 31,

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

2022 2021 2022 2021

(In millions)

Net income $ 509 $ 1,097

Net income (loss) $ ( 341 ) $ 1,184 $ 168 $ 2,281

Other comprehensive income (loss), net of reclassification adjustments:

2 unchanged sentences

Tax expense on net investment hedges CTA gains, net ( 31 ) — ( 36 ) —

Unrealized (losses) gains on cash flow hedges, net ( 3 ) 198

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

Unrealized gains on cash flow hedges, net 213 32 210 230

Tax expense on unrealized gains on cash flow hedges, net ( 11 ) — ( 11 ) ( 3 )

Unrealized losses on investments, net ( 164 ) ( 2 ) ( 457 ) ( 17 )

1 unchanged sentence

Other comprehensive income (loss), net of tax ( 120 ) 61 ( 428 ) 192

Comprehensive income $ 201 $ 1,228

Comprehensive income (loss) $ ( 461 ) $ 1,245 $ ( 260 ) $ 2,473

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

17 unchanged sentences

Balances at March 31, 2022 1,161 $ ( 13,380 ) $ 17,383 $ ( 444 ) $ 17,044 $ 20,603

Net loss — — — — ( 341 ) ( 341 )

Foreign CTA — — — ( 300 ) — ( 300 )

Net investment hedge CTA gains, net — — — 135 — 135

Tax expense on net investment hedges CTA gains, net — — — ( 31 ) — ( 31 )

Unrealized gains on cash flow hedges, net — — — 213 — 213

Tax expense on unrealized gains on cash flow hedges, net — — — ( 11 ) — ( 11 )

Unrealized losses on investments, net — — — ( 164 ) — ( 164 )

Tax benefit on unrealized losses on investments, net — — — 38 — 38

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 3 — 51 — — 51

Common stock repurchased ( 8 ) ( 750 ) — — — ( 750 )

Stock-based compensation — — 324 — — 324

Balances at June 30, 2022 1,156 $ ( 14,130 ) $ 17,758 $ ( 564 ) $ 16,703 $ 19,767

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

Common Stock Shares Treasury Stock Additional Paid-In Capital Accumulated Other

13 unchanged sentences

Balances at March 31, 2021 1,174 $ ( 9,830 ) $ 16,161 $ ( 353 ) $ 13,463 $ — $ 19,441

Net income — — — — 1,184 — 1,184

Foreign CTA — — — 31 — — 31

Unrealized losses on cash flow hedges, net — — — 32 — — 32

Unrealized gains on investments, net — — — ( 2 ) — — ( 2 )

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 2 — 12 — — — 12

Common stock repurchased ( 1 ) ( 200 ) — — — — ( 200 )

Stock-based compensation — — 407 — — — 407

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

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

(In millions)

20 unchanged sentences

Maturities and sales of investments 11,087 18,683

Acquisitions, net of cash and restricted cash acquired — ( 469 )

Funds receivable ( 882 ) 127

Other investing activities 30 —

Net cash used in investing activities ( 4,667 ) ( 2,682 )

7 unchanged sentences

Other financing activities 1 —

Net cash (used in) provided by financing activities ( 695 ) 827

Net cash provided by financing activities 750 630

Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 136 ) ( 34 )

2 unchanged sentences

Cash, cash equivalents, and restricted cash at end of period $ 16,684 $ 19,018

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

Six Months Ended June 30,

(In millions)

Supplemental cash flow disclosures:

24 unchanged sentences

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

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

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

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

Our investment balance is included in long-term investments on our condensed consolidated balance sheets.

3 unchanged sentences

We were the primary beneficiary of the VIEs as we performed the servicing and collection for the loans receivable, which were the activities that most significantly impacted the VIE’s economic performance, and we had 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 were included in the condensed consolidated financial statements.

The financial results of our consolidated VIEs were included in our condensed consolidated financial statements.

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

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

As of March 31, 2022, we have terminated Paidy’s legacy debt structure with a new credit agreement executed in February 2022.

As a result, we no longer have any consolidated VIEs as of March 31, 2022.

In the first quarter of 2022, we terminated Paidy’s legacy debt structure and replaced it with a new credit agreement executed in February 2022.

As a result, we no longer have any consolidated VIEs as of June 30, 2022.

See “Note 12—Debt” for additional information.

As of March 31, 2022 and December 31, 2021, the carrying value of our investments that are in nonconsolidated VIEs was $ 86 million and $ 74 million, respectively, and is included as non-marketable equity securities applying the equity method of accounting in long-term investments on our condensed consolidated balance sheets.

Our maximum exposure to loss related to our nonconsolidated VIEs, which represents funded commitments and any future funding commitments, was $ 230 million and $ 205 million as of March 31, 2022 and December 31, 2021, respectively.

As of June 30, 2022 and December 31, 2021, the carrying value of our investments that are in nonconsolidated VIEs was $ 98 million and $ 74 million, respectively, and is included as non-marketable equity securities applying the equity method of accounting in long-term investments on our condensed consolidated balance sheets.

Our maximum exposure to loss related to our nonconsolidated VIEs, which represents funded commitments and any future funding commitments, was $ 231 million and $ 205 million as of June 30, 2022 and December 31, 2021, respectively.

PayPal Holdings, Inc.

2 unchanged sentences

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

Certain amounts for prior periods have been reclassified to conform to the financial statement presentation as of and for the three months ended March 31, 2022.

Certain amounts for prior periods have been reclassified to conform to the financial statement presentation as of and for the three and six months ended June 30, 2022.

Use of estimates

6 unchanged sentences

Recent accounting guidance

In March 2022, the SEC released Staff Accounting Bulletin No.

121 (“SAB 121”), which provides interpretive guidance for an entity to consider when it operates a platform that allows its users to transact in crypto-assets and that engages in activities in which it has obligations to safeguard customers’ crypto-assets, whether directly or through an agent or another third party acting on its behalf.

The interpretive guidance requires a reporting entity to record a liability to reflect its obligation to safeguard the crypto-assets held for its platform users with a corresponding asset, regardless of its assessment as to who controls the crypto-asset.

The crypto-asset safeguarding liability and related asset will be measured at the fair value of the crypto-assets held for the platform users with the measurement of the safeguarding asset taking into account any potential loss events.

SAB 121 also requires disclosures related to the entity’s safeguarding obligations for crypto-assets held for its platform users.

SEC registrants are expected to comply with SAB 121 in the first interim or annual financial statements ending after June 15, 2022 with retrospective application as of the beginning of the fiscal year.

We are evaluating the approach to, and impact of, adopting this new accounting guidance on our condensed consolidated financial statements.

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02, Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures (Topic 326):

1 unchanged sentence

This amended guidance will eliminate the accounting designation of a loan modification as a TDR, including eliminating the measurement guidance for TDRs.

The amendments also enhance existing disclosure requirements and introduce new requirements related to modifications of receivables made to borrowers experiencing financial difficulty.

The amendments also enhance existing disclosure requirements and introduce new requirements related to modifications of receivables due from borrowers experiencing financial difficulty.

Additionally, this guidance requires entities to disclose gross write-offs by year of origination for financing receivables, such as loans and interest receivable.

6 unchanged sentences

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.

Our exposure to London Interbank Offered Rate is primarily limited to an insignificant portion of our available-for-sale debt securities.

Accordingly, we do not expect reference rate reform to have a material impact on our condensed consolidated financial statements.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Recently adopted accounting guidance

In March 2022, the SEC released Staff Accounting Bulletin No.

121 (“SAB 121”), which provides guidance for an entity to consider when it has obligations to safeguard customers’ crypto assets, whether directly or through an agent or another third party acting on its behalf.

The interpretive guidance requires a reporting entity to record a liability to reflect its obligation to safeguard the crypto assets held for its platform users with a corresponding safeguarding asset, regardless of its assessment as to who controls the crypto asset.

The crypto asset safeguarding liability and the corresponding safeguarding asset will be measured at the fair value of the crypto assets held for the platform users with the measurement of the safeguarding asset taking into account any potential loss events.

SAB 121 also requires disclosures related to the entity’s safeguarding obligations for crypto assets held for its platform users.

SAB 121 is effective in the first interim or annual financial statements ending after June 15, 2022 with retrospective application as of the beginning of the fiscal year.

We adopted this guidance for the quarter ended June 30, 2022 with retrospective application as of January 1, 2022.

As of June 30, 2022, we recorded $ 596 million for both the crypto asset safeguarding liability and corresponding safeguarding asset, which are classified as accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively, on our condensed consolidated balance sheet.

For additional information, see “Note 7—Other Financial Statement Details.”

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

11 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Three Months Ended March 31,

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

2022 2021 2022 2021

(In millions)

3 unchanged sentences

Other countries (1)

2,407 2,379 4,693 4,724

Total net revenues (2)

6 unchanged sentences

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

(2) Total net revenues include $ 187 million and $ 59 million for the three months ended March 31, 2022 and 2021, 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.

(2) Total net revenues include $ 296 million and $ 62 million for the three months ended June 30, 2022 and 2021, respectively, and $ 483 million and $ 121 million for the six months ended June 30, 2022 and 2021, 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 and fees earned on loans and interest receivable, as well as hedging gains or losses, and interest earned on certain assets underlying customer balances.

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

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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Three Months Ended March 31,

NOTE 3— NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period.

Diluted net income (loss) per share is computed by dividing net income (loss) 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 (loss) per share by application of the treasury stock method.

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

During periods when we report net loss, diluted net loss per share is the same as basic net loss per share because the effects of potentially dilutive items would decrease the net loss per share.

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

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

2022 2021 2022 2021

(In millions, except per share amounts)

Net income $ 509 $ 1,097

Net income (loss) $ ( 341 ) $ 1,184 $ 168 $ 2,281

Weighted average shares of common stock - basic 1,158 1,174 1,161 1,174

1 unchanged sentence

Weighted average shares of common stock - diluted 1,158 1,186 1,166 1,188

Net income per share:

Net income (loss) per share:

Basic $ ( 0.29 ) $ 1.01 $ 0.14 $ 1.94

Diluted $ ( 0.29 ) $ 1.00 $ 0.14 $ 1.92

Common stock equivalents excluded from income per diluted share because their effect would have been anti-dilutive 6 2

Common stock equivalents excluded from income (loss) per diluted share because their effect would have been anti-dilutive or potentially dilutive 20 3 12 2

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 4— BUSINESS COMBINATIONS

There were no acquisitions accounted for as business combinations or divestitures completed in the three months ended March 31, 2022 or 2021.

There were no acquisitions accounted for as business combinations or divestitures completed in the three and six months ended June 30, 2022.

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

ACQUISITIONS COMPLETED IN 2021

15 unchanged sentences

Total purchase price $ 2,571

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

6 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Other acquisitions

1 unchanged sentence

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 $ 17 million, and initial goodwill of approximately $ 435 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.

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 $ 17 million, and goodwill of approximately $ 435 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.

Goodwill was not considered deductible for income tax purposes.

OTHER INFORMATION

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

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

NOTE 5— GOODWILL AND INTANGIBLE ASSETS

The following table presents goodwill balances and adjustments to those balances during the three months ended March 31, 2022:

December 31, 2021 Goodwill Acquired Adjustments March 31, 2022

The following table presents goodwill balances and adjustments to those balances during the six months ended June 30, 2022:

2021 Goodwill Acquired Adjustments June 30,

(In millions)

Total goodwill $ 11,454 $ — $ ( 308 ) $ 11,146

The adjustments to goodwill during the three months ended March 31, 2022 pertain primarily to foreign currency translation adjustments.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The adjustments to goodwill during the six months ended June 30, 2022 pertained primarily to foreign currency translation adjustments.

INTANGIBLE ASSETS

The components of identifiable intangible assets were as follows:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Gross Carrying Amount

10 unchanged sentences

Intangible assets, net $ 3,585 $ ( 2,584 ) $ 1,001 $ 3,694 $ ( 2,362 ) $ 1,332

Amortization expense for intangible assets was $ 118 million and $ 106 million for the three months ended March 31, 2022 and 2021, respectively.

Expected future intangible asset amortization as of March 31, 2022 was as follows (in millions):

Amortization expense for intangible assets was $ 120 million and $ 110 million for the three months ended June 30, 2022 and 2021, respectively.

Amortization expense for intangible assets was $ 238 million and $ 216 million for the six months ended June 30, 2022 and 2021, respectively.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Expected future intangible asset amortization as of June 30, 2022 was as follows (in millions):

Fiscal years:

10 unchanged sentences

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

As of March 31, 2022, we had no finance leases.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of June 30, 2022, we had no finance leases.

The components of lease expense were as follows:

Three Months Ended March 31,

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

2022 2021 2022 2021

(In millions)

4 unchanged sentences

Supplemental cash flow information related to leases was as follows:

Three Months Ended March 31,

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

2022 2021 2022 2021

(In millions)

2 unchanged sentences

Right-of-use (“ROU”) lease assets obtained in exchange for operating lease liabilities $ ( 4 ) $ 10 $ 69 $ 11

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Supplemental balance sheet information related to leases was as follows:

March 31, 2022 December 31, 2021

2022 December 31,

(In millions, except weighted-average figures)

Operating ROU lease assets $ 642 $ 659

Other current operating lease liabilities 155 142

Current operating lease liabilities 158 142

Operating lease liabilities 607 620

3 unchanged sentences

Weighted-average discount rate — operating leases

Future minimum lease payments for our operating leases as of March 31, 2022 were as follows:

Future minimum lease payments for our operating leases as of June 30, 2022 were as follows:

Operating Leases

7 unchanged sentences

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

In the three months ended March 31, 2022 and 2021, we incurred asset impairment charges of $ 16 million and $ 26 million, respectively, within restructuring and other charges on our condensed consolidated statements of income.

The impairments included a reduction to our ROU lease assets in the amount of $ 10 million and $ 21 million, respectively, which were attributed to certain leased space we are no longer utilizing for our core business operations, of which a portion is being subleased.

In the three and six months ended June 30, 2022, we incurred asset impairment charges of $ 19 million and $ 35 million, respectively, within restructuring and other charges on our condensed consolidated statements of income (loss).

The impairments included a reduction to our ROU lease assets in the amount of $ 15 million and $ 25 million, respectively, which were attributed to certain leased space we are no longer utilizing for our business operations, a portion of which is being subleased.

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

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

As of June 30, 2022, we have an additional operating lease for real estate, which will commence in the third quarter of 2022 or later with minimum lease payments aggregating to $ 3 million and a lease term of eight years .

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of March 31, 2022, we have additional operating leases, primarily for real estate and data centers, which will commence in the second quarter of 2022 or later with minimum lease payments aggregating to $ 5 million and lease terms ranging from three to nine years .

NOTE 7— OTHER FINANCIAL STATEMENT DETAILS

CRYPTO ASSET SAFEGUARDING LIABILITY AND CORRESPONDING SAFEGUARDING ASSET

We allow our customers in certain markets to buy, hold, sell, receive, and send certain cryptocurrencies as well as use the proceeds from sales of cryptocurrencies to pay for purchases at checkout.

These cryptocurrencies consist of Bitcoin, Ethereum, Bitcoin Cash, and Litecoin (collectively, “our customers’ crypto assets”).

We engage third parties, which are licensed trust companies, to provide certain custodial services, including holding our customers’ cryptographic key information, securing our customers’ crypto assets, and protecting them from loss or theft, including indemnification against certain types of losses such as theft.

Our third-party custodian holds the crypto assets in a custodial account in PayPal’s name for the benefit of PayPal’s customers.

We maintain the internal recordkeeping of our customers’ crypto assets, including the amount and type of crypto asset owned by each of our customers in that custodial account.

Given we currently utilize one third-party custodian, there is concentration risk in the event the custodian is not able to perform in accordance with our agreement.

Due to the unique risks associated with cryptocurrencies, including technological, legal, and regulatory risks, we recognize a crypto asset safeguarding liability to reflect our obligation to safeguard the crypto assets held for the benefit of our customers, which is recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheet.

We also recognize a corresponding safeguarding asset which is recorded in prepaid expenses and other current assets on our condensed consolidated balance sheet.

The crypto asset safeguarding liability and corresponding safeguarding asset are measured and recorded at fair value on a recurring basis using prices available in the market we determine to be the principal market at the balance sheet date.

The corresponding safeguarding asset may be adjusted for loss events (e.g., uninsured losses), as applicable.

The following table summarizes the significant crypto assets we hold for the benefit of our customers and the crypto asset safeguarding liability and corresponding safeguarding asset as of June 30, 2022 (in millions):

Bitcoin $ 326

Crypto asset safeguarding liability $ 596

Crypto asset safeguarding asset $ 596

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended March 31, 2022:

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

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended June 30, 2022:

Unrealized Gains on Cash Flow Hedges Unrealized Losses on Investments

Foreign Currency

5 unchanged sentences

Other comprehensive income (loss) before reclassifications 320 ( 164 ) ( 300 ) 135 ( 4 ) ( 13 )

Amount of gain reclassified from accumulated other comprehensive income (“AOCI”) 47 — — — — 47

Amount of gain reclassified from accumulated other comprehensive income (loss) (“AOCI”) 107 — — — — 107

Net current period other comprehensive income (loss) 213 ( 164 ) ( 300 ) 135 ( 4 ) ( 120 )

Ending balance $ 409 $ ( 544 ) $ ( 665 ) $ 180 $ 56 $ ( 564 )

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

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

Net Investment Hedges CTA Gains

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

Net Investment Hedges CTA Gain

Estimated Tax Benefit Total

5 unchanged sentences

Ending balance $ ( 93 ) $ ( 6 ) $ ( 220 ) $ 24 $ 3 $ ( 292 )

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the six months ended June 30, 2022:

Unrealized Gains on Cash Flow Hedges Unrealized Losses on Investments

Net Investment Hedges CTA Gains

Estimated Tax (Expense) Benefit Total

(In millions)

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

Other comprehensive income (loss) before reclassifications 364 ( 457 ) ( 395 ) 156 58 ( 274 )

Amount of gain reclassified from AOCI 154 — — — — 154

Net current period other comprehensive income (loss) 210 ( 457 ) ( 395 ) 156 58 ( 428 )

Ending balance $ 409 $ ( 544 ) $ ( 665 ) $ 180 $ 56 $ ( 564 )

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

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

Net Investment Hedges CTA Gain

Estimated Tax Expense Total

(In millions)

Beginning balance $ ( 323 ) $ 11 $ ( 198 ) $ 24 $ 2 $ ( 484 )

Other comprehensive income (loss) before reclassifications 82 ( 17 ) ( 22 ) — 1 44

Amount of loss reclassified from AOCI ( 148 ) — — — — ( 148 )

Net current period other comprehensive income (loss) 230 ( 17 ) ( 22 ) — 1 192

Ending balance $ ( 93 ) $ ( 6 ) $ ( 220 ) $ 24 $ 3 $ ( 292 )

PayPal Holdings, Inc.

2 unchanged sentences

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

Affected Line Item in the Statement of Income

Three Months Ended March 31,

Affected Line Item in the Statement of Income (Loss)

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

2022 2021 2022 2021

(In millions)

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

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

$ 107 $ ( 89 ) $ 154 $ ( 148 ) Net revenues

1 unchanged sentence

107 ( 89 ) 154 ( 148 ) Income before income taxes

— — Income tax expense

Total reclassifications for the period $ 47 $ ( 59 ) Net income

— — — — Income tax expense (benefit)

Total reclassifications for the period $ 107 $ ( 89 ) $ 154 $ ( 148 ) Net income (loss)

OTHER INCOME (EXPENSE), NET

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

Three Months Ended March 31,

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

2022 2021 2022 2021

(In millions)

4 unchanged sentences

Other income (expense), net $ ( 715 ) $ 229 $ ( 797 ) $ 59

PayPal Holdings, Inc.

NOTES TO CONDENSED 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 March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

The following table summarizes the assets underlying our funds receivable and customer accounts, short-term investments, and long-term investments as of June 30, 2022 and December 31, 2021:

2022 December 31,

(In millions)

15 unchanged sentences

Total long-term investments $ 6,270 $ 6,797

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of March 31, 2022 and December 31, 2021, 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:

March 31, 2022 (1)

As of June 30, 2022 and December 31, 2021, the estimated fair value of our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments was as follows:

June 30, 2022 (1)

Losses Estimated

6 unchanged sentences

Municipal securities 60 — ( 1 ) 59

Commercial paper 3,330 — ( 26 ) 3,304

Short-term investments:

3 unchanged sentences

Asset-backed securities 539 — ( 4 ) 535

Commercial paper 1,712 — ( 5 ) 1,707

Long-term investments:

8 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2021 (1)

7 unchanged sentences

Municipal securities 535 — — 535

Commercial paper 1,607 — — 1,607

Short-term investments:

3 unchanged sentences

Asset-backed securities 278 — ( 1 ) 277

Commercial paper 1,644 — — 1,644

Long-term investments:

10 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Gross amortized cost and estimated fair value balances exclude accrued interest receivable on available-for-sale debt securities, which totaled $ 43 million and $ 36 million at March 31, 2022 and December 31, 2021, respectively, and were included in other current assets on our condensed consolidated balance sheets.

As of March 31, 2022 and December 31, 2021, 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 the length of time those individual securities have been in a continuous loss position, was as follows:

March 31, 2022 (1)

Gross amortized cost and estimated fair value balances exclude accrued interest receivable on available-for-sale debt securities, which totaled $ 50 million and $ 36 million at June 30, 2022 and December 31, 2021, respectively, and were included in other current assets on our condensed consolidated balance sheets.

As of June 30, 2022 and December 31, 2021, the gross unrealized losses and estimated fair value of our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments for which an allowance for credit losses was not deemed necessary in the current period, aggregated by the length of time those individual securities have been in a continuous loss position, was as follows:

June 30, 2022 (1)

Less than 12 months 12 months or longer Total

9 unchanged sentences

Municipal securities 59 ( 1 ) — — 59 ( 1 )

Commercial paper 3,304 ( 26 ) — — 3,304 ( 26 )

Short-term investments:

3 unchanged sentences

Asset-backed securities 509 ( 4 ) — — 509 ( 4 )

Commercial paper 1,707 ( 5 ) — — 1,707 ( 5 )

Long-term investments:

19 unchanged sentences

Municipal securities 50 — — — 50 —

Commercial paper 75 — — — 75 —

Short-term investments:

13 unchanged sentences

We will continue to monitor the performance of the investment portfolio and assess whether impairment due to expected credit losses has occurred.

Amounts reclassified to earnings from unrealized gains and losses were not material for the three months ended March 31, 2022 and 2021.

Amounts reclassified to earnings from unrealized gains and losses were not material for the three and six months ended June 30, 2022 and 2021.

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:

March 31, 2022

June 30, 2022

Amortized Cost Fair Value

7 unchanged sentences

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 condensed consolidated balance sheets at fair value with changes in fair value recorded in other income (expense), net on our condensed consolidated statements of income.

Marketable equity securities totaled $ 1.6 billion and $ 1.9 billion as of March 31, 2022 and December 31, 2021, respectively.

Marketable equity securities totaled $ 926 million and $ 1.9 billion as of June 30, 2022 and December 31, 2021, respectively.

PayPal Holdings, Inc.

1 unchanged sentence

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

As of March 31, 2022 and December 31, 2021, we had non-marketable equity securities of $ 92 million and $ 79 million, respectively, where we have the ability to exercise significant influence, but not control, over the investee.

As of June 30, 2022 and December 31, 2021, we had non-marketable equity securities of $ 104 million and $ 79 million, respectively, where we have the ability to exercise significant influence, but not control, over the investee.

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

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

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

The carrying value of our non-marketable equity securities totaled $ 1.6 billion and $ 1.3 billion as of March 31, 2022 and December 31, 2021, respectively.

The carrying value of our non-marketable equity securities totaled $ 1.7 billion and $ 1.3 billion as of June 30, 2022 and December 31, 2021, respectively.

Measurement Alternative adjustments

The adjustments to the carrying value of our non-marketable equity securities accounted for under the Measurement Alternative in the three months ended March 31, 2022 and 2021 were as follows:

Three Months Ended March 31,

The adjustments to the carrying value of our non-marketable equity securities accounted for under the Measurement Alternative in the three and six months ended June 30, 2022 and 2021 were as follows:

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

2022 2021 2022 2021

(In millions)

5 unchanged sentences

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

The following table summarizes the cumulative gross unrealized gains and cumulative gross unrealized losses and impairment related to non-marketable equity securities accounted for under the Measurement Alternative for investments held at March 31, 2022 and December 31, 2021, respectively:

March 31, 2022 December 31, 2021

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, held at June 30, 2022 and December 31, 2021, respectively:

June 30, 2022 December 31, 2021

(In millions)

2 unchanged sentences

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

The following table summarizes the net unrealized gains (losses) on marketable and non-marketable equity securities, excluding those accounted for using the equity method, held at March 31, 2022 and 2021, respectively:

Three Months Ended March 31,

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

2022 2021 2022 2021

(In millions)

Net unrealized losses $ ( 36 ) $ ( 149 )

Net unrealized gains (losses) $ ( 673 ) $ 241 $ ( 709 ) $ 92

PayPal Holdings, Inc.

2 unchanged sentences

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

The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021:

March 31, 2022 Quoted Prices in

The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021:

June 30, 2022 Quoted Prices in

Active Markets for

10 unchanged sentences

Asset-backed securities 535 — 535

Commercial paper 1,707 — 1,707

Total short-term investments 3,909 — 3,909

6 unchanged sentences

Municipal securities 59 — 59

Commercial paper 3,362 — 3,362

Total funds receivable and customer accounts 19,837 — 19,837

Derivatives 710 — 710

Crypto asset safeguarding asset 596 — 596

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

7 unchanged sentences

Derivatives $ 113 $ — $ 113

Crypto asset safeguarding liability 596 — 596

Total financial liabilities $ 709 $ — $ 709

(1) Excludes cash of $ 4.4 billion not measured and recorded at fair value.

17 unchanged sentences

Asset-backed securities 277 — 277

Commercial paper 1,644 — 1,644

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

6 unchanged sentences

Municipal securities 535 — 535

Commercial paper 1,672 — 1,672

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

14 unchanged sentences

Our marketable equity securities are valued using quoted prices for identical assets in active markets (Level 1).

There are no active markets for our crypto asset safeguarding liability and the corresponding safeguarding asset.

Accordingly, we have valued the asset and liability using quoted prices on the active exchange that has been identified as the principal market for the underlying crypto assets (Level 2).

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).

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

1 unchanged sentence

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

As of March 31, 2022 and December 31, 2021, we did not have any assets or liabilities requiring measurement at fair value without observable market values that would require a high level of judgment to determine fair value (Level 3).

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of June 30, 2022 and December 31, 2021, 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).

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 condensed consolidated statements of income to significantly reduce the accounting asymmetry that would otherwise arise when recognizing the corresponding foreign exchange gains and losses relating to customer liabilities.

The following table summarizes the estimated fair value of our available-for-sale debt securities under the fair value option as of March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

Election of the fair value option allows us to recognize any gains and losses from fair value changes on such investments in other income (expense), net on the condensed consolidated statements of income (loss) to significantly reduce the accounting asymmetry that would otherwise arise when recognizing the corresponding foreign exchange gains and losses relating to customer liabilities.

The following table summarizes the estimated fair value of our available-for-sale debt securities under the fair value option as of June 30, 2022 and December 31, 2021:

2022 December 31,

(In millions)

1 unchanged sentence

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 three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

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

2022 2021 2022 2021

(In millions)

2 unchanged sentences

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

The following tables summarize our assets and liabilities held as of March 31, 2022 and December 31, 2021 for which a non-recurring fair value measurement was recorded during the three months ended March 31, 2022 and the year ended December 31, 2021, respectively:

The following tables summarize our assets held as of June 30, 2022 and December 31, 2021 for which a non-recurring fair value measurement was recorded during the six months ended June 30, 2022 and the year ended December 31, 2021, respectively:

2022 Significant Other

4 unchanged sentences

Total $ 805 $ 805

(1) Excludes non-marketable equity investments of $ 833 million accounted for under the Measurement Alternative for which no observable price changes occurred during the three months ended March 31, 2022.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred during the three months ended March 31, 2022.

(1) Excludes non-marketable equity investments of $ 846 million accounted for under the Measurement Alternative for which no observable price changes occurred during the six months ended June 30, 2022.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred during the six months ended June 30, 2022.

See “Note 6—Leases” for additional information.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2021 Significant Other

6 unchanged sentences

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred during the year ended December 31, 2021.

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.

PayPal Holdings, Inc.

NOTES TO CONDENSED 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 $ 8.7 billion as of March 31, 2022.

Our long-term debt (including current portion) in the form of fixed rate notes had a carrying value of approximately $ 10.3 billion and fair value of approximately $ 9.7 billion as of June 30, 2022.

Our 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.

10 unchanged sentences

Cash flow hedges

We have significant international revenues and costs denominated in foreign currencies, which subjects us to foreign currency risk.

We have significant international revenues and costs denominated in foreign currencies, which subjects us to foreign currency exchange 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.

8 unchanged sentences

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

As of March 31, 2022, we estimated that $ 185 million of net derivative gains related to our cash flow hedges included in AOCI are expected to be reclassified into earnings within the next 12 months.

During the three months ended March 31, 2022 and 2021, 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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of June 30, 2022, we estimated that $ 372 million of net derivative gains related to our cash flow hedges included in AOCI are expected to be reclassified into earnings within the next 12 months.

During the three and six months ended June 30, 2022 and 2021, 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.

Net investment hedge

10 unchanged sentences

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 condensed consolidated statements of cash flows.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

FAIR VALUE OF DERIVATIVE CONTRACTS

The fair value of our outstanding derivative instruments as of March 31, 2022 and December 31, 2021 was as follows:

Balance Sheet Location March 31, 2022 December 31, 2021

The fair value of our outstanding derivative instruments as of June 30, 2022 and December 31, 2021 was as follows:

Balance Sheet Location June 30,

2022 December 31, 2021

(In millions)

9 unchanged sentences

Total derivative liabilities $ 113 $ 130

PayPal Holdings, Inc.

NOTES TO CONDENSED 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.

Under master netting agreements with certain 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 condensed consolidated balance sheets.

Rights of set-off associated with our foreign currency exchange contracts represented a potential offset to both assets and liabilities of $ 55 million as of March 31, 2022 and $ 102 million as of December 31, 2021.

Rights of set-off associated with our foreign currency exchange contracts represented a potential offset to both assets and liabilities of $ 80 million as of June 30, 2022 and $ 102 million as of December 31, 2021.

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 posted and received:

March 31, 2022 December 31, 2021

2022 December 31,

(In millions)

3 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

EFFECT OF DERIVATIVE CONTRACTS ON CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table provides the location in the condensed consolidated statements of income and amount of recognized gains or losses related to our derivative instruments:

Three Months Ended March 31,

The following table provides the location in the condensed consolidated statements of income (loss) and amount of recognized gains or losses related to our derivative instruments:

Three Months Ended June 30,

(In millions)

Net revenues Other income (expense), net Net revenues Other income (expense), net

Total amounts presented in the condensed consolidated statements of income in which the effects of cash flow hedges and net investment hedges are recorded $ 6,483 $ ( 82 ) $ 6,033 $ ( 170 )

Total amounts presented in the condensed consolidated statements of income (loss) in which the effects of cash flow hedges and net investment hedges are recorded $ 6,806 $ ( 715 ) $ 6,238 $ 229

Gains (losses) on derivatives in cash flow hedging relationship:

Amount of gains (losses) on foreign currency exchange contracts reclassified from AOCI 107 — ( 89 ) —

Gains on derivatives in net investment hedging relationship:

Amount of gains on foreign currency exchange contracts excluded from the assessment of effectiveness

Gains (losses) on derivatives not designated as hedging instruments:

Amount of gains (losses) on foreign currency exchange contracts — 147 — ( 43 )

Total gains (losses) $ 107 $ 164 $ ( 89 ) $ ( 43 )

Six Months Ended June 30,

(In millions)

Net revenues Other income (expense), net Net revenues Other income (expense), net

Total amounts presented in the condensed consolidated statements of income (loss) in which the effects of cash flow hedges and net investment hedges are recorded $ 13,289 $ ( 797 ) $ 12,271 $ 59

Gains (losses) on derivatives in cash flow hedging relationship:

Amount of gains (losses) on foreign exchange contracts reclassified from AOCI 154 — ( 148 ) —

1 unchanged sentence

Amount of gains on foreign exchange contracts excluded from the assessment of effectiveness

(Losses) gains on derivatives not designated as hedging instruments:

Amount of (losses) gains on foreign exchange contracts — ( 39 ) — 41

Gains (losses) on derivatives not designated as hedging instruments:

Amount of gains (losses) on foreign exchange contracts — 108 — ( 2 )

Total gains (losses) $ 154 $ 134 $ ( 148 ) $ ( 2 )

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table provides the amount of pre-tax unrealized gains or losses included in the assessment of hedge effectiveness related to our derivative instruments designated as hedging instruments that are recognized in other comprehensive income:

Three Months Ended March 31,

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

2022 2021 2022 2021

(In millions)

Unrealized gains on foreign exchange contracts designated as cash flow hedges $ 44 $ 139

Unrealized gains (losses) on foreign exchange contracts designated as cash flow hedges $ 320 $ ( 57 ) $ 364 $ 82

Unrealized gains on foreign exchange contracts designated as net investment hedges 135 — 156 —

Total unrealized gains recognized from derivative contracts designated as hedging instruments in the condensed consolidated statements of comprehensive income $ 65 $ 139

Total unrealized gains (losses) recognized from derivative contracts designated as hedging instruments in the condensed consolidated statements of comprehensive income (loss) $ 455 $ ( 57 ) $ 520 $ 82

NOTIONAL AMOUNTS OF DERIVATIVE CONTRACTS

3 unchanged sentences

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

March 31, 2022 December 31, 2021

2022 December 31,

(In millions)

6 unchanged sentences

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 at the time of checkout in various locations including the U.S., Europe, Australia, and Japan.

once a consumer is approved for credit, it is made available to them as a funding source in their PayPal wallet.

Additionally, we offer installment credit products at the time of checkout in various markets, including the U.S., Europe, Australia, and Japan.

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

As of March 31, 2022 and December 31, 2021, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $ 4.1 billion and $ 3.8 billion, respectively.

As of June 30, 2022 and December 31, 2021, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $ 4.5 billion and $ 3.8 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 the 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.

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 data, 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.

4 unchanged sentences

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

March 31, 2022

June 30, 2022

(In millions, except percentages)

7 unchanged sentences

$ 1,751 $ 2,401 $ 298 $ — $ — $ — $ 4,450 100 %

(1) Excludes receivables from other consumer credit products of $ 39 million at March 31, 2022.

(1) Excludes receivables from other consumer credit products of $ 36 million at June 30, 2022.

December 31, 2021

9 unchanged sentences

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

The following table summarizes the activity in the allowance for consumer loans and interest receivable for the three months ended March 31, 2022 and 2021:

March 31, 2022 March 31, 2021

The following table summarizes the activity in the allowance for consumer loans and interest receivable for the six months ended June 30, 2022 and 2021:

June 30, 2022 June 30, 2021

Consumer Loans Receivable Interest Receivable Total Allowance (1)

7 unchanged sentences

Ending balance $ 254 $ 28 $ 282 $ 222 $ 43 $ 265

(1) Excludes allowances from other consumer credit products of $ 3 million at both March 31, 2022 and 2021.

(1) Excludes allowances from other consumer credit products of $ 3 million and $ 4 million at June 30, 2022 and 2021, respectively.

(2) Includes amounts related to foreign currency remeasurement.

The provision for the six months ended June 30, 2022 was primarily attributable to originations in the consumer receivable portfolio.

Qualitative adjustments were made to account for limitations in our current expected credit loss models due to uncertainty with respect to macroeconomic conditions and around the financial health of our borrowers.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The provision for the three months ended March 31, 2022 was primarily attributable to originations in the consumer portfolio, partially offset by improvements in the credit quality of the consumer portfolio and a reduction in the volatility of model inputs representing current and projected macroeconomic conditions.

Qualitative adjustments were made to account for limitations in our current expected credit loss models due to uncertainty with respect to macroeconomic conditions.

The increase in charge-offs for the three months ended March 31, 2022 compared to the same period in the prior year was due to growth in the consumer portfolio driven primarily by the expansion of our short-term 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 condensed 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.

The increase in charge-offs for the six months ended June 30, 2022 compared to the same period in the prior year was due to growth in the consumer portfolio driven primarily by the expansion of our short-term installment products.

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

The provision for interest receivable for interest earned on our consumer 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.

1 unchanged sentence

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.

Charge-offs are recorded as a reduction to our allowance for loans and interest receivable and subsequent recoveries, if any, are recorded as an increase to the allowance for loans and interest receivable.

MERCHANT RECEIVABLES

We offer access to merchant finance products for certain small and medium-sized businesses through our PayPal Working Capital (“PPWC”) and PayPal Business Loan (“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.

During the three months ended March 31, 2022 and 2021, we purchased approximately $ 605 million and $ 297 million in credit receivables, respectively.

As of March 31, 2022 and December 31, 2021, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 1.5 billion and $ 1.4 billion, respectively, net of the participation interest sold to WebBank of $ 68 million and $ 63 million, respectively.

During the six months ended June 30, 2022 and 2021, we purchased approximately $ 1.4 billion and $ 780 million in credit receivables, respectively.

As of June 30, 2022 and December 31, 2021, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 1.7 billion and $ 1.4 billion, respectively, net of the participation interest sold to WebBank of $ 76 million and $ 63 million, respectively.

Through our PPWC product, merchants can borrow a certain percentage of their annual payment volume processed by PayPal and are charged a fixed fee for the loan or advance based on the overall credit assessment of the merchant.

20 unchanged sentences

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

March 31, 2022

June 30, 2022

(In millions, except percentages)

16 unchanged sentences

(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).

The following table summarizes the activity in the allowance for merchant loans, advances, and interest and fees receivable for the three months ended March 31, 2022 and 2021:

March 31, 2022 March 31, 2021

The following table summarizes the activity in the allowance for merchant loans, advances, and interest and fees receivable for the six months ended June 30, 2022 and 2021:

June 30, 2022 June 30, 2021

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

5 unchanged sentences

Ending balance $ 161 $ 9 $ 170 $ 280 $ 25 $ 305

The provision for the three months ended March 31, 2022 was primarily attributable to originations in the merchant portfolio mostly offset by improvements in the credit quality of our merchant portfolio and a reduction in the volatility of model inputs representing current and projected macroeconomic conditions.

The provision for the six months ended June 30, 2022 was primarily attributable to originations in the merchant portfolio mostly offset by improvements in the credit quality of our merchant portfolio.

Qualitative adjustments were made to account for historical loss rates and uncertainty around the effectiveness of loan modification programs made available to merchants, as described further below.

The decrease in the charge-offs for the three months ended March 31, 2022 compared to the same period in the prior year was due to improved credit quality of our merchant loan portfolio due to modifications in the acceptable risk parameters, which tightened eligibility requirements.

The decrease in the charge-offs for the six months ended June 30, 2022 compared to the same period in the prior year was due to the charge-off of accounts that experienced financial difficulties as a result of the COVID-19 pandemic in the prior period and improved credit quality of our merchant loan portfolio due to modifications in the acceptable risk parameters, which included stricter eligibility requirements.

PayPal Holdings, Inc.

2 unchanged sentences

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 condensed consolidated balance sheets.

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

Troubled debt restructurings

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.

In certain 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.

2 unchanged sentences

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

These modifications had a de minimis impact on our condensed consolidated statements of income in the three months ended March 31, 2022 and 2021.

These modifications had a de minimis impact on our condensed consolidated statements of income (loss) in the six months ended June 30, 2022 and 2021.

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

1 unchanged sentence

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

During the three months ended March 31, 2022, the merchant loans and interest receivables which have been modified as TDRs were de minimis.

The following table shows the merchant loans and interest receivables which were modified as TDRs in the three months ended March 31, 2021:

Three Months Ended March 31, 2021

During the three and six months ended June 30, 2022, the merchant loans, advances and interest and fees receivables which have been modified as TDRs were de minimis.

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

Three Months Ended June 30, 2021

Number of Accounts

3 unchanged sentences

Loans and interest receivable 1 $ 8 36

Six Months Ended June 30, 2021

Number of Accounts

(in thousands) Outstanding Balances (1)

(in millions)

Weighted Average Payment Term Extensions

Loans and interest receivable 3 $ 39 36

(1) Balances are as of modification date.

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

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

In the three months ended March 31, 2022 and 2021, the amount of merchant loans and interest receivables classified as TDRs that have subsequently defaulted on payments was de minimis.

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

In the three and six months ended June 30, 2022 and 2021, the amount of merchant loans, advances and interest and fees receivables classified as TDRs that have subsequently defaulted on payments was de minimis.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 12— DEBT

FIXED RATE NOTES

On May 23, 2022, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 3.0 billion.

Interest on these notes is payable on June 1 and December 1 of each year, beginning on December 1, 2022.

We may redeem the notes in whole, at any time, or in part, from time to time, prior to maturity, at the redemption price.

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 amount, 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 or assets or strategic investments.

On May 18, 2020 and September 26, 2019, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 4.0 billion and $ 5.0 billion, respectively.

The notes issued from the May 2020 and September 2019 debt issuances are senior unsecured obligations and are collectively referred to as the “Notes.”

The notes issued from the May 2022, May 2020, and September 2019 debt issuances are senior unsecured obligations and are collectively referred to as the “Notes.”

In May 2022, we repurchased certain notes under the September 2019 and May 2020 debt issuances prior to maturity through tender offers.

In addition, in June 2022, we redeemed the outstanding balance of the notes maturing in September 2022 through a make-whole redemption.

We repurchased and redeemed $ 1.6 billion of outstanding notes, as described above, which resulted in de minimis debt extinguishment net gains that were recorded as interest expense within other income (expense), net on our condensed consolidated statement of income (loss).

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of both March 31, 2022 and December 31, 2021, we had an outstanding aggregate principal amount of $ 9.0 billion related to the Notes.

As of June 30, 2022 and December 31, 2021, we had an outstanding aggregate principal amount of $ 10.4 billion and $ 9.0 billion, respectively, related to the Notes.

The following table summarizes the Notes:

Maturities Effective Interest Rate March 31, 2022 December 31, 2021

Maturities Effective Interest Rate June 30,

2022 December 31,

(in millions)

17 unchanged sentences

6/1/2050 3.33 % 1,000 1,000

May 2022 debt issuance of $ 3.0 billion:

Fixed-rate 3.900 % notes

6/1/2027 4.06 % 500 —

Fixed-rate 4.400 % notes

6/1/2032 4.53 % 1,000 —

Fixed-rate 5.050 % notes

6/1/2052 5.14 % 1,000 —

Fixed-rate 5.250 % notes

6/1/2062 5.34 % 500 —

Total term debt $ 10,418 $ 9,000

5 unchanged sentences

The effective interest rates for the Notes include interest on the Notes, amortization of debt issuance costs, and amortization of the debt discount.

The interest expense recorded for the Notes, including amortization of the debt discount and debt issuance costs, was $ 56 million for both the three months ended March 31, 2022 and 2021.

The interest expense recorded for the Notes, including amortization of the debt discount, debt issuance costs, and debt extinguishment net gains, was $ 67 million and $ 123 million for the three and six months ended June 30, 2022, respectively.

The interest expense recorded for the Notes, including amortization of the debt discount and debt issuance costs, was $ 56 million and $ 112 million for the three and six months ended June 30, 2021, respectively.

CREDIT FACILITIES

Paidy credit agreement

In February 2022, we entered into a credit agreement (the “Paidy Credit Agreement”) with Paidy as co-borrower, which provides for an unsecured revolving credit facility of ¥ 60.0 billion (approximately $ 493 million as of March 31, 2022).

Borrowings under the Paidy Credit Agreement are for use by Paidy for working capital, capital expenditures, and other permitted purposes.

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

Loans under the Paidy Credit Agreement bear interest at the Tokyo Interbank Offered Rate plus a margin (based on our public debt rating) ranging from 0.40 percent to 0.60 percent.

Loans under the Paidy Credit Agreement bear interest at the Tokyo Interbank Offered Rate plus a margin (based on our public debt rating) ranging from 0.40 % to 0.60 %.

The Paidy Credit Agreement will terminate and all amounts owed thereunder will be due and payable on February 8, 2027, unless the commitments are terminated earlier.

2 unchanged sentences

The financial covenant requires us to meet a quarterly financial test with respect to a maximum consolidated leverage ratio.

In March 2022, ¥ 32.8 billion (approximately $ 269 million) was drawn down under the Paidy Credit Agreement, which was recorded in long-term debt on our condensed consolidated balance sheet.

Accordingly, at March 31, 2022, ¥ 27.2 billion (approximately $ 224 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing.

During the three months ended March 31, 2022, the total interest expense and fees we recorded related to the Paidy Credit Agreement were de minimis.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

In the six months ended June 30, 2022, ¥ 37.8 billion (approximately $ 277 million) was drawn down under the Paidy Credit Agreement, which was recorded in long-term debt on our condensed consolidated balance sheet.

Accordingly, at June 30, 2022, ¥ 22.2 billion (approximately $ 162 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing.

During the three and six months ended June 30, 2022, the total interest expense and fees we recorded related to the Paidy Credit Agreement were de minimis.

Prior credit agreement

3 unchanged sentences

In the first quarter of 2022, we terminated the Prior Credit Agreement and repaid all outstanding borrowings.

The total interest expense and fees we recorded related to the Prior Credit Agreement were de minimis for the three months ended March 31, 2022.

The total interest expense and fees we recorded related to the Prior Credit Agreement were de minimis for the six months ended June 30, 2022.

FUTURE PRINCIPAL PAYMENTS

As of March 31, 2022, the future principal payments associated with our term debt were as follows (in millions):

As of June 30, 2022, the future principal payments associated with our term debt were as follows (in millions):

Remaining 2022 $ —

3 unchanged sentences

NOTE 13— COMMITMENTS AND CONTINGENCIES

As of March 31, 2022 and December 31, 2021, approximately $ 4.4 billion and $ 4.1 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.

As of June 30, 2022 and December 31, 2021, approximately $ 4.3 billion and $ 4.1 billion, respectively, of unused credit was available to PayPal Credit account holders in the U.K.

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

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

LITIGATION AND REGULATORY MATTERS

8 unchanged sentences

With respect to the matters disclosed in this Note 13, we are unable to estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable and reasonably estimable were not material as of March 31, 2022.

Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable and reasonably estimable were not material as of June 30, 2022.

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.

17 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

9 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

In February 2022, we received a CID from the Federal Trade Commission (“FTC”) related to PayPal’s practices relating to commercial customers that submit charges on behalf of other merchants or sellers, and related activities.

7 unchanged sentences

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.

1 unchanged sentence

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 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 former 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 was filed on April 18, 2022.

Plaintiff's response to the motion to dismiss is due on June 2, 2022.

The motion is fully briefed and the hearing on the motion is scheduled for August 5, 2022.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

4 unchanged sentences

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 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 former 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.

6 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

From time to time, we are involved in other disputes or regulatory inquiries that arise in the ordinary course of business, including suits by our customers (individually or as class actions) alleging, among other things, improper disclosure of our prices, rules, or policies, that our practices, prices, rules, policies, or customer/user agreements violate applicable law, or that we have acted unfairly and/or not acted in conformity with such prices, rules, policies, or agreements.

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.

or that we have acted unfairly 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 legal review and 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.

4 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

11 unchanged sentences

OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, 2022 and December 31, 2021, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of June 30, 2022 and December 31, 2021, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.

PROTECTION PROGRAMS

1 unchanged sentence

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 purchase 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.

Additionally, in some instances we provide protection for cryptocurrencies held in PayPal accounts in case of loss directly resulting from an unauthorized transfer of a customer’s cryptocurrency, the 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 March 31, 2022 and December 31, 2021, the allowance for transaction losses was $ 115 million and $ 121 million, respectively.

The allowance for negative customer balances was $ 204 million and $ 234 million at March 31, 2022 and December 31, 2021, respectively.

The following table shows changes in the allowance for transaction losses and negative customer balances related to our protection programs for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

At June 30, 2022 and December 31, 2021, the allowance for transaction losses was $ 158 million and $ 121 million, respectively.

The allowance for negative customer balances was $ 220 million and $ 234 million at June 30, 2022 and December 31, 2021, respectively.

The following table shows changes in the allowance for transaction losses and negative customer balances related to our protection programs for the three and six months ended June 30, 2022 and 2021:

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

2022 2021 2022 2021

(in millions)

4 unchanged sentences

Ending balance $ 378 $ 366 $ 378 $ 366

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 14— STOCK REPURCHASE PROGRAMS

During the three months ended March 31, 2022, we repurchased approximately 11 million shares of our common stock for approximately $ 1.5 billion at an average cost of $ 133.93 .

During the six months ended June 30, 2022, we repurchased approximately 19 million shares of our common stock for approximately $ 2.3 billion at an average cost of $ 119.69 .

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

As of March 31, 2022, a total of approximately $ 3.6 billion remained available for future repurchases of our common stock under our July 2018 stock repurchase program.

In June 2022, our Board of Directors authorized an additional stock repurchase program that provides for the repurchase of up to $ 15.0 billion of our common stock, with no expiration from the date of authorization.

As of June 30, 2022, a total of approximately $ 2.8 billion and $ 15.0 billion remained available for future repurchases of our common stock under our July 2018 and June 2022 stock repurchase programs, respectively.

NOTE 15— STOCK-BASED PLANS

1 unchanged sentence

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

The impact on our results of operations of recording stock-based compensation expense under our equity incentive plans for the three months ended March 31, 2022 and 2021 was as follows:

Three Months Ended March 31,

The impact on our results of operations of recording stock-based compensation expense under our equity incentive plans for the three and six months ended June 30, 2022 and 2021 was as follows:

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

2022 2021 2022 2021

(In millions)

5 unchanged sentences

Capitalized as part of internal use software and website development costs $ 12 $ 18 $ 28 $ 34

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 16— INCOME TAXES

Our effective tax rate for the three months ended March 31, 2022 and 2021 was 19 % and ( 26 )%, respectively.

Our effective tax rate for the three and six months ended June 30, 2022 was 796 % and 75 %, respectively.

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

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

federal statutory rate of 21% in both periods was primarily the result of foreign income taxed at different rates, and for the three months ended March 31, 2021, discrete tax adjustments including tax benefits related to stock-based compensation.

federal statutory rate of 21% in the current periods was primarily due to tax expense related to the intra-group transfer of intellectual property.

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

federal statutory rate of 21% for the three and six months ended June 30, 2021 was primarily the result of foreign income taxed at different rates and discrete tax adjustments including tax benefits related to stock-based compensation.

NOTE 17— RESTRUCTURING AND OTHER CHARGES

During the first quarter of 2022, management initiated a strategic reduction of the existing global workforce intended to streamline and optimize our global operations to enhance operating efficiency.

As part of this effort, we are focusing on the reduction of redundant operations and simplifying our organizational structure.

The associated restructuring charges during the three months ended March 31, 2022 were $ 20 million.

We primarily incurred employee severance and benefits costs, as well as other associated consulting costs.

Additionally, we are continuing to review our facility needs due to our new work models.

As part of this effort, we are focusing on reducing redundant operations and simplifying our organizational structure.

The associated restructuring charges during the three and six months ended June 30, 2022 were $ 71 million and $ 91 million, respectively.

We primarily incurred employee severance and benefits costs, as well as associated consulting costs under the 2022 strategic reduction.

The strategic actions and cash payments associated with this plan are expected to be substantially completed by the fourth quarter of 2022.

The following table summarizes the restructuring reserve activity during the three months ended March 31, 2022:

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes the restructuring reserve activity during the six months ended June 30, 2022:

Employee Severance and Benefits and Other Associated Costs

2 unchanged sentences

Payments ( 21 )

Accrued liability as of March 31, 2022

Accrued liability as of June 30, 2022

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

The associated restructuring charges during the three months ended March 31, 2021 were $ 32 million.

We primarily incurred employee severance and benefits costs, as well as other associated consulting costs under the 2020 strategic reduction, which was substantially completed in 2021.

Additionally, in the three months ended March 31, 2022 and 2021, we incurred asset impairment charges of $ 16 million and $ 26 million, respectively, due to the exiting of certain leased properties which resulted in a reduction of certain ROU lease assets and related leasehold improvements.

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

We primarily incurred employee severance and benefits costs, as well as associated consulting costs under the 2020 strategic reduction, which was substantially completed in 2021.

Additionally, we are continuing to review our facility needs due to our new and evolving work models.

We incurred asset impairment charges of $ 19 million and $ 35 million in the three and six months ended June 30, 2022, respectively, and nil and $ 26 million in the three and six months ended June 30, 2021, respectively, due to exiting of certain leased properties which resulted in a reduction of ROU lease assets and related leasehold improvements.

See “Note 6—Leases” for additional information.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements